Polo Ralph Lauren Corporation (RL)
F1Q10 Earnings Call
May 19, 2010 9:00 am ET
James Hurley – Investor Relations
Roger Farah – President, Chief Operating Officer
Tracey Travis – Chief Financial Officer
Omar Saad - Credit Suisse
Liz Dunn - Thomas Weisel Partners
Bob Drbul - Barclays Capital
Kate McShane - Citi
Adrianne Shapira - Goldman Sachs
David Glick - Buckingham Research
Michael Binetti - UBS
Chi Lee - Morgan Stanley
Christine Chen - Needham & Company, LLC
Christopher Kim - J.P. Morgan
Previous Statements by RL
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Good morning and thank you for the Polo Ralph Lauren’s fourth quarter fiscal 2010 earnings conference call. (Operator Instructions) Now for opening remarks and introductions, I will turn the conference over to Mr. James Hurley. Please go ahead sir.
Thank you. Good morning everyone and thanks for joining us on Polo Ralph Lauren’s fourth quarter and full year fiscal 2010 conference call. The agenda for the call includes Roger Farah, our President and Chief Operating Officer, who will give you an overview of the quarter and comment on our broader strategic initiatives; and then Tracey Travis, our Chief Financial Officer, will provide operational and financial highlights from the fourth quarter, in addition to reviewing our initial expectations for fiscal 2011. After that, we will open the call up for your questions which we ask that you limit to one per caller.
During today’s call we will be making some forward-looking statements within the meaning of the Federal Securities Laws including our financial outlook. Forward-looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward-looking statements. Our expectations contain many risks and uncertainties. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings.
And with that, I’ll turn the call over to Roger.
Thank you Jim and good morning everyone. We’re pleased to be reporting outstanding fourth quarter and full year results this morning, results that exceeded our expectations on virtually every operating metric and that reflect significant broad based progress across products, channels and geographies.
The year was filled with some tremendous milestones for our company, including major strides in our international growth objectives as we assumed direct control of important Asian operations; made considerable progress with our accessory development efforts, retailing our first watch collections and having our first market for Lauren handbags; and we prepared for the opening of several important flagship stores in key global markets. And in spite of this high level of reinvestment back into our company, we substantially improved our profitability with gross profit margins expanding 380 basis points to a record annual level of 58.2, and earnings growing 18%, all during a period of considerable global turbulence that represented some of the most challenging issues our industry has ever had to face. And our fiscal 2010 results are not a function of easy comparisons. They come on top of gross profit margin expansion and EPS growth in fiscal ’09, which was yet another outstanding year for us considering broader market conditions and our sustained level of investments back into our business.
There is no question that this remarkable performance was, in fact, years in the making. It comes as a direct result of our selective investment in the consistent seeding and sequencing of our strategic growth initiatives, where we are leveraging efficiency gains in certain areas of the business to support growth opportunities in other areas; diversifying our operations on multiple levels in terms of brands, products, channel distribution and geography. Of course our results also reflect the strength of our brand, the desirability of our products, and the intense proactive operational discipline that runs through our organization, from supply chain and logistics to other corporate functions, as well as to our strategic merchandising initiative and meticulous, store level management.
The fourth quarter dynamics also suggest something of an inflection point of change in the marketplace. Worldwide, we are seeing our core and luxury customers returning to the stores with an openness to spend. While they are not spending at pre-recession levels, and they can be focused on value, they do recognize that product availability is limited. And there is no price resistance on unique or novel items. We also saw things get progressively better every month during the fourth quarter, and the rebound has been most pronounced in our women’s products.
Urban and tourist destinations are outperforming stores that cater to more regional or local customers. The dedication and hard work of our teams around the world are the other critical ingredients of our success. During the last 90 days, we have traveled to Europe, Asia and the Middle East and met with our teams. Their drive for excellence and desire to raise the bar on their own performance is inspiring.
I believe our performance over the last two years and in particular fiscal ’10 demonstrates the unique competitive advantage for us, our organization’s care about every single detail of our business, and work to maximize each and every opportunity and/or challenge. We are managing a tremendously complex and multifaceted mosaic across an astoundingly disparate disciplines, but we are united in our goal of elevating our brand, communicating our rich heritage and core values of quality, consistency, honesty and teamwork.
There is no better evidence of this than our newly opened Saint Germain flagship in Paris. This project was several years in the making and is our boldest brand statement to date, heralding a new era for us in France, across Europe and around the world. The store represents the culmination of tremendous progress our company has made over the last decade, from the balance of men’s and women’s merchandise, the breadth of product categories available, the powerful accessory presentations and the incredible restoration of this historic site. The richness of the Ralph Lauren brand and its unique lifestyle sensibility is accentuated further by Ralph’s, a restaurant housed within the store that has fast become one of Paris’ chicest restaurants.
The store is a true destination that reflects the excellent work of our European team that has repositioned our brand so meticulously over the last decade, resulting in a customer who understands the quality and value of our products. In Europe, the fashion expectation of our customers is higher than that in the United States, and we see this across all brands from Collection to Lauren to Polo Jeans.