Business Valuation of Polo Ralph Lauren Corporation
NYSE-RL
As of April 1 of 2005
Ralph Lauren
Chairman and Chief Executive Officer
Polo Ralph Lauren
Gerald M. Chaney
Senior Vice President of Finance and Chief Financial Officer
Polo Ralph Lauren
Mark Moore
Financial Statement Analysis Instructor
Texas Tech University
Prepared By:
Team America
Stephen H. Johnston
Stephen23john@aol.com
Tara Watkins
Tara.c.watkins@ttu.edu
Colby Wright
Colbygwright@hotmail.com
_____________________________________________________________________
The information contained herein is of a confidential nature and is intended for the exclusive use of the
persons or firm for who it was prepared. Reproduction, publication, or dissemination of
all or portions hereof may not be made without prior approval from Team America.
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______________________Table
of Contents______________________
Executive Summary
Assumptions and Limiting Conditions
Industry Overview and Analysis
Company Identification
Nature and History of the Company
Business Summary
Products and Services
Competitors
SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
Five Forces Model
Rivalry among Firms
Threat of New Entrants
Threat of Substitute Products
Bargaining Powers of Buyers
Bargaining Powers of Suppliers
Accounting Analysis of Firm and Industry
Key Accounting Policies
Ratio Analysis
Analysis of Competitors
Financial Statement Forecasting Methodology
Equity Valuations
References
Appendix
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Executive Summary
The objective of this report is to Estimate Polo Ralph Laurens’ Fair Market Value of
Common Stock as of the first quarter of 2005.
The purpose of this report is to deicide if Polo Ralph Lauren would be a good financial
investment and where the company’s future looks like.
To come to a conclusion with the future of Polo RL we proceeded to:
• Collect relevant historical statements.
• Analyzed these statements and placed them into ratio form for basis to compare to
the industry.
• We used the historical information and information from the company’s website,
located at www.Polo.com, and at www.marketguide.com, to prepare a 3 year
projection of the income statement, balance sheet, retained earning statement, and
the cash flow statement
• We also collected information on the industry that Polo Ralph Lauren operates in
and collected information on the competition of the retail/apparel industry.
Used information available to me to establish a method to value the company
Recommendation- Market Performer, slightly overvalued
We have initiated coverage on Polo Ralph Lauren (RL) with a recommendation to buy.
With the performance of the stock in the last five years, the recent growth overseas as
well as the stronghold they continue to maintain in the United States this stock is a strong
steady investment with growth opportunities.
The apparel / accessory industry has been quite competitive in the past with Polo the
leader in the higher end quality merchandise. Polo has a strong market share in the U.S.
industry, and expects to continue the steady growth that it has maintained in the past.
Polo sees large profits coming from its recently expanded with its Internet sales, and the
sales of overseas department stores.
Industry Demand Drivers
The drivers for new growth will continue with sales overseas, internet sales, and the
reduction in cost due to production in China, and other overseas manufactures.
In addition the increase in sales due to the increase in market share, and new demand for
the quality product that Polo has maintained year in and year out.
Polo is well positioned
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With Polo entering new markets such as home decor like bedding, bath products,
furniture, fabric, and wall paper, they continue to contain the strength that they have
shown in the past, and began to grasp these new markets with the strong brand name and
quality product. Polo also is ahead of the industry in their production and manufacturing
being done overseas and in various places around the globe. They currently have several
manufacturing plants located in China which is an advantage over the competitors as the
regulating laws will soon be changing.
Margin Expansion
Polo has maintained steady growth, and could see some margin expansion due to the
strength of the sales overseas in the Europe and Chinese markets.
Healthy Financials
Polo has maintained the growth in the company as net income has increased every year
except in 2001, when they proceeded to pay off their total debt which was their 1997 line
of credit worth $225 million as well as their 1999 which was $300 million but was
increased to $375 million. Polo has very little debt on their balance sheet, and have
available credit if needed.
Valuation
Based on our valuation models, Polo Ralph Lauren’s stock price is very comparable to
several of our valuation models; it is slightly overvalued that is still outperforming the
market. The actual market price was $38.41, our best valuation is our Abnormal
Earnings Growth model that valued the company at $38.11 which considering Polo does
not pay very high dividends if the pay them at all this would be the best model to use.
Most of our valuation models were within the 52 week range of prices, except for our
discounted dividend model which would be obviously be undervalued considering Polo
has only paid a dividend in the last 6 quarters.
Looking Good on Other Criteria
Polo is a well established company with a strong steady growth, its corporate structure is
very strong with little to no debt, and has a constant growth in its stock value, that has
outperformed the market. It showed little to no dip or slowed growth due to the tragedy
of 9/11 as well as the economic downfall that followed that of 9/11.
Risks
The greatest risk that Polo RL posses right now is the law suit that they are currently
involved in with Jones New York concerning a breach of licensing agreement. If Jones
New York does potentially win this lawsuit then it could cost Polo RL $343 million in
cash, which would potentially hurt the net income of next years earnings, but could be
financed with the two revolving lines of credit that they have available. Also they have
the seasonal department store challenges, with both competitors Tommy Hilfiger and Liz
Clabourne introducing new styles and lines of clothes
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Industry Overview and Analysis.
Company Identification
Polo Ralph Lauren Corporation (NYSE:RL) is located at 650 Madison Avenue
New York, NY 10022, and was incorporated in New York as well.
Nature and History of the Company
What started with a tie 35 years ago has grown into an entire world that has
redefined the “American Style”. Polo has always been about selling quality products by
introducing style and inviting customers to follow. Polo was the first to create lifestyle
advertisements that told a story. Polo was the first to create stores that enabled their
customers to interact with a Lifestyle. They continue to lead the industry today as they
have expended world wide with the opportunities of Polo.com where across the world
you can read about adventure, style and culture. Polo Ralph Lauren was established in
1967 as Ralph Lauren created the Polo label with an instantly successful line of ties. The
1970s open with the introduction of Ralph Lauren women’s wear. Lauren creates a daring
line of men’s tailored shirts for women—reinventing a classic men’s look for women’s
style. The women’s line also brings the birth of the polo player emblem. The early 70’s
also brought the first polo store. The 1980’s followed just as strong as a New York Times
architecture critic Paul Goldberger states that the true design symbol of the 1980s was not
Philip Johnson or Robert Stern—but Ralph Lauren. The growth still increased as the
1990’s passed. In 2000 the internet brought a great increase in sales.
Business Summary:
Polo Ralph Lauren Corporation is a leader in the design, marketing and
distribution of premium lifestyle brands of clothing and accessories, home furnishings,
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and fragrances. For more than 35 years, Polo’s reputation and distinctive image have
been consistently developed across an expanding number of products, brands and
international markets. The company’s brand names constitute one of the world’s most
widely recognized families of consumer brands.
Located in prime retail areas, the Company's 110 full-price stores operate under
the names Polo Ralph Lauren, Club Monaco and Club Monaco Caban. Polo Ralph
Lauren stores feature the full-breadth of the Ralph Lauren apparel, accessory and home
product assortments in an atmosphere consistent with the distinctive attitude and luxury
positioning of the Ralph Lauren brand. The Company grants product and international
licensing partners the right to manufacture and sell at wholesale specified products under
one or more of its trademarks. Its international licensing partners produce and source
products independently, as well as in conjunction with Polo and its product licensing
partners.
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Products and Services:
Polo Ralph Lauren designs, markets and distributes luxury products domestically
and globally. The company’s brand names include Polo by Ralph Lauren, Ralph Lauren
Purple Label, Ralph Lauren, Black Label, Blue Label, Lauren by Ralph Lauren, Polo
Jeans Co., RRL, RLX, Rugby, RL Children’s wear, Chaps and Club Monaco. The
company offers, along with its licensing partners, broad lifestyle product collections in
four categories: apparel, which includes collections of men's, women's and children's
clothing; home, which includes coordinated products for the home, such as bedding and
bath products, furniture, fabric and wallpaper, paints, broadloom, tabletop and giftware;
accessories, which encompass products such as footwear, eyewear, jewelry and leather
goods, including handbags and luggage, and fragrance and skin care, of which products
are sold under the Glamorous, Romance, Polo, Lauren, Safari and Polo Sport brands. The
Company operates in three integrated business segments: wholesale, retail and licensing.
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Distribution is accomplished at a domestic and international level with methods including
retail, wholesale, online, and in stores.
Competitors:
Tommy Hilfiger Corporation (THC), through its subsidiaries, designs, sources and
markets men's and women's sportswear, jeans wear and children’s wear under the
Tommy Hilfiger trademarks. Through a range of strategic licensing agreements, the
Company also offers related apparel, accessories, footwear, fragrance and home
furnishings. Its products can be found in department and specialty stores throughout the
United States, Canada, Europe, Mexico, Central and South America, Japan, Hong Kong,
Australia and other countries in the Far East, as well as the Company's own network of
specialty and outlet stores in the United States, Canada and Europe. The Company
positions its apparel collections under three primary labels: H Hilfiger, Tommy Hilfiger
and Tommy. THC is engaged in three segments: Wholesale, Retail and Licensing.
Liz Claiborne Inc. (LIZ) designs and markets branded women's and men's apparel,
accessories and fragrance products. The Company operates in three business segments,
such as Wholesale Apparel, Wholesale Non-Apparel and Retail. Its portfolio of brands
includes most apparel and non-apparel categories, reaching consumers of various age,
gender, size, attitude, shopping or value preference. These products range from classic
and traditional apparel to modern and contemporary wear. The Liz Claiborne's brands are
available at over 30,000 different retail locations throughout the world, including the
Company's own specialty retail and outlet stores, and on its e-commerce sites. During
2004, the international sales represented 24.4% of the Company's total sales.
The Gap, Inc. (GPS) is a global specialty retailer selling casual apparel, accessories and
personal care products for men, women and children under a variety of brand names,
including Gap, Banana Republic and Old Navy. The Company's markets consist of the
United States, Canada, Europe and Japan. Gap sells its products through both traditional
retail stores and online stores. During the fiscal year ended January 31, 2004, the
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Company-operated a total of 3,022 store locations. Its stores offer a shopper friendly
environment with an assortment of casual apparel and accessories that emphasize style,
quality and good value. The Company's stores are open seven days per week and on most
holidays. All sales are tendered for cash, personal checks, debit cards or credit cards,
including Gap, Banana Republic and Old Navy private-label credit cards that are issued
by a third party.
SWOT Analysis
Strengths:
Polo Ralph Lauren’s strengths lie in its brand equity, infrastructure
improvements, its history, and it’s financial strength.
