Luxury company Ralph Lauren has announced new restructuring actions, including plans to consolidate its global offices, after third quarter net income slid 64% on a sales hit resulting from the Covid-19 pandemic.

Net income for the three months to 26 December fell to US$119.8m from $334.1m a year earlier. Net revenues for the group were 18% lower at $1.43bn, with sales in North America and Europe lower year-on-year, but higher in Asia. Digital sales increased double-digits in all regions, including more than 70% growth in Europe and Asia.

"Despite the disruptions and uncertainty we faced throughout our third quarter, our teams continued to elevate our brands and effectively engage with consumers around the world – delivering better than expected gross and operating margins through the holiday period, and continuing to meaningfully improve our digital profitability," said Patrice Louvet, president and CEO.

"We remain focused on emerging from this period in a position of strength as we invest in key areas like our digital transformation while taking a disciplined approach with expenses and ensuring we have the right resources, footprint and brand portfolio to support future growth and value creation."

As part of an ongoing strategic review the company is working to cut its global workforce by the end of fiscal 2021, and transitioning the Chaps brand to a fully licensed business model.

It is now looking  to realign its real estate footprint across corporate offices, retail stores and distribution centres, with up to 10 stores set to close through fiscal 2022. It also plans to complete the consolidation of its existing North America distribution centres in order to drive greater efficiencies, improve sustainability, and deliver a better consumer experience.

In terms of its outlook, it sees fourth quarter revenues declining mid-to-high single digits to last year, a sequential improvement from the first three quarters of the fiscal year. But it warns this could worsen if government-mandated lockdowns or restrictions are extended or more severe measures are applied.

Uneven recovery

Commenting on the results, Neil Saunders, managing director of GlobalData says: "While Ralph Lauren's revenue declines continue to moderate, the group doesn't have anywhere near the momentum of rival brands and several areas of the business remain stubbornly down. The recovery is also uneven across divisions and regions, with Asia driving growth while Europe and North America are still in the doldrums.

"On the bottom line, while reduced discounting and healthy inventories have helped to push up margins, net income is 64% down on the prior year – although Ralph Lauren deserves credit for pushing itself into the black during the latest quarter.

"One of the more disappointing aspects of Ralph Lauren's performance is the lacklustre rise in digital sales. During the third quarter, these rose by some 20% on a global basis. While this appears respectable, it needs to be placed in the context of rival brands posting very high double-digit and even low triple-digit growth. Within North America, digital sales grew by 10% which, quite frankly, is a lamentable rate of growth relative to the market and underscores the fact that Ralph Lauren is losing share online. If the company was very mature online, then the more moderate uplifts would be understandable. However, it is not; if anything, Ralph Lauren is one of the weaker retail and fashion brand players in the digital space.

"Ralph Lauren has been making some efforts to boost its digital presence, so the poor online results are not simply a function of a lack of activity. In our view, they reflect wider issues with the stable of brands which remain confused and jumbled and do not have the clarity of the proposition of many rivals. This simply pushes them down the batting order when consumers are shopping online.

"Ralph Lauren will continue to recover as and when the pandemic eases. However, a lot of non-pandemic issues remain and need to be resolved over the year ahead."