Ralph Lauren Corporation
) rose nearly 5.5% yesterday and closed at $180.52 after the
company announced better-than-expected second-quarter fiscal 2014
bottom-line results, provided upbeat revenue guidance and raised
its quarterly cash dividend.
Ralph Lauren's second-quarter earnings per share of $2.23
surpassed the Zacks Consensus Estimate of $2.20. However,
quarterly earnings witnessed a 2.6% decline from $2.29 earned in
the year-ago period primarily due to weak margins.
In the quarter, Ralph Lauren's net revenue increased 2.9% year
over year to $1,915 million, almost in line with the Zacks
Consensus Estimate of $1,916 million. The year-over-year growth
was primarily driven by improved performance across the company's
wholesale and retail segments.
Overall, in the said quarter, retail revenues increased 4.8%
to $944 million, wholesale revenues rose 1.4% to $928 million and
licensing revenues declined 6.5% to $43 million.
Revenue growth at the retail division resulted from
improvement in e-Commerce business and increased contribution
from new stores. The rise in wholesale revenues was mainly owing
to increased revenues from the United States, partially offset by
decline in Europe due to lower shipments and reduced Japanese
Ralph Lauren's gross profit in the quarter dropped 1.0% year
over year to $1,084 million. Moreover, gross margin contracted
220 basis points (bps) to 56.6% due to unfavorable foreign
currency exchange rates, impact from the integration of the Chaps
men's sportswear operation and reduced profits from concession
Total operating expenses rose 5.6% year over year to $789
million, mainly due to overall business expansion, strong retail
segment growth as well as increased investments in growth
initiatives and infrastructure. Consequently, operating expenses,
as a percentage of sales, expanded 110 bps to 41.2%.
Ralph Lauren's operating profit declined 15.2% to $295 million
from $348 million in the year-ago quarter, while operating margin
shrunk 330 bps compared with the prior-year quarter to 15.4%. The
decline in operating margin reflected from gross margin
contraction and higher operating expenses as a percentage of
Exiting the quarter, Ralph Lauren operated 416 directly
operated stores and 523 concession shops across the globe.
Additionally, Ralph Lauren's global licensing partners operated
56 Ralph Lauren stores, 13 dedicated concession shops as well as
98 Club Monaco stores and dedicated shops.
Ralph Lauren exited the quarter with cash and investments of
$1.4 billion compared with $1.1 billion in the previous-year
quarter. During the quarter, the company deployed $148 million
toward capital expenditure and $52.7 million toward repurchasing
0.3 million shares. Moreover, inventory levels improved 9.1% to
$1.2 billion from $1.1 billion in the comparable period last
Bolstered by improved sales results, Ralph Lauren raised its
lower-end revenue guidance for fiscal 2014. The company now
expects revenues to increase in the range of 5%-7% in fiscal
2014, up from its previous guidance range of 4%-7%. Moreover, due
to improved global retail operations, Ralph Lauren now
anticipates operating margin to contract at the lower-end of its
previously announced guidance of contraction of 25-75 bps.
For the third quarter of fiscal 2014, the company expects net
revenue to increase by 8%-10%. Operating margin is anticipated to
be flat year over year as the reduced gross margin will likely be
offset by fall in operating expenses as a percentage of
Other Stocks to Consider
Currently, Ralph Lauren holds a Zacks Rank #3 (Hold).
Better-performing stocks in the apparel-retail industry include
Fifth & Pacific Companies, Inc.
Michael Kors Holdings Limited
). All of these carry Zacks Rank #2 (Buy).
FIFTH PACIFIC (FNP): Free Stock Analysis
HANESBRANDS INC (HBI): Free Stock Analysis
MICHAEL KORS (KORS): Free Stock Analysis
RALPH LAUREN CP (RL): Free Stock Analysis
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