Apparently Investors Expected More than Ralph Lauren Did in Fiscal Q1

Andrew Klips |

Ralph Lauren Corp. (RL) may have headlined their earnings release as “better-than-expected,” but the investment community apparently didn’t think so, sending shares of the Polo brand maker down by more than 6 percent in Wednesday trading.

Revenue for the first quarter of fiscal 2014 was reported at $1.65 billion, up from $1.6 billion in the year prior quarter.  Net income faded to $181 million, or $1.94 per share, from $193 million, or $2.03 per share, in the first quarter of fiscal 2013.  “EPS of $1.94 was better than we anticipated due to higher revenue and stronger profit flow-through,” said Chris Peterson, chief financial officer and senior vice president of Ralph Lauren in a conference call discussing the results Wednesday morning.

The report was in line with Wall Street expectations on both top and bottom lines.

Compared to the year prior quarter, wholesale sales improved 6 percent to $735 million and retail sales were ahead by 3 percent at $879 million.  New store openings and e-commerce sales played a key role in the advance, as same-store-sales, a closely watched growth metric as they measure comparable sales at stores open more than one year, declined by 1 percent.  Same-store-sales would have actually increased 1 percent if it weren’t for the negative impact of foreign exchange rates.  Most U.S.-based international businesses have faced headwinds from foreign currency translations in the second quarter.

Licensing revenue fell by 8 percent to $39 million.

Gross profit margin dropped by 160 basis points to 60.7 percent, while gross profit improved 1 percent to $1 billion.  Operating margin was 16.7 percent, down 160 basis points from last year’s quarter.

Operating expenses increased 4 percent, from $700 million to $728 million as a 6-percent increase in selling, general and administrative costs were partially offset by a $16 million gain on the acquisition of the Chaps men’s sportswear license.

"Despite an uneven global operating environment, we planned the business prudently and achieved sales and profit levels that exceeded our expectations, even as we make important investments in our long-term growth objectives and in the infrastructure to support them,” said Roger Farah, Ralph Lauren’s president and chief operating officer in a statement today.

Ralph Lauren has been making moves to increase its corporate store ownerships, including some restructuring in China to shutter stores run by partners and re-open their own stores in prime  locations.  At the end of the quarter, the company operated 396 corporate locations, up from 379 in last year’s quarter.

Looking at the current quarter, the company expects low-single-digit growth in net revenue, including a 200 basis point net negative impact from foreign currency exchange and discontinued businesses.  Analysts were expected sales increases more along the lines of 6 to 7 percent.

For all of fiscal 2014, the fashion company reiterated its forecast of revenue growth between 4 percent and 7 percent, including the same factors as for the second quarter.

Shareholders of RL are used to the company clobbering analyst predictions, so the soft guidance and numbers only matching expectations were not well received this morning.  Of course, other blue chip stocks broadly sinking aren’t helping matters either.  Shares of RL printed all-time intraday highs in May at $191.58 and had their highest closing price ever at $189.51 on Tuesday.  Shares have shaved today’s losses to 6.3 percent to $177.50 one-hour into afternoon trading, pulling-up from lows of $175.05.

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Companies

Symbol Name Price Change % Volume
RL Ralph Lauren Corporation 109.00 0.12 0.11 488,162
RSDV Rancho Santa Monica Devs 0.00 0.00 0.00 0

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