By  on June 13, 2005

NEW YORK — As Polo Ralph Lauren Corp. hurdled a slew of charges weighing down its bottom line to beat Wall Street's consensus estimate by a penny, the company inked an exclusive deal with Kohl's to deliver Chaps-branded apparel for women's and boys' wear.

The retailer currently carries Chaps-branded men's wear from Warnaco Group Inc., which licenses the brand from Polo Ralph Lauren. The line for Kohl's is a one-year exclusive contract, and the products are expected to ship next January and February. The products are rolling out in all of Kohl's stores. As of last month, the retailer operated more than 650 units.

Regarding the quarter, Roger Farah, president and chief operating officer, said during a telephone interview, "We've had a terrific spring, clearly fueled by the right fashion product in women's across all categories."

For the three months ended April 2, net income fell by 69.4 percent to $23.4 million, or 22 cents a diluted share, from $76.4 million, or 75 cents, in the year-ago quarter. Charges impacting profits relate to the company's litigation with Jones Apparel Group; an alleged security breach at its retail stores in connection with its computer system; expense adjustments for the accounting of leases, and a restructuring charge pertaining to consolidation of European operations. Excluding these items, net income rose 5.8 percent to $85.1 million, or 81 cents a diluted share, from $80.4 million, or 79 cents, in the prior year. Analysts' consensus had the company pegged to earn 80 cents.

Total revenues gained 10.2 percent to $902.2 million from $818.8 million. Revenues included a 3.5 percent rise in licensing income to $67.7 million and a 10.8 percent gain in sales to $834.5 million. The sales component includes contributions from wholesale sales, which rose 10 percent to $543 million, and retail sales, which increased 12.2 percent to $291.5 million.

For the full-year period, net income rose 12.5 percent to $190.4 million, or $1.83 a diluted share, from $169.2 million, or $1.68, last year. Total revenues jumped 24.7 percent to $3.31 billion from $2.65 billion, which included a wholesale sales gain of 41.4 percent to $1.71 billion — in part from the contribution of Lauren and children's — and a 15.2 percent gain in retail sales to $1.35 billion."Our results for fiscal year 2005 underscore the strength of our unique business, which continues to deliver strong growth and profitability," said Ralph Lauren, chairman and chief executive officer. He added that the company "has never been stronger and we continue to be a leader across all products, regions and customer segments."

Regarding the macroeconomic picture and its effect on consumer spending, Farah is optimistic. "I believe that the customer who has money will continue to spend on premium products, and we are the recipient of that….This customer will continue to be selective about what they want. But when they want something, they are willing to buy."

Regarding growth initiatives, the company is eyeing its Asian operation as well as the expansion of its Rugby concept.

Polo has focused for the past few years on ramping up its Asian business, a geographic region that Farah said has even "more potential for luxury products." Currently, the Japanese market constitutes 60 to 65 percent of total operations throughout Asia.

Domestically, the company will continue rolling out additional Rugby stores. Polo operates three of these stores, which target consumers ages 18 to 25.

"Our original plan for fiscal '06 was five or six, maybe seven. But we're looking to accelerate that, because we really think we're onto something," Farah said during a conference call with investors. "It will be a couple of years before that kicks in to be a profitable contributor. But if that really turns out to be what we think it can, it has the potential to be enormously successful on a vertical basis."

Farah said the company has been encouraged by the success of Rugby, "but we're not giving in to the international partners we have who are clamoring to get Rugby out into their marketplaces."

With the Chaps-Kohl's deal, the retailer said in a statement Friday that Chaps for women will feature "a distinct, high-quality assortment of women's lifestyle sportswear such as woven and knit tops, shorts, pants, sweaters and outerwear."

"At the same time, Chaps for boys will also be launching, offering an assortment of woven and knit tops, denim and chino bottoms, sweaters and outerwear," the retailer said in a statement, adding that Polo Ralph Lauren will be "responsible for product design, development, production and delivery."Kevin Mansell, president of Kohl's, said the retailer is "confident that the high-quality, classic style will resonate with shoppers."

Last year, the retailer brought in the licensed Chaps brand for men by Warnaco, which has been successful. Nancy Murray, Polo's senior vice president of public relations and financial communications, said during the conference call with investors that the company's "expansion into new product categories with our Chaps line for men has been very well received. We have identified and employed successful strategies in our wholesale business, and we're partnering with our licensees to take the same approach to all of our brands."

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