Polo Ralph Lauren post higher profit, ups outlook

By Martinne Geller

NEW YORK (Reuters) - Fashion company Polo Ralph Lauren Corp (RL.N) reported a much-bigger-than-expected increase in quarterly profit and raised its full-year earnings outlook on Wednesday, citing a higher gross margin and a lower tax rate and sending shares up as much as 8 percent.

Polo's high-end customers are usually less wounded by the weak economy, but conservative planning and the strength of its brands has allowed the company to continue selling its clothes, shoes, handbags and home goods at full price, even as U.S. consumers as a whole are spending less in the face of soaring gasoline and food prices, falling home values and job insecurity.

The company, whose brands include Polo by Ralph Lauren, Chaps and Club Monaco, said net income rose 8 percent to $95.2 million, or 93 cents per share, in its fiscal first quarter, which ended June 28, from $88.3 million, or 82 cents per share, a year earlier.

Analysts on average were expecting 71 cents per share, according to Reuters Estimates.

The lower tax rate in the first quarter -- 35 percent, down from 39 percent a year before -- added about 6 cents to earnings per share, while a lower share count added a penny or 2 cents, according to Needham & Co analyst Christine Chen.

Even when stripping out those benefits, Polo delivered "an amazing beat ... in any environment, let alone this environment," Chen said. "They're one of the best operators out there. They managed their inventories very, very leanly so they didn't have to be as promotional as they thought they would. Business held up better than they expected."

Net revenue rose 4 percent to $1.11 billion, with about half that increase due to the weakness of the U.S. dollar versus the euro, which boosted the value of international sales when converted to U.S. dollars.

The gross margin at Polo, which supplies department stores and specialty retailers and runs its own stores, improved 2 percentage points to 57.3 percent in the quarter, due to the strength of international sales, which usually carry higher margins.

Chief Operating Officer Roger Farah said on a conference call that the quarter's sales were in line with expectations, but that margins topped expectations.

"While our new fiscal year is off to a good start, we continue to have a conservative view of the domestic retail environment," Farah said, adding that Polo is "well-positioned" for the upcoming back-to-school and holiday shopping seasons, since its inventory levels have been planned "conservatively."

"The initial read on sales of early fall merchandise is encouraging," Farah added, referring to the second most important shopping season of the year behind the December holidays.

WHOLESALE FLAT, RETAIL UP

Sales in the wholesale division, Polo's largest, were flat at $575 million, as sales from the new American Living line of clothes and home goods sold at J.C. Penney Co Inc (JCP.N) and strength in Europe were offset by lower shipments of the company's core men's, women's and children's clothes.

Retail sales rose 9 percent to $492 million, driven by a 3.9 percent increase in sales at stores open at least a year, a key retail metric known as same-store sales.

Same-store sales rose 5.3 percent at Ralph Lauren stores, 3.3 percent at factory stores and 2.9 percent at Club Monaco stores.

Standard & Poor's retail analyst Marie Driscoll upgraded Polo shares to "buy" from "hold" after the results.

"Our confidence in (Polo's) global strategy has strengthened as the company prunes third-tier wholesale accounts and focuses on retail," Driscoll wrote in a research note.

Polo said it now expects to earn $4.00 per share to $4.10 per share in fiscal 2009, up from a prior forecast of $3.95 to $4.05. Its revenue outlook was unchanged, calling for an increase at a low-to-mid single digit percentage rate.

Analysts on average were expecting 2009 earnings of $3.98 per share on revenue of $5.10 billion, according to Reuters Estimates.

Polo shares were up $4.19, or 6.8 percent, at $65.69 on the New York Stock Exchange, after rising as high as $66.48 earlier in the session.

(Reporting by Martinne Geller; Editing by Gerald E. McCormick and Dave Zimmerman)