Hampered by declines in its stores, Polo Ralph Lauren Corp. couldn’t top last year’s third-quarter profit performance but still managed to outpace analysts’ expectations by a wide margin.

This story first appeared in the February 5, 2009 issue of WWD. Subscribe Today.

Net income for the three months ended Dec. 27 declined 6.6 percent, but earnings of $1.05 a diluted share were 19 cents ahead of analysts’ consensus estimates.


Of more importance to investors, however, the company reduced full-year guidance to earnings of $3.85 to $4 a diluted share, down from prior guidance of $4 to $4.10, implying fourth-quarter earnings per share of between 29 cents and 44 cents. In light of uncertainty about consumer spending, the firm declined to provide guidance for fiscal 2010.

Polo’s shares fell $1.07, or 2.7 percent, to $38.63 in Wednesday’s New York Stock Exchange session. Their range in the past year has been from $31.22, on Nov. 20, to $82.02, on Sept. 19.

In the quarter, income was $105.3 million versus $112.7 million, or $1.08 a diluted share, in the year-ago period.

Revenues fell 1.4 percent to $1.25 billion from $1.27 billion. Revenues included a 4.5 percent gain in wholesale sales to $655 million from $626.7 million, a 7 percent drop in retail sales to $547.1 million from $588.5 million and an 8.6 percent decline in licensing income to $49.9 million from $54.6 million.

Comparable-store sales fell 13.5 percent, which included a 21.7 percent comps drop at Ralph Lauren stores, a 9.1 percent reduction at factory stores and a 17.2 percent decline at Club Monaco stores. Sales at ralphlauren.com posted a 15 percent gain in the quarter.

For the nine months, income rose 14.3 percent to $361.5 million, or $3.56 a diluted share, from $316.3 million, or $2.99, a year ago. Revenues gained 4.3 percent to $3.79 billion from $3.64 billion.

“We are operating in one of the most challenging times our company and industry has ever faced,” said Ralph Lauren, chairman and chief executive officer, adding that periods like the current one “really distinguish strong companies and strong brands.”

Roger Farah, president and chief operating officer, told Wall Street analysts during a conference call, “The proactive measures we’ve taken to scale back inventory levels across channels, to manage our expenses and to execute our day-to-day operations with a high level of precision and agility have helped to mitigate the dramatic pullback in consumer spending that occurred during the quarter.”

Farah emphasized the company continues to make important investments in its long-term strategic growth initiatives, and has nearly $1 billion in cash on its balance sheet to support its efforts.

Polo remains focused on a three-pronged strategy: growing its international presence, expanding direct-to-consumer reach and investing in new merchandise development and product innovation, according to Farah, who said global growth is the highest priority. The company recently began shipping Lauren merchandise into select European wholesale doors for spring 2009.

Farah noted the most affluent customers are likely feeling the downturn most, and since most of Polo products are discretionary, customers are choosing to delay or be more selective in their purchases. “I think the nature of our design, the fact that our product is more timeless, I think the fact that our products over the years have been more investmentlike, gives us an advantage as that customer is selective,” he said.

Shipping for a selling season typically occurs four to five months before it starts, but Polo, which had previously worked with its accounts to ship later than the industry norm, is attempting to tighten the cycle even more.

Farah told WWD in a telephone interview, “We are working to deliver seasonal product closer to when the customer can really wear it.”

He said women are “looking for more classic and timeless product that can endure for many years.” He also noted that, possibly due to lifestyle changes, women’s casual sportswear and activewear has done better than sales of the career and dress categories this past season.

Similarly, in men’s wear, careerwear sales were also soft this past selling season, although children’s wear sales continues to grow. Farah said that the children’s category saw “tremendous growth” as many consumers flocked to the company’s site to buy online.