By Elizabeth Holmes
Polo Ralph Lauren Corp. reported a slide in profit, as rising costs and calendar shifts hurt the apparel maker's bottom line—news that sent its shares down 11% Wednesday.
The New York company, whose brands include American Living, Chaps and Club Monaco, said earnings fell 36% to $73.2 million, or 74 cents a share, for its fiscal fourth quarter.
Polo faced rising production costs, including a jump in the price of cotton, which has plagued apparel manufacturers and retailers across the board. Unlike other brands, Polo isn't changing its garments to adjust to the new costs. It is using the same fabrics and construction techniques as before.
"We really believe our customer and our brand should stay the course," Chief Operating Officer Roger Farah said, calling the volatility a "short-term aberration."
As a result, the company's gross margin narrowed to 56.8% from 59.0%. Polo hasn't raised prices either, but plans to do so on the merchandise arriving in stores over the next few months. Mr. Farah declined to quantify the increases, saying they will vary across the company's brands, merchandise categories and price levels.
The company attributed most of the drop in earnings to a series of anomalies with its reporting calendar, a coincidence Mr. Farah compared to "Halley's Comet," which comes around once every 75 years.
"I don't think it was fully understood," Mr. Farah said in an interview.
Last year's comparable quarter had an extra week, accounting for about $70 million in sales and 13 cents in per-share earnings, the company said.
Also, Polo's fiscal fourth quarter ended April 2, earlier than most apparel companies, so it was hit by Easter's shift into April this year from March last year. Sales from that popular shopping period will show up in the current quarter's results.
Polo also says the week between Christmas and New Year's, another heavy shopping time, occurred in the third quarter of its just-ended fiscal year, but in the fourth quarter of the preceding year.
Investors weren't convinced, sending the stock down $14.69 to $114.70 in 4 p.m. composite trading on the New York Stock Exchange.
Net revenue for the quarter rose 6.7 % to $1.4 billion. Sales to retailers such as department stores increased 2.1%, but segment operating income fell due to the higher cost of goods. Revenue from the company's own retail stores, a smaller business, rose 14% as higher online sales offset a 3% decline in sales at its namesake stores open at least a year. Licensing revenue slid 5.8%.
For the fiscal year ending in 2012, the company said it expects revenue growth in the mid-teens percentage range, above the 10% projected by analysts polled by Thomson Reuters. For the first quarter, the company forecast sales growth in the mid-20% range, well ahead of analysts' recent 13% estimate.
The reaction to the results brought a sour end to what has been a good year for Polo, which before Wednesday had seen its shares rise 50% over the previous 12 months. The company has reported a string of higher profits over the past year, on the heels of strong clothing sales in the U.S. and Europe.
Net income for the full fiscal year rose 18% to $567.6 million, as net revenue rose 14% to $5.7 billion.
