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Ralph Lauren (RL) Jumps 8% on Q2 Earnings & Sales Beat

Ralph Lauren Corporation RL reported second-quarter fiscal 2018 adjusted earnings of $1.99 per share that fared better than the Zacks Consensus Estimate of $1.90 and increased 4.7% from the prior-year quarter. Notably, this marked the company’s 11th straight quarter of earnings beat.

On a reported basis, the company posted earnings per share of $1.75, compared with 55 cents in the prior-year quarter. Reported earnings for the quarter primarily included restructuring and other charges associated with the company’s Way Forward plan, which was announced in Jun 2016.

Ralph Lauren Corporation Price, Consensus and EPS Surprise

Ralph Lauren Corporation Price, Consensus and EPS Surprise | Ralph Lauren Corporation Quote

Following the earnings beat, the company’s shares have moved up nearly 8% in the pre-market trading session. Moreover, the stock has improved 17.7% in three months, outperforming the industry's fall of 1.2%.



Revenues

Net revenue of this luxury apparel retailer was down 8.6% year over year to $1,664.2 million. However, it surpassed the Zacks Consensus Estimate of $1,654 million. The year-over-year decline was in line with the company’s guidance and resulted from its efforts to improve quality of sales, decrease promotions, distribution and brand exits, alongside diminished consumer demand.

During the quarter, foreign currency aided revenue growth by nearly 40 basis points (bps) due to favorable currency rates, against the company’s guidance of 40 bps negative impact.

Segment Details

North America: During the second quarter, revenues at this segment slumped 16% to $877 million owing to lower retail and wholesale sales. Lower sales in these channels can be attributed to distribution and brand exits; planned reduction in shipments and promotions to enhance the quality of sales; and lower customer demand. On a currency-neutral basis, comparable store sales at this division tumbled 9%. This included a drop of 6% in stores and 18% plunge in e-commerce sales, which were hampered by the planned reduction in promotional activities and fall in traffic.

Europe: Revenues here rose 4% year over year to $463 million, while currency-neutral revenues were flat. Currency neutral comps dropped 6%, including 5% decline in stores and 11% fall in e-commerce. The decline mainly reflected increased focus on improving quality of sales by lowering promotions.

Asia: Revenues at this segment remained flat at $217 million, while it climbed 4% on a currency neutral basis due to strong retail and wholesale sales. Comps rose 3% on a currency neutral basis, thanks to increased traffic and conversion.

Margins

Ralph Lauren's adjusted gross profit margins expanded 300 bps to 59.9%, driven by its efforts to enhance quality of sales through lower promotions, favorable geographic and channel mix shifts, as well as reduced product costs. Additionally, foreign currency aided gross margins by 10 bps.

Adjusted operating income margin expanded 100 bps to 13.4%. The year-over-year increase can mainly be attributed to gross margin expansion and 30 bps benefit from foreign currency.

Financials

Ralph Lauren ended the quarter with cash and investments of $1,111.6 million, total debt of $291.8 million and total shareholders’ equity of $3,509.6 million. Inventory declined 26.3% to $864.6 million as of Sep 30, 2017. This was backed by restructuring activities as well as enhanced operating methods.

Further, this Zacks Rank #2 (Buy) company incurred $33 million as capital expenditure in the quarter under review. Capital expenditures are now estimated to be roughly $225 million in fiscal 2018, compared with the previous forecast of $300 million.

Store Update

As of Sep 30, 2017, Ralph Lauren had 469 directly-operated stores and 622 concession shops globally. The directly-operated stores included 109 Ralph Lauren, 78 Club Monaco and 282 Polo factory stores.

Additionally, the company’s global licensing partners operated 84 Ralph Lauren stores and 62 Club Monaco stores, bringing the total number of licensed stores to 146. Additionally, the company had 122 licensed concession shops in operation.

Guidance

Ralph Lauren provided outlook for third-quarter and adjusted guidance for fiscal 2018 to account for the recent positive movements in foreign currency rates. The company expects fiscal third-quarter reported revenues to be down 6-8%, excluding currency impact. Operating margin for the fiscal third quarter is expected to decline 50-70 bps, on a currency neutral basis. The company expects foreign currency to benefit revenue growth by nearly 160-170 bps and operating margin by 10-20 bps in the third quarter. Including ASU 2016-09, tax rate is expected to be nearly 23% for the third quarter.

For fiscal 2018, the company still expects revenue to decline 8-9%, excluding currency. The company now estimates foreign currency to aid revenue growth by nearly 80 bps, against the previous guidance of minimal negative impact. Operating margin is now expected to be 9.5-10.5% on a currency-neutral basis. Earlier, the company had anticipated operating margin of 9-10.5%, excluding currency. Foreign currency is now expected to have a minimum effect on operating margin, compared with 40-50 bps negative impact predicted earlier. Including ASU 2016-09, tax rate is now expected to be 25% for fiscal 2018.

Want More of the Industry? Check these 3 Trending Picks

G-III Apparel Group, LTD. GIII, with a long-term EPS growth rate of 15%, has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lululemon Athletica Inc. LULU, carrying a Zacks Rank #2, has a long-term EPS growth rate of 11.9%.

Hanesbrands Inc. HBI, with a long-term EPS growth rate of 9%, carries a Zacks Rank #2.

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