Pandemic to impact FY21 results says Ralph Lauren - Just Style
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Pandemic to impact FY21 results says Ralph Lauren

By Beth Wright 28 May 2020

Ralph Lauren expects both its first quarter of fiscal 2021 and full-year results for the period to be "significantly" negatively impacted by the Covid-19 pandemic amid a 15% drop in sales for the final quarter of 2020. 

Pandemic to impact FY21 results says Ralph Lauren

Ralph Lauren expects both its first quarter of fiscal 2021 and full-year results for the period to be “significantly” negatively impacted by the Covid-19 pandemic amid a 15% drop in sales for the final quarter of 2020. 

For the fourth quarter ended 28 March, net loss amounted to US$249m on a reported basis, compared to net income of $32m in the prior-year period. On an adjusted basis, net loss was $50m.

Gross margin was 46.7% and, on an adjusted basis, was 59.1% compared to 60.1% last time. Foreign currency negatively impacted gross margin by 20 basis points in the fourth quarter.

Net revenue, meanwhile, declined 15% to $1.3bn on a reported basis from $1.5bn last year and was down 14% in constant currency. Ralph Lauren said the fall reflects adverse impacts related to Covid-19 and Hong Kong protest business disruptions.

North America revenue declined 11% to $629m, while comparable store sales fell 13%, including a 15% decline in brick and mortar stores and a 7% decrease in digital commerce.

Europe revenue was also down, falling 19% to $353m on a reported basis and 16% to last year in constant currency. Comparable store sales fell 16% on a constant currency basis, driven by an 18% decrease in brick and mortar stores and a 2% decrease in digital commerce.

Sales in Asia, meanwhile, tumbled 22% to $214m on a reported basis and  21% in constant currency. Comparable store sales were down 23% in constant currency, with a 15% increase in digital commerce operations more than offset by brick and mortar declines during the period due to Covid-19-related store closures.

Fiscal 2020

For fiscal 2020, reported net income dropped to $384m from $431m in fiscal 2019. On an adjusted basis, net income was $506m compared to $588m last year. Gross margin was 59.3% and, on an adjusted basis, was 61.9%, 20 basis points higher than the prior year. Foreign currency negatively impacted gross margin by ten basis points in fiscal 2020.

Net revenues were down 2%, falling to $6.2bn on a reported basis. Revenue was down 1% in constant currency.

For fiscal 2020, North America revenue decreased 2% on a reported basis to $3.1bn, while sales in Europe were down 3% to $1.6bn. Asia revenue decreased by 2% to $1bn.

“As we manage for the near- and long-term, we remain committed to consistently delivering sustainable growth and value creation for all of our stakeholders. We are confident in our ability to do this thanks to the strength of our business, our balance sheet and our brands, and especially the resilience and commitment of our diverse global teams,” said CEO Patrice Louvet.

“Reflecting on our performance prior to the crisis, our underlying progress was strong, as our AUR and overall brand elevation journey continued across every region, exceeding our expectations for both the quarter and year.”

Due to what it called the “high level of uncertainty and evolving situation surrounding Covid-19”, Ralph Lauren is suspending all future guidance.

“We expect our financial results for both periods to be significantly negatively impacted by the pandemic. Though the timing and path of recovery in each market presents many uncertainties, we have developed scenarios through which we plan to safely return our businesses to growth and value creation,” the company said.

Covid weighs on recovery plan

Neil Saunders, managing director of GlobalData Retail, notes although Ralph Lauren’s results run up until the end of March and so do not cover the height of the pandemic, the early decision to close stores around the world had an adverse impact on sales which dropped by 15.4% on a total basis. 

“Unfortunately, digital channels did not completely pick up the slack from stores as Ralph Lauren temporarily suspended online operations in late March to enhance health and safety protocols. On a comparable basis this pushed down sales by 7% in North America and 2% in Europe. In Asia, where online operations were not so badly affected, comparable digital sales increased by 15%,” he notes.

The stress from the top line pushed Ralph Lauren to a net loss of $249 million, Saunders says, adding while this number may worsen in the next quarter, Ralph Lauren is able to weather the storm thanks to “excellent liquidity” of over $2bn and a “very strong” balance sheet with minimal debt. On top of this, actions to reduce expenditure in the near-term will help to minimise losses and preserve cash.

“Although Ralph Lauren won’t succumb to the pandemic, the crisis came at an unfortunate time. This quarter should have been one which capped a year of recovery for the group, which has been trying to improve its brand image and connect with new customers. In our view, while progress was patchy – especially in North America – there were signs that things were going in the right direction with steady growth in comparable sales and some stronger results from Asia and Europe. Sadly, the severe downtick in trade has undone this advancement and for the full fiscal year the company will end up with a comparable sales decrease of 2%.”

With retail now reopening across North America and in parts of Europe, Saunders says the question of what recovery looks like comes to the fore. “On this front, we are not overly optimistic. While we believe that many Asian markets will see a reasonable bounce back in terms of trade, we do not think this will be replicated in Western nations and especially not in the United States.

“The first issue in the United States is that, even before the pandemic hit, the improvement in Ralph Lauren’s business was only partial. The company was moving in the right direction, but enhancements in marketing and assortments had not fully taken root and brand perception was only inching up by small increments. For this reason, we do not believe that there will be a mass of customers clambering to get back to the brand once things fully reopen. This is even more so as some of what Ralph Lauren sells will, at least in the near-term, be much less relevant to consumers who are staying at home more and going out less.”

A further problem is that through its wholesale division, Ralph Lauren has exposure to some very unfavorable channels, especially department stores, according to Saunders. “The recovery in these locations will be weak and protracted so, although Ralph Lauren has been reducing its reliance on third-parties, it will be unduly affected. Some of the flagship stores will also suffer from a reduction in tourist numbers, which are an important component of their success. Both these structural challenges to the business will not abate before 2021.

“Ralph Lauren has the resources and skill to manage itself during this challenging time. However, there is no doubt that its already slow recovery plan will now take far longer to implement.”