Driven by solid top-line performance along with leveraged
selling, general and administrative (SG&A),
Ralph Lauren Corp.
) earnings for the third quarter of fiscal 2014 surged 11.3% year
over year to $2.57 per share. Moreover, quarterly earnings were
ahead of the Zacks Consensus Estimate of $2.51.
In the quarter, Ralph Lauren's net revenue increased 9.2% year
over year to $2,015 million, slightly above the Zacks Consensus
Estimate of $2,011 million. The year-over-year growth was
primarily driven by improved performance across the company's
wholesale and retail segments. Moreover, the company witnessed
sales growth in every region with Americas, Europe and Asia
registered high single-digit rise.
Overall, in the said quarter, retail revenues increased 6.4%
to $1,130 million, wholesale revenues rose 14.6% to $840 million
and licensing revenues declined 11.8% to $45 million.
Revenue growth at the retail division resulted from
improvement in e-Commerce business and increased contribution
from new stores, partially offset by unfavorable foreign exchange
rates. The rise in wholesale revenues was mainly owing to
increased revenues from the United States, better performance in
Europe and favorable impact from transition of Chaps menswear
operations. The year- over-year decline in licensing revenue was
mainly due to license take-backs in Australia/New Zealand and
soft performance of Chaps menswear operation.
Ralph Lauren's gross profit in the quarter increased 7.1% year
over year to $1,172 million. However, gross margin contracted 110
basis points (bps) to 58.2% due to unfavorable foreign currency
exchange rates and impact from the integration of the Chaps men's
Total operating expenses rose 6.2% year over year to $838
million, mainly due to overall business expansion as well as
increased investments in growth initiatives and infrastructure.
However, as a percentage of sales, it contracted 120 bps to 41.6%
as increased expenses drive incremental revenue.
Ralph Lauren's operating profit improved 9.5% to $334 million
from $305 million in the year-ago quarter, while operating margin
expanded 10 bps to 16.6% compared with the prior-year quarter.
The slight rise in operating margin mainly benefiting from the
lower operating expenses as a percentage of sales more than
offsets the gross margin contraction.
Exiting the quarter, Ralph Lauren operated 435 directly
operated stores and 518 concession shops across the globe.
Additionally, Ralph Lauren's global licensing partners operated
57 Ralph Lauren stores, 13 dedicated concession shops as well as
105 Club Monaco stores and dedicated shops.
Ralph Lauren exited the quarter with cash and investments of
$1.4 billion compared with $1.3 billion in the previous-year
quarter. During the quarter, the company deployed $81 million
toward capital expenditure. Moreover, inventory levels stood at
$1,117 million, up 13.9% from $981 million in the comparable
period last year.
Bolstered by improved quarterly results, Ralph Lauren now
expects its sales for the fiscal to increase by 7% compared with
its earlier guidance range of 5% - 7%. However, looking at the
current margin trends, Ralph Lauren now anticipates operating
margin to contract in the range of 110 - 120 bps, up from its
previously guidance of contraction of 75 bps.
For the fourth quarter of fiscal 2014, the company expects net
revenue to increase by 10% -12%. Operating margin is anticipated
to increase in the range of 50 - 90 bps from the year-ago level
Other Stocks to Consider
Currently, Ralph Lauren holds a Zacks Rank #4 (Sell). However,
some better-performing stocks which may be considered in the
apparel-retail industry include
Columbia Sportswear Co.
Gildan Activewear Inc.
Michael Kors Holdings Ltd.
). All of these carry Zacks Rank #2 (Buy).
COLUMBIA SPORTS (COLM): Free Stock Analysis
GILDAN ACTVWEAR (GIL): Free Stock Analysis
MICHAEL KORS (KORS): Free Stock Analysis
RALPH LAUREN CP (RL): Free Stock Analysis
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