High in the Saddle: Polo’s Luxury Slant Helps Net Leap 52.5%

Polo Ralph Lauren’s first-quarter income skyrocketed 52.5 percent, boosted by its luxury slant.

So far the firm’s sourcing hasn’t been affected by SARS, and it doesn’t rely heavily on air flights for shipment. Farah noted, however, that the reduction in commercial air flights could cause pressure for some firms. “When you lose 40 percent of the flights and you’re shipping the same amount of goods, there is a risk of compression because people who are close to delivery and rely on flying the goods out could find themselves without [adequate] space on the planes,” he explained.

Farah is hoping that, starting in the fall, firms will begin putting the cash that has accumulated on their balance sheets to work through capital expenditures that would trigger new economic growth. Polo expects to open 50 to 60 new Polo Ralph Lauren stores over a five-year period. Polo’s capex for fiscal 2003 was $98.4 million, up from $88 million a year ago. The company expects to spend $110 million in CAPEX for fiscal 2004.

One strategy that has helped boost Polo’s bottom line is the distribution of certain products in select channels. Company-owned retail stores contained a greater degree of luxury product orientation, including Polo’s Blue Label. “It is really difficult for brands to be selling the same product to department stores and in their own stores. [Whether] by price point by collection or in other cases where it is product just for our stores only, it is a [plan] that is an important part of our overall retail strategy,” he said.

Jennifer Black, an analyst at Wells Fargo Securities, observed, “I was impressed. Most of the classic merchandise at the upper end was from Polo and they offered basics with a fashion twist. Consumers voted with their dollars. I was also impressed with Roger’s ability to significantly improve the back-of-the-house operations.”

Polo reaffirmed fiscal 2004 guidance disclosed in February, with EPS of $1.95 to $2.05.

For fiscal 2003, income rose 1 percent to $174.2 million from $172.5 million. Total revenues were up 3.2 percent to $2.44 billion from $2.36 billion.
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