High Brand Recognition: Ralph Lauren’s brand name and Polo’s logo are both
recognizable and highly regarded in the fashion world. Polo Ralph Lauren’s classic style
has allowed the company to expand its product portfolio into markets beyond clothing,
and into apparel, scents, and home furnishings. High customer loyalty allows for a larger
profit margin than most other companies in its industry. The powerful brand equity
responsible for such a strong consumer following reduces the price sensitivity for retail
sales, which was a strong factor in maintaining good performance during the recent
recession.
Infrastructure Improvement: Polo Ralph Lauren has been finding new ways to reduce
costs through changes in its infrastructure, primarily in Europe. Sales in Europe have
shown little growth, but several distribution centers have been consolidated to increase
efficiency and growth. New cross-stocking merchandise methods at the North American
distribution center in North Carolina have reduced costs for American distribution.
Respectable History and Future: By consistently setting the fashion standard for three
decades, Polo Ralph Lauren’s products remains in high demand and new fashion lines are
anticipated among customers.
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Debt Ratio: Polo Ralph Lauren has a low debt to capital ratio that provides financial
strength, which allows for future growth. Polo recently in 2002 paid off their revolving
line of credit of 3 million dollars to become clear of any type of bank loans or loan able
funds.
Weaknesses:
Polo’s weaknesses are in its dependence on department store sales and
manufacturing.
Dependence on Department Stores: Sales from department stores make up for almost one
third of Polo Ralph Lauren’s revenues. Sales in department stores can be uncertain due to
shared housing with competitors and the financial stability of these stores.
Dependence on Manufacturing: Competition for quotas and capacity from other clothing
manufacturers has resulted in limitations with manufacturing for situations of high
demand. Product quality is also a factor hindered by manufacturing, due to the high
standards of the Polo fashions. Polo’s designs sometimes create new methods for quality
with manufacturing, which hinder future growth.
Opportunities:
Polo’s opportunities for growth include brand extension, specialty retail, and
international expansion.
Building and Extending the Brand: Polo Ralph Lauren is one of the world's premier
brands, universally recognized and associated with distinct design, luxury and quality.
Polo’s integrated approach to advertising and marketing uniquely showcases the world of
Ralph Lauren. Retail stores continue to be an important physical extension of its global
brand. Success with its specialty retail business has given Ralph Lauren the confidence to
apply its expertise to wholesale business, including merchandise mix, visual presentation
and excellent customer service. There is more to come as Polo expands and extends the
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Ralph Lauren lifestyle through new products, in new categories and in new parts of the
world.
Specialty Retail: Polo’s retail strategy starts with product and Ralph Lauren continues to
design the best and most sought-after products in the marketplace. Polo continues to
increase the amount of exclusive or limited-distribution product in its Ralph Lauren
stores. By adding experience and strength to the leadership of the specialty retail group
and coupling it with the right merchandise and marketing support, Polo is making
significant advances in how it operates its retail stores. Polo has also developed a strong
real estate and store strategy including the opening of 50 to 60 stores over the next five
years in the United States and 20 to 25 stores in Europe.
Expanding International Presence: International expansion presents a wealth of
opportunity for Polo Ralph Lauren. Their approach to each world region is specific to its
business climate and structure, while the common goal is to broaden their reach through
increasing direct brand ownership and control with new specialty retail store openings.
The strong, flexible infrastructure allows Polo to capitalize on opportunities and grow
businesses around the world.
Threats:
Two threats facing Polo Ralph Lauren are the seasonal competition of department
stores and the Jones New York lawsuit.
Department Store Competition: Women’s wear competition is increasing for the spring
and summer seasons for department store sales. Polo will have to compete with Liz
Claiborne’s Realities and Tommy Hilfiger’s new H women’s apparel lines. Jones New
York has also launched the Signature clothing line, which is modeled after Ralph
Lauren’s clothing line.
Current Lawsuit: Jones New York filed a lawsuit against Polo Ralph Lauren worth $550
million for a breach of a licensing agreement. Polo invoked their agreement with Jones
New York and dropped the company as a licensor of Ralph and Lauren fashion lines, due
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to Jones New York’s inability to meet the $100 million required at the end of 2002. If
Jones New York wins the lawsuit, it will materially impact the value of the company,
especially with $343 million in cash.
Five Forces Model
Rivalry Among Existing Firms:
The fashion retail industry is constantly growing with several competitors,
including Tommy Hilfiger, The Gap, Liz Claiborne, Lacoste, and Express. Polo Ralph
Lauren has managed to retain a large portion of the market with a competitive edge by
introducing popular designs and branching into new markets such as interior decorating.
The company is expanding and increasing sales overseas by acquiring smaller retail and
manufacturing companies around the world. The popularity of the internet has brought
more sales opportunities, which has led to an increased development of online marketing.
While entry barriers for matching Polo Ralph Lauren’s large scale operations are very
high, the cost of entering new markets is not so high in its position. This is why home
furnishings, interior decorations, and fragrances have been added to its product mix.
Licensing, opening new stores, and maintaining a global infrastructure are also key for
future growth.
Threat of New Entrants:
There will always be a threat of new entrants in the fashion retail industry, but it
is incredibly difficult and expensive to match the scale economy of Polo Ralph Lauren.
The company has dominated the market by creating and selling popular designs, and by
creating global operations of manufacturing, licensing, and retail.
Threat of Substitute Products:
Substitution plays a large role in the scope of Polo’s marketing strategy. Some of
its direct competitors attempt to introduce new styles to increase demand, while other
companies try to mimic the designs created by Polo. In order to compete, Polo Ralph
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Lauren must remain a respected innovator of quality fashions and expand into other
markets. The Polo Ralph Lauren brand name is part of the appeal of its products and is
essential to its profitability.
Bargaining Power of Buyers:
Polo Ralph Lauren’s customers understand that when purchasing its products,
they are buying quality merchandise and a much respected brand name at a fair cost.
Sales at retail locations attract customers with less spending power, but customers are
generally willing to pay the prices assigned to Polo’s products.
Bargaining Power of Suppliers:
The overwhelming volume of supplies needed for Polo Ralph Lauren’s
operations makes it a hot customer for providers of materials such as fabrics and
packaging. Several possible providers of cotton and other fabrics result in competition
among suppliers and reasonable costs for resources.
Accounting Analysis
Polo Ralph Lauren is a very large company with various operations in various parts of the
world. They use several different accounting policies to combine or shorten their
accounting information. The first one that they use is “Principal of Consolidation” which
basically says that all intercompany balances and transactions have been eliminated.
Polo also uses what is called the “Use of Estimates” which could distort the numbers
going on the financial statements. To derive the quantitative measures which consist of
screening ratios which are used to asses the reliability of Polo’s financial disclosures.
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Qualitative measures must be taken into account to fully evaluate the past accounting
performances and successes of Polo Ralph Lauren. These qualitative measures include
key accounting policies, potential accounting flexibility, strategy analysis, quality of
disclosures, potential red flags, and undue accounting distortions.
Key Accounting Policies
In order to measure the key success factors and risks pertained to Polo Ralph Lauren,
it is necessary to evaluate the policies and estimates the firm uses. Critical accounting
policies are those that are most important to the portrayal of the Company’s financial
condition and the results of operations and require management’s most difficult,
subjective and complex judgments. The Company’s most critical accounting policies
pertain to the following:
Revenue Recognition
Revenue within the Company’s wholesale operations is recognized at the time title
passes and risk of loss is transferred to customers. Wholesale revenue is recorded net of
returns, discounts, allowances and operational chargeback’s. Discounts are based on trade
terms. Estimates for end-of-season allowances are based on historic trends, seasonal
results, an evaluation of current economic conditions and retailer performance.
Income Taxes
Income taxes are accounted for under Statement of Financial Accounting Standards
(“SFAS”) No. 109, “Accounting for Income Taxes.” In accordance with SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases.
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Net Accounts Receivable
A reserve for trade discounts is established based on open invoices where trade
discounts have been extended to customers and is treated as a reduction of sales.
Estimated customer end of season allowances (also referred to as customer markdowns)
are included as a reduction of sales. Costs associated with potential returns of products
are included as a reduction of sales. These reserves are based on current information
regarding retail performance, historical experience and an evaluation of current market
conditions.
Net Inventories
Inventories, net are stated at lower of cost (using the first-in-first-out method,
“FIFO”) or market. The Company continually evaluates the composition of its
inventories assessing slow-turning, ongoing product as well as all fashion product.
Net Goodwill and other Intangibles
SFAS No. 142, “Goodwill and Other Intangible Assets,” requires that goodwill and
intangible assets with indefinite lives no longer be amortized, but rather be tested, at least
annually, for impairment.
Accrued Expenses
Accrued expenses for employee insurance, workers’ compensation, contracted
advertising, professional fees, and other outstanding Company obligations are assessed
based on claims experience and statistical trends, open contractual obligations, and
estimates based on projections and current requirements.
Derivatives
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as
amended and interpreted, requires that each derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability and measured at its fair value. The statement also requires that
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changes in the derivative’s fair value be recognized currently in earnings in either income
(loss) from continuing operations or accumulated other comprehensive income (loss),
depending on whether the derivative qualifies for hedge accounting treatment.
Cash and Cash Equivalents
All highly liquid investments with original maturity of three months or less at the date
of purchase are classified as cash equivalents.
Net Property and Equipment
Property and Equipment is stated at cost less accumulated depreciation and
amortization. Buildings and building improvements are depreciated using the straight-line
method over 37.5 years. Machinery and equipment, and furniture and fixtures are
depreciated using the straight-line method over their estimated useful lives of three to ten
years.
Cost of Goods Sold
Cost of goods sold includes the expenses incurred to acquire and produce inventory
for sale, including product costs, freight-in, import costs and provisions for shrinkage.
Shipping and Handling Costs
Shipping and handling costs are included as a component of selling, general &
administrative expenses in the Consolidated Statements of Operations.
Stock Options
They use the intrinsic value method to account for stock-based compensation in
accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for
Stock Issued to Employees.”
These accounting policies are not equally as important. Revenue Recognition is an
important factor, along with Inventory accounts. Polo Ralph Lauren is more focused on
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Inventory management as they are a retail company. Where as goodwill and intangibles
are not large factors in their financial statements.
Degree of Potential Accounting Flexibility
There are ways for Polo Ralph Lauren to be Flexible in the Accounting Methods. But,
by using the FIFO method to account for Inventory, it is hard to manipulate. Net
Property and Equipment is made to be flexible because they use straight line
depreciation, as opposed to the Double Declining method. Net Goodwill and intangibles
is an area that is very flexible. There is no way to account for this asset, and they are not
amortized, but only tested for impairment maybe annually.
