Ralph Lauren Corporation (RL - Analyst Report) reported better-than-expected results for the fourth quarter of fiscal 2015, wherein earnings per share of $1.41 came ahead of the Zacks Consensus Estimate of $1.32. On a currency neutral basis, quarterly earnings came in at $1.69 per share, a penny ahead of the year-ago figure of $1.68.

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Quarterly Highlights

Net revenue of this luxury apparel retailer was up nearly 1% year over year to $1,885 million. Adjusting for the currency effects, revenue rose 7% backed by strength in the company’s wholesale segment coupled with double-digit eCommerce growth across all regions. However, the company’s net revenues fell short of the Zacks Consensus Estimate of $1,906 million.

Overall, reported wholesale revenue grew 2% year over year to $1,007 million, licensing revenues declined 5% to $37 million, while retail revenues remained almost flat at $841 million. However, on a currency neutral basis, revenues for the wholesale and retail segments were up 8% and 6%, respectively.

Currency-adjusted wholesale revenue gained from a double-digit growth in North America. Retail sales on the same basis were driven by double-digit growth in global eCommerce business and the addition of new stores. Moreover, consolidated comparable-store sales (comps) at the retail division were up 1%, on a constant currency basis, and down 4% on a reported basis.

Licensing revenues were impacted by negative foreign currency effects and the anniversary of the launch of Polo Red fragrance.

Ralph Lauren's gross profit were flat from last year at $1,004 million, with the gross margin contracting 80 basis points (bps) to 55.4%, owing to an unfavorable mix and currency effects.

Total operating expenses rose 4% to $854 million and expanded 110 bps, as a percentage of sales, to 45.3%. The increase in operating expenses as a percentage of net revenues was mainly due to increased investments in global retail development and infrastructure and negative currency effects.

Ralph Lauren's operating income fell 15% to $190 million, while operating margin contracted 190 bps to 10.1%. The decline in operating margin was mainly due to higher operating expenses related to increased investments to support the company’s long-term growth strategies and negative currency effects.

Fiscal 2015 Synopsis

For fiscal 2015, the company reported earnings per share of $7.88, beating the Zacks Consensus Estimate of $7.78. On a currency adjusted basis, earnings for fiscal 2015 were $8.19 per share compared with $8.43 per share in fiscal 2014.

Net revenue for the fiscal grew 2% to $7,620 million, while currency neutral revenue jumped 4%. However, fiscal 2015 revenue was below the Zacks Consensus Estimate of $7,644 million.

Balance Sheet

Ralph Lauren ended fiscal 2015 with cash and investments of $500 million compared with $797 million in fiscal 2014. During the fiscal year, the company deployed $391 million toward capital expenditure. Moreover, inventory levels stood at $1,042 million, up 2.2% from $1,020 million at the end of fiscal 2014.

Store Update

Ralph Lauren exited fiscal 2015 with 466 directly operated stores and 536 concession shops across the globe. The directly operated stores include 143 Ralph Lauren, 64 Club Monaco and 259 Polo factory stores. Additionally, Ralph Lauren’s global licensing partners operated 72 Ralph Lauren stores, 23 dedicated shops as well as 119 Club Monaco stores and shops.

Guidance

Ralph Lauren provided its guidance for fiscal 2016. The company expects constant-currency net revenues to increase by mid-single digits. This will include an anticipated 450 bps negative impact from foreign currency translations.

Further, the company expects operating margin for fiscal 2016 to fall 180–230 bps from fiscal 2015. The company expects effective tax rate of 30%. It plans to spend about $400–$500 million for capital expenditure in fiscal 2016.

For the first quarter of fiscal 2016, the company expects constant-currency net revenue to be flat compared to the first quarter of fiscal 2015. This includes a 600 bps negative impact from currency translations. Operating margin is anticipated to contract in the range of 600–650 bps from the year-ago level. The effective tax rate for the quarter is projected at 30%.

Zacks Rank & Stocks to Consider

Currently, Ralph Lauren carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the textile-apparel industry include Columbia Sportswear Inc. (COLM -Snapshot Report), G-III Apparel Group Ltd. (GIII - Snapshot Report) and Hanesbrands Inc. (HBI - Analyst Report), each holding a Zacks Rank #2 (Buy).