Ralph Lauren: Big Surprise is Not Surprising

Ralph Lauren issued a profit warning yesterday due to consumer unrest in the U.S. They now expect fiscal 2008 earnings per share to be between $3.50 and $3.60 a share, down from the previous range of $3.64 to $3.74 a share. I listened to the conference call yesterday. For any readers who don't know what that is -- it is when the company's officers take questions from the analysts who cover the stock. The details of the calls are available on company websites and I recommend it to anyone with an interest in the business -- particularly creatively-minded types who may not have a head for numbers. The calls make it much easier to understand the results and you can pick up interesting tidbits about the workings of the business that don't really come across in published articles.

Some interesting comments from yesterday. (Thanks to Seeking Alpha for putting up the transcripts.)

Weather matters. Really. Roger Farah, the President and C.O.O said: "And I think we saw the domestic customer really slowing down their discretionary spending late August and into September. How much of that was weather, hard to tell. When you look at the regional maps for our performance, the Northeast, the Midwest definitely were weaker which we do think was the primary part of the country that was impacted by weather. You know, California, Southwest, Southeast, less of a weather issue, our businesses were stronger in those markets."

Fall ain't what it used to be: Farah said, "what has turned into the shortest selling cycle of the year now has become fall. We ship it in July and August and hopefully it solidifies September and by October, you want to start moving out of it to make room for Holiday Cruise and Resort, which is now coming into the stores in the first week and two weeks of November. So, it used to be the largest and most profitable delivery cycle for really all manufacturers, it has now become the shortest. The Holiday Cruise which then bleeds into spring, which bleeds into summer allows you much more of a selling time to sell through goods at full price. So, when the weather doesn't come as it did in this year, there is more promotional activity late September into October to try to clear those goods to position the Holiday Cruise Resort product that comes in early November." (BTW, "promotional activity" means sale.

Europe, Ralph's big bet in terms of investing for the company's future, is expensive. Farah: "And you look at some expense of real estate that we've committed to in Paris that won't open until the fall of '09, but in order to secure these unique locations, we have to commit to that at the early part of this year. And we are now going through the permitting process, because they're sort of historic buildings."

E-Commerce. The RL press release said that ecommerce sales were up 28 percent. Sounds impressive. But on the conference call you learn that it is still only 4 percent of the company's sales, which is why they bought out their partner and are planning major changes. Farah: " I think it speaks to our commitment to building a state-of-the-art call center and customer service center in Greensboro, North Carolina, which has the capacity to be doubled in size in the future if we need it."