Quantitative Measures
Sales Manipulation Diagnostics:
2004
Net Sales/Cash 15.49
from Sales
Net Sales/Net
5.72
A/R
Net
7.29
Sales/Inventory
2003
14
2002
13.70
2001
37.53
2000
13.63
6.23
6.36
8.27
9.57
6.71
6.76
5.23
5.0
Core Expense Manipulation Diagnostics:
Sales/Assets
2004
1.17
2003
1.2
2002
1.35
2001
1.37
2000
1.21
CFFO/OI
0.77
0.93
1.00
.86
.92
CFFO/NOA
343.5
343.6
238.8
102.2
164.6
Retail operating income increased primarily as a result of increased net sales and
improved gross profits as a percentage of net revenues. These increases were partially
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offset by the increase in selling salaries and related costs in connection with the increase
in retail sales and worldwide store expansion.
Licensing income decreased primarily due to the loss of the Lauren and Ralph
royalties from Jones. This decrease was partially offset by improvements in the footwear
business and by the inclusion of the operations of the Japanese Master License.
The following chart shows the strength of Polo Ralph Laurens Company as
compared to the S&P 500. This shows the strength of Polo Ralph Lauren, and how it
shapes up to the other strong companies.
The Management Discussion and Analysis summarizes factors affecting the company,
it also explains the reasons behind their performance changes. They explain the operating
results of the company stating its outstanding performance in the year 2004, delivering
9.6% increase in gross profits, due to the increases explained above in Retail sales.
Management also disclosed negative information about the company in several areas in
2004 such as two retail properties that did not perform the way they were originally
expected to. They also explain how other areas of Polo Ralph Lauren helped offset the
negative revenues, such as the loss of $15 million in Royalties that was explained above
from Jones by the increase in Licensing.
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Polo Ralph Lauren provides adequate and quality information to its shareholders and
the public. They do this by creating valuable and factual information that is released to
everyone. The explanations were finely broken down to identify the key gains and losses
that showed the growth of the company.
Identification of Potential “Red Flags”
Polo Ralph Lauren has a section in there 10k annual reports called “Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure”. The
explanation in this section by the company was “Not applicable”. So therefore there
were no changes. When we looked at the company’s financial statements there were not
any unusual large changes in the numbers from the last five years. Considering Polo
Ralph Lauren is a well established company and they pride their selves with their critical
accounting principals their have not been any recent changes or cause for concern or Red
Flags. Their have been increases in accounts payable, that is due to the payoff of short
and long term debt. The other increases are all minimal increases and follow the growth
of the company.
Undo Accounting Distortions
After reviewing all pertinent financial data of Polo Ralph Lauren, we have concluded
that the financial reports display transparency in the quality of disclosure. The company
does a very good job the extensive explanation of the increases and decreases that offset
each other. There was no indication of misleading activity within the financial reports.
The statement of cash flows was concurrent with the disclosures in the footnotes. The
Critical accounting policies were apparent in the financial statements of Polo Ralph
Lauren, and there was no distortion to enhance the true performance of the company. All
methods of accounting were clearly explained in the footnotes to the financial statements.
Considering no accounting distortions were revealed, there is no need for any
adjustments or corrections to the financial statements.
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Evaluation of the Quality of Disclosure
Critical accounting policies are those that are most important to the portrayal of the
Polo Ralph Laurens Company’s financial condition and the results of operations, and
require management’s most difficult, subjective and complex judgments as a result of the
need to make estimates about the effect of matters that are inherently uncertain.
In the letter to the shareholders and their annual 10 K report, Polo Ralph Lauren
reports most of the information, but does not present detailed information on their
corporate structure such as their exact liabilities and their cost of those liabilities at all, as
well as their current assets. Polo does do a good job at disclosing the information about
their return over past years relative to the S&P 500 index. They also briefly explain the
companies break down, Polo Ralph Lauren operates in three integrated business
operation segments: wholesale, retail and licensing. Wholesale consists of women’s and
men’s apparel designed and marketed worldwide, which are divided primarily into three
groups: Polo Brands, Lauren and Collection Brands. Retail consists of their worldwide
Ralph Lauren retail operations that sell the product through full-price and outlet stores
and Club Monaco full-price and outlet stores. Licensing consists of product, international
and home licensing alliances, each of which pay royalties based upon sales of our
product, and are generally subject to minimum royalty payments.
The Management gave brief explanations on all three of the business Segments that
make up Polo Ralph Lauren. Wholesale operating income decreased primarily as a result
of decreased net sales in our domestic men’s business and European wholesale
operations. The incremental effect of Lauren sales in the fourth quarter on the wholesale
business income from operations was largely offset by start up and ordinary operating
expenses associated with the Lauren wholesale business.
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Stock Classes and Ownership
Total Common Shares outstanding- 104.78 mil.
Preferred stock- 0
100% stock in Common shares
Institution Name
Top Institutional Holders
Shares
Position Value
Held
(000)
% Shs.
Out.
Portfolio
Date
FIDELITY MANAGEMENT &
RESEARCH CO
6,471,398
$186,376.26
6.47%
12/31/2004
FRANKLIN ADVISERS
2,348,500
$67,636.80
2.35%
12/31/2004
ROYCE & ASSOCIATES
2,087,300
$60,114.24
2.09%
12/31/2004
JENNISON ASSOCIATES
1,826,290
$52,597.15
1.83%
12/31/2004
BAMCO (BARON CAPITAL)
1,665,604
$47,969.40
1.67%
12/31/2004
APEX CAPITAL
1,538,000
$44,294.40
1.54%
12/31/2004
LAZARD FRERES ASSET
MGMT
1,458,306
$41,999.21
1.46%
12/31/2004
BUCKINGHAM CAPITAL
MANAGEMENT
1,058,203
$30,476.25
1.06%
12/31/2004
PEREGRINE CAPITAL
MGMT
1,022,600
$29,450.88
1.02%
12/31/2004
AMERICAN EXPRESS
FINANCIAL
859,888
$24,764.77
0.86%
12/31/2004
BARCLAYS GLOBAL
INVESTORS INTL
801,429
$23,081.16
0.80%
12/31/2004
VANGUARD GROUP
660,412
$22,222.86
0.66%
3/31/2004
BOSTON COMPANY
680,130
$19,587.74
0.68%
12/31/2004
WALL STREET
ASSOCIATES
586,800
$16,899.84
0.59%
12/31/2004
CANTILLON CAPITAL
MANAGEMENT LLC
534,500
$15,393.60
0.53%
12/31/2004
21
Ratio Analysis of Polo Ralph Lauren Corporation
Trend Analysis
The Purpose of this section is to look at the past 5 years of financial records for
Polo Ralph Lauren, and analyze its numbers to be able to forecast these numbers
properly. We will also look at other competitors and the entire industry to look at their
trends to better forecast our financial numbers over the next 5 years. These ratios will
help to accurately convey the future of Polo Ralph Lauren.
Liquidity Analysis
Current ratios
Quick asset ratio
Operating Efficiency Ratios
A/R turnover
Days supply of receivables
Inventory turnover
Days supply of inventory
Working capital turnover
Profitability Analysis
Gross profit margin
Operating expense ratio
Net Profit Margin
Asset turnover
ROA
ROE
Capital Structure Analysis
Debt to Equity Ratio
Times Interest Earned
Debt Service Margin
4/3/2004
3/29/03
03/30/02 03/31/01 04/01/00
2.54
3.13
2.32
2.88
2.57
3.02
2.05
1.69
2.10
1.82
6.0
60.8
3.65
100
3.44
6.49
56.2
3.39
107.67
3.68
6.68
54.6
3.48
104.89
3.84
8.27
44.1
2.73
133.7
4.82
9.57
38.1
2.56
142.6
4.4
49.9%
89.7%
6.5%
1.17
7.53%
12%
49.5%
88.2%
7.1%
1.2
8.54%
14.4%
48.5%
87.6%
7.3%
1.35
9.86%
17.3%
47.8%
94.7%
2.7%
1.37
3.65%
7.3%
48.7%
86.5%
7.3%
1.2
8.85%
18.6%
0.6
2.74
0.69
2.14
0.75
1.54
1.01
0.47
1.10
1.76
N/A
2.67
9.08
1.16
2.82
6.67
6.87
6.88
6.4
5.24
11%
14.4%
17.3%
7.3%
18.6%
Other Ratios
Plant, Property, and
Equipment Turnover
Sustainable Growth Rate
22
Analysis of Polo Ralph Lauren’s Ratios
The Current Ratio of Polo Ralph Lauren from 2000-2004 has been steadily
increasing which has a positive impact on the company. They had a dramatic increase
from 2001-2002 due to a decrease in current liabilities. The Quick Asset Ratio has also
been increasing from 2000, with a large increase from 2001-2002, which is also caused
by the decrease in current liabilities, and the quick assets are almost equivalent to 60% of
the total current assets. Overall, the Liquidity Ratios are doing well, and are increasing
steadily due to the growth of the company. The Accounts Receivable Turnover has
been steadily decreasing from 2000. This is due to the increasing of A/R over the 5
years. The Inventory Turnover has slightly been increasing over the past 5 years,
because of the decreasing of total inventory, due to the fact of their increasing revenues.
This leads to the days supply of inventory ratio to decrease over the years. Working
Capital Turnover has slightly decreased since 2000. This decrease has a positive impact
on the company. The Gross Profit Margin has remained steady and is a good indicator
fro the company. It slightly increased from 2001-2002 due to the growth of the company
which led to a more efficient cost of revenue, so they were able to increase their gross
profit. The Operating Expense Ratio is extremely high in percentage due to the fact
that operating expenses were not that much lower than Sales. This percentage has been
steady over the past 5 years. The Net Profit Margin dramatically decreased in 2001 due
to extremely low net income because of an unusual expense. Other than that, it has
remained steady. Asset Turnover has remained steady over the past 5 years because the
amount of assets has been increasing along with sales of the company. Return on Assets
has not remained steady due to low net income of 2001 because of the high unusual
expense, but overall, it has slightly decreased, but doesn’t have a large negative effect.
