Polo Ralph Lauren Corp.
) reported its second-quarter 2013 earnings per share of $2.29,
beating the Zacks Consensus Estimate of $2.15 per share. However,
quarterly earnings witnessed a 6.9% decline from $2.46 earned in
the year-ago period. The year-over-year decline in the
bottom-line was primarily due to lower sales, higher operating
expenses and a higher tax rate.
Polo Ralph Lauren's total revenues inched down 2% year over
year to $1.862 billion. Per the company, the year-over-year
decline was a result of its planned strategy to reduce wholesale
shipments, which was partially offset by improved results at the
retail segment. However, it came in ahead of the Zacks Consensus
Estimate of $1.836 billion.
Polo Ralph Lauren's gross profit in the quarter grew 2% year
over year to $1.095 billion while the gross margin expanded 220
bps to 58.8% due to lower input costs and benefits coming from
channel mix and operational efficiency.
Total operating expenses climbed 3% year over year to $0.747
billion, mainly due to overall business expansion, increased
marketing and advertising expenses as well as incremental
investments in growth initiatives and infrastructure. As a
percentage of sales, operating expenses were 190 bps higher year
over year at 40.1%.
Polo Ralph Lauren's operating profit inched down 1% to $0.348
billion. However, its operating margin improved 30 bps compared
with the prior-year quarter to 18.7%, reflecting gross margin
expansion, partially offset by increased operating expenses as a
percentage of sales.
Overall, in the second quarter,
revenue increased 5% to $0.901 billion primarily due to an
improvement in comparable store sales, increased e-commerce
business and contribution from new stores, partially offset by
store closures at Greater China. Driven by improved revenue along
with efficient cost management, the segment's operating income
increased 8% to $0.157 billion, while the operating margin
expanded 60 basis points (bps) to 17.4%.
Due to the company's planned strategy of reducing wholesale
shipments and the negative impact from discontinuing American
Living operations, its
segment's revenue dipped 8% to $0.915 billion. Consequently,
operating income came in at $0.233 billion, which was 4% lower
than the comparable prior-year quarter. However, due to lower
input and operating expenses, the segment's operating margin
improved 120 bps to 25.5%
revenue declined 3% year over year to $0.047 billion due to
termination of American Living and South American licensing
agreements. Consequently, the operating income inched down 2% to
$0.035 billion during the quarter.
Polo Ralph Lauren exited the quarter with cash and investments
of $1.1 billion compared with $0.979 billion in the year-ago
quarter. During the quarter, the company deployed $0.055 billion
toward capital expenditure. Moreover, inventory levels increased
7% in the quarter to $1.1 billion compared with $0.988 billion in
the same period last year.
Polo Ralph Lauren expects net revenue in the third quarter to
increase by low-single-digit percentage points, while
anticipating a low-single-digit decline in wholesale sales and
mid-single-digit growth in the retail sales segment. Moreover,
the company expects the operating margin to expand in the range
of 25-75 bps mainly due to gross margin expansion, partially
offset by a negative impact from continued investment in
long-term growth initiatives and overall channel mix.
For fiscal 2013, the company expects net revenue to increase
in the band of 2%-3%, lower than its previously guided range of a
mid-single-digit percentage rate. Moreover, the operating margin
is expected to expand by 50 bps from 2012.
Subsequent to its earnings release for the second-quarter, the
company announced that it intends to focus on its higher growth
businesses, and hence wants to discontinue its
brand. Polo Ralph Lauren anticipates shutting down nearly 14
Rugby stores and e-commerce operations associated with this brand
by the end of fiscal 2013. Approximately 75% of the assumed
pretax charge of $20-$30 million is expected to be incurred in
the third quarter and the balance in the fourth quarter.
We believe Ralph Lauren's initiatives to capitalize on
opportunities in Asia along with its lower long-term debt level,
augur well for its future growth prospects. Moreover, Ralph
Lauren leverages its globally renowned brands and their premium
positioning to bolster its well-established business in the
specialty retailing sector.
However, macroeconomic headwinds, stiff competition, higher
inventory level and rising input costs still remain causes for
concern. As a result, we are maintaining a long-term 'Neutral'
recommendation on the stock.
Ralph Lauren, which competes with
The Jones Group Inc.
Phillips-Van Heusen Corporation
), carries a Zacks #2 Rank, implying short-term Buy rating on the
stock, based on rising earnings momentum over the past several
JONES GROUP INC (JNY): Free Stock Analysis
PVH CORP (PVH): Free Stock Analysis Report
RALPH LAUREN CP (RL): Free Stock Analysis
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