Ralph Lauren Reports Third Quarter Fiscal 2017 Results

  • Reported EPS of $0.98 and Adjusted EPS of $1.86
  • Maintains Its Fiscal 2017 Outlook
  • Announces CEO Departure; Jane Nielsen to Lead Execution of the Way
    Forward Plan

NEW YORK–(BUSINESS WIRE)–Ralph Lauren Corporation (NYSE:RL), a global leader in the design,
marketing, and distribution of premium lifestyle products, today
reported earnings per diluted share of $0.98 on a reported basis and
$1.86 on an adjusted basis, excluding restructuring and other related
charges recorded in connection with the Company’s Way Forward plan, for
the third quarter of Fiscal 2017. This compared to earnings per diluted
share of $1.54 on a reported basis and $2.27 on an adjusted basis,
excluding restructuring and other related charges, for the third quarter
of Fiscal 2016.

The Company and Stefan Larsson, President and Chief Executive Officer,
also announced today that they mutually agreed to part ways. Stefan
Larsson will stay on until May 1, 2017. A search for a new Chief
Executive Officer will be conducted. The Company will continue to
execute the Way Forward plan announced in June 2016, and Chief Financial
Officer Jane Nielsen will lead execution of the plan until a new CEO
joins the Company. A separate release provides more detail on the CEO
departure.

“This quarter, we continued to drive the execution of the Way Forward
plan — refocusing and evolving our iconic product core, cutting our
lead times, and aligning supply with demand — to put the foundation in
place to drive demand back to the business,” said Stefan Larsson,
President and Chief Executive Officer. “In the third quarter, we:

  • re-focused and evolved our iconic core product offering for Fall 2017;
  • continued to drive our quality of sales up by moderating discount
    levels across retail and wholesale;
  • lowered our inventory levels by 23% to better match demand;
  • reduced our SKUs for Spring 2017 by over 20%;
  • significantly improved our ability to match supply to demand by
    reducing pre-market commitments to 15% of our inventory buys for Fall
    2017 from 60% for Fall 2016;
  • platformed all of our core fabrics, accounting for about 50% of our
    unit volume;
  • remain on track to get halfway to our goal of a 9-month lead time by
    the end of this fiscal year and 90% there by the end of next fiscal
    year;
  • optimized our sales fleet by closing another 12 underperforming stores;
  • hired a new Creative Director for Lauren; and
  • launched our Ralph Lauren Icons marketing campaign.

“These critical steps are moving us in the right direction to intensify
our execution of the Way Forward plan that will strengthen the brand and
return us to long-term profitable growth.” said Jane Nielsen, Chief
Financial Officer.

“Our third quarter results demonstrate the continued actions we are
taking to further strengthen our business and move us forward. We are
making the right strategic decisions to support the future growth of the
Company,” said Ralph Lauren, Executive Chairman and Chief Creative
Officer.

Third Quarter Fiscal 2017 Income Statement Review

Net Revenues. For the third quarter of Fiscal 2017, net
revenues of $1.7 billion were consistent with the Way Forward plan.
Revenue declined 12% compared to last year on a reported basis and was
down 11% in constant currency, in line with the guidance provided in
November. On a reported basis, international net revenue declined 6% in
the third quarter while North America revenue was down 15% to last year.
On a constant currency basis, international revenue was down 5%.

  • Wholesale Revenue. Wholesale segment revenue decreased 26% on a
    reported basis to $582 million in the third quarter and was down 25%
    on a constant currency basis. The decline was primarily driven by
    North America as shipments were strategically reduced to better align
    with underlying demand and to reduce excess inventory and increase
    quality of sales as part of the Way Forward plan. In Europe, a shift
    in timing of shipments of $18 million into the fourth quarter also
    pressured the comparison.
  • Retail Revenue. Retail segment revenue decreased 2% on both a
    reported and constant currency basis to $1.1 billion in the third
    quarter, driven by a decline in comparable store sales. Consolidated
    comparable store sales decreased 5% on a reported basis and were down
    4% on a constant currency basis due to challenging traffic and average
    transaction size trends driven by our initiatives to improve quality
    of sales, partially offset by a favorable timing shift that drove
    post-Christmas week sales into the third quarter.
  • Licensing Revenue. Licensing segment revenue of $44 million in
    the third quarter declined 4% on both a reported and a constant
    currency basis.

Gross Profit. Gross profit for the third quarter of Fiscal
2017 was $983 million on a reported basis, including $14 million in
non-cash inventory-related charges. On an adjusted basis, gross profit
was $997 million and gross profit margin was 58.2%, 140 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 initiatives to improve quality of sales metrics,
principally through reduced promotional activity in our international
businesses. This was partially offset by unfavorable foreign currency
effects of 100 basis points.

