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Strong Sales Boost Polo’s Earnings 48.9%

Investments made to its brand and operations are paying off for Polo Ralph Lauren Corp., which delivered robust second-quarter sales and earnings.

NEW YORK — Investments made to its brand and operations are paying off in a big way for Polo Ralph Lauren Corp., which delivered robust second-quarter sales and earnings on Wednesday.

Management said results were boosted by the inclusion of the women’s Lauren by Ralph Lauren line, and the successful integration of RL Childrenswear, a former licensee, into the wholesale business. A sales gain in Europe along with the repositioning of the Polo brand in select department and specialty stores also bolstered the top and bottom lines.

In turn, net income jumped 48.9 percent in the quarter ended Oct. 2 to $80.4 million, or 78 cents a diluted share, from $54 million, or 54 cents, in the same year-ago quarter. Excluding restructuring charges and currency translation gains, income was $79 million, or 76 cents a diluted share, versus $52.9 million, or 52 cents, last year. Total revenues rose 24.9 percent to $883.7 million from $707.8 million, which included a 16.6 percent decline in licensing revenue to $62.1 million and a 29.7 percent spike in sales to $821.5 million. Sales included a 49.5 percent increase in wholesale sales to $502.6 million and a 7.4 percent increase in retail sales to $319 million.

“We believe the results are a culmination of several layers of sticking to our strategy, whether it’s investment in time and energy put into our retail business or integrating the kids line or Lauren,” said Roger Farah, president and chief operating officer. “We’ve cleaned up distribution so the product is getting more scarce, giving [us] better sell-throughs, in addition to our marketing and design of the product. It is all coming together nicely even in a choppy retail environment.”

Licensing revenue declined due to the company’s buyback of its Lauren and its RL Childrenswear licenses, both of which added to the company’s wholesale volume. The company said that, despite losing $6 million in sales in hurricane-affected areas, same-store sales rose 3.7 percent overall, with a 14.2 percent rise in Ralph Lauren stores and a 4.4 percent gain at Club Monaco stores. The gain in comps was on top of an overall 8.3 percent increase in the year-ago quarter.

The company continues to flow fresh fashions into the department stores and its own freestanding stores on a regular basis, a move that’s driving a greater percentage of sales at full price. In addition, the company is in the process of implementing a new global wholesale and manufacturing system that will help it better forecast global demand and move product to where it’s needed.

“This touches all pieces of manufacturing and wholesale in the company,” Farah explained. “We could be oversold on an item in Europe and undersold in the U.S. The product is made in the same factory, with no way of matching up supply and demand. With the right system at the point of manufacture, we can redirect the product to where it’s needed and reduce excess inventory.”

Ralph Lauren, chairman and chief executive officer, told Wall Street he was pleased with the expansion of Polo’s “luxury position.” He was referring in part to the company’s new flagship in Milan, which opened in September, which gives Polo a new site to highlight both its men’s and women’s collections. Lauren also noted the recent launch of the firm’s new brand, Rugby, which targets a younger customer with a point of view that is “cooler, hipper and has an attitude.”

For now, the company is content in proceeding slowly with Rugby. Four or five stores are slated for next year. But after the strong response of the Boston opening last week, the firm may expand the flag here and abroad. Meanwhile, as Ralph Lauren stores continue to post healthy comps, Farah said the better and moderate business at the department store level is softer in the fall than in spring. He said while spring and summer orders remain good, there is a likelihood that retailers — because of the new players entering the marketplace — will be forced to evaluate how many better lines they can support. Farah predicted Lauren will be a long-term winner as retailers edit down their lines.

For the six-month period, income skyrocketed 58.8 percent to $93.8 million, or 91 cents a diluted share, from $59.1 million, or 59 cents, a year ago, while total revenues jumped 24.5 percent to $1.48 billion from $1.19 billion last year, which included a 12.6 percent decline in licensing income. Total sales jumped 29.4 percent to $1.36 billion, which included a 49 percent hike in wholesale sales to $741.6 million and an 11.6 percent increase in retail sales to $615.8 million.