Polo Ralph Lauren (NYSE:RL) released earnings for its fiscal fourth quarter today, and the numbers beat expectations. The high-end clothing company ratcheted up sales and profits despite the weakening economic and consumer environment. It seems that even as people's cost of living rises due to energy, they are still doling out dollars on collared shirts.

Expectations Smashed Across the Board
Polo Ralph Lauren (Polo) reported that fourth quarter earnings jumped 41% to $103.5 million ($1 per share) from $73.2 (68 cents per share) a year earlier. The earnings blew away Thompson Financial analyst expectations that were looking for earnings per share to decrease to 65 cents. The story was led by a great increase in revenue during the quarter, rising 20% to $1.24 billion from $1.03 billion a year ago. Revenue also beat consensus analyst estimates of $1.15 billion. (To learn more on earnings potential, read Revenue Projections Show Profit Potential.)

The other boost to the bottom line came from a sharp reduction in Polo's tax rate. For the fourth quarter, Polo's effective tax rate dropped to 28% from 39% in 2007's fourth quarter. This was a very sharp decline for the quarter's tax rate, and helped the full-year tax rate drop to 34.8% from 37.7% in the prior year. The tax rates helped, but the top line shows true strength at the core of the company. Despite a slow economy and especially weak retail environment, Polo had a great quarter by moving more clothes off the racks.

A lot of the underlying numbers were impressive as well. Retail sales grew 16% for the quarter to $400 million, but operating losses for retail stores widened on higher costs to run its stores. Same store sales rose 8.9%. Wholesale stores painted an even better picture with 25% growth to $786 million for the quarter. President and COO Roger Farah highlighted in the company's press release that the numbers were particularly impressive since they were achieved as the company made "significant investments in long-term initiatives, all in the context of an extremely difficult domestic retail environment."

Polo is still predicting earnings of $3.95 per share to $4.05 per share for fiscal 2009 on low- to mid-single-digit revenue growth. This holds the earnings midpoint ahead of analyst expectations of $3.96 per share on revenue of $5.01 billion.

Retail Leading the Way?
It's not a usual feeling lately, but the impressive results from Polo helped shares leap 13% to lead the S&P 500 in gainers. The news helped pick up other clothing retailers like Abercrombie & Fitch (NYSE:ANF) and American Eagle (NYSE:AEO) which have seen sales rises lately. But the retail environment hasn't been good to most, including Gap (NYSE:GPS), whose Banana Republic line, that competes with Polo, has still seen sales decline. The rise in Polo's shares makes me wary of hopping in, but the company does have a strong brand that is doing well in a poor economic landscape. I would hold off until the excitement over this news dies down, and then watch for a slight pull back.

The Bottom Line
Polo released earnings that smashed through expectations and sales that were very impressive in as poor retail environment. The company is showing the strength of its brand, which has become a big part of American society. I think this is a strong company and would watch for a pull back as an entry point.

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Tickers in this Article: RL, AEO, ARO, GPS

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