Ralph Lauren Reports First Quarter Fiscal 2017 Results

  • First Quarter Net Revenues Were $1.6 Billion
  • Earnings (Loss) Per Diluted Share Was ($0.27) on a Reported Basis and
    $1.06 on an Adjusted Basis, Excluding Restructuring and Other Related
    Charges
  • Operating Income (Loss) Margin Was (2.0%) on a Reported Basis and 8.2%
    on an Adjusted Basis, Excluding Restructuring and Other Related Charges
  • Company Maintains Its Full Fiscal Year Outlook

NEW YORK–(BUSINESS WIRE)–Ralph Lauren Corporation (NYSE:RL) today reported earnings per diluted
share of ($0.27) on a reported basis and $1.06 on an adjusted basis,
excluding restructuring, impairment and inventory-related charges in
connection with the Company’s restructuring plans, for the first quarter
of Fiscal 2017. This compared to earnings per diluted share of $0.73 on
a reported basis and $1.09 on an adjusted basis, excluding restructuring
and other related charges, for the first quarter of Fiscal 2016.

“I am encouraged by the steps we are taking to refocus on and evolve our
core and bring back the entrepreneurial spirit that made this Company
great,” said Ralph Lauren, Executive Chairman and Chief Creative
Officer. “The team has my full support as we start to execute the Way
Forward Plan.”

“We have made good initial progress in the execution of our Way Forward
Plan,” said Stefan Larsson, President and Chief Executive Officer. “We
will continue to balance driving near-term performance with the pursuit
of our long-term vision. We have already completed the planned
right-sizing of the organization and are well underway in building the
leadership team that will have the strength to successfully execute the
plan.”

First Quarter Fiscal 2017 Income Statement Review

Net Revenues. For the first quarter of Fiscal 2017, net
revenues of $1.6 billion declined 4% compared to the prior year period
on both a constant currency and a reported basis. The decline in
reported net revenues was in line with the guidance provided in June of
a mid-single digit revenue decline. On a reported basis, international
net revenue rose 10% in the first quarter, offset by an 11% decline in
North America.

  • Wholesale Revenue. In the first quarter of Fiscal 2017,
    wholesale segment revenue decreased 5% on both a reported and constant
    currency basis to $607 million, driven by a decline in North America
    as the U.S. department store channel continued to experience
    challenging traffic trends, partially offset by an increase in Europe.
  • Retail Revenue. Retail segment revenue decreased 3% on both a
    reported and constant currency basis to $907 million in the first
    quarter, driven by a comparable store sales decline that was partially
    offset by non-comparable store sales growth. Consolidated comparable
    store sales decreased 6% on a reported basis and 7% in constant
    currency during the first quarter, primarily due to lower traffic
    trends.
  • Licensing Revenue. Licensing segment revenue of $38 million in
    the first quarter decreased 8% on both a reported and constant
    currency basis.

Gross Profit. Gross profit for the first quarter of Fiscal
2017 was $895 million on a reported basis, including $54 million in
non-cash inventory-related charges. On an adjusted basis, gross profit
was $949 million and gross profit margin was 61.1%, 130 basis points
above last year, excluding non-cash inventory related charges from both
periods. This increase was primarily driven by favorable sales mix
shifts, lower product costs and an improvement in Asia driven by
initiatives to improve quality of sale metrics.

Operating Expenses. Operating expenses in the first
quarter of Fiscal 2017 were $926 million on a reported basis, including
$105 million in restructuring and other related charges. On an adjusted
basis, operating expenses were $821 million and operating expense rate
was 52.9%, 180 basis points above last year, excluding restructuring and
other related charges from both periods. This increase was due to
deleverage of fixed expenses on lower net revenues. Adjusted operating
expenses were $828 million in the prior year period.

Operating Income (Loss). Operating loss in the first
quarter of Fiscal 2017 was $31 million on a reported basis, including
restructuring and other related charges of $159 million. On an adjusted
basis, operating income was $128 million and operating margin was 8.2%,
60 basis points below last year, excluding restructuring and other
related charges from both periods. This was better than the guidance
provided of a 110-160 basis point decline, driven by a more favorable
impact of the Company’s inventory management initiatives and product
mix. The lower operating margin year-over-year was attributable to fixed
expense deleverage on lower net revenues, partially offset by higher
gross margin.

