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Polo Ralph Lauren Corp. reported fourth-quarter fiscal 2012 earnings per share of 99 cents, beating the Zacks Consensus Estimate of 85 cents per share. Quarterly earnings also witnessed a 33.8% growth from 74 cents earned in the year-ago period. The robust bottom-line performance was primarily driven by solid top-line growth, a lower tax rate and reduced number of shares outstanding.

Quarterly Details

During the quarter, Polo Ralph Lauren's net revenues climbed 13.7% year over year to $1,622.9 million, beating the Zacks Consensus Estimate of $1,603 million. The year-over-year growth was primarily driven by a global double-digit increase in retail sales and wholesale revenue growth in the United States and Europe.

Overall, in the fourth quarter, retail revenue increased 10.2% to $828 million and wholesale revenue rose 19% to $751.5 million, while licensing revenue inched down 1.9% to $43.4 million.

The robust performance in the retail division was mainly attributable to the comparable store sales growth and contribution from new stores. The increase in wholesale revenue was primarily supported by growth in the United States and Europe, coupled with a solid growth in global shipments of core apparel and increased distribution of accessories.

Ralph Lauren's gross profit in the quarter grew 14.3% year over year to $926.4 million, while gross margin expanded 30 basis points to 57.1%, mainly driven by better channel and product mix, partially offset by increased cost of goods sold.

Total operating expenses rose 14% year over year to $790 million, mainly due to overall business expansion, including strong retail segment growth, as well as incremental costs associated with the transition of certain formerly licensed operations. Consequently, operating expenses, as a percentage of sales, expanded 10 basis points to 43.1%.

Polo Ralph Lauren's operating profit surged 16.4% to $136.4 million from $117.2 million in the year-ago quarter, while operating margin expanded 20 basis points compared with the prior-year quarter to 8.4%, reflecting gross margin expansion, partially offset by increased operating expenses as a percentage of sales.

Exiting the quarter, Polo operated 379 directly operated stores and 474 concession shops across the globe. Additionally, Ralph Lauren’s global licensing partners operated 59 Ralph Lauren stores and 27 dedicated concession shops as well as 58 Club Monaco stores and dedicated shops.

Fiscal 2012 summary

Driven by double-digit top line growth along with improved operating margin, Polo Ralph Lauren’s fiscal 2012 earnings of $7.13 per share increased 24% from the previous fiscal earnings of $5.75. Moreover, earnings also beat the Zacks Consensus Estimate of $7.09 per share.

Total revenue for the fiscal surged 21.2% to $6,859.5 million compared with net revenue of $5,660.3 million in fiscal 2011. The increase in revenue was primarily driven by robust performance at the company’s retail and wholesale segments resulting from mid-teen comparable-store sales growth and favorable foreign currency translation effect. Moreover, total revenue also beat the Zacks Consensus Estimate of $6,838 million.

Balance Sheet

Polo Ralph Lauren exited the fiscal year with cash and investments of $1.3 billion, compared with $1.1 billion in the previous year. During the period, the company deployed $272 million toward capital expenditure and $395 million toward repurchasing 3.2 million shares.

Moreover, inventory levels improved 20% in the quarter to $842 million compared with $702 million in the same period last year. The increase was driven by an investment to support probable sales growth, new operations and new merchandise categories, and the inflationary and foreign exchange impact on cost of goods.

Guidance

Anticipating a low-single-digit decline in wholesale sales and low-double-digit growth in retail sales segment, Polo Ralph Lauren expects net revenue in fiscal 2013 to increase by mid-single-digit percentage.

Moreover, the company expects moderate operating margin expansion to be driven mainly from gross margin expansion, partially offset by negative impact from continued investment in long-term growth initiatives and overall channel mix. Further, the company anticipates deploying $360 million toward capital expenditure.

For the first quarter of fiscal 2013, the company anticipates net revenue to increase by low-single-digit percentage. Moreover, operating margin is expected to be lower by 250-300 basis points from the prior-period level.

Ralph Lauren, which competes with Phillips-Van Heusen Corporation , currently holds a Zacks #3 Rank, implying a short-term Hold rating on the stock. Currently, we retain a long-term Neutral recommendation on the stock.

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