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.
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