| Polo Ralph Lauren (RL) 25.24: Perhaps this well-known apparel company should consider changing its logo from a polo pony to a thoroughbred since it is evident Polo Ralph Lauren is outrunning its competition. Fueled by ongoing demand for its men's and women's collections in all of its major markets, healthy growth in Europe, and a strong retail performance, RL reported a net profit of $0.52 per diluted share for its fiscal Q3, two cents ahead of estimates, and versus $0.33 in the yr-ago period. Revenues jumped 20% to $613.7 mln; gross profit rose 160 basis points to 48.5% of net revenues and total expenses fell 170 basis points to 33.9% of net revenues. Needless to say, when expenses go down and profits go up, that is a winning combination. Fortunately, RL investors have added reason to cheer as the company expects that trend to continue. Consequently, it is raising EPS guidance for Q4 to a range of $0.42 to $0.44 and guidance for FY02 to a range of $1.93 to $1.98 on revenue growth of 5-7% for the year (in line with expectations). The current First Call EPS consensus for those periods is $0.42 and $1.94 respectively. The positive guidance should help validate the rally in RL's stock from its October low of 15.875, which was spurred by an expectation of lower interest rates and a better sales environment in the months ahead. RL has given investors reason to believe in that view, but it was the company's fiscal Q3 performance that we find particularly encouraging. Granted, the market is a forward-looking entity, but it would be a mistake not to acknowledge RL's solid operating performance in what was a very challenging retail environment. At 15.1x est. FY01 earnings and 13.0x est. FY02 earnings, RL remains attractively valued, but given the growing appeal of its brand, its focus on decreasing operating expenses, and the Fed's easing actions, Briefing.com believes further multiple expansion is warranted. Our 6-9 month price target is 30.-- Patrick J. O'Hare, Briefing.com |
