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Ralph Lauren Corporation (RL - Analyst Report) posted fiscal first-quarter 2014 adjusted earnings of $1.94 per share, which beat the Zacks Consensus Estimate by a penny. However, the earnings were down 4.4% year over year.

Quarterly Details

Ralph Lauren's total revenues inched up nearly 4% year over year to $1,653.0 million. However, revenues marginally missed the Zacks Consensus Estimate of $1,656.0 million.

Ralph Lauren's gross profit in the quarter nudged up 1.2% year over year to $1,004 million, while the gross margin fell 160 basis points (bps) to 60.7%, driven by the integration of the Chaps men’s sportswear operations and negative foreign currency impact.

Total operating expenses increased 4% year over year to $728.0 million owing to business expansion initiatives other infrastructure costs partly offset by disciplined cost management.

Ralph Lauren's operating profit decreased 5% year over year to $276 million. Moreover, its operating margin fell 160 bps to 16.7%, reflecting gross profit margin contraction.

Segment Details
 
Overall, in the quarter, the Retail segment’s net revenue increased 3% to $879 million, primarily due to increased e-Commerce business and contribution from new stores, partly offset by net negative impact of foreign currency translation.

The segment’s operating income decreased 11% year over year to $160 million. Consequently, operating margin contracted 270 bps to 18.2%, due to the negative foreign currency effects, costs related to the company’s worldwide store and e-commerce development endeavors.

The Wholesale segment’s revenues rose 6% to $735 million mainly due to contribution from the revamped Chaps men’s sportswear operations and sustained growth for core North American merchandise categories, partly offset by scheduled reductions in European shipments.

However, the segment’s operating income of $154 million remained the same as the year-ago figure while operating margin fell 120 bps to 21.0%, primarily due to profitability in core North American operations being entirely mitigated by reduced overseas profits and transition costs related to Chaps.

The Licensing segment’s revenues fell 8% year over year to $39 million in the quarter. Operating income came in at $29 million, which was flat compared with the prior-year period.

Balance Sheet

Ralph Lauren exited the said quarter with cash and investments of $1.4 billion compared with $1.1 billion in first-quarter fiscal 2013. During the quarter, the company deployed $66.0 million toward capital expenditure against $62 million in the comparable year-ago period. Moreover, inventory levels increased 9% at the quarter-end to $1.1 billion compared with $964.0 million in the prior-year period

Share Repurchase

In the quarter, the company purchased 0.9 million shares at the rate of $175.64 per share.

Guidance

Ralph Lauren expects net revenue in fiscal second-quarter 2014 to increase in low single-digit percentage points incorporating a 200 bps net negative impact from foreign currency translation and discontinued businesses. Retail sales are expected to increase in the mid single-digit range whereas wholesale revenues are anticipated to remain the same as the prior-year period. Operating margin is anticipated to be around 300–350 bps, below the prior year quarter’s level and the tax rate is estimated to be around 31.5%.

For fiscal 2014, the company reiterated its guidance that net revenue will increase in the range of 4%–7%. It includes 150 bps net negative impact from foreign currency translation and further 100 bps impact from discontinued businesses. Operating margin is anticipated to grow in the range 25–75 bps, unchanged from the earlier projected guidance. For 2014, effective tax rate is projected at 31%.

Other Stocks to Consider

Ralph Lauren currently carries a Zacks Rank #4 (Sell). Other stocks in the same industry that are worth considering include Hanesbrands Inc. (HBI - Analyst Report), Gildan Activewear Inc. (GIL - Snapshot Report) and PVH Corp. (PVH - Snapshot Report). While Hanesbrands carries a Zacks Rank #1 (Strong Buy), Gildan and PVH Corp both have a Zacks Rank #2 (Buy).

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