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How Was Ralph Lauren’s Performance in Fiscal 2016?

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Ralph Lauren’s performance in fiscal 2016

Ralph Lauren’s (RL) fiscal 2016 revenue rose by 1% YoY (year-over-year) on a constant currency basis. It fell 2.8% YoY on a reported basis to $7.4 billion. The company’s top line growth over the last 12 months doesn’t look impressive compared to Hanesbrands (HBI), Kate Spade (KATE), and Michael Kors (KORS). They saw sales growth of 7.6%, 9.1%, and 32%. However, it’s better compared to Gap (GPS) and Coach (COH). They registered a decline of 3.9% and 12.8%, respectively, over the last 12 months.

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“Fiscal 2016 was a year of significant change for our Company as we established a new organizational structure and appointed a new CEO,” said Ralph Lauren, executive chairman and CCO. “I am greatly encouraged by the changes that have already taken shape over the past several months under Stefan’s leadership and he has my full support as he and his team build and implement our new strategic growth plan.”

The fiscal 2016 operating income stood at $777 million. It registered a 26% YoY decline. The operating margin fell by 330 basis points to 10.7% due to gross margin pressure, fixed expense deleverage, unfavorable foreign currency effects, and incremental investments in infrastructure and new stores.

Segment-wise performance

Wholesale sales fell 3% on a constant currency basis and 6% on a reported basis to $3.3 billion due to a decline in sales in North America. The wholesale operating margin was 25.1% in fiscal 2016—compared to 27.0% in fiscal 2015. The decline in the operating margin was driven by gross margin pressure, fixed expense deleverage, and negative foreign currency effects.

Retail sales for fiscal 2016 increased 4% YoY on a constant currency basis driven by new store expansion, e-commerce growth, and the benefit of an additional week of sales. On a reported basis, the segment registered a 1% decline to $3.9 billion. On a 52-week basis, consolidated comparable store sales decreased 3% on a constant currency basis and 7% on a reported basis. The retail operating margin declined by 260 basis points to 10.7% due to fixed expense deleverage, gross margin pressure, and negative foreign currency effects.

Licensing revenues improved 5% on a constant currency basis and 4% on a reported basis to $175 million in fiscal 2016. The segment’s operating income of $155 million in fiscal 2016 increased 2% from the previous year.

The First Trust Large Cap Value AlphaDex ETF (FTA) invests 0.69% of its holdings in Ralph Lauren.

In the next part of this series, we’ll compare Ralph Lauren’s stock returns to its peers.

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