  • Wholesale Operating Income. Wholesale operating income in the
    first quarter of Fiscal 2017 was $133 million on a reported basis,
    including $11 million in restructuring and other related charges. On
    an adjusted basis, wholesale operating income in the first quarter was
    $144 million and wholesale operating margin was 23.7%, up 190 basis
    points compared to last year.
  • Retail Operating Income. Retail operating income in the first
    quarter of Fiscal 2017 was $63 million on a reported basis, including
    $62 million in restructuring and other related charges. On an adjusted
    basis, retail operating income was $125 million and retail operating
    margin was 13.8%, up 120 basis points compared to last year.
  • Licensing Operating Income. Licensing operating income of $34
    million in the first quarter of Fiscal 2017 decreased 7% compared with
    the prior year period on both a reported and constant currency basis.

Net Income (Loss) and Diluted EPS. On a reported basis,
net loss in the first quarter of Fiscal 2017 was $22 million or $0.27
per diluted share. On an adjusted basis, net income was $90 million, or
$1.06 per diluted share, excluding restructuring and other related
charges. This compared to adjusted net income of $95 million, or $1.09
per diluted share, for the first quarter of Fiscal 2016.

The Company had an effective tax rate of approximately 33% in the first
quarter of Fiscal 2017 on a reported basis. On an adjusted basis, the
effective tax rate was approximately 29%, excluding restructuring and
other related charges, which compared to an adjusted effective tax rate
of 30% in the prior year period.

First Quarter Fiscal 2017 Balance Sheet and Cash Flow Review

The Company ended the first quarter Fiscal 2017 with $1.2 billion in
cash and investments, or $533 million in cash and investments net of
debt (“net cash”), compared to $1.2 billion in cash and investments and
$707 million in net cash at the end of first quarter Fiscal 2016. The
first quarter of Fiscal 2017 ended with inventory of $1.2 billion
compared to $1.3 billion in the prior year period.

The Company had $78 million in capital expenditures in the first quarter
of Fiscal 2017, compared to $68 million in the prior year period. During
the first quarter, the Company paid approximately $100 million related
to repurchases of its Class A Common Stock. At the end of the quarter,
$200 million remained available for future share repurchases.

Global Retail Store Network

The Company ended the first quarter Fiscal 2017 with 485 directly
operated stores, comprised of 132 Ralph Lauren stores, 81 Club Monaco
stores and 272 Polo factory stores. The Company also operated 598
concession shop locations worldwide at the end of the first quarter.
Compared to the first quarter Fiscal 2016, the Company had 18 net new
directly operated stores and 40 net new concession shops at the end of
first quarter Fiscal 2017.

In addition to Company-operated locations, international licensing
partners operated 96 Ralph Lauren stores and 17 dedicated shops, as well
as 134 Club Monaco stores and shops at the end of the first quarter of
Fiscal 2017.

Second Quarter and Full Year Fiscal 2017 Outlook

In the second quarter of Fiscal 2017, the Company expects consolidated
net revenues to be down mid-to-high single digits on a reported basis.
Based on current exchange rates, foreign currency will have minimal
impact on revenue growth in the second quarter. Operating margin for the
second quarter of Fiscal 2017 is expected to be 200-250 basis points
below the comparable prior year period. Initiatives under the Way
Forward Plan are expected to have a greater impact in the second half of
Fiscal 2017 than the second quarter. The second quarter tax rate is
estimated at 29%.

For Fiscal 2017, the Company continues to expect consolidated net
revenues to decrease at a low-double digit rate due to a proactive
pullback in inventory receipts, store closures, pricing harmonization
and other quality of sale initiatives, combined with the weak retail
traffic and a highly promotional environment in the U.S. Based on
current exchange rates, foreign currency will have minimal impact on
revenue growth in Fiscal 2017.

The Company continues to expect operating margin for Fiscal 2017 to be
approximately 10%, as cost savings are expected to be offset by growth
in new store expenses, unfavorable foreign currency impacts,
infrastructure investments and fixed expense deleverage. The Fiscal 2017
tax rate is estimated to be approximately 29%.

