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Strong Dollar Challenges Ralph Lauren Sales Growth in Q2

Ralph Lauren Corporation (RL) reported results for its second quarter of fiscal 2016 Thursday.

Net revenues for the company fell 1 percent to $2 billion on a reported basis, hurt by the strong dollar, but rose by 4 percent on a constant currency basis, driven by double-digit growth internationally, contribution from new stores and strong global e-commerce growth.

Wholesale segment sales dropped by 2 percent to $927 million, a 3 percent increase on a constant currency basis, with strong sales in Europe across all brands.

Retail sales declined 1 percent to $996 million, a 5 percent gain on a constant currency basis, helped by contribution from new stores and strong global e-commerce growth. Consolidated comparable store fell by 6 percent on a reported basis and one percent in constant currency.

Licensing revenues of $47 million in the second quarter were 5 percent above the prior year (7 percent in constant currency), reflecting higher royalties from increased sales of Ralph Lauren, Polo, Chaps and Lauren products worldwide.

Gross margin fell by 30 basis points to 56.5% due to unfavorable foreign currency effects. On a constant currency basis, gross margin was up 90 basis points due to lower negotiated sourcing costs and the initial phases of stock-keeping unit (SKU) and style rationalization, increased full-priced selling and mix benefits.

Operating expenses were $845 million, excluding $38 million in one-time charges for investments in infrastructure, flat with last year.

Net income was $184 million, or $2.13 per share, excluding one-time charges, compared to $201 million, or $2.25 per diluted share, in the prior year second quarter. The Company is maintaining its Fiscal 2016 outlook.

The company reported significant progress in its transition to a new global brand management organizational structure and line planning process, with which it expects to achieve approximately $110 million in annual expense savings.

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“I am pleased that the Company is beginning to benefit from our recent strategic initiatives and investments,” said Ralph Lauren, executive chairman and chief creative officer. “We achieved several critical goals, including the worldwide launch of Polo Sport, implementation of the new global brand structure, and strong growth in our international businesses during the quarter. I am confident that our key strategic initiatives will drive continued growth and create significant shareholder value over the long term.”

At the end of the quarter, the company had 480 directly operated stores (144 Ralph Lauren stores, 68 Club Monaco and 268 Polo Factory) and 576 concession shop locations worldwide. In addition to company-operated locations, international licensing partners operated 81 Ralph Lauren stores and 26 dedicated shops, as well as 130 Club Monaco stores and shops.