The Return on Equity has slightly decreased over the past 5 years, with a dramatic
decrease in 2001. Again, this decrease occurred because of the unusual expense incurred
that year. This decrease is caused by the increasing total equity of the company. The
Debt to Equity Ratio has slightly decreased, but has remained between 0.5-1.5. This
decrease has indicated that debt is not a large part of their financing, and this is positive
23
for the company. The Times Interest Earned has slightly increased from 2002. This
indicates that the income from operations has become more efficient to cover the regular
interest expenses. The interest expense for 2001 was higher than usual, which indicates
the low ratio for that year. The Debt Service Margin has not been steady over the past 5
years. In 2001 it decreased to 1.16 because of the many changes in working capital and
the large amount of deferred taxes, which led to extremely low cash from operating
activities. And then in 2004, this ratio is not available due to the fact that there was no
current notes payable. The Plant, Property, and Equipment Turnover (PP&E) is
important to factor in because its the most important long term asset in a firms balance
sheet. This ratio shows the efficiency in which the PP&E is used and also measures this
efficiency. It has remained steady over the past 4 years. But, it does show an increase
from 2000-2001 because of the small revenue due to cost inefficiency of the year 2000.
The Sustainable Growth Rate (SGR) for Polo Ralph Lauren is volatile because there
were no cash dividends paid from the years 2000-2003. So the SGR for those years is the
return on equity ratios.
These 16 ratios will help forecast Polo Ralph Lauren’s next five years. The
forecasts will be made for all of their financial statements. By looking at their past
performances and analyzing their trends, Polo will be able to predict future numbers more
accurately.
Analysis of Competition:
Polo Ralph Lauren is very similar to the other companies in its industry; we compared
Polo RL to its top 3 competitors in apparel industry. We calculated the ratios for years
2000 to 2004, and then compared them to each other.
Polo’s current ratio is very close with the other 4 competitors it is slightly lower then
Liz Cleburne’s and Gap’s. Tommy Hilfiger’s is just a bit higher. Polo has a current ratio
of 2.54, which means that Polo must be able to convert each dollar of current assets to
almost .40 dollars (1/2.54) of cash to meet short-term obligations. Polo’s’ competitors are
also have to meet that obligation as they are right there together.
24
Polo has a quick ratio of 1.63, which shows that polo’s’ current assets are equal to
163% of the current liabilities.
Polo’s’ days to receivables ratio is 60.8 days, which compares some what favorably
with Tommy Hilfiger’s, and Liz Cleburne’s. Gap does not have one due to they do all
their selling themselves, they do not have smaller buyers buying their product it is all sold
at retail.
Polo’s Gross Profit margin is quite a bit higher then these other three competitors
which are good, showing that polo’s profit is greater then the other three. Polo’s
Accounts receivable turnover is sitting well at 6, Tommy Hilfiger has a little stronger at
4.5, but Polo is quite a bit better than Liz Claiborne at 10.72. This is saying that Polo
collects on its accounts receivable in about 61 days or 2 months, which is better then
most companies who have a 90 day or three mo. turnover.
Polo’s Sustainable Growth rate is good, as they plan on keeping growing at a 11%
increase, which Liz Claiborne is the only competitor that is higher. Tommy Hilfiger’s
could not be figured to the loss that they had in 2003. The debt to equity is .6 and
compared to the rest of the competitors that is much better then them, Tommy Hilfiger
has a .75 ratio, Liz Claiborne is slightly better then Tommy at .672, and Gap is very high
at 1.1. It is good for polo to be the best in this category, because debt is a lot cheaper the
equity.
Financial Statement Forecasting Methodology
Forecasting future numbers for Polo Ralph Lauren requires an assumption that
current trends will persist into the future. By starting with the sales trends of the past few
years, future sales growth can be predicted, which has a profound effect on the rest of the
items to be forecast. The average growth in sales since 2000 has been 7.95%, and the
current trend for sales growth is increasing. An assumption of a sales increase of 8% is
practical in this case. Sales growth is likely to continue at this rate, with a slight decrease
to 7% over time due to growth limitations. The profit margin has been steady over the
past five years and is likely to maintain its position, so the five-year average of 48.88% is
applied to predict future profits. Due to the steady operating expense ratio trend, the
25
average of this ratio, with the exception of 2001 because of its unusual expense, will be
applied to determine upcoming operating costs. Operating income for 2005 is determined
using the average of previous values of operating income, which have been steady
besides in 2001. This value however is likely to rise due to increased operating
efficiency. With a tax expense of 40% and negligible extraneous expenses, this value is
taken out of operating income to determine net income for the future.
To begin balance sheet forecasting, future asset figures will be figured with the
application of the average of the past asset turnover ratios. Accounts receivable turnover
has been decreasing over the past five years, but is probably going to level off around 6.5
times. Increases in inventory turnover hint at slow inventory growth over the future.
Forecasted costs will be used with the inventory turnover ratio to determine upcoming
inventories. Accounts payable has been increasing at a rate of about 3% over the past five
years, and the trend should continue. The decreasing debt to equity ratio should not
decrease too much further beyond .5. With half as much debt as equity, future liabilities
and equity values can be predicted to remain between 0.5 and 0.7. An average current
asset growth of 10.6% will be applied to current assets over the next year and should
decline to 7-8%. Total current liabilities for the upcoming years will be determined by
applying the average current ratio of the past two years to the current assets. Long term
debt has been decreasing and could continue to decrease over the next few years. The
notes payable account will be difficult to forecast, but will remain low due to Polo’s
current rate of debt payoff.
The cash flow statement for Polo Ralph Lauren features several inconsistent and
highly volatile items. These unpredictable numbers make forecasting for the cash flow
statement difficult. Cash from operating has been consistent with net income values as a
percentage. The average of 55% is applied to the net income of the forecasted years to
determine cash from operations for the future. Cash from investing is determined by
applying the differences between non-current asset values throughout the years. The net
change in cash is determined by the balance sheet cash value forecasts. The cash flow
from financing will make up for any differences in cash flows.
Previous data of the past five years has helped to predict the direction that Polo
Ralph Lauren is going, but this information has not determined where the company is
26
really going. Past behaviors do not dictate future events for a company. There are several
unknown factors within and outside the organization that could have an impact on future
numbers. As time progresses over the forecast, the numbers are more likely to deviate
from the actual results because of the introduction of new factors and the inaccuracies of
human error. However, many of the major items have involved a detectable pattern from
2000-2004. These items should be well forecasted for the next few years, but lose
credibility over time.
Polo Ralph Lauren is likely to mature over the years to come as a healthy retail
company. Forecasts based on values and ratios of the past five years indicate that if Ralph
Lauren continues to operate in the manner they are, increased sales and profits are in the
near future. The company is in a good, safe position and is likely to maintain its financial
hold on itself.
Forecasts
(In millions of dollars)
2000
Revenue
1955.5
Cost
1002.4
Profit
953.1
Operating Expenses 1961.6
Operating Income
263.9
Tax and Extra. Items 120.4
Net Income
143.5
Annual Income Statement
2001
2002
2003
2004
2225.8 2363.7 2439.3 2649.7
1162.8 1216.9 1231.7 1326.4
1063.0 1146.8 1207.6 1323.3
2108.6 2070.5 2150.9 2375.9
117.2 293.2 288.4 273.8
57.9 120.7 114.2 102.8
59.3 172.5 174.2 171.0
2005
2874.9
1469.7
1405.3
2529.9
279.8
111.9
167.9
2006
3104.9
1587.2
1517.7
2732.3
288.2
115.3
172.9
Forecast Income Statement
2007
2008
2009
2010
2011
3353.3 3604.8 3875.2 4165.8 4457.4
1714.2 1842.8 1981.0 2129.6 2278.6
1639.1 1762.0 1894.2 2036.2 2178.8
2950.9 3172.2 3410.2 3665.9 3922.5
296.9 305.8 314.9 324.4 334.1
118.7 122.3 126.0 129.8 133.7
178.1 183.5 189.0 194.6 200.5
2012
4769.4
2438.1
2331.3
4197.1
344.1
137.7
206.5
2013
5103.3
2608.8
2494.5
4490.9
354.5
141.8
212.7
2014
5460.5
2791.4
2669.1
4805.3
365.1
146.0
219.1
Pro Forma Income Statement
Forecast Pro Forma Income Statement
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Revenue
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost
51.3% 52.2% 51.5% 50.5% 50.1% 51.1% 51.1% 51.1% 51.1% 51.1% 51.1% 51.1% 51.1% 51.1% 51.1%
Profit
48.7% 47.8% 48.5% 49.5% 49.9% 48.9% 48.9% 48.9% 48.9% 48.9% 48.9% 48.9% 48.9% 48.9% 48.9%
Operating Expenses 100.3% 94.7% 87.6% 88.2% 89.7% 88.0% 88.0% 88.0% 88.0% 88.0% 88.0% 88.0% 88.0% 88.0% 88.0%
Operating Income
13.5%
5.3% 12.4% 11.8% 10.3%
9.7%
9.3%
8.9%
8.5%
8.1%
7.8%
7.5%
7.2%
6.9%
6.7%
Tax and Extra. Items
6.2%
2.6%
5.1%
4.7%
3.9%
3.9%
3.7%
3.5%
3.4%
3.3%
3.1%
3.0%
2.9%
2.8%
2.7%
Net Income
7.3%
2.7%
7.3%
7.1%
6.5%
5.8%
5.6%
5.3%
5.1%
4.9%
4.7%
4.5%
4.3%
4.2%
4.0%
Growth continuation is clearly visible in the forecast income statements. The percentages
in the pro forma income statement are relatively unchanged
27
(In millions of dollars)
Annual Balance Sheet
2000
2001
2002
2003
Cash
164.60 102.20 238.80 343.60
Accounts Receivable
204.40 269.00 353.60 375.80
Inventory
391.00 425.60 349.80 363.80
Total Current Assets
852.90 901.70 1008.10 1162.60
PP&E net of Depr.
