Polo Ralph Lauren Surges Ahead

Polo Ralph Lauren Corp.’s (RL) fiscal 2011 first-quarter earnings surged to $1.21 per share from 76 cents in the year-ago period, as higher sales, strong gross margin and cost containment initiatives drove performance.

Quarterly earnings also blew past the Zacks Consensus Estimate of 89 cents, which moved up 2 cents over the past 2 months.

Quarterly Details

During the quarter, Polo’s net revenues rose 12.7% year over year to $1.15 billion, which topped the Zacks Consensus Estimate of $1.14 billion. The growth was primarily driven by a 16% jump in Retail sales to $592.5 million, mainly due to a 7% growth in same-store sales and contribution from newly-assumed Asian operations. Overall revenue growth was also aided by an 11% increase in Wholesale revenues to $523.0 million due to increased shipments in both the US and Europe.

Polo opened 8 and closed 5 company-owned stores, and assumed control of 1 licensed store during the second quarter. At quarter-end, Polo operated 648 freestanding stores and concession shops across the globe, compared to 529 in the prior year quarter.

Polo’s gross profit in the quarter grew 18.5% year over year to $712.2 million, while gross margin expanded 300 basis points (bps) to 61.8%. The robust growth was mainly driven by better merchandise margins, a favorable mix, improved inventory management and savings from supply chain initiatives.

Total operating expenses rose 11% year over year to $538.0 million, mainly due to increased expenses associated with Asian operations. However, higher sales and strong gross margin more than offset increased operating expenses. Accordingly, Polo’s operating profit soared 49.3% to $174.2 million from $116.7 million in the year-ago quarter.

Balance Sheet

Polo exited the quarter with cash and cash equivalents of $345.8 million with a long-term debt-to-capitalization ratio of just 8.1%, compared to a cash balance of $620.8 million and a long-term debt-to-capitalization ratio of 12.9% in the year-ago period. During the quarter, the company deployed $231 million towards share buybacks and $39 million towards dividend payments.

Guidance and the Zacks Consensus

Moving forward, Polo now expects full fiscal 2011 revenues to grow in the mid-to-high single-digits, compared to the earlier prediction of a mid-single-digit growth rate. During the second quarter, revenues are expected to increase in the high single-digits, with wholesale revenue expected to increase by low single-digits and same-store sales by a mid-single digit rate.

The Zacks Consensus Estimate on Polo’s earnings for the second quarter of fiscal 2011 presently stands at $1.71 per share, which have been constant over the past 2 months. For the entire fiscal 2011, the Zacks Consensus Estimate has dipped a penny over the past month to $4.67 per share as 1 of 15 covering analysts revised lower, while 1 moved in the opposite direction.

POLO RALPH LAUR (RL): Free Stock Analysis Report

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