Ralph Lauren beats Q2 estimates but overseas strength fails to disguise home weakness
Ralph Lauren Corp topped quarterly profit and revenue estimates Tuesday as the US fashion house’s drive to offer fewer discounts and cut costs continues to gain traction. But while the brand enjoys strong gains overseas, its home market still needs much work, especially on the digital front.
Total revenue rose 3.2% to $1.39bn, the first increase in at least 13 quarters, topping analysts’ call for $1.36bn. Currency neutral sales rose a more modest 1%, with total sales driven by Asia (up 16% currency neutral to $248m) and Europe (up 2% currency neutral to $351m), with CEO Patrice Louvet telling analysts that “Mainland China is our largest near-term opportunity.”
However, its core Americas market dipped 2% on both a reported and constant currency basis to $698m. North America wholesale revenue declined primarily due to cutting its distribution channels. In retail, comparable store sales in North America were down 3% in constant currency, driven by a 3% decline in bricks & mortar stores and a 2% decline online. Ouch.
But RL said the digital decline did represent a “significant sequential improvement, in line with our expectations.”
Net income, meanwhile, jumped 83% to $109m in Q2 ended June 30, helped by a lower tax rate. Excluding certain items, the company earned $1.54 per share, beating analysts’ $1.36 call.
Gross margins increased 120 basis points to 64.4%, while average revenue per unit sold rose 8%.
“We are off to an encouraging start to the new fiscal year on both the top and the bottom line. Our teams around the world are fully engaged and focused on executing the Next Great Chapter plan,” said Louvet.
“Guided by our three core principles of putting the consumer at the centre of all we do, elevating and energizing our brand and balancing productivity and growth, we are on track to return the company to long-term, sustainable growth and value creation.”
Ralph Lauren’s ongoing turnaround strategy includes investing in its core brands, cutting jobs, reducing excess inventory and closing underperforming stores, while pushing its supply chain to bringing fashion to its stores and online faster.
In its trading statement, the house highlighted a boost in marketing spend by about 20%, mainly for its Spring Polo campaign, which drove strong growth in global polo shirt sales including double-digit growth in men’s.
RL also said renewed core styles and a focus on its “icons”, drove sequential improvement in the sellout trend for the spring/summer season, it said.
Average unit retail across its direct-to-consumer network lifted 8% “through improved full price selling and lower discounts”. Meanwhile, “under-developed categories outpaced overall growth, led by denim and outerwear”.
Ralph Lauren also tweaked its revenue forecast for fiscal 2019 and now expects a slight dip compared with a low-single digit decline it forecast earlier. The company is targeting a return to revenue growth in fiscal 2020, in constant currency terms.