Second quarter and full year Fiscal 2017 guidance excludes
restructuring, impairment and inventory-related charges in connection
with the Company’s Way Forward Plan.

Fiscal 2017 Restructuring Activities

The Company expects its Fiscal 2017 restructuring activities to result
in approximately $180-$220 million of annualized expense savings related
to its initiatives to streamline the organizational structure and
right-size its cost structure and real estate portfolio. This is in
addition to the $125 million of annualized cost savings associated with
the Company’s Fiscal 2016 restructuring activities.

The Company expects to incur restructuring charges of up to $400 million
as a result of the Fiscal 2017 restructuring activities and up to a $150
million inventory charge associated with the Company’s Way Forward Plan.
These charges are expected to be substantially realized by the end of
Fiscal 2017. In the first quarter of Fiscal 2017, the Company recorded
$104 million in restructuring and related impairment charges and $50
million in inventory charges.

Conference Call

As previously announced, the Company will host a conference call and
live online webcast today, Wednesday, August 10th, at 9:00
a.m. Eastern. Listeners may access a live broadcast of the conference
call on the Company’s investor relations website at http://investor.ralphlauren.com
or by dialing 517-623-4799. To access the conference call, listeners
should dial in by 8:45 a.m. Eastern and request to be connected to the
Ralph Lauren First Quarter Fiscal 2017 conference call.

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 12:00 P.M.
Eastern, Wednesday, August 10, 2016 through 6:00 P.M. Eastern,
Wednesday, August 17, 2016 by dialing 402-998-1683 and entering passcode
9612.

ABOUT RALPH LAUREN

Ralph Lauren Corporation (NYSE: RL) is a global leader in the design,
marketing, and distribution of premium lifestyle products, including
apparel, accessories, home furnishings, and other licensed product
categories. RLC’s long-standing reputation and distinctive image have
been consistently developed across an expanding number of products,
brands, sales channels, and international markets. RLC’s brand names
include Ralph Lauren, Ralph Lauren Collection, Ralph Lauren Purple
Label, Polo Ralph Lauren, Double RL, Lauren Ralph Lauren, Polo Ralph
Lauren Children, Denim & Supply Ralph Lauren, Chaps, and Club Monaco,
among others.

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 “Second Quarter and Full Year Fiscal 2017 Outlook,” and “Fiscal
2017 Restructuring Activities” 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, including Mr. Ralph Lauren, or other changes in our
executive and senior management team or to our operating structure, and
our ability to effectively transfer knowledge during periods of
transition; our ability to successfully implement our Way Forward Plan
and long-term growth strategy, which entails evolving our operating
model to enable sustainable, profitable sales growth by significantly
reducing supply chain lead times, employing best-in class sourcing, and
capitalizing on our repositioning initiatives in certain brands,
regions, and merchandise categories; our ability to achieve anticipated
operating enhancements and/or cost reductions from our restructuring
plans, which could include the potential sale, discontinuance, or
consolidation of certain of our brands; the impact to our business
resulting from potential costs and obligations related to the early
termination of our long-term, non-cancellable leases; our efforts to
improve the efficiency of our distribution system and to continue to
enhance, upgrade, and/or transition our global information technology
systems and our global e-commerce platform; our ability to secure our
facilities and systems and those of our third-party service providers
from, among other things, cybersecurity breaches, acts of vandalism,
computer viruses, or similar Internet or email events; 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
continue to maintain our brand image and reputation and protect our
trademarks; the impact to our business resulting from the United
Kingdom’s referendum vote to exit the European Union and the uncertainty
surrounding the terms and conditions of such a withdrawal, as well as
the related impact to global stock markets and currency exchange rates;
the impact of the volatile state of the global economy, stock markets,
and other global economic conditions on us, our customers, our
suppliers, and our vendors and on our ability and their ability to
access sources of liquidity; the impact to our business resulting from
changes in consumers’ ability or preferences to purchase premium
lifestyle products that we offer for sale and our ability to forecast
consumer demand, which could result in either a build-up or shortage of
inventory; changes in the competitive marketplace, including the
introduction of new products or pricing changes by our competitors, and
consolidations, liquidations, restructurings, and other ownership
changes in the retail industry; a variety of legal, regulatory, tax,
political, and economic risks, including risks related to the
importation and exportation of products, tariffs, and other trade
barriers which our international operations are subject to and other
risks associated with our international operations, such as 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, trade and labor restrictions, and related laws that
may reduce the flexibility of our business; the impact to our business
of events of unrest and instability that are currently taking place in
certain parts of the world, as well as from any terrorist action,
retaliation, and the threat of further action or retaliation; our
ability to continue to expand or grow our business internationally and
the impact of related changes in our customer, channel, and geographic
sales mix as a result; changes in our tax obligations and effective tax
rates; changes in the business of, and our relationships with, major
department store customers and licensing partners; our intention to
introduce new products or enter into or renew alliances and exclusive
relationships; our ability to access sources of liquidity to provide for
our cash needs, including our debt obligations, payment of dividends,
capital expenditures, and potential repurchases of our Class A common
stock; our ability to open new retail stores, concession shops, and
e-commerce sites in an effort to expand our direct-to-consumer presence;
our ability to make certain strategic acquisitions and successfully
integrate the acquired businesses into our existing operations; 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; our ability to maintain our credit profile
and ratings within the financial community; the potential impact on our
operations and on our suppliers and 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 Securities and Exchange Commission. The Company undertakes no
obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.

