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Ralph Lauren Sees China Returning to Pre-Covid Growth

Ralph Lauren’s second quarter results show balance-sheet strength, with revenues reflecting recovery from Covid-19 and second-quarter average unit retail up 26 percent.

In a Nutshell: The company’s restructuring drove an improvement in speed to market despite ongoing global supply chain challenges. Twenty-five percent of orders are now completed in three months or less, compared to a single-digit penetration last year, Ralph Lauren said.

Second quarter sales in the Chinese Mainland increased more than 30 percent to last year in constant currency, reflecting a recovery to “pre-Covid trends,” the company said. Overall performance also saw improvement sequentially across all regions led by digital channels, despite further disruptions from Covid-19 and cautious consumer behavior, it added.

Digital sales increased by “mid-teens to last year, with double-digit growth in all regions.” Ralph Lauren saw North American digital sales accelerate in the quarter, with sales to domestic customers up in the high-teens. The company’s “Connected Retail” capabilities include virtual clienteling, buy online and ship-to-store, buy online and pickup in-store, curbside pickup, appointment scheduling, and mobile checkout and contactless payments.

Among its brand mix and product assortment changes, Ralph Lauren evolved its lines to align with changing consumer preferences by region, including a return to pre-Covid categories in Asia and Europe and more casual assortments in North America. Second-quarter average unit retail rose 26 percent, with strong double-digit growth in North America and Europe. The company also partnered with Zalando, Asos and Urban Outfitters for exclusive capsule collections in the quarter to help drive strong engagement with Gen Z consumers.

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“The strength of our timeless brand and the values that have always been our touchstone continue to anchor us through this period of change and uncertainty,” Ralph Lauren, executive chairman and chief creative officer, said. “While this is a very trying time for the world, I am eternally optimistic about our ability to take the great learnings and creativity that have emerged from this time to become even stronger.”

The company is still reviewing options as part of its Fiscal 2021 Strategic Realignment Program, which includes team organization structures, real estate footprint and distribution centers, direct to consumer retail and wholesale doors and brand portfolio.

As part of its brand portfolio review, Ralph Lauren said it will transition its Chaps brand to a fully licensed model, inking a multi-year licensing agreement with 5 Star Apparel LLC, a division of the OVED Group, to manufacture Chaps apparel for men’s wear and women’s wear. The agreement will begin on Aug. 1, after a transition period, with products sold at existing channels of distribution and the potential to expand into additional channels and markets globally, the company said.

Net Sales: Total revenues for the three months ended Sept. 26 fell 30 percent to $1.19 billion from $1.71 billion. The company said the decline was attributable to Covid-19.

By region, North American sales fell 38.4 percent to $542.9 million from $881.2 million. Retail comparable store sales were down 32 percent, with a 40 percent decrease in brick-and-mortar stores partly offset by a 10 percent increase in digital commerce. Wholesale revenue in the region was down 46 percent. Sales in Europe were down 25.1 percent to $359.5 million from $480.2 million. Comps were down 29 percent, with a 35 percent decrease in physical stores partly offset by a 26 percent increase in digital commerce.  Sales in Asia were down 7.3 percent to $236.6 million from $255.3 million. Comps fell 11 percent, with a 12 percent decline in brick-and-mortar stores partly offset by a 32 percent increase in digital commerce. Sales in other non-reportable segments decreased 39.1 percent to $54.5 million from $89.5 million.

Inventories declined 12 precent in the quarter.

Earnings: The company posted a loss for the quarter of $39.1 million, or 53 cents a diluted share, against net income of $182.1 million, or $2.34, in the year-ago period. On an adjusted basis, net income was $107 million, or $1.44 a diluted share.

Wall Street was expecting adjusted diluted earnings per share of 90 cents on revenue of $1.21 billion.

The company ended the second quarter with $2.4 billion in cash and investments and $1.6 billion in total debt, compared with $1.6 billion and $693 million, respectively, in the year-ago period.

In the second quarter, Ralph Lauren recorded most of the $160 million in pre-tax charges related to job cuts.

Given the uncertainty that remains with the Covid-19 pandemic and potential for second waves of outbreaks across various markets, the company said it expects financial results for both the third quarter and full year Fiscal 2021 to continue to be adversely impacted by the pandemic.

CEO’s Take: “Looking across the first half of the fiscal year, we continued our elevation journey while fast-tracking Connected Retail and our company-wide digital transformation,” Patrice Louvet, president and CEO, said. “We also began the hard but necessary work of simplifying our organizational and cost structures to position the company for future growth. Looking ahead, we will continue to work proactively to deliver an elevated experience that inspires consumers around the world and creates value for all of our stakeholders.”