OREANDA-NEWS Ralph Lauren Corporation (NYSE:RL) today reported net income of $95 million, or $1.09 per diluted share, for the first quarter of Fiscal 2016, which excludes restructuring and non-cash charges associated with its global brand reorganization. This compared to net income of $162 million, or $1.80 per diluted share, for the first quarter of Fiscal 2015. On a reported basis, net income was $64 million or $0.73 per diluted share in the first quarter. The Company also announced significant progress on the transition to the new global brand management organizational structure.

“We are making the right strategic decisions and investments to support the future growth of the Company,” said Ralph Lauren, Chairman and Chief Executive Officer. “I am confident that our new organizational structure will allow us to make our already powerful brands even stronger, and the investments we are making today will create significant value for shareholders over the long term.”

“Our better-than-expected first quarter profitability reflects the strong progress we have made on our key strategic initiatives,” said Jacki Nemerov, President and Chief Operating Officer. “The decisive actions we are taking around our global brand reorganization, infrastructure investments, e-commerce re-platform, and product pricing will position the Company for future growth and generate substantial operating efficiencies.”

First Quarter 2016 Income Statement Review

Net Revenues. Net revenues for the first quarter of Fiscal 2016 were in line with the prior year period on a constant currency basis, driven by double-digit growth internationally, contribution from new stores and global e-commerce expansion. Reported net revenues declined 5% to $1.6 billion in the first quarter. The decline in reported net revenues included approximately 500 basis points of negative impact from foreign currency effects.

  • Wholesale Sales. In the first quarter of Fiscal 2016, wholesale segment sales declined 6% on a constant currency basis. Wholesale revenue in the first quarter was negatively impacted by our customers’ receipt plans due to an earlier Easter this year which was partially offset by double-digit constant currency growth in Europe. Combining 4Q15 and 1Q16, which is more reflective of the Spring/Summer season, global wholesale revenues were up approximately 2% in constant currency. Reported wholesale segment sales declined 9% to $642 million.
  • Retail Sales. Retail sales increased 3% on a constant currency basis in the first quarter over the prior year period, driven by contribution from new stores and e-commerce expansion. Reported retail sales declined 3% compared to the first quarter of Fiscal 2015 to $935 million, negatively impacted by foreign currency movements. Consolidated comparable store sales decreased 2% on a constant currency basis during the first quarter and declined 8% on a reported basis.
  • Licensing. Licensing revenues of $41 million in the first quarter were 6% above the prior year period in constant currency and grew 3% on a reported basis, reflecting higher royalties from increased sales of Ralph Lauren, Polo and Lauren products worldwide.

Gross Profit. Gross profit for the first quarter of Fiscal 2016 was $969 million and gross profit margin was 59.8%, excluding restructuring-related non-cash charges of $3 million. Gross profit margin was 120 basis points lower than the prior year period, reflecting unfavorable foreign currency effects.

Operating Expenses. Excluding restructuring and related non-cash charges, operating expenses were $828 million in the first quarter of Fiscal 2016, 4% above the prior year period. Operating expense rate of 51.1% increased 430 basis points compared with the first quarter of Fiscal 2015, due to the timing of revenue receipts and incremental investments in infrastructure. As reported, operating expenses in the first quarter of Fiscal 2016 were $870 million, which included $42 million in restructuring and non-cash charges associated with our global brand reorganization.

Operating Income. Excluding restructuring and related non-cash charges, operating income was $141 million in the first quarter of Fiscal 2016. Operating margin of 8.8% was 550 basis points below the prior year period, which was better than the outlook provided in May due to disciplined operational management. The lower operating margin was attributable to fixed expense deleverage, incremental investments in infrastructure and negative foreign currency effects.

  • Wholesale Operating Income. Excluding non-cash charges associated with our global brand reorganization, wholesale operating income was $140 million in the first quarter of Fiscal 2016 compared with $180 million in the prior year period. Wholesale operating margin decreased 370 basis points to 21.8% due to a change in customer receipt plans related to the earlier Easter this year.
  • Retail Operating Income. Excluding non-cash charges associated with our global brand reorganization, retail operating income was $118 million in the first quarter of Fiscal 2016 compared with $168 million in the prior year period. Retail operating margin declined 490 basis points to 12.6%, due to fixed expense deleverage and negative foreign currency effects.
  • Licensing Operating Income. Licensing operating income of $36 million in the first quarter of Fiscal 2016 was in line with the prior year period.

