NEW YORK — Not content with resting on its laurels with another solid quarter, Polo Ralph Lauren Corp. is eyeing a bolder presence in the luxury accessories market, developing a game plan for Asian business and becoming a leader in the collegiate space through the expansion of its Rugby concept.
For the third quarter ended Jan. 1, income more than doubled to $74.8 million, or 72 cents a diluted share, from $35.4 million, or 35 cents, in the year-ago period, while total revenues rose 37.6 percent to $888 million from $645.4 million. Included in revenues was a 95 percent jump in wholesale sales to $427.4 million from $219.1 million, which came mostly from Lauren and the addition of the children’s wear business. Results also were bolstered by a 12.1 percent gain in retail sales to $402.6 million from $359 million. However, total sales were impacted by a 13.8 percent decline in licensing revenue to $57.9 million from $67.2 million.
In the retail segment of the business, same-store sales rose 6.1 percent, on top of a consolidated 8.8 comps increase from a year ago. By segment, comps rose 3.4 percent at Ralph Lauren, were up 6.7 percent at Club Monaco and jumped 7.2 percent at the company’s outlet stores. The company operated 15 more stores in the current period versus a year ago.
“I am proud of our company and how it continues to perform. We have a unique business model that stretches from wholesale to retail across many families of businesses and many geographies,” said Ralph Lauren, chairman and chief executive officer, in a statement.
The ceo added, “Our results show we continually reignite our brands with new products and new markets. We expect to produce another record year next year and we are positioned for continuous growth beyond that.”
Roger Farah, president and chief operating officer, told Wall Street analysts during a conference call, “While we continue to focus on short-term results, we are willing to invest in the long-term health and growth of our business.”
He said for 2006, initiatives include growth in retail, “where we’ll continue to expand new stores in the U.S. for Ralph Lauren and Rugby.” Farah said the company is going to continue to “improve the flow of fresh product with investments in our Greensboro distribution center” as well as refine the cost structure in Europe for its retail businesses.“We’re focused on building a flagship in Tokyo, Japan, to continue the important expansion in Asia and create a statement for Japan as we did in Europe,” Farah said.
Farah added the company has undertaken “significant studies” to help the firm better understand and develop a long-term point of view about Asia and Australia. In addition, he told analysts that Polo continues to “review opportunities in Russia as well as other growing luxury markets.”
The company’s business in Asia is either through product-specific licenses or geographic territory licenses. In a telephone interview with WWD, Farah said Polo has “meaningful businesses in Japan, Korea, Singapore, Taiwan and Australia. We are not deeply invested in China and we don’t have anything in India. We know that well over a third of the luxury goods in the world are [sold] in that part of the world.”
Look for the firm to expand its presence in the accessories category with more handbags, small leather goods and footwear. While the company already has a small product offering in those categories, Polo has undertaken an initiative to ramp up those businesses and be a player in the luxury accessories segment. Farah said the company gave the category a “priority” in its Milan flagship, and noted the favorable reaction from the Milanese customers.
A source at Polo told WWD that Lauren wants to “build a luxury accessories business that could rival the luxury companies of Europe.” While most of the European firms are structured with 85 percent accessories and 15 percent apparel, no decision has been made yet on what percentage the accessories business will play in the overall component of the firm’s multisegment operations.
Another operating segment that will see a bigger presence on the retail front will be Rugby, the concept that Polo started last year as a test in Boston. “We believe that this is the right time to take a leadership role and better connect with the important 18- to 25-year-old customer,” Farah said.
A second Rugby store will open in Chapel Hill, N.C., near the University of North Carolina campus, later this month, with a third to follow in March near the University of Virginia campus at Charlottesville. According to Farah, the company plans to open between eight and 10 Rugby stores during fiscal 2006.According to sources at the company, the expectation is that Rugby will gain more prominence on the retail front, with one well-placed executive stating that “Rugby will be the next Polo in terms of size, scope and importance in longevity.”
The company’s outlook for fiscal 2006 is for midsingle-digit percent consolidated revenue growth, with earnings per share in the range of $2.75 and $2.85. The company’s board also authorized the repurchase of up to $100 million, in addition to the remaining $20 million balance of the current program, set to expire on April 1, 2006.
In the nine-month period, income rose 78.6 percent to $168.7 million, or $1.63 a diluted share, from $94.4 million, or 94 cents, a year ago. Total revenues gained 29.1 percent to $2.36 billion from $1.83 billion, which included a 63.1 percent jump in wholesale sales and an 11.8 percent increase in retail sales.
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