Polo: Strong in Q3, Cautious on ‘08

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NEW YORK – Polo Ralph Lauren Corp. exceeded analysts’ expectations for the third quarter Wednesday, but its cautious outlook for fiscal 2008 concerned investors, who traded its shares down 1.7%.

Net income for the three months ended Dec. 30 was $110.5 million, or $1.03 a diluted share, comfortably above the 92-cent consensus estimate and 21.8% above the year-ago quarter’s mark of $90.7 million, or 84 cents.

Net revenues for the quarter were up 14.9% to $1.14 billion from $995.5 million in last year’s period. Wholesale net sales were up 18% to $535.8 million, but the wholesale volume was surpassed by retail revenue, which was up 12.8% to $540.4 million. Licensing revenues rose 8.3 to $67.5 million.

Wholesale sales would have been up 5% without the acquisition of Polo Jeans. Within the retail unit, same-store sales were up 7.4%, divided among an 11.4% surge at Club Monaco, a 7.5% increase at its outlets and a 5.8% increase at Ralph Lauren stores.

Analysts’ estimates of $3.63 in diluted full-year earnings per share are still within the company’s guidance of $3.60 to $3.65, implying fourth-quarter EPS of between 56 and 61 cents.

However, Polo’s fiscal 2008 guidance of $3.95 to $4.05 was below the consensus estimate of $4.10. The discrepancy led shares of Polo to fall $1.47, or 1.7%, in New York Stock Exchange trading Wednesday, to a closing price of $83.60.

Polo also said it expects revenues to increase at a high-single digit clip in 2008 and for operating margins to increase “slightly” next year.

“Our strategy to elevate the product and to refine our distribution channels continues to produce strong results,” said Roger Farah, president and chief operating officer. “Our performance year-to-date is outstanding, as we delivered an 18% sales growth with a 33% increase in operating income while continuing to support growth initiatives for the future in luxury accessories, specialty retail and denim.”

Ralph Lauren, founder and chief executive, described reaction to the new Global Brand Concept group, which will develop private label programs for retailers, starting with J.C. Penney, as “favourable…. With our first client announced, and with work underway, the potential for this business is monumental.”

Lauren added that new brands, such as Rugby and Lauren, “are doing well and growing rapidly.”

For the year to date, net income advanced 33.4% to $327.7 million, or $3.04 a diluted share, from $245.6 million, or $2.30. Net revenues were up 17.6% to $3.26 billion as wholesale sales rose 23.3%, to $1.69 billion, and retail sales were up 14.2%, to $1.4 billion. With the Polo Jeans operation now in-house, licensing revenues were off 1.2% to $180.1 million. Excluding Polo Jeans’ year-ago contribution, royalties moved ahead 7%.

Same-store sales grew 7.9% in the first nine months ot the year, led by a 12.1% improvement at Club Monaco, an 8% boost as factory outlets and a 6.4% pickup at Ralph Lauren stores.

In addition to its wholesale and licensing activity, Polo operates 299 stores, including 73 Ralph Lauren stores, 65 Club Monaco units and 11 Rugby shops.

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