Net Income and Earnings Per Diluted Share (EPS). Excluding restructuring and related non-cash charges, net income for the first quarter of Fiscal 2016 was $95 million, or $1.09 per diluted share. This compared to net income of $162 million, or $1.80 per diluted share, for the first quarter of Fiscal 2015. On a reported basis, net income was $64 million or $0.73 per diluted share in the first quarter.

The Company had an effective tax rate of approximately 30%, excluding restructuring and related non-cash charges, in the first quarter of Fiscal 2016, which compared to an effective tax rate of 31% in the first quarter of Fiscal 2015. On a reported basis, the effective tax rate was 29% in the first quarter.

Update On The Global Brand Reorganization

In the 90 days since the announcement of a new global brand management organizational structure, the Company established six global brand groups and filled the global brand president roles, as well as the key regional and channel positions. The Company is on track to achieve $100 million in annual expense savings associated with the restructure.

The Company expects to incur restructuring and related non-cash charges of approximately $70-100 million as a result of this reorganization, $45 million of which was taken in the first quarter. This charge encompasses the cost of separation associated with the workforce reduction as well as the cost of store and shop adjustments to provide greater clarity of brand presentation.

First Quarter Fiscal 2016 Balance Sheet and Cash Flow Review

The Company ended the first quarter of Fiscal 2016 with $1.2 billion in cash and investments, or $707 million in cash and investments net of debt ("net cash"), compared to $1.4 billion in cash and investments and $1.1 billion in net cash at the end of the first quarter of Fiscal 2015. The first quarter ended with inventory of $1.3 billion, which was 8% above the prior year period.

The Company had $68 million in capital expenditures in first quarter of Fiscal 2016 compared to $85 million in the prior year period. The Company repurchased approximately 1.1 million shares of Class A Common Stock during the first quarter, for $150 million. As of the end of the first quarter, approximately $430 million remained available for future share repurchases.

Global Retail Store Network

The Company ended the first quarter of Fiscal 2016 with 467 directly operated stores, comprised of 140 Ralph Lauren stores, 65 Club Monaco stores and 262 Polo factory stores. The Company also operated 558 concession shop locations worldwide at the end of the first quarter. In addition to Company-operated locations, international licensing partners operated 79 Ralph Lauren stores and 24 dedicated shops, as well as 124 Club Monaco stores and shops at the end of the first quarter.

Fiscal 2016 Outlook

The Company continues to expect consolidated net revenues for Fiscal 2016 to increase by mid-single digits in constant currency. Based on current exchange rates, foreign currency will have an approximate 450 basis point negative impact on Fiscal 2016 revenue growth. Operating margin for Fiscal 2016 is still expected to be 180-230 basis points below the prior year’s level due to negative foreign currency effects. The full year Fiscal 2016 tax rate is estimated at 30%.

This guidance excludes restructuring and non-cash charges associated with our global brand reorganization. We expect these charges to be approximately $70-100 million over the course of Fiscal 2016.

In the second quarter of Fiscal 2016, the Company expects consolidated net revenues to be up 3-5% in constant currency, and based on current exchange rates, foreign currency will have an approximate 550 basis point negative impact on revenue growth. Operating margin for the second quarter of Fiscal 2016 is expected to be approximately 275-325 basis points below the comparable prior year period, primarily due to negative foreign currency effects, the quarterly revenue growth profile and timing of expense savings initiatives. The second quarter tax rate is estimated at 30%.

Conference Call

As previously announced, the Company will host a conference call and live online webcast today, Wednesday, August 5, 2015, 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 517-623-4799. To access the conference call, listeners should dial in by 8:45 a.m. Eastern and request to be connected to the Ralph Lauren First Quarter Fiscal 2016 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, Wednesday, August 5, 2015 through 6:00 P.M. Eastern, Wednesday, August 12, 2015 by dialing 203-369-3352 and entering passcode 3386.