Ralph Lauren Corporation — Fiscal 2015 Form 10-K
Reporting period: Fiscal year ended March 28, 2015 (52 weeks). The filing also reports the fourth quarter ended that date; fiscal 2014 was the comparable 52-week year ended March 29, 2014. The company designs, markets, and distributes premium lifestyle products through Wholesale, Retail, and Licensing segments. Approximately 37% of fiscal 2015 revenue came from outside the U.S.
Financial performance
| Metric | Fiscal 2015 | Fiscal 2014 | Change |
|---|---|---|---|
| Net revenue | $7.620 billion | $7.450 billion | +2.3% reported; +4.0% constant currency |
| Gross profit / margin | $4.378 billion / 57.5% | $4.310 billion / 57.9% | Margin down 40 bps |
| Operating income / margin | $1.035 billion / 13.6% | $1.130 billion / 15.2% | Income down 8.4%; margin down 160 bps |
| Net income | $702 million | $776 million | Down 9.5% |
| Diluted EPS | $7.88 | $8.43 | Down 6.5% |
| Operating cash flow | $894 million | $907 million | Down $13 million |
| Capital expenditures | $391 million | $390 million | Nearly flat |
Fourth quarter: Revenue was $1.885 billion versus $1.867 billion a year earlier; gross profit was $1.044 billion versus $1.050 billion; net income was $124 million versus $153 million; and diluted EPS was $1.41 versus $1.68.
Segments: Wholesale revenue was $3.495 billion (+0.3% reported; +2.1% constant currency), Retail was $3.956 billion (+4.2%; +5.9% constant currency), and Licensing was $169 million (+1.8%; +3.3% constant currency). Retail growth reflected new stores, e-commerce expansion, and acquired operations; comparable store sales rose 1% constant currency, while comparable sales excluding e-commerce fell 2%–3% constant currency.
Liquidity, debt, and capital allocation
- Cash and cash equivalents were $500 million; short-term and non-current investments totaled $652 million. Total debt was $532 million, comprising $234 million of commercial paper and $298 million of 2.125% senior notes due 2018. The company reported net cash and investments of $620 million, down from $989 million.
- Working capital was $2.138 billion. Operating cash flow of $894 million was offset by $391 million of capital expenditures, $500 million of share repurchases under the program, $32 million of shares withheld for tax obligations, $158 million of dividends paid, and adverse foreign-exchange effects on cash.
- The company had a $500 million revolving credit facility, with no borrowings outstanding; commercial paper was supported by this facility. It reported compliance with the facility and no event of default. Most cash and investments—$1.109 billion—were held by foreign subsidiaries.
- Quarterly dividends increased from $0.45 to $0.50 per share in February 2015. At year-end, $80 million remained under the repurchase authorization; on May 12, 2015, the board authorized an additional $500 million of repurchases.
Material changes, outlook, and risks
- Profitability weakened despite revenue growth: gross margin declined amid a more promotional retail environment and less favorable product mix; SG&A rose 5.0% to $3.301 billion, increasing from 42.2% to 43.3% of revenue. Operating income also reflected the absence of the prior-year $16 million Chaps acquisition gain. Foreign-currency losses increased to $26 million from $8 million.
- Management cited weak and inconsistent retail traffic, constrained discretionary spending, slower conditions in parts of Europe and Asia, and adverse currency movements. It warned these trends could pressure fiscal 2016 sales, inventory, and operating margin. Management expected near-term margin pressure from growth investments; no specific revenue or earnings guidance is provided in the filing text.
- On May 12, 2015, the board approved a global brand-based reorganization, store and shop review, corporate functional review, and consolidation of certain luxury lines. The plan is expected to reduce annual operating expenses by about $100 million once substantially implemented by fiscal 2016 year-end, with estimated charges of $70 million–$100 million, mostly in fiscal 2016.
- Key exposures include foreign exchange, consumer and fashion demand, markdowns and inventory risk, intense competition, dependence on third-party manufacturers and imported goods, cybersecurity and technology implementation, and reliance on major wholesale customers. Macy’s represented about 12% of total revenue; the three largest wholesale customers represented 24% of revenue and 37% of gross receivables.
- A customs audit could result in up to approximately $46 million of incremental duty and non-creditable VAT, including interest and penalties; the company is contesting the assessment. Former licensee Wathne seeks approximately $98 million plus interest; management said it does not expect a material adverse financial-statement effect. Operating lease commitments totaled $2.120 billion, and inventory purchase commitments were $840 million.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective at the reasonable-assurance level.
Important facts for investors to verify
- Whether the fiscal 2016 reorganization achieves the targeted annual savings, and how actual charges and store closures compare with the estimates.
- Whether currency, promotional activity, and higher operating expenses continue to reduce margins and earnings.
- Retail comparable-sales trends, especially performance excluding e-commerce, and the return on new-store and infrastructure investment.
- The outcome and timing of the customs audit and Wathne litigation, including any changes to estimated exposure.
- Liquidity and capital deployment, including foreign-held cash, commercial-paper refinancing, dividends, repurchases, and substantial lease and inventory commitments.