It's been a number of years since I headed out to college in New England and discovered the Polo Ralph Lauren
The company has expanded beyond button-down shirts and khakis over the years and operates four business units: apparel, home, accessories, and fragrances. Management has made key investments in its European luxury retail business, where it is looking to leverage the success of men's fashions into a positive impact in its women's line.
The real success story of Polo Ralph Lauren's second-quarter results was its wholesale business, which produced a 50% sales gain. Wholesale sales accounted for 61% of total net sales (53% last year) in the quarter, and retail net sales rang up the remaining 39% of sales (47% last year). Total revenues, which included a 17% decline in licensing revenue, grew 25%. A 49% increase in operating income was guided by the company's effort to improve its "efficiency and consistency" at both the wholesale and retail levels.
Net income of $0.76 per share widely outperformed last year's $0.52 per share and came in ahead of the analysts' consensus estimate of $0.73. For fiscal 2005, the company expects earnings of $2.35 to $2.45 per share (more than a 30% gain from the $1.82 per share in fiscal 2004) on high-teens revenue growth and a significant improvement in operating margin. These gains should continue to be supported by continued growth in the Polo Ralph Lauren women's line and children's wear.
The company appears to be operating at a high level despite competition from other branded apparel companies such as Liz Claiborne
Shares of Polo Ralph Lauren are trading at nearly 16 times this year's earnings forecast of $2.40 per share; with an expected 30%-plus earnings growth rate this year and a 0.53% dividend yield, the shares appear to be attractive given the hiccups from some of Polo's competition and considering the firm's projected earnings growth.
You don't have to dress up to check out these takes:
Fool contributor Phil Wohl spent more than 12 years on Wall Street and thinks about his early Polo-wearing escapades on these cool, crisp days. He does not own shares of any of the companies mentioned.