Polo Ralph Lauren (RL)

Q4 2011 Earnings Call

May 25, 2011 9:00 am ET

Executives

Tracey Travis - Chief Financial Officer, Principal Accounting Officer and Senior Vice President of Finance

James Hurley - Director of Investor Relations

Roger Farah - President, Chief Operating Officer and Director

Jackwyn Nemerov - Executive Vice President of Wholesale Brands, Licensed Products, Sourcing, Merchandising, Home and Asia Pacific and Director

Analysts

Marie Driscoll - S&P Equity Research

Christine Chen - Needham & Company, LLC

Robert Drbul - Barclays Capital

Kate McShane - Citigroup Inc

Faye Landes - Consumer Edge Research, LLC

Adrianne Shapira - Goldman Sachs Group Inc.

Michael Binetti - UBS Investment Bank

Jeffrey Klinefelter - Piper Jaffray Companies

Robert Ohmes - BofA Merrill Lynch

David Glick - Buckingham Research Group, Inc.

Presentation

Operator

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Good morning, and thank you for calling the Polo Ralph Lauren's Third (sic) [Fourth] Quarter Fiscal 2011 Earnings Conference Call. As a reminder, today's conference is being recorded. [Operator Instructions] Now for opening remarks and introductions, I would like to turn the conference over to Mr. James Hurley. Please go ahead, sir.

James Hurley

Good morning, and thank you for joining us on Polo Ralph Lauren's Fourth Quarter and Full Year Fiscal 2011 Conference Call. The agenda for the call includes Roger Farah, our President and Chief Operating Officer, who will give you an overview for the year and comment on our broader strategic initiatives; Jacki Nemerov, our Executive Vice President, will provide some product commentary; and 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 2012. After that, we will open up the call 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 now I'll turn the call over to Roger.

Roger Farah

Thank you, Jim, and good morning, everyone. We're pleased to be reporting fourth quarter and fiscal '11 results that were much better than the expectations we articulated to you during the last year. We responded to a rapidly changing environment by pursuing additional market share opportunities and working to protect margins in the face of unprecedented inflationary pressures for our industry. At the same time, we made excellent progress on each of our strategic growth objectives and delivered the best operating results in our history, continuing the 5- and 10-year trends of double-digit sales and earnings growth and generating for the first time over $1 billion in EBITDA.

Tracey will provide more complete commentary on our financial performance later on, but I did want to highlight some of our key achievements. The 14% increase in annual revenues was double our original outlook, fueled by the excellent momentum of our core apparel offerings, particularly in the U.S. and in Europe, where revenues rose at a double-digit rate. Diluted EPS growth of 22% was achieved after substantial reinvestment back in the businesses, including the startup of Southeast Asia and Greater China, the transition of South Korea and the development of international e-commerce. We also managed the initial onslaught of cost of goods inflation in the second half of the year and the negative impact of several calendar and holiday shifts, including a 53rd week last year that had more than a distorted impact on our fourth quarter results. And there were extraordinary items such as restructuring and store impairment charges and the disruption in Japan.

The quality and consistency of our results, reflecting the clarity of our strategic focus and our ability to execute with excellence as we now have more direct control of our operations and key merchandising categories around the world. The strong results enabled us to enhance shareholder returns by repurchasing nearly $600 million of stock and doubling our quarterly dividend during the year.

I'd like to take this opportunity to acknowledge the incredible spirit and resilience of the Japanese people following the devastation caused by the recent earthquake and tsunami there. I'm pleased to report that all 1,500 of our Japanese employees were safe and accounted for within hours of the disasters, and we continue to support them in their time of great need with various fundraising efforts. The long process of rebuilding is just beginning and will obviously have an impact on our fiscal '12 outlook for the region, but we are happy to see the nation on a path to recovery.

Moving back to the year. Our operating results were achieved in a manner that was totally consistent with the key strategic initiatives that we've been executing against for the last several years, namely the elevating of our brand as we expand our international presence, the innovation of new merchandising categories and extending our direct-to-customer reach. These objectives are supported by world-class advertising and marketing, the continued development of our leadership teams, investments and operational infrastructure and prudent financial management. Over the next 3 years, we intend to invest over $1 billion in total capital to continue advancing our strategic objectives. About half of that will be allocated to new stores, concession shops and additional e-commerce development, all with an emphasis on international markets.

We made major strides in our international growth objectives during fiscal '11, assuming control of our distribution in South Korea during the fourth quarter and completing the last phase of our multi-year mission to bring our Asian operations in-house that began with Japan in 2007. The South Korea transition process, which includes the on-boarding of 200 employees, multiple systems integration was very smooth. After operating South Korea for 5 months now, we are encouraged by the early business trends, sales, gross profit margins, operating expenses, all of which have been favorable to plan. We look forward to executing our growth strategies in this vibrant luxury market over the next several years.

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