01—Abstract
Summary
Summary of the 10-K filed May 23, 2018. Cited figures are marked; the original filing is the authoritative source.
Ralph Lauren Corporation's annual report for Fiscal 2018 (fiscal year ended March 31, 2018) shows net revenues of $6.182 billiona, down 7.1% on a reported basis (8.4% constant currency), from $6.653 billion in Fiscal 2017.
The company returned to profitability with net income of $162.8 millionb, or $1.97 per diluted share, compared with a net loss of $99.3 million in Fiscal 2017. Operating income rose to $498.2 million from an operating loss of $92.3 million, with gross margin increasing to 60.7% from 54.9%, largely because restructuring-related inventory charges fell and promotional activity was reduced. Results were offset by $221.4 million of net TCJA enactment-related charges within the income tax provision, which lowered diluted EPS by $2.68 and drove the effective tax rate to 66.7%.
The company's balance sheet strengthened, with a net cash and investments position of $1.494 billionc at year-end versus $786.2 million a year earlier. Operating cash flow was $975.1 million, capital expenditures were $161.6 million, and dividends paid were $162.4 million. The company also repurchased no Class A shares under its program during the fourth quarter.
Management's ongoing Way Forward Plan, which has cumulative charges of $669.2 milliond to date and total estimated charges of approximately $770 million, continues to reshape distribution, including reduced wholesale doors (12,226 at March 31, 2018, versus 13,066 a year earlier) and store closures, while expanding international and digital presence. Investors should note the concentration of control: the Lauren family held approximately 82% of the voting power as of March 31, 2018, and the three largest wholesale customers, led by Macy's at about 8% of revenues, accounted for roughly 19% of total net revenues. The company also disclosed a pending customs audit matter and expects to pay the one-time mandatory transition tax of $147.8 million net over an eight-year period.
02—Key points
Key Highlights
- Net revenues declined 7.1% to $6.182 billion (8.4% decline on a constant currency basis) as North America net revenues fell 14.6% to $3.231 billion.
- Net income of $162.8 million ($1.97 diluted EPS) reversed a net loss of $99.3 million in Fiscal 2017, despite $221.4 million of TCJA enactment-related charges ($2.68 per diluted share).
- Gross profit margin rose 580 basis points to 60.7%, driven by lower Way Forward Plan inventory charges, reduced promotional activity, and favorable mix; operating income was $498.2 million (8.1% of net revenues).
- Net cash and investments increased to $1.494 billion from $786.2 million, supported by operating cash flow of $975.1 million.
- The Way Forward Plan has cumulative charges of $669.2 million against expected total charges of approximately $770 million, with remaining charges of about $100 million expected in Fiscal 2019.
- Lauren family holds approximately 82% of voting power; Macy's accounted for about 8% of total net revenues and the three largest wholesale customers for about 19%.
- Quarterly dividend held at $0.50 per share ($2.00 annually), and $100 million remained available under the Class A share repurchase program at March 31, 2018.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Ralph Lauren kept $0.03.
- Revenue$6.18B100.0%
- Cost of revenue−$2.43B39.3%
- Gross profit$3.75B60.7%
- Operating costs−$3.25B52.6%
- Operating income$498.2M8.1%
- Interest, other & tax−$335.4M5.4%
- Net income$162.8M2.6%
Where FY2018 revenue went
$6.18B- SG&A: $3.10B, 50% of revenue
- Cost of revenue: $2.43B, 39% of revenue
- Net income: $162.8M, 2.6% of revenue
- Other operating costs: $158.0M, 2.6% of revenue
- Interest, other & tax: $335.4M, 5.4% of revenue
Kept 2.6% as net incomeNet income $162.8M · 2.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed May 23, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $6.18B$6.65B | −7.1% |
| Cost of Revenue | $2.43B$3.00B | −19.0% |
| Gross Profit | $3.75B$3.65B | +2.8% |
| SG&A Expenses | $3.10B$3.17B | −2.4% |
| Operating Expenses | $3.25B$3.74B | −13.1% |
| Operating Income | $498.20M-$92.30M | +639.8% |
| Interest Expense | $18.20M$12.40M | +46.8% |
| Net Income | $162.80M-$99.30M | +263.9% |
| EPS (Basic) | $1.99$-1.20 | +265.8% |
| EPS (Diluted) | $1.97$-1.20 | +264.2% |
| Shares Outstanding (Basic) | 81.70M82.70M | −1.2% |
| Shares Outstanding (Diluted) | 82.50M82.70M | −0.2% |
05—Questions
Frequently Asked Questions
Why did reported net income swing from a loss to a profit, and how much of the tax burden was one-time?
Operating income improved by $590.5 million to $498.2 million, largely because restructuring, impairment and other charges fell from $770.3 million to $165.6 million. Net income was offset by a $332.0 million increase in the income tax provision, mainly from $221.4 million of TCJA enactment-related charges recorded on a provisional basis, which the company says could be adjusted as further analysis is completed.
How concentrated is the company's customer base and ownership?
Sales to Macy's were approximately 8% of total net revenues in Fiscal 2018, and the three largest wholesale customers accounted for approximately 19% of total net revenues (down from about 21% in Fiscal 2017) and about 29% of gross trade accounts receivable. As of March 31, 2018, Mr. Ralph Lauren and entities controlled by the Lauren family held approximately 82% of the voting power of the common stock.
What cash obligations arise from the tax reform and the Way Forward Plan?
The mandatory transition tax net charge of $209.3 million is expected to be paid over eight years, with a total of $147.8 million of payments net of $61.5 million of foreign tax credits, including $23.0 million due in Fiscal 2019. The company repatriated $252.0 million in Fiscal 2018 and an additional $400.0 million in the first quarter of Fiscal 2019. Remaining Way Forward Plan charges of about $100 million are expected in Fiscal 2019, primarily lease-related.
What are the company's main debt and liquidity arrangements?
Total debt was $596.2 million at March 31, 2018, comprising $300 million 2.125% Senior Notes due September 2018 (carried at $298.1 million), $300 million 2.625% Senior Notes due August 2020 (carried at $288.0 million), and $10.1 million of borrowings under credit facilities. The company had a $500 million Global Credit Facility with no borrowings outstanding, and the indenture contains no financial covenants.
06—Continue