Ralph Lauren Reports Better-Than-Expected Third Qu Ralph Lauren Reports Better-Than-Expected Third Quarter Fiscal 2013 Results and Raises Its Full Year Fiscal 2013 Profit Outlook
Third Quarter Revenues Rose 2% to $1.8 billion, Led by Retail Segment Growth
Consolidated Comparable Store Sales Increased 4% in the Third Quarter
Third Quarter Operating Income Rose 13% and Operating Income Margin Expanded 150 basis points to 16.5%
Earnings Per Diluted Share Increased 30% to $2.31 in the Third Quarter
NEW YORK--(BUSINESS WIRE)--Feb. 6, 2013-- Ralph Lauren Corporation (NYSE:RL) today reported net income of $216 million, or $2.31 per diluted share, for the third quarter of Fiscal 2013, compared to net income of $169 million, or $1.78 per diluted share, for the third quarter of Fiscal 2012. In the third quarter of Fiscal 2013, the Company recorded approximately $13 million in pre-tax impairment and restructuring charges associated with the discontinuation of its Rugby operations. Excluding the Rugby-related charges, net income rose 33% to $224 million and net income per diluted share increased 35% to $2.40 in the third quarter of Fiscal 2013.
“Our third quarter performance is a testament to the enduring appeal of our brand and the dedication of our passionate team,” said Ralph Lauren, Chairman and Chief Executive Officer. “Our orientation as a design-led, marketing and merchandising organization has enabled us to deepen our connection with our customers, particularly as we expand our portfolio of products and lifestyle sensibilities. I am inspired by how our Company continues to evolve in compelling new ways, and the progress we are making with our global e-commerce and store development efforts is especially exciting. We have a successful track record of investing for growth and we remain committed to nurturing the incredible vitality of our long-term initiatives.”
“The robust profit growth we achieved in the third quarter demonstrates the strength of our operating model,” said Roger Farah, President and Chief Operating Officer. “The relevance of our brand, product and merchandising strategies resulted in a strong holiday season for us, one that was characterized by continued momentum in the Americas and improved trends in Europe. The consistent investment in our long-term growth initiatives has created a steadily improving, highly resilient profit margin structure for our organization.”
Third Quarter Fiscal 2013 Income Statement Review
Net Revenues. Net revenues for the third quarter of Fiscal 2013 rose 2% to $1.8 billion. The increase in net revenues primarily reflects strong retail segment expansion that was partially offset by a planned contraction in wholesale shipments. Excluding the impact of strategic decisions to discontinue American Living and store closures associated with the Company’s Greater China network repositioning efforts, in addition to the net negative impact from foreign currency translation, net revenues increased approximately 5% in the third quarter.
Wholesale Sales. Wholesale segment sales of $734 million in the third quarter were 2% below the prior year period, as the discontinuation of American Living in Fiscal 2013, a proactive reduction in shipments to certain European customers and the net negative impact of foreign currency translation more than offset continued growth in core and emerging merchandise categories in the Americas.
Retail Sales. Retail sales rose 6% to $1.1 billion from $1.0 billion in the third quarter last year, reflecting growth in comparable store sales and the incremental contribution from new stores and e-commerce operations that were partially offset by lower sales at Asian concession shops and store closures associated with the Company’s Greater China network repositioning efforts. Consolidated comparable store sales rose 4% on both a reported and constant currency basis during the third quarter. The Company estimates that disruption caused by Super Storm Sandy negatively impacted third quarter comparable store sales growth by 1%-2%.
Licensing. Licensing revenues of $50 million in the third quarter were 1% greater than the prior year period. The increase in licensing revenues is principally due to higher domestic product licensing revenues that were partially offset by the transition of certain formerly licensed international regions to directly controlled operations.
Gross Profit. Gross profit for the third quarter of Fiscal 2013 increased 6% to $1.1 billion and gross profit margin improved 220 basis points to 59.3%. The higher gross profit margin was primarily driven by lower input costs, favorable product mix and operational discipline.
Operating Expenses. Operating expenses rose 4% in the third quarter to $790 million from $761 million in the third quarter of Fiscal 2012 and were 42.8% of sales, 60 basis points greater than the prior year period. The growth in operating expenses and the higher operating expense margin primarily reflect costs associated with overall business expansion, continued investment in the Company’s long-term strategic growth initiatives and increased restructuring and impairment charges, principally as a result of the discontinuation of Rugby. The increase in operating expenses was partially offset by a shift in the timing of certain expenses out of the third quarter and into the fourth quarter of Fiscal 2013.
Operating Income. Operating income for the third quarter of Fiscal 2013 was $304 million, 13% greater than the prior year. Operating margin was 16.5% of sales, 150 basis points stronger than the third quarter of Fiscal 2012. The improvement in operating margin primarily reflects the higher gross profit margin discussed above.
