Ralph Lauren (RL) reported 4Q14 earnings this past Friday
(May 9th, 2014). RL reported a profit of $1.68 for the quarter, beating
forecasts of $1.63. Additionally revenue
climbed 14% (to 1.87B), surpassing estimates for $1.83B. For the year, RL
stated that EPS rose 4% to $8.44, beating by 5 cents.
Despite reporting results that were better than The Street's
expectations, the stock dropped (~2%) largely due to RL's warning that the
substantial growth initiative costs will erode their operating margin. The company
noted that the substantial costs would in part be driven by: retail store
development (opening approximately 40 - 45 new stores in FY15), SAP
implementation (In FY15 the transition from legacy systems to SAP will be
completed in North America (whole operations). Likewise, RL will begin the
implementation process in Europe), and upgrades to their global e-commerce
operating platform.
RL's guidance for 1Q15 and FY 15 fell just shy of analysts'
estimates, contributing to the stock's decline. For FY15 management forecasted
revenue growth in the range of 6-8% to come in at $7.9 billion. On the other
hand, analysts were expecting profits of $9.2 per share with $8 billion in
revenues.
Although the 4Q14 conference call left many investors weary
of the company's future, RL has continually surpassed expectations. RL has been
able to pinpoint the growth initiatives that will push the company higher, and
is in the process of implementation. While the process will decrease RL's
operating profit margins, RL is putting their money in all the right areas and success
of such initiatives will be apparent in the future.
It is not clear to me why investors were so shocked about
RL's decreasing margins, for the company had forewarned of such event in their
3Q14 conference call. I am not overtly concerned about the margins, for I had
expected this. RL still demonstrates tremendous opportunities for growth -
their clear strategies place them on the right track to maximize their sales
and profit growth in the long-term.
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