By  on November 8, 2007

NEW YORK — Polo Ralph Lauren is the latest company to sound a warning blast about the months ahead.

Even as Polo delivered second-quarter earnings ahead of Wall Street expectations, the fashion group lowered its full-year profit outlook over concerns of a possible consumer spending slowdown. With macroeconomic challenges looming in the company's second half, management now expects fiscal 2008 diluted earnings per share to be between $3.50 and $3.60, which compares with previous estimates of between $3.64 and $3.74.

"Despite the strong first-half results, we are taking a more conservative view of discretionary spending among U.S. consumers for the back half of the year," Roger Farah, Polo's chief operating officer, told Wall Street analysts, explaining the housing market and consumer credit issues could negatively impact holiday traffic patterns.

Farah emphasized the company's conservative view on near-term spending has not changed its strategy, nor its plans to execute against long-term initiatives and investments. Farah said that on the apparel side, the men's business has held up and "domestically, it's been the strength of the year to date." Women's, in contrast, has been softer.

In a telephone interview, Farah said the slowdown in women's has been mostly in career and sportswear. He said he expects the trend to change for the better in spring 2008.

"Customers at the high end continue to shop. Our cautious point of view is based on the better and moderate customer being pinched due to the tightening of credit and the troubling home market. The true luxury customer continues to spend," Farah emphasized.

The executive added that the revised guidance "reflects the reality of comp-store numbers in August and September, as well as the cautiousness of other wholesalers and retailers approaching the holiday season. By mid- to end of November we will know more."

For the third quarter, the company is projecting consolidated revenues to grow in the midsingle-digit percentage rate, as operating margins are expected to decline by 500 basis points due, in part, to investments in new business initiatives.

For the second quarter ended Sept. 29, the company's profits fell to $115.3 million, or $1.09 a diluted share, from $137 million, or $1.28, in the same year-ago period. The consensus among analysts was $1.02. Profits were impacted by $20 million as a result of acquisition costs related to Polo's purchase of its former Japanese sublicense and a leather goods licensee in the U.S. It expects these deals to reduce earnings by $60 million for the full year, Polo said.Revenues rose 11.3 percent to $1.3 billion from $1.17 billion, which included a 12.8 percent gain in sales to $1.25 billion from $1.1 billion. The balance of the revenues came from licensing income. Wholesale sales jumped 17 percent to $771.8 million from $659.9 million, due in part to growth in Europe, men's wear products and the Chaps brand.

At retail, sales rose 6.6 percent to $474 million from $444.6 million, while overall same-store sales gained 4.5 percent. By retail operation, comps rose 5 percent at Ralph Lauren stores, were up 4.2 percent at its factory stores, increased 5.5 percent at Club Monaco stores and jumped 28 percent at RalphLauren.com.

The quarter's results were impacted in part by increases in both total selling, general and administrative expenses to $502.6 million from $417.7 million last year and interest expenses of $6.2 million from $4.5 million a year ago.

"The global desirability of the Ralph Lauren brand continues to expand at a strong rate across all product categories," said Ralph Lauren, chairman and chief executive officer, in a statement.

For the nine months, profits declined by 6.3 percent to $203.6 million, or $1.92 a diluted share, from $217.2 million, or $2.02, last year. Total revenues were up 11.7 percent to $2.37 billion from $2.12 billion. Sales rose 13 percent to $2.27 billion from $2.01 billion, which included a 16.9 percent gain in wholesale sales to $1.35 billion from $1.15 billion and a 7.9 percent increase in retail sales to $924 million from $856.7 million.

Shares of the company finished the day up 2.1 percent to $67.73, which was in stark contrast to how most indices fared on Wall Street Wednesday. The Dow Jones Industrial Average shed 2.6 percent to 13,300.02, while the S&P 500 finished the day down 2.9 percent to 1,475.62 and the S&P Retail Index lost 1.6 percent to 430.66.

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