Ralph Lauren Reports Second Quarter Fiscal 2017 Results and Maintains Its Fiscal 2017 Outlook

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NEW YORK–(BUSINESS WIRE)–Ralph Lauren Corporation (NYSE:RL) today reported earnings per diluted
share of $0.55 on a reported basis and $1.90 on an adjusted basis,
excluding restructuring and other related charges recorded in connection
with the Company’s Way Forward plan, for the second quarter of Fiscal
2017. This compared to earnings per diluted share of $1.86 on a reported
basis and $2.13 on an adjusted basis, excluding restructuring and other
related charges, for the second quarter of Fiscal 2016.

“We are changing with the consumer, as we demonstrated in September with
our first-ever ‘see-now-buy-now’ runway show at our flagship store on
Madison Avenue,” said Ralph Lauren, Executive Chairman and Chief
Creative Officer. “I am confident that this industry leading endeavor in
combination with our other elements of the Way Forward plan are
strengthening our brand to support future profitable growth.”

“Our team is intensely focused on driving the execution of the Way
Forward plan,” said Stefan Larsson, President and Chief Executive
Officer. “While it is still the early stages of our plan, we made
meaningful progress and we are on track to deliver against Fiscal 2017
guidance. In the second quarter, we:

  • drove our quality of sales up by moderating discount levels;
  • lowered our inventory levels by 15%;
  • reduced our SKUs for Fall 2016 by 10%;
  • created our Ralph Lauren Icons marketing campaign;
  • launched ‘see-now-buy-now’ fashion show with more than twice the
    global media impressions compared to the previous show;
  • announced Denim & Supply closure to focus on our core;
  • optimized our sales fleet by closing 7 under-performing stores; and
  • platformed the vast majority of key fabrics for core styles.”

Second Quarter Fiscal 2017 Income Statement Review

Net Revenues. For the second quarter of Fiscal 2017, net
revenues of $1.8 billion were consistent with the Way Forward plan.
Revenue declined 8% compared to the prior year period on both a reported
and constant currency basis. On a reported basis, international net
revenue rose 2% in the second quarter, offset by a 12% decline in North
America.

  • Wholesale Revenue. In the second quarter of Fiscal 2017,
    wholesale segment revenue decreased 10% on both a reported and
    constant currency basis to $831 million, driven by a decline in North
    America, as shipments were strategically reduced as part of the Way
    Forward plan. This was partially offset by an increase in Europe.

  • Retail Revenue. Retail segment revenue decreased 5% on a
    reported basis to $942 million in the second quarter, and was down 6%
    on a constant currency basis, both driven by a comparable store sales
    decline. Consolidated comparable store sales decreased 8% on a
    reported basis and 9% in constant currency in the second quarter with
    traffic declines only partially offset by moderated markdown levels.

  • Licensing Revenue. Licensing segment revenue of $48 million in
    the second quarter increased 2% on a reported basis and was
    approximately flat with the prior year period on a constant currency
    basis.

Gross Profit. Gross profit for the second quarter of
Fiscal 2017 was $954 million on a reported basis, including $81 million
in non-cash inventory-related charges. On an adjusted basis, gross
profit was $1.0 billion and gross profit margin was 56.9%, 40 basis
points above last year, excluding non-cash inventory related charges
from both periods. This increase was primarily driven by favorable
geographic and channel mix shifts and initial actions in our Way Forward
plan including lower product costs and initiatives to improve quality of
sales metrics, primarily through reduced promotional activity in our
international businesses. This was partially offset by increasingly
unfavorable foreign currency effects.

Operating Expenses. Operating expenses in the second
quarter of Fiscal 2017 were $878 million on a reported basis, including
$69 million in restructuring and other related charges. On an adjusted
basis, operating expenses were $809 million, down 4% to the prior year,
primarily as a result of lower headcount and store closures under the
Way Forward plan. Operating expense rate was 44.5%, 150 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 $845 million in the
prior year period.

