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Eminence Capital exits its position in Ralph Lauren

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Dec. 30 2014, Updated 11:44 a.m. ET

Eminence Capital and Ralph Lauren

Eminence Capital sold its position in Ralph Lauren (RL) during 3Q14. The stock accounted for 1.35% of the fund’s 2Q14 portfolio.

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About Ralph Lauren

RL is a leader in the design, marketing, and distribution of premium lifestyle products in four categories:

  • apparel
  • home
  • accessories
  • fragrances

RL’s brand names include Polo Ralph Lauren, Ralph Lauren Purple Label, Ralph Lauren Collection, Black Label, Lauren by Ralph Lauren, RRL, RLX, Ralph Lauren Childrenswear, Denim & Supply Ralph Lauren, American Living, Chaps, and Club Monaco. RL’s brand names are one of the world’s most widely recognized families of consumer brands.

Revenue grew, but operating margin declined

Net revenues for 2Q15 increased 4% to $2 billion. The increase was led by expansion in the Retail segment. The expansion included double-digit international growth. Gross profit for 2Q15 increased 4% due to a favorable channel and geographic mix.

RL’s operating margin was 14.4%. It was 100 basis points below the operating margin in 2Q14. The decrease was due to higher operating expenses associated with incremental investments in RL’s long-term growth strategies. Net income for 2Q15 was $201 million. This is 2% below the $205 million achieved in the same period in 2014. Net income per diluted share increased 1% to $2.25—compared to $2.23 in the same period last year.

On December 11, 2014, RL’s board of directors declared a regular quarterly dividend of $0.45 per share on RL’s common stock. The dividend is payable on January 9, 2015. It’s payable to shareholders of record at the close of business on December 26, 2014.

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Revised 2015 outlook

Considering the impact of foreign currency movements, RL expects consolidated net revenues for fiscal year 2015 to increase by 5%–7%—compared to its previous outlook of 6%–8% growth. The operating margin in fiscal year 2015 is still estimated to be ~75–125 basis points below the level in fiscal year 2014.

Eminence Capital’s other 3Q14 positions

During 3Q14, Eminence Capital also initiated new positions in GNC Holdings (GNC), Apple (AAPL), McDonald’s (MCD), Cognizant Technology Solutions (CTSH), and Zimmer Holdings Inc. (ZMH). It raised positions in TIBCO Software Inc. (TIBX) and CBS Outdoor Americas Inc. (CBSO). It decreased positions in National Oilwell Varco (NOV), Dollar General (DG), Cadence Design Systems, Inc. (CDNS), Kar Auction Services, Inc. (KAR), and VCA Antech, Inc. (WOOF).

The next part of this series will explore Eminence Capital’s position change in NOV.

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