One and a half year after I gave Ralph Lauren (NYSE:RL) a Buy rating, the idea is finally starting to work. Q4 confirmed improving trends on several fronts. Revenue was still down 2.5%, but ahead of company management's expectations. Q4’s performance actually marks the company’s best performance in terms of revenue growth in the past 2 years. Adjusted operating margin in the fourth quarter was 5.6%, down 110 basis points Y/Y on a reported basis and down 240 basis points in constant currency, despite a 440 basis points increase in gross margin (350 bps in constant currency) as a result of lower promotional sales. The margin contraction was mainly a result of increased marketing spending, which was up more than 50% in the fourth quarter and up 10% for the year. Despite the lack of significant improvements in profitability, the market welcomed the better sales and comps trends with a 21% jump in the stock price. Let’s analyze the results a bit more in detail.
