By  on February 7, 2008

Bolstered by strong wholesale sales and a lower tax rate, Polo Ralph Lauren Corp. on Wednesday posted third-quarter results that easily beat Wall Street's expectations.

The company also acknowledged a shift in shopper sentiment and spending, but told WWD that consumers seem to be pulling back more in the U.S. than in other markets. Roger Farah, president and chief operating officer, described the change in consumer sentiment and spending patterns as "unprecedented," referring to the abruptness of the change and how it was felt across all channels in the U.S.

Farah said in an interview that overseas consumer spending "is better than the U.S., whether in Europe or Asia. International seems less affected. While it is speculation on our part, we think international is in better shape. The consumers are traveling more and spending more. We're watching it."

For the three months ended Dec. 29, net income gained 2 percent to $112.7 million, or $1.08 a diluted share, from $110.5 million, or $1.03, a year ago. Analysts were expecting earnings per share of 77 cents. The tax rate in the quarter was 31.1 percent compared with 38.9 percent a year ago, due to the resolution of certain tax items.

Total revenues for the quarter rose 11 percent to $1.27 billion from $1.14 billion. Total revenues included a 12.9 percent increase in sales to $1.22 billion from $1.08 billion, with the balance from licensing income. The sales gain includes a 17 percent spike in wholesale sales to $626.7 million from $535.8 million, due primarily to the shipments of American Living merchandise to J.C. Penney, and an 8.9 percent increase in retail sales to $588.5 million from $540.4 million. Same-store sales rose 5.7 percent, reflecting a 6.4 percent comps gain at Ralph Lauren stores, a 6.2 percent increase at factory stores, and flat comps at Club Monaco stores. sales jumped 23 percent, driven by double-digit gains in all categories, the company said.

For the nine months, net income fell by 3.5 percent to $316.3 million, or $2.99 a diluted share, from $327.7 million, or $3.04, a year ago. Total revenues rose 11.5 percent to $3.64 billion from $3.26 billion.

During a conference call to Wall Street analysts, Farah said, "We met our expectations for the first nine months of fiscal 2008, even as we continue to make significant investments in long-term initiatives, many of which are just being launched now in the final months of our fiscal year....Internationally, our wholesale and retail businesses continue to be strong across all regions of Europe, although we did see softening trends in the U.S. and Japan.""The talent of our creative and managerial teams and our increasingly global reach are enviable assets that position us well for long-term growth," said Ralph Lauren, chairman and chief executive officer.

On deck for the company is the opening of three Paris locations over the next 15 months, a market that has been underdeveloped for Polo. The plan is to integrate its retail and wholesale strategy where its retail presence serves to boost a strong wholesale business.

The company is somewhat following a trend in retail where flagships seem to get bigger and bigger. Farah said, "The stores are getting bigger and, in our case, it is partly a reflection of the number of lines we now have versus a year ago." The lines include men's Purple, Black and Blue labels, as well as the women's Ralph Lauren Collection, Black and Blue labels. In addition, the stores house the RLX performance line, accessories and home products, among other offerings.

Farah was quick to note that only a handful of major cities around the world can support the larger store format, such as New York, Tokyo and Paris, and that companies utilize the format for both branding and to house more merchandise.

On the agenda for this year is the planned launch on Feb. 24 of American Living at J.C. Penney; the growth of the dress classification across its Lauren, Chaps and American Living brands, and the development of a high-end line of luxury watches in partnership with Richemont that will launch in spring 2009.

While flat same-store sales at Club Monaco suggested something amiss at the division, Farah was quick to note otherwise, saying comps in the current period were "OK," considering the holiday retail environment and that they were up against a 19 percent gain a year ago. Meanwhile, same-store sales picked up with the spring deliveries, which also reflect more color in its assortment.

The company raised its fiscal 2008 full-year diluted EPS guidance to between $3.64 and $3.74 a share, compared with prior expectations of between $3.50 to $3.60 a share. Analysts were expecting around $3.47. For the fiscal 2009 full-year outlook, the company said it expects diluted EPS at between $3.95 to $4.05. Analysts were expecting $4.31 a share.

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