Annual Report R alph Lauren 2013
RALPH LAUREN
Ralph Lauren is one of the world’s premier luxury lifestyle brands, universally recognized and associated with distinct design and quality. The brand’s integrated approach to advertising, marketing, merchandising and visual presentation allows for the consistent showcasing of the World of Ralph Lauren around the globe always in a uniquely spectacular way. Ralph Lauren Corporation’s business model is characterized by tremendous diversity across distribution channels, merchandise categories and geographies. The Company’s key competitive advantages are concentrated in inspiration and design; product development; product merchandising; supply chain and logistics; advertising and marketing; and unparalleled in-store customer experiences. These many areas of leadership are complemented Ralph Lauren
by a disciplined operational management that has supported strong financial results and shareholder value creation over the long term. As we look to the future, Ralph Lauren’s key strategic growth objectives are centered on allocating our strong cash flows to high ROI activities, including: »» Expanding our international presence, principally in Asia and Europe »» Extending our direct-to-customer reach via Ralph Lauren stores and e-commerce »» Innovating and expanding new and emerging merchandise categories, particularly accessories »» Investing in infrastructure to support our growing global reach »» Developing our global talent pool
CONTENTS
Chairmans Report
7
People 9 Financial Report
11
Tax Income Margin
13
CHAIRMAN
Dear Shareholders, This year we have made a significant change to the appearance of our Annual Report. Like many of our industry peers, we have decided to eliminate the marketing portion of our annual report whilst meeting our requirements under National Instrument 51102 Continuous Disclosure Obligations. In years past, we provided a marketing section, including glossy photographs and summaries of our operations, which was followed by our Management Discussion and Analysis (“MD&A�) and Annual Financial Statements.
Ralph Lauren
This marketing section is typically outdated before it reaches you, the shareholder, and holds no long term value. We would like to direct your attention to the front page of our company website at www.ralphlauren.com where you will find a regularly updated corporate presentation that includes operational summaries and photographs. Should you not have access to the Internet and are interested in receiving regular copies of our updated company presentations, please do not hesitate to contact our office by email at ask_us@ ralphlauren.com or by telephone at 416-369-1629 and we will be happy to send you these materials. We appreciate your consideration of these materials.
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PEOPLE
Reward and Recognition Remuneration is reviewed annually and a benchmarking review is undertaken to ensure we remain competitive and fair across all areas of the business. Our rewards include bonus schemes linked to sales targets and individual and corporate performance. We encourage our people to join our Save As You Earn (“SAYE�) schemes. This year we celebrated our third year of Wisdom Awards; recognition for the longer serving members of the team and a chance for them to celebrate and share their stories with the rest of the team. Learning and Development Performance is reviewed bi-annually with each team member to discuss personal and career development. Within this process, goals and objectives are set and linked to personal growth and business development as well as Ted’s environmental and social commitments. We allow our people to broaden their abilities and knowledge by exposing them to new experiences. We invest in training which ranges from specialist and technical skills training, to in-house developed courses focusing on management skills, leadership skills, brand awareness and self-awareness. Diversity The Group believes in respecting individuals and their rights in the workplace. With this in mind, specific policies are in place covering harassment and bullying, whistle blowing and equal opportunities. Our team represents a wide and diverse workforce from all backgrounds, sexual orientations, nationalities and ethnic and religious groups. We support sponsorship of visa applications, where appropriate, to retain specific talent within the business. With continued overseas expansion our workforce is becoming more diverse and we respect cultural differences and actively seek to learn about them in each territory we operate.
Health, Safety and Welfare Our duty and commitment to the well-being of our team is supported by activity such as private healthcare, occupational health, health seminars and funding for flu jabs. During the period, we conducted a Wellness health assessment day and we offer health and fitness classes to our team members at our head office. We also run a Childcare Voucher Scheme. We launched an Employee Assistance Programme during the year that further supports our genuine concern for the well-being of our team. The prevention and identification of risks and accidents is supported by an external Health and Safety service provider and ongoing training of management teams. A dedicated Health and Safety focused team member has been appointed and will strengthen our knowledge and commitment in this area of our business. Disabled Employees Applications for employment by disabled persons are always fully and fairly considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of the team becoming disabled every effort is made to ensure that their employment with the Group continues and that where appropriate reasonable adjustments are made and relevant training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical with that of other employees. Culture The spirit in which we conduct our business and interact with our team always takes into consideration “Would Ted do it that way?”. We regularly host internal events, including Education sessions with the Chief Executive, telling the story behind the brand, and also family days where we open our doors to family and friends. Employer The culture sets the tone for how our “employer brand” speaks to our teams. Aligned to the business brand, our Ted tone of voice is translated through every employee touch point throughout the employee lifecycle. Our Coach Station department leads the way in communicating a unique approach to all people and team orientated activity.
