Wednesday, apparel maker Polo Ralph Lauren Corp. (RL) reported a 40% increase in second-quarter earnings, which beat Street expectations, driven by growth in global retail sales and European wholesale revenues as well as a lower tax rate. Meanwhile, for fiscal 2009, the company maintained its earnings target, while revising the sales forecast.
For the second quarter of fiscal 2009, Polo Ralph Lauren earned $161.0 million, or $1.58 per share, higher than $115.3 million, or $1.09 per share, earned in the second quarter of fiscal 2008. On average, 10 analysts polled by First Call/Thomson Financial expected earnings of $1.25 per share for the quarter.
Net revenues for the New York-based fashion company, whose brands include Polo, American Living, Chaps and Club Monaco, increased 10% to $1.43 billion from $1.30 billion for the comparable period last year. Street analysts' consensus revenue estimate averaged $1.36 billion.
The higher net revenues primarily reflect shipments of new products, growth in global retail sales and higher European wholesale revenues.
Wholesale sales increased 10% to $846 million as shipments of new products and higher European sales offset lower domestic shipments of the company's core men's, women's and childrenswear products.
Retail sales advanced 12% to $531 million, helped by comparable store sales growth and revenues from new stores. Comparable store sales increased 5.1%, reflecting an increase of 0.3% at Ralph Lauren stores, 8.2% at factory stores and a 3.7% decline at Club Monaco stores. RalphLauren.com sales increased 31%, driven by double-digit gains in all major categories.
However, licensing royalties declined 2% to $52 million, as royalties from new product licenses and higher domestic Polo men's underwear royalties were offset by a decline in Japanese product licensing revenues associated with the company assuming direct control of certain product categories in Japan.
Gross profit for the second quarter increased 13% to $788 million, with the gross profit rate increasing 170 basis points to 55.2% from 53.5% last year.
Operating expenses rose 8% to $545 million and operating income grew 26% to $243 million. Operating margin was 17.0%, compared to 14.8% in the second quarter last year, representing a 220 basis point improvement, primarily due to lower purchase accounting amortization, the profit contribution from new products and leverage on unallocated corporate expenses.
The company ended the second quarter with $510 million in cash, cash equivalents and short-term investments, or $71 million in cash and short-term investments net of debt. The company's return on equity for the last twelve-month period ending with the second quarter was 21% and its return on investment was 29% for the same time period.
At the end of the second quarter, the company operated 328 stores compared to 302 stores in the prior year.
For the first-half, net income increased 26% to $256.2 million from $203.6 million a year-ago, while earnings per share rose 31% to $2.51 from $1.92 in the first six months last year. First half net revenues grew 7% to $2.54 billion from $2.37 billion in the comparable period of fiscal 2008.
Looking forward, for fiscal 2009, the company still expects earnings in a range of $4.00 - $4.10 per share, while analysts expect earnings of $4.03 per share. However, the company updated its revenue guidance and now expects a low single digit increase in net revenues, which compares to prior guidance for low-to-mid single digit net revenue growth.
Shares of Polo Ralph Lauren are currently up $1.01 cents or 2.04% at $50.52. For the past 52-weeks, the stock has been trading in the range of $38.45 - $82.02.
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