 
RALPH LAUREN CORPORATION
CONSOLIDATED BALANCE SHEETS
Prepared in accordance with U.S. Generally Accepted Accounting
Principles
(in millions)
(Unaudited)
 
  July 2,     April 2,     June 27,
2016 2016 2015
 
ASSETS
Current assets:
Cash and cash equivalents $ 457 $ 456 $ 490
Short-term investments 619 629 661
Accounts receivable, net of allowances 338 517 390
Inventories 1,242 1,125 1,270
Income tax receivable 60 58 69
Deferred tax assets 146
Prepaid expenses and other current assets   286     268     278  
 
Total current assets 3,002 3,053 3,304
 
Property and equipment, net 1,565 1,583 1,419
Deferred tax assets 116 119 50
Goodwill 930 918 901
Intangible assets, net 240 244 260
Other non-current assets (a)   265     296     134  
 
Total assets $ 6,118   $ 6,213   $ 6,068  
 
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt $ 90 $ 116 $ 155
Accounts payable 192 151 207
Income tax payable 22 33 35
Accrued expenses and other current liabilities   992     898     832  
 
Total current liabilities 1,296 1,198 1,229
 
Long-term debt 602 597 297
Non-current liability for unrecognized tax benefits 77 81 102
Other non-current liabilities   577     593     633  
 
Total liabilities   2,552     2,469     2,261  
 
Equity:
Common stock 1 1 1
Additional paid-in-capital 2,259 2,258 2,170
Retained earnings 5,952 6,015 5,808
Treasury stock, Class A, at cost (4,454 ) (4,349 ) (4,018 )
Accumulated other comprehensive loss   (192 )   (181 )   (154 )
 
Total equity   3,566     3,744     3,807  
 
Total liabilities and equity $ 6,118   $ 6,213   $ 6,068  
 
 
Net Cash (incl. LT Investments) 533 559 707
Cash & Investments (ST & LT) 1,225 1,272 1,159
 
Net Cash (excl. LT Investments) 384 372 699
Cash & ST Investments 1,076 1,085 1,151
 
(a) Includes non-current investments of: $ 149   $ 187   $ 8  
 
RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Prepared in accordance with U.S. Generally Accepted Accounting
Principles
(in millions, except per share data)
(Unaudited)
 
 

Three Months Ended

July 2,   June 27,
2016 2015
 
Wholesale net sales $ 607 $ 642
Retail net sales   907     935  
 
Net sales 1,514 1,577
 
Licensing revenue   38     41  
 
Net revenues 1,552 1,618
 
Cost of goods sold(a)   (657 )   (652 )
 
Gross profit 895 966
 
Selling, general, and administrative expenses(a) (815 ) (822 )
 
Amortization of intangible assets (6 ) (6 )
 
Impairment of assets (19 ) (8 )
 
Restructuring charges   (86 )   (34 )
 
Total other operating expenses, net (926 ) (870 )
 
Operating income (loss) (31 ) 96
 
Foreign currency gains (losses) 2 (1 )
 
