Ralph Lauren Corp. CEO Patrice Louvet said the company has a “clear game plan” focused on ongoing brand elevation, category expansion and scaling key city ecosystems around the world.
In a Nutshell: In a conference call Thursday, Louvet said inflation, currency and geopolitical concerns remain top of mind.
Growing in China despite Covid restrictions on top of expanding turnover across regions and leaning into categories based on what consumers want give Ralph Lauren the tools to survive whatever lies ahead, Louvet said.
“So our ability to be agile in this way is a real competitive advantage in a volatile environment, which already served us quite well during Covid. And to this end, we really believe that this is the time to continue to be on offense, recruit new consumers, and continue to take market share,” Louvet said.
The company is prepared to weather market “choppiness” for the foreseeable future. “We’re encouraged that our core consumer remains generally resilient, despite the macro headlines, reflecting increasing desirability for our brand, and the attractive value proposition of our products,” he said.
Elevating and energizing its lifestyle brands seems to be working, as Louvet said 78 percent of consumer see Ralph Lauren as a premium luxury brand.
High-profile events and personalities help Ralph Lauren position itself in the consumer conversation. It has ties to the U.S. Open Tennis Championship and dressed celebrities including Jennifer Lopez and Ben Affleck for their wedding. It also hosted its first-ever West Coast fashion show where Hollywood royalty including Lily Collins, John Legend, Ashton Kutcher and Mila Kunis, Jessica Shuster and Diane Keaton add star appeal. The company also deepened its presence in the metaverse, with a collaboration with Epic Games, the creator of Fortnite. So far, the popular online game has more then 400 registered accounts, with a “strong following among 18 to 24 year olds,” Louvet said, adding that the partnership includes a special collection of digital outfits and special drops of physical products at Ralph Lauren’s DTC channels and at global specialty retailers.
“Together, these activations are attracting younger, full-price consumers to our business. We exceeded 50 million social media followers globally this quarter, a high single digit increase the last year, led by Instagram,” Louvet said. The company also added 1.3 million new customers in its DTC businesses.
He also said the company is winning in key city ecosystems, which has a strategy that focuses on connecting all its consumer touchpoints across each channel that’s led by a digital-first mindset. In Asia, its digital ecosystem “drove the fastest growth globally over a smaller base of more than 60 in constant currency to last year,” Louvet said, adding that artificial intelligence also helped to drive full-price selling. The company also opened 29 new stores and concessions, with the vast majority of openings in Asia, particularly the Chinese mainland. The company said total digital ecosystem revenues grew mid-teens in the quarter.
“Our brand momentum and opportunities in China remains strong with sales of more than 30 percent. Performance was balanced across Hong Kong, Taiwan and the mainland, despite mandatory closures in the period,” Louvet said.
Chief financial officer Jane Nielsen said inventories remain well-positioned in the wholesale channel, with no cancellations for holiday or Spring 2023. That said, Ralph Lauren is taking a “more cautious stance on our spring buys, given the macro pressures that we’re seeing,” she pointed out. Net inventory in the quarter rose 36 percent to last year.
Net Sales: Net revenues for the three months ended Oct. 1 rose 5.0 percent to $1.58 billion from $1.50 billion. Retail comparable sales rose 3 percent on top of last year’s 27 percent gain, while retail store comps were flat on top of the 28 percent increase a year ago.
In North America, revenue in the second quarter rose 3 percent to $727 million, while comparable store sales in retail were flat, reflecting a flat compare in brick-and-mortar and a 1 percent dip in digital sales. Wholesale sales rose 8 percent. In Europe, revenue was flat to last year at $494 million, and retail comparable store sales rose 3 percent, reflecting a flat compare in brick-and-mortar and a 15 percent gain in digital commerce. Wholesale revenue increase 9 percent. Revenue in Asia rose 17 percent to $316 million, while retail comps rose 25 percent, reflecting a 25 percent rise in brick-and-mortar and a 22 percent gain in digital commerce.
Core products—representing about 70 percent of the assortment—that did well in the quarter were led by sweaters, seasonal coordinates, sweatshirts and chinos, Louvet said. He also said that the core mix helps drive sales of high potential categories, including women’s outerwear and the company’s emerging home business.
“Women’s represents our single largest long term opportunity for market share gains and category growth as a company,” Louvet said. Offering “essentials like sweaters, sophisticated coats, dresses and denim” helps to form a wardrobe foundation that expands the consumer’s lifetime value, he said.
For the six months, net revenues rose 6.6 percent to $3.07 billion from $2.88 billion.
Earnings: Net income was down 22.3 percent to $150.5 million, or $2.18 a diluted share, from net income of $193.3 million, or $2.57, in the year-ago quarter. On an adjusted basis, excluding one-time charges such as restructuring costs, diluted earnings per share (EPS) was $2.23.
Wall Street was expecting adjusted diluted EPS of $2.08 on revenue of $1.56 billion.
The company expects third quarter revenue to rise in the low- to mid-single digits in constant currency to last year, factoring in multiple global headwinds.
For Fiscal 2023, constant currency revenues are expected to rise in the high-single digits to last year, or 8 percent, on a 52-week comparable basis.
“The third quarter and second half outlook reflects increased caution around consumer sentiment in Europe and North America,” the company said.
For the first half, net income fell 23.5 percent to $273.9 million, or $3.90 a diluted share, from net income of $358.0 million, or $4.75, in the same year-ago period.
CEO’s Take: While Louvet said that the company is “highly aware of the macro challenges” across each of its markets globally, he also emphasized the company’s long-term strength and ability to grow due to “our multi-pronged strategy with diversified growth factors across regions, consumer groups, categories and channels.”