Why Ralph Lauren Shares Soared on Thursday

By Brian D. Pacampara, CFAFool.com

What: Shares of upscale clothing company Ralph Lauren climbed as much as 19% on Thursday after its quarterly results and outlook topped Wall Street expectations.

So what: Ralph Lauren shares have dropped sharply over the past year on slumping sales, but better-than-expected Q2 results -- EPS of $2.13 on revenue of $1.97 billion vs. the consensus of $1.74 and $1.95 billion -- coupled with upbeat guidance for the holiday quarter reignited optimism over their turnaround potential. The company, which named former Gap executive Stefan Larsson as its new CEO in September,recently reorganized operations by brand rather than product in an attempt to save roughly $100 million in annual costs, so today's results serve as a particularly positive sign that management is on the right track.

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Now what: Management now sees Q3 revenue of about $2.03 billion-$2.07 billion, versus the consensus of $2.04 billion, while year-over-year operating margins are expected to be down due to negative foreign currency effects. "We achieved several critical goals, including the worldwide launch of Polo Sport, implementation of the new global brand structure, and strong growth in our international businesses," said Executive Chairman and Chief Creative Officer Ralph Lauren. "I am confident that our key strategic initiatives will drive continued growth and create significant shareholder value over the long term." When you couple the company's clear cost-cutting progress with the stock's still-reasonable valuation, there might even be plenty of room for the stock run.

The article Why Ralph Lauren Shares Soared on Thursday originally appeared on Fool.com.

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