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.
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