Operating Income. Operating income in the second quarter
of Fiscal 2017 was $76 million and operating margin was 4.2% on a
reported basis, including restructuring and other related charges of
$150 million. On an adjusted basis, operating income was $226 million
and operating margin was 12.4%, 110 basis points below last year,
excluding restructuring and other related charges from both periods.
This was better than planned due to international quality of sales
initiatives, increased inventory productivity and a shift in timing of
planned operating expenses. The lower operating margin year-over-year
was attributable to fixed expense deleverage on lower net revenues,
which was partially offset by higher gross margin.

  • Wholesale Operating Income. Wholesale operating income in the
    second quarter of Fiscal 2017 was $203 million and wholesale operating
    margin was 24.5% on a reported basis, including $15 million in
    restructuring and other related charges. On an adjusted basis,
    wholesale operating income in the second quarter was $218 million and
    wholesale operating margin was 26.4%, down 40 basis points compared to
    last year.

  • Retail Operating Income. Retail operating income in the second
    quarter of Fiscal 2017 was $19 million and retail operating margin was
    2.0% on a reported basis, including $93 million in restructuring and
    other related charges. On an adjusted basis, retail operating income
    was $112 million and retail operating margin was 11.8%, down 100 basis
    points compared to last year.

  • Licensing Operating Income. Licensing operating income of $44
    million in the second quarter of Fiscal 2017 increased 5% compared to
    the prior year period on a reported basis.

Net Income and Diluted EPS. On a reported basis, net
income in the second quarter of Fiscal 2017 was $45 million or $0.55 per
diluted share. On an adjusted basis, net income was $158 million, or
$1.90 per diluted share, excluding restructuring and other related
charges. This compared to net income of $160 million, or $1.86 per
diluted share on a reported basis, and $184 million, or $2.13 per
diluted share on an adjusted basis, for the second quarter of Fiscal
2016.

The Company had an effective tax rate of approximately 38% in the second
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 29% in the prior year period.

Full Year Fiscal 2017 and Third Quarter Outlook

For Fiscal 2017, the Company is maintaining its guidance. Consolidated
net revenue is expected to decrease at a low-double digit rate
consistent with the Way Forward plan. Key elements include a proactive
pullback in inventory receipts, store closures, pricing harmonization
and quality of sales initiatives. Based on current exchange rates,
foreign currency is expected to 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 in gross
margin, infrastructure investments and fixed expense deleverage. The
Fiscal 2017 tax rate is estimated to be approximately 29%.

In the third quarter of Fiscal 2017, the Company expects consolidated
net revenues to be down low-double digits to down low-teens on a
reported basis, with continued execution of quality of sales
initiatives, inventory receipt reductions, and fleet optimization
consistent with the Way Forward plan. Based on current exchange rates,
foreign currency is expected to have minimal impact on revenue growth in
the third quarter, but will pressure gross margin by at least 120 basis
points.

Operating margin for the third quarter of Fiscal 2017 is expected to be
down approximately 200 to 225 basis points compared to the prior year
period, as a shift in timing of planned operating expenses negatively
impacts the third quarter and savings initiatives from the Way Forward
plan are more fully realized in the fourth quarter. The third quarter
tax rate is estimated at 29%.

The full year Fiscal 2017 and third quarter guidance excludes
restructuring and other related charges expected to be recorded in
connection with the Company’s Way Forward plan.

The Company is not able to provide a full reconciliation of the non-GAAP
financial measures to GAAP because certain material items that impact
these measures, such as the timing and exact amount of charges related
to our Way Forward plan, have not yet occurred or are out of the
Company’s control. Accordingly, a reconciliation of our non-GAAP
financial measure guidance to the corresponding GAAP measures is not
available without unreasonable effort. The Company has identified the
estimated impact of the items excluded from its Fiscal 2017 guidance.

This Fiscal 2017 non-GAAP guidance excludes estimated pretax charges
related to our Way Forward plan, comprised of restructuring-related
charges of about $400 million and an additional charge of about $150
million associated with the reduction of inventory out of current
liquidation channels.

Fiscal 2017 Way Forward Cost Savings Plan

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.

