Finally, a nonconformist! All last week, it seems I wrote about nothing but companies' "Q4 and full-year 2005" earnings news. Tomorrow, we hear from Polo Ralph Lauren (NYSE:RL), which marches to the beat of a different drummer -- the company will report its fiscal Q3 2006 numbers tomorrow before the market opens.

Wall Street Wisdom:

  • General consensus. The 13 analysts who follow Polo really like the stock. Only three rate it a "hold," and the rest say "buy."
  • Revenues. Wall Street will be looking for 8% growth in sales over last year's Q3, to $958.4 million.
  • Earnings. Profits are projected to rise 6% to $0.76 per share.

Margin watch:
Polo's net profits are riding a wave of strong gross margins, which have risen for the past 12 months. Operating efficiency has increased operating margins for even longer. Except for a $106 million legal settlement paid in April, the same would have been true for net profits.

Margins %

7/04

10/04

1/05

4/05

7/05

10/05

Gross

50

50.1

49.6

51.2

51.9

52.9

Op.

11.1

11.6

12.1

12.8

14

15.1

Net

6.4

6.8

7.5

5.8

6.6

7.1

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish lookout:
Tomorrow, I expect we'll see further improvement in net margins, but the "rolling number," which gives smoother results by averaging out the results over the past 12 months, will continue to be depressed by the April charge. By next quarter, however, that cost will fall off the back end of the trailing-12-month treadmill, and the net numbers should more closely track the operating margins' strength.

How strong will those operating margins be? Three months ago, Polo projected that in the second half of this fiscal year (i.e., beginning with tomorrow's numbers), operating margins would rise by as much as 450 basis points. (That's 4.5% in non-business-speak.)

One last note: On Friday, Polo announced that it concluded a deal to buy back its Polo Jeans business from Jones Apparel (NYSE:JNY) for $355 million. This cost of this transaction will not appear tomorrow, however, since the fiscal quarter ended one month before its execution.

Fool contributorRich Smithdoes not own shares of either company named above.