How did Polo Ralph Lauren perform financially in Fiscal 2008?

Net revenues grew 13.6% to $4.880 billion and net income rose 4.7% to $419.8 million, with diluted EPS of $3.99 versus $3.73. Growth came mainly from Wholesale and Retail, while operating income was roughly flat at $653.4 million because of acquisition-related costs and higher SG&A.

Why did operating margin decline even though revenue grew?

Operating margin fell to 13.4% from 15.2%, primarily due to purchase accounting effects from recent acquisitions, higher SG&A expenses tied to business expansion and new product launches, and about $47.2 million of amortization of intangible assets, up from $15.6 million.

What changed in the company's balance sheet and liquidity position?

The company ended Fiscal 2008 with net debt of $127.7 million, excluding $74.3 million of short-term investments, compared with net cash of $165.1 million a year earlier. The shift reflects the Japanese Business Acquisitions and $475.4 million of share repurchases. The $450 million revolving credit facility was undrawn at year end, and the 4.5% Euro notes carried a balance of $472.8 million.

Who controls the company and what does that mean for public shareholders?

Mr. Ralph Lauren, or entities he controls, held approximately 87% of the voting power of the common stock as of March 29, 2008. The filing states this gives him significant control over matters requiring stockholder approval, including director elections and mergers or asset sales.

What risks did management highlight for Fiscal 2009?

Management cited a slowdown in the U.S. macroeconomic environment, with U.S. retail partners reducing initial wholesale orders for fall 2008. It expects this to be offset mainly by the American Living line with JCPenney and by growth in Europe and Japan. Other risks include dependence on a few large department store customers and exposure to currency fluctuations, particularly the Euro and Japanese Yen.

RL 10-K FY2008 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed May 28, 2008. Cited figures are marked; the original filing is the authoritative source.

Polo Ralph Lauren Corporation, founded in 1967 by Ralph Lauren, reported Fiscal 2008 (ended March 29, 2008) net revenues of $4.880 billion^a, up 13.6% from $4.295 billion in Fiscal 2007, and net income of $419.8 million, or $3.99 per diluted share, compared with $400.9 million, or $3.73 per diluted share, a year earlier.

Wholesale revenue rose 19.1% to $2.758 billion^b and Retail rose 9.7% to $1.913 billion, while Licensing declined 11.4% to $209.4 million. Operating income was essentially flat at $653.4 million, and operating margin fell to 13.4% from 15.2%, mainly reflecting purchase accounting from recent acquisitions, higher SG&A and amortization of intangibles. Net income growth was supported by a $20.1 million decline in the provision for income taxes, as the effective tax rate fell to 34.6% from 37.7%.

The company's balance sheet shifted toward net debt in Fiscal 2008, with a net debt position of $127.7 million^c (excluding $74.3 million of short-term investments) versus net cash of $165.1 million a year earlier. The change was driven by the Japanese Business Acquisitions, which cost approximately $360 million initially, and by $475.4 million of share repurchases of 6.0 million Class A shares. Operating cash flow was $695.4 million, down from $796.1 million, largely because the prior year included roughly $180 million from the Eyewear Licensing Agreement.

Capital expenditures were $217.1 million^d. Stockholders' equity rose to $2.390 billion.

Management highlighted a more challenging U.S. macroeconomic environment and said that U.S. retail partners had reduced initial wholesale orders for fall 2008. Mr. Ralph Lauren and related entities held approximately 87% of voting power as of March 29, 2008, and the company's Credit Facility carries a $450 million revolving line that was undrawn at year end.

02—Key points

Key Highlights

Net revenues rose 13.6% to $4.880 billion, led by Wholesale (up 19.1% to $2.758 billion) and Retail (up 9.7% to $1.913 billion); Licensing fell 11.4% to $209.4 million.
Net income increased 4.7% to $419.8 million; diluted EPS rose to $3.99 from $3.73, helped by a lower effective tax rate of 34.6% versus 37.7%.
Operating income was nearly flat at $653.4 million, and operating margin declined to 13.4% from 15.2% due to acquisition-related purchase accounting, higher SG&A and amortization.
Japanese Business Acquisitions (completed May 29, 2007) gave control of Impact 21 and PRL Japan, with an initial purchase price of about $360 million, funded with cash and a ¥20.5 billion one-year term loan that was repaid May 22, 2008.
The company moved to a net debt position of $127.7 million from net cash of $165.1 million, after $475.4 million of share repurchases and $217.1 million of capital expenditures.
Operating cash flow declined to $695.4 million from $796.1 million, mainly because the prior year included about $180 million of Eyewear Licensing Agreement prepayment proceeds.
Mr. Ralph Lauren and related entities control approximately 87% of voting power; Macy's, Inc. (about 24%) and Dillard Department Stores (about 12%) were the largest wholesale customers.

03—Questions

Frequently Asked Questions

How did Polo Ralph Lauren perform financially in Fiscal 2008?
Net revenues grew 13.6% to $4.880 billion and net income rose 4.7% to $419.8 million, with diluted EPS of $3.99 versus $3.73. Growth came mainly from Wholesale and Retail, while operating income was roughly flat at $653.4 million because of acquisition-related costs and higher SG&A.
Why did operating margin decline even though revenue grew?
Operating margin fell to 13.4% from 15.2%, primarily due to purchase accounting effects from recent acquisitions, higher SG&A expenses tied to business expansion and new product launches, and about $47.2 million of amortization of intangible assets, up from $15.6 million.
What changed in the company's balance sheet and liquidity position?
The company ended Fiscal 2008 with net debt of $127.7 million, excluding $74.3 million of short-term investments, compared with net cash of $165.1 million a year earlier. The shift reflects the Japanese Business Acquisitions and $475.4 million of share repurchases. The $450 million revolving credit facility was undrawn at year end, and the 4.5% Euro notes carried a balance of $472.8 million.
Who controls the company and what does that mean for public shareholders?
Mr. Ralph Lauren, or entities he controls, held approximately 87% of the voting power of the common stock as of March 29, 2008. The filing states this gives him significant control over matters requiring stockholder approval, including director elections and mergers or asset sales.
What risks did management highlight for Fiscal 2009?
Management cited a slowdown in the U.S. macroeconomic environment, with U.S. retail partners reducing initial wholesale orders for fall 2008. It expects this to be offset mainly by the American Living line with JCPenney and by growth in Europe and Japan. Other risks include dependence on a few large department store customers and exposure to currency fluctuations, particularly the Euro and Japanese Yen.

04—Continue

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