This summary is based on the first quarter fiscal 2008 earnings call conducted by Polo Ralph Lauren Corporation (RL) on August 8, 2007.
President and COO: Roger N. Farah
CFO: Tracey T. Travis
PLR IR: James Hurley
Key Investors Issues
- Net income was up 10% from $80 million in the prior year to $88 million.
- Revenues increased from $954 million to $1.07 billion.
- A total of 1.7 million shares of stock worth $170 million were repurchased.
- The offer for the Impact 21 Japanese business and the small leather goods business were concluded at $370 million.
First Quarter Highlights
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Net revenues were $1.07 billion, an increase of 12% over the prior year, reflecting conclusion of the Japanese business transactions and small leather goods acquisition.
- International markets continue to drive top line growth, notably in Europe.
- Menswear experienced strong sales performance globally.
Consolidated comparable store sales from directly operated retail stores were up 7.6%.
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Gross profit rate declined 40 basis points to 55.3%, due to the effect of purchase accounting related to recent acquisitions.
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Operating expenses grew 12% to $446 million against $398 million in 2007. Higher operating expenses are attributable to costs incurred in connection with recent acquisitions and startup expenses related to new products launches.
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Operating income increased 9% to $146 million, driven by the gross profit rate expansion in Europe, as well as leveraging of expenses on sales growth.
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Net income was up 10% to $88 million and net income per diluted share increased 11% to 82 cents.
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Capital expenditures for shop installations, new stores, and infrastructure investments amounted to $45 million.
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Cash or cash equivalents amounted to $74 million net of debt from $165 million in 2006, due to the acquisition of Japanese businesses and stock repurchase activity.
Segment Highlights
Wholesale
- Sales grew 17% to $574 million, or 5%, excluding the Japan and small leather goods acquisitions.
- Operating income increased 19% to $108 million as a result of higher sales though margins were mitigated by incremental SG&A expenses to support new product lines.
- European business was strong across all product categories in both men''s and women''s, resulting in improved operating profitability in the region.
- In Japan, women''s brands have exhibited mixed performance. Improvements in the merchandising and presentation of product lines will have a beneficial impact.
Retail
- Sales increased 9% to $450 million compared to $412 million in 2006.
- Overall comparable store sales were up 7.6%, reflecting a 10.4% rise at Ralph Lauren stores, 6.4% at factory stores, and 8% Club Monaco stores.
In the luxury marketplace, Purple Label, Women''s Collection, Black Label, and Luxury Accessories were strong worldwide.
- Ralph Lauren Media sales were up 22% over the prior period, driven by strong menswear sales.
- E-commerce website was rebranded from polo.com to ralphlauren.com to better represent the broad array of luxury products now offered under the Ralph Lauren name.
- Operating income was down from $65 million in 2007 to $64 million, resulting in a 1.6% decline in operating margin to 14.1%.
Licensing
- Revenues were down 8% from $50.3 million in the prior year to $46.3 million, reflecting the elimination of Japanese royalties associated with the Impact 21 acquisition (that business is now consolidated as a part of the wholesale segment).
- Licensing royalties and operating income fell 8% to $46 million and 17% to $22 million respectively, as the effect of the Impact 21 acquisition more than offset growth in eyewear-related royalties.
Operational stores increased from 294 in the prior year to 296 stores over 2.3 million square feet.
The retail group consists of 76 Ralph Lauren stores, 63 Club Monaco stores, 148 Polo factory stores and 9 Rugby stores.
- International licensing partners operated 83 Ralph Lauren stores and 23 Club Monaco stores and dedicated shops.
