RALPH GOING PUBLIC
Byline: Sidney Rutberg / With contributions by Janet Ozzard / Soren Larson
NEW YORK — After months of speculation, Ralph Lauren finally did it: He’s going public.
In unlocking what has so far been private, Lauren revealed that the guesstimates about his business often fell short of the eye-popping truth: Polo Ralph Lauren Corp. is a money machine.
Last year, Lauren’s company amassed nearly $100 million in profits on $1 billion in sales. Not bad for a native of the Bronx whose less-than-aristocratic beginnings produced lifestyle visions that encompassed the American West, privileged country life and the well-bred manner of Savile Row.
The company unveiled its numbers in a prospectus filed Tuesday with the Securities and Exchange Commission. In the year ended March 30, 1996, the company earned $109.7 million before taxes on revenues of $1.020 billion. Net sales were $909.7 million and royalty income alone came to an impressive $110 million. The royalties came from a stable of 19 product licensees and 14 international licensing partners.
Also, over the past five years, the company has shown consistent increases in sales and earnings. Over that period, pretax earnings shot up 156 percent from $42.9 million on a revenue gain of 50 percent from $678.9 million.
Lauren, as chairman and chief executive officer, was paid a salary of $2.7 million in 1996 and other compensation of $1 million, principally company-paid insurance for Lauren and his wife.
For the nine months ended Dec. 30, 1996, pretax earnings jumped 24 percent to $102 million; sales rose 14.5 percent to $764.4 million, and royalty income ran ahead 19.8 percent to $98.1 million. Pretax income is a better gauge of the operation than after-tax income, because most of the taxes were charged to the principals rather than the company. The registration statement estimates that corporate taxes would be around 43 percent of pretax income.
The SEC filing leaves many blanks, about offering price — most recent fashion IPOs have come out in the $25 to $30 a share range — how much the issue is expected to raise, and where the money is going. However, it is clear that much of the stock being offered will be by Lauren himself or family trusts and Goldman, Sachs & Co., the proceeds of which will not go to the company. Also, the Lauren family will continue to control the company by retaining class B stock, which will have 10 votes each compared with one vote for the Class A and C shares. In addition, holders of the Class B shares will appoint four of six members of the board of directors.
And about $24 million of the company’s proceeds will go to pay off loans from Lauren and the Goldman Sachs group and another $82 million will be paid out as dividends and payments of reorganization notes to Lauren and the Goldman group. Additional proceeds will be used to pay down company bank debt.
Goldman Sachs invested $135 million in Lauren’s company in August 1994 for a 28 percent stake and is leading the underwriting group for the IPO. Other underwriters are Merrill Lynch & Co. and Morgan Stanley & Co.
The SEC filing confirms reports in these columns (Feb. 13, page one) that Lauren was preparing to go public.
Concurrent with the IPO, the Lauren company plans to buy out the 50 percent interest of its joint venture partners in the Lauren retail business. The partners were paid a total of $8.3 million in cash on April 3, 1997 and will receive an additional $1.7 million in stock at the offering price. The parties are identified as David Hare, who became an officer of the Lauren company after the acquisition of the retail interest; William G. Merriken, and Franklin Retail Corp.
In addition, on March 31, the company entered into an agreement to buy out the minority interest in Perkins Shearer Polo Inc. and San Francisco Polo Ltd. for $391,353.
In fiscal 1996, retail sales were up 21.6 percent to $303.7 million. However, after adjusting for the acquisition of the remaining 50 percent interest in the retail business, the sales would have been $431 million.
The company operates 27 Polo stores and 64 outlet stores. It also has 17 licensed stores in the United States and 65 stores internationally.
“The company plans to expand its retail presence by adding five or more Polo stores, including flagship stores in London and Chicago over the next two years,” the prospectus stated. “The company also plans to add 10 to 20 new outlet stores over the next three years. In addition, in fiscal 1998, the company plans to test market a Polo Jeans Co. store.”
A breakdown of the company’s $2.5 billion in sales of various product lines shows that men’s wear accounted for about 51.8 percent of wholesale sales of Polo Ralph Lauren products. The numbers include sales of licensees, which the filing says were supplied by the licensees.
