Dive Brief:
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Ralph Lauren on Tuesday reported a first quarter 3% year-over-year net revenue rise to $1.4 billion (1% in constant currency), driven by sales in Asia and Europe. Revenue in North America fell 2% on both a reported and constant currency basis to $698 million, according to a company press release. North America wholesale revenue declined, primarily due to the brand's "deliberate actions to improve quality of sales and exits from lower quality distribution."
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In retail, North America comp sales fell 3% in constant currency, driven by a 3% decline in brick-and-mortar sales and a 2% decline in direct e-commerce. Excluding the impact of Easter timing, North America comps were about flat year over year, while the comparable e-commerce decline was actually a significant sequential improvement, in line with expectations, the company said.
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On a reported basis, net income in the quarter was $109 million and adjusted net income was $128 million. Gross profit in the quarter was $896 million and gross margin expanded by 120 basis points year over year to 64.4%, driven by initiatives to reduce promotional activity and improve pricing as well as a "favorable product mix," the company said. Foreign currency swings benefited gross margin by 10 basis points in the period.
Dive Insight:
Ralph Lauren in an email to Retail Dive boasted that it's winning over a new generation of customers, energizing its iconic core product line and moving into under-developed categories, targeting its expansion to geographies with the most potential (Japan, South Korea, China and Europe, the company said), expanding e-commerce and "operating with discipline."
These are what the company is calling its core principles, and CEO Patrice Louvet in a statement on Tuesday said it's "off to an encouraging start to the new fiscal year on both the top and the bottom line." The company saw shares rise after beating earnings and revenue expectations with its Q1 results, according to MarketWatch.
The brand is hoping to fuel that further by boosting its marketing investment by 20% year over year, and shifting it to digital and social media channels, "with an emphasis on influencers, increasing our reach with new consumers," the company said. But some of its success this quarter could be chalked up to an economy that appears to be lifting many retail boats, considering that change isn't so vivid on the ground, according to a note from Jane Hali & Associates emailed to Retail Dive.
The Ralph Lauren Instagram account has 8.2 million followers, for example, but "it is not engaging," Jane Hali analysts said. And while its digital shopping experience is indeed updated and more curated, "the website lacks engagement to attract a younger audience."
"The RL/Polo stores feel outdated," they said. "Some stores have personalization stations that adds a modern approach, however, they do not incorporate digital in the experience."
The brand is definitely getting a handle of its inventory, Jane Hali analysts found. But compelling merchandise, once a mainstay of the iconic brand, isn't always easy to find. Although they noted "trend-led denim and fashionable handbags" at Polo stores, there isn't enough "on–trend, compelling product" overall, they warned. "RL wants to win with the millennial generation, however, [they need] to reenergize the brands and create a relevant image and message that younger generations can relate to."
Jane Hali also found that there's more to the story when it comes to the brand's adjustment to its off-price sales — a move designed to improve both its pricing and its image. While fewer men's Polo items are to be found at off-price retailers like TJ Maxx, Marshalls and Burlington, there are more Lauren men's and women's goods being sold there. "The off-price channel has the same amount from RL, with just a different assortment," according to Jane Hali analysts.