Speaking of the buying public, Farah said, “They’re not as interested in sales as they were a year ago. They’re making selections based on what they want. If they like the product, they buy it.”
He made the remarks following Polo’s disclosure Tuesday of second-quarter profits that grew 10.2 percent, as a favorable tax rate and lower expenses helped the company compensate for a 3.8 percent decline in revenues.
Farah said he believes that, as the industry “anniversaries” the depressed sales results of a year ago, customers are showing a new interest in shopping and buying. Part of this, he noted, is that consumers know inventories are lower than they were a year ago, and desirable items might be out of stock if not purchased immediately.
“This holiday season will teach us a lot,” he said. “Orders for spring 2010 — placed in July — were still cautious. Most retailers felt that if they are [going to run] short, they can chase sales a little bit. They planned carefully to get through holiday, and in January and February they’ll evaluate how they feel about fall 2010.”
The trials and tribulations of the past year also have produced a side benefit: “Customers, retailers and wholesalers are more aligned than ever over when product needs to be in the stores,” said Farah.
Polo, which so far this year has generated nearly 56 percent of its revenues through wholesale operations, was among the first apparel firms to emphasize working with retailers to get product onto the sales floor closer to need.
In the three months ended Sept. 26, net income grew to $177.5 million, or $1.75 a diluted share, from $161 million, or $1.58, in the year-ago quarter. Earnings per share exceeded analysts’ consensus estimates by 44 cents, helping to lift Polo’s shares $1.76, or 2.3 percent, to $78.47.
Revenues fell to $1.37 billion from $1.43 billion. Sales fell 3.6 percent to $1.33 billion, including a 3.7 percent decline in wholesale sales to $814.6 million and a 3.4 percent decrease in retail sales to $512.5 million. Same-store sales fell 6 percent, reflecting declines of 18 percent at Ralph Lauren stores, 4 percent at factory stores and 3 percent at Club Monaco stores, with currency fluctuation adding to the declines at Ralph Lauren and factory stores. Sales at ralphlauren.com posted a 12 percent gain in the quarter.
Gross margin rose to 57.1 percent of sales from 55.2 percent in the 2008 period. Cost of goods sold declined $51.3 million, to $589.4 million, while selling, general and administrative expenses dropped $6.6 million to $525.7 million.
“We are operating today as a leaner, stronger organization than ever before, even as our long-term growth prospects remain compelling,” said Ralph Lauren, chairman and chief executive officer.
In the six months, net income dipped 0.7 percent to $254.3 million from $256.2 million, with EPS flat at $2.51 a diluted share. Total revenues declined 5.7 percent to $2.4 billion from $2.54 billion.
The company updated fiscal 2010 guidance and said it now expects revenues to decline by a midsingle-digit rate, compared with an earlier expectation of a high-single-digit decline.
“We continue to believe that Polo Ralph Lauren is well positioned to emerge from the current economic climate as a stronger company. In our opinion, this is a very well-managed company with a stable of resilient brands,” said Jennifer Black, analyst at Jennifer Black & Associates.
Farah said during the conference call to Wall Street that an increasing portion of the firm’s capital expenditure is being allocated to its international markets, or 50 percent this year versus 35 percent last year. On Jan. 1, the firm will take over control of its distribution in eight Asian countries — China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, Taiwan and Thailand.