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There’s never been a quarter with RL where looking at the puts and takes vs. the year-ago period mattered more. Here’s a detailed margin walk to guide the way. Yes, revenue stinks. I can’t imagine anyone on Wall Street thinks otherwise. Tack on the fact that a consistent 6-8% boost in sales from acquisitions and another 2-3% from FX goes away, and the top line ain’t very pretty. But I think there’s enough juice on the cost side to serve up a pretty decent headline number. After adding up the Impact 21 and Small Leather Goods dilution from last year, FX-driven SG&A, and a meaningful step-up in both cash and stock-based comp, RL has about a 150-175bp pad built into margins for the next two quarters. My gut (and my math) gets me to a beat on the quarter, and if there is a guide down, it should not be by much. When I stress test t he model (email me for a copy) I get to a bear case number for this year above $4.00 per share. I’ll almost never pay up for a cost leverage story. But for a global power brand like RL that is coming off a period of investing in both its P&L and balance sheet while many competitors have been doing the opposite, I like its competitive positioning at 6x EBITDA.

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