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Ralph Lauren Reports Better-Than-Expected Second Quarter Fiscal 2016 Results

The following excerpt is from the company's SEC filing.

Second Quarter Net Revenues of $2.0 Billion Increased 4% in Constant Currency, Driven by Double-Digit Growth Internationally

Better-Than-Expected Operating Margin of 13.5%, Excluding One-Time Charges, Reflects Benefits from the Global Brand Management Structure and Disciplined Operational Management

Earnings Per Diluted Share Was $2.13 in the Second Quarter, Excluding One-Time Charges, Up 13% to Prior Year in Constant Currency

The Company Maintains Its Fiscal 2016 Outlook

NEW YORK--(BUSINESS WIRE)—November 5, 2015-- Ralph Lauren Corporation (NYSE:RL) today reported net income of $184 mi llion, or $2.13 per diluted share, for the second quarter of Fiscal 2016, which excludes one-time charges which are primarily related to restructuring activities associated with the Company’s global brand reorganization. This compared to reported net income of $201 million, or $2.25 per diluted share, for the second quarter of Fiscal 2015. Earnings per diluted share increased 13% from the prior year period, excluding foreign currency impacts and one-time charges. On a reported basis, net income was $160 million or $1.86 per diluted share in the second quarter of Fiscal 2016.

“I am pleased that the Company is beginning to benefit from our recent strategic initiatives and investments,” said Ralph Lauren, Executive Chairman and Chief Creative Officer. “We achieved several critical goals, including the worldwide launch of Polo Sport, implementation of the new global brand structure, and strong growth in our international businesses during the quarter. I am confident that our key strategic initiatives will drive continued growth and create significant shareholder value over the long term.”

Second Quarter Fiscal 2016 Income Statement Review

Net Revenues.

Net revenues for the second quarter of Fiscal 2016 were 4% above the prior year period on a constant currency basis, driven by double-digit growth internationally, contribution from new stores and strong global e-commerce growth. Reported net revenues declined 1% to $2.0 billion in the second quarter compared to the prior year period. The decline in reported net revenues included approximately 500 basis points of negative impact from foreign currency effects.

Wholesale Sales.

In the second quarter of Fiscal 2016, wholesale segment sales increased 3% on a constant currency basis, driven by strength in Europe across all brands. Reported wholesale segment sales declined 2% to $927 million.

Retail Sales.

Retail sales increased 5% on a constant currency basis in the second quarter over the prior year period, driven by contribution from new stores and strong global e-commerce growth. Reported retail sales declined 1% compared to the second quarter of Fiscal 2015 to $996 million, negatively impacted by foreign currency movements.

Consolidated comparable store sales decreased 1% on a constant currency basis during the second quarter and declined 6% on a reported basis.

Licensing.

Licensing revenues of $47 million in the second quarter were 7% above the prior year period in constant currency and grew 5% on a reported basis, reflecting higher royalties from increased sales of Ralph Lauren, Polo, Chaps and Lauren products worldwide.

Gross Profit.

Gross profit for the second quarter of Fiscal 2016 was $1.1 billion and gross profit margin was 56.5%. Gross profit margin was 30 basis points lower than the prior year period, reflecting unfavorable foreign currency effects. On a constant currency basis, gross margin was up 90 basis points compared to the prior year period due to lower negotiated sourcing costs, benefit from the initial phases of stock-keeping unit (SKU) and style rationalization, increased full-priced selling and mix benefits.

Operating Expenses.

Operating expenses in the second quarter of Fiscal 2016 were $845 million, excluding one-time charges, in line with the prior year period. Operating expense rate of 43.0% increased 50 basis points compared with the second quarter of Fiscal 2015, due to incremental investments in infrastructure. As reported, operating expenses in the second quarter of Fiscal 2016 were $883 million, which included $38 million in one-time charges.

Operating Income.

Operating income in the second quarter of Fiscal 2016 was $268 million, excluding one-time charges. Operating margin of 13.5% was 90 basis points below the prior year period, which was better than the outlook of a 275-325 basis point decline provided in August, due to better-than-expected gross margin, cost savings from the global brand reorganization plan, and disciplined expense management. The lower operating margin was primarily attributable to negative foreign currency effects and incremental investments in infrastructure.

Wholesale Operating Income.

Wholesale operating income in the second quarter of Fiscal 2016 was $249 million, excluding one-time charges, compared with $247 million in the prior year period. Wholesale operating margin increased 60 basis points to 26.8% driven by gross margin improvement and disciplined expense management.

Retail Operating Income.

Retail operating income in the second quarter of Fiscal 2016 was $128 million, excluding one-time charges, compared with $137 million in the prior year period. Retail operating margin declined 80 basis points to 12.8%, due to fixed expense deleverage and negative foreign currency effects.

Licensing Operating Income.

Licensing operating income of $42 million in the second quarter of Fiscal 2016 was in line with the prior year period.

Net Income and Diluted EPS.

Net income for the second quarter of Fiscal 2016 was $184 million, or $2.13 per diluted share, excluding one-time charges. This compared to reported net income of $201 million, or $2.25 per diluted share, for the second quarter of Fiscal 2015. Earnings per diluted share increased 13% from the prior year period, excluding foreign currency impacts and one-time

charges. On a reported basis, net income was $160 million or $1.86 per diluted share in the second quarter.

The Company had an effective tax rate of approximately 29%, excluding one-time charges, in the second quarter of Fiscal 2016, which compared to an effective tax rate of 28% in the second quarter of Fiscal 2015. On a reported basis, the effective tax rate was 27% in the second quarter.

Update On The Global Brand Reorganization

In the first six months since the announcement of the new global brand management organizational structure, the Company has made significant progress with its transition. All six brand Presidents and their leadership teams have been established, and the new global line planning process, which is a significant component of the new structure, has successfully been launched. The Company now expects to achieve approximately $110 million in annual...


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