Ralph Lauren Q1 2015

Ralph Lauren reported first quarter earnings on August 4th beating estimates at $1.80 a share but still came in 7% lower y-o-y. Revenue was consistent with expectations and grew 3.4% to $1.7 billion due to strong retail segment performance. Operating margin came in better than expected at 14.3% largely due to excellent operational discipline throughout the company. Net income was $162 million, 10% below last year’s first quarter. Diluted share count declined 3 million shares y-o-y due to RL’s aggressive share repurchase program leaving $400 million for future buyback.

For fiscal year 2015 RL maintained their financial outlook. They expect consolidated revenues to increase by 6% to 8% organically for the full year fiscal 2015 led by retail segment growth. For the second quarter they are expecting revenue to increase by 4-6%. The second quarter operating margin is expected to be approximately 200 to 250 basis points below y-o-y due to higher operating expenses related to the timing of investments to support the company’s strategic growth objectives.

 As for their international market expansion, RL reported double-digit growth in Europe and Asia. The growth in was led by continued strength in their retail operations and increased hotel shipments for the spring/summer season. Revenue in Americas was below the prior year for growth due to retail operations, which was offset by lower wholesale revenues.

One of RL’s three areas of strategic focus, product innovation, is introducing a Women’s Polo line which will bring all-American style up-to-date with and eclectic downtown edge. RL also has a new fragrance, Polo Red, which has achieved the distinction of becoming their most successful men’s fragrance launch to date. As for their second area of focus, retail development, they opened 12 stores during the first quarter and are on track to open another 40 to 45 directly operated stores over the rest fiscal year. Also a new 20,000 square-foot luxury flagship Ralph Lauren has opened in Greater China along with the first Polo flagship store in New York City on Fifth Avenue.

 RL still demonstrates tremendous opportunities for growth and their clear strategies and performance has place them on the right track to maximize their sales and profit growth in the long-term. RL’s Q1 performance is pleasing to me and should improve over the second half of FY 15. Even though their quarterly revenue and net income came in lower y-o-y, they showed that they can deliver better-than-expected profits despite a challenging retail environment all while making significant progress globally.