US apparel giant Ralph Lauren has delivered results in line with expectations for the first quarter, with signs that efforts to elevate its brands and stabilise its North America business are starting to pay off.
In the three months to 29 June, the company reported net income of US$117.1m, a 7.4% rise on last year’s $109m. Gross margin was 64.4% and benefitted from favourable product, geographic, and channel mix, partly offset by increased promotional activity.
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Net revenue increased by 3% to $1.4bn on a reported basis and was up 5% in constant currency, driven by positive results across regions. Foreign currency negatively impacted revenue growth by about 220 basis points in the first quarter.
North America revenue increased by 3% to $719m. In retail, comparable store sales in North America were up 1%, driven by a 1% comp in brick and mortar stores and flat comps at ralphlauren.com.
Europe revenue rose 2% to $361m on a reported basis and 7% in constant currency, while comparable store sales in the region were up 4%, driven by a 2% increase in brick and mortar stores and a 22% increase in digital commerce. Asia revenue climbed 4% to reach $259m on a reported basis and increased 8% in constant currency, driven by solid growth in retail. Comparable store sales in Asia increased by 5%, reflecting growth in both brick and mortar and digital commerce operations.
President and CEO Patrice Louvet says the results are in line with the group’s overall expectations. “Our performance was driven by strong continued momentum in our international markets and expense discipline across the organisation, while we continued to invest in elevating our brands and stabilise our North America business against a more volatile backdrop.”
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By GlobalDataLooking ahead, the company continues to expect net revenues to increase 2% to 3% in fiscal 2020. Foreign currency is expected to negatively impact revenue growth by 90 to 100 basis points.
Steps in the right direction
Neil Saunders, managing director of GlobalData Retail, says easier comparatives aided Ralph Lauren’s growth, along with various strategies the company has put into play over the past year – including ‘Our Next Great Chapter’ to overhaul core products, accelerate under-developed categories, and focus on digital growth.
One of the recent successes is the elevation in marketing, which has been designed to reaffirm the status of the brand with both traditional consumers and younger shoppers. “Our own data shows that this is working as both awareness and affinity with the under-35s has picked up significantly in the past half-year,” Saunders says. He also believes some of the product changes being made will help move younger consumers beyond purchasing the occasional fragrance item and into more comprehensive buyers of the brand.
Meanwhile, changes to marketing have been supported by a more disciplined approach to product development.
“One of our past complaints about Ralph Lauren is that the brand has been confused by an enormous assortment sold across a variety of channels covering all parts of the price spectrum. Although we would argue that there is a lot more work to do in refining some of the sub-brands, we applaud the efforts to pull back from off-price and some department store channels, both of which undermined the premium status of the brand. This progress is reflected in customer ratings for quality and fashion perceptions which are steadily ticking up after years of erosion.”
Yet while current ranges are undoubtedly stronger, especially in the Polo sub-brand, there is a need for more initiatives such as the Rugby Bear capsule which added a “unique twist” to many traditional products.
“In our view, Ralph Lauren should also look to niche players like Kiel James Patrick and replicate the way they regularly drop exciting new lines and collections which resonate strongly with their customer base.”
Looking ahead, Saunders maintains the view that Ralph Lauren is a company in transition. However, he notes GlobalData also believes that a tipping point has been reached in the recovery, which will allow the brand to gain momentum over the remainder of this fiscal year. “This will be visible on both the top and bottom lines, the latter driven by continued efficiencies across the supply chain and other areas. Overall, the business is moving in the right direction.”
