Ralph Lauren Corp. missed Wall Street’s consensus earnings per share estimate, primarily due to the coronavirus impact and disruptive Hong Kong protests, but expects to emerge from the pandemic’s impact in a better position to take market share.
In a Nutshell: The company ended the year with $2.1 billion in cash and investments, and $1.2 billion in total debt. During the fourth quarter of fiscal 2020, it also drew down $475 million from its global credit facility to preserve cash and ensure sufficient liquidity as the pandemic evolves. The company implemented a number of other initiatives in the quarter as the coronavirus outbreak spread. In addition to furloughs and reductions in executive compensation, it also temporarily closed stores to help curb the spread of the virus and boosted connected retailing capabilities including digital clienteling as shoppers moved to the online channel. To capture as many sales as possible, the company rolled out buy online, ship from store, buy online, pick up from store, and curbside pickup capabilities.
“Our suppliers around the world are another critical stakeholder for our company. In accordance with our responsible purchasing practices, we committed to settling payment for all finished goods and goods already in production,” the company said.
“For more than 50 years, we have embraced the idea of timelessness–it defines not only our products, but our business and our culture. It has guided us through the best and the worst of times and will carry us through this unprecedented challenge too,” said Ralph Lauren, executive chairman and chief creative officer.
Despite the impact from the coronavirus, and the Hong Kong-related business disruptions, the company said it made solid progress on its Next Great Chapter Plan in the quarter. Fourth-quarter average unit retail rose 8 percent, driven by ongoing brand elevation and quality of sales initiatives, it added.
The company has paused all new store build-outs and is currently negotiating with landlords for rent adjustments, president and CEO Patrice Louvet told Wall Street analysts during a Wednesday conference call. The chief creative officer, he added, is foregoing his salary for the balance of 2020 and his entire salary in 2021. The company also committed $10 million toward emergency COVID-19 relief.
More important, as the epidemic mushroomed into a global pandemic, the company is taking cues from successes in from China, where it shifted marketing to focus on family and giving, and accelerated omnichannel capabilities maximized sales from store inventories. Louvet expects a recovery in China by the second quarter of fiscal year 2021.
The American clothier, Louvet added, will learn and evolve from the pandemic, and “emerge leaner, more agile and ultimately take market share.”
The company will soon launch a digital platform in Japan. And it’s also digitizing parts of its production capabilities as employees work from home. And Louvet emphasized that the company is working to further strengthen its supply chain partners.
Net Sales: Net revenues fell 15.4 percent to $1.27 billion from $1.51 billion.
By region, revenues in North America fell 11.2 percent to $629.3 million, while wholesale revenue fell 12 percent. Comparable store sales fell 13 percent, including a 15 percent decline in brick-and-mortar stores and a 7 percent decrease in digital commerce.
Europe was down 19.3 percent to $353.4 million, while comps fell 16 percent, reflecting an 18 percent drop in brick-and-mortar sales and a 2 percent decline in digital commerce. Wholesale sales fell 21 percent.
Asia declined 21.9 percent to $213.7 million, while comps were down 23 percent. Digital sales rose 15 percent, helping to offset the decrease in brick-and-mortar sales.
The company said its gross margin for the quarter was 46.7 percent.
For the full year, net revenues were down 2.4 percent to $6.16 billion.
Earnings: The net loss for the fourth quarter was $249.0 million, or $3.38 a diluted share, against net income of $31.6 million, or 39 cents, in the year-ago quarter. On an adjusted basis, the net loss was $50 million, or 68 cents a diluted share.
The FactSet consensus estimate was for an adjusted diluted loss per share of 26 cents on revenues of $1.26 billion.
The company has suspended all future guidance for the first quarter and full year fiscal 2021 due to the uncertainty surrounding COVID-19 but expects a negative impact from the pandemic.
For the full year, net income slipped 10.8 percent to $384.3 million, or $4.98 a diluted share.
CEO’s Take: “As we manage for the near- and long-term, we remain committed to consistently delivering sustainable growth and value creation for all of our stakeholders. We are confident in our ability to do this, thanks to the strength of our business, our balance sheet and our brands, and especially the resilience and commitment of our diverse global teams,” Louvet said.