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Ralph Lauren Has Big Plans for Brick-and-Mortar

Ralph Lauren Corp. is “back on offense,” CEO Patrice Louvet told Wall Street analysts Thursday in a third-quarter earnings call detailing plans to add stores across the globe.

In a Nutshell: The heritage clothing company is now “fundamentally healthier than it was two years ago” after investments that “repositioned” the business to attract younger and less price-sensitive shoppers and expand distribution, Louvet said.

The company is leaning on “multiple engines for growth,” including undeveloped categories such as outerwear, growing digital, and opening U.S. stores, which “we haven’t done in almost a decade,” the French American executive said.

Ralph Lauren opened 40 new global stores and concessions in the third quarter, including the “first European flagship opening since 2010 in Milan, with early performance beating our plans by double digits,” Louvet said. Brick-and-mortar investments heavily focused on Asia and Mainland China, he added.

The company is planning four new stores this quarter in Miami, Chicago, Atlanta, and Detroit. “This represents our highest number of full price store openings in North America in six years, and commences a new phase of retail growth in our home market, following several years of repositioning,” Louvet said, adding that Ralph Lauren will “open about a dozen” full-price North American stores in the years ahead.

What’s more, Ralph and its wholesale partners are “fully aligned” on promotional strategies, pricing and product elevation to drive AUR (average unit retail) growth, he said.

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It’s also succeeding at “[winning] over a new generation” with innovative efforts like celebrity activations in the metaverse, Louvet said. Mobile popups and synchronized nighttime drone shows promoted customizable gifts, and livestreaming events engaged younger demographics during the quarter.

For now, pandemic-hampered consumers are choosing casual staples such as denim, sweaters, cashmere joggers and hoodies.

“Our multi-category lifestyle proposition affords us the flexibility and competitive advantage to deliver for consumers, whatever the backdrop, and this flexibility enables us to be agile, as consumers shift their wardrobes to a new hybrid mix of elevated but comfortable casual styles,” Louvet said.

A new partnership with Franklin Venture Partners enables Ralph Lauren to reach female-led businesses focusing on disruptive technologies and consumer solutions in fashion.

Net Sales: For the three months ended Dec. 25, net revenues grew 27 percent to $1.82 billion from $1.43 billion in the same quarter last year. Revenue in the Ralph Lauren digital ecosystem rose more than 40 percent, including owned digital commerce growth of over 30 percent.

Full-price holiday selling, lower promotions and artificial intelligence investments  targeting full-price consumers supported digital growth, Louvet said. Ralph Lauren launched its first “full catalog” on its app over the holidays.

North American revenue rose 30 percent to $929 million. In retail, comparable store sales were up 38 percent, with a 40 percent increase in brick-and-mortar stores and a 32 percent rise in digital commerce. Wholesale revenue rose 11 percent.

Revenue in Europe rose 47 percent to $463 million. In retail, comparable store sales rose 55 percent, with a 68 percent jump in brick-and-mortar stores and a 27 percent increase in digital commerce. Wholesale revenue rose 45 percent.

The business in Asia saw a revenue increase of 16 percent to $383 million. In retail, comparable store sales rose 14 percent, with a 21 percent increase in brick-and-mortar stores and a 64 percent spike in digital commerce.

Gross margin for the quarter was 66.0 percent, with “better pricing and promotions and product mix more than offsetting increased freight headwinds” from the prior year period.

Inventory at the end of the third quarter totaled $929 million. “Net inventory increased 7 percent, slightly below our plan,” chief financial officer Jane Nielsen said, adding that ongoing global supply chain delays will shift some inventories into the company’s fiscal fourth quarter.  “While still highly dynamic, we are seeing some improvement on lead times. And our inventories are well positioned to meet demand for the spring season,” she added.    

For the nine months, net revenues jumped 51 percent to $4.70 billion from $3.11 billion in the same year-ago period.

Earnings: Net income spiked 82 percent to $217.7 million, or $2.93 a diluted share, from $119.8 million, or $1.61, in the year-ago quarter. On an adjusted basis, earnings per share (EPS) was $2.94.

Wall Street expected adjusted diluted EPS of $2.17 on revenue of $1.64 billion.

For the fourth quarter, the company guided revenues to an increase of 17 percent to 18 percent in constant currency from a year ago.

For Fiscal 2022, the company forecasted revenue growth in constant currency to up 39 percent to 41 percent from a year ago on a 53-week reported basis, up from prior projections of an increase of 34 percent to 36 percent.

For the nine months, net income was $575.7 million, or $7.68 a diluted share, against a net loss of $47.0 million, or 64 cents, versus a year ago.

CEO’s Take:Our brand is strong and our growth is supported by multiple levers, from geographic and channel expansion to recruiting new higher-valued consumers, and developing high-potential product categories,” Louvet said.