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Ralph Lauren Profits Jump 82 Percent as Reboot Gets Off to Good Start

A greater focus on its customer base and invigorated brand energy helped Ralph Lauren Corp. score an 82 percent increase in net income amid broad revenue gains in the first quarter.

In a Nutshell: Ralph Lauren Corp.’s solid results in the first quarter of fiscal 2019 did nothing more than give executive chairman and chief creative officer Ralph Lauren “confidence in our future as we celebrate 50 years in business.” An 82 percent increase in net revenue couldn’t hurt, either.

The company said it increased investment in marketing by roughly 20 percent compared to last year, primarily through its Spring Polo campaign featuring the iconic white Polo shirt that drove strong growth in global polo shirt sales, including double-digit growth in men’s. Average unit retail sales across the company’s direct-to-consumer network was up 8 percent thanks to improved full price selling and lower discounts. The company cited “under-developed categories” led by denim and outerwear as outpacing overall growth.

Digital sales outpaced overall growth and is on track to achieve long-term goals, the company said, noting that it upgraded the European digital commerce platform, significantly improving the consumer experience, while it continued to enhance the functionality of the North America site, including improved product detail pages, 360-degree product videos and automated product recommendations. The company also continued to shift marketing investment toward digital and social media channels, with an emphasis on influencers to increase outreach with new consumers.

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Constant currency comp growth grew 6 percent in Asia, driven by eight new points of distribution in China in the first quarter. This puts the company on track to open more than 50 new points of distribution in China in fiscal 2019.

Sales: Net revenue in the first quarter ended June 30 increased 3 percent to $1.39 billion from $1.35 billion a year earlier, driven by Asia and Europe. North America revenue decreased 2 percent to $698 million, primarily due to actions aimed at improving quality of sales and exits from lower quality distribution. In retail, comparable store sales in North America were down 3 percent, driven by a decline in brick and mortar stores and a 2 percent falloff at

Europe revenue rose 8 percent to $351 million, helped by a shift in timing of shipments. In retail, comparable store sales in Europe were down 8 percent, as a 9 percent drop in brick and mortar stores related to assortment and inventory challenges was partly offset by a 2 percent gain in digital commerce. Asia revenue was up 19 percent to $248 million, with strength in retail and wholesale channels. Comparable store sales in Asia grew 6 percent, reflecting growth in brick and mortar and digital commerce operations.

Earnings: Net income increased 82 percent to $109 million compared to $60 million in the year-ago period. On an adjusted basis, excluding restructuring-related and other charges, net income rose 41 percent to $128 million from $91 million in the prior-year period.

Operating income for the quarter increased 44 percent to $130.1 million, including restructuring-related and other charges of $24 million, from $90.3 million in the year-ago period, driven by gross margin expansion. North America operating income was up 6 percent to $159.9 million. Operating income in Europe rose 10 percent to $74 million, while, for Asia, it grew 41 percent to $43 million.

CEO’s Take: Patrice Louvet, president and CEO, said: “We are off to an encouraging start to the new fiscal year on both the top and the bottom line. Our teams around the world are fully engaged and focused on executing the Next Great Chapter plan we shared at our recent Investor Day. Guided by our three core principles of putting the consumer at the center of all we do, elevating and energizing our brand, and balancing productivity and growth, we are on track to return the company to long-term, sustainable growth and value creation.”