UPDATE 4-Polo tops view, optimistic on high-end customers
(Adds more analyst comments)
By Martinne Geller and Aarthi Sivaraman
NEW YORK, Nov 7 (Reuters) - Polo Ralph Lauren Corp (RL.N) posted better-than-expected quarterly profit on Wednesday and gave an optimistic outlook on its high-end customers' spending, sending the clothing company's shares up more than 3 percent.
Polo executives said on a conference call that they expected its high-end consumers to continue spending this holiday season, both for themselves and on gifts.
But the company lowered its fiscal 2008 profit outlook, and said that middle-income consumers, faced with higher mortgages and lower home values, are cutting back on discretionary spending.
The company said it now expects 2008 earnings per share of $3.50 to $3.60 on revenue it expects to increase by a percentage rate in the low teens.
Earlier, the company's forecast called for earnings of $3.64 to $3.74 per share on revenue that was expected to rise by a mid-teen percentage rate.
Polo also forecast third-quarter revenue to grow at a mid-single-digit percentage rate.
"The macro economic headwinds of the weak housing market and consumer credit concerns ... along with the unseasonal warm weather this fall, make us more cautious about the traffic patterns in all domestic channels for the holiday season," Chief Operating Officer Roger Farah said.
Holiday sales often account for more than a quarter of annual revenue for several U.S. retailers, which are bracing for weak consumer spending this season.
Analysts and investors are watching closely for hiccups in U.S. consumer spending, which is forecast to grow at its slowest pace in five years this holiday season, according to the National Retail Federation.
Noting that there is more potential for earnings volatility in the short term, analyst Jennifer Black of Jennifer Black & Associates said Polo was making investments in its future that would serve it and its shareholders well in the long term.
"We believe Ralph Lauren is a company in transition and remain positive on the long-term outlook," Black said in a research note.
LOWER INCOME, SOLID SALES
The maker of the Polo by Ralph Lauren and Club Monaco clothing lines said net income fell 16 percent to $115.3 million, or $1.09 per share, in the second quarter ended Sept. 29, from $137 million, or $1.28 per share, a year ago.
But the results handily beat analysts' average estimate of $1.02 per share, according to Reuters Estimates.
The decrease was driven by a fall in operating income due to the effect of acquisition-related accounting, higher stock-based compensation costs as well as a higher tax rate, Polo said.
Quarterly net revenue rose 11 percent to $1.30 billion, helped by acquisitions and a 4.5 percent increase in company-wide sales at retail stores open at least a year.
Sales at existing Ralph Lauren stores rose 5 percent while same-store sales rose 4.2 percent at factory stores and 5.5 percent at Club Monaco stores.
In a brief note, Thomas Weisel Partners analyst Liz Dunn called the revenue results "solid." Polo's wholesale sales, which grew 17 percent in the quarter, were ahead of expectations, Dunn said.
Polo, which operated 302 stores at the end of the quarter, said wholesale revenue growth was helped by strength in Europe and demand for its Chaps line of products.
Retail sales rose 7 percent to $474 million, while online sales grew 28 percent.
In general, women's products were "trending softer" while the men's business was doing well, the company said.
Polo shares were up 1.9 percent at $67.58 on the New York Stock Exchange, after rising as high as $69.95 earlier. (Reporting by Martinne Geller and Aarthi Sivaraman, editing by Mark Porter/Gerald E. McCormick/Deborah Cohen)