The Company expects to incur restructuring charges of about $400 million
as a result of the Fiscal 2017 restructuring activities and about $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 second quarter of Fiscal 2017, the Company recorded
$150 million in restructuring, related impairment and inventory charges.

Conference Call

As previously announced, the Company will host a conference call and
live online webcast today, Thursday, November 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 517-623-4963. To access the conference call, listeners
should dial in by 8:45 a.m. Eastern and request to be connected to the
Ralph Lauren Second 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, Thursday, November 10, 2016 through 6:00 P.M. Eastern,
Thursday, November 17, 2016 by dialing 203-369-3152 and entering
passcode 5812.

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 “ Full Year Fiscal 2017 and Third Quarter Outlook,” and “Fiscal
2017 Way Forward Cost Savings Plan” 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;
the impact to our business resulting from 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)
 
 
 
October 1, April 2, September 26,
  2016     2016     2015  
 
ASSETS
Current assets:
Cash and cash equivalents $ 434 $ 456 $ 380
Short-term investments 531 629 746
Accounts receivable, net of allowances 490 517 594
Inventories 1,173 1,125 1,380
Income tax receivable 59 58 65
Deferred tax assets 147
Prepaid expenses and other current assets   289     268     268  
 
Total current assets 2,976 3,053 3,580
 
Property and equipment, net 1,564 1,583 1,519
Deferred tax assets 118 119 43
Goodwill 936 918 906
Intangible assets, net 235 244 255
Other non-current assets (a)   238     296     140  
 
Total assets $ 6,067   $ 6,213   $ 6,443  
 
LIABILITIES AND EQUITY
Current liabilities:

Short-term debt

$ 95 $ 116 $ 130
Accounts payable 159 151 206
Income tax payable 20 33 16
Accrued expenses and other current liabilities   943     898     926  
 
Total current liabilities 1,217 1,198 1,278
 
Long-term debt 597 597 597
Non-current liability for unrecognized tax benefits 74 81 90
Other non-current liabilities   581     593     667  
 
Total liabilities   2,469     2,469     2,632  
 
Equity:
Common stock 1 1 1
Additional paid-in-capital 2,284 2,258 2,199
Retained earnings 5,956 6,015 5,926
Treasury stock, Class A, at cost (4,463 ) (4,349 ) (4,148 )
Accumulated other comprehensive loss   (180 )   (181 )   (167 )
 
Total equity   3,598     3,744     3,811  
 
Total liabilities and equity $ 6,067   $ 6,213   $ 6,443  
 
 
 
Net Cash (incl. LT Investments) 395 559 407
Cash & Investments (ST & LT) 1,087 1,272 1,134
 
Net Cash (excl. LT Investments) 273 372 399
Cash & ST Investments 965 1,085 1,126
 
(a) Includes non-current investments of: $ 122   $ 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

October 1, September 26,
  2016     2015  
 
 
Wholesale net sales $ 831 $ 927
Retail net sales   942     996  
 
Net sales 1,773 1,923
 
Licensing revenue   48     47  
 
Net revenues 1,821 1,970
 
Cost of goods sold(a)   (867 )   (857 )
 
Gross profit 954 1,113
 
Selling, general, and administrative expenses(a) (803 ) (839 )
 
Amortization of intangible assets (6 ) (6 )
 
Impairment of assets (27 ) (7 )
 
Restructuring and other charges   (42 )   (31 )
 
Total other operating expenses, net (878 ) (883 )
 
Operating income 76 230
 
Foreign currency gains (losses) 1 (5 )
 
Interest expense (4 ) (4 )
 
Interest and other income, net 2 1
 
Equity in losses of equity-method investees   (2 )   (3 )
 
Income before income taxes 73 219
 
Provision for income taxes   (28 )   (59 )
 
Net income $ 45   $ 160  
 
Net income per share – Basic $ 0.55   $ 1.87  
 
Net income per share – Diluted $ 0.55   $ 1.86  
 
Weighted average shares outstanding – Basic   82.7     85.6  
 
Weighted average shares outstanding – Diluted   83.2     86.0  
 
Dividends declared per share $ 0.50   $ 0.50  
 
(a) Includes total depreciation expense of: $ (70 ) $ (71 )
 
