Ralph Lauren Beats Consensus

Polo Ralph Lauren Corporation (RL) reported results for the second quarter of fiscal 2010 with earnings of $1.75 per share. Earnings were well above the Zacks Consensus Estimate of 96 cents and were up 10.8% year-over-year.

Net sales for the quarter declined 3.4% year-over-year to $1.3 billion, primarily due to lower domestic wholesale sales, a reduction in same-store sales at the company’s retail segment and approximately 1% unfavorable impact of foreign currency translation. These were partially offset by the wholesale contribution of formerly licensed childrenswear and golf apparel products in Japan, and low single-digit currency growth in Europe.

Gross margins for the quarter expanded 189 basis points (bps) to 59.1% versus 57.3% in the comparable prior-year quarter. The increase was attributable to improved wholesale and retail segment margins, particularly in international markets, and supply chain cost savings initiatives. The operating margin for the quarter also expanded 89 bps to 18.5%, compared to 17.6% in the prior-year quarter.

The company ended the quarter with cash and cash equivalents of $423 million and has a long-term debt of $307.5 million. Capital expenditures in the second quarter amounted to $35 million and the company ended the quarter with inventory down 1% to $610 million from $619 million in the year-ago quarter.

During the quarter, the company opened 5 directly operated stores and closed 2 directly operated stores. At the end of the quarter, the company operated 328 stores with a total of approximately 2.5 million square feet, consistent with the prior-year period.

Based on the performance of the company in the second quarter, the company revised its guidance for fiscal 2010. Management now expects fiscal 2010 net revenues to decline in the mid-single-digit range, compared to the previous guidance of high-single-digit decline.

Management also provided guidance for the third quarter. Net revenues for the quarter are expected to decline in the low-single-digit range. The guidance includes flat-to-low single-digit comparable store sales growth for the retail segment.

Read the full analyst report on RL