01—Abstract
Summary
Summary of the 10-K filed May 27, 2020. Cited figures are marked; the original filing is the authoritative source.
Ralph Lauren Corporation's Fiscal 2020 (ended March 28, 2020) was sharply affected by COVID-19 and Hong Kong protest disruptions.
Net revenues declined 2.4% to $6.160 billiona (down 1.2% on a constant currency basis), while net income fell 10.8% to $384.3 million and diluted EPS was $4.98, versus $5.27 in Fiscal 2019. Operating income dropped 43.6% to $317.0 million, and operating margin fell to 5.1% from 8.9%. Gross margin declined 230 basis points to 59.3%, driven mainly by $157.3 million of COVID-19-related non-routine inventory charges, and SG&A rose to 52.6% of revenues, including $56.4 million of COVID-19-related bad debt expense.
Results also included a one-time $122.9 millionb Swiss Tax Act benefit, which reduced the effective tax rate by 3,760 basis points and resulted in a negative 17.7% effective rate for the year. Liquidity was strengthened defensively. The company drew down $475 million on its Global Credit Facility, entered into a new $500 million 364-day facility in May 2020, suspended its share repurchase program and quarterly dividend, and temporarily reduced executive base pay and furloughed or reduced hours for a significant portion of employees.
Net cash and investments fell to $945.3 millionc from $1.343 billion, while cash and cash equivalents rose to $1.620 billion. Total debt was $1.171 billion, and operating cash flow was $754.6 million. Capital expenditures were $270.3 million.
The company also amended its Global Credit Facility in May 2020, waiving leverage ratio requirements through the quarter ending September 30, 2021, and imposing a $750 milliond minimum liquidity requirement and restrictions on shareholder distributions until a specified termination date. The filing also highlights ongoing concentration and governance considerations. Mr. Ralph Lauren and the Lauren family held approximately 84% of voting power.
Three largest wholesale customers represented about 18% of Fiscal 2020 net revenues, and the wholesale backlog was $1.1 billion, with approximately 45% subsequently cancelled in the first quarter of Fiscal 2021. Management stated it cannot predict the duration or extent of the COVID-19 impact.
02—Key points
Key Highlights
- Net revenues declined 2.4% to $6.160 billion; on a constant currency basis, they declined 1.2%, reflecting COVID-19 and Hong Kong protest disruptions.
- Net income fell 10.8% to $384.3 million; diluted EPS was $4.98, compared with $5.27 in Fiscal 2019. Results include a one-time $122.9 million Swiss Tax Act benefit ($1.59 per diluted share).
- Operating income decreased 43.6% to $317.0 million, and operating margin declined to 5.1% from 8.9%, mainly due to $157.3 million of COVID-19-related inventory charges and higher bad debt expense.
- The company drew down $475 million on its Global Credit Facility, added a new $500 million 364-day facility, and temporarily suspended its share repurchase program and quarterly dividend to preserve cash.
- Net cash and investments decreased to $945.3 million from $1.343 billion, while operating cash flow was $754.6 million and capital expenditures were $270.3 million.
- The Global Credit Facility was amended in May 2020: leverage ratio requirements were waived through the quarter ending September 30, 2021, and a $750 million minimum liquidity requirement was added until the ratings-based toggle date.
- Three largest wholesale customers accounted for approximately 18% of Fiscal 2020 net revenues. About 45% of the $1.1 billion wholesale backlog was subsequently cancelled in the first quarter of Fiscal 2021.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, Ralph Lauren kept $0.06.
- Revenue$6.16B100.0%
- Cost of revenue−$2.51B40.7%
- Gross profit$3.65B59.3%
- Operating costs−$3.34B54.2%
- Operating income$317.0M5.1%
- Interest, other & tax$67.3M1.1%
- Net income$384.3M6.2%
Where FY2020 revenue went
$6.16B- SG&A: $3.24B, 53% of revenue
- Cost of revenue: $2.51B, 41% of revenue
- Operating income: $317.0M, 5.1% of revenue
- Other operating costs: $98.8M, 1.6% of revenue
Kept 5.1% as operating incomeOperating income $317.0M · 5.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed May 27, 2020Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $6.16B$6.31B | −2.4% |
| Cost of Revenue | $2.51B$2.43B | +3.3% |
| Gross Profit | $3.65B$3.89B | −6.0% |
| SG&A Expenses | $3.24B$3.17B | +2.2% |
| Operating Expenses | $3.34B$3.32B | +0.4% |
| Operating Income | $317.00M$561.80M | −43.6% |
| Interest Expense | $17.60M$20.70M | −15.0% |
| Net Income | $384.30M$430.90M | −10.8% |
| EPS (Basic) | $5.07$5.35 | −5.2% |
| EPS (Diluted) | $4.98$5.27 | −5.5% |
| Shares Outstanding (Basic) | 75.80M80.60M | −6.0% |
| Shares Outstanding (Diluted) | 77.20M81.70M | −5.5% |
05—Questions
Frequently Asked Questions
How did COVID-19 affect Ralph Lauren's Fiscal 2020 results?
The company reported that COVID-19 caused temporary closures of stores, distribution centers, and corporate facilities, along with lower retail traffic and consumer spending. The filing cites $157.3 million of non-routine inventory charges and $56.4 million of incremental bad debt expense related to COVID-19. Gross margin fell 230 basis points to 59.3%, and operating margin declined to 5.1% from 8.9%.
Why did net income rise or fall relative to operating performance?
Net income fell 10.8% to $384.3 million, even though the income tax line improved, because of a $209.5 million decrease in tax provision. That improvement was driven largely by lower pretax income and a one-time $122.9 million Swiss Tax Act benefit recorded in Fiscal 2020. The company's effective tax rate was a negative 17.7%.
What steps has Ralph Lauren taken to preserve liquidity?
The company drew down $475 million from its Global Credit Facility, entered into a new $500 million 364-day revolving facility in May 2020, temporarily suspended its share repurchases and quarterly dividend, reduced executive and board base compensation, postponed non-critical capital projects, and temporarily furloughed or reduced hours for a significant portion of employees.
What is the company's debt position and covenant status?
Total debt was $1.171 billion as of March 28, 2020, including $475.0 million of borrowings under the Global Credit Facility and $700 million of Senior Notes. The filing states that no Event of Default had occurred. The May 2020 amendment waived the leverage ratio test through the quarter ending September 30, 2021, and it added a $750 million minimum unrestricted cash and undrawn availability requirement until the ratings-based toggle date.
How concentrated is ownership and customer exposure?
Mr. Ralph Lauren and entities controlled by the Lauren family held approximately 84% of the voting power as of March 28, 2020. Sales to the three largest wholesale customers were approximately 18% of total net revenues, and these customers constituted approximately 32% of gross trade accounts receivable.
06—Continue