NEW YORK — Polo Ralph Lauren Corp. had a solid fourth quarter, and it’s looking for a blockbuster fiscal 2005.

The quarter was filled with multiple moving parts, yet the company got closer to its long-term goal of improved operations. Management said Wednesday total revenues gained 18.3 percent to $818.8 million from $692.3 million, which included a 12.5 percent decline in licensing royalties to $65.4 million from $74.7 million reflecting the shift in contribution from the Lauren line to wholesale sales. Retail sales gained a solid 32.6 percent while the Lauren by Ralph Lauren launch was on time and on budget.

This story first appeared in the May 27, 2004 issue of WWD.  Subscribe Today.

The company also noted the consolidation of the European operation was completed on schedule. And Wednesday, the firm acquired greater control of its children’s wear license, with expectations to close a deal next month.

“We produced continued success in our retail group, we took back Lauren by Ralph Lauren and quickly built it into an even stronger brand, and we made remarkable progress on our long-term global strategies,” said Ralph Lauren, chairman and chief executive officer, in a statement.

For the three months ended April 3, income rose 4.5 percent to $76.5 million, or 75 cents a diluted share, versus $73.2 million, or 74 cents, in the same year-ago quarter. Excluding restructuring charges and foreign currency gains and losses in both periods, income was $80.4 million, or 79 cents a diluted

solid 32.6 percent while the Lauren by Ralph Lauren launch was on time and on budget.

The company also noted the consolidation of the European operation was completed on schedule. And Wednesday, the firm acquired greater control of its children’s wear license, with expectations to close a deal next month.

“We produced continued success in our retail group, we took back Lauren by Ralph Lauren and quickly built it into an even stronger brand, and we made remarkable progress on our long-term global strategies,” said Ralph Lauren, chairman and chief executive officer, in a statement.

For the three months ended April 3, income rose 4.5 percent to $76.5 million, or 75 cents a diluted share, versus $73.2 million, or 74 cents, in the same year-ago quarter. Excluding restructuring charges and foreign currency gains and losses in both periods, income was $80.4 million, or 79 cents a diluted share, compared with $76.1 million, or 77 cents, a year ago.

Total revenues included a 22 percent jump in sales, which reflect a 17 percent increase in wholesale sales to $493.5 million from $421.7 million and a 32.6 percent spike in retail sales to $259.9 million from $195.9 million. Same-store sales gained 11 percent at the Ralph Lauren stores, rose 23.8 percent at the Club Monaco chain and were up 7.7 percent in the company’s outlet sites.

Roger Farah, president and chief operating officer, told Wall Street during a conference call that the company expects fiscal 2005 to be a breakout year in which the firm will reap the benefits from various initiatives, including the completion of a consolidated European business as well as recent supply chain and infrastructure enhancements.

“As you know, we’ve taken strategic steps over the past few years to establish a more direct control over our brand, and we see [the acquisition of our children’s business from our licensee] as an opportunity to more fully develop our kids brands to optimize the financial contribution it makes to our company,” Farah explained.

He said in addition to the firm’s wholesale business, the company plans to “introduce additional product categories and expand the business through our Ralph Lauren retail stores, taking advantage of vertical retail margins and support a major international opportunity.”

The company will open its first Milan flagship in September and will continue to review opportunities in the Pacific Rim. It already owns a 51 percent stake in its master license in the Japanese market.

Another opportunity for the company will be an expansion of its Chaps label to other product categories, including the women’s market. On the agenda first is the expansion of the Chaps men’s wear line to other categories such as dress shirts, neckwear, hosiery and small leather goods. Some of the newer products will begin shipping in time for spring 2005. Later, the expansion for Chaps will include women’s and children’s wear, and denim.

Farah, in a telephone interview, said, “We expect the new Chaps line for women to hit the marketplace in time for fall 2005.”

He said the company won’t be doing any of the work in-house, and is looking for new licensees for all of the expansion categories. Farah didn’t comment on whether Warnaco, which currently holds the men’s wear component of the Chaps license, might be in the running for any of the expanded apparel categories.

As for retail, Farah disclosed that many of the gains were attributed to strong reception of merchandise offerings by consumers.

“A lot of it had to do with product and color, whether it was men’s, women’s or home. Blue label also performed strongly and we think that addition to [our existing] Purple and Black labels has really helped,” he said.

The company, which has been adjusting inventory levels, believes the levels at the different distribution tiers are now where they should be. One benefit will come from increased prices at its outlet stores.

“We think that because of reduced off-price availability, there’s an opportunity with less product in the marketplace to improve the pricing strategy in the outlet stores,” he explained.

A particular source of pride for the company this quarter was the ability to relaunch Lauren in 900 department store doors in a relatively short amount of time. Polo regained the license last year when Jones Apparel Group elected to give it up because of a dispute. The parties are in litigation over the matter, and a trial date is expected for sometime next year.

“We made some disbelievers into believers. We’re still learning what improvements in quality we could make to the line. We’ve noticed that the average price of our [Lauren] products out the door is higher than it was this time last year,” Farah said.

He said the company will continue with a focus on classic and career styling, but will wait until after the fall season before determining where the adjustments should be made.

Farah also noted that because its department store customers are getting higher gross margin sell-throughs at full price, there’s a good chance that ultimately better profits at the store level will “translate into more business for us. But it all starts with better product that is priced right. Department stores are cleaner [in terms of inventory levels] and have made a conscientious effort to promote less.”

Jennifer Black, an analyst at the firm that bears her name, observed, “Next year will be the year when they will reap some rewards and if the European economy picks up, that will be frosting on the cake. The company is on a very good track, taking control of its destiny and they are perfectly set up to capitalize on many back-of-the-house things such as logistics and taking back some licenses.”

Black also noted that the continuing successful track record in the last few years is largely attributed to the combination of teams, one led by Lauren and the other by Farah.

“You can do everything right in the back of the house, but if you don’t have great product, it doesn’t matter. Conversely, you can have great product, but if you can’t execute it, that also won’t matter. This company is split 50-50, with a great combined team effort led by Ralph and Roger,” she said.

The company reiterated its fiscal year 2005 outlook, with earnings per share of between $2.35 and $2.45. Included is an expectation of high-single-digit percent revenue growth. The company said it expects wholesale revenues to show high-teen percent growth and retail sales in the mid-single-digit percent gains. The first quarter, ending in June, is typically its smallest quarter. The other quarters are expected to produce strong growth due to the Lauren line’s fall shipments in the second, seasonal retail sales gains in the third and the largest wholesale shipments in the U.S. and Europe in the fourth.

For the year, income dipped 1.9 percent to $171 million, or $1.69 a diluted share, from $174.2 million, or $1.76 a share, a year ago. Total revenues were up 8.6 percent to $2.65 billion from $2.44 billion.

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