Polo's Limping Gallop

My wife will tell you, I really like Polo Ralph Lauren's (NYSE: RL  ) clothing for men. It's not that I'm an ultra-hip metrosexual -- I'm way too much of a geek to be that cool. (Sorry, honey.) But there's something appealing about the little guy galloping along on the shirts hanging in my closet that allows me to pretend to be hip for a nanosecond or two.

Fortunately, I'm not alone. In reporting earnings this morning, Polo said fourth-quarter sales rose 18.3% over the same period a year ago. Full-year fiscal 2004 sales reached $2.65 billion, an 8.6% rise over last year's $2.44 billion. Polo also reported that same-store sales, otherwise known as the all-important "comps," were up across Polo's retail chains, including an 11.4% rise at the firm's flagship Ralph Lauren stores. Outstanding, right?

Well, sort of. You see, very little of this remarkable progress translated into income. Sales, general, and administrative expenses for 2004 were higher by roughly $120 million over last year, taking a big bite out of earnings. So much so that 2004's $171 million in profits was lower than last year's total of $174 million.

Polo's rapid gait was also tripped up by 1.7 million shares of new stock, dropping per-share earnings to $1.69, a full $0.07 lower than last year's $1.76. Investors have noticed, sending the stock lower by roughly 1% on heavy volume.

Gap's (NYSE: GPS  ) healthy gains with fewer stores and Nordstrom's (NYSE: JWN  ) huge earnings rise marked recent optimism in retail, making Polo's results all the more disappointing. And yet the news also provides an important lesson for investors: Improving sales guarantees neither higher income nor more cash in the kitty.

Polo is a hip company with a cool image and is attracting an appropriately upscale audience as a result. Investors can only hope that in the pony's ongoing quest to maintain its edge, management learns to embrace the decidedly boring and staid principles of operational excellence that continue to make money for the Foolish.

Bored by stock investing but want to juice your returns? Get help. Give any of our investing newsletters a try risk-free.

Fool contributor Tim Beyers doesn't own shares in any of the companies mentioned. You can view his Fool profile here.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 508019, ~/Articles/ArticleHandler.aspx, 9/21/2014 10:31:22 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement