Alicia Keys, Ryan Reynolds and J Balvin helped Ralph Lauren rack up hordes of “younger full-price consumers,” CEO Patrice Louvet told Wall Street analysts in a quarterly conference call Tuesday, citing the “Girl on Fire” singer’s high-profile appearance in a “showstopping” New York City skyline cape and gown at The Met Gala in May. These celebrity “friends of the brand” were instrumental in “driving another quarter of strong top-line growth,” Louvet added.
In a Nutshell: The company known for classic American fashion topped its own expectations despite ongoing Covid issues and inflation during the quarter, according to Louvet.
He’s confident that Ralph Lauren has put itself in a good position to overcome a challenging environment.
“If I had to sum up where our current position is in three words, I would say offense, agility, and pragmatic,” he continued. “Offense to maintain and fuel our momentum, agility as we face the continually volatile operating environment, and pragmatic in choice about where we use our resources to ensure we can continue our market position for the long term.”
Louvet, a vocal digital champion, noted that the company “made significant progress over the last four years in repositioning our digital business, putting it on the path of strong margin and creative growth that is outpacing total company growth.”
Total quarterly digital sales grew by low-double-digits on top of an “exceptionally strong comparison of more than 80 percent last year,” the company said.
“New consumers on our digital sites grew nearly 70 percent to pre-pandemic levels. And our online search trends grew high teens to last year in Q1, led by our polo shirt and spring luxury campaigns,” Louvet said.
After launching new localized e-commerce sites in India and Israel, Ralph Lauren now operates 22 websites. Asia showed the strongest digital growth in the quarter, led by “triple-digit growth in Korea and 40 percent growth in China, where our digital businesses outperformed peers and the broader market despite disrupted supply chains in Shanghai and shipment restrictions on nonessential goods,” Louvet said.
“In the current operating environment, we remain focused on investing in our brand to deliver a clear, differentiated message to our target consumers,” he said. “People are coming together again with a renewed appetite for style from a fresh approach to where to work, to weddings and other social gatherings. Our brand is uniquely positioned to capture this mix of sophisticated and casual dressing.”
Product highlights in the quarter include polo shirts, bottoms, sneakers and sweaters for the core Ralph Lauren brand, and special releases, such as Athletic Club, an updated take on tennis and golf inspired styling, including strong sales in lightweight sporting windbreakers.
During the quarter, the company opened 60 new stores and concessions globally, mostly in Asia and Mainland China “where our brand momentum and opportunities remain strong,” Louvet said.
Ralph Lauren added 1.3 million consumers in the quarter “on top of over 5 million last year,” according to the chief executive. The company’s broad product portfolio allows it to flex based on what’s in demand, he added. What’s more, supply chain diversification investments in recent years are paying off now as the company is equipped to manage through a “VUCA world,” Louvet said, using the acronym for volatility, uncertainty, complexity and ambiguity.
Another highlight was progress on the sustainability front as the company moved closer to its first Cradle to Cradle Certified luxury product in the form of a cashmere sweater available later this year.
In its 2022 Global Citizenship and Sustainability Report published earlier this summer, Ralph Lauren highlighted its new sustainable goals as well as progress on previously established targets. For 2022, the company introduced new goals through its three “Timeless by Design” pillars–Create with Intent, Protect the Environment and Champion Better Lives.
One of its main goals is advancing a circular economy through its new Live On commitment, which includes targets such as investing to scale regenerative practices and innovative technologies by 2025 and extending the life of its products by piloting ways for its consumers to rent, repair and recirculate by 2025.
As part of this, Ralph Lauren will continue its partnership with the Ellen MacArthur Foundation (EMF), a charity committed to creating a circular economy. The company has been able to monitor circularity progress across its operations using Circulytics, a company-level measuring tool developed by EMF. It also joined a coalition of 100 brands, mills and manufacturers in EMF’s Jeans Redesign Project to contribute to a blueprint for scaling circular denim production.
“We’re committed to enabling our past and future products to live on responsibly by 2030—we call this commitment our Live On promise. It includes implementing responsible design practices, aligned with circular principles, that extend to the consumer experiences,” a company spokesperson said.
According to the spokesperson, the company is identifying ways to seamlessly connect consumers to existing third-party platforms in “top select cities” and identifying ways to use digital Digital Product ID (DPIDs) system to advance a circular economy. DPIDs provide a scannable product-label QR code allowing consumers to authenticate garments and a product’s resale market value.
Additionally, the company is looking at ways to grow The Lauren Look program, a rental subscription service that gives customer’s the opportunity to borrow apparel items for a monthly fee of $125. It also aims to establish both physical and digital platforms that connect consumers to services that help extend the life of their products. These include opportunities to sell and buy preowned items and locate resources for recycling and repair.
Ralph Lauren continues to pursue Cradle to Cradle certification for five of its products, while also working to create 100 percent recycled cotton products and cross-functionally developed tailored circular design principles.
Net Sales: Net revenues for the quarter ended July 2 rose 8 percent to $1.49 billion from $1.38 billion.
By region, revenue in North America rose 6 percent to $700.7 million, while retail comparable store sales rose 5 percent as digital comps rose 2 percent and store comps grew 5 percent. Europe was up 17 percent to $415.6 million, with retail comps up 34 percent, comprised of digital comps up 7 percent and stores comps up 45 percent. In Asia, revenue rose 16 percent to $334.1 million, while retail comps rose 19 percent as digital comps grew 37 percent and store comps gained 17 percent.
The company said gross margin was 67.2 percent, with adjusted gross margin at 68 percent, or 180 basis points below the prior year on a reported basis. Better pricing and promotions more than offset increased freight headwinds to mitigate global supply chain delays.
Earnings: Net income fell 25 percent to $123.4 million, or $1.73 a diluted share, from $164.7 million, or $2.18, in the year-ago period. On an adjusted basis, diluted earnings per share was $1.88 for the quarter.
For the second quarter, the company guided revenue growth to up 11 percent in constant currency. It expects gross margin to contract 40 to 80 basis points, with average unit retail (AUR) growth offsetting increases in freight and product costs.
For Fiscal 2023, the company forecasted revenue growth on a constant currency basis to increase in the high single digits at 8 percent. Gross margin is expected to rise 30 to 50 basis points with strong AUR and a favorable product mix offsetting increases in freight and product cost inflation.
CEO’s Take: “We do expect more choppiness ahead, given the various macro signals, but we still have strong confidence in our game plan and our ability to navigate and execute successfully with this choppiness,” Louvet said.
Additional reporting by Paola Gonzalez.