Seeking Alpha

Dayanand Menashi


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Polo Ralph Lauren Corporation (RL): Jul-2002 $19 , Jul-2007 $100 = 426% growth in five years.

The next time you are with your friends discussing the latest fashion, ask them what they feel is different about Ralph Lauren. The phenomenal growth of this stock last five years is all because of its strong fundamentals. Let us peek into its business model and see what is driving its growth.

Polo Ralph Lauren Corporation is a global leader in the design, marketing and distribution of premium lifestyle products including men’s, women’s and children’s apparel, accessories, fragrances and home furnishings. They operate in three distinct but integrated segments: Wholesale, Retail and Licensing. The following was their net revenues and operating income the last three years.

RALPH LAUREN REVENUES

3/31/2007 3/31/2006 3/31/2005 GROWTH

WHOLESALE $2,315.90 $1,942.50 $1,712.10 35%

RETAIL $1,743.20 $1,558.60 $1,348.60 29%

LICENSING $236.30 $245.20 $244.70 -3%

TOTAL $4,295.40 $3,746.30 $3,305.40 30%

RALPH LAUREN OPERATING INCOME

3/31/2007 3/31/2006 3/31/2005 GROWTH

WHOLESALE $477.80 $398.30 $299.70 59%

RETAIL $224.20 $140.00 $82.80 171%

LICENSING $141.60 $153.50 $159.50 -11%

TOTAL $843.60 $691.80 $542.00 56%

RALPH LAUREN RENUES BY REGION

3/31/2007 3/31/2006 3/31/2005 GROWTH

USA & CANADA $3,452.20 $3,032.30 $2,581.20 34%

EUROPE $767.90 $627.70 $579.20 33%

JAPAN $64.60 $44.30 $45.90 41%

OTHERS $10.70 $42.00 $99.10 -89%

TOTAL $4,284.70 $3,704.30 $3,206.30 34%

The biggest eyeopener is that their growth in operating income is way more than their growth in revenues. Especially for the retail segment, where the operating income has grown more than 171% the last thee years, but the revenue has grown by just 29%.

In other words, the growth in their bottom line has more to do with the way they are managing their costs than with the net increase in sales. Looking at their income statement further, one can figure out the major factors contributing to their growth.

3/31/2007 3/31/2006 3/31/2005 GROWTH

Net revenues 4295.4 3746.3 3305.4 29.95%

cost of goods sold 1959.2 1723.9 1620.9 20.87%

Gross profit 2336.2 2022.4 1684.5 38.69%

Other costs and expenses

SG&A 1663.4 1476.9 1377.6 20.75%

Amortization of intangible assets 15.6 9.1 3.4

Impairments of retail assets 0 10.8 1.5

Restructuring charges 4.6 9 2.3

Total other costs and expenses 1683.6 1505.8 1384.8 21.58%

Operating income 652.6 516.6 299.7 117.75%

Revenues :......................Increased by 29.95%
Cost of goods sold :............Increased by 20.87%
SG&A:.......................Increased by 20.75%
Operating income:...............Increased by 117.75%

Even though net revenues have increased just by under 30% during the last three years, the operating income has increased by 117%, which means that the growth in operating income is four times that of the net revenues. This is because the company is getting its products at more competitive prices and has streamlined its sales operations, thereby getting more bang for the buck spent on marketing and sales.

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This article has 2 comments:

  •  
    i am not entirely convinced by your cost assumptions. retail ops are highly leveraged and so op profit growth easily outpaces sales growth. In fact that seems to be the case, with leverage evident in CoGS and SG&A (grown by 20% compared to nearly 30% for sales).
    2007 Jul 11 07:56 AM | Link | Reply
  •  
    Interesting article. I for one buy Polo at the re-sale shops and I might add they do get a premium price.
    Now, what about the future, I for one think there may be a short play here as the economy slows.
    Or as the expression goes: Dress British, but think Yiddish. Or there is no presitge in over -paying. Only tom will tell, and tom like time needs to keep is caught between high energy and high priced food. I do not care if computers are coming down in price. You cannot eat a hard drive when hungry.

    Anyway, thanks for the time in posting your comments. It makes Alpha a most interesting place.


    yourfilled@yahoo.com
    2007 Jul 11 09:38 AM | Link | Reply