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If you have the luxury of being at a shop where you can actually invest in a company instead of renting a stock, how could you NOT look at RL here?
To call a -2% EPS decline a victory is hardly appropriate, but I’ll give RL props for managing through this sucker. When business gets bad, a company can proactively drive its model, or simply sit back and hope. Hope is neither and investment nor management process. Ralph and team ‘get it’ in this regard. Yes, a 13.5% retail comps stinks. But with horrific results from Tiffany, Burberry, Nordstrom, Saks, Guess?, Coach and just about everyone else tied to the high end consumer, I don’t think that the sales numbers came as a big surprise.

Now let’s talk guidance…

RL beat the quarter by $0.19 but took down the year (ending March) by $0.15. Yes, this means that 4Q needs to be down by 65%. I rarely follow any management team's guidance (except on basic items like tax rate and capex), but I’ll always plug assumptions into my model necessary to hit the guidance that the company gives the Street. I absolutely, positively cannot get anywhere near RL’s 4Q guidance. They’re suggesting a range of $0.28-$0.43. The lowest number I can get to is $0.52 – yes that’s 50% above guidance. And yes, I am assuming comps -20%, retail margins -500bps and wholesale growth declining by 15% sequentially with margins off 400bps.

If numbers come in as bad as the company guided, then 'The Question' will not be about comps and margins, it will be about brand relevancy. I firmly believe that question will not need to be asked.

I think RL puts up a number close to $4.10 this year, pushes through $4.50 in FY10 (Mar), and has near $6ps in economic-rebound earnings power. I know people will think I am nuts for attempting to talk about anything ‘post recession,’ but the reality is that key global growth drivers are coming board over 2 years in some form regardless of what the economy says. Even looking at next year, however, RL is at 8.5x earnings and 4x EBITDA! For those who have the luxury of being at a shop where you can actually invest in a company instead of renting a stock, how could you NOT look at RL here?