NEW YORK — Exchange rates and growth in Europe helped, but it was good, old-fashioned retail merchandising that led the way to Polo Ralph Lauren Corp.’s 4.4 percent gain in second-quarter net income.

This story first appeared in the November 6, 2003 issue of WWD. Subscribe Today.

Among the highlights were double-digit gains in domestic retail operations and an 8.3 percent increase in retail same-store sales during the period.

For the three months ended Sept. 27, income rose to $54 million, or 54 cents a diluted share, from $51.7 million, or 52 cents, in the year-ago quarter. The company beat Wall Street consensus estimates by 1 cent. Total revenues rose 10.4 percent to $707.8 million from $640.8 million, which included a 12.6 percent increase in retail sales to $297.1 million from $263.8 million and an 8.2 percent gain in wholesale sales to $336.1 million from $310.7 million. Licensing revenue jumped 12.4 percent to $74.5 million from $66.3 million.

Even with the rise in wholesale demand, results in the latest quarter showed the apparel manufacturer is further evolving its “Ralph Lauren, Specialty Retailer” strategy. The company is looking to extend its retail reach, with the addition of five new senior executives in the quarter, and hints that the company may acquire additional Asian licenses as their agreements come up for renewal.

Ralph Lauren, chairman and chief executive officer, said in a statement, “We are pleased with our second-quarter results, particularly with our strong retail performance. Our powerful combination of exciting products and advertising and targeted marketing is generating more profitable growth from our stores.”

Lauren noted that the company also has significantly strengthened its management team: “Our organization has never been stronger and we have the right team in place to continue to drive our long-term growth strategies.”

As reported, executives added or promoted during the quarter were Bridget Ryan Berman, group president, Polo Ralph Lauren retail; Ken Pilot, president, factory stores and retail concept development; Kim Roy, president, Lauren by Ralph Lauren; Brian Duffy, president and chief operating officer, Polo Europe, and Don Baum, senior vice president, global manufacturing.

“Looking toward the second half of our year, we are well positioned for the holiday season and are expecting another strong performance for the balance of the year,” Lauren said.

Roger Farah, president and chief operating officer, told analysts during a conference call, “Retail is going to be the largest part of our business.”

He added that the company was “extremely pleased with our retail performance for the quarter and the first half of the year.”

Farah explained that at the company’s Ralph Lauren stores, the pace of sales “dramatically outpaced last year in all categories” of men’s, women’s and children’s products. Much of the increase was attributed to the “right allocation of product and merchandise flow.” In addition, he’s said he’s seen a return to career-focused apparel in terms of what customers of both genders are buying. For women, sales of Black Label in particular were up more than 20 percent in the quarter.

The company will begin the holiday shopping season two weeks earlier this year, emphasizing cashmere and gift giving for the home. It also will feature an estate jewelry selection as part of the gift-giving choices offered to consumers for the season.

A regular flow of merchandise into the stores has helped build Polo’s retail surge, as has emphasis on exclusivity, such as ensuring that certain products — like men’s Purple Label — are available just in the Ralph Lauren stores. In the quarter, comparable-store sales at the Ralph Lauren stores enjoyed a midteen increase.

Farah said Blue Label posted a 20 percent comp increase within its Polo retail stores, and that wholesale sell-ins of Blue Label were bigger in Japan than in Europe.

Elevated by the trend toward career-oriented apparel, comps at Club Monaco hit the high-teen range. The company plans to increase the availability of and space for accessories during the holidays.

As for its Lauren by Ralph Lauren line, Farah said the company is on track with more than 850 doors scheduled to take delivery of the spring 2004 line when it begins shipping in January. The company continues to expect revenues for the line of $400 million in fiscal 2005.

While the fit will remain the same, Farah said the company has updated the line’s style and fabrications, as well as added more detailing, all at the same opening price points as a year ago. The summer line will open at market to buyers next week, and Polo is busy putting the fall line in place. Capital expenditures of $25 million for the year on Lauren include start-up costs and the refurbishing of 100 in-store shops, Farah said.

For Polo, according to Farah, the focus has been on broadening its reach throughout the U.S., Europe and Asia through ownership of its brands and the launching of new stores. He noted: “Europe continues to face a tough economic climate, particularly Germany and France, [yet] Asia continues to expand the brand through select wholesale doors and [expansion] through Ralph Lauren retail doors.”

Although he did not elaborate on detail, Farah strongly suggested the company was eyeing acquisitions of its Asian licenses. “Several licenses for Asia are coming up for renewal in several years, and we are reviewing them with an eye for broadening the brand,” he said.

Meanwhile, the Japanese operation, which was previously acquired, continues its strong contribution to the company’s profits and Polo is actively seeking new locations for stores throughout Asia.

The company reiterated its earnings per share guidance for fiscal 2004 at between $1.75 and $1.85, on an adjusted basis. For the third quarter, EPS is expected at between 44 cents and 49 cents, while fourth-quarter EPS expectations are between 75 cents and 80 cents.

For the six months, income inched up 1.5 percent to $59.1 million, or 59 cents a diluted share, from $58.2 million, also 59 cents, last year. Total revenues rose 7 percent to $1.19 billion from $1.11 billion.

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