Fool.com: Polo: Ready To Start Swinging? (Fool Plate Special) November 2, 1999

FOOL PLATE SPECIAL
An Investment Opinion

Polo: Ready To Start Swinging?

By Dave Marino-Nachison (TMF Braden)
November 2, 1999

"Polo," according to the U.S. Polo Association, "is an intensely physical endeavor which from across the field can resemble a ballet, but up close, the sweat and dirt on the players, shouted commands and curses, the heaving, blowing horses, tell the story of a rough and arduous game played in hot blood."

Hoo boy! Maybe that's why upscale lifestyle products designer and marketer Polo Ralph Lauren Corp. (NYSE: RL) peddles products better enjoyed at a safe distance from the ground and its hot-blooded horses.

Still, Polo stockholders probably wouldn't mind a little sweat and dirt if it meant their company's shares would pry themselves from the muddy patch in which they've been mired since the summer.

Today's forward earnings news -- the company said it expects to report fiscal second-quarter (ended Oct. 2) earnings next week that will be "in line" with the market's $0.56 consensus -- wasn't enough to unstick the shares this morning, possibly in part because the announcement came from President Lance Isham, who must now take on the added role of COO since longtime Polo executive Michael Newman resigned.

"We are confident that fiscal year 2000 will demonstrate our continued strong growth," Isham said in a statement. Investors watching Polo this year have already heard this story several times over, so that they didn't jump with glee at today's announcement isn't particularly surprising.

What they're watching for instead is the company's progress with an ongoing restructuring, much of it the work of Isham, announced earlier this year. The efforts involved job cuts -- some in senior management -- in the U.S. and Asia, store closings and the integration of a "brand-based management model" aimed at eliminating duplicate functions, cutting costs and encouraging synergies between product lines rather than, for example, men's and women's departments.

Also key should be the company's progress in cutting back inventories after the company closed out fiscal 1999 with them at distressingly high levels, caused in part by computer error, despite aggressive price cutting. The shares have fallen since then despite strong revenue growth across the company's many lines of offerings, and earnings generally in sync with Street estimates.

A company with the kind of brand recognition and reputation Polo enjoys can be a welcome addition to an investor's portfolio, particularly when beaten down by poor performance and with the holiday season on its way.

But investors should remember to look at more than a company's earnings when rating their holdings or potential holdings; Polo's upcoming quarterly report should serve as a reminder of the importance of looking at the balance sheet and cash flow statement as well as the income statement.

Related Links:
Polo Message Board
United States Polo Association