Interest expense (3 ) (4 )
 
Interest and other income, net 1 2
 
Equity in losses of equity-method investees   (2 )   (3 )
 
Income (loss) before income taxes (33 ) 90
 
Income tax benefit (provision)   11     (26 )
 
Net income (loss) $ (22 ) $ 64  
 
Net income (loss) per share – Basic $ (0.27 ) $ 0.74  
 
Net income (loss) per share – Diluted $ (0.27 ) $ 0.73  
 
Weighted average shares outstanding – Basic   83.3     86.5  
 
Weighted average shares outstanding – Diluted   83.3     87.5  
 
Dividends declared per share $ 0.50   $ 0.50  
 
(a) Includes total depreciation expense of: $ (72 ) $ (68 )
 
 
RALPH LAUREN CORPORATION
OTHER INFORMATION
(in millions)
(Unaudited)
 
SEGMENT INFORMATION

Net revenues and operating income (loss) for the periods ended
July 2, 2016 and June 27, 2015 for
each segment were as
follows:

   
Three Months Ended
July 2, June 27,
2016 2015
 
Net revenues:
Wholesale $ 607 $ 642
Retail 907 935
Licensing   38     41  
Total net revenues $ 1,552   $ 1,618  
 
Operating income (loss):
Wholesale $ 133 $ 137
Retail 63 110
Licensing   34     36  
230 283
 
Unallocated corporate expenses (175 ) (153 )
Unallocated restructuring charges   (86 )   (34 )
Total operating income (loss) $ (31 ) $ 96  
 
 
RALPH LAUREN CORPORATION
Constant Currency Financial Measures
(in millions)
(Unaudited)
 
Same – Store Sales Data
         
Three Months Ended
July 2, 2016
% Change
As Reported Constant Currency
Total Ralph Lauren (6%) (7%)
 
Operating Segment Data
 
Three Months Ended % Change
July 2, 2016 June 27, 2015 As Reported Constant Currency
Wholesale net sales $ 607 $ 642 (5.4%) (5.1%)
Retail net sales 907 935 (3.0%) (3.4%)
Net sales 1,514 1,577 (4.0%) (4.1%)
Licensing revenue 38 41 (8.3%) (8.5%)
Net revenues $ 1,552 $ 1,618 (4.1%) (4.2%)
 
 
RALPH LAUREN CORPORATION
Reconciliation of Certain Non-U.S. GAAP Financial Measures
(in millions, except per share data)
(Unaudited)
 
  Three Months Ended
July 2, 2016

As
Reported

 

Total
Adjustments (a)

 

As
Adjusted

Net revenues $ 1,552 $ $ 1,552
Gross profit 895 54 949
Gross profit margin 57.6 % 61.1 %
Total other operating expenses, net (926 ) 105 (821 )
Operating expense margin 59.6 % 52.9 %
Operating income (loss) (31 ) 159 128
Operating margin (2.0 %) 8.2 %
Income (loss) before income taxes (33 ) 159 126
Income tax benefit (provision) 11 (47 ) (36 )
Effective tax rate 32.8 % 28.9 %
Net income (loss) $ (22 ) $ 112 $ 90
Net income (loss) per diluted share $ (0.27 ) $ 1.06
Weighted average shares outstanding – Basic 83.3 83.3
Weighted average shares outstanding – Diluted 83.3 84.3
SEGMENT INFORMATION –
OPERATING INCOME/(LOSS):
Wholesale $ 133 $ 11 $ 144
Operating margin 21.9 % 23.7 %
Retail 63 62 125
Operating margin 6.9 % 13.8 %
Licensing 34 34
Operating margin 89.6 % 89.6 %
Unallocated corporate expenses and restructuring charges, net   (261 )   86     (175 )
Total operating income (loss) $ (31 ) $ 159   $ 128  
 
(a)  

Adjustments include Restructuring Charges, Asset Impairment
Charges, and Inventory-related Charges recorded in connection
with
our restructuring plans. Inventory-related charges are recorded
within cost of goods sold in the unaudited interim consolidated
statements
of operations.

 

Contacts

Ralph Lauren Corporation
Investor Relations:
Evren Kopelman,
212-813-7862
Or
Corporate Communications:
Ryan Lally,
212-318-7116

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