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A Sneak Peek at Ralph Lauren’s Fiscal 3Q16

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May. 9 2016, Published 4:10 p.m. ET

Snapshot of Ralph Lauren’s performance in fiscal 3Q16

Ralph Lauren (RL) registered a 4.3% YoY (year-over-year) fall in net revenue to $1.9 billion in fiscal 3Q16. The fall was a result of lower revenues from its wholesale and retail businesses on account of unfavorable foreign currency effects and a more competitive retail environment.

On a constant currency basis, the revenue fall was about 1% during the quarter. Fiscal 2Q16 was the third consecutive quarter in which Ralph Lauren witnessed negative sales growth.

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A look at profitability and margins

RL’s gross margin fell by 80 basis points to 56.2% during the three months ended December 26, 2015. The fall in its gross margin was primarily driven by unfavorable foreign currency effects and certain non-cash charges recorded in connection with the Global Reorganization Plan.

These factors were partially offset by increased profitability on account of a favorable geographic mix, initial benefits from the Global Reorganization Plan, and lower sourcing costs.

The company’s operating profit fell 40% YoY to $189 million in fiscal 3Q16. Its operating margin fell 578 basis points to 9.7% on account of a lower gross margin and a 160-basis-point rise in SG&A (selling, general, and administrative) expenses as a percentage of sales.

The rise in SG&A expenses was primarily due to operating deleverage on lower net revenue, due in part to unfavorable foreign currency effects and increased investments in stores, facilities, and infrastructure. As a result, the company’s net income fell by 40% YoY to $131 million in fiscal 3Q16.

Comparing Ralph Lauren’s profitability to apparel and fashion peers

Ralph Lauren has registered an operating margin of 9.5% over the last 12 months. Its performance is comparable to one of its closest competitors, PVH Corporation,[1. PVH owns Calvin Klein and Tommy Hilfiger] which has also registered a last-12-month operating margin of 9.5%.

Both companies, however, have trailed other apparel and fashion majors such as VF Corporation (VFC), Coach (COH), and Michael Kors (KORS), which have seen operating margins of 13%, 13.2% and 25.8% over the last 12 months.

ETF investors looking to add exposure to Ralph Lauren can consider the iShares US Consumer Goods ETF (IYK), which invests 0.25% of its portfolio in the company.

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

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