Backed by the effective implementation of its core strategic initiatives, Ralph Lauren Corporation’s RL adjusted earnings of $1.09 per share for the first quarter of fiscal 2016 surpassed the Zacks Consensus Estimate of $1.00. However, the bottom line plunged 39.4% year over year.
On a reported basis, earnings came in at 73 cents a share, compared with $1.80 recorded in the year-ago period.
Quarterly Highlights
Net revenue of this luxury apparel retailer was down nearly 5% at $1,618 million in the reported quarter. On a currency-neutral basis, revenues remained flat year over year, backed by store openings, double-digit international growth and international eCommerce expansion. Also, net revenue cruised ahead of the Zacks Consensus Estimate of $1,607 million.
Overall, reported wholesale revenues fell 9% year over year to $642 million, retail revenues dropped 3% to $935 million, while licensing revenues rose 3% to $41 million. On a currency neutral basis, revenues for the licensing and retail segments were up 6% and 3%, respectively, while wholesale revenues declined 6%.
Wholesale revenues were adversely affected by the unfavorable Easter shift, partly compensated by strength witnessed in Europe, on a currency neutral basis. Likewise, retail sales were driven by enhancement in eCommerce business and the addition of new stores. Moreover, consolidated comparable-store sales at the retail division were down 2% on a constant currency basis, and down 8% on a reported basis.
Licensing revenues gained from greater royalties stemming from higher worldwide sales of Polo, Lauren and Ralph Lauren products.
Ralph Lauren's adjusted gross profit margin contracted 120 basis points (bps) to 59.8%, owing to unfavorable currency effects.
Adjusted operating income margin contracted 550 bps to 8.8%. The decline in operating margin was mainly due to fixed costs, additional infrastructural investments and adverse currency effects. However, the operating margin fared better than the guidance range of 600–650 bps contraction provided earlier, benefiting from tough operational management.
Financials
Ralph Lauren ended the quarter with cash and investments of $490 million, long-term debt of $297 million and total shareholders’ equity standing at $3,807 million.
During the quarter, the company deployed $68 million toward capital expenditure. Also, Ralph Lauren repurchased 1.1 million shares worth $150 million during the first quarter, after which it had roughly $430 million available for future buybacks.
Store Update
Ralph Lauren exited the quarter with 467 directly operated stores and 558 concession shops across the globe. The directly operated stores include 140 Ralph Lauren, 65 Club Monaco and 262 Polo factory stores. Additionally, Ralph Lauren’s global licensing partners operated 79 Ralph Lauren stores, 24 dedicated shops as well as 124 Club Monaco stores and shops.
Guidance
Management remains confident of its future performance, with its key strategies well on track. The company believes that its efforts related to global brand reorganization, constant infrastructural investments, eCommerce enhancements and improved product pricing, will likely enable the company to deliver future growth and achieve operational efficiency.
Consequently, Ralph Lauren reiterated its guidance for fiscal 2016 despite the ongoing currency headwinds. The company expects constant-currency net revenues to increase by mid-single digits. This will include an anticipated 450 bps negative impact from foreign currency translations.
Further, the company anticipates operating margin for fiscal 2016 to decline 180–230 bps compared to fiscal 2015. The company expects an effective tax rate of 30%. This excludes the impact of restructuring and non-cash expenses associated with the company’s global brand reorganization, anticipated in the band of $70–$100 million in fiscal 2016.
For the second quarter of fiscal 2016, the company expects constant-currency net revenue to rise 3%–5% year over year. Currency translations are expected to adversely impact revenues by nearly 550 bps. Operating margin is anticipated to contract in the range of 275–325 bps compared with the year-ago level. The effective tax rate for the second quarter is projected at 30%.
Zacks Rank
Currently, Ralph Lauren carries a Zacks Rank #3 (Hold). Better-ranked stocks in the textile-apparel industry include Columbia Sportswear Inc. COLM, with a Zacks Rank #1 (Strong Buy), G-III Apparel Group Ltd. GIII and Lululemon Athletica Inc. LULU, each carrying a Zacks Rank #2 (Buy).
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