01—Abstract
Summary
Summary of the 10-K filed May 19, 2016. Cited figures are marked; the original filing is the authoritative source.
Ralph Lauren Corporation's Form 10-K for the fiscal year ended April 2, 2016 (Fiscal 2016, a 53-week year) reports net revenues of $7.405 billiona, down 2.8% on a reported basis from $7.620 billion, and up 0.8% on a constant currency basis.
Net income fell to $396 millionb from $702 million, and diluted EPS fell to $4.62 from $7.88. The decline was driven by $142 million of Global Reorganization Plan charges, $48 million of other charges (mainly a pending customs audit and litigation settlements), $22 million of non-cash impairments on underperforming stores, and unfavorable foreign currency effects. Operating income fell 43.8% to $582 million, and operating margin declined to 7.9% from 13.6%.
Management expects the Global Reorganization Plan to reduce annual operating expenses by about $125 millionc. The company reports segment results of Wholesale at 45% of Fiscal 2016 net revenues, Retail at 53%, and Licensing at 2%. Retail comparable store sales declined about 7% on a reported basis, and comparable store sales excluding e-commerce declined about 8% to 9% on a reported basis.
The company generated $1.007 billiond of operating cash flow, spent $418 million on capital expenditures, paid $170 million in dividends, and repurchased $500 million of stock including tax withholdings. Net cash and investments were $559 million at year-end, down from $620 million. Mr. Ralph Lauren controls approximately 82% of the voting power.
Management's outlook notes that consumer retail traffic remains weak, that foreign exchange headwinds are expected to continue, and that operating margin pressure from growth investments will persist in the near term. The company also plans to continue its strategic growth plan for Fiscal 2017 and beyond, which may result in additional restructuring charges. The Board approved an expansion of the share repurchase program by up to $200 million on May 11, 2016.
02—Key points
Key Highlights
- Net revenues declined 2.8% to $7.405 billion, or up 0.8% on a constant currency basis, with the 53rd week adding $72 million.
- Net income fell 43.6% to $396 million, and diluted EPS fell to $4.62 from $7.88.
- Operating income fell 43.8% to $582 million, and operating margin declined to 7.9% from 13.6%, including $142 million of Global Reorganization Plan charges.
- Retail comparable store sales decreased about 7% on a reported basis, and non-comparable store sales increased 28%.
- Operating cash flow was $1.007 billion, with $418 million in capital expenditures and $170 million in dividends paid.
- The Global Reorganization Plan is expected to reduce annual operating expenses by approximately $125 million, with about $5 million of additional charges in Fiscal 2017.
- Net cash and investments decreased to $559 million from $620 million, and the Board expanded the share repurchase program by $200 million on May 11, 2016.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Ralph Lauren kept $0.05.
- Revenue$7.41B100.0%
- Cost of revenue−$3.22B43.5%
- Gross profit$4.19B56.5%
- Operating costs−$3.60B48.7%
- Operating income$582.8M7.9%
- Interest, other & tax−$186.4M2.5%
- Net income$396.4M5.4%
Where FY2016 revenue went
$7.41B- SG&A: $3.41B, 46% of revenue
- Cost of revenue: $3.22B, 43% of revenue
- Net income: $396.4M, 5.4% of revenue
- Other operating costs: $191.4M, 2.6% of revenue
- Interest, other & tax: $186.4M, 2.5% of revenue
Kept 5.4% as net incomeNet income $396.4M · 5.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed May 19, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $7.41B$7.62B | −2.8% |
| Cost of Revenue | $3.22B$3.24B | −0.7% |
| Gross Profit | $4.19B$4.38B | −4.4% |
| SG&A Expenses | $3.41B$3.30B | +3.4% |
| Operating Expenses | $3.60B$3.34B | +7.8% |
| Operating Income | $582.80M$1.04B | −43.7% |
| Interest Expense | $21.00M$16.70M | +25.7% |
| Net Income | $396.40M$702.20M | −43.5% |
| EPS (Basic) | $4.65$7.96 | −41.6% |
| EPS (Diluted) | $4.62$7.88 | −41.4% |
| Shares Outstanding (Basic) | 85.20M88.20M | −3.4% |
| Shares Outstanding (Diluted) | 85.90M89.10M | −3.6% |
05—Questions
Frequently Asked Questions
Why did profitability decline so sharply in Fiscal 2016?
Operating income fell $453 million, driven by $142 million of Global Reorganization Plan charges, $48 million of other charges primarily related to a pending customs audit and litigation settlements, $22 million of non-cash impairments on underperforming stores, and a net unfavorable foreign currency effect of $112 million on operating income. SG&A rose to 45.8% of net revenues from 43.3%.
How did the segments perform?
Wholesale net revenues decreased 5.7% to $3.297 billion, and Wholesale operating income fell to $822 million. Retail net revenues decreased 0.6% to $3.933 billion, with Retail operating income falling to $359 million. Licensing net revenues increased 3.7% to $175 million, and Licensing operating income rose to $155 million.
What are the main risks identified in the filing?
Key risks include reliance on Mr. Ralph Lauren and on new executive leadership after the November 2015 management changes, dependence on a limited number of large department store customers (Macy's accounted for approximately 11% of total net revenues), foreign currency exposure, risks from importing over 97% of products from foreign manufacturers, cybersecurity and information system implementation risks, and a concentrated voting structure in which the Lauren family holds about 82% of voting power.
How is the company returning capital to shareholders?
In Fiscal 2016 the company used $480 million to repurchase Class A shares under its program, plus $20 million of shares withheld for taxes, and paid $170 million in dividends. The quarterly dividend was $0.50 per share. As of April 2, 2016, about $100 million remained under the repurchase program, and the Board approved an additional $200 million on May 11, 2016.
06—Continue