By  on August 9, 2006

NEW YORK — Polo Ralph Lauren's momentum rolled on in the first quarter as income leaped 58 percent and revenues increased 26.8 percent for the period ended July 1.

The company accomplished this in part through raising sales per square foot in its U.S. stores to $900 from $500, tailoring assortments by region and by door, and leveraging systems and supply chain investments in its European operations. The 58 percent gain in first-quarter income was on top of an impressive 298.5 percent jump in the same quarter a year ago.

First-quarter income was $80.2 million, or 74 cents a diluted share, up from $50.7 million, or 48 cents, in the same year-ago quarter. Revenues rose to $953.6 million from $751.9 million, which included a 45.7 percent jump in wholesale sales to $491.2 million and a 15.3 percent gain in retail sales to $412.1 million. Excluding the impact of the footwear and Polo Jeans Co. acquisitions, net revenues increased 19 percent.

The increase beat Wall Street consensus estimates for earnings per share of 67 cents by 7 cents.

"One of the keys to our success is that we convey our passion and our clear point of view in all we do. That vision is represented in all of our brands and in every product category, whether it is men's wear, women's wear, children's wear, accessories or home," said Ralph Lauren, chairman and chief executive officer, in a statement. He added the company is "carrying the best of what we do to Europe and Asia."

For the year, the company is projecting EPS of $3.25 to $3.35. Polo's previous per-share guidance for fiscal year 2007 was in the range of $3 to $3.10.

"We've really had back-to-back strong results," boasted Roger Farah, president and chief operating officer, in a telephone interview. "We have a good team, a lot of talent and people all pushing in the same direction. It is not a great [retail] environment….We had a 15.7 percent operating profit in the first quarter in a retail business people at first weren't sure we should be in."

Farah told Wall Street analysts during a conference call that the company in the last four years has "raised our sales per square foot from approximately $500 to almost $900 a square foot. We are really concentrating on all formats, in improving the flow of new fashion products and how we present them to the customer. We continue to tailor our assortments by region and by door, and we are getting improved gross margin rates from better sourcing and better full-price selling."He also noted that Polo is "leveraging [its] growing scale for efficiencies in transportation and logistics, where we are seeing real savings and speed to market despite the growing gas prices. Obviously, that is leading to better sell-throughs, faster inventory turns and improved results."

Farah called the ability to micromanage a business by store and locale "incredible," and noted that micromanaging both domestically and internationally has "paid big" dividends for Polo. With the exception of Spain, all Polo's European operations had a "powerful" quarter, both in retail and wholesale, he said.

"It is really gratifying to see Ralph Lauren as a brand and lifestyle being received on a global basis….[We have the] right kind of distribution of product placed in the right kind of store. We have a nice interplay between retail and wholesale, and we've opened key designer shops in Selfridges and Harrods," Farah noted.

Next up is fine-tuning the company's Asian businesses, which Polo already has started. According to Farah, the company has begun working with its Asian licensing partners to be more actively involved in assortment and marketing plans, and the design of store build-outs. Polo believes it can elevate the luxury and fashion assortments and that results from the improvements will be reflected in the earnings reports for fiscal years 2008 and 2009.

Throughout the organization's businesses, the goal, whether in the U.S. or overseas, is flowing fresh product and not having huge quantities of merchandise on hand. To be sure, it is a plan that is more easily doable with Polo's own freestanding stores and working with its licensing partners than at the department store level.

"Our loyal customer is in our store often looking for what's new. We operate our business on receipts, not absolute store levels. We look at the flow of new receipts gotten in the last 30 days that can drive the business over the next 30 days," Farah explained.

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