01—Abstract
Summary
Summary of the 10-K filed May 26, 2011. Cited figures are marked; the original filing is the authoritative source.
Polo Ralph Lauren Corporation reported Fiscal 2011 (ended April 2, 2011) net revenues of $5.660 billiona, up 13.7% from $4.979 billion in Fiscal 2010, with net income attributable to PRLC of $567.6 million and diluted EPS of $5.75, compared with $4.73 in the prior year.
Operating income rose 19.6% to $845.1 millionb, and operating margin improved to 14.9% from 14.2%, driven mainly by a 40 basis point gain in gross profit margin to 58.6% and a 310 basis point improvement in Retail operating margin. Retail was the fastest-growing segment, with net revenues up 19.5% to $2.704 billion, while Wholesale rose 9.7% to $2.778 billion and Licensing fell 2.7% to $178.5 million. The company generated $688.7 million of operating cash flow, down from $906.5 million, mainly due to working capital timing and inventory build.
It repurchased $594.6 millionc of stock, spent $255.0 million on capital expenditures, and ended the year with a net cash and investments position of $838.6 million and equity of $3.305 billion. Management flagged headwinds for Fiscal 2012, including the Japan earthquake's expected negative effect on Japanese sales and margins, a Greater China restructuring with pretax charges of approximately $10 million to $20 million, and more significant sourcing cost pressures on gross margin. The Lauren family controls about 76% of voting power, and the board raised the quarterly dividend to $0.20 per share and added $500 million to the repurchase program.
02—Key points
Key Highlights
- Net revenues rose 13.7% to $5.660 billion; Retail net revenues grew 19.5% to $2.704 billion, while Wholesale grew 9.7% to $2.778 billion.
- Operating income increased 19.6% to $845.1 million, with operating margin up 70 basis points to 14.9%.
- Gross profit margin rose 40 basis points to 58.6%, reflecting fuller-price sell-throughs and reduced promotional activity.
- Diluted EPS was $5.75 versus $4.73 in Fiscal 2010; net income attributable to PRLC was $567.6 million.
- Operating cash flow declined to $688.7 million from $906.5 million, mainly on working capital timing; capital expenditures were $255.0 million.
- Management expects cost of goods inflation and the Japan earthquake to weigh on gross margins and Japanese sales in Fiscal 2012; a Greater China restructuring is planned with $10 million to $20 million in pretax charges.
- The board raised the quarterly dividend from $0.10 to $0.20 per share and approved an additional $500 million share repurchase authorization.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Ralph Lauren kept $0.10.
- Revenue$5.66B100.0%
- Cost of revenue−$2.34B41.4%
- Gross profit$3.32B58.6%
- Operating costs−$2.47B43.7%
- Operating income$845.1M14.9%
- Interest, other & tax−$277.5M4.9%
- Net income$567.6M10.0%
Where FY2011 revenue went
$5.66B- SG&A: $2.44B, 43% of revenue
- Cost of revenue: $2.34B, 41% of revenue
- Net income: $567.6M, 10% of revenue
- Other operating costs: $30.5M, 0.5% of revenue
- Interest, other & tax: $277.5M, 4.9% of revenue
Kept 10% as net incomeNet income $567.6M · 10%Other operating costs $30.5M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed May 26, 2011Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $5.66B$4.98B | +13.7% |
| Cost of Revenue | $2.34B$2.08B | +12.6% |
| Gross Profit | $3.32B$2.90B | +14.5% |
| SG&A Expenses | $2.44B$2.16B | +13.2% |
| Operating Expenses | $2.47B$2.19B | +12.8% |
| Operating Income | $845.10M$706.90M | +19.6% |
| Interest Expense | $18.30M$22.20M | −17.6% |
| Net Income | $567.60M$479.50M | +18.4% |
| EPS (Basic) | $5.91$4.85 | +21.9% |
| EPS (Diluted) | $5.75$4.73 | +21.6% |
| Shares Outstanding (Basic) | 96.00M98.90M | −2.9% |
| Shares Outstanding (Diluted) | 98.70M101.30M | −2.6% |
05—Questions
Frequently Asked Questions
How did the company's revenue and profitability perform in Fiscal 2011?
Net revenues increased $681.4 million, or 13.7%, to $5.660 billion. Operating income rose $138.2 million, or 19.6%, to $845.1 million, and net income attributable to PRLC increased 18.4% to $567.6 million. Growth was driven by global retail and wholesale businesses, the inclusion of the Asia-Pacific and South Korea acquisitions, and higher comparable store sales, partly offset by unfavorable foreign currency effects.
Which segment drove the most growth?
Retail was the main driver. Retail net revenues increased 19.5% to $2.704 billion, and Retail operating income rose to $387.8 million from $254.1 million, with operating margin up 310 basis points to 14.3%. Wholesale revenues grew 9.7% to $2.778 billion but its operating margin declined 110 basis points to 22.0%. Licensing revenue fell 2.7% to $178.5 million.
What risks and headwinds did management identify for Fiscal 2012?
Management cited the negative effect of the March 2011 Japan earthquake and tsunami on sales and operating margins of its Japanese operations, rising raw material, transportation and labor costs that are expected to pressure gross profit percentages to a more significant degree, and a Greater China restructuring plan expected to produce pretax charges of approximately $10 million to $20 million. The filing also notes concentration risk, with four key wholesale customers representing about 40% of wholesale revenues.
How did the company return capital to shareholders?
During Fiscal 2011 the company repurchased 6.0 million Class A shares at a cost of $577.8 million under its program, plus 0.2 million shares withheld for taxes, and paid $38.5 million in dividends. On May 24, 2011, the board approved an additional $500 million repurchase authorization. The quarterly dividend was raised from $0.10 to $0.20 per share in February 2011.
What is the company's balance sheet and liquidity position?
At April 2, 2011, cash and cash equivalents were $453.0 million, short-term investments $593.9 million, and non-current investments $83.6 million, against long-term debt of $291.9 million, giving a net cash and investments position of $838.6 million. Equity was $3.305 billion. The company had no borrowings under its $500 million Global Credit Facility, which matures in March 2016.
06—Continue