• Q1 net income fell 41% to US$95m from $162m
  • Gross margin down 120 bps
  • Sales fall 5% to $1.6bn
Ralph Lauren reported “better-than-expected” profitability

Ralph Lauren reported “better-than-expected” profitability

Ralph Lauren said its first-quarter profit was "better-than-expected" as it made progress on key strategic initiatives - despite posting a 41% drop in net income during the period.

In the three months ended 27 June, net income reached US$95m from $162m a year earlier, excluding restructuring charges. On a reported basis, income reached $64m.

Gross profit margin was 120 basis points lower, reflecting unfavourable foreign currency effects. Sales declined 5% to $1.6bn due to foreign currency effects.

Wholesale sales were down 6% on a constant currency basis, impacted by customers’ receipt plans due to an earlier Easter. This was partially offset by double-digit constant currency growth in Europe. Retail sales increased 3%, driven by contribution from new stores and e-commerce expansion.

Neil Saunders, CEO of Conlumino, noted: "By any standards this is a fairly inauspicious opening to Ralph Lauren’s new fiscal year. While it is true that the strong dollar continues to be a major drag on sales growth, the numbers are nevertheless soft."

He adds: "Some of the profit decline is also attributable to the ongoing investment as Ralph Lauren continues to restructure its global business operations. This includes the continued enhancement of e-commerce operations at both the back and front ends – something that will ultimately improve capacity and allow Ralph Lauren to provide a better service, on a global basis, via its own online platforms. Such investment is prudent given the strong uplifts in website traffic last year and the fact that changes like enhanced search functionality are already increasing conversion rates."

Saunders also points out that Ralph Lauren’s performance does not look good at headline level, "under these numbers the company is very much in control of its destiny and its various activities should ensure that performance picks up as it moves into the second half of this year."