Ralph Lauren Reports Better-Than-Expected Second Quarter Fiscal 2016 Results
-
Second Quarter Net Revenues of
$2.0 Billion Increased 4% in Constant Currency, Driven by Double-Digit Growth Internationally - Better-Than-Expected Operating Margin of 13.5%, Excluding One-Time Charges, Reflects Benefits from the Global Brand Management Structure and Disciplined Operational Management
-
Earnings Per Diluted Share Was
$2.13 in the Second Quarter, Excluding One-Time Charges, Up 13% to Prior Year in Constant Currency - The Company Maintains Its Fiscal 2016 Outlook
“I am pleased that the Company is beginning to benefit from our recent
strategic initiatives and investments,” said
Second Quarter Fiscal 2016 Income Statement Review
Net Revenues. Net revenues for the second quarter of
Fiscal 2016 were 4% above the prior year period on a constant currency
basis, driven by double-digit growth internationally, contribution from
new stores and strong global e-commerce growth. Reported net revenues
declined 1% to
-
Wholesale Sales. In the second quarter of Fiscal 2016,
wholesale segment sales increased 3% on a constant currency basis,
driven by strength in
Europe across all brands. Reported wholesale segment sales declined 2% to$927 million . -
Retail Sales. Retail sales increased 5% on a constant currency
basis in the second quarter over the prior year period, driven by
contribution from new stores and strong global e-commerce growth.
Reported retail sales declined 1% compared to the second quarter of
Fiscal 2015 to
$996 million , negatively impacted by foreign currency movements. Consolidated comparable store sales decreased 1% on a constant currency basis during the second quarter and declined 6% on a reported basis. -
Licensing. Licensing revenues of
$47 million in the second quarter were 7% above the prior year period in constant currency and grew 5% on a reported basis, reflecting higher royalties from increased sales ofRalph Lauren , Polo, Chaps and Lauren products worldwide.
Gross Profit. Gross profit for the second quarter of
Fiscal 2016 was
Operating Expenses. Operating expenses in the second
quarter of Fiscal 2016 were
Operating Income. Operating income in the second quarter
of Fiscal 2016 was
-
Wholesale Operating Income. Wholesale operating income in the
second quarter of Fiscal 2016 was
$249 million , excluding one-time charges, compared with$247 million in the prior year period. Wholesale operating margin increased 60 basis points to 26.8% driven by gross margin improvement and disciplined expense management. -
Retail Operating Income. Retail operating income in the second
quarter of Fiscal 2016 was
$128 million , excluding one-time charges, compared with$137 million in the prior year period. Retail operating margin declined 80 basis points to 12.8%, due to fixed expense deleverage and negative foreign currency effects. -
Licensing Operating Income. Licensing operating income of
$42 million in the second quarter of Fiscal 2016 was in line with the prior year period.
Net Income and Diluted EPS. Net income for the second
quarter of Fiscal 2016 was
The Company had an effective tax rate of approximately 29%, excluding one-time charges, in the second quarter of Fiscal 2016, which compared to an effective tax rate of 28% in the second quarter of Fiscal 2015. On a reported basis, the effective tax rate was 27% in the second quarter.
Update On The Global Brand Reorganization
In the first six months since the announcement of the new global brand
management organizational structure, the Company has made significant
progress with its transition. All six brand Presidents and their
leadership teams have been established, and the new global line planning
process, which is a significant component of the new structure, has
successfully been launched. The Company now expects to achieve
approximately
The Company expects to incur one-time charges of approximately
Second Quarter Fiscal 2016 Balance Sheet and Cash Flow Review
The Company ended the second quarter with
The Company had
Global Retail Store Network
The Company ended the second quarter of Fiscal 2016 with 480 directly
operated stores, comprised of 144
Fiscal 2016 Outlook
The Company is maintaining its Fiscal 2016 outlook. The company expects consolidated net revenues for Fiscal 2016 to be approximately flat on a reported basis and increase by 3-5% in constant currency. Based on current exchange rates, foreign currency will have an approximate 400 basis point negative impact on Fiscal 2016 revenue growth. Operating margin for Fiscal 2016 is still expected to be 180-230 basis points below the prior year’s level due to negative foreign currency effects. The full year Fiscal 2016 tax rate is estimated at 30%. This guidance excludes one-time charges that are primarily associated with our global brand reorganization.
