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Hurdle for Jones: Polo Seeks New Terms for Lauren, Ralph

Polo Ralph Lauren Corp. and Jones Apparel Group are in dispute over the terms of their licensing agreement for the Ralph and Lauren lines.

An ad from the Lauren line

An ad from the Lauren line.

Photo By WWD Staff

NEW YORK — The Ralph Lauren-Jones Apparel Group marriage of revenues and royalties is showing signs of strain.

Shares of Jones Apparel Group tumbled as many shareholders sold their positions following the firm’s announcement that there is a disagreement with Polo Ralph Lauren Corp. over the termination date of its Lauren by Ralph Lauren licensing agreement.

Included in the announcement was the suggestion that while the parties are in active negotiations over the issue, there was also a chance that Jones could lose the Lauren license after 2003, which would have a material effect on earnings and revenues in fiscal 2004 and beyond.

The issue came up last year during discussions about Jones’ failure to meet minimum royalty payments required in its Ralph by Ralph Lauren agreement. The company is trying to keep the license past Dec. 31, 2003, the current end date.

Meanwhile, Polo has contended that it has the right to end the more lucrative Lauren license at the end of 2003, three years earlier than its official expiration, because of the failure to meet minimums in the Ralph agreement. Jones said Tuesday it has a different interpretation of the agreements, and that it has the right to keep the Lauren license through the end of 2006.

According to Jones, sales of Lauren were $548 million and sales of Ralph were $37 million for the year ended Dec. 31, 2002. While income from Ralph has minimal impact on Jones’ bottom line, the loss of the Lauren license would have a "material adverse impact on Jones" at the operating level, after fiscal 2003, the company said. Jones emphasized that the loss "would not materially adversely impact Jones Apparel Group’s liquidity."

Jones’ revenues in fiscal 2001 were $4.1 billion while Polo’s were $2.4 billion.

Polo said in its annual report for the year ended March 30, 2002, that its various licenses with Jones, including jeanswear, were responsible for about $65 million in royalties, about 26.9 percent of its corporate licensing revenue.

The disclosure came just one day before Jones is scheduled to report its fourth-quarter and full-year results for 2002 and two days before Polo chimes in with third-quarter results.
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