Coverage: Ralph Lauren rises as it tightens discounting
by Chris Roush · August 9, 2017
Ralph Lauren Corp. reported better-than-expected quarterly results and said it would pull back more inventory from department stores as it tries to keep a tight leash on discounting under its new Chief Executive Patrice Louvet.
Gayathree Ganesan of Reuters had the news:
Shares of the company soared as much as 11 percent to $87 in morning trading, clawing back most of their losses for the year.
Ralph Lauren’s profit beat comes at a time when the company has been keeping a razor-like focus on its inventory in an industry battered by sluggish spending and competition from online and fast-fashion retailers.
In a bid to regain its brand cachet, the company will pull back inventory from 20 to 25 percent of U.S. department stores during the second half of the year.
“It simply isn’t credible for a high-end brand to simultaneously showcase itself in a glitzy store on Madison Avenue, while at the same time hawking a random assortment of sweaters thrown in a ragtag way on a table in Macy’s,” said Neil Saunders, managing director of research firm GlobalData Retail.
Sheena Butler-Young of Footwear News focused her coverage on the company’s turnaround:
Last June — under the leadership of then-newly minted CEO Stefan Larsson — the company had initiated its “Way Forward Plan,” which included refocusing and evolving core product, cutting lead times, shuttering underperforming stores and aligning supply with demand. After a little more than a year, Larsson exited the post — and was replaced by former Procter & Gamble CEO Patrice Louvet in May — but the company has continued to execute the plan.
Despite the quick turnover, Ralph Lauren, executive chairman and chief creative officer, today sang the praises of the newly appointed chief of his namesake firm.
“I am thrilled to welcome Patrice Louvet as my partner to continue the exciting evolution of our company,” said Lauren. “Patrice has the enthusiasm to discover what has made our brand so iconic and the capability to evolve our business. We are both committed to preserving the essence of our brand while actively evolving it to renew long-term growth. Our experiences and expertise will be a powerful and winning combination.”
In the first quarter