Operating Expenses. Operating expenses in the third
quarter of Fiscal 2017 were $855 million on a reported basis, including
$77 million in restructuring and other related charges. On an adjusted
basis, operating expenses were $778 million, down 7% compared to the
prior year, primarily as a result of lower headcount and store closures
under the Way Forward plan.

Operating expense rate was 45.4%, 230 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 $838 million in the prior
year period.

Operating Income. Operating income in the third quarter of
Fiscal 2017 was $128 million and operating margin was 7.5% on a reported
basis, including restructuring and other related charges of $91 million.
On an adjusted basis, operating income was $219 million and operating
margin was 12.8%, 90 basis points below last year, excluding
restructuring and other related charges from both periods. Excluding
currency impacts, adjusted operating margin expanded 40 basis points
compared to last year.

The operating margin performance was above expectations due to prudent
expense management and better gross margin. 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
    third quarter was $122 million and wholesale operating margin was
    20.9% on a reported basis, including $4 million in restructuring and
    other related charges. On an adjusted basis, wholesale operating
    income in the third quarter was $126 million and wholesale operating
    margin was 21.5%, down 200 basis points compared to last year.
  • Retail Operating Income. Retail operating income in the third
    quarter was $166 million and retail operating margin was 15.3% on a
    reported basis, including $16 million in restructuring and other
    related charges. On an adjusted basis, retail operating income was
    $182 million and retail operating margin was 16.8%, up 290 basis
    points compared to last year.
  • Licensing Operating Income. Licensing operating income of $37
    million in the third quarter decreased 11% compared to the prior year
    period on a reported basis.

Net Income and Diluted EPS. On a reported basis, net
income in the third quarter of Fiscal 2017 was $82 million or $0.98 per
diluted share. On an adjusted basis, net income was $155 million, or
$1.86 per diluted share, excluding restructuring and other related
charges. This compared to net income of $131 million, or $1.54 per
diluted share on a reported basis, and $193 million, or $2.27 per
diluted share on an adjusted basis, for the third quarter of Fiscal 2016.

The Company had an effective tax rate of approximately 34% in the third
quarter of Fiscal 2017 on a reported basis. On an adjusted basis, the
effective tax rate was approximately 28%, excluding restructuring and
other related charges, which compared to an adjusted effective tax rate
of 25% in the prior year period.

Full Year Fiscal 2017 and Fourth Quarter Outlook

The full year Fiscal 2017 and fourth quarter guidance excludes
restructuring and other related charges expected to be recorded in
connection with the Company’s Way Forward plan, and severance-related
payments associated with the CEO departure announcement today.

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 fourth quarter of Fiscal 2017, the Company expects consolidated
net revenues to be down mid-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. This
compares 13 weeks this year to 14 weeks last year. Based on current
exchange rates, foreign currency is expected to pressure revenue growth
by about 100 basis points in the fourth quarter and will pressure gross
margin by approximately 70 basis points.

As a reminder, the Company’s Fiscal 2016 included a 53rd week
which was part of the fourth fiscal quarter and impacts the
year-over-year comparisons in the fourth quarter of Fiscal 2017. The 53rd
week in Fiscal 2016 contributed approximately $72 million of net
revenue, including $10 million in the wholesale segment and $62 million
in the retail segment, and in addition to $12 million of operating
income.

Operating margin for the fourth quarter of Fiscal 2017 is expected to be
6.0%-6.5%. Foreign currency is estimated to pressure operating margin by
about 100 basis points. The fourth quarter tax rate is estimated at 30%.

Fiscal Year 2017 Outlook – Non-GAAP Disclosure:

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, an additional charge of about $150
million associated with the reduction of inventory out of current
liquidation channels, and severance-related payments associated with the
CEO departure announcement today.

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 a $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 third quarter of Fiscal 2017, the Company recorded
$91 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, February 2nd, 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 Third 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, February 2, 2017 through 6:00 P.M. Eastern, Thursday,
February 9, 2017 by dialing 203-369-3632 and entering passcode 9462.

