• Research

Feb 2, 2017

S3 BLACKLIGHT: Shorts up $90 million on Ralph Lauren CEO Resignation

Ralph Lauren Corp’s (RL US) CEO, Stefan Larsson, will step down after less than two years of employment, citing disagreements with founder Ralph Lauren on the creative direction of the company. Ralph Lauren’s CFO, Jane Nielson, will assume the role as the company looks for a replacement.
 
Although the firm reported strong 3rd quarter profits today with EPS at $1.86/share versus analyst’s projections of $1.64/share, today’s CEO news dominated investor’s confidence and Ralph Lauren’s stock price is down 11% in early trading.
 
Ralph Lauren’s short interest had been decreasing since the beginning of 2016, but short sellers have been more active in 2017. After averaging $547 million of short interest in 2016, short interest is up $226 million, or 38%, this year. Short interest is $815 million as of this morning.
 
RL’s stock price declined 19.83% in 2016, and as expected, short sellers had a successful year in the name. Short interest averaged $547 million in 2016 generating $123.6 million of net of financing mark to market P\L, a net return of 22.6%.
 
Prior to today’s news, RL’s stock price was down 3.27% and short sellers continued accumulating profits in their trade. Short sellers were up $17.5 million, or 2.82%, on an average short balance of $623 million. Today’s 11% decline on short interest of $815 million has added an additional $90 million to their bottom line.
 
There is quite a bit of stock available to borrow in RL with less than 30% of shares available to borrow already taken down. Stock borrow rates are at General Collateral levels, the lowest borrow rate for the easiest to borrow stocks. There is no chance of an imminent short squeeze in RL with ample stock for shorts to increase their positions. RL short interest levels, already at historical highs today, should continue to grow if the recent trend continues, but having made almost 23% in 2016 and 14% in 2017, short sellers may be quick to cover their positions and lock in profits if RL’s stock price turns against them.

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC     Ihor.Dusaniwsky@S3Partners.net
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.


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