01—Abstract
Summary
Summary of the 10-K filed May 15, 2015. Cited figures are marked; the original filing is the authoritative source.
Ralph Lauren Corporation's Form 10-K for the fiscal year ended March 28, 2015 reports net revenues of $7.620 billiona, up 2.3% on a reported basis and 4.0% on a constant currency basis, while net income declined 9.5% to $702 million and diluted EPS fell to $7.88 from $8.43.
Operating income decreased 8.4% to $1.035 billionb, and operating margin contracted 160 basis points to 13.6%, driven by a 40 basis point gross margin decline to 57.5%, SG&A rising to 43.3% of revenues from 42.2%, and foreign currency losses of $26 million. Retail (52% of revenues) grew 4.2% while Wholesale (46%) was essentially flat at 0.3%, and Retail operating margin fell 180 basis points to 13.3%. On May 12, 2015, the Board approved a Global Reorganization Plan to move to a global brand-based structure, reduce annual operating expenses by about $100 million, and absorb estimated charges of $70 million to $100 million, mostly in Fiscal 2016.
The Board also expanded the share repurchase program by $500 million and the quarterly dividend was raised to $0.50c per share in February 2015. Cash flow from operations was $894 million, capital expenditures were $391 million, and the company ended the year with a net cash and investments position of $620 million, versus $989 million a year earlier, after commercial paper borrowings of $234 million.
Risk factors highlighted by the filing include dependence on Mr. Ralph Lauren, who holds about 81% of voting power; currency exposure, with 37% of revenues earned outside the U.S.; concentration among wholesale customers, where Macy's accounted for about 12% of total net revenues; and a pending Wathne litigation claim of approximately $98 milliond, which management does not expect to have a material adverse effect. The filing also discloses a customs audit in which the authority asserted up to about $46 million in incremental duty and non-creditable VAT.
02—Key points
Key Highlights
- Net revenues rose 2.3% to $7.620 billion (4.0% on a constant currency basis), but net income fell 9.5% to $702 million and diluted EPS fell to $7.88 from $8.43.
- Operating margin declined 160 basis points to 13.6%, as gross margin fell 40 basis points to 57.5% and SG&A rose to 43.3% of revenues from 42.2%.
- Retail segment revenues grew 4.2% to $3.956 billion, but Retail operating margin dropped 180 basis points to 13.3%; Wholesale revenues were nearly flat at $3.495 billion.
- Global Reorganization Plan approved May 12, 2015 targets roughly $100 million in annual operating expense reductions, with estimated charges of $70 million to $100 million mainly in Fiscal 2016.
- Operating cash flow was $894 million, capital expenditures were $391 million, and net cash and investments declined to $620 million from $989 million, with $234 million of commercial paper outstanding.
- Share repurchase authorization was expanded by $500 million on May 12, 2015, and the quarterly dividend was increased to $0.50 per share.
- Governance and concentration risk: Mr. Ralph Lauren and entities controlled by the Lauren family hold about 81% of voting power, and Macy's accounted for about 12% of total net revenues.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Ralph Lauren kept $0.09.
- Revenue$7.62B100.0%
- Cost of revenue−$3.24B42.5%
- Gross profit$4.38B57.5%
- Operating costs−$3.34B43.9%
- Operating income$1.04B13.6%
- Interest, other & tax−$333.2M4.4%
- Net income$702.2M9.2%
Where FY2015 revenue went
$7.62B- SG&A: $3.30B, 43% of revenue
- Cost of revenue: $3.24B, 43% of revenue
- Net income: $702.2M, 9.2% of revenue
- Other operating costs: $42.2M, 0.6% of revenue
- Interest, other & tax: $333.2M, 4.4% of revenue
Kept 9.2% as net incomeNet income $702.2M · 9.2%Other operating costs $42.2M · 0.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed May 15, 2015Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $7.62B$7.45B | +2.3% |
| Cost of Revenue | $3.24B$3.14B | +3.3% |
| Gross Profit | $4.38B$4.31B | +1.6% |
| SG&A Expenses | $3.30B$3.14B | +5.0% |
| Operating Expenses | $3.34B$3.18B | +5.1% |
| Operating Income | $1.04B$1.13B | −8.4% |
| Interest Expense | $16.70M$20.00M | −16.5% |
| Net Income | $702.20M$776.00M | −9.5% |
| EPS (Basic) | $7.96$8.55 | −6.9% |
| EPS (Diluted) | $7.88$8.43 | −6.5% |
| Shares Outstanding (Basic) | 88.20M90.70M | −2.8% |
| Shares Outstanding (Diluted) | 89.10M92.00M | −3.2% |
05—Questions
Frequently Asked Questions
How did Ralph Lauren perform financially in Fiscal 2015?
Net revenues increased 2.3% to $7.620 billion, but operating income fell 8.4% to $1.035 billion and net income declined 9.5% to $702 million. Diluted EPS was $7.88 versus $8.43 in Fiscal 2014. The filing attributes the margin pressure to a more promotional retail environment, less favorable product mix, higher SG&A from store and infrastructure investment, and unfavorable currency effects.
What is the Global Reorganization Plan and what will it cost?
Approved by the Board on May 12, 2015, the plan reorganizes the company from a channel and regional structure into an integrated global brand-based structure, includes a store and shop-within-shop performance review, a corporate functional review, and consolidation of certain luxury lines. The company expects total charges of $70 million to $100 million, with restructuring charges of $55 million to $80 million paid in cash, and expects annual operating expense savings of about $100 million when substantially implemented by the end of Fiscal 2016.
How strong is the balance sheet and how is cash being returned to shareholders?
The company ended Fiscal 2015 with $500 million of cash and equivalents and $644 million of short-term investments, against $234 million of commercial paper and $298 million of Senior Notes. Net cash and investments fell to $620 million from $989 million, mainly due to $532 million of share repurchases and withholdings, $391 million of capital expenditures, and $158 million of dividends. Management said it believes existing cash and credit facilities are sufficient for its needs.
What are the main risks investors should watch?
Key risks include dependence on Mr. Ralph Lauren and other senior executives, with no material key-man insurance; foreign currency exposure, given that about 37% of revenues were earned outside the U.S.; concentration in wholesale customers, with the three largest accounting for about 24% of total net revenues and about 37% of gross receivables; and the pending Wathne litigation seeking about $98 million plus interest, which management does not expect to be materially adverse. A customs dispute in one international subsidiary could also cost up to about $46 million.
06—Continue