What does a fashionable company wear to an earnings release?
Tomorrow, we'll know the answer for Polo Ralph Lauren (NYSE: RL), which plans to release its Q2 fiscal 2006 numbers before market-open on Friday. Market mavens are all aflutter with anticipation, and speculation has been flying for months. Some of the dozen or so analysts following the company believe it will dress conservatively, with $0.89 in per-share profits. Others expect it to cut a new trend with $0.91. The consensus, unsurprisingly, is for a neutral blend of $0.90 per share. If that consensus proves correct, the company will be dressing up from last year's disappointing earnings numbers -- up nearly 17%, in fact, on just a 10% rise in revenues (to $970 million for the quarter).
It's all part of the company's resolution, discussed as it closed out the first quarter of this new fiscal year, to upgrade its earnings wardrobe. Polo promised to raise its standards, and set a new earnings goal of $2.85 to $2.92 for fiscal 2006. For Q2 in particular, it's worth pointing out that back in August, at least, Polo had higher aspirations for this quarter than analysts are currently giving it credit for. In providing forward guidance, Polo specifically targeted revenue growth in the "low double digits."
If analysts prove too conservative with their own projection of 10% growth, the company could easily beat estimates. It may have to, too, in order to hit analysts' expectations for the fiscal year. They're currently calling for $0.02 more than the top of Polo's full-year guidance range.
Speaking of Polo's full-year expectations, let's remember tomorrow that it's often the accessories that "make" the outfit. Polo has been concentrating on three of those in particular: inventory management, collections, and inventory turnover. In Q1, the company held inventory growth down to an 8% increase, and accounts receivable to a 9% increase, both against a 27% improvement in sales. It also upped its inventory turns from a rate of 3.4x to 3.8x per year, "monetizing" its inventories at a 12% better clip than it was managing a year ago.
Whatever news tomorrow brings (and I suspect it will be good), Fools will want to read carefully and ensure that these "accessories" continue to match Polo's full-year goals, lest this company fall out of fashion in six months' time.
For further Foolish fashion tips, read:
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Fool contributor Rich Smith does not own shares in Polo Ralph Lauren.
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