Ralph Lauren on Tuesday reported that first quarter net revenue rose 3% to $1.4 billion, with North America revenue rising 3% to $719 million. North America wholesale revenue rose 2%, according to a company press release.
In retail, comparable store sales in North America rose 1%, driven by a 1% comp in brick-and-mortar stores and flat online comps, the company also said. Currency headwinds and import regulations hampered U.S. online sales by overseas shoppers, plus the retail environment at home has grown "volatile," executives said on a call Tuesday morning.
Gross profit reached $921 million and gross margin was 64.4%, with margins gaining from favorable product, geographic and channel mix, partly offset by "increased promotional activity to keep inventories current and healthy." Net income rose to $117 million from $109 million in the year-ago quarter.
Ralph Lauren is showing signs of traction in its ambitious turnaround, but still faces disappointing traffic trends across channels, especially at home, that forced promotions in the quarter.
In a feat for any old-school, if iconic, brand, the apparel maker is gaining fans even among younger consumers, CEO Patrice Louvet noted on a call with analysts.
Its momentum appears to be seen most clearly in China, where the company is moving swiftly to expand. Asia revenue in the quarter rose 4% to $259 million "driven by solid growth in retail," per the company's release. Comps there rose 5%, reflecting growth in both brick and mortar and digital, the company said. Plans are to open 40 stores this fiscal year alone, the company said, though that will take time, Jane Hali & Associates analysts warned in comments emailed to Retail Dive.
Indeed, the brand has quite a bit more to do, analysts said. GlobalData Retail research supports Louvet's claim regarding younger shoppers, at least as a marketing accomplishment.
"Our own data shows that this is working as both awareness and affinity with the under 35s has picked up significantly in the past half year," GlobalData Retail Managing Director Neil Saunders said in emailed comments. "Conversion and spend, however, remains weaker among this cohort, so the next step for Ralph Lauren is to move younger consumers beyond buying the occasional fragrance item and into more comprehensive buyers of the brand. With some of the product changes being made, we believe this shift is possible."
Others are less sanguine. "The domestic business is worsening and international will not be able to continually offset the [North America] problems," Jane Hali analysts said, noting that 59% of Ralph Lauren's business comes from its home region, with 50% from wholesale and 50% contribution from retail.
Louvet noted promotional headwinds from ebbing brick-and-mortar traffic, including at outlets, in part due to tourism declines. The brand is investing further in its e-commerce and mobile capabilities, and connecting its online and offline channels, to stoke digital growth. "RL's mobile app continues to be excellent," Jane Hali analysts said. "The app mostly sells exclusives. Consumers are notified of upcoming drops via the app and Instagram accounts."
But other moves aren't so savvy, according to the Jane Hali analysts. The brand's announcement last week that Valérie Hermann, president of RL Global Brand, is leaving is "a setback," for example, they said.
"We believe there were product strategy differences with Ralph Lauren," Jane Hali said of the Hermann departure. "Patrice Louvet ... spoke recently about the need to balance fashion with more core merchandise. In there lies a major problem — the core product are basics which are cannibalized at each level of the RL business. The world of successful digitally native brands demonstrates the customer's desire for fashion."