Wholesale Operating Income. Wholesale operating income increased 29% in the third quarter of Fiscal 2013 to $145 million from $113 million last year. Wholesale operating margin was 19.7% in the third quarter, 470 basis points stronger than the prior year. The improvement in wholesale operating margin was primarily due to higher gross margins as a result of lower input costs, favorable product mix and operational discipline.
Retail Operating Income. Retail operating income was $201 million, 4% greater than the $193 million achieved in the third quarter of Fiscal 2012, and retail operating margin was 18.9%, 30 basis points below the prior year period. The decline in retail operating margin was principally a result of impairment and restructuring charges associated with the discontinuation of Rugby. Excluding the Rugby-related charges, retail operating margin was 19.8%, 60 basis points greater than the prior year period, as a result of improved profitability in the Americas and Europe that was partially offset by a less favorable geographic mix due to lower Asian sales and continued investment in global retail expansion, including e-commerce.
Licensing Operating Income. Licensing operating income increased 3% to $37 million from $36 million in the third quarter of Fiscal 2012, primarily due to higher licensing revenues and lower net costs.
Net Income and Diluted EPS. Net income for the third quarter of Fiscal 2013 was $216 million, 28% greater than the $169 million achieved in the comparable period of Fiscal 2012, and net income per diluted share rose 30% to $2.31 from $1.78 for the same time period. The increases in net income and net income per diluted share were the result of the growth in operating income discussed above in addition to a lower effective tax rate of 27% compared to 36% in the prior year period. The lower effective tax rate is primarily related to the favorable resolution of an approximate $15 million discrete tax item and to a greater proportion of earnings generated in lower-taxed jurisdictions. Excluding Rugby-related impairment and restructuring charges, net income for the third quarter of Fiscal 2013 rose 33% to $224 million and net income per diluted share increased 35% to $2.40.
Third Quarter Fiscal 2013 Balance Sheet Review
The Company ended the third quarter with $1.4 billion in cash and investments, or $1.1 billion in cash and investments net of debt ("net cash"), compared to $1.3 billion in cash and investments and $1.0 billion in net cash at the end of the third quarter of Fiscal 2012.
The Company repurchased approximately 971,000 shares of Class A Common Stock during the third quarter of Fiscal 2013, utilizing $150 million of its authorized share repurchase programs. In the first nine months of Fiscal 2013, the Company repurchased $450 million of its Class A Common Stock and approximately $627 million remained available under authorized share repurchase programs at the end of the third quarter. The Company had $78 million in capital expenditures in the third quarter, compared to $68 million in the prior year period. The third quarter ended with inventory up 10% to $981 million from $895 million in the third quarter of last year.
Global Retail Store Network
The Company ended the third quarter of Fiscal 2013 with 399 directly operated stores, comprised of 114 Ralph Lauren stores, 58 Club Monaco stores, 213 Polo factory stores and 14 Rugby stores. The Company also operated 508 concession shop locations worldwide at the end of the third quarter. In addition to Company-operated locations, international licensing partners operated 63 Ralph Lauren stores and 32 dedicated shops, as well as 64 Club Monaco stores and shops at the end of the third quarter.
Fiscal 2013 Outlook
Based on its year-to-date results, the Company expects consolidated net revenues for Fiscal 2013 to increase by approximately 2%. Included in the Fiscal 2013 net revenue expectation is an approximate 400-500 basis point net negative impact associated with strategic decisions regarding certain operations, including store closures associated with the Company’s Greater China network repositioning efforts and the discontinuation of American Living, in addition to unfavorable foreign currency effects. As a result of the better-than-expected profitability achieved in the first nine months of the year, the Company now expects operating margin from continuing operations for Fiscal 2013 to be approximately 75-100 basis points above the prior year period, which compares to its prior expectation of an approximately 50 basis point improvement. The full year Fiscal 2013 sales and operating margin expectations outlined in this press release do not include approximately $20-$25 million in anticipated pretax charges related to the previously announced closure of the Rugby brand. The Company currently estimates the full year Fiscal 2013 tax rate at approximately 32%.
In the fourth quarter of Fiscal 2013, the Company expects consolidated net revenues to increase by a mid-single-digit percentage, reflecting an 8%-11% increase in retail revenues and wholesale revenues that are flat to the prior year period. Included in the fourth quarter net revenue expectation is an approximate 300 basis point net negative impact from strategic decisions regarding certain operations, including store closures associated with the Company’s Greater China network repositioning efforts and the discontinuation of American Living, in addition to unfavorable foreign currency effects. Operating margin from continuing operations for the fourth quarter of Fiscal 2013 is expected to be approximately 125-150 basis points above the comparable prior year period. The fourth quarter sales and operating margin expectations outlined in this press release do not include anticipated pretax charges related to the previously announced closure of the Rugby brand. The Company currently estimates the fourth quarter tax rate at approximately 29%.
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