Shares of retailer Ralph Lauren (RL) fell on Friday, despite posting Q4 2014 EPS of $1.68, ahead of consensus by $0.05.
Critically, FY15 guidance came in disappointing, which drove shares down more than 6% in the pre-market.
Management’s sales outlook of 6-8% was modestly below high-single-digit preliminary guidance (previously discussed on the Q3 2014 conference call).
The silver lining came from higher wholesale volumes for March, with strength in Americas and a return to double-digit growth in Europe.
As such, the stock was able to recover some of its losses during the trading day. Investors gained more confidence on momentum in Europe as well as strong shipment trends for spring/summer 2014.
During Q4, Ralph Lauren suffered from 75-125 bps of margin compression as a result of a lackluster Q1 start.
Retailers, as a whole, were negatively impacted by weather distortions and a soft spending environment in Q1.
Analysts remain cautious given margins will remain depressed as the company continues to make investments for infrastructure and expansion.
Notably, RL is shifting towards a younger, more aspirational customer, as evidenced by the new “Blue label” and “Denim & Supply” lines.
This is an effort to attract more “Millennials” (side bar: new 5th Avenue and Soho locations for its more youthful brand, Club Monaco.)
Additional catalysts include the launch of Women’s Polo, transition of Chaps from licensing to direct, and store growth plans in Asia.
This is on top of its global e-commerce investments (system, marketing, and product quality) and supply chain initiatives.
On Friday, Bank of America Merrill Lynch said it was cutting its FY15 earnings estimates.
The analyst’s new price target is $170, down from $185 based on 17-18x earnings. The investment bank maintains its neutral rating.
As a recap, Ralph Lauren (RL) posted better-than-expected Q4 earnings. The positive delta versus analyst estimates came from incremental margins in wholesale.
This flowed through to a higher operating profit, which was helped by lower corporate expense (including restatements). SG&A leverage and a favorable tax rate of 27% also drove the bottom line.
Q4 revenues rose 14% to $1.9 billion, helped by double-digit growth in the Americas, Europe and Asia. That beats estimates for $1.8 billion.
Ralph Lauren said it sees full-year 2015 revenues increasing by 6%-8%, but expects its operating margin to be about 75-125 basis points below 2014 because of investment in the company’s infrastructure.
Capital expenditures are planned at approximately $400-$500 million in fiscal 2015.
For Q1, the company sees revenue growth of 3%-5%, with the operating margin about 300-350 basis points lower that the comparable period.
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