373.00 347.80 343.80 355.00
Total Non-Current Assets 767.70 724.40 741.40 876.20
Total Assets
1620.60 1626.10 1749.50 2038.80
Accounts Payable
151.30 178.30 177.50 181.40
Accrued Expenses
168.80 175.20 128.50 162.50
Notes Payable
86.10
86.10
33.00 100.90
Total Current Liabilities
406.20 439.60 391.80 503.00
Long Term Debt
342.70 297.00 285.40 248.50
Total LT Liabilities
441.90 377.20 359.50 327.10
Total Liabilities
848.10 816.80 751.30 830.10
Common Stock
97.43
97.18
98.23
98.72
Retained Earnings
370.80 430.00 602.10 776.40
Total Equity
772.40 809.30 998.20 1208.80
Total Liabilities &
1620.60
1626.10 1749.50 2038.80
Shareholders' Equity
Forecast Balance Sheet
2004
2005
2006
2007
2008
2009
2010
2011
343.50 487.65 540.40 613.01 697.92 791.14 893.40 991.99
441.70 442.30 477.68 515.89 554.59 596.18 640.89 685.76
363.70 367.42 396.81 428.55 460.69 495.25 532.39 569.66
1271.30 1373.00 1469.11 1557.26 1635.12 1716.88 1802.72 1892.86
397.30 424.66 458.63 495.32 532.47 572.40 615.33 658.41
998.90 912.31 999.02 1108.33 1230.38 1363.54 1508.73 1650.39
2270.20 2285.31 2468.14 2665.59 2865.51 3080.42 3311.45 3543.26
187.40 193.02 198.81 204.78 210.92 217.25 223.77 230.48
234.20 361.35 394.37 424.00 449.29 475.97 504.12 533.80
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
501.10 554.38 593.18 628.77 660.21 693.22 727.88 764.28
277.30 230.00 215.00 200.00 205.00 210.00 220.00 220.00
347.10 302.62 332.37 437.46 457.34 477.34 497.35 511.29
848.20 856.99 925.55 1066.24 1117.55 1170.56 1225.24 1275.57
100.63 101.64 102.65 103.68 104.72 105.76 106.82 107.89
927.40 993.66 1063.94 1138.38 1217.13 1300.33 1388.15 1480.73
1422.10 1428.32 1542.59 1599.35 1747.96 1909.86 2086.22 2267.68
2012
1099.28
733.76
609.53
1987.50
704.50
1803.78
3791.28
237.39
565.10
0.00
802.49
230.00
524.46
1326.95
108.97
1578.25
2464.33
2013
1215.98
785.12
652.20
2086.88
753.81
1969.79
4056.67
244.51
598.10
0.00
842.62
230.00
577.22
1419.84
110.06
1680.88
2636.84
2014
1342.84
840.08
697.86
2191.22
806.58
2149.42
4340.64
251.85
632.90
0.00
884.75
235.00
634.48
1519.22
111.16
1788.79
2821.42
2270.20 2285.31 2468.14 2665.59 2865.51 3080.42 3311.45 3543.26 3791.28 4056.67 4340.64
Pro Forma Balance Sheet
Forecast ProForma Balance Sheet
2000
2001
2002
2003
2004
2005
2006
2008
2009
2010
2011
2012
2013
2014
Cash
10.16%
6.28% 13.65% 16.85% 15.13% 21.34% 21.89% 23.00% 24.36% 25.68% 26.98% 28.00% 29.00% 29.97%
Accounts Receivable
12.61% 16.54% 20.21% 18.43% 19.46% 19.35% 19.35% 19.35% 19.35% 19.35% 19.35% 19.35% 19.35% 19.35%
Inventory
24.13% 26.17% 19.99% 17.84% 16.02% 16.08% 16.08% 16.08% 16.08% 16.08% 16.08% 16.08% 16.08% 16.08%
Total Current Assets
52.63% 55.45% 57.62% 57.02% 56.00% 60.08% 59.52% 58.42% 57.06% 55.74% 54.44% 53.42% 52.42% 51.44%
PP&E net of Depr.
23.02% 21.39% 19.65% 17.41% 17.50% 18.58% 18.58% 18.58% 18.58% 18.58% 18.58% 18.58% 18.58% 18.58%
Total Non-Current Assets 47.37% 44.55% 42.38% 42.98% 44.00% 39.92% 40.48% 41.58% 42.94% 44.26% 45.56% 46.58% 47.58% 48.56%
Total Assets
100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Accounts Payable
17.84% 21.83% 23.63% 21.85% 22.09% 22.52% 21.48% 19.21% 18.87% 18.56% 18.26% 18.07% 17.89% 17.22%
Accrued Expenses
19.90% 21.45% 17.10% 19.58% 27.61% 42.17% 42.61% 39.77% 40.20% 40.66% 41.14% 41.85% 42.59% 42.12%
Notes Payable
10.15% 10.54%
4.39% 12.16%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Total Current Liabilities
47.90% 53.82% 52.15% 60.60% 59.08% 64.69% 64.09% 58.97% 59.08% 59.22% 59.41% 59.92% 60.48% 59.35%
Long Term Debt
40.41% 36.36% 37.99% 29.94% 32.69% 26.84% 23.23% 18.76% 18.34% 17.94% 17.96% 17.25% 17.33% 16.20%
Total LT Liabilities
52.10% 46.18% 47.85% 39.40% 40.92% 35.31% 35.91% 41.03% 40.92% 40.78% 40.59% 40.08% 39.52% 40.65%
Total Liabilities
100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Common Stock
12.61% 12.01%
9.84%
8.17%
7.08%
7.12%
6.65%
6.48%
5.99%
5.54%
5.12%
4.76%
4.42%
4.17%
Retained Earnings
48.01% 53.13% 60.32% 64.23% 65.21% 69.57% 68.97% 71.18% 69.63% 68.09% 66.54% 65.30% 64.04% 63.75%
Total Equity
100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Liabilities/Assets
0.52
0.50
0.43
0.41
0.37
0.38
0.38
0.40
0.39
0.38
0.37
0.36
0.35
0.35
Balance sheet forecasts support more evidence of company growth. As Polo Ralph
Lauren continues to grow, debt becomes less of a factor for its finances. Long term assets
seem to increase over time as a share of assets. Long term liabilities initially decrease as a
percentage of liabilities due to the current payoff of long term debt, but show an increase
in future years.
(In millions of dollars)
Net Income
Cash From Operating
Cash From Investing
Cash From Financing
Foreign Exch. Effects
Net Change in Cash
Annual Cash Flow Statement
Forecast Cash Flow Statement
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
143.5
59.3
172.5
174.2
171.0
167.9
172.9
178.1
183.5
189.0
194.6
200.5
206.5
212.7
219.1
242.7
100.3
299.7
269.0
210.6
260.2
268.0
276.1
284.4
292.9
301.7
310.7
320.1
329.7
339.6
(318.3) (131.3) (116.0) (166.3) (132.7)
86.6
(86.7) (109.3) (122.1) (133.2) (145.2) (141.7) (153.4) (166.0) (179.6)
201.6
(25.9) (40.3) (16.7) (76.4) (370.6) (301.5) (272.3) (260.9) (255.5) (248.9) (271.0) (265.9) (259.6) (252.1)
(5.8)
(5.5)
(0.9)
12.8
(1.6)
120.1
(62.4) 142.5
98.9
(0.1) 144.2
52.7
72.6
84.9
93.2
102.3
98.6
107.3
116.7
126.9
28
Cash flow forecasts show heavy losses from financing, but this is primarily due to the use
of financing cash flows as filler after determining other values. Net income after 2005 is
steadily on the rise, which is good news for the company.
Equity Valuations
Introduction
From our valuations, and the information that we had available for use in deriving
their capital structure, the Abnormal earnings growth model was the best valuation for
Polo Ralph Lauren due to the continued growth of the firm and the steady growth of the
earnings. We feel that with these valuations Polo Ralph Lauren is a fairly valued firm.
Despite the fact that it failed to supply us with the accounting data that we needed to
properly value their capital structure.
Method of Comparable Valuation
Forward P/E Ratio
Competitor
Price Per Share
EPS
Forward P/E Ratio
Gap
21.51
$1.21
17.78
Liz Clairborne
40.02
2.86
13.99
Tommy Hilfiger
11.24
1.18
9.53
Average of
Competitors:
13.77
Industry Fwd. P/E Ratio
Polo Ralph Lauren
13.77
Forward EPS
$1.61
Expected Share
Price
$22.17
Forward P/E Ratio = (Price per Share)/(Forward EPS)
Polo Expected Price = (Competitors Avg. P/E)*(Estimated Polo EPS)
29
Based on the Comparable forward P/E, the implied stock valuation is well below
the Actual Current Value of $38.41. There were three main competitors used for this
valuation, and were based on the average of their forward P/E ratios. The Benchmark
group used has a large spread in their Price Per Shares which makes their P/E ratios
widely dispersed. This causes the comparable P/E ratio to have a lower quality since the
competitors used have such varying ratios.
Forward PEG Ratio
Competitor
Gap
Liz Clairborne
Tommy Hilfiger
Forward P/E
17.78
13.99
9.53
5 Yr. Growth Rate
6.93
10.54
2.76
Average of
Competitors:
Fwd. PEG
2.57
1.33
3.45
2.45
Polo Ralph Lauren
Industry Fwd. PEG
Average
2.45
Fwd. EPS
1.61
5 Yr. Growth
Rate
8.94
Expected
Price
$35.24
Forward PEG = (Forward P/E)/(5 Yr Growth
Rate)
Polo Expected Price = (Competitors Fwd. PEG Avg)*(Fwd. EPS of Polo)*(5 Yr. Growth Rate of Polo)
The implied stock valuation of PEG resulted fairly the same as the Actual Current
Value of $38.41. The current earnings come close to the Forward PEG Valuation results,
and should reflect the Future earnings. The Forward PEG valuation uses the three
competitor’s averages of the Forward P/E ratios divided by the 5 year Growth Rate. The
Industry Forward PEG valuation is more narrowed and more precise than the Forward
P/E Valuation results.
30
Price to Sales Ratio
Competitor
Gap
Liz Clairborne
Tommy Hilfiger
Price Per Share
21.51
40.02
11.24
Sales/Share
16.55
42.16
20.05
Average of
Competitors:
P/S Ratio
1.30
0.95
0.56
0.94
Polo Ralph Lauren
Industry P/S Ratio
0.94
Expected
Share Price
$23.95
Sales/Share
25.48
P/S Ratio = (Price per Share)/(Sales per Share)
Polo Expected Price = (Competitors Avg P/S Ratio)*(Sales per Share of Polo)
The P/S Valuation results are significantly lower than that of the Actual Current
Value of $38.41. The reasons for these poor results lie with in the Different and
Scattered Prices of the Competitors in the industry. The price per share ranges from
$11.24-$40.02. This would account for the Price to Sales ratio to be significantly lower
than the large industry averages.
Market to Book Valuation
Competitor
Gap
Liz Clairborne
Tommy Hilfiger
Book Value
5.74
16.66
13.3
Price
21.51
40.02
11.24
M/B Ratio
Average of
Competitors:
3.75
2.40
0.85
2.33
Expected Share
Price
Polo Ralph Lauren
13.11
$30.57
*all BV and Prices relate to the Most Recent Quarter (MRQ) found at http://finance.yahoo.com
M/B Ratio = (Price per Share)/(Book Value per Share)
Polo Expected Price = (Competitors Avg M/B Ratio)*(BV per Share of Polo)
By using the Market to Book Valuation, the estimated value produced is not
substantially lower than the Actual Current Value of the Stock. Tommy Hilfiger resulted
in a very low M/B ratio compared to the other competitors. This might have thrown off
the results because of the considerable differences in numbers of Tommy Hilfiger. This
31
occurred because their Book Value and Price were so closely related. (Note: The Book
Values and Prices relate to the Most recent quarter, with results found in
http://finance.yahoo.com.
