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Polo Beats Expectations, Trims Guidance

Polo Ralph Lauren Corp. posted fourth-quarter results ahead of Wall Street's expectations, but said full-year 2008 earnings per share would be lower due to costs associated with several acquisitions.

Polo Ralph Lauren Corp. posted fourth-quarter results ahead of Wall Street’s expectations, but said full-year 2008 earnings per share would be lower due to costs associated with several acquisitions.

For the three months ended March 31, net income rose 17.1 percent, to $73.2 million, or 68 cents a diluted share, from $62.5 million, or 58 cents, in the year-ago quarter. Analysts’ consensus estimate was 62 cents.

Total revenues for the period were up 6.1 percent, to $1.03 billion from $971.6 million. Gains included a 9.6 percent jump in wholesale sales, to $628.9 million, and a 3.4 percent increase in retail sales, to $346.2 million; the balance came from licensing income. At retail, total company same-store sales rose 6.3 percent.

“We have made significant progress on all fronts, from opening new luxury stores to initiating steps to expand our accessories business in new categories such as watches and fine jewelry, to taking direct control of our Japanese business and our Internet business,” Ralph Lauren, chairman and chief executive officer, said in a statement.

Lauren added, with pride, that the “brand’s reach has grown to more than 80 countries and now represents more than $10 billion in retail sales worldwide.”

By operation, comps at Ralph Lauren stores rose 6.7 percent and at factory stores were up 6.3 percent. Club Monaco stores gained 5.3 percent. Sales at Polo.com were down 32 percent, excluding the impact of conforming Polo.com’s fiscal-year reporting period in the fourth quarter a year ago, but comps rose 27 percent.

For the year-end period, profits jumped 30.2 percent, to $400.9 million, or $3.73 a diluted share, from $308 million, or $2.87, a year earlier. Total revenues rose 14.7 percent, to $4.3 billion from $3.75 billion.

During the year, the company made a number of acquisitions, including a 50 percent stake in Ralph Lauren Media that it did not previously own. The company also acquired the Polo Ralph Lauren Leathergoods business, and conducted a tender offer for almost all of the outstanding shares of Impact 21, its Japanese sublicense for men’s and women’s apparel, accessories and jeans. It acquired the remaining 50 percent stake of New Polo Japan, the company’s master licensee in Japan.

Due to the acquisitions, which cost $360 million, the company lowered diluted earnings per share for fiscal 2008 to the range of $3.70 to $3.80 from a previous guidance of $3.95 to $4.05 a share.

After dipping in early morning trading, shares of Polo recovered to close at up 3.4 percent, to $96.41, Wednesday on the New York Stock Exchange. Over 2.5 million shares traded versus an average three-month volume of 767,962 shares.

In a telephone interview, Roger Farah, president and chief operating officer, said the company’s handbag license would expire at the end of the calendar year, and that the company was planning to bring the operation in-house.

“At Club Monaco, we’ve made so much progress. We have completed a wonderful year and are off to a great start. The merchandise assortments and store presentations are right on the money and [we are] looking at U.S. and international retail expansion….Rugby is still in the discovery phase in terms of customer profile and demographics, male/female and casual versus dressy. Surprisingly, age has been more elastic than we anticipated. It was interesting to find that [Rugby] appeals to the younger customer and that it reaches higher up [among some older consumers]. It appeals to those older, in their 30s, who are young at heart and contemporary in their thinking,” said Farah.

At the core Ralph Lauren business, the focus is on expanding in Europe and Asia. “I think it is interesting that for the Ralph Lauren family of brands, it is the aspirational [vibe] that runs through the younger businesses and the more mature businesses. They all want a piece of that lifestyle. When we opened in Russia, we weren’t sure how the Russian consumer would respond to an American luxury brand. We heard they were attracted to more flashy clothes and we found they responded to [our] sophisticated offerings because they wanted to be a part of our dream,” he said.

Up next for the company is the launch of American Living at J.C. Penney stores in February. The merchandise has been expanded to include more than 50 categories of men’s and women’s apparel, accessories, children’s and home products.