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Inside Ralph Lauren’s Challenges: Promotional Retail Environment versus Currency Headwinds

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May. 2 2016, Updated 8:06 a.m. ET

Fiscal 2015 revenue increases

Ralph Lauren’s (RL) fiscal 2015 sales (which ended March 28, 2015) stood at $7.6 billion, which represents a growth of 2.3% on a reported basis and of 4% on a constant currency basis. This increase in revenue was driven by higher revenues from the Retail segment across all major geographies and higher revenues from the Wholesale segment in the Americas. These gains were offset, however, by lower sales from RL’s international wholesale businesses, primarily due to net unfavorable foreign currency effects.

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The company’s gross margin was down by 40 basis points to 57.5% during the year, however, primarily due to a promotional retail environment and a less favorable product mix. RL’s operating margin meanwhile declined by 119 basis points during the year, because SG&A (selling, general, and administrative) expenses increased due to the higher level of investments in stores, facilities, and infrastructure.

Inside Ralph Lauren's Challenges: Promotional Retail Environment versus Currency Headwinds

Lower operating income and currency losses

RL’s net income stood at $702 million in fiscal 2015, declining by 9.5%, or $74 million. This fall was primarily due to a $95 million drop in operating income and a $18 million rise in foreign currency losses, which were partially offset by a $35 million drop in provisions for income taxes.

RL’s net margin declined by 120 basis points to 9.2% in fiscal 2015. Its trailing-twelve-month net margin stands even lower at 6.5%. Most of RL’s fashion peers boost better profitability and margins than the company. PVH Corporation (PVH), HanesBrands (HBI), VF Corporation (VFC), and Coach (COH) reported net margins of 7.1%, 7.5%, 10%, and 8.7%, respectively, over the past year.

ETF investors seeking to add exposure to Ralph Lauren can consider the First Trust Large Cap Core AlphaDEX Fund (FEX), which invests 0.42% of its portfolio in the company.

Now let’s look at RL’s most recent quarterly performance.

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