Ralph Lauren CEO Patrice Louvet remains confident the US apparel giant is “on the right track” after lower discounting contributed to better-than-expected results for the third quarter.
In the three months ended 30 December, the company reported a net loss of US$81.8m, compared to a profit of $81.3m a year earlier. However, adjusted to exclude charges of $231m relating to the US tax reform, as well as restructuring and other costs, net income was $167m.
Gross profit margin was 60.7% on both a reported and adjusted basis, 250 basis points above the prior year, excluding restructuring and related charges. The increase was driven by initiatives to reduce promotional activity, favourable geographic and channel mix shifts, and improved product costs. Foreign currency benefited gross margin by 30 basis points.
Meanwhile, net revenues of $1.64bn were down from $1.71bn in the prior year period, marking a 4% drop on a reported basis, and a 6% fall in constant currency.
Europe revenue increased 8% to $378m on a reported basis, while North America revenue was down 11% to $886m, due to lower sales in both the retail and wholesale channels, driven by distribution and brand exits, a strategic reduction in shipments and promotional activity to increase quality of sales, as well as lower consumer demand. Asia revenue, meanwhile, increased 7% to $251m.
On a constant currency basis, comparable store sales were down in both North America and Europe, by 10% and 8% respectively. Meanwhile, comparable store sales increased by 3% in Asia, driven by improved conversion, average unit retail and the number of transactions.
“There is still a lot of work to be done to return to industry-leading revenue and earnings growth, but these results give us confidence that we are on the right track.”
“There is still a lot of work to be done to return to industry-leading revenue and earnings growth, but these results give us confidence that we are on the right track,” said Louvet.
Looking forward, the company expects full-year net revenue to decrease 8% to 9%, excluding the impact of foreign currency, and operating margin to be 10.0-10.5%, excluding the impact of foreign currency, and versus previous guidance of 9.5%-10.5%.
Neil Saunders, managing director of GlobalData Retail, notes Ralph Lauren’s results come with a mixed dose of both optimism and pessimism.
“The pessimism is from the continued slide in sales, which tumbled on both a total and comparable basis. More optimistically, the drop in sales is now flattening out, with some of the decline deliberately engineered as the company looks to rebuild its brand.”
He notes the long run decline in sales is easing and the reduction in discounting is helping to strengthen Ralph Lauren’s brand image. However, “in our view, Ralph Lauren remains in the painful phase, and it is unlikely to see improvements until well into this calendar year.”
Saunders adds the 27% slide in retail e-commerce sales is of particular concern, given the strength of the channel over the holiday period. “This is a terrible result and underlines the fact that Ralph Lauren has a great deal more work to do in streamlining and strengthening this part of the operation.
“Overall, we are encouraged that Ralph Lauren is now on the right path. However, we are also cognisant that the road to recovery is long, and winding.”