Polo Ralph Lauren
Repurchasing the rights to the Polo Jeans line from licensor Jones Apparel
Polo and Jones have been involved in litigation over the Lauren brand since December 2003. As the conflict dragged on, things looked to be going against Polo, so much so that the company established a $100 million reserve in fiscal 2005 in connection with the case.
Polo's $355 million deal for the jeans business ends that legal scuffle. It follows earlier efforts such as the company's reassumption of rights to its Lauren trademark from Jones and the reacquisition of Polo and Ralph Lauren footwear rights from Reebok
At the same time, Polo Jeans doesn't seem destined to drastically change the profit picture at Polo. After all, in its fiscal second quarter alone, Polo posted net income of $104 million. Furthermore, it's hard to believe that the growth prospects for the jeans business are particularly stellar. Jeans aren't traditionally considered luxury wares, and just as it does for shoes, Lauren faces tight competition here from players like Gap
Investors shouldn't expect too much from Polo Jeans. But by buying the division from Jones, Polo settles a costly conflict, gains more control over its brand, and receives a reasonable business. All in all, it's hard to argue against the logic of this purchase.
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