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Polo Hits Its Stride

Polo Ralph Lauren (NYSE: RL  ) picked up the pace in its fiscal first quarter. Judicious brand and inventory management are delivering robust results that make the clothier's stock worth a closer look.

Net revenue surged 27% in the quarter to $954 million, thanks to recent acquisitions. Even factoring out these deals, though, revenue was up a healthy 19%. Net income, meanwhile, rose 58% to $80.2 million, which translated to $0.74 a share.

Sales growth in Polo's retail and wholesale divisions was impressive, but that performance was buttressed by a 60-basis-point improvement in company-wide gross margins. This rise stemmed from several factors, including solid management of inventories. In the latest quarter, a 12% bump in inventory translated into a 30% overall jump in retail and wholesale sales.

Another factor in improved profitability has been the company's more focused positioning of its brand. Over the past few years, Polo has reasserted control over its brand by taking steps such as reclaiming rights to its Lauren line; buying back its jeans business from Jones Apparel (NYSE: JNY  ) ; and reacquiring rights to Polo and Ralph Lauren footwear from Reebok.

With its name more fully under its control, Polo has been aiming squarely at what it sees as its core customer base: the wealthy and stylish. This focus is reflected in the company's recent deal to be the official clothing of all on-court personnel at Wimbledon, a popular event among the well-heeled set. The recent quarter suggests that the company's focus is paying off, as an increase in full-price sales was cited as another driver in profitability.

Polo is confident enough that the good times will keep rolling that it increased its EPS guidance for fiscal 2007 to a range of $3.25 to $3.35, up from a prior estimate of between $3.00 and $3.10. Even with the boost in guidance, Polo remains more expensive than some of its rivals on a forward earnings basis. But with its premier brand and a strategy that seems to be showing results, Polo may be worth the price.

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Fool contributor Brian Gorman does not own shares in any the companies mentioned.

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