Ralph Lauren CEO Patrice Louvet remains confident the US apparel giant is on track to deliver its full-year goals, having once again hailed an “encouraging start” to the fiscal year as both profit and sales increased in the second quarter. Yet one analyst believes the brand has a lot more work to do to connect and resonate with consumers.
On a reported basis, earnings in the three months ended 29 September reached US$170.3m from $143.8m a year earlier. On an adjusted basis, excluding restructuring and tax charges, earnings were $186m.
Go deeper with GlobalData
Gross margin, meanwhile, was 60.9%, 100 basis points above the prior year. The increase was driven by initiatives to improve the quality of sales through reduced promotional activity and improved pricing as well as a favourable product mix. Foreign currency benefited gross margin by 40 basis points in the second quarter.
Sales continued their upward trajectory, albeit at a slower rate than the previous quarter, with net revenues rising 1.6% to $1.7bn on a reported basis, and by 2.1% in constant currency, driven by Asia. Foreign currency negatively impacted revenue growth by about 50 basis points in the period.
Meanwhile, North America revenue increased by 1% on a reported basis to $888.2m, while in Europe, sales slipped 1% to $459m. Asia revenues surged 13% to $245m, driven by strength in both retail and wholesale channels.
See Also:
Comparable store sales in North America increased by 1% in constant currency, including a 1% decline in brick and mortar stores and a 9% increase at ralphlauren.com. In Europe, comparable store sales were down 4% on a constant currency basis, driven by a 4% decline in brick and mortar stores, while in Asia, comp sales in Asia increased 6% in constant currency, reflecting growth in both brick and mortar and digital commerce operations.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataCEO Patrice Louvet said Ralph Lauren is off to an “encouraging start” to the new fiscal year on both the top and the bottom line, as its teams are focused on executing the ‘Next Great Chapter’ plan announced at the company’s investor day in June of this year.
The strategy aims to return Ralph Lauren to sustainable long-term growth and value by overhauling core products, accelerating under-developed categories, and focusing on digital growth across all activities.
“We remain focused on strengthening our connection with consumers around the world, and executing on our strategic priorities as we manage through the evolving trade and inflationary environment with agility,” he added. “Looking out to the remainder of the year, we are on track to deliver our full-year goals.”
For fiscal 2019, the company is now expecting net revenues to be approximately flat to up slightly in constant currency, and operating margin to be up 40 to 60 basis points in constant currency driven by gross margin expansion.
More to be done
Neil Saunders, managing director of GlobalData Retail, notes the company’s second-quarter results do not reflect the upbeat note of its 50th-anniversary festivities.
“Indeed, if anything the sales numbers are rather anemic and are characteristic of a brand that is still not entirely confident about its place in the fashion world or its future direction,” he says, noting the mixed bag of results shows the brand is only firing gently on some cylinders rather than powering ahead.
He draws particular attention to the firm’s North American division which he states is “still underperforming” despite the backdrop of a robust consumer economy where spend on luxury and higher-end goods is increasing and a time of elevated marketing spend.
“That Ralph Lauren could not engineer a better performance underlines the fact that the brand has a lot more work to do to connect and resonate with consumers.”
“That Ralph Lauren could not engineer a better performance underlines the fact that the brand has a lot more work to do to connect and resonate with consumers,” he says.
Meanwhile, one of the unresolved issues at Ralph Lauren is in having a clear brand proposition that is carefully targeted at customers, Saunders says. “While our data show that general brand perception of Ralph Lauren has improved over the past year, the number of people agreeing that it, or its sub-brands, are ‘made for people like them’ has remained flat. This is worrying and underlines that there is still a lot of repositioning and redefining required before Ralph Lauren can deliver better numbers.”
However, none of this to suggest that the company has been inactive or passive, Saunders explains. With the Polo brand, for example, a lot of new items have been introduced and products have been enhanced with embellishments such as embroidery and added functionality. These, he says, have helped to drive some better numbers and suggest that the company is innovating, but the improvements are hampered by a lack of progress on overall brand perception, especially among younger shoppers.
He adds: “It will clearly take time for the various changes to drive overall perception.”
Overall, Saunders believes Ralph Lauren is gently moving in the right direction but notes GlobalData still finds the brand vision “rather murky”.
“It needs to be simplified and retooled so that it is clear and compelling,” he says. “A young brand like Maine’s Kiel James Patrick is the perfect example of a well-curated and authentic lifestyle label that Ralph Lauren needs to emulate. In our view, Ralph Lauren has yet to prove it is up to this task.”
