Recently, specialty retailer Polo Ralph Lauren Corp. (RL) announced its financial results for the fourth-quarter 2011.

Street analysts had nearly a week to ponder the news. In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.

Earnings Review

Polo Ralph Lauren’s fourth-quarter 2011 earnings of 74 cents per share declined 34.5% from the prior-year quarter earnings of $1.13. However, quarterly earnings were in line with the Zacks Consensus Estimate.

The decline in the year-over-year earnings was primarily attributable to higher inflationary cost pressure and increased operating expenses.

During the quarter, Polo Ralph Lauren’s net revenues rose 6.7% year over year to $1,426.9 million, outpacing the Zacks Consensus Estimate of $1,389.0 million. The growth was primarily driven by an increase of 13.9% in Retail sales to $631.3 million.

(Read our full coverage on this earnings report: Inflationary Pressure Hurts Polo)

Agreement of Estimate

For the first quarter of fiscal 2012, out of 8 analysts covering the stock, 3 have revised their estimates upward, while none moved in the opposite direction in the last 7 days. For fiscal 2012, out of 12 analysts, 7 analysts have negatively revised their estimates with no upward movement in the last 7 days.

Magnitude of Estimate Revisions

Taking into effect positive analyst revisions over the past one week, the Zacks Consensus Estimate for first quarter of fiscal 2012 has moved up by 9 cents (from $1.35 to $1.44), while negative revision trends for 2012 led to a slide in the Consensus Estimate by 13 cents to $6.40.

Our Recommendation

Polo Ralph Lauren is one of the leading specialty retailers of premium lifestyle merchandise in the U.S. The company also commands a strong portfolio of globally recognized brands, such as Ralph Lauren Purple Label, Ralph Lauren Collection, Black Label, Blue Label, RRL, RLX and American Living. This provides a competitive edge to Polo Ralph Lauren and strengthens its well-established position in the market.

The company wants to strategically expand and elevate its international presence, particularly in Asia. Polo Ralph is in the initial stage of a broader Asian strategy, through which the company expects to transform itself over the long term.

In a move to do so, Polo Ralph Lauren recently took direct control of operations in Asia from its licensee in order to effectively capitalize on opportunities in the emerging markets such as China, South Korea and India. This provides a significant upside potential for the company

However, Polo Ralph Lauren’s financial performance may be substantially affected by its significant presence in international markets, which exposes it to unfavorable foreign currency translations, economic or political instability and other governmental actions on trade and repatriation of foreign profits.

Also, Polo Ralph Lauren operates in a highly fragmented market and competes with a number of well-established players such as Liz Claiborne Inc. (LIZ) and Phillips-Van Heusen Corporation (PVH). The company primarily competes on the basis of fashion, quality and service. To retain its existing market share, the company may have to reduce sales prices which could take a toll on margins.

We maintain our long-term Neutral recommendation on Polo Ralph Lauren. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no directional pressure on the stock over the near term.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

 
LIZ CLAIBORNE (LIZ): Free Stock Analysis Report
 
PHILLIPS VAN HE (PVH): Free Stock Analysis Report
 
POLO RALPH LAUR (RL): Free Stock Analysis Report
 
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