In the third quarter of Fiscal 2016, the Company expects consolidated net revenues to be up 0-2% on a reported basis, and based on current exchange rates, foreign currency will have an approximate 250 basis point negative impact on revenue growth. Operating margin for the third quarter of Fiscal 2016 is expected to be approximately 200-250 basis points below the comparable prior year period, primarily due to negative foreign currency effects and infrastructure investments. The third quarter tax rate is estimated at 31%.
Conference Call
As previously announced, the Company will host a conference call and
live online webcast today,
An online archive of the broadcast will be available by accessing the
Company's investor relations website at http://investor.ralphlauren.com.
A telephone replay of the call will be available from
ABOUT
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This press release and oral statements made from time to time by
representatives of the Company contain certain "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements include the statements
under “Fiscal 2016 Outlook” and statements regarding, among other
things, our current expectations about the Company's future results and
financial condition, revenues, store openings and closings, employee
reductions, margins, expenses and earnings and are indicated by words or
phrases such as "anticipate," "estimate," "expect," "project," "we
believe" and similar words or phrases. These forward-looking statements
involve known and unknown risks, uncertainties and other factors which
may cause actual results, performance or achievements to be materially
different from the future results, performance or achievements expressed
in or implied by such forward-looking statements. Forward-looking
statements are based largely on the Company's expectations and judgments
and are subject to a number of risks and uncertainties, many of which
are unforeseeable and beyond our control. The factors that could cause
actual results to materially differ include, among others: the loss of
key personnel or other changes in our executive and senior management
team or to our operating structure; our ability to achieve anticipated
operating enhancements and/or cost reductions from our restructuring
plans, including our transition to a global brand-based operating
structure; our ability to successfully implement our anticipated growth
strategies and to capitalize on our repositioning initiatives in certain
regions and merchandise categories; our exposure to currency exchange
rate fluctuations from both a transactional and translational
perspective, and risks associated with increases in the costs of raw
materials, transportation, and labor; our ability to secure the
technology facilities and systems used by the Company and those of third
party service providers from, among other things, cybersecurity
breaches, acts of vandalism, computer viruses or similar events; our
ability to continue to maintain our brand image and reputation and
protect our trademarks; the impact of the volatile state of the global
economy, stock markets, and other economic conditions on us, our
customers, our suppliers, and our vendors, and our ability and their
ability to access sources of liquidity; the impact of changes in
consumers’ ability or preferences on purchases of premium lifestyle
products that we sell and our ability to forecast consumer demand;
changes in the competitive marketplace; risks associated with our
international operations, including risks related to the importation and
exportation of products, and risks associated with compliance with the
Foreign Corrupt Practices Act or violations of other anti-bribery and
corruption laws prohibiting improper payments and the burdens of
