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Polo Express Rolls On: Eyes European Growth As Profits Leap 31.5%

The news from Polo Ralph Lauren Corp. just keeps getting better.

NEW YORK — The news from Polo Ralph Lauren Corp. just keeps getting better.

The fashion house on Wednesday reported a 31.5 percent gain in net income in the second quarter ended Sept. 30 to $137 million, or $1.28 a diluted share, on a 13.6 percent increase in revenues to $1.17 billion. Polo also upped its full-year earnings guidance and said it was making a $9 million acquisition of its belts and small leather goods license.

Shares of the company soared on the quarterly report, jumping 6.4 percent to $76.12, which is a new 52-week high.

“We are one of the healthiest and fastest-growing fashion luxury businesses today,” Ralph Lauren, chairman and chief executive officer, said in a statement. “The key to our continued success is our focus, whether it is product and/or how we operate our business. And our growth comes from our commitment to consistency that stays true to a single point of view.

“We are a very strong company that has been built on quality with a long-term view. It is never of the moment. We have built a powerful business because we are connected, in vision, in fashion and in how we run the company,” Lauren added.

The results compare with net income of $104.2 million, or 97 cents, in the same year-ago period, and beat Wall Street estimates by 22 cents. Analysts were expecting earnings per share in the second quarter of $1.06. Revenues for the corresponding period a year earlier were $1.03 billion.

For the six months, net income gained 40.2 percent to $217.2 million, or $2.02 a share, from $154.9 million, or $1.46, last year. Revenues rose 19.2 percent to $2.12 billion from $1.78 billion, which included a 25.8 percent gain in wholesale sales to $1.15 billion and a 15.1 percent rise in retail sales to $856.7 million.

Wholesale sales increased 14.3 percent to $659.9 million from $577.5 million, while retail sales gained 14.8 percent to $444.6 million from $387.2 million. Excluding the effect of the company’s Polo Jeans acquisition, wholesale revenues increased 6 percent. As for retail sales, comps rose 9.3 percent in the quarter. By segment, same-store sales increased 15.9 percent at Club Monaco stores, 9.6 percent at Ralph Lauren stores and 8.4 percent in its factory stores. Polo.com sales grew 35 percent versus a year ago.

“It was obviously an outstanding quarter in the first six months by any measure,” Roger Farah, president and chief operating officer, said during a conference call to Wall Street analysts. “I think Ralph really said it best [in his statement] when he talked about our company strength being our clarity and focus. We have a world-class team at Polo that is focused on common objectives. We are very clear on who our customer is, and all of our products and all of our brands are focused on that customer and our channels of distribution are positioned to service those customers.”

Farah credited some of the financial success of the company to its ability to leverage its shared expense model. He added that much of the incremental sales are flowing through to the bottom line. Regarding Polo’s retail operation, the company is planning to add more stores in the next three to five years.

In a telephone interview, Farah said, “We’ve done an extensive analysis of 65 markets in Europe for potential Ralph Lauren stores, and we’ve narrowed the focus to 18 key markets.” He cautioned that because of the difficulties in procuring real estate in Europe, it could take several years to get the right sites.

Farah said with only 13 freestanding Ralph Lauren stores in Europe, the initial focus would be to increase that retail brand. However, Farah noted there are increasing opportunities for the sale of derivative merchandise at freestanding stores, and cited the children’s store on Bond Street in London as an example.

The acquisition of the belt and small leather goods licensee New Campaign Inc. from Kellwood Co. is expected to close by March 31. Kellwood’s New Campaign division produces Polo, Ralph Lauren, Lauren and Chaps belts and small leather goods for men and women. Kellwood will provide Polo with transition services for up to one year following the close of the transaction.

Farah said completing the purchase of New Campaign, a “North American license,” would leave just one domestic license with Wathne for handbags that Polo doesn’t own. Farah emphasized there are no plans to acquire Polo’s handbag license.

Handbags were one of the highlights of the holiday season last year. This year, Farah said, “I think we’ll have a pretty solid holiday season. The economy is pretty stable and consumers are spending when they want something.”

Farah said he expects luxury products such as apparel for high-end gift-giving this year. He also said children’s merchandise should be strong for the company.

One other segment the company is looking forward to is the launch of the denim lines for Lauren and Polo. “The customer reaction has been terrific,” Farah said. “The retailers have seen it and placed their orders for spring, and they are now reacting to summer. The deliveries will be in late January and early February. We’re encouraged.”

The plan is to have the denim offerings in areas adjacent to the parent merchandise, such as Lauren denim next to the Lauren floor sets.

“Polo is a debt-free company that is able to take advantage of opportunities….The company is in a class of its own, and we believe the company’s goal of balancing out the revenue between Europe, Asia and the U.S. will further add to the stability of Polo’s anticipated growth trajectory,” Jennifer Black of Jennifer Black & Associates wrote in a research note.

The company projected consolidated revenue growth for the third quarter to be low double digits, reflecting low-double-digit percent growth for both retail and wholesale. For the year ending March 31, Polo is expecting an EPS in the range of $3.50 to $3.60, up from prior guidance of $3.25 to $3.35.