Men’s wear sales totaled $1.286 billion. Women’s wear sales accounted for 10 percent of the total or $249 million, lagging behind fragrances, 11.6 percent; home goods, 10.7 percent; accessories 10.4 percent. Children’s wear comprised 5.5 percent.
The company said that about 43 percent of its royalty income in fiscal 1996 came from three licensees. Seibu Department Stores Ltd. and WestPoint Stevens each account for more than 15 percent of Lauren’s licensing revenue. The third licensee is not identified.
The company points out that it acquired its women’s wear business from a former licensee (Bidermann Industries) in October 1995 and sees “significant opportunity” in women’s wear for the Ralph Lauren brands. “In addition to allowing the company to improve the operations of its existing women’s wear designer and bridge lines, the acquisition has enabled Polo to take important growth initiatives in additional segments of the women’s wear market.” The filing notes that in the fall of 1996, a new licensee (Jones Apparel Group) “launched the Lauren line of women’s better sportswear and career apparel.” That line has quickly developed into one of the hottest brands at retail.
The company doesn’t own or operate any manufacturing facilities and produces its products through independent contractors both in the U.S. and internationally. One manufacturer accounted for about 23 percent of the company’s total production in fiscal 1996.
More than 75 foreign manufacturers in 22 countries are used by the Lauren firm and about 70 percent of the company’s piece goods were sourced from outside the U.S. during fiscal 1996. During that period, 36 percent of men’s and women’s products were produced in the U.S. and 54 percent was produced in the Far East. The remainder was produced “elsewhere,” the company said.
The company’s principal customers last year were Federated Department Stores, May Department Stores and Dillard Department Stores, each of which accounted for between 11 percent and 18 percent of company sales. Also, a good portion of licensees’ sales are also to these department stores. The company’s 10 largest customers accounted for 63 percent of the company’s sales in fiscal l996.
Excluding sales of home products, product licensees had sales of $658.3 million in fiscal 1996, up 2.7 percent, while international licensees sold $867.4 million at wholesale, up 8.9 percent over the prior year.
Other information in the registration statement includes:
As of March 29, 1997, the company employed 4,000, including 240 in foreign countries.
Michael J. Newman, vice chairman and chief operating officer was paid $800,000 in salary, a bonus of $1 million and other compensation, $288,4198.
Cheryl L. Sterling Udell, group president, Womenswear, received $630,00 in salary, a $163,000 bonus and addition compensation of $258,520.
John D. Idol, group president of product licensing including home goods, $496,000 in salary, $281,000 bonus and additional payment, $346,082.
F. Lance Isham, group president, Menswear, $500,000 salary, $40,000 bonus and $152,306 other compensation.
In addition to Ralph Lauren and Goldman Sachs, selling shareholders listed are Newman, Idol, Isham and Udell. However, the number of shares being sold is not listed.
It’s a good time for Lauren to hit the road.
His spectrum of products continues to sell, despite a spring season that retailers say is lukewarm overall.
“Anything Ralph Lauren is selling, particularly the safari look,” Frank Doroff told WWD Monday. “We’re doing spectacular with the Lauren line, Polo jeans, Ralph’s bridge line, Polo Sport and his designer line.”
Lauren is also still riding the wave of his renewed and rapidly expanding women’s business. He retrieved the license for that business from Bidermann Industries in 1994. At that time, the designer said that he felt the business, languishing at about $120 million, could be at least as big as his men’s business.
He kicked off a series of business moves, including naming new executives, taking additional showroom space at the women’s offices at 550 Broadway and signing megadeals for jeanswear and better apparel.
While the jeanswear deal was an expected move for the kind of lifestyle brand Lauren has built, his move into the better market was a surprise. Some industry observers felt he might cheapen the high-end image he’d built over the years.
But the line, Lauren Ralph Lauren, took off. It sold out in its first season and executives upped its sales projections twice. It’s now expected to do $170 million in wholesale sales in its second year and stores are giving it more retail space.
