Profit Edges Higher at Polo Ralph Lauren

Retail sales grew by nearly a third at the upscale clothier.
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Polo Ralph Lauren (RL) - Get Report posted a slight rise in fourth-quarter earnings, beating the consensus estimate by a penny, as revenue rose 18.3%.

The New York-based company also gave first-quarter and fiscal-year 2005 earnings guidance ranges that were mostly below analysts' expectations.

Shares of Ralph Lauren were moving down 38 cents, or 1.1%, at $33.22 in early

New York Stock Exchange

trading.

Net income for the period ended April 3 rose to $76.5 million, or 75 cents a share, from $73.2 million, or 74 cents a share, in the year-ago quarter.

On an adjusted basis, which excludes restructuring charges related mostly to consolidating European operations, the company earned $80.4 million, or 79 cents a share, compared with $76.1 million, or 77 cents a share, in the fourth quarter of 2003. On that basis, analysts were calling for a profit of 78 cents a share in the latest quarter.

Total revenue rose to $818.8 million from $692.3 million a year earlier. Wholesale revenue increased 17% to $493.5 million, while retail sales were $259.9 million, up 32.6%. Same-store sales in the period increased 10.1%.

Gross margin as a percentage of sales fell to 47.8% from 50% a year ago, as a result of a change in the company's mix of businesses.

Looking to the first quarter, the company expects earnings of 9 cents to 12 cents a share; the analyst consensus is for 12 cents a share. The company earned 4 cents a share in the year-earlier quarter. (The company plans to discontinue quarterly earnings-per-share guidance after the first-quarter guidance given Wednesday.)

Ralph Lauren expects to earn $2.35 to $2.45 a share in the current full year; the Wall Street consensus is for $2.43 a share. The company earned $1.82 a share in 2004.

Ralph Lauren's now three-year-old reorganization plan has set a foundation for profitable growth in the years ahead, according to Pacific Growth analyst Andy Graves. Although the company had to take certain charges related to its restructuring in those years, which impacted significant earnings growth, Graves believes the company's relaunch of its Lauren by Ralph Lauren brand is the first catalyst for future profit growth.

"We estimate the Lauren line will grow an additional 18% to approximately $500 million

between the fourth quarter of 2004 and the third quarter of 2005 with slightly better margins in the following 12 months after launch, potentially adding another 10 cents to EPS in that period," wrote Graves in a research note. The analyst has an overweight rating on the stock.

The company had terminated its Lauren by Ralph Lauren license with

Jones New York

(JNY)

in May 2003 and relaunched the brand in the fourth quarter. Other restructuring plans included closing underperforming and unprofitable stores, reducing headcount and consolidating its European businesses.

Ralph Lauren also announced it acquired certain assets of RL Childrenswear LLC, its licensee for children's clothing in the U.S., Canada and Mexico since 1993. It will be a cash transaction for $230 million and is expected to close in June 2004.

The retailer expects the deal to be neutral to earnings in 2005 and expects wholesale revenue in fiscal-year 2006 to be more than $200 million with earnings of 15 cents to 20 cents a share.