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 Fourth 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
currently subject to, or may become subject to as a result of potential
changes in legislation, 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)
 
December 31, April 2, December 26,
2016 2016 2015
 
ASSETS
Current assets:
Cash and cash equivalents $ 928 $ 456 $ 527
Short-term investments 453 629 688
Accounts receivable, net of allowances 285 517 473
Inventories 984 1,125 1,271
Income tax receivable 63 58 70
Deferred tax assets 154
Prepaid expenses and other current assets   321     268     269  
 
Total current assets 3,034 3,053 3,452
 
Property and equipment, net 1,514 1,583 1,564
Deferred tax assets 91 119 38
Goodwill 900 918 901
Intangible assets, net 225 244 248
Other non-current assets (a)   202     296     138  
 
Total assets $ 5,966   $ 6,213   $ 6,341  
 
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt $ $ 116 $ 15
Accounts payable 158 151 195
Income tax payable 38 33 55
Accrued expenses and other current liabilities   955     898     949  
 
Total current liabilities 1,151 1,198 1,214
 
Long-term debt 589 597 596
Non-current liability for unrecognized tax benefits 77 81 80
Other non-current liabilities   539     593     647  
 
Total liabilities   2,356     2,469     2,537  
 
Equity:
Common stock 1 1 1
Additional paid-in-capital 2,299 2,258 2,236
Retained earnings 5,997 6,015 6,015
Treasury stock, Class A, at cost (4,464 ) (4,349 ) (4,248 )
Accumulated other comprehensive loss   (223 )   (181 )   (200 )
 
Total equity   3,610     3,744     3,804  
 
Total liabilities and equity $ 5,966   $ 6,213   $ 6,341  
 
 
 
Net Cash (incl. LT Investments) 874 559 612
Cash & Investments (ST & LT) 1,463 1,272 1,223
 
Net Cash (excl. LT Investments) 792 372 604
Cash & ST Investments 1,381 1,085 1,215
 
(a) Includes non-current investments of: $ 82   $ 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

December 31, December 26,
2016 2015
 
 
Wholesale net sales $ 582 $ 786
Retail net sales   1,088     1,113  
 
Net sales 1,670 1,899
 
Licensing revenue   44     47  
 
Net revenues 1,714 1,946
 
Cost of goods sold(a)   (731 )   (852 )
 
Gross profit 983 1,094
 
Selling, general, and administrative expenses (a) (772 ) (833 )
 
Amortization of intangible assets (6 ) (5 )
 
Impairment of assets (11 ) (9 )
 
Restructuring and other charges   (66 )   (58 )
 
Total other operating expenses, net (855 ) (905 )
 
Operating income 128 189
 
Foreign currency losses (2 ) (3 )
 
Interest expense (4 ) (6 )
 
Interest and other income, net 3 2
 
Equity in losses of equity-method investees   (1 )   (1 )
 
Income before income taxes 124 181
 
Provision for income taxes   (42 )   (50 )
 
Net income $ 82   $ 131  
 
Net income per share – Basic $ 0.98   $ 1.55  
 
Net income per share – Diluted $ 0.98   $ 1.54  
 
Weighted average shares outstanding – Basic   82.6     84.9  
 
Weighted average shares outstanding – Diluted   83.3     85.5  
 
Dividends declared per share $ 0.50   $ 0.50  
 
(a) Includes total depreciation expense of: $ (72 ) $ (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)
   

Nine Months Ended

December 31, December 26,
2016 2015
 
 
Wholesale net sales $ 2,020 $ 2,355
Retail net sales   2,937     3,044  
 
Net sales 4,957 5,399
 
Licensing revenue   130     135  
 
Net revenues 5,087 5,534
 
Cost of goods sold(a)   (2,255 )   (2,361 )
 
Gross profit 2,832 3,173
 
Selling, general, and administrative expenses (a) (2,390 ) (2,494 )
 
Amortization of intangible assets (18 ) (17 )
 
Impairment of assets (57 ) (24 )
 
Restructuring and other charges   (194 )   (123 )
 
Total other operating expenses, net (2,659 ) (2,658 )
 
Operating income 173 515
 
Foreign currency gains (losses) 1 (9 )
 
Interest expense (11 ) (14 )
 
Interest and other income, net 6 5
 
Equity in losses of equity-method investees   (5 )   (7 )
 
Income before income taxes 164 490
 
Provision for income taxes   (59 )   (135 )
 
Net income $ 105   $ 355  
 
Net income per share – Basic $ 1.26   $ 4.15  
 
Net income per share – Diluted $ 1.25   $ 4.11  
 
Weighted average shares outstanding – Basic   82.9     85.7  
 
Weighted average shares outstanding – Diluted   83.6     86.3  
 
Dividends declared per share $ 1.50   $ 1.50  
 
(a) Includes total depreciation expense of: $ (214 ) $ (210 )
 

Contacts

Ralph Lauren
Investor Relations:
Evren Kopelman, 212-813-7862
or
Corporate
Communications:
Katie Ioanilli, 212-205-5947
rl-press@ralphlauren.com

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