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Ralph Lauren: North America ‘Becoming an Engine of Growth’

Consumers are “reinvesting in their core wardrobe,” according to Ralph Lauren Corp. CEO Patrice Louvet, who told Wall Street analysts Tuesday that the company’s “designers and our merchants have been spot-on with this post-pandemic style of dressing.”

In a Nutshell: While people rebuild their closets with staples such as new denim and sweaters, they’re also embracing “newness and sophistication,” Louvet said in a fourth-quarter earnings call, pointing to cashmere hoodies and novelty fleece.

“Consumers [are] starting to go out during the day, so there’s a need for a sports coat, there is a need for auto wear, there’s a need for dresses, and then the return to social activities in the evening or on the weekends,” he continued. “So, that whole space for us continues to be healthy, continues to grow. And if anything, we’re actually very energized by the diversity of the opportunities that we have as consumers pivot their apparel needs in this kind of new normal.”

Louvet said digital grew more than 40 percent from last year, as Ralph Lauren launched new localized commerce websites sites to support its global ecosystem expansion with digital flagships in Australia and the Middle East.

What’s more, the North American market is “becoming an engine of growth,” Jane Nielsen, chief operating officer and chief financial officer, said, pointing to the region’s turnaround with “revenues up 19 percent” and quarterly retail comps up 21 percent year over year.

Moreover, performance was strong in both full price and factory stores due to growing domestic demand, she said. Continued elevation around product marketing and more targeted pricing and promotions helped drive brick-and-mortar comps up 19 percent, while the digital business increased 27 percent on top of year-ago gains of 25 percent.

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Meanwhile, Europe remains the company’s “most dynamic market heading into Fiscal ’23,” Nielsen said. Even with macro-pressures and the war in Ukraine, the business “remains fundamentally healthy,” she added.

In Asia, all key markets increased in the double-digits in constant currency, led by 45 percent growth in Korea. “And despite Covid-related disruptions, Chinese mainland sales grew 27 percent while Japan sales increased 17 percent to last year. Both markets accelerated sequentially despite stricter containment measures across our top cities,” Nielsen said, adding that about 40 percent of company-owned stores in China experienced some form of closure or operating restrictions.

She also said the company expects higher freight, raw materials, and labor costs to remain elevated into Fiscal23. In addition, net inventory rose 29 percent to support continued strong demand coming out of the pandemic, as well as a deliberate increase in goods in transit to help mitigate supply chain delays, Nielsen said.

Net Sales: For the three months ended April 2, net revenues rose 18 percent to $1.52 billion from $1.29 billion. Retail sales rose 31 percent to $909.7 million, while wholesale sales increase 3 percent to $578.5 million. Licensing income was up 9 percent to $34.5 million.

By geography, net revenues in North America rose 19 percent to $674.3 million, while Europe saw a 26 percent gain to $467.4 million. Revenues in Asia increased 20 percent to $346.1 million. The balance of revenues were from “other non-reportable segments.”

In the fourth quarter, consumers returned to buying “more sophisticated luxury and formal wear looks, while we also continued to drive a mix of elevated with comfortable, casual styles,” Louvet said.

For the year, net revenues jumped 41 percent to $6.22 billion from $4.40 billion.

Earnings: Net income swung to the black to $24.4 million, or 34 cents a diluted share, against a net loss of $74.1 million, or $1.01, in the same year-ago quarter. On an adjusted basis, net income was 49 cents a diluted share.

Wall Street was expecting adjusted diluted earnings per share of 38 cents on revenue of $1.46 billion.

For the first quarter, the company expects revenue growth around 8 percent on a constant currency basis, which reflects ongoing lockdowns in China and other Covid restrictions, such as limited contribution from tourists.

For Fiscal 2023, the company is projecting constant currency revenues to rise in the high single digits, or around 8 percent versus Fiscal 2022.

“We currently expect all three regions to drive positive revenue growth this year, with the largest dollar contribution from North America and highest growth rate in Asia,” Nielsen said.

For the year, the company reported net income of $600.1 million, or $8.07 a diluted share, against a net loss of $121.1 million, or $1.65, a year ago.

CFO’s Take: “We want to maximize full price selling in our wholesalers. And so, you’ve seen us take inventories earlier and hold it longer due to some of the supply chain delays that we are still experiencing and expect to experience through the first few quarters of this year,” Nielsen said. “We have seen great partnership with our retailers. They are appreciative of our moves to secure their inventory and supply. And we feel great about our wholesale inventories. While they were up 16 percent this quarter, our sellout was up almost mid-20 percent, so, very healthy inventory, and no resistance at all in terms of taking our assortments and truly great partners in terms of our move to secure inventory for them.”