Since 1978, Polo's Japanese business had been licensed to Seibu Department Stores. The agreement in principle outlines a series of transactions whereby Polo will acquire a 50% interest in its Japanese Master License and will acquire an 18% equity interest in a company that will hold the sublicenses for Polo's men's, women's and Polo Jeans businesses in Japan. Polo's total investment in the transactions will be approximately $70 million and will be funded through Polo's available cash. Definitive agreements are expected to be signed and the transactions are expected to close by March 2003. The transactions are expected to be accretive to earnings in fiscal year 2004.
“Our growing business in Japan represented more than one billion dollars of retail sales last year and is second only to our sales in the United States. With increasing demand for our luxury lifestyle products in Japan, we believe this enhanced arrangement presents a tremendous opportunity for Polo to increase our international business and to directly influence the growth of our brands in this important region,” said Ralph Lauren, Chairman and Chief Executive Officer.
Japanese Master License
Prior to the contemplated transactions, Seibu owned 100% of the Master License giving it the rights to distribute specific Polo Ralph Lauren product categories through sublicenses and through wholesale and retail stores in Japan. Under the terms of the new arrangements, Polo will hold a 50% interest in the Japanese Master License, Onward Kashiyama, Japan's leading apparel wholesaler, will hold a 45% interest and Seibu, Japan's leading department store operator, will hold a 5% position. Polo expects to consolidate the financial results of the Master License operations in its consolidated financial statements, including Master License royalty revenues that will be partially offset by the expenses related to operating the License and the minority interest. The financial results are incremental to the Japanese licensing revenues Polo currently receives under the existing agreement.
Over the past 25 years, Seibu has sublicensed the product categories it has rights to under the Master License to leading manufacturers and wholesalers in Japan. These categories include men's, women's, Polo Jeans, Polo Golf, children's apparel, accessories and home furnishings. Polo's men's, women's and Polo Jeans businesses are sublicensed to three companies, Impact 21 (women's), Acty 21 (men's) and Partner 21 (jeans) which are all majority-owned subsidiaries of Onward Kashiyama. Currently, both Impact 21 and Acty 21 are publicly traded companies in Japan.
With the completion of the new arrangement, Impact 21, Acty 21 and Partner 21 will merge to form one publicly traded Japanese company, Impact 21. The remaining sublicensees will continue to operate as separate entities. Polo Ralph Lauren will purchase from Onward Kashiyama an equity stake that will equal 18% of the merged Impact 21 at the closing of the transactions. Onward Kashiyama will retain 41% of the merged Impact 21 and the balance will be held by the public. Upon the closing of the transaction, Polo expects to include its investment in Impact 21 in its consolidated financial statements using the equity method of accounting.
“Our Japanese business continues to grow and we are experiencing strong demand for our products there. With Seibu, we have enjoyed 25 years of success in building a strong business. Now with Onward Kashiyama, we have another great partner who has manufacturing expertise that we can leverage to reach the full growth potential of this key market. When completed, this arrangement will allow Polo to accelerate the development of our brands and to more actively participate in the financial impact of this business,” said Roger Farah, President and Chief Operating Officer.
Polo Ralph Lauren has already identified opportunities that it will pursue including the three-year, $70 million renovation of more than 150 shop-within-shops that was begun last year by its Japanese partners. In the stores where the renovations have been completed, sales have increased by double digits. In addition, the Master License partners will look to develop successful specialty retail concepts.
In addition to the proposed new arrangements in Japan, the Company remains comfortable with its previously announced adjusted second quarter earnings guidance in the range of $0.48 to $0.53.
Polo Ralph Lauren Corporation is a leader in the design, marketing and distribution of premium lifestyle products in four categories: apparel, home, accessories and fragrances. For 35 years, Polo's reputation and distinctive image have been consistently developed across an expanding number of products, brands and international markets. The Company's brand names, which include “Polo”, “Polo by Ralph Lauren”, “Ralph Lauren Purple Label”, “Polo Sport”, “Ralph Lauren”, “RALPH”, “Lauren”, “Polo Jeans Co.”, “RL”, “Chaps”, and “Club Monaco” among others, constitute one of the world's most widely recognized families of consumer brands. For more investor information, go to http://investor.polo.com.
Polo Ralph Lauren Corporation, New York
Nancy S. Murray, 212/813-7862