Polo Ralph Lauren Corp.‘s (RL) fiscal 2011 third-quarter earnings surged to $2.09 per share from $1.75 in the year-ago period, as higher sales and strong gross margin drove performance. Quarterly earnings also blew past the Zacks Consensus Estimate of $1.68.
Quarterly Details
During the quarter, Polo Ralph Lauren’s net revenues rose 11.5% year over year to $1.53 billion, which topped the Zacks Consensus Estimate of $1.47 billion. The growth was primarily driven by a 17% jump in Retail sales to $658.8 million, mainly due to an 8% growth in same-store sales and contribution from newly-assumed Asian operations.
Overall revenue growth was also aided by an 8.2% increase in Wholesale revenues to $826.8 million due to increased shipments in both the US and Europe, partially offset by a 1% impact of unfavorable foreign currency translation.
Polo Ralph Lauren opened 8 and closed 7 company-owned stores and assumed control of 18 licensed stores during the third quarter. At quarter-end, Polo operated 664 freestanding stores and concession shops across the globe, compared to 531 in the prior year quarter.
Polo Ralph Lauren’s gross profit in the quarter grew 13.1% year over year to $887.9 million, while gross margin expanded 220 basis points (bps) to 20.1%. The robust growth was mainly driven by better retail margins, especially in international markets.
Total operating expenses rose 7.7% year over year to $580.5 million, mainly due to increased expenses associated with Asian operations and continued investments in the company’s strategic growth initiatives. However, higher sales and strong gross margin more than offset increased operating expenses. Accordingly, Polo Ralph Lauren’s operating profit soared 25% to $307.4 million from $245.9 million in the year-ago quarter.
Balance Sheet
Polo Ralph Lauren exited the quarter with cash and cash equivalents of $997 million with a long-term debt-to-capitalization ratio of just 8.2%, compared to a cash balance of $970 million and a long-term debt-to-capitalization ratio of 8.3% in the year-ago period. During the quarter, the company deployed $100 million towards share buybacks.
Guidance and the Zacks Consensus and Rank
Moving forward, Polo Ralph Lauren now expects full fiscal 2011 revenues to grow in the low double-digit range compared to the earlier prediction of mid-to-high single-digit growth rate. During the third quarter, revenues are expected to increase in the high teen range, with wholesale revenue expected to increase in the mid teen range and same-store sales by mid single-digit rate.
The Zacks Consensus Estimate on Polo Ralph Lauren’s earnings for the third quarter of fiscal 2011 presently stands at $1.10 per share, which have been constant over the past 2 months.
Based in New York, Polo Ralph Lauren designs, markets and distributes premium lifestyle products. The company currently maintains a Zacks#3 which translates into a short-term Buy recommendation. Our long-term recommendation on the stock is Neutral.
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