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Ralph Lauren Inventory Up 33%

Ralph Lauren Corp. outperformed Wall Street’s consensus estimates for both third quarter revenues and earnings per share.

In a Nutshell: “Our iconic lifestyle brand endures through both good and tough times because it stands for more than any single product or category,” Ralph Lauren, executive chairman and chief creative officer, said in a statement.

President and CEO Patrice Louvet focused on this theme when speaking to analysts and investors Thursday morning.

“At the heart of our business is our collection of iconic core products, which represents 70 percent of sales and remain a consistent driver of our business season after season,” Louvet, said.

Brand and product elevation, and being able to lean into consumer demand and market dynamics, helped the company close out the third quarter with a “better-than-expected performance,” including another quarter of double-digit AUR (average unit retail) growth even during a highly promotional environment.

“Because of this breadth of product portfolio, we can really flex up and down—and you’ve seen us do that over the past few years—based on where the consumer desires wants, or needs are,” he said.

The company also adjusted its pricing structure to better react to the competitive environment, he said.

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“All three regions contributed positively to revenue growth,” Louvet said. “And at the same time, we made strong progress on the strategic priorities we outlined last September in our Next Great Chapter: Accelerate plan.”

Even as Ralph Lauren keep tabs on value-oriented customers and channels to optimize merchandising, pricing and inventory plans, it continues to elevate and energize its lifestyle brand, drive the core and expand for more and enhance its foothold in key cities.

Recent campaigns included Canadian model Shalom Harlow and American model Tyson Beckford, as well as a family-friendly popup skating rink in Ginza and a live musical performance at Bond Street in London.

“These campaigns leverage our authentic brand values around family and togetherness, combined with unique localized engagement to excite and delight our consumers around the world,” Louvet said, noting the company’s investments in gaming and the metaverse. Its collaboration with Fortnight will see “exciting partnerships to come for spring and fall.”

“Together, these activations are both re-engaging existing customers while also attracting younger, full-price consumers to our business,” Louvet said.

The company added 1.6 million new direct-to-consumer customers in the quarter, and now has more than 51 million social media followers.

The company opened 55 new stores and concessions during the quarter. Most of the store openings were in Asia, particularly the Chinese Mainland, where “brand momentum and opportunities in China remain strong,” Louvet said.

Although Covid surged after China relaxed its policies, Ralph Lauren is managing the “near-term disruptions with agility,” he said.

During the quarter, the company also opened its largest children’s store on Via della Spiga in Milan, across from an existing flagship. The company also opened its first full-price “emblematic” retail store in Barcelona.

“Our core consumer remains quite resilient. And that’s true around the world and that’s true across channels,” Louvet said.

Inventory at the end of the quarter was $1.2 billion, up 33 percent partly because shipments arrived earlier than planned. Chief financial officer Jane Nielsen said North America wholesale revenues fell 2 percent. “As expected, we also saw a slowdown in replenishment trends, as our partners focus on keeping inventories clean heading into the new year,” she said.

For the most part, the wholesale channel is doing well, with the company gaining market share across men’s, women’s and kids, she said, adding that inventory levels at wholesale are now normalizing after last year’s supply chain disruption. “We have experienced minimal cancellations to date for Spring 23 we still expect wholesale to be up in the fourth quarter of Fiscal 2023, despite our more cautious view on replenishment,” Nielsen said.

Net Sales: Net revenues for the three months ended Dec. 31 inched up to $1.83 billion from $1.82 billion a year ago. The company said total digital ecosystem revenues rose high-single digits, on top of 40 percent growth last year.

By region, North America revenue rose 1 percent to $938 million, while retail comparable store sales were up 2 percent, reflecting a 9 percent increase in digital sales that were offset by a 1 percent decrease in brick-and-mortar stores. Revenue in the wholesale channel slipped 2 percent.

In Europe, revenue rose 1 percent to $469 million, while store comps were up 11 percent, reflecting an 11 percent uptick in store sales and a 12 percent gain in digital commerce. Wholesale sales fell 1 percent.

In Asia, revenue was up 1 percent to $386 million, with store comps increasing 8 percent, reflecting a 7 percent gain in store sales and a 21 percent jump in digital commerce.

Sales of core products in the quarter, which grew high-single digits, were led by sweaters, seasonal coordinates, sweatshirts and suit separates. “Our core also establishes the foundation and credibility to grow our high potential categories,” Louvet said, identifying both women’s outerwear and its emerging home business as key future growth drivers. He added that women’s represents its “single largest long term opportunity for market share gains and category growth as a company.”

For the nine months, net revenues rose 4 percent to $4.90 billion from $4.7 billion in the year-ago period.

Earnings: Net income slipped 1.0 percent to $216.5 million, or $3.20 a diluted share, from $217.7 million, or $2.93, in the year-ago quarter. Adjusted diluted earnings per share (EPS) was $3.35.

Wall Street was expecting adjusted diluted EPS of $2.92 on revenue of $1.76 billion.

For the fourth quarter, the company expects revenue to increase mid- to high-single digits in constant currency to year-ago results.

For Fiscal 2023, the company guided constant currency revenues to increase high-single digits to last year, or 8 percent, on a 52-week comparable basis.

For the nine months, net income fell 15 percent to $490.4 million, or $7.07 a diluted share, from $575.7 million, or $7.68, a year ago.

CEO’s Take: “In this environment, we’re taking a pragmatic approach to merchandising, pricing, and inventory plan as we navigate ongoing macro uncertainties,” Louvet said.