Intrinsic Valuation Methods
In order to perform the following valuations, we must first calculate the Weighted
Average Cost of Capital (WACC), where we will find our cost of capital (Ke) and cost of
debt (Kd). The cost of capital was found by first calculating the beta. We used the
Firm’s Return and the Market Risk Premium from the last two years. By using the slope
of these two we calculated the beta to be 0.742. To take into consideration, the 5 year
beta is 0.469, and the 3 year beta is 0.483. We decided to use the 2 year beta to calculate
the cost of capital. Then from the CAPM data, we calculated the Average risk free rate to
be 3.22%. Then, to determine the cost of capital, we multiplied the historical beta of 0.03
and the beta estimated of 0.742, then we added these results to the average risk free rate
of 3.22%. The cost of capital determined is 5.44% for 2 years, 4.66% for 3 years, and
4.62% for 5 years. We decided to use the cost of capital for 2 years, of 5.44%. The cost
of debt was calculated using the table shown below.
Short Term Liabilities
(in millions)
Accounts Payable
Income Tax Payable
Deferred Income Taxes
Euro commercial paper
Accrued Expenses and Other
Total Current Liabilities
Long Term Debt
Other (retirement Plans)
Total Debt
Principal
$187,355
$77,736
$1,821
$292,600
$234,218
Rate
Weight
2.82%
16.42%
0.00%
6.81%
0.00%
0.16%
2.82%
25.65%
2.82%
20.53%
Value
Weighted
Rate
0.46%
0.00%
0.00%
0.72%
0.58%
$793,730
69.58%
1.77%
24.31%
6.11%
1.489%
0.428%
100.00%
3.68%
Weighted Avg Kd
3.68%
277,345 6.125%
69,693 7.000%
1,140,768
32
By using the value weighted rate, we added total current liabilities, long term debt, and
other debts, to get the cost of debt of 3.68%. Now, with the components of WACC, we
calculated it as follows:
WACC = (TL/TA)*(Kd) + (SE/TA)*(Ke)
WACC = (848,168/2,270,241)*(3.68%) + (1,422,073/2,270,241)*(5.44%)
WACC = 4.78%
Discounted Dividends
Derived Value as of April 1, 2005= $13.64
Sensitivity Analysis
0.01
Ke
g
0.02
0.03
0.04
0.05
0.04 $12.91 $18.18 $33.99
0.05
0.06
0.07
0.08
$9.49 $11.91 $13.64 $31.25
$7.45 $8.78 $11.00 $15.44 $28.76
$6.09 $6.91 $8.13 $10.17 $14.25
$5.13 $5.66 $6.41 $7.54 $9.41
The discounted dividends model was performed by using a Ke = 5.44%. We found the
Ke to be 5.44% by the WACC formula and with the numbers taken from our discounted
free cash flows model. This discounted dividends model gave us a price of the firm to be
$13.64 which was the lowest valuation model that we found. This model has moderate
sensitivity to changes in our Ke and growth rate. The reason that this model show the
company being so overvalued is because Polo does has not paid dividends in several
years, and just started to in
Residual Income
Derived Value as of April 1, 2005= $31.32
33
Sensitivity Analysis
g
Ke
0.04
0.05
0.06
0.07
0.08
0
0.02
0.03
0.04
0.05
$44.78
$31.32
$27.89
$23.20
$19.75
$64.15
$41.88
$30.37
$23.84
$19.92
$101.90
$51.00
$33.74
$25.16
$20.05
$78.36
$39.60
$26.24
$20.25
$57.17
$29.75
$20.58
The Residual Income model was performed by using a Ke of 5.44%. Our
analysis estimated the price of $31.32 per share compared to the actual price of $38.41
per share. From this valuation method, we conclude that the firm is overvalued,
because the actual price is more than the estimated price by $7.09. From our
sensitivity analysis, it shows that the estimated price per share is more
vulnerable to changes in cost of equity than to the changes in the growth rate.
Abnormal Earnings Growth Valuation
Derived Value as of April 1, 2005= $38.11
Sensitivity Analysis
g
0.04
0.05
0.06
0.07
0.08
0.01
0.02
0.03
0.04
0.05
$37.64
$37.61
$37.60
$37.57
$37.54
$37.64
$37.61
$37.60
$37.57
$37.54
$37.64
$37.61
$37.60
$37.57
$37.54
$37.64
$37.61
$37.60
$37.57
$37.54
$37.64
$37.61
$37.60
$37.57
$37.54
Our Abnormal Earnings Growth valuation of Polo Ralph Lauren was very close to
the markets current price of $38.39. Polo has just recently started to pay a small
dividends per share, and continually has had strong and steady earnings witch the have
been reinvesting back into the company. Polo has not offered many dividends since 2000
due to the increase in amount of money that they have spent for the increase in internet
sales, as well as the increase in foreign markets, such as Europe, and Japan.
34
This analysis is a good valuation of this company because it does not just focus on
the dividends or the cash flows, and takes into measure how the steady growth of Polo. It
also does not have a perpetuity, so it does not distort the future earnings or blow the
future value of the firm up.
The calculations that we used to valuate Polo Ralph Lauren Corp. were estimated
with an annual growth of 3% per year, as well as a cost of equity of 5.44%. Polo just
recently here in 2003 began to start paying dividend, and we expect RL will continue the
distribution of earnings as the strengths of internet sales and overseas foreign markets
continue to grow. Polo’s stock also is primarily purchased not for the quarterly dividend
payments but more for the increase in value of the stock and company. The cost of equity
was hard to calculate due to the poor accounting used by Polo in that they did not have
their financial statements consolidated in a way to value the annual percentage rates on
their bank borrowings, and other liabilities.
The Market Value of Polo in April of 2005 was $38.39, so very closely valuated
Free Cash Flow Valuation Model
Derived Value on April 1 2005=$26.44
The Free Cash Flow Valuation came out undervalued from what the market has
Polo at currently. So the stock is overvalued compared to the analysis of the cash flow
streams. In figuring out the Free Cash Flow valuation we had to calculate WACC, which
once again was hard due to the un-detailed accounting practices used on the financial
statements by Polo RL. The valuation that we derived is between the book value and
market value.
This valuation for the company was a good valuation and could have even been a
little stronger with the added information of their specific debts and current rates they pay
35
on those obligations. This valuation also does not factor in the growth rate of the
corporation which has been a steady 3% per year.
The Book Value of this firm is $13.67, and the market price of the firm is $38.39.
Long Run Average Residual Income Perpetuity
Derived Value as of April 1, 2005= $44.82
Po=
BVEo+
Po=
13.67+
Po=
13.67
Po=
44.81967
(BVEo(ROE-Ke))/(Ke-g)
0.760052
0.0244
31.14967
The Long Run Average RI Perpetuity model shows the estimated value of the
company being $44.82 per share. According to the actual value of $38.41, the
firm is undervalued by $6.41. With our Ke being 5.44% and our growth of 3%,
this increases the estimated value per share. With a book value of 13.67, and
ROE of 11%, this concludes how the valuation is estimated.
Conclusion to Valuation Methods
From our valuations, and the information that we had available for use in deriving
their capital structure, the Abnormal earnings growth model was the best valuation for
Polo Ralph Lauren due to the continued growth of the firm and the steady growth of the
earnings. We feel that with these valuations Polo Ralph Lauren is a fairly valued firm.
Despite the fact that it failed to supply us with the accounting data that we needed to
properly value their capital structure.