complying with a variety of foreign laws and regulations, including tax
laws; the impact to our business of events of unrest and instability
that are currently taking place in certain parts of the world; our
ability to continue to expand our business internationally; changes in
our effective tax rates or credit profile and ratings within the
financial community; changes in our relationships with department store
customers and licensing partners; our efforts to improve the efficiency
of our distribution system and enhance our information technology
systems and e-commerce platform; the impact to our business resulting
from potential costs and obligations related to the early termination of
our long term, non-cancellable leases; the potential impact to the
trading prices of our securities if our Class A Common Stock share
repurchase activity and/or cash dividend rate differs from investors'
expectations; the potential impact on our operations and on our
customers resulting from natural or man-made disasters; and other risk
factors identified in the Company's Annual Report on Form 10-K, Form
10-Q and Form 8-K reports filed with the
RALPH LAUREN CORPORATION | |||||||||||||
CONSOLIDATED BALANCE SHEETS | |||||||||||||
Prepared in accordance with U.S. Generally Accepted Accounting Principles | |||||||||||||
(in millions) | |||||||||||||
(Unudited) | |||||||||||||
September 26, | March 28, | September 27, | |||||||||||
2015 | 2015 | 2014 | |||||||||||
ASSETS | |||||||||||||
Current assets: | |||||||||||||
Cash and cash equivalents | $ | 380 | $ | 500 | $ | 483 | |||||||
Short-term investments | 746 | 644 | 708 | ||||||||||
Accounts receivable, net of allowances | 594 | 655 | 641 | ||||||||||
Inventories | 1,380 | 1,042 | 1,292 | ||||||||||
Income tax receivable | 65 | 57 | 62 | ||||||||||
Deferred tax assets | 147 | 145 | 150 | ||||||||||
Prepaid expenses and other current assets | 268 | 281 | 224 | ||||||||||
Total current assets | 3,580 | 3,324 | 3,560 | ||||||||||
Property and equipment, net | 1,519 | 1,436 | 1,411 | ||||||||||
Deferred tax assets | 43 | 45 | 45 | ||||||||||
Goodwill | 906 | 903 | 940 | ||||||||||
Intangible assets, net | 255 | 267 | 283 | ||||||||||
Other non-current assets (a) | 140 | 131 | 157 | ||||||||||
Total assets | $ | 6,443 | $ | 6,106 | $ | 6,396 | |||||||
LIABILITIES AND EQUITY | |||||||||||||
Current liabilities: | |||||||||||||
Short-term debt | $ | 130 | $ | 234 | $ | 210 | |||||||
Accounts payable | 206 | 210 | 255 | ||||||||||
Income tax payable | 16 | 27 | 56 | ||||||||||
Accrued expenses and other current liabilities | 926 | 715 | 762 | ||||||||||
Total current liabilities | 1,278 | 1,186 | 1,283 | ||||||||||
Long-term debt | 597 | 298 | 298 | ||||||||||
Non-current liability for unrecognized tax benefits | 90 | 116 | 133 | ||||||||||
Other non-current liabilities | 667 | 615 | 653 | ||||||||||
Total liabilities | 2,632 | 2,215 | 2,367 | ||||||||||
Equity: | |||||||||||||
Common stock | 1 | 1 | 1 | ||||||||||
Additional paid-in-capital | 2,199 | 2,117 | 2,056 | ||||||||||
Retained earnings | 5,926 | 5,787 | 5,530 | ||||||||||
Treasury stock, Class A, at cost | (4,148 | ) | (3,849 | ) | (3,598 | ) | |||||||
Accumulated other comprehensive (loss) income | (167 | ) | (165 | ) | 40 | ||||||||
Total equity | 3,811 | 3,891 | 4,029 | ||||||||||
Total liabilities and equity | $ | 6,443 | $ | 6,106 | $ | 6,396 | |||||||
Net Cash (incl. LT Investments) | 407 | 620 | 685 | ||||||||||
Cash & Investments (ST & LT) | 1,134 | 1,152 | 1,193 | ||||||||||
Net Cash (excl. LT Investments) | 399 | 612 | 683 | ||||||||||
Cash & ST Investments | 1,126 | 1,144 | 1,191 | ||||||||||
(a) Includes non-current investments of: | $ | 8 | $ | 8 | $ | 2 | |||||||
