NEW YORK–(BUSINESS WIRE)–Nov. 6, 2002–Polo Ralph Lauren Corporation (NYSE: RL) reported today adjusted net income of $51.9 million, or $0.52 per diluted share, for the second quarter ended September 28, 2002, compared to pro forma adjusted net income of $69.5 million, or $0.71 per diluted share, for the comparable year-ago quarter. Actual second quarter Fiscal 2003 net income was $51.7 million, or $0.52 per diluted share, compared to net income of $47.8 million, or $0.49 per diluted share, for the second quarter of Fiscal 2002. For the quarters, the adjusted results exclude losses on foreign currency translations. The pro forma figures for the year-ago quarter report the European business on a current basis consistent with Fiscal 2003 results. Prior to the fourth quarter of Fiscal 2002, the European business was reported on a one-quarter delay.
'The appeal of our luxury products continues to grow, despite a tough retail environment. Whether it's our women's collection, our men's Purple Label or our accessories, we are creating something special and the customer is responding positively. In our retail stores, we are seeing the same strong response because we are generating excitement through our designs, our products, our advertising and our store environments. When you offer customers something unique, they react,' said Ralph Lauren, Chairman and Chief Executive Officer.
'We are excited by this ongoing demand for our luxury designs, both domestically and internationally, and it reinforces our belief that we are on track to deliver another record year,' said Mr. Lauren.
Roger Farah, President and Chief Operating Officer said, 'Throughout the quarter, we continued to stay focused on our multi-year strategies. Despite a difficult environment, we delivered growing sales and improved profits in our own retail business. In addition, we took important steps to gain greater control of our brand and its distribution in Japan and, most recently, in Germany. By increasing our direct management internationally, we are pursuing long-term opportunities for our brands in these important and growing markets.'
In addition to the earnings announcement, the Company also reported it is conducting a strategic review of its European business and developed proposals to centralize and more efficiently consolidate its growing business operations. Since acquiring its two major European licensees, Polo Europe and Polo Italy in 2000 and 2001, respectively, the Company has maintained separate operational locations in London, Watford, Paris, Bologna and Milan. The current proposal being evaluated calls for the establishment of a headquarters in Geneva, Switzerland, where the back-office functions would be consolidated.
Over the next few months, Polo's European management team will be discussing the consolidation proposal with its employees and their works councils according to the legal requirements in each country. 'The proposal that we presented today would be the first step in creating a more fully-developed consolidation plan in Europe. Subject to the above discussions, once implemented, the consolidation would enable us to operate our growing European business in a more competitive and efficient manner,' Mr. Farah added.
'Looking ahead, we are in the position to take advantage of strategic opportunities because we continue to better manage our resources,' Mr. Farah said. 'We have consistently reduced our inventories and decreased our cash-to-cash cycle thereby strengthening our balance sheet. With our ongoing focus, our management has the ability to both invest in our existing business and to pursue future expansion opportunities.'
All items discussed below are compared to pro forma results for the second quarter and the six months 2002. The pro forma results reflect the European business restated on a current basis consistent with Fiscal 2003 results.
Net revenues were $640.8 million in the second quarter, a decrease of 2.4% compared to $656.4 million in the comparable year-ago quarter. For the six months ended September 28, 2002, net revenues were $1.1 billion, approximately flat to the prior year's six months. Revenues were driven by increases in both the European wholesale and worldwide retail businesses, which were offset by the planned decrease in sales in the men's domestic wholesale business and the elimination of the women's Ralph Lauren Sport and the Lauren for men lines. Worldwide retail sales comps rose 1.8% for the second quarter. For the six-month period, comp store sales increased 1.4%.
For the second quarter, gross profit was 50.1% of net revenues compared to 49.0% of net revenues in the comparable year-ago quarter. For the six months, gross profit was 50.0% of net revenues compared to 49.3% of net revenues in the prior year's period. The improved gross margins were driven by better merchandise margins in the domestic retail business.
Total SG&A Expenses
Total SG&A expenses were $236.6 million, or 36.9% of net revenues compared to total SG&A expenses of $206.2 million, or 31.4% of net revenues, in the second quarter of Fiscal 2002. For the six months ended September 28, 2002, SG&A expenses were $451.5 million, or 40.8% of net revenues, an increase of $38.1 million over the same period last year. The increase was driven primarily by the expansion of the European retail and wholesale businesses.
Income from Operations
Second quarter income from operations was $84.6 million, or 13.2% of net revenues, compared to $115.2 million, or 17.5% of net revenues in the comparable year-ago quarter. For the six months, income from operations was $102.3 million, or 9.2% of net revenues, compared to $143.1, or 12.7% of net revenues in the prior year's comparable period.
At September 28, 2002 inventory was $401.5 million compared to $432.5 million at September 29, 2001, a decrease of 7.2%. The Company has reduced inventory levels over the past five consecutive quarters as a result of improvements in the management of its supply chain. ¶ At September 28, 2002, the Company had $355.5 million of cash on hand and $347.0 million of total debt, or $8.5 million more in cash than total debt, a 104% reduction in net debt over the prior year. The total debt consisted of long-term Eurobond debt of $226.6 million and $120.4 million of short-term debt consisting of $40.4 million of short-term bank lines of credit and $80.0 million of bank term debt.
Fiscal 2003 Outlook
The Company remains comfortable with its previously announced full-year guidance in the range of $1.80 to $1.90 and it reiterated its guidance for the third and fourth quarter earnings. For the third quarter earnings are expected to be in the range of $0.45 to $0.50, compared to $0.23 earnings per share on a pro forma basis for the year-ago quarter. For the fourth quarter, the largest wholesale quarter for both the domestic and European businesses, the Company expects earnings to be in the range of $0.75 to $0.80. This compares to $0.58 for the fourth quarter of Fiscal 2002, also on a pro forma basis.
At quarter end, the Company operated 243 stores compared to 231 stores at the second quarter end last year. For the period ended September 28, 2002, the Company's retail group consisted of 41 Polo Ralph Lauren stores, 56 Club Monaco stores, 94 full line Outlet stores, 23 Polo Jeans Co. Outlet stores, 19 European Outlet stores and 10 Club Monaco outlet stores. During the second quarter, the Company opened six stores.