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Ralph Lauren's Profit Surges

Shilpa Khandelwal

Polo Ralph Lauren Corp.'s (RL) fiscal 2011 third-quarter earnings surged $1.72 per share from $1.10 in the year-ago period, as higher sales and strong gross margin drove performance. Quarterly earnings also surpassed the Zacks Consensus Estimate of $1.28. 

Quarterly Details

During the quarter, Polo Ralph Lauren's net revenues rose 24% year over year to $1,548.0 million, outpacing the Zacks Consensus Estimate of $1,454.0 million. The growth was primarily driven by an increase of 29% in Retail sales to $821.6 million. The increase was mainly attributable to a surge of 15% in same-store sales and contribution from newly-assumed Asian operations.

Overall revenue growth was also aided by an increase of 20.7% in Wholesale revenues to $676.3 million, resulting from an increased shipments in both the US and Europe.

Polo Ralph Lauren's gross profit in the quarter grew 25.4% year over year to $907.9 million, while gross margin expanded 40 basis points (bps) to 58.6%. The robust growth was mainly driven by better domestic retail margin and overall channel mix, partially offset by an increased cost of goods.

Total operating expenses rose 20% year over year to $661.6 million, mainly due to increased expenses associated with Asian operations and continued investments in the company's strategic growth initiatives. However, higher sales and strong gross margin more than offset increased operating expenses. Accordingly, Polo Ralph Lauren's operating profit soared 42.8% to $246.3 million from $172.5 million in the year-ago quarter.

At quarter-end, Polo operated 376 directly operated stores and 520 concession shops across the globe.

Balance Sheet

Polo Ralph Lauren exited the quarter with cash and investments of $1.3 billion, which was in line with the prior-year quarter. The company has a long-term debt-to-capitalization ratio of just 8.1% compared with a long-term debt-to-capitalization ratio of 8.8% in the year-ago period. During the quarter, the company deployed $78 million toward capital expenditure compared with $51 million in the year-ago quarter.

Guidance and the Zacks Consensus and Rank

Moving forward, Polo Ralph Lauren now expects full fiscal 2011 revenues to grow in the low double-digit range including a net unfavorable foreign currency translation effect.

Based in New York, Polo Ralph Lauren designs, markets and distributes premium lifestyle products. The company possesses a well-built portfolio of internationally recognized brand names, such as Polo, Ralph Lauren Purple Label, Ralph Lauren Collection, Black Label, Blue Label, Lauren, RRL, RLX, Rugby, Ralph Lauren Childrenswear and American Living. The company offers lifestyle product collections in four categories – Apparel, which includes men's, women's, and children's clothing; Home, which includes bedding and bath products, furniture, fabric and wallpaper, paint, tabletop and giftware; Accessories, which comprise footwear, eyewear, jewelry and leather goods; and Fragrance and skin care products that are sold under Glamorous, Romance, Polo, Lauren, Safari, and Polo Sport brands.

Ralph Lauren, which competes with Liz Claiborne Inc. (LIZ) and Phillips-Van Heusen Corporation (PVH), currently has a Zacks #2 Rank, implying a short-term “Buy” rating on the stock. Besides, the company retains a long-term Neutral recommendation on the stock.


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