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Ralph Lauren Corp. (RL - Analyst Report) posted fourth-quarter 2013 adjusted earnings of $1.41 per share, jumping 42.4% from the comparable year-ago quarter and surpassing the Zacks Consensus Estimate of $1.30 per share. The year-over-year increase was primarily driven by a rise in sales, improved margins and a lower tax rate.

Quarterly Details

Polo Ralph Lauren's total revenues inched up 1% year over year to $1,643.3 million. Per the company, the year-over-year increase resulted from improved retail segment results, partially offset by its planned strategy to reduce wholesale shipments. However, revenue lagged the Zacks Consensus Estimate of $1,724.0 million.

Ralph Lauren's gross profit in the quarter grew 5% year over year to $974.0 million, while the gross margin expanded 220 basis points (bps) to 59.3% due to lower input costs and benefits from better product mix and operational efficiency.

Total operating expenses remained flat year over year at $792.0 million, while as a percentage of sales it contracted 50 basis points (bps) to 48.2%. The year-over-year improvement in operating expenses was mainly due to disciplined cost management despite higher costs related to overall business expansion, increased marketing and advertising expenses as well as incremental investments in growth initiatives and infrastructure.

Ralph Lauren's operating profit increased 33% to $182 million. Moreover, its operating margin improved 270 bps to 11.1%, reflecting gross margin expansion and lower operating expenses as a percentage of sales.

Segment-Wise

Overall, in the fourth quarter, Retail revenue increased 7% to $804 million, primarily due to an improvement in comparable store sales, increased e-Commerce business and contribution from new stores.

Driven by improved revenue along with efficient cost management, the segment’s operating income increased 73% to $74 million primarily driven by effective cost management, which resulted in improved profitability in all major categories. Consequently, operating margin expanded 350 bps to 9.2%.

Due to the company’s planned strategy of reducing wholesale shipments and the negative impact from discontinuing American Living operations, its Wholesale segment’s revenue declined 4% to $796 million. However, operating income increased 16% to $175 million while operating margin improved 380 bps to 22.0%, primarily driven by higher gross margin, favorable product mix and better cost efficiency.

The company’s Licensing revenue was flat year over year at $43 million. However, operating income decreased 3% to $29 million during the quarter.

Balance Sheet

Polo Ralph Lauren exited fiscal 2013 with cash and investments of $1.4 billion compared with $1.3 billion in fiscal 2012. During the fiscal, the company deployed $276.0 million and $500.0 million toward capital expenditure and share repurchases, respectively. Moreover, inventory levels increased 6% at the end of fiscal to $896.0 million compared with $842.0 million in fiscal 2012.

Guidance

Polo Ralph Lauren expects net revenue in the first quarter of fiscal 2014 to increase by low-single-digit percentage points, while anticipating wholesale sales to grow at a faster rate than the retail sales segment. Moreover, the company expects operating margin to expand in the range of 200–250 bps.

For fiscal 2014, the company expects net revenue to increase in the range of 4%–7%. Operating margin is anticipated to grow in the range 25–75 bps. Moreover, the company intends to make capital expenditure between $350 million and $450 million in fiscal 2014.

Other Stocks to Consider

Ralph Lauren currently holds a Zacks Rank #2 (Buy). Other stocks in the same industry that are worth considering include Hanesbrands Inc. (HBI - Analyst Report), V.F. Corp. (VFC - Analyst Report) and Joe’s Jeans Inc. (JOEZ - Snapshot Report). Hanesbrands holds a Zacks Rank #1 (Strong Buy), while V.F. Corp. and Joe’s Jeans have a Zacks Rank #2 (Buy).

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