01—Abstract
Summary
Summary of the 10-K filed May 15, 2014. Cited figures are marked; the original filing is the authoritative source.
Ralph Lauren Corporation's Annual Report on Form 10-K for Fiscal 2014 (fiscal year ended March 29, 2014), dated May 15, 2014, reports net revenues of $7.450 billiona, up 7.3% from $6.945 billion in Fiscal 2013, with net income of $776 million and diluted EPS of $8.43, compared with $750 million and $8.00 a year earlier.
Growth was driven by the Wholesale segment in the Americas, including incremental revenue from the previously licensed Chaps Menswear Business, and by Retail, where non-comparable store sales rose 40% on a constant currency basis. Gross margin declined 190 basis points to 57.9%, mainly due to the inclusion of the Chaps business and unfavorable foreign currency, while SG&A improved to 42.2% of revenues from 42.8%. Operating income was essentially flat at $1.130 billionb, and the effective tax rate fell to 29.2% from 31.1%.
The balance sheet remained strong, with cash and cash equivalents of $797 millionc, short-term investments of $488 million, and long-term debt of $300 million from the 2.125% Senior Notes due 2018. Net cash and investments declined to $987 million from $1.113 billion, as operating cash flow of $907 million was offset by $390 million in capital expenditures, $558 million in Class A stock repurchases, and $149 million in dividends. The quarterly dividend was raised to $0.45 per share in November 2013, and about $580 million remained under the repurchase program.
The filing also highlights concentration risk: the three largest wholesale customers accounted for about 25%d of total net revenues, and Macy's alone for about 12%. The Lauren family controls roughly 81% of the voting power, and Roger N. Farah announced his resignation as Executive Vice Chairman effective May 31, 2014.
02—Key points
Key Highlights
- Net revenues rose 7.3% to $7.450 billion in Fiscal 2014; net income increased 3.4% to $776 million, and diluted EPS rose to $8.43 from $8.00.
- Gross margin fell 190 basis points to 57.9%, primarily due to the inclusion of the Chaps Menswear Business and unfavorable foreign currency effects.
- Operating income was essentially flat at $1.130 billion, with operating margin down 100 basis points to 15.2%; the effective tax rate declined to 29.2% from 31.1%.
- Wholesale net revenues rose 11.1% to $3.486 billion, while Retail net revenues grew 4.8% to $3.798 billion; comparable store sales were flat on a reported basis and up about 1% on a constant currency basis.
- Net cash and investments were $987 million at year-end versus $1.113 billion a year earlier, after $558 million in share repurchases, $390 million in capital expenditures, and $149 million in dividends.
- The quarterly dividend was increased to $0.45 per share from $0.40, and about $580 million remained available under the Class A stock repurchase program.
- Customer and ownership concentration: the three largest wholesale customers were about 25% of total net revenues, with Macy's about 12%, and the Lauren family held about 81% of voting power.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Ralph Lauren kept $0.10.
- Revenue$7.45B100.0%
- Cost of revenue−$3.14B42.1%
- Gross profit$4.31B57.9%
- Operating costs−$3.18B42.7%
- Operating income$1.13B15.2%
- Interest, other & tax−$354.0M4.8%
- Net income$776.0M10.4%
Where FY2014 revenue went
$7.45B- SG&A: $3.14B, 42% of revenue
- Cost of revenue: $3.14B, 42% of revenue
- Net income: $776.0M, 10% of revenue
- Other operating costs: $38.0M, 0.5% of revenue
- Interest, other & tax: $354.0M, 4.8% of revenue
Kept 10% as net incomeNet income $776.0M · 10%Other operating costs $38.0M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed May 15, 2014Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $7.45B$6.95B | +7.3% |
| Cost of Revenue | $3.14B$2.79B | +12.6% |
| Gross Profit | $4.31B$4.16B | +3.7% |
| SG&A Expenses | $3.14B$2.97B | +5.8% |
| Operating Expenses | $3.18B$3.03B | +5.0% |
| Operating Income | $1.13B$1.13B | +0.3% |
| Interest Expense | $20.00M$22.00M | −9.1% |
| Net Income | $776.00M$750.00M | +3.5% |
| EPS (Basic) | $8.55$8.21 | +4.1% |
| EPS (Diluted) | $8.43$8.00 | +5.4% |
| Shares Outstanding (Basic) | 90.70M91.30M | −0.7% |
| Shares Outstanding (Diluted) | 92.00M93.70M | −1.8% |
05—Questions
Frequently Asked Questions
How did Ralph Lauren perform financially in Fiscal 2014?
Net revenues increased 7.3% to $7.450 billion and net income rose 3.4% to $776 million, or $8.43 per diluted share. Growth came mainly from Wholesale revenues in the Americas, including the Chaps Menswear Business, and from Retail non-comparable store sales. Gross margin declined 190 basis points to 57.9%, and operating income was roughly flat at $1.130 billion.
What drove the decline in gross margin?
The filing attributes the 190 basis point decline in gross margin primarily to the inclusion of the Chaps Menswear Business and the unfavorable effects of foreign currency. Retail operating margin also fell, reflecting elevated promotional activity in the fourth quarter and unfavorable currency effects.
How is the company's liquidity and capital allocation position?
Cash and cash equivalents were $797 million and short-term investments were $488 million at March 29, 2014. Long-term debt was $300 million from the 2.125% Senior Notes due 2018, and the Global Credit Facility provided a $500 million revolving line with no borrowings outstanding. The company returned capital through $558 million of share repurchases and $149 million of dividends, and expects Fiscal 2015 capital expenditures of $400 million to $500 million.
What are the main customer and ownership risks?
The three largest wholesale customers accounted for about 25% of total net revenues and about 35% of gross trade accounts receivable, with Macy's representing about 12% of total net revenues. Mr. Ralph Lauren and entities controlled by the Lauren family held about 81% of voting power, giving them significant control over corporate matters. Roger N. Farah also resigned as Executive Vice Chairman effective May 31, 2014.
What is the outlook the company gave for Fiscal 2015?
The filing says the global economic environment continues to weigh on consumer confidence and discretionary spending, and that a more promotional retail environment could continue to affect sales, inventory levels, and operating margin in Fiscal 2015. The company also anticipates some operating expense de-leverage from continued investment in global store expansion, the Polo store concept, and infrastructure.
06—Continue