POLO EARNINGS SOAR, TOP EXECS REALIGNED
Byline: Vicki M. Young
NEW YORK — Ralph Lauren’s turnaround strategies seem to be working.
Polo Ralph Lauren Corp. on Thursday reported that earnings per share skyrocketed 58 percent for the third quarter, exceeding Wall Street’s expectations by 2 cents a share. In addition, the company announced a management realignment, with Roger Farah, president and chief operating officer, responsible for all Polo Ralph Lauren operations, and Lance Isham, vice chairman, now based in London and spearheading the company’s European expansion and management of Polo’s businesses in international markets.
The company posted a 56.8 percent rise in income to $50.6 million for the quarter ended Dec. 30, or 52 cents a share, compared with $32.3 million in income, or 33 cents, in the same year-ago quarter. Revenue for the period was up 20.3 percent to $613.7 million versus $510.3 million. The increase, according to the company, was driven by sales from the acquisition of the Polo Ralph Lauren brands in Europe, mid-teen sales growth in the Polo Ralph Lauren full-price stores and continuing demand for the company’s licensed brands at department stores.
Polo has been able to do what many apparel stocks have not: draw raves from Wall Street. Shares of Polo were up $1.34, or 5.31 percent, to close at $26.58 on the New York Stock Exchange.
Jennifer Black, equity analyst at Wells Fargo Van Kasper, said, “We are totally psyched. The company demonstrated really stellar results.” She upped her 12-month price target to $36 from $30 and has a “strong buy” rating on the stock.
Polo projected EPS of between 42 cents and 44 cents in the fourth quarter of fiscal 2001, driven by revenue growth of 15 percent. First Call’s estimate is 42 cents. The fashion firm also forecast fiscal 2002 EPS to be in the range of $1.93 to $1.98, driven by a 5 to 7 percent increase in revenue growth, improved gross margins and decreased operating expenses.
Ralph Lauren, chairman and chief executive officer, said in a statement, “Our outstanding results reflect hard work and continued execution of our strategy of developing Polo into a globally recognized luxury goods provider while maintaining strong control of our operating costs.”
Part of the company’s global strategy concerns the management realignment.
“Lance’s full dedication to European and international expansion clearly demonstrates how strongly we feel about the huge opportunity there is for Polo globally,” Lauren said. “He has been so instrumental in building the Polo Ralph Lauren business. Lance has a comprehensive understanding of my vision and, as a result, I fully trust his ability to execute it on a global scale.”
Regarding Farah’s role, Lauren said, “In the short nine months that Roger has been with Polo, he has shown himself to be a strong leader with the ability to execute a well-thought-out plan, as well as a superb merchant who has focused our retail group on improved levels of profitability. The operational review, which Roger led, has resulted in a stronger Polo that is better positioned today to grow as a premier company producing greater profits.”
Isham, in a conference call from London Thursday to investors, said, “I’ll be spending about 60 percent of my time in Europe building these businesses [and] about 40 percent of my time in Asia.”
Isham said his top priority is increasing the presence of the Ralph Lauren brand in the luxury marketplace and on building the wholesale operation there.
Isham disclosed that the company plans to expand in France, Italy and in Madrid and Barcelona in Spain. The company also sees potential in the U.K. and Germany.
According to Black, “The second part of the growth story is the European business over a three-to-five-year time span. We think the operation, which is at $220 million now, can grow to over $700 million in five years.”
In the latest quarter, Farah said during the call, “Luxury continued to perform extremely well.” He noted that sales — whether from luxury department stores or in company-owned Polo Ralph Lauren stores — increased more than 75 percent over last year. On the retail front, Farah said the company will not be opening any new outlet stores. Retail growth for the company will be focused on full-price stores domestically and overseas.
For the quarter, wholesale volume jumped up 36.7 percent to $268.3 million from $196.3 million, while retail sales were up 11.5 percent to $286.2 million from $256.7 million. Licensing revenue also inched up 4.2 percent to $58.1 million from $55.7 million.
Farah told WWD, “We have come through a very strong quarter with Club Monaco and are very encouraged about the direction of that business. We had a terrific response to the assortment in the third quarter.”
Farah also elaborated on the decision to discontinue its intimate apparel license agreement with Sara Lee Corp.
“Our belief was that the way the current intimate apparel business is run through the department store sector is very promotional, and not in the best long-term interest of the brand,” he said. The company, which is focusing on trading up to the luxury market, doesn’t plan to reenter the intimate apparel market any time soon.”