Ralph Lauren posts 'anemic' Q2 results
Ralph Lauren on Tuesday reported that second quarter net revenue rose 1.6% to $1.7 billion on a reported basis (2.1% in constant currency), driven by sales in Asia. Foreign currency hurt revenue growth by approximately 50 basis points, the company said in a press release.
By region in the quarter: North America revenue rose 1% (2% in constant currency) and wholesale was flat year over year as comp sales rose 1% in constant currency, including a 1% decline in brick and mortar stores and a 9% increase online. European sales fell 1% to $459 million (flat in constant currency) as wholesale fell 1% (flat in constant currency) and store comps fell 4% on a constant currency basis, driven by a 4% decline in brick-and-mortar stores and flat e-commerce sales. Asia sales rose 13% to $245 million (14% in constant currency), driven by strength in retail and wholesale, while store comps store sales rose 6% in constant currency, reflecting growth in stores and online.
Gross profit in the quarter reached $1 billion as gross margin expanded by 100 basis points to 60.9%, thanks to reduced promotional activity and improved pricing as well as favorable product mix. Foreign currency benefited gross margin by 40 basis points. Operating expenses rose 3% to $794 million, driven by over 30% growth in marketing investment.
Ralph Lauren is in growth mode in North America, where wholesale revenues are up despite the brand's pullback from department stores — a move aimed at shoring up prices.
That "represented a significant step in the right direction, following at least nine quarters of declines," Instinet analyst Simeon Siegel said in comments emailed to Retail Dive. "With further plans to reduce off-price coupled by general volatility, the path to stable, positive U.S. wholesale sales will likely remain a work in progress."
Indeed, "the brand is only firing gently on some cylinders rather than powering ahead," according to a note emailed to Retail Dive from GlobalData Retail Managing Director Neil Saunders.
"[O]ne of the unresolved issues at Ralph Lauren is in having a clear brand proposition that is carefully targeted at customers," Saunders said, noting that GlobalData research shows that, while its general brand perception has improved over the past year, the number of people agreeing that it, or its sub-brands, are "made for people like them," has remained flat. "This is worrying and underlines that there is still a lot of repositioning and redefining required before Ralph Lauren can deliver better numbers."
The progress has taken an uptick in marketing, more than 30% year over year, and more is planned, though it will shift from traditional venues to digital and social channels, executives said on Tuesday, according to a transcript from Seeking Alpha.
While its assortments at Polo have improved, according to Saunders, with new items and smart embellishments like embroidery that are driving some sales, the overall brand and its sub-brands are failing to capture the attention of younger consumers, in sharp contrast to other luxury brands like Coach.
Despite Ralph Lauren celebrating its 50th anniversary with limited edition collections, results were "rather anemic," Saunders said, "and are characteristic of a brand that is still not entirely confident about its place in the fashion world or its future direction."
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