If the luxury customer has pulled back on spending, it wasn’t obvious at Polo Ralph Lauren Corp., which on Wednesday posted a second-quarter profit gain of 39.6 percent, beating analysts’ estimates by 33 cents.
Polo said income for the quarter ended Sept. 27 rose to $161 million, or $1.58 a diluted share, from $115.3 million, or $1.09, in the same year-ago period. The quarter’s results were boosted by an increase in sales at the company’s off-price factory stores and higher European wholesale sales. Total revenues gained 10 percent to $1.43 billion from $1.3 billion. Revenues include a 9.6 percent increase in wholesale sales to $846.2 million and an 11.9 percent gain in retail sales.
At retail, total comparable-store sales rose 5.1 percent, which included an increase of 0.3 percent at Ralph Lauren stores and 8.2 percent at factory stores, and a 3.7 percent decline at Club Monaco stores. In addition, ralphlauren.com sales increased 31 percent, boosted by double-digit gains in all major categories, the company said. The balance in revenues was from licensing income.
For the six months, income jumped 25.8 percent to $256.2 million, or $2.51 a diluted share, from $203.6 million, or $1.92, in the same prior-year period. Total revenues rose by 7.3 percent to $2.54 billion from $2.37 billion.
“Our strong performance for the first six months of the year confirms that we are on the right strategic course,” said Ralph Lauren, chairman and chief executive officer.
“While global uncertainty is a reality that we will likely be living with for some time, the desirability of our brand and products continues to expand worldwide. Our business has endured through good times and bad over the last 40 years and we’ve always emerged stronger from any challenge,” the ceo added.
President and chief operating officer Roger Farah told Wall Street analysts during a conference call, “We are pleased to be reporting strong second-quarter results that exceeded our expectations….And finally we have a solid strategy to grow shareholder value over the long term.”
Farah explained that the strategy, focused on elevating the Ralph Lauren brand, is three pronged: the growth of the company’s international presence; direct-to-consumer expansion, and new merchandise development and product innovation.
And, while the European business grew nicely in the quarter — it has grown fivefold to more than $1 billion during the last six to seven years — at both the wholesale and retail channels, the company will next take those European growth strategies to Japan. The firm last year assumed direct control of its Japanese men’s, women’s and jeans product, and in August, its children’s and golf apparel, giving Polo control over the majority of the Japanese product categories. While before, Japan was heavily skewed toward men’s casual sportswear, the acquisition of former licensing operations allows the apparel firm to introduce new labels and focus on the points of distribution. The firm is training its Japanese employees and plans to expand the number of Japanese doors. In addition, next year the company will source product for Japan through its own global manufacturing network instead of through third-party trading firms.
During an interview, Farah said the certainty of having the election process completed is a “positive” for consumers, given that it is one less thing for shoppers to worry about. However, that isn’t going to change holiday plans at the company’s stores.
“The holiday period from Thanksgiving through Christmas is mostly gift giving and consumers buying for themselves. I think gift giving will be pretty decent. [We are planning] key items for gift giving featuring great product in multiple colors….The business may come under some pressure where consumers are buying for themselves,” Farah said.
The Polo president added that the company is not planning any adjustments to opening price points or on product or pricing that would be considered a “trade down.” If anything, the company will offer more unique or unusual items that might not be available elsewhere.
As for the comps decrease at Club Monaco, Farah attributed that to the reluctance to spend by the female shopper. The women’s categories represent 65 percent of sales at the chain. Going forward, the chain will feature more accessories and Polo will focus on the expansion of Club Monaco stores overseas, particularly in Asia.
The company expects a low-single-digit increase in net revenues during fiscal 2009, and reaffirmed estimated diluted earnings per share at between $4 and $4.10.
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