01—Abstract
Summary
Summary of the 10-K filed June 25, 1999. Cited figures are marked; the original filing is the authoritative source.
Polo Ralph Lauren Corporation's fiscal 1999 10-K (fiscal year ended April 3, 1999, a 53-week period) reports net revenues of $1.73 billiona, up from $1.48 billion in fiscal 1998, driven by net sales of $1.51 billion and licensing revenue of $208.0 million.
Net income fell to $90.6 millionb from $147.6 million, as the company recorded a $58.6 million pre-tax restructuring charge in the fourth quarter. Income from operations was $155.6 million after the charge, or $214.1 million excluding it, compared with $199.8 million in fiscal 1998. Retail sales grew 15.5% to $659.4 million, but comparable store sales declined 2.0% excluding the 53rd week, which management attributed to a weaker economic environment, lower tourism, and unseasonably warm fall weather.
The company's balance sheet expanded, with total assets of $1.10 billionc and total debt of $159.7 million at year end, including $115.5 million in direct borrowings. Capital expenditures rose to $141.7 million, largely for shop-within-shops and retail expansion, and operating cash flow declined to $38.5 million from $96.2 million, reflecting higher inventories of $376.9 million. The company repurchased 603,864 Class A shares for $16.1 million under a $100.0 million authorization, and it funded the May 1999 acquisition of Club Monaco, which had a total purchase price of approximately $52.0 million, through a new $100.0 million 1999 Credit Facility.
The filing highlights concentration risk: three department store customers accounted for 58.0%d of trade receivables, and four licensing partners generated about 55.0% of licensing revenue. Chairman Ralph Lauren and the Lauren family's Class B voting control remain key governance and risk factors. The filing also discloses a pending class action over outlet store advertising and potential exposure to Saipan-related lawsuits, which management does not expect to have a material adverse effect.
02—Key points
Key Highlights
- Net revenues rose to $1,726.9 million in fiscal 1999 from $1,480.5 million in fiscal 1998, with net sales of $1,505.1 million and licensing revenue of $208.0 million.
- Net income declined to $90.6 million ($0.91 per share) from $147.6 million, after a $58.6 million pre-tax restructuring charge recorded in the fourth quarter.
- Retail sales increased 15.5% to $659.4 million, but comparable store sales decreased 2.0% excluding the 53rd week.
- Operating cash flow fell to $38.5 million from $96.2 million, while capital expenditures increased to $141.7 million from $63.1 million.
- Club Monaco was acquired on May 3, 1999 for approximately $52.0 million in cash, financed through a new $100.0 million 1999 Credit Facility.
- Customer and licensee concentration is significant: Federated, Dillard and May accounted for 18.4%, 17.9% and 15.1% of wholesale net sales, and four licensees contributed about 55.0% of licensing revenue.
- Total assets grew to $1,104.6 million from $825.1 million, and total debt rose to $159.7 million from $0.3 million, including $115.5 million of notes and acceptances payable to banks.
03—Questions
Frequently Asked Questions
How did Polo Ralph Lauren perform in fiscal 1999?
Net revenues grew to $1,726.9 million from $1,480.5 million, but net income fell to $90.6 million from $147.6 million. The decline reflects a $58.6 million pre-tax restructuring charge recorded in the fourth quarter, and gross margin dropped to 47.6% of net revenues from 48.7%, mainly due to higher retail markdowns.
What is the restructuring plan and what does it cost?
The Restructuring Plan streamlines wholesale and retail operations and reduces the cost structure. It includes closing three Polo stores and three outlet stores, converting two Polo stores and five outlet stores to new concepts, and realigning wholesale and corporate functions. The charge comprised $24.7 million in lease and contract termination costs, $17.8 million in asset write-downs, and $15.3 million in severance. Total cash outlays are expected to be about $39.5 million, of which $3.9 million was paid in fiscal 1999.
How is the company's debt and liquidity position?
Total debt was $159.7 million at April 3, 1999, including $115.5 million in direct borrowings and $44.2 million under the Term Loan for Club Monaco. Management believes cash from operations and available credit facilities will be sufficient to fund operations, the restructuring, capital requirements, the stock repurchase program and the Club Monaco acquisition for the next 12 months. The company does not currently intend to pay dividends.
What are the main risks flagged in the filing?
Key risks include dependence on a limited number of large department store customers, reliance on licensing partners for a substantial portion of net income, dependence on Ralph Lauren and other key personnel, and the cyclical nature of apparel demand. The company also cites Year 2000 readiness, foreign currency exposure, and a pending class action regarding outlet store marketing practices, which it intends to vigorously defend.
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