RALPH LAUREN CORPORATION | |||||||||
CONSOLIDATED STATEMENTS OF INCOME | |||||||||
Prepared in accordance with U.S. Generally Accepted Accounting Principles | |||||||||
(in millions, except per share data) | |||||||||
(Unaudited) | |||||||||
Three Months Ended |
|||||||||
September 26, | September 27, | ||||||||
2015 | 2014 | ||||||||
Wholesale net sales | $ | 927 | $ | 943 | |||||
Retail net sales | 996 | 1,006 | |||||||
Net sales | 1,923 | 1,949 | |||||||
Licensing revenue | 47 | 45 | |||||||
Net revenues | 1,970 | 1,994 | |||||||
Cost of goods sold(a) | (857 | ) | (862 | ) | |||||
Gross profit | 1,113 | 1,132 | |||||||
Selling, general, and administrative expenses(a) | (839 | ) | (836 | ) | |||||
Amortization of intangible assets | (6 | ) | (7 | ) | |||||
Impairment of assets | (7 | ) | (1 | ) | |||||
Restructuring and other charges | (31 | ) | (2 | ) | |||||
Total other operating expenses, net | (883 | ) | (846 | ) | |||||
Operating income | 230 | 286 | |||||||
Foreign currency losses | (5 | ) | (3 | ) | |||||
Interest expense | (4 | ) | (5 | ) | |||||
Interest and other income, net | 1 | 3 | |||||||
Equity in losses of equity-method investees | (3 | ) | (3 | ) | |||||
Income before provision for income taxes | 219 | 278 | |||||||
Provision for income taxes | (59 | ) | (77 | ) | |||||
Net income | $ | 160 | $ | 201 | |||||
Net income per share - Basic | $ | 1.87 | $ | 2.27 | |||||
Net income per share - Diluted | $ | 1.86 | $ | 2.25 | |||||
Weighted average shares outstanding - Basic | 85.6 | 88.4 | |||||||
Weighted average shares outstanding - Diluted | 86.0 | 89.2 | |||||||
Dividends declared per share | $ | 0.50 | $ | 0.45 | |||||
(a) Includes total depreciation expense of: | $ | (71 | ) | $ | (65 | ) | |||
RALPH LAUREN CORPORATION | ||||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||||
Prepared in accordance with U.S. Generally Accepted Accounting Principles | ||||||||||
(in millions, except per share data) | ||||||||||
(Unaudited) | ||||||||||
Six Months Ended | ||||||||||
September 26, | September 27, | |||||||||
2015 | 2014 | |||||||||
Wholesale net sales | $ | 1,569 | $ | 1,651 | ||||||
Retail net sales | 1,931 | 1,966 | ||||||||
Net sales | 3,500 | 3,617 | ||||||||
Licensing revenue | 88 | 85 | ||||||||
Net revenues | 3,588 | 3,702 | ||||||||
Cost of goods sold(a) | (1,509 | ) | (1,527 | ) | ||||||
Gross profit | 2,079 | 2,175 | ||||||||
Selling, general, and administrative expenses(a) | (1,661 | ) | (1,624 | ) | ||||||
Amortization of intangible assets | (12 | ) | (13 | ) | ||||||
Impairment of assets | (15 | ) | (2 | ) | ||||||
Restructuring and other charges | (65 | ) | (6 | ) | ||||||
Total other operating expenses, net | (1,753 | ) | (1,645 | ) | ||||||
Operating income | 326 | 530 | ||||||||
Foreign currency losses | (6 | ) | (6 | ) | ||||||
Interest expense | (8 | ) | (9 | ) | ||||||
Interest and other income, net | 3 | 4 | ||||||||
Equity in losses of equity-method investees | (6 | ) | (6 | ) | ||||||
Income before provision for income taxes | 309 | 513 | ||||||||
Provision for income taxes | (85 | ) | (150 | ) | ||||||
Net income | $ | 224 | $ | 363 | ||||||
Net income per share - Basic | $ | 2.60 | $ | 4.09 | ||||||
Net income per share - Diluted | $ | 2.58 | $ | 4.05 | ||||||
Weighted average shares outstanding - Basic | 86.1 | 88.7 | ||||||||
Weighted average shares outstanding - Diluted | 86.8 | 89.7 | ||||||||
Dividends declared per share | $ | 1.00 | $ | 0.90 | ||||||
(a) Includes total depreciation expense of: | $ | (139 | ) | $ | (128 | ) | ||||
RALPH LAUREN CORPORATION | |||||||||||||||
Constant Currency Financial Measures | |||||||||||||||
(in millions) | |||||||||||||||
(Unaudited) | |||||||||||||||
Same - Store Sales Data | |||||||||||||||
