Ralph Lauren Management Discusses Q3 2012 Results - Earnings Call Transcript

Ralph Lauren (RL)

Q3 2012 Earnings Call

February 08, 2012 9:00 am ET

Executives

James Hurley - Director of Investor Relations

Roger N. Farah - President, Chief Operating Officer and Director

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

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

Analysts

Omar Saad - ISI Group Inc., Research Division

Kate McShane - Citigroup Inc, Research Division

Adrianne Shapira - Goldman Sachs Group Inc., Research Division

Michael Binetti - UBS Investment Bank, Research Division

John D. Kernan - Cowen and Company, LLC, Research Division

Christian Buss - Crédit Suisse AG, Research Division

David J. Glick - Buckingham Research Group, Inc.

Presentation

Operator

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Good morning, and thank you for calling the Ralph Lauren's Third Quarter Fiscal 2012 Earnings Conference Call. As a reminder, today's conference is being recorded. [Operator Instructions] Now for opening remarks and introductions, I will turn the conference over to Mr. James Hurley. Please go ahead, sir.

James Hurley

Good morning, and thank you for joining us on Ralph Lauren's Third Quarter Fiscal 2012 Conference Call. The agenda for today's call includes Roger Farah, our President and Chief Operating Officer, who will 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 third quarter, in addition to reviewing our expectations for fiscal 2012. After that, we will open the call up for your questions, which we,please 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 also 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'd like to turn the call over to Roger.

Roger N. Farah

Thank you, Jim, and good morning, everyone. We're reporting strong, better-than-expected third quarter and year-to-date results today. Our performance was supported by sustained focus on our global brand-elevation efforts and our strategic merchandise initiatives. Around the world, customers clearly recognize Ralph Lauren for its extraordinary cachet, quality and craftsmanship. We achieved double-digit revenue growth in all key geographies in the quarter and year-to-date. We also delivered excellent profit flow-through despite unprecedented cost of goods inflation and considerable economic turmoil in Europe and a holiday season that was promotional for apparel.

Worldwide revenue growth was well balanced across core apparel offerings. Emerging category such as handbags, Denim & Supply and dresses were also important contributors to our growth. Our sales and profit plans for the holiday and fall seasons were aggressive to begin with, so to have exceeded those goals is a real testament to the vitality of the Ralph Lauren brand, the strength of our products and the operational discipline of our global teams.

Our continued focus on our key growth initiatives, which include: Expanding our international presence, extending our direct-to-customer reach and new merchandising innovations have resulted in a more profitable mix of business compared to the prior year.

Year-to-date, our international revenues have increased approximately 40%, more than the mid-teens expansion in our U.S. sales. We continue to make important investments in our long-term growth aspirations in Europe, such as e-commerce and several new stores of our own or our licensing partners. Our new merchandising introductions include the expansion of Lauren apparel, the launch of handbags, footwear and Club Monaco, all of which have been well received throughout the continent. And despite considerable near-term headwinds in Europe, we believe we are poised for meaningful growth over the next several years.

We also achieved great progress throughout Asia in the first 9 months of the year. Our teams are actively engaged in brand elevation and repositioning efforts across our major territories of Japan, South Korea and Greater China. They are successfully managing day-to-day responsibilities in these highly dynamic markets, while simultaneously planning for promising future.

Sales trends throughout Asia continue to be very good for us in the third quarter, including double-digit comp growth in Japan, where we're benefiting from the successful implementation of more robust merchandising and planning disciplines that are yielding better-than-expected sales on a more profitable platform.

We are applying many of the same disciplines as we integrate South Korea, where we are already working off a substantial distribution network. South Korea is one of the world's most important luxury markets, not only for its strong local customer demand but also a major shopping destination for Chinese tourists.

As we turn to China, we're well in the process of resetting our distribution throughout the country, an initiative that will result in the closure of a approximately 95 points of distribution or about 60% of the network we had in place at the beginning of this fiscal year. This is clearly a bold move, but one we absolutely believe is critical. We are taking accelerated action in order to build the strongest foundation possible to serve the world's most important luxury customers. This means we're taking some short-term hits, shrinking an already modest retail size in terms of revenue, while bearing an expense structure to support our long-term growth expectations. We are actively looking for new stores but will be deliberate in the pace of openings, because locations we want are among the most desirable in the world. But it's not a question of "if" for us in China, it's a matter of "when," and we're allocating resources accordingly.

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