36
References
• http://www.finance.yahoo.com/q?s=rl
• http://www.marketguide.com
• http://www.polo.com/investorrelations
• Polo Ralph Lauren Co. 2004 10K filing
37
Appendix
Cross Sectional (Benchmark) Analysis
Comparison between Polo and Competitors:
Companies, and Industry
Polo
Ralph
Tommy
Liz
Lauren
Hilfiger
Clabourne Gap
4/3/2004
4/3/2004
4/3/2004 4/3/2004
Liquidity Analysis
Current ratios
Quick asset ratio
Operating Efficiency Ratios
2.54
1.63
3.86
2.51
A/R turnover
Days supply of receivables
Inventory turnover
Days supply of inventory
Working capital turnover
Profitability Analysis
6
60.8
3.65
100
3.44
4.5
81.09
4.91
196.95
3.21
Gross profit margin
Operating expense ratio
Net Profit Margin
Asset turnover
ROA
ROE
P/E Ratio (TTM)
Capital Structure Analysis
55.58%
89.70%
7.18%
1.17
7.53%
12%
17
46.04%
89.46%
7.05%
0.94
4.42%
6.44%
9.25
44.56%
89.15%
6.59%
1.37
10.73%
17.73%
17.27
37.64%
88.58%
6.5%
1.2
9.96%
21.53%
17
0.6
2.74
0.75
1.54
9.08
0.672
1.76
1.16
1.1
1.76
2.82
6.67
6.88
6.4
5.24
14.10%
9.70%
Debt to Equity Ratio
Times Interest Earned
Debt Service Margin
Other Ratios
Plant, Property, and
Equipment Turnover
Sustainable Growth Rate
N/A
11% N/A
2.56
1.4
2.68
3.75
10.72 N/A
34.04 N/A
4.85
5.8
79.31
66.88
2.84
2.12
38
Gross Profit Margin
Polo Rl
Tommy Hilfiger
Liz Clabourne
Gap
4/3/2004
55.58
46.04
44.56
37.64
3/29/2003
55.16
43.94
43.57
33.99
3/30/2002
54.04
42.82
41.39
29.92
3/31/2001
53.62
40.65
39.75
37.11
4/1/2000
55.66
44.18
39.11
41.77
Gross Profit Margin
60
50
40
Polo Rl
Tommy Hilfiger
% 30
Liz Clabourne
Gap
20
10
0
2004
2003
2002
2001
2000
Years
39
Net Profit Margin
Polo Rl
Tommy Hilfiger
Liz Clabourne
Gap
4/3/2004
7.18
7.05
6.59
6.5
3/29/2003
7.96
-27.2
6.22
3.3
3/30/2002
8.13
7.17
5.57
-0.06
3/31/2001
2.99
6.96
5.95
6.42
4/1/2000
8.38
8.72
6.86
9.69
Net Profit Margin
10
5
0
-5
Polo Rl
Tommy Hilfiger
Liz Clabourne
Gap
% -10
-15
-20
-25
-30
2004 2003 2002 2001 2000
Years
40
Return on Assets
(ROA)
4/3/2004
3/29/2003
3/30/2002
3/31/2001
4/1/2000
Polo Rl
7.53
8.55
9.86
3.64
8.85
Tommy Hilfiger
4.42
4.46
3.45
3.89
3.97
10.73
10.07
9.84
12.21
13.63
9.96
4.82
-0.1
12.51
21.72
Liz Clabourne
Gap
Return on Assets ROA
25
20
15
Polo Rl
Tommy Hilfiger
Liz Clabourne
Gap
% 10
5
0
-5
2004 2003 2002 2001 2000
Years
41
Return on Equity (ROE)
Polo Rl
Tommy Hilfiger
Liz Clabourne
Gap
4/3/2004
12.02
6.44
17.72
21.53
3/29/2003
14.41
-25.32
17.97
13.05
3/30/2002
17.28
5.19
18.18
-0.026
3/31/2001
7.32
5.59
22.13
29.97
4/1/2000
18.58
7.24
21.33
50.47
Return on Equity
60
50
40
30
%
20
Polo Rl
Tommy Hilfiger
10
0
Liz Clabourne
Gap
-10
-20
-30
2004
2003
2002
2001
2000
Years
42
Inventory Turnover
Polo Rl
Tommy Hilfiger
Liz Clabourne
Gap
4/3/2004
3.647
4.91
4.85
5.8
3/29/2003
3.386
4.61
4.55
4.66
3/30/2002
3.479
5.8
4.14
5.79
3/31/2001
2.732
5.43
3.9
4.52
4/1/2000
2.564
5.04
4.09
4.63
Inventory Turnover
6
5
4
Polo Rl
3
Tommy Hilfiger
Liz Clabourne
Gap
2
1
0
2004
2003
2002
2001
2000
Years
43
Quick Ratio
4/3/2004
3/29/2003
3/30/2002
3/31/2001
4/1/2000
Polo Rl
1.63
1.47
1.55
0.87
0.95
Tommy Hilfiger
2.51
1.47
2.02
2.14
1.68
1.4
1.09
1.17
0.9
0.96
3.75
1.24
0.5
0.15
0.26
Liz Clabourne
Gap
Quick Ratio
4
3.5
3
2.5
Polo Rl
Tommy Hilfiger
Liz Clabourne
Gap
2
1.5
1
0.5
0
2004
2003
2002
2001
2000
Years
44
Current Ratio
Polo Rl
Tommy Hilfiger
Liz Clabourne
Gap
4/3/2004
2.54
3.86
2.56
2.68
3/29/2003
2.33
2.22
2.04
2.11
3/30/2002
2.57
2.95
2.47
1.48
3/31/2001
2.05
3.27
2.54
0.95
4/1/2000
2.1
2.71
2.44
1.25
Current Ratio
4
3.5
3
2.5
Polo Rl
Tommy Hilfiger
Liz Clabourne
2
1.5
1
Gap
0.5
0
2004
2003
2002
2001
2000
Years
45
Discounted Dividends
(Amounts in millions of dollars except per share data)
Years from valuation date
2004
Dividends per share
Present Value Factor
Present Value of Future Dividends
Total Present Value of Forecast Future
Dividends
Continuing (Terminal) Value (assume no
growth)
Present Value of Continuing (Terminal) Value
Estimated Value per Share
9
2013
10
2014
Terminal
$0.20 $0.20 $0.25 $0.25 $0.30 $0.30 $0.35 $0.35 $0.40
$0.40
$0.45
1
2005
2
2006
3
2007
4
2008
5
2009
6
2010
7
2011
8
2012
0.926
0.857
0.794
0.735
0.681
0.630
0.583
0.540
0.500
0.463
$0.19
$0.17
$0.20
$0.18
$0.20
$0.19
$0.20
$0.19
$0.20
$0.19
$1.91
$15.00
$7.50
$9.41
$1.61 $1.66 $1.71 $1.76 $1.82 $1.87 $1.93 $1.99 $2.05
$0.20 $0.20 $0.25 $0.25 $0.30 $0.30 $0.35 $0.35 $0.40
13.67 13.73 14.83 15.38 16.81 18.36 20.06 21.80 23.70
Earnings Per Share
Dividends per share
Book Value Per Share
$ 2.11
$0.40
25.35
Actual Price per share
Cost of Equity Estimated
growth rate
0.08
0.05
46
27.13
Abnormal Earnings
Growth
2004
2005
1
2
2006
2007
3
4
Forecast Years
2008
2009
5
6
7
8
9
2010
2011
2012
2013
2014
EPS
$1.61
$1.66
$1.71
$1.76
$1.82
$1.87
$1.93
$1.99
$2.05
$2.11
DPS
$0.20
$0.20
$0.25
$0.25
$0.30
$0.30
$0.35
$0.35
$0.40
$0.40
DPS invested at 5.44%
$0.02
$0.02
$0.02
$0.02
$0.02
$0.02
$0.03
$0.03
$0.03
Cum-Dividend Earnings
$1.68
$1.73
$1.78
$1.84
$1.90
$1.95
$2.01
$2.07
$2.14
Normal Earnings
$1.61
$1.66
$1.71
$1.76
$1.82
$1.87
$1.93
$1.99
$2.05
Abnormal Earning Growth (AEG)
$0.06
$0.07
$0.07
$0.07
$0.08
$0.08
$0.09
$0.09
$0.09
PV Factor
0.926
0.857
0.794
0.735
0.681
0.630
0.583
0.540
PV of AEG
$0.06
$0.06
$0.06
$0.05
$0.05
$0.05
$0.05
$0.05
Core EPS
$1.61
Total PV of AEG
$0.43
FV of
Perp.
Continuing (Terminal) Value
PV of Terminal Value
$0.00
Total PV of AEG
$0.43
Average Perpetuity
$2.04
Capitalization Rate (perpetuity)
$0.054
Value Per Share
pv
$37.54
1-Apr-04
$38.04
fv
$38.27
1-Apr-05
$38.78
Ke
0.08
g
0.03
Perp
$0.00
$0.00
47
Residual Income
1
2004
Beginning BE (per share)
Earnings Per Share
Dividends per share
Ending BE (per share)
Ke
"Normal" Income
Residual Income (RI)
3
2005
2006
2007
$13.67 $13.73 $14.83
$1.61 $1.66 $1.71
$0.20 $0.20 $0.25
15.09 15.20 16.30
4
5
6
Forecast
Years
2008
2009
2010
$15.38 $16.81 $18.36
$1.76 $1.82 $1.87
$0.25 $0.30 $0.30
16.89 18.32 19.94
7
8
9
10 perp
2011
2012
$20.06 $21.80
$1.93 $1.99
$0.35 $0.35
21.64 23.44
2013
$23.70
$2.05
$0.40
25.34
2014
$25.35
$2.11
$0.40
27.06
0.0544
Present Value of RI
BV Equity (per share) 2004
Total PV of RI (end 2004)
2
0.74
0.87
0.75
0.92
0.81
0.91
0.84
0.93
0.91
0.90
1.00
0.87
1.09
0.84
1.19
0.80
1.29
0.76
1.38
0.73
0.83
0.82
0.77
0.75
0.69
0.63
0.58
0.52
0.47
0.43
16.11
6.50
Continuation (Terminal) Value
PV of Terminal Value (end
2004)
Estimated Value (2004)
8.30
$30.91
Estimate April 1, 2005 Value
$31.32
13.37
Actual Price per share
Growth
0
48
0.73
49
Free Cash Flows
2004
Cash Flow from Operations
Cash Provided (Used) by Investing
Activities
Free Cash Flow (to firm)
discount rate (4.78% WACC)
Present Value of Free Cash Flows
Total Present Value of Annual Cash Flows
Continuing (Terminal) Value (assume no
growth)
Present Value of Continuing (Terminal)
Value
Value of the Firm (end of 2004)
Book Value of Debt and Preferred Stock
Value of Equity (end of 2004)
Estimated Value per Share at end 2004
Estimated Value per Share on April 1
(Amounts in millions of dollars except per share data)
2005
2006
2007
2008
2009
260.2
268.0
276.1
284.4
292.9
2011
310.7
2012
320.1
86.6
347
0.000
-0.076
(86.7)
181
0.000
0.000
(109.3)
167
0.000
0.000
(122.1)
162
0.000
0.000
(133.2)
160
0.000
0.000
(145.2)
156
0.000
0.000
(141.7)
169
0.000
0.000
(153.4)
167
0.000
0.000
1.614
$0.20
1.663
$0.20
1.713
$0.25
1.764
$0.25
1.817
$0.30
1.872
$0.30
1.928
$0.35
1.985
$0.35
-$0.08
$0.00
-$0.08
$848.00
-$848.08
-$8.15
-$8.26
Earnings Per Share
Dividends per share
Book Value Per Share
$13.67
Actual Price per share
$38.39
Kd=
total assets
2004
Cash Flow from Operations
WACC
2010
301.7
=
=
$2,270,241.00
CL
LTL
3.68%
$501,130.00
$277,345.00
(Amounts in millions of dollars except per share data)
-1134.467041 -1363.6 -1391.7 -1406.6188
-1419.2
(2093.7) (2410.0) (2449.9)
(2471.6) (2490.3)
-4543.53437
-454353.44%
ke=
5.44%
SE
$1,422,073.00
-1433
(2510.6)
-1425.975102
(2502.3)
-1439.2
(2521.9)
50
Polo Ralph Lauren Corp.
