Ralph Lauren (RL) Stock Up As Q4 Earnings Beat Estimates

Ralph Lauren Corporation (NYSE:RL) reported a better-than-expected bottom line for the fourth quarter of fiscal 2016. In response, the company’s shares rose about 3.9% in the pre-market trading session.

However, the company’s sales fell short of expectations. Further, the company stated that it will provide its first-quarter and fiscal 2017 guidance at its investor day event scheduled on Jun 7.

Adjusted earnings of 88 cents per share fared better than the Zacks Consensus Estimate of 83 cents but declined 37.6% from $1.41 reported in the prior-year quarter. On a reported basis, the company posted earnings of 49 cents per share, down 65.2% from the prior-year quarter.

Quarterly Highlights

Net revenue of this luxury apparel retailer was down 0.7% year over year to $1,871 million in the reported quarter and short of the Zacks Consensus Estimate of $1,905 million. Quarterly revenue growth was also within the company’s guidance range of 0–2% decline and included a 110 basis points (bps) impact from currency headwinds.

On a currency-neutral basis, revenues were flat year over year as the 3% constant currency revenue growth at the international business was offset by a 1% decline in North American revenues. The drop in North American revenues is attributed to the actions related to clearing end-of-season inventories in the U.S.

Overall, reported wholesale revenues decreased 6% year over year to $942 million, retail revenues rose nearly 6% to $889 million, while licensing revenues of $40 million increased 8%. Consolidated comparable-store sales (comps) at the retail division were down 5% on a constant currency basis, and 6% on a reported basis.

On a currency neutral basis, revenues for the Wholesale segment declined 3%, while Retail and Licensing segment revenues rose 7% and 8%, respectively. The decline in Wholesale revenues is attributed to the soft performance in North America. In Retail, sales gains were attributed to the extra 53rd week sales in the quarter, new stores and global e-Commerce expansion.

Ralph Lauren's adjusted gross profit margin contracted 90 bps to 54.5%, owing to unfavorable currency impacts along with steps taken to clear seasonal inventory in the U.S. In dollar terms, gross profit of $1,021 million declined 2.2% year over year.

Adjusted operating income margin contracted 370 bps to 6.4% but fared better than the previously guided 400–450 bps decline. The better-than-expected operating margin was mainly due to stringent cost control. However, operating margin comparisons suffered due to currency headwinds, gross margin pressures and accelerated infrastructure and marketing investment costs.

Financials

Ralph Lauren ended fiscal 2016 with cash and investments of $1.3 billion, long-term debt of $597 million and total shareholders’ equity of $3,744 million.

During the reported quarter, Ralph Lauren deployed $418 million toward capital expenditure. Also, the company repurchased 1.2 million shares worth $100 million during the quarter, bringing the year-to-date buybacks to $480 million.

Store Update

At the end of fiscal 2016, Ralph Lauren had 493 directly operated stores and 583 concession shops across the globe. The directly operated stores included 144 Ralph Lauren, 77 Club Monaco and 272 Polo factory stores. This took the company’s net new directly operated stores’ count to 27 and net new concession shops’ count to 47 as of the end of fiscal 2016.

Additionally, the company’s global licensing partners operated 93 Ralph Lauren stores, 42 dedicated shops as well as 133 Club Monaco stores and shops.

Zacks Rank

Currently, Ralph Lauren carries a Zacks Rank #3 (Hold). Better-ranked stock in the textile-apparel industry include Delta Apparel Inc. (NYSE:DLA) , sporting a Zacks Rank #1 (Strong Buy), and Michael Kors Holdings Limited (NYSE:KORS) and Perry Ellis International Inc. (NASDAQ:PERY) , carrying a Zacks Rank #2 (Buy).