01—Abstract
Summary
Summary of the 10-K filed June 19, 2003. Cited figures are marked; the original filing is the authoritative source.
Polo Ralph Lauren Corporation reported net revenues of $2.44 billiona for fiscal 2003 (ended March 29, 2003), up from $2.36 billion in fiscal 2002, with net income of $174.2 million, or $1.76 diluted earnings per share, compared with $172.5 million, or $1.75 per diluted share, in fiscal 2002.
Net sales were $2.19 billionb, with wholesale sales of $1.19 billion, retail sales of $1.00 billion and licensing revenue of $250.0 million. Income from operations was $288.4 million, and the restructuring charge was $14.4 million, tied to a strategic review of European businesses. Cash and cash equivalents rose to $343.6 million, and total debt was $349.4 million at year end.
Operating cash flow was $269.0 millionc, and capital expenditures were $98.7 million. The most significant risk disclosed is a dispute with Jones Apparel Group. Jones failed to meet minimum sales volumes under the "Ralph" license agreements, which will terminate December 31, 2003, and Jones has indicated it will treat the "Lauren" licenses as terminated as of the same date.
Jones filed a lawsuit on June 3, 2003 seeking $550.0 milliond in compensatory damages plus punitive damages. The company believes the suit is without merit, but states that an adverse outcome could have a material adverse effect on results and financial condition. The company expects to replace the roughly $37.4 million and $5.3 million in Lauren and Ralph royalties with income from its own Lauren and Ralph product sales beginning January 2004.
Licensing concentration is also a factor, since Jones and WestPoint Stevens each accounted for 16.4% and 15.9% of licensing revenue, and WestPoint Stevens filed for bankruptcy protection in June 2003. During the year the company acquired a 50% interest in the Japanese master license and an 18% equity interest in the Japanese sublicensee for approximately $24.1 million and $47.6 million, respectively. The Board declared the company's first regular quarterly cash dividend of $0.05 per share on May 20, 2003.
02—Key points
Key Highlights
- Net revenues rose to $2,439.3 million in fiscal 2003 from $2,363.7 million in fiscal 2002, with net sales of $2,189.3 million and licensing revenue of $250.0 million.
- Net income was $174.2 million, or $1.76 per diluted share, versus $172.5 million, or $1.75 per diluted share, in fiscal 2002.
- Income from operations was $288.4 million, including a $14.4 million restructuring charge tied to consolidating European operations.
- Jones Apparel Group sued for $550.0 million in compensatory damages after licenses for the Lauren and Ralph trademarks were set to terminate December 31, 2003; the company believes the suit is without merit.
- Licensing concentration is significant: Jones and WestPoint Stevens accounted for 16.4% and 15.9% of licensing revenue, and WestPoint Stevens filed for bankruptcy protection in June 2003.
- Cash and cash equivalents increased to $343.6 million, while total debt was $349.4 million at March 29, 2003.
- Acquired a 50% interest in the Japanese master license and an 18% equity interest in the Japanese sublicensee for approximately $24.1 million and $47.6 million, and the Board declared the first regular quarterly dividend of $0.05 per share.
03—Questions
Frequently Asked Questions
What is the main legal risk facing Polo Ralph Lauren?
The main risk is the lawsuit filed by Jones Apparel Group on June 3, 2003, which seeks $550.0 million in compensatory damages plus punitive damages. The dispute arises from the termination of the Lauren and Ralph licenses effective December 31, 2003. The company says that if the suit were decided against it, the outcome could have a material adverse effect on results of operations and financial condition, but it believes the suit is without merit.
How will the loss of Lauren and Ralph royalties affect revenue?
The royalties from the Lauren and Ralph license agreements were approximately $37.4 million and $5.3 million in fiscal 2003. The company will stop receiving these royalties after the third quarter of fiscal 2004. It expects income from its own Lauren and Ralph product sales, with shipments beginning in January 2004, to replace that royalty revenue.
How concentrated are the company's customers and licensing partners?
Three significant department store customers accounted for 30.5% of wholesale net sales in fiscal 2003, and the ten largest accounted for approximately 43.0%. Approximately 43.8% of licensing revenue came from three licensing partners: Jones Apparel Group (16.4%), WestPoint Stevens (15.9%) and Seibu Department Stores (11.5%). The filing also notes that WestPoint Stevens filed for bankruptcy protection in June 2003, and the company cannot determine the impact.
What did the company do with its capital in fiscal 2003?
Capital expenditures were $98.7 million. The company acquired a 50% interest in the Japanese master license and an 18% equity interest in the Japanese sublicensee for approximately $24.1 million and $47.6 million. It also acquired several retail locations in Belgium, Germany and Argentina for about $4.6 million. Cash and cash equivalents ended the year at $343.6 million, and the company repurchased shares of Class A common stock for $4.7 million.
Did the company begin paying dividends?
Yes. The Board of Directors declared a regular quarterly cash dividend of $0.05 per share, or $0.20 per share annually, on May 20, 2003. The filing states that the company had not previously declared cash dividends on its common stock since its initial public offering, other than dividends paid in 1998 to holders of Class B and Class C common stock in connection with its reorganization. The first dividend is payable July 11, 2003 to holders of record on June 27, 2003.
04—Continue