Luxury apparel maker Ralph Lauren Corp is moving its Chaps brand to a fully licensed business model – and has warned the coronavirus pandemic is likely to weigh on its results for the final two quarters of the fiscal year.
Announcing its second-quarter results yesterday (29 October), the New York-based company raised the prospect of the “ongoing high level of uncertainty and evolving situation surrounding Covid-19 impacting the timing and path of recovery in each market, including the potential for second waves of outbreaks across various markets.”
It also said that as part of an ongoing review it has entered into a multi-year licensing partnership with an affiliate of 5 Star Apparel, a division of the Oved Group, to manufacture, market and distribute Chaps menswear and womenswear.
Taking effect on 1 August 2021, the move offers opportunities for expansion into additional channels and markets globally, the company said. It also reduces its direct exposure to the North America department store channel.
The change comes as Ralph Lauren Corp booked a loss of US$39m in the three months to 26 September, compared to net income of $182m in the same period a year earlier.
Second-quarter net revenue tumbled 30% to $1.2bn on a reported basis and was down 31% in constant currency, with declines across all regions due to Covid-19 related impacts.
By segment, revenue in North America fell 38% to US$543m and dropped 25% in Europe to $359m. Asia revenue was down 7% to $237m, but the Chinese Mainland returned to pre-Covid growth rates with second quarter sales increasing more than 30% to last year in constant currency.
Adjusted gross margin was up 500 basis points year-on-year to 66.5%, primarily driven by Average Unit Retail (AUR) growth of 26%, with strong double-digit growth in North America and Europe.
The company is evolving its product mix to align with changing consumer preferences by region, including a return to pre-Covid categories in Asia and Europe and more casual assortments in North America.
It also said it moved through core product and wear-now summer categories during the quarter, “while prudently building into key seasonal categories such as sweaters, fleece and outerwear in order to position our brands well for the upcoming fall/holiday period.”
Inventories declined 12% at the end of the quarter, reflecting continued efforts to ensure healthy inventory positions across geographies and channels
And despite a challenging global supply chain environment it improved speed-to-market, with 25% of orders completed in lead times of three months or less, compared to a single-digit penetration last year.
The company is working to shorten its timelines from design to shelf, and in February explained how it has set a goal to have more than 50% of its products on lead times of six-months or less.
During the second quarter, it set out the first actions under the ‘Fiscal 2021 Strategic Realignment Plan’ to reduce its global workforce by the end of fiscal 2021.