Ralph Lauren built much of his empire on images of the American West but he’s now looking east — to Southeast Asia — as his firm seeks new pockets of growth in the 21st century.
This story first appeared in the May 28, 2009 issue of WWD. Subscribe Today.
On Wednesday, as Polo Ralph Lauren Corp. reported lower sales and restructuring charges drove down fourth-quarter profits by 57 percent, the company laid out plans for accelerated growth in selected parts of Asia. Polo will assume direct control of its wholesale and retail distribution in Southeast Asia at the beginning of next year and is creating a Hong Kong-based hub to oversee operations in the region.
“Southeast Asia is projected to grow the most in the next 10 to 12 years, and we’ve been building our organizational teams so we can hit the ground running,” Roger Farah, president and chief operating officer, told WWD, adding the firm ultimately expects the region to account for one-third of its sales.
Farah said eventually the company also will look to India, but right now that market isn’t as developed for luxury brands.
Polo generates $150 million in retail sales across eight Southern Asian countries.
He emphasized that although the focus will be on international expansion, the firm is definitely not cutting back its U.S. operations. Nor is it ignoring Eastern Europe, where it’s begun exploring licensing partnerships, or Japan, where the company hopes to nurture less developed categories such as women’s and children’s wear and accessories.
The road to further expansion should be made easier by Polo’s balance sheet, which, as of the March 28 conclusion of the fourth quarter, listed cash, cash equivalents and short-term investments of nearly $820 million, up from $625.8 million at the end of last year. Long-term debt at yearend was $406.4 million, down from $472.8 million a year ago, with no current maturities.
But even Polo isn’t immune to the recession. For the three months, income was $44.5 million, or 44 cents a diluted share, 4 cents better than consensus estimates. Eliminating $48 million in pretax, noncash asset impairment and restructuring charges, including those from a head count reduction of 500, income was $87 million, or 86 cents. The year-ago profit was $103.5 million, or $1 a share.
Revenues fell 1.3 percent to $1.22 billion from $1.24 billion. Wholesale volume picked up 3.3 percent to $811.5 million, while retail and licensing revenues declined 8.4 percent and 15.9 percent, respectively, to $366.4 million and $46.5 million.
Same-store sales fell 15.9 percent, reflecting a 29.3 percent drop at Ralph Lauren stores, a 20.8 percent drop-off at Club Monaco and an 8.8 percent letup at factory stores. Licensing royalties fell due to the company’s assumption of direct control of children’s wear and golf apparel in Japan. Ralphlauren.com sales rose 12 percent in the quarter.
For the year, income fell 3.3 percent to $406 million, or $4.01 a diluted share, from $419.8 million, or $3.99, last year. Revenues rose 2.8 percent to $5.02 billion from $4.88 billion, which included a sales increase of 3.3 percent to $4.82 billion from $4.67 billion.
Polo’s shares on Wednesday fell 35 cents, or 0.6 percent, to $54.03. Their 52-week high, reached Sept. 19, was $82.02 and the corresponding low, hit on Nov. 20, $31.22.
“We’ve had to make difficult choices to react to the current environment, but we are managing the business prudently and making decisions for sustained success over the long term,” said Ralph Lauren, chairman and chief executive officer.
Farah said on a conference call with analysts that consumers are spending with a fixed budget in mind, and not going over that limit. He said that “demand is strongest for need-now, wear-now merchandise [and there is] very little nice-to-have buying or purchasing ahead of next season.”
He said the company is planning on exclusives with Macy’s Inc., such as launching in-product categories, whether in men’s or women’s, that are not already a big part of its business at the department store.
He also said the company has lowered price points in the American Living line sold at J.C. Penney, and as a result what has been seen is a “more positive sell-through.”
“We’re all looking for those green sprigs of growth that President Obama talks about. I was pleased to see consumer confidence rebounding,” Farah said, noting how difficult the retail environment has been since September 2008.
“This is an unusual recession. Usually luxury is not hit as much. We are returning to normal, whatever that normal looks like. The consumer remains careful. At the luxury price point…they are selective and the product really has to stand out,” Farah said.