As Reported Annual Balance
Sheet
Currency
4/3/2004 3/29/2003 3/30/2002 3/31/2001 4/1/2000
USD
USD
USD
USD
USD
Auditor Status
Consolidated
Scale
Not
Qualified
Yes
Thousands
Cash & cash equivalents
Marketable securities
Accounts receivable, gross
Allowances
Accounts receivable, net
Raw materials
Work-in-process
Finished goods
Inventories
Deferred tax assets
Prepaid expenses & other current
assets
Total current assets
Land & improvements
Buildings
Furniture & fixtures
Machinery & equipment
Leasehold improvements
Gross property & equipment
Less accumulated depreciation &
amortization
Property & equipment, net
Deferred tax assets
Goodwill, gross
Less: Accumulated amortization goodwill
Goodwill, net
Intangibles, net
Equity interest investment
Officers' life insurance
Other long-term assets
Other assets
Other assets
Total assets
Short-term bank borrowings
Accounts payable
Income taxes payable
Deferred tax liabilities
Accrued operating expenses
Accrued payroll & benefits
Accrued restructuring charge
Deferred rent obligation
Accrued acquisition obligation
Accrued shop-within-shops
Accrued expenses & other current
liabilities
Not
Qualified
Yes
Thousands
343,477
Not
Qualified
Yes
Thousands
472,260
30,536
441,724
5,516
4,669
353,506
363,691
21,565
393,454
17,631
375,823
4,214
4,536
355,021
363,771
15,735
366,783
13,175
353,608
3,874
5,469
340,475
349,818
17,897
100,862
1,271,319
3,725
18,540
345,668
180,138
329,186
877,257
67,072
1,166,007
3,725
18,490
308,300
133,835
298,449
762,799
47,960
1,008,057
3,720
17,250
258,816
105,136
318,734
703,656
73,654
901,721
3,408
10,178
229,824
56,833
304,681
604,924
52,542
852,891
3,108
10,178
192,444
49,807
350,367
605,904
479,929
397,328
61,579
407,803
354,996
54,386
359,820
343,836
58,127
297,048
275,995
328,929
61,056
263,291
232,927
372,977
11,068
23,700
273,348
13,900
249,391
-
-
238,774
Not
Qualified
Yes
Thousands
51,498
50,721
281,100
12,090
269,010
7,024
6,251
412,319
425,594
31,244
-
343,606
Not
Qualified
Yes
Thousands
-
-
-
341,603
17,640
57,766
50,250
72,756
180,772
-
315,559
11,400
47,631
48,826
40,017
136,474
-
2,270,241
187,355
77,736
1,821
174,574
38,217
12,835
8,592
-
-
103,670
33,630
15,817
9,394
234,218
66,129
1,749,497
32,988
177,472
52,819
2,038,822
100,943
181,392
55,501
-
-
162,511
221,078
16,631
204,447
13,649
6,337
370,967
390,953
40,378
277,822
-
84,996
1,626,093
86,112
178,293
-
74,537
25,124
17,644
-
164,571
105,804
1,620,562
86,131
151,281
-
108,441
37,760
13,886
-
90,467
26,621
12,283
-
11,187
15,085
21,637
17,808
128,492
175,172
168,816
51
Total current liabilities
Long-term debt
Other noncurrent liabilities
Class A common stock
Class B common stock
Class C common stock
Additional paid-in-capital
Retained earnings (accumulated
deficit)
Treasury stock, class A, at cost
Accumulated other comprehensive
income (loss)
Unearned compensation
Total stockholders' equity (deficit)
501,130
277,345
69,693
620
433
563,457
500,347
248,494
81,214
489
433
106
504,700
391,771
285,414
74,117
361
433
227
490,337
439,577
296,988
80,219
349
433
227
463,001
406,228
342,707
99,190
344
433
227
450,030
927,390
78,975
776,359
77,928
602,124
73,246
430,047
71,179
370,785
57,346
23,942
14,794
1,422,073
10,787
6,179
1,208,767
-19,799
2,242
998,195
-10,529
3,040
809,309
9,655
1,691
772,437
-
Polo Ralph Lauren Corp.
As Reported Annual Income
Statement
Currency
4/3/2004 3/29/2003 3/30/2002 3/31/2001
4/1/2000
USD
USD
USD
USD
USD
Auditor Status
Consolidated
Scale
Not
Qualified
Yes
Thousands
Net sales
Licensing revenue
Other income
Net revenues
Cost of goods sold
Gross profit (loss)
Selling, general & administrative expenses
Restructuring charge
Total expenses
Income (loss) from operations
Foreign currency gains (losses)
Interest expense
Income before income taxes - Domestic
Income before income taxes - Foreign
Income (loss) before provision for income
tax
Income (loss) before provision for income
tax
Current provision for income taxes-federal
Current prov for income taxes-state & local
Current provision for income taxes-foreign
Total current provision for income taxes
Dfd income tax provisions (credits)-federal
Dfd income tax provs (credits)-state & local
Deferred provision for income taxes-foreign
Total dfd income tax provisions (credits)
Provision for income taxes
Other income (expense), net
Not
Qualified
Yes
Thousands
2,380,844
268,810
-
2,189,321
250,019
-
2,649,654
1,326,335
1,323,319
1,029,957
19,566
1,049,523
273,796
-1,864
10,000
198,957
62,975
261,932
81,781
4,135
10,450
96,366
-4,421
-831
3,941
-1,311
95,055
4,077
Not
Qualified
Yes
Thousands
2,122,333
241,374
-
2,225,774
1,162,727
1,063,047
822,272
123,554
945,826
117,221
5,846
25,113
127,071
-29,117
274,386
275,999
97,954
-
58,529
6,457
17,297
82,283
15,835
4,672
709
21,216
103,499
-
1,712,375
236,302
6,851
1,955,528
1,002,390
953,138
689,227
2,363,707
1,216,904
1,146,803
837,591
16,000
853,591
293,212
1,820
19,033
287,291
-11,292
77,299
6,550
7,401
91,250
9,039
-2,045
1,907
8,901
100,151
Not Qualified
Yes
Thousands
1,982,419
243,355
2,439,340
1,231,739
1,207,601
904,741
14,443
919,184
288,417
-529
13,502
190,167
84,219
-
-
Not
Qualified
Yes
Thousands
263,911
15,025
215,270
33,616
248,886
-
27,984
21,605
12,533
62,122
-11,689
-11,741
-
71,565
17,398
5,698
94,661
4,527
2,234
-
-23,430
38,692
-
6,761
101,422
-
52
Income (loss) bef cumul eff of chng in acctg
Cumulative eff of chng in accounting princ
Net income (loss)
Weighted average shares outstandingbasic
Weighted average shares outstandingdiluted
Year end shares outstanding
Income (loss) per share-cont operationsbasic
Income (loss) per share-acctg change-basic
Net income (loss) per share-basic
Income (loss) per share-cont opers-diluted
Income (loss) per share-acctg changediluted
Net income (loss) per share-diluted
Total number of employees
Number of class A common stockholders
Number of class B common stockholders
Number of class C common stockholders
Depreciation & amortization
-
170,954
174,235
172,500
59,262
147,464
-3,967
143,497
98,977
98,330.63
97,470.34
96,773.28
99,035.78
100,960
100,632.40
99,263.05
98,722.19
98,522.72
98,227.93
97,446.48
97,177.92
98,926.99
97,529.98
0.61
0.61
0.61
1.49
0.04
1.45
1.49
0.61
10,400
1,226
4
5
78,599
0.04
1.45
9,500
1,237
4
5
66,280
-
1.73
-
1.77
1.77
1.76
10,800
1,320
5
5
-
-
-
1.69
13,000
1,174
4
59,262
-
-
-
-
-
-
1.75
10,100
1,270
5
5
83,919
53
Polo Ralph Lauren Corp.
As Reported Annual Cash
Flow
Currency
4/3/2004 3/29/2003 3/30/2002 3/31/2001 4/1/2000
USD
USD
USD
USD
USD
Auditor Status
Consolidated
Scale
Not
Qualified
Yes
Thousands
Net income (loss)
Provision for (benefit from) dfd
income taxes
Depreciation & amortization
Cumulative effect of chng in acctg
principle
Provision for losses on accounts
receivable
Changes in other non-current
liabilities
Provision for restructuring
Foreign currency (gains) losses
Other adjs to reconcile net income
(loss)
Accounts receivable
Inventories
Prepaid expenses & other current
assets
Other assets
Accounts payable
Income taxes payable
Accrued expenses & other current
liabilities
Net cash flows from operating
activiites
Purchases of property & equipment,
net
Investments in marketable securities
Acquisitions, net of cash acquired
Proceeds from restricted cash for Clb
Mnc
Equity interest investments
Purchase of trademark
Disposal of property & equipment
Cash surrender value-officers' life
insurance
Net cash flows from investing
activities
Payment of dividends
Repurchases of common stock
Proceeds from issuance of common
stock, net
Proceeds from exercise of stock
options
Procs fr (repayments of) sht-tm
borrows, net
Repayments of long term debt
Net payments of short-term debt
Not
Qualified
Yes
Thousands
Not
Qualified
Yes
Thousands
Not
Qualified
Yes
Thousands
Not
Qualified
Yes
Thousands
170,954
174,235
172,500
59,262
143,497
-4,233
83,189
8,901
78,645
21,216
83,919
-23,430
78,599
6,761
66,280
-
-
-
-
3,967
2,623
1,760
2,920
547
-18,930
19,566
1,864
3,087
14,443
529
-15,628
16,000
-1,820
-27,989
98,836
-5,846
5,565
-55,032
17,227
-1,152
-7,798
6,365
9,173
-92,314
82,721
-9,885
-68,968
-44,626
4,770
-32,746
53,325
-32,439
-37,163
-2,296
27,658
-19,149
2,868
-5,080
24,143
6,142
-11,001
-22,967
8,042
30,683
1,216
-9,801
31,281
-
-
-
2,734
3,155
-
-
32,053
11,320
-4,213
28,028
-31,750
210,606
268,974
293,758
100,286
242,689
-88,008
-105,170
-50,721
-20,929
-123,026
-
-98,664
-
-5,019
-
-30,326
-4,548
-7,500
7,391
-47,631
13,452
-
-23,702
-
-3,100
-132,702
-14,847
-1,047
-
-4,242
-166,269
-
-
-4,682
-
10,297
-52,166
-10,576
-100,943
68,000
-7,700
-80,000
-
-318,322
-
-13,833
24,486
-5,385
-181,972
-2,067
7,718
-
44,217
-
-
40,414
-235,144
-5,152
-115,952
-
-122,010
-
-
-41,262
-
2,939
-25,289
-
-39,400
-37,358
-
54
Proceeds from long term debt
Net cash flows from financing
activities
Effect of exchange rate changes on
cash
Net incr (decr) in cash & cash
equivalents
Cash & cash equivalents, beginning
of period
Cash & cash equivalents at end of
period
Cash paid for interest
Cash paid for income taxes
Cap obligs for completed shopwithin-shops
Liabilities assumed
-
-
-
-
-
319,610
-76,423
-16,664
-40,323
-25,886
201,590
-1,610
12,832
-928
-5,501
-5,844
-129
98,873
136,555
-113,073
120,113
343,606
244,733
102,219
164,571
44,458
343,477
9,396
60,810
343,606
19,654
65,163
238,774
20,193
58,328
51,498
25,318
72,599
164,571
7,713
112,202
-
8,506
15,229
-
2,463
141,956
55