The jeanswear, with Sun Apparel, also hit hard in August 1995. Retailers gave the line prime space and Lauren backed up the launch with a $20 million national ad campaign. It’s expected to do about $300 million annually by its third business year.
Lauren’s fragrance licensee, Cosmair, the U.S. subsidiary of L’Oreal, has enjoyed solid successes with the designer’s last two scents. Polo Sport, a fitness-oriented brand launched in 1994, ranked number four last year in the U.S. men’s business, according to tracking firm NPD. Polo Sport Woman, the follow-up introduced in February 1996, came in ninth for the year.
Lauren’s other fragrances — Polo, Lauren, Polo Crest, Safari and Safari for Men — have helped to push his stable of scents to a worldwide volume of $288 million at wholesale.
Cosmair reportedly spends in excess of $25 million a year to advertise its scents in the U.S.
While the Polo Sport franchise is thriving, Lauren Fragrances has been slow to release its newest projects. In January, the company announced it was pushing back the Polo Sport Outdoor Fitness scent from this spring to next. Meanwhile, the new upscale men’s scent, Purple Label, remains in development.
A Dramatic Climb
Ralph Lauren has tried hard for consistency of image and quality throughout the various categories of merchandise that carry his name.
In three decades, he has built an empire that stretches from clothing for men, women and children to fragrances to paint, furniture and bed linens.
Following are some of the high points of his career.
1968: Ralph Lauren, tie designer, launches the men’s wear company Polo, creating classic and well-made clothes that are marketed to a younger, hipper but still conservative customer.
1971: He takes the concept to women’s with the creation of Ralph Lauren Womenswear and also opens the first Polo Ralph Lauren store, in Beverly Hills, to showcase his growing product assortment.
1978: Lauren’s first fragrances, Lauren and Polo, are introduced through a deal with Warner Cosmetics, followed by Chaps in 1979.
1981: He heads across the Atlantic to open a store on New Bond Street in London, staking a claim in international retailing long before his competitors.
1983: Sleep on it, sit on it, eat off it: The Ralph Lauren Home Collection is born.
1986: The Rhinelander Mansion, on Madison Avenue and 72nd Street in New York, is transformed into a Ralph Lauren flagship for his men’s, women’s, boys’ and children’s wear lines, as well as accessories, footwear and furnishings. Lauren also opens a store in Paris.
1990: Cosmair takes over Lauren’s fragrances and creates a Ralph Lauren Fragrances division to handle the business. It adds Safari to the stable of scents.
1993: Lauren opens the Polo Sport store on Madison Avenue, across the street from the mansion. Dedicated entirely to his concept of activewear for women and men, it does $16 million in retail sales in its second year.
1994: The women’s wear business, which had been languishing at about $120 million under license to Bidermann Industries, comes back under the Lauren roof. Lauren immediately launches into a series of hirings and licenses to build that business to match his $550 million men’s operation.
In August, Goldman Sachs & Co. invests $135 million for a 28 percent stake in the designer firm, fueling rumors that a public offering is in the future.
Lauren introduces his sixth scent, Polo Sport.
1995: Sun Apparel signs a deal with Lauren for a jeanswear line to be called Polo Jeans; Jones Apparel Group is licensed to make Lauren Ralph Lauren, a better-price sportswear business.
1996: Lauren signs a lease for a 45,000-square-foot building in London that will become his European flagship and headquarters.
The jeans and the better-price line are launched with accompanying multimillion-dollar ad campaigns and sales projections. The Lauren line helps heat up the better market and exceeds sales projections. The jeanswear quickly becomes a department store player, alongside CK Calvin Klein and Guess.
Lauren also signs deals with Sara Lee Corp. for intimate apparel and initiates wholesale sales for the Polo Sport line. The company also launches Polo for Women to partner with the men’s fragrance.
February 1997: On Feb. 3, Lauren wins his fourth Council of Fashion Designers of America award for men’s wear but brushes off questions about an impending public offer. However, 10 days later, WWD runs a story reporting that Lauren has put together a group of underwriters who are planning a spring filing.
April 8, 1997: On the day before he is scheduled to show his women’s fall sportswear collection, Lauren files a prospectus for a public offering with the Securities and Exchange Commission.