Three Months Ended
September 26, 2015 % Change |
Six Months Ended
September 26, 2015 % Change |
||||||||||||||
As Reported | Constant Currency | As Reported | Constant Currency | ||||||||||||
Total Ralph Lauren | (6 | %) | (1 | %) | (7 | %) | (2 | %) | |||||||
Operating Segment Data | |||||||||||||||
Three Months Ended | % Change | ||||||||||||||
September 26, 2015 | September 27, 2014 | As Reported | Constant Currency | ||||||||||||
Wholesale net sales | $ | 927 | $ | 943 | (1.8 | %) | 2.6 | % | |||||||
Retail net sales | 996 | 1,006 | (0.9 | %) | 5.1 | % | |||||||||
Net sales | 1,923 | 1,949 | (1.3 | %) | 3.9 | % | |||||||||
Licensing revenue | 47 | 45 | 5.1 | % | 6.7 | % | |||||||||
Net revenues | $ | 1,970 | $ | 1,994 | (1.2 | %) | 3.9 | % | |||||||
Six Months Ended | % Change | ||||||||||||||
September 26, 2015 | September 27, 2014 | As Reported | Constant Currency | ||||||||||||
Wholesale net sales | $ | 1,569 | $ | 1,651 | (5.0 | %) | (1.0 | %) | |||||||
Retail net sales | 1,931 | 1,966 | (1.8 | %) | 4.2 | % | |||||||||
Net sales | 3,500 | 3,617 | (3.2 | %) | 1.8 | % | |||||||||
Licensing revenue | 88 | 85 | 4.0 | % | 6.4 | % | |||||||||
Net revenues | $ | 3,588 | $ | 3,702 | (3.1 | %) | 1.9 | % | |||||||
RALPH LAUREN CORPORATION | |||||||||||||||||
OTHER INFORMATION | |||||||||||||||||
(in millions) | |||||||||||||||||
(Unaudited) | |||||||||||||||||
SEGMENT INFORMATION | |||||||||||||||||
Net revenues and operating income for the periods ended September 26, 2015 and September 27, 2014 for each segment were as follows: | |||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||
September 26, | September 27, | September 26, | September 27, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||||
Net revenues: | |||||||||||||||||
Wholesale | $ | 927 | $ | 943 | $ | 1,569 | $ | 1,651 | |||||||||
Retail | 996 | 1,006 | 1,931 | 1,966 | |||||||||||||
Licensing | 47 | 45 | 88 | 85 | |||||||||||||
Total net revenues | $ | 1,970 | $ | 1,994 | $ | 3,588 | $ | 3,702 | |||||||||
Operating income: | |||||||||||||||||
Wholesale | $ | 247 | $ | 247 | $ | 384 | $ | 427 | |||||||||
Retail | 123 | 137 | 233 | 305 | |||||||||||||
Licensing | 42 | 42 | 78 | 78 | |||||||||||||
412 | 426 | 695 | 810 | ||||||||||||||
Unallocated corporate expenses | (151 | ) | (138 | ) | (304 | ) | (274 | ) | |||||||||
Unallocated restructuring and other charges | (31 | ) | (2 | ) | (65 | ) | (6 | ) | |||||||||
Total operating income | $ | 230 | $ | 286 | $ | 326 | $ | 530 | |||||||||
RALPH LAUREN CORPORATION | ||||||||||||
Reconciliation of Certain Non-GAAP Financial Measures | ||||||||||||
(in millions, except per share data) | ||||||||||||
(Unaudited) | ||||||||||||
Three Months Ended September 26, 2015 | ||||||||||||
As |
Adjustments (a) |
As Adjusted |
Foreign Exchange |
As Adjusted |
||||||||
Net revenues | $ 1,970 | $ - | $ 1,970 | $ 103 | $ 2,073 | |||||||
Gross profit | 1,113 | - | 1,113 | |||||||||
Gross profit margin | 56.5% | 56.5% | ||||||||||
Total other operating expenses | (883) | 38 | (845) | |||||||||
Operating expense margin | 44.8% | 43.0% | ||||||||||
Operating income | 230 | 38 | 268 | |||||||||
Operating margin | 11.7% | 13.5% | ||||||||||
Income before provision for income taxes | 219 | 38 | 257 | |||||||||
Provision for income taxes | (59) | (14) | (73) | |||||||||
Effective tax rate | 27.1% | 28.6% | ||||||||||
Net income | $ 160 | $ 24 | 184 | |||||||||
Net income per diluted share | $ 1.86 | $ 0.27 | $ 2.13 | $ 0.41 | $ 2.54 | |||||||
SEGMENT INFORMATION - | ||||||||||||
OPERATING INCOME: | ||||||||||||
Wholesale | $ 247 | $ 2 | $ 249 | |||||||||
Operating margin | 26.6% | 26.8% | ||||||||||
Retail | 123 | 5 | 128 | |||||||||
Operating margin | 12.3% | 12.8% | ||||||||||
Licensing | 42 | - | 42 | |||||||||