 
RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Prepared in accordance with U.S. Generally Accepted Accounting
Principles
(in millions, except per share data)
(Unaudited)
         
 

Six Months Ended

October 1, September 26,
2016 2015
 
 
Wholesale net sales $ 1,438 $ 1,569
Retail net sales   1,849     1,931  
 
Net sales 3,287 3,500
 
Licensing revenue   86     88  
 
Net revenues 3,373 3,588
 
Cost of goods sold(a)   (1,524 )   (1,509 )
 
Gross profit 1,849 2,079
 
Selling, general, and administrative expenses(a) (1,618 ) (1,661 )
 
Amortization of intangible assets (12 ) (12 )
 
Impairment of assets (46 ) (15 )
 
Restructuring and other charges   (128 )   (65 )
 
Total other operating expenses, net (1,804 ) (1,753 )
 
Operating income 45 326
 
Foreign currency gains (losses) 3 (6 )
 
Interest expense (7 ) (8 )
 
Interest and other income, net 3 3
 
Equity in losses of equity-method investees   (4 )   (6 )
 
Income before income taxes 40 309
 
Provision for income taxes   (17 )   (85 )
 
Net income $ 23   $ 224  
 
Net income per share – Basic $ 0.28   $ 2.60  
 
Net income per share – Diluted $ 0.28   $ 2.58  
 
Weighted average shares outstanding – Basic   83.0     86.1  
 
Weighted average shares outstanding – Diluted   83.7     86.8  
 
Dividends declared per share $ 1.00   $ 1.00  
 
(a) Includes total depreciation expense of: $ (142 ) $ (139 )
 
                 
RALPH LAUREN CORPORATION
OTHER INFORMATION
(in millions)
(Unaudited)
 
SEGMENT INFORMATION
Net revenues and operating income for the periods ended October 1,
2016 and September 26, 2015 for each segment were as follows:
 
Three Months Ended Six Months Ended
October 1, September 26, October 1, September 26,
2016 2015 2016 2015
 
Net revenues:
Wholesale $ 831 $ 927 $ 1,438 $ 1,569
Retail 942 996 1,849 1,931
Licensing   48     47     86     88  
Total net revenues $ 1,821   $ 1,970   $ 3,373   $ 3,588  
 
Operating income:
Wholesale $ 203 $ 247 $ 336 $ 384
Retail 19 123 82 233
Licensing   44     42     78     78  
266 412 496 695
 
Unallocated corporate expenses (148 ) (151 ) (323 ) (304 )
Unallocated restructuring and other charges   (42 )   (31 )   (128 )   (65 )
Total operating income $ 76   $ 230   $ 45   $ 326  
 
 
RALPH LAUREN CORPORATION
Constant Currency Financial Measures
(in millions)
(Unaudited)
               
Same – Store Sales Data
 
Three Months Ended

October 1, 2016

% Change

Six Months Ended

October 1, 2016

% Change

As Reported Constant Currency As Reported Constant Currency
Total Ralph Lauren (8 %) (9 %) (7 %) (8 %)
 
 
Operating Segment Data
 
Three Months Ended % Change
October 1, 2016 September 26, 2015 As Reported Constant Currency
Wholesale net sales $ 831 $ 927 (10.4 %) (10.1 %)
Retail net sales   942     996   (5.4 %) (6.4 %)
Net sales 1,773 1,923 (7.8 %) (8.2 %)
Licensing revenue   48     47   1.6 % (0.2 %)
Net revenues $ 1,821   $ 1,970   (7.6 %) (8.0 %)
 
 
Six Months Ended % Change
October 1, 2016 September 26, 2015 As Reported Constant Currency
Wholesale net sales $ 1,438 $ 1,569 (8.3 %) (8.1 %)
Retail net sales   1,849     1,931   (4.2 %) (4.9 %)
Net sales 3,287 3,500 (6.1 %) (6.3 %)
Licensing revenue   86     88   (3.0 %) (4.1 %)
Net revenues $ 3,373   $ 3,588   (6.0 %) (6.3 %)
 

Contacts

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

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