Ralph Lauren Profits Decline in Q4

While Ralph Lauren Corp. posted better-than-expected revenues and EPS in Q4, the New York-based apparel, home, accessories and fragrances company saw a substantial decline in profits in the quarter. Following the earnings release, the firm’s share price has slipped more than 2 percent.

Net Income: Net income for the quarter, ended March 28, 2014, was $124 million, down 19 percent from the year-ago quarter’s $153 million.

EPS: Earnings per diluted share were $1.41, down 27 cents from last-year’s Q4 EPS of $1.68.

Net Revenue: Reported net revenues were $1.89 billion, a 1 percent increase from the year-ago quarter’s net revenues of $1.87 billion.

Adjustments: Adjusted for currency impacts, net revenues for the fourth quarter rose approximately 7 percent. Excluding foreign currency impacts, EPS was $1.69 in the fourth quarter.

Hit, Miss or Beat: Ralph Lauren’s performance beat Wall Street’s estimates for EPS and hit its revenue forecasts. Analysts polled by Yahoo Finance had predicted EPS of $1.32 and revenues of $1.88 billion.

Executive Insights: “We made excellent progress on our strategic initiatives in fiscal 2015.… We opened several stores in key markets around the world, fueled the momentum of our luxury accessories business with the launch of the Drawstring Ricky bag and continued to innovate with the introduction of Polo for women as well as the development of Polo Sport, which will be launching this fall. We also announced a new global brand-management organizational structure that will more fully leverage the power of our brands to drive future growth for the company.” — CEO Ralph Lauren

“Our better-than-expected fourth-quarter results were achieved in a challenging global macroeconomic environment, showcasing the operational discipline of our teams.… While foreign exchange and global consumer spending remain unpredictable, we are taking decisive actions to offset some of these ongoing external pressures. We also believe the new global brand-management structure will enhance the consistency of our brand presentation around the world and generate substantial operating efficiencies.” — President and COO Jacki Nemerov

On shoes: “Our footwear business, our accessory business, our denim and supply business and the dress business have been very strong, and, of course, our core businesses continue as the backbone. So we’re seeing door growth, we’re seeing great sales growth and we see that strengthening … we’re also very optimistic about our Polo women’s business, which was new to us starting with last fall, and we’re seeing door growth there as well.” — Nemerov, in the May 13 conference call

Looking Ahead to FY16: The company said it expects consolidated net revenues to rise by mid-single digits in constant currency. Based on current exchange rates, foreign currency is expected to have an approximate 450-basis-point negative impact on revenue growth. Operating margin is expected to be 180-230 basis points below the prior year’s level due to negative foreign currency effects. The tax rate is estimated at 30 percent. Capital expenditures are planned at approximately $400 million to $500 million. Guidance excludes restructuring and other one-time related charges ($70 million to $100 million) associated with the global brand reorganization.

Q1: The company said it expects consolidated net revenues to be flat in constant currency. Based on current exchange rates, the company said foreign currency will have an approximate 600 basis point negative impact on revenue growth. Operating margin is expected to be approximately 600-650 basis points below the comparable prior year period, primarily due to negative foreign currency effects, the quarterly revenue growth profile and timing of expense savings initiatives. The first quarter tax rate is estimated at 30 percent.

 

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