Wednesday, apparel maker Polo Ralph Lauren Corp. (RL) posted a 19% drop in first-quarter profit on lower revenues, as consumers continue to rein in expenses and delve into discount stores lured by bargains and offers.
The New York-based company posted first-quarter net income of $77 million, down 19% from $95 million in the year-ago quarter. Per share earnings fell 18% to $0.76 from $0.93 in the same quarter of last year.
On average, 13 analysts polled by Thomson Reuters expected the company to post earnings of $0.50 per share. Analysts' estimates typically exclude special items.
The decrease in net income and earnings per share principally relate to the lower operating income that was partially offset by a lower effective tax rate of 33% in the latest quarter, compared to a 35% effective tax rate in the previous year. The lower effective tax rate for the most recent quarter was primarily a result of favorable geographic income mix.
The company noted that each of its brands has a unique channel of distribution and is focused on a specific customer, enabling it to gain market share. Regardless of the near-term economic challenges, the company "continue to have a clear, compelling growth trajectory ahead of us."
Operating income for the first quarter of fiscal 2010 was $116.7 million, a decline of 20%, compared with $146.6 million a year earlier, and the operating margin was 11.4%, 180 basis points below the first quarter of fiscal 2009. The declines in operating income and the operating margin rate reflect lower sales volumes and higher operating expenses associated with business expansion that were partially offset by the higher gross profit rate discussed above.
Quarterly net revenues descended 8% to $1.02 billion from the previous year's $1.11 billion, reflecting lower domestic wholesale sales, a reduction in same-store sales at the company's retail segment and about 2% net unfavorable effect of foreign currency translation that more than offset the wholesale contribution of formerly licensed childrenswear and golf apparel products in Japan and high single digit constant currency growth in Europe. Nine Wall Street analysts had a consensus revenue estimate of $1.01 billion for the quarter.
Wholesale sales for the recent quarter were $519.5 million, down 10% from $574.5 million in the prior-year quarter. Lower domestic shipment volumes and the net unfavorable effect of foreign currency translation more than offset the incremental benefit of formerly licensed childrenswear and golf apparel products in Japan. Wholesale operating income was $75.9 million, compared to $107.4 million last year, a decline of 29%.
Retail sales dropped 6% to $463 million from $492 million in the first quarter of fiscal 2009, reflecting a net reduction in comparable store sales and the net unfavorable effect of foreign currency translation. Comparable store sales, which now include RalphLauren.com, declined 9%, reflecting reductions of 25% at Ralph Lauren stores, 4% at factory stores and 15% at Club Monaco stores. RalphLauren.com sales increased 14% in the first quarter of Fiscal 2010. Retail operating income was $697 million, 4% higher than the $67.1 million achieved in the previous year.
First-quarter Licensing royalties were $41.2 million, 12% below the prior-year's $46.7 million. A decline in Japanese product licensing revenues associated with the company assuming direct control of childrenswear and golf apparel in Japan and lower fragrance licensing revenues were the primary causes of the year-over-year decline in licensing revenues. Licensing operating income improved 6% to $25.7 million from $24.2 million last year.
Looking ahead, the company expects second-quarter wholesale revenues and comparable store sales to decline by a low double digit rate, including a net unfavorable foreign currency translation effect. The company expects operating expenses for the second quarter of Fiscal 2010 to be modestly below those in the comparable prior year period. Fiscal 2010 net revenues are still expected to decline by a high single digit rate. The full year tax rate is estimated at 35%.
Ralph Lauren, Chairman and Chief Executive Officer, said, "The outlook for global consumer spending remains unpredictable and we are planning our business accordingly. While we remain cautious with our outlook, our brands are highly desired, we are in excellent financial condition and we remain committed to investing in our strategic growth objectives to support the long-term success of our Company."
Among Polo Ralph Lauren's rivals, Jones Apparel Group Inc. (JNY) posted second-quarter net income of $12.6 million or $0.15 per share, up from $10.5 million or $0.12 per share for the prior-year period. Quarterly revenues dropped 3.1% to $804 million from $829.4 million in the prior year quarter, reflecting overall economic conditions that continue to affect retail sales in general.
RL closed Tuesday's trading session at $63.79.
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