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participating securities.
in determining whether instruments granted in share based payment transactions are
*Reflects the adoption of the Financial Accounting Standards Board (FASB) guidance Consolidated Statement of Earnings
FINANCE
($ in millions except per share amounts) For the year ended December 31:
Notes
2013
2012
2010
Services
55,128
58,892
54,057
Sales
38,300
42,156
42,202
Financing
2,331
2,582
2,526
Total revenue
95,758
103,630
98,786
Services
37,146
40,937
39,160
Sales
13,606
15,776
16,552
Financing
1,220
1,256
1,345
Total cost
51,973
57,969
57,057
Gross profit
43,785
45,661
41,729
0,952
23,386
22,060
Revenue:
Cost:
Expense and other income: Selling, general and administrative
5,820
6,337
6,153
Intellectual property and custom development income
Research, development and engineering
-1,177
-1,153
-958
Other (income) and expense
-351
-298
-626
402
673
611
25,647
28,945
27,240
18,138
16,715
14,489
4,713
4,381
4,071
13,425
12,334
10,418
Income/(loss) from discontinued operations, net of tax
—
—
0
Net income
13,425
12,334
10,418
Interest expense
Q
K&L
Total expense and other income Income from continuing operations before income taxes Provision for income taxes
P
Income from continuing operations
Discontinued operations:
Earnings/(loss) per share of common stock: Assuming dilution: Continuing operations
R
$10.01
$8.89*
$7.15*
Discontinued operations
R
—
—
$0.00
Total
R
$10.01
$8.89*
$7.15*
Continuing operations
R
$10.12
$9.02*
$7.27*
Discontinued operations
R
—
—
$0.00
Total
R
$10.12
$9.02*
$7.27*
Assuming dilution
1,341,352,754
1,387,797,198*
1,456,880,751*
Basic
1,327,157,410
1,369,367,069*
1,433,935,221*
Basic:
Weighted-average number of common shares outstanding:
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Cashflow Review
TAX INCOME MARGIN
2013
2011
2010
5.10% 10.30% 3.10% 15.20% 8.40% 7.60%
11.30% 13.00% 28.50% 7.70% 36.30% 15.80%
11.30% 13.00% 28.50% 7.70% 36.30% 15.80%
Technology Services Business Services Software Systems Financing Total Segments
($ in billions) For the year ended December 31: Net cash from operating activities per GAAP (Continuing Operations)
2009
2008
2007
2006
2005
$20.80
$18.80
$16.10
$15.00
$14.90
Less: Global Financing receivables
-1.90
0.00
-1.30
-0.30
1.80
Excluding Global Financing receivables
18.90
18.80
17.40
15.30
13.10
Capital expenditures, net
-3.70
-4.50
-5.00
-4.70
-3.50
Free cash flow (excluding Global Financing receivables)
15.10
14.30
12.40
10.50
9.60
Acquisitions
-1.20
-6.30
-1.00
-3.80
-1.50
Divestitures
0.40
0.10
0.30
—
0.90
Share repurchase
-7.40
-10.60
-18.80
-8.10
-7.70
Dividends
-2.90
-2.60
-2.10
-1.70
-1.20
Non-Global Financing debt
-4.70
-3.20
10.90
-1.10
1.20
Other (includes Global Financing receivables and Global Financing debt)
1.70
5.00
3.80
1.10
1.90
Change in cash, cash equivalents and short-term marketable securities $
$1.10
-$3.20
$5.50
-$3.00
$3.10
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BOARD OF DIRECTORS
CORPORATE OFFICERS
Ralph Lauren
Ralph Lauren
Chairman and Chief Executive Officer Ralph Lauren Corporation
Chairman and Chief Executive Officer
John R. Alchin Retired Executive Vice President and Co-Chief Financial Officer Comcast Corporation
Arnold H. Aronson Managing Director, Retail Strategies
Kurt Salmon Frank A. Bennack, Jr. Chairman of the Executive Committee and Vice Chairman of the Board of Directors The Hearst Corporation
Dr. Joyce F. Brown President Fashion Institute of Technology
Roger N. Farah Executive Vice Chairman Ralph Lauren Corporation
Joel L. Fleishman Professor of Law and Public Policy Duke University
Hubert Joly President and Chief Executive Officer Best Buy Co., Inc.
David Lauren Executive Vice President of Global Advertising, Marketing and Communications Ralph Lauren Corporation
Judith McHale President and Chief Executive Officer Cane Investments, LLC
Steven P. Murphy Chief Executive Officer Christie’s International Plc
Jackwyn L. Nemerov President and Chief Operating Officer Ralph Lauren Corporation
Robert C. Wright Senior Advisor Lee Equity Partners, LLC
Roger N. Farah Executive Vice Chairman
Jackwyn L. Nemerov President and Chief Operating Officer
Mitchell A. Kosh Senior Vice President, Human Resources
Christopher H. Peterson Executive Vice President, Chief Administrative Officer and Chief Financial Officer
Ralph Lauren Corporation Investor Relations 625 Madison Avenue New York, NY 10022 Telephone: 212-813-7868