01—Abstract
Summary
Summary of the 10-K filed June 2, 2010. Cited figures are marked; the original filing is the authoritative source.
Polo Ralph Lauren Corporation, founded in 1967 by Ralph Lauren, reported fiscal 2010 (53 weeks ended April 3, 2010) net revenues of $4.979 billiona, down 0.8% from $5.019 billion in fiscal 2009, as lower Wholesale revenues were largely offset by higher Retail revenues.
Operating income rose 18.7% to $706.9 millionb, and operating margin improved to 14.2% from 11.9%, driven by a gross profit percentage increase of 380 basis points to 58.2%, lower asset impairment and restructuring charges, and the 53rd week. Net income attributable to PRLC increased 18.1% to $479.5 million, and diluted EPS rose to $4.73 from $4.01. The company ended the year with a net cash and investments position of $940.6 million, up from $443.2 million, and generated $906.5 million of operating cash flow.
Cash was used for $231.0 millionc of share repurchases, $201.3 million of capital expenditures, the $121.0 million repurchase of €90.8 million of Euro notes, and the $25.3 million funding of the Asia-Pacific Licensed Operations Acquisition, which brought Polo-branded apparel in Asia-Pacific (excluding Japan) under direct control. Management expects macroeconomic pressures to weigh on sales and operating margins across all segments through at least Fiscal 2011, and it cites inflationary pressure on raw material and fuel costs.
Investors should note the concentration of control: Ralph Lauren and entities controlled by the Lauren family own approximately 84% of the voting power, and five department-store customers accounted for approximately 45% of wholesale revenues. The company also reported a backlog of $1.160 billiond, down from $1.289 billion a year earlier.
02—Key points
Key Highlights
- Net revenues of $4,978.9 million, down 0.8% from $5,018.9 million in fiscal 2009, with Wholesale down 7.9% and Retail up 9.1%
- Operating income of $706.9 million, up 18.7%, with operating margin of 14.2% versus 11.9%
- Gross profit percentage rose 380 basis points to 58.2%, driven by supply chain savings, better inventory management and lower promotions
- Net income attributable to PRLC of $479.5 million, up 18.1%; diluted EPS of $4.73 versus $4.01
- Net cash and investments of $940.6 million versus $443.2 million; operating cash flow of $906.5 million
- Asia-Pacific Licensed Operations Acquisition closed December 31, 2009 for an initial payment of approximately $20 million plus other consideration of approximately $17 million
- Ralph Lauren and Lauren family entities hold approximately 84% of voting power; five department-store customers represent approximately 45% of wholesale revenues
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Ralph Lauren kept $0.10.
- Revenue$4.98B100.0%
- Cost of revenue−$2.08B41.8%
- Gross profit$2.90B58.2%
- Operating costs−$2.19B44.0%
- Operating income$706.9M14.2%
- Interest, other & tax−$227.4M4.6%
- Net income$479.5M9.6%
Where FY2010 revenue went
$4.98B- SG&A: $2.16B, 43% of revenue
- Cost of revenue: $2.08B, 42% of revenue
- Net income: $479.5M, 9.6% of revenue
- Other operating costs: $35.2M, 0.7% of revenue
- Interest, other & tax: $227.4M, 4.6% of revenue
Kept 9.6% as net incomeNet income $479.5M · 9.6%Other operating costs $35.2M · 0.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed June 2, 2010Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $4.98B$4.82B | +3.2% |
| Cost of Revenue | $2.08B$2.29B | −9.1% |
| Gross Profit | $2.90B$2.73B | +6.2% |
| SG&A Expenses | $2.16B$2.04B | +5.9% |
| Operating Expenses | $2.19B$2.14B | +2.7% |
| Operating Income | $706.90M$595.50M | +18.7% |
| Interest Expense | $22.20M$26.60M | −16.5% |
| Net Income | $479.50M$406.00M | +18.1% |
| EPS (Basic) | $4.85$4.09 | +18.6% |
| EPS (Diluted) | $4.73$4.01 | +18.0% |
| Shares Outstanding (Basic) | 98.90M99.20M | −0.3% |
| Shares Outstanding (Diluted) | 101.30M101.30M | 0.0% |
05—Questions
Frequently Asked Questions
How did Polo Ralph Lauren perform in fiscal 2010 compared with fiscal 2009?
Net revenues declined 0.8% to $4.979 billion, but operating income rose 18.7% to $706.9 million and net income attributable to PRLC rose 18.1% to $479.5 million. The improvement reflected higher gross margin, lower impairment and restructuring charges, and the inclusion of a 53rd week, which the filing says added about $13 million to net income.
Which segments drove the results?
Wholesale revenue fell $217.1 million (7.9%) to $2.532 billion and its operating income fell $34.6 million to $585.3 million. Retail revenue rose $188.9 million (9.1%) to $2.263 billion and its operating income rose $152.5 million to $254.1 million. Licensing revenue fell 6.0% to $183.4 million, while its operating income rose to $107.4 million.
What is the company's financial position and capital allocation?
The company ended the year with $563.1 million of cash and equivalents, $584.1 million of short-term investments and $282.1 million of long-term Euro debt. It repurchased 3.2 million Class A shares for $231.0 million including tax withholdings, spent $201.3 million on capital expenditures, and raised its quarterly dividend from $0.05 to $0.10 per share. A $450 million revolving credit facility was undrawn at year end.
What outlook did management give for the coming year?
Management expects the global macroeconomic environment and reduced consumer spending to continue to negatively affect sales and operating margins across all segments through at least Fiscal 2011. It also anticipates that inflationary pressures on raw material and fuel costs will likely weigh on product costs and gross profit percentages in Fiscal 2011. The order backlog fell to $1.160 billion from $1.289 billion, which the company attributes partly to lower consumer spending.
What are the main concentration and control risks for investors?
Mr. Ralph Lauren and Lauren family entities own approximately 84% of the voting power, giving them significant control over matters requiring stockholder approval. Five key department-store customers contributed approximately 45% of wholesale revenues and about 30% of gross trade accounts receivable. The company also sources over 98% of its products from outside the U.S. and has no long-term manufacturing contracts.
06—Continue