Ralph Lauren Corp. on Tuesday reported that third quarter net revenue rose 5% to $1.73 billion from $1.64 billion in the year-ago quarter, with growth in all regions. In North America, where net revenue rose 3% to $909 million, wholesale revenue fell 3% year over year due to planned reductions in off-price sales. Digital revenue globally rose 20% year over year, thanks in part to the company's new platform.
In retail, comparable store sales in North America rose 4%, including flat comps in stores and a 21% increase in digital, according to a company press release. European comps rose 4% on a constant currency basis, driven by 3% growth in brick and mortar and 13% in e-commerce, while Asia comps rose 4% in constant currency with growth in both channels.
Gross profit for the quarter reached $1.1 billion and gross margin was 61.4%. On an adjusted basis, gross margin expanded 90 basis points from the prior year, thanks to reduced promotions and to "favorable product and channel sales mix," the company said. Adjusted net income reached $188 million from last year's $167 million.
Ralph Lauren, which has been steadily abandoning department stores and off-price retailers in a quest to boost prices and take control of its sales, is getting some traction in those efforts.
It's not just about channels, though: The brand, which never let go of its high-quality merchandise even for its off-price stream, has also worked to narrow its portfolio of labels and produce more appealing styles. That's allowing the company not only to get the prices it wants, but also to appeal to more customers, including younger ones, executives told analysts Tuesday morning.
"Our own data back this up," GlobalData Retail Managing Director Neil Saunders wrote in comments emailed to Retail Dive, noting that the firm measured brand affinity to Ralph Lauren at the holidays as the strongest in over five years. "[B]rand recall and awareness were also higher, including among younger consumers."
That's partly from marketing, but Saunders believes it's also due to a more targeted approach. "Initiatives like the launch of the Palace label have provided the brand with greater visibility among consumers looking for edgier, contemporary designs," he said. "There is clearly more work to be done, but this progress represents a good platform on which to build. That said, Ralph Lauren needs to remain disciplined; it should not revert to past form by launching rafts of sub-brands and spin-off labels which create confusion."
The company's focus on improving e-commerce resulted in lopsided sales between channels, with flat store comps. Not a surprise, according to Saunders, but a sign "that Ralph Lauren has more work to do in persuading customers to visit its shops," which will likely be easier without so much merchandise in department stores and off-price retailers. The company also got something of a reprieve in the quarter, considering that it's topping weak year-ago results.
On their call Tuesday, executives promised continued progress in executing improvements to merchandising and marketing, and Saunders said that will be essential. "While there is no doubt that Ralph Lauren is now in a much stronger position, a lot of work remains to be done on carefully defining the various parts of the offer and ensuring they remain targeted," he said. "Because of the vast array of brand elements, this is a challenging task that could easily falter — especially as the economy tightens and the company laps some tougher comparatives."