Ralph Lauren on Wednesday reported that its 2% fourth quarter revenue drop to $1.5 billion on a reported basis (7% in constant currency) exceeded its expectation for a 8%-10% constant currency decline, thanks in part to a reduction in markdowns, including exits from department stores and off-price retailers.
Overall comparable store sales fell 1% in the quarter and 5% for the year in constant currency, driven by improved average unit retail and the number of transactions, according to a company press release. North America same-store sales were flat in the quarter; A 6% rise to stores was offset by an 18% drop in digital sales.
Gross profit for the quarter was $909 million on a reported basis, including inventory-related charges of $6 million, and gross margin was 59.4%. Adjusted gross profit, excluding charges, was $915 million and adjusted gross margin was 59.8%, 440 basis points above the prior year. Adjusted gross margin was up 290 basis points for the full year, with growth in every quarter, according to the release.
At the end of last year, new Ralph Lauren CEO Patrice Louvet told analysts that the worst of the pain from the brand's pullback from department stores was over. Yet, in its most recent quarter, North America revenue fell 14% to $759 million, due to lower wholesale sales driven by distribution and brand exits, among other reasons.
A more careful wholesale approach may be warranted, according to Neil Saunders, managing director of GlobalData Retail. "While we do not think it is necessary for Ralph Lauren to withdraw from a retailer like Macy's, we do think that it should work more closely with the buying and store teams there to create an elevated in-store experience," he said in comments emailed to Retail Dive. "Until it does, the inconsistency between what Ralph Lauren wants its brand to be and the reality on the ground will remain."
The brand may also be short-sighted in its withdrawal from off-price retailers, where many shoppers have become used to finding its high quality basics like shirts."Ralph Lauren's own factory outlets are more harmful to the brand than off-price," he warned. "These cavernous stores sell a confusing jumble of product in a way that makes the brand feel ubiquitous." According to Saunders, the brand needs a clearer strategy that separates between factory stores and its premium brand. New leadership on its board may help.
The company earlier this month brought on QVC parent Qurate Retail CEO Michael George to its board and said Apple's Angela Ahrendts will begin serving in August. "Mr. George's expertise in e-commerce will be valuable as this is an area where Ralph Lauren seriously underperforms," Saunders said. "Ms. Ahrendt's experience in luxury and her ability to create coherent retail brands and propositions will be extremely beneficial to Ralph Lauren."
The company on Wednesday also addressed how Louvet will work with founder Ralph Lauren, who remains executive chairman and chief creative officer. Louvet replaced former Old Navy chief Stefan Larsson last year, stalling the company's turnaround amid speculation that Larsson wasn't a good fit with Lauren. In a statement, Lauren said he and Louvet "have developed a strong partnership over the past year."