Ralph Lauren Corp.’s rosy second quarter bested Wall Street’s consensus estimates for both earnings per share and revenue, and the company teased a move into circular and sharing-economy business models including apparel rentals, resale and subscription programs.
In a Nutshell: Results show that the company is executing well on its five-pillar strategy: win a new generation of consumers, energize core product and accelerate under-developed categories, drive targeted expansion overseas, lead with digital, and improve operating discipline.
Standouts include an increase of 2 percent in average unit retail across the firm’s direct-to-consumer network, continued momentum in under-developed categories led by denim’s sell-out performance in the quarter, expansion into new platforms that include rental, subscription and resale models, and growing adjusted operating margins by 100 basis points. The company’s decision last week to tag all products with a digital ID seems to pave the way for the authentication necessary for a foray into recommerce.
However, disruption from the Hong Kong riots saw sales in the region plummet 27 percent, though Asia sales climbed 5 percent and revenue growth in the Chinese mainland was up 22 percent.
“From our stores to our digital flagships and the way we are connecting on social media, the authentic expression of the Ralph Lauren lifestyle is showing up in relevant ways all over the world,” Ralph Lauren, executive chairman and chief creative officer, said.
Related Stories
Company president and CEO Patrice Louvet added, “We delivered second-quarter results slightly ahead of our overall expectations, including better than expected revenues, operating margin and double-digit EPS growth, amid a more challenging operating environment.”
Net Sales: Net revenues were up 0.9 percent to $1.71 billion from $1.69 billion.
By region, North American sales inched down slightly by 0.8 percent to $881.2 million, which included a 5.2 percent gain in retail sales to $457.9 million and a comparable store sales gain of 2 percent. Digital sales rose 2 percent, but was wholesale sales dragged down overall North American sales, slipping 6.5 percent to $423.3 million.
Sales in Europe rose 3.3 percent to $480.2 million, with retail sales up 4.8 percent to $238.6 million and a comps gain of 2 percent. Digital sales rose 13 percent in the quarter. Due to a change in how its Latin American business is managed, results for the region have now been included in the company’s report for its European operations.
In Asia, sales rose 4.3 percent to $255.3 million, buoyed by a 4.9 percent increase in retail sales to $233.3 million and a comps increase of 1 percent. Digital sales rose 12 percent in three-month period.
Earnings: Net income for the quarter ended Sept. 28 rose 6.9 percent to $182.1 million, or $2.34 a diluted share, from $170.3 million, or $2.07, in the year-ago quarter. On an adjusted basis, diluted earnings per share were $2.55, which beat consensus estimates by 16 cents.
Wall Street was expecting adjusted diluted earnings per share of $2.39 on revenue totaling $1.69 billion.
For fiscal 2020, the company said it continues to expect net revenue to grow between 2 percent to 3 percent on a constant currency basis, but at the lower end of guidance due to “intensifying headwinds in Hong Kong.” It also forecasted operating margin for the year to rise 40 basis points to 60 basis points in constant currency, although the guidance “now includes the impact of List 4 tariffs from China.”
For the third quarter, net revenue is expected to be flat on a constant currency basis.
Dana Telsey of Telsey Advisory Group, in an early report on Ralph Lauren results, said the quarterly results and outlook indicate the company is executing on its strategic initiatives, aided by a focus on “creating excitement for its core brands [as the company] pivots away from heavy promotional activities and channels.”
CEO’s Take: According to Louvet: “Our progress was driven by a continued focus on brand elevation and creating immersive lifestyle experiences that are amplified across our stores and digital marketing and commerce channels around the world, while also maintaining expense discipline.”