Polo Ralph Lauren (NYSE:RL) appears to be hitting its stride as it zeroes in on high-end consumers, while effectively managing its balance sheet.

After adjusting for restructuring charges and foreign currency effects, the luxury goods retailer booked fiscal third-quarter earnings of $74.7 million, a healthy 56.6% gain vs. the $47.7 million reported in same period last year. As for revenue, the top line jumped 37.5% to $888 million from $645.4 million.

One of the standouts from the quarter was Polo's management of inventory levels. The retailer has invested heavily in internal systems to improve its inventory management, and the results show. Polo was able to increase wholesale and retail sales by 44% over fiscal 2004's third quarter with less than a 1% increase in inventory levels. Trailing 12-month inventory turns increased to 3.8 times from 3 times at the close of last year's third quarter.

On the strategic front, the company continues to build out its business with an eye toward maintaining its luxury image. The firm opened seven Ralph Lauren stores and three Club Monaco stores in the third quarter. Polo is also testing out a new retail concept, Rugby, aimed at 18- to 25-year-old men and women. At the same time, Polo's wholesale business has expanded rapidly, driven in part by the Lauren women's line, over which Polo reassumed control after severing a licensing agreement with Jones Apparel (NYSE:JNY). Meanwhile, the company appears to have kept the growth in its outlet side to a minimum.

So far, the company's initiatives appear to be paying off. Operating margins for the first nine months of fiscal 2004 were 11%, compared to 9% over the first nine months of fiscal 2003. Looking ahead, Polo expects operating margins to expand in fiscal 2006, as its retail business continues to grow. At 14 times the low end of fiscal 2006 earnings projections, Polo could be worth a look.

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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.