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Riding High: Polo Ralph Lauren Profits, Sales Jump in Quarter
Polo Ralph Lauren's profits leapt 31.5 percent on total sales that galloped 14.7 percent during its second quarter, easily beating analyst estimates.
By Vicki M. Young Plus Icon
Vicki M. Young
Senior Editor, Financial
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November 7, 2005, 12:00am
NEW YORK — Polo Ralph Lauren keeps galloping along, and Wall Street likes what it sees.
Propelled by higher sales in its wholesale and retail businesses, the company's profits leapt 31.5 percent on total sales that increased 14.7 percent during the second quarter, easily beating analysts' estimates.
Roger Farah, president and chief operating officer, said the company isn't resting on its laurels.
"We believe that with the successes that we've had year to date, through the two quarters, which has been beyond our own expectations, that we can push harder in a variety of initiatives to help us long term," he said in an interview. "We'll be investing additional capital in growth initiatives."
Among the initiatives is an investment in the company's European operations, such as capital spending for a luxury showroom to follow the success of the Milan store, as well as to help elevate the brand further.
"Over the past few years, our sales have doubled and our profits have more than doubled," Ralph Lauren, chairman and chief executive officer, said in a statement. "Our focus on building new brands, such as Rugby, and luxury accessories, expanding our retail and extending our international business has proven to be the right investment for our company."
The designer and company founder said Polo Ralph Lauren continues to solidify its "leadership position as the largest luxury apparel company in the world."
The quarterly numbers sent shares of Polo up 5.1 percent to close at $54.80 Friday on the New York Stock Exchange. In intraday trading, shares of Polo rose as high as $54.99, hitting a new 52-week high as 1.7 million shares changed hands, or almost twice the three-month average of 944,274 shares.
For the three months ended Oct. 1, net income was $104.2 million, or 97 cents a diluted share, compared with $79.3 million, or 77 cents, in the year-ago quarter. Total revenues rose to $1.03 billion from $895.6 million last year. The revenue gain included a 15.8 percent spike in sales to $964.7 million from $833.5 million, which included an increase of 14.9 percent in wholesale sales, to $577.6 million from $502.6 million, and a 17 percent rise in retail sales, to $387.2 million from $330.9 million. Earnings per share for the quarter beat Wall Street analyst estimates by 7 cents.
In the wholesale business, the increase came primarily from gains in men's wear, children's wear and the company's European business. Also included were results from its footwear licensee business, Ralph Lauren Footwear Co. Inc. At retail, total company same-store sales rose 6.2 percent, which reflected a 3.6 percent rise in comps at Ralph Lauren stores, 7.6 percent in its factory stores and 2.4 percent at Club Monaco stores.
Ralph Lauren Media revenues, which includes its dot-com business, surged 52 percent for the quarter, driven by categories ranging from Lauren to the firm's Big Pony products. The balance of the income gain in the quarter represented an 0.8 percent rise in licensing income to $62.6 million from $62.1 million.
In the six months, net income climbed 68.4 percent to $154.9 million, or $1.46 a diluted share, compared with $92 million, or 89 cents, last year. Total revenues jumped 18.5 percent to $1.78 billion from $1.5 billion, which included a 20 percent increase in overall sales, to $1.66 billion from $1.38 billion.
The company said wholesale sales rose 23.4 percent, to $914.8 million from $741.6 million, while retail sales were up 16.2 percent, to $744.6 million from $641 million. Licensing royalties increased 0.8 percent, to $120 million from $119.1 million.
"We're obviously very pleased with the first-half results," Farah said during a conference call. "It represents outstanding performance, driven by great product and terrific execution, which [combined] delivered strong profit margins. What makes it even more exciting is that our strategies and results are working across all segments."
Farah said the gains were the culmination of a strategy implemented over the last several years that focused on increasing full-price sell-through, improving presentation and gaining market share.
"We will use the back half of the year to accelerate reduction of off-price across all wholesale brands and we feel we will end the year with the right and ongoing ratio of full to off-price," Farah said during the call.
Despite the stronger than expected second-quarter results, the company kept its earnings per share outlook for the fiscal 2006 at $2.85 to $2.92.
Jennifer Black, an analyst at the firm bearing her name, said in a research note Friday, "In our view, Polo Ralph Lauren is well positioned. The company has extremely strong brand equity and timeless classic styling, which has enabled it to post strong performances against myriad challenging economic and retail specific factors.
"In our view, it is these attributes that will keep the company's product in high demand from retailers even as consolidation in the industry takes effect," the research note said. "It is also important to note that Polo has already exited May and Federated's underperforming doors, so closures of those locations should not impact the company's financial performance."
Regarding the holiday shopping season, Farah said the company has the right merchandise mix. "We're planning for a pretty good holiday season. One of our strategies is to push harder for key items in gift giving…For holiday, we expect to see more gift buyers than full collection buyers, so our stores and wholesale partners will be much more focused on gift giving."
On the conference call Farah spotlighted the increase in Polo's men's wear sales. He told WWD that the strength in sales was because of a turnaround in the men's wear market, which caught everyone's attention since it followed a prolonged period of lackluster sales.
"Women's also saw strong sell-throughs, with Lauren terrific for fall. I think [Lauren] gained market share," Farah said.
Meanwhile, the women's business in Black Label and Collection, at wholesale and retail, has been strong.
With the Lauren brand, the company spent the past 18 months profiling every one of its doors for the brand so it could fine-tune distribution this fall. Sell-throughs improved as a result.
"The other thing that's been successful is Lauren's active line," Farah said. "While in [fewer] doors, it is expanding very successfully. We've got misses, special sizes and active all working at the same time."
Among its different business segments during quarter, no performance matched the 52 percent growth rate of Ralph Lauren Media.
"Ralph Lauren Media is about convenience," Farah said. "We're finding that the existing customer can shop at 10 p.m. and from home. It [also] gives us new customers who don't have a store near them. The Web site offers the widest assortment possible, with product categories that you would not normally find in our stores. We also sell so well [through polo.com] because we have a high level of service."