This summary is based on the third quarter fiscal 2007 earnings call conducted by Polo Ralph Lauren Corp. (RL) on February 7, 2007.
Key Investors Issues
- The earnings per share rose to $1.03 as against 84 cents in the prior year.
- Quarterly revenue grew from $996 million to $1.14 billion in last year.
- For fiscal 2008, the company projects earnings per share in the range of $3.95 to $4.05.
Third Quarter Fiscal 2007 Financial Highlights
The revenues for the third quarter increased 15% to 1.14 billion from last year’s $996 million.
The firm acquired a Polo jeans license in the fourth quarter of last year. Excluding the impact of the Polo jeans acquisition on the third quarter of this year, total net revenues increased 10%. The net revenue growth was driven by wholesale sales increasing 18% or 5% excluding the effects of the Polo jeans acquisition. The retail sales increased 13% due largely to strong comp sales in all of the store formats. Polo.com had high-teen Internet sales growth compared to the same October through December period last year and measuring versus comparable months is the best indicator of the performance during the important holiday season for polo.com.
Licensing royalties were up 8% to $68 million compared to $62 million last year. Excluding the impact of the Polo jeans acquisition, royalties increased 16%. The royalty increase was largely driven by accelerated receipt and recognition of an $8 million royalty payment connected with the termination of our Chaps underwear license.
The gross profit increased 16% to $614 million from 532 million last year, with a gross profit rate expansion of 30 basis points to 53.7% of net revenues versus 53.4% last year.
Improvements in gross profit were driven primarily by higher sales and improved merchandise margins across the firm’s core wholesale product lines somewhat offset by lower margins in Polo Jeans and Footwear and improved full price sell through of products in the retail businesses.
SG&A expenses increased 11% to 430 million for the quarter.
This included $1.8 million in incremental costs related to the expensing of all stock-based compensation in accordance with FAS 123R. The SG&A rate improved 140 basis points to 37.6% compared to 39% last year. The rate improvement was primarily driven by the leveraging of fixed costs on incremental sales volumes as well as initiatives taken late last year and early in the first quarter of this to restructure and dispose of marginal home and clearance stores related to Club Monaco business.
The firm generated a 28% increase in operating income to $184 million compared to 144 million last year.
The resulting operating margin of 16.1% represents a 170 basis point improvement from last year’s operating margin of 14.4%.
The firm generated $111 million in net income, or $1.03 per share, compared to $91 million, or 84 cents per diluted share, last year, an approximate 22% increase in net income and a 23% increase in earnings per share.
The effective tax rate in the quarter was 38.9% versus 36.6% last year.
The tax rate increase in the quarter was principally due to a discreet tax reserve adjustment related to one of the firm’s foreign jurisdictions in addition to the normal adjustment of the quarterly tax provision to reflect the best estimate of the effective tax rate for the year.
The firm ended the quarter with $752 million in cash, or 358 million in cash net of debt.
During the quarter, the firm retired 227 million euros of short-term debt, and issued 300 million euros of new 7-year fixed rate debt at a 4.5% coupon during the quarter.
The inventory at $484 million was up 9% over last year.
This was primarily due to increases to support future sales growth as well as the inclusion of Polo jeans this year.