Operating margin | 89.3% | 89.3% | ||||||||||
Unallocated corporate expenses and restructuring and other charges, net | (182) | 31 | (151) | |||||||||
Total operating income | $ 230 | $ 38 | $ 268 | |||||||||
(a)Adjustments include Restructuring and Other Charges, Asset Impairment Charges, and Inventory-related Charges. Inventory-related charges are recorded within cost of goods sold in the unaudited interim consolidated statements of income. | ||||||||||||
Six Months Ended September 26, 2015 | ||||||||||||
As
Reported |
Adjustments (a) |
As Adjusted
(Including FX) |
Foreign Exchange |
As Adjusted |
||||||||
Net revenues | $ 3,588 | $ - | $ 3,588 | $ 186 | $ 3,774 | |||||||
Gross profit | 2,079 | 3 | 2,082 | |||||||||
Gross profit margin | 57.9% | 58.0% | ||||||||||
Total other operating expenses | (1,753) | 80 | (1,673) | |||||||||
Operating expense margin | 48.9% | 46.6% | ||||||||||
Operating income | 326 | 83 | 409 | |||||||||
Operating margin | 9.1% | 11.4% | ||||||||||
Income before provision for income taxes | 309 | 83 | 392 | |||||||||
Provision for income taxes | (85) | (28) | (113) | |||||||||
Effective tax rate | 27.6% | 29.0% | ||||||||||
Net income | $ 224 | $ 55 | $ 279 | |||||||||
Net income per diluted share | $ 2.58 | $ 0.62 | $ 3.20 | $ 0.70 | $ 3.90 | |||||||
SEGMENT INFORMATION - | ||||||||||||
OPERATING INCOME: | ||||||||||||
Wholesale | $ 384 | $ 5 | $ 389 | |||||||||
Operating margin | 24.4% | 24.8% | ||||||||||
Retail | 233 | 13 | 246 | |||||||||
Operating margin | 12.0% | 12.7% | ||||||||||
Licensing | 78 | - | 78 | |||||||||
Operating margin | 89.0% | 89.0% | ||||||||||
Unallocated corporate expenses and restructuring and other charges, net | (369) | 65 | (304) | |||||||||
Total operating income | $ 326 | $ 83 | $ 409 | |||||||||
(a)Adjustments include Restructuring and Other Charges, Asset Impairment Charges, and Inventory-related Charges. Inventory-related charges are recorded within cost of goods sold in the unaudited interim consolidated statements of income. | ||||||||||||
Note: The above non-GAAP financial measures exclude one-time charges which are primarily related to restructuring activities associated with the company’s global brand reorganization.
SUPPLEMENTAL FINANCIAL INFORMATION
This earnings release includes certain non-GAAP financial measures relating to restructuring and non-cash charges recorded in connection with the Company’s global brand reorganization, as well as other charges primarily related to the settlement of certain litigation claims. Included in this earnings release is a reconciliation between the non-GAAP financial measures and the most directly comparable GAAP measures before and after these charges. The related tax effects were calculated using the respective statutory tax rates for each applicable jurisdiction. The Company uses non-GAAP financial measures, among other things, to evaluate its operating performance and in order to represent the manner in which the Company conducts and views its business. The Company believes that excluding items that are not comparable from period to period helps investors and others compare operating performance between two periods. While the Company considers the non-GAAP measures useful in analyzing its results, they are not intended to replace, nor act as a substitute for, any presentation included in the consolidated financial statements prepared in conformity with GAAP and may be different from non-GAAP measures reported by other companies.
Additionally, since
View source version on businesswire.com: http://www.businesswire.com/news/home/20151105005827/en/
Source:
Ralph Lauren
Investor Relations
Evren Kopelman, 212-813-7862
Or
Corporate
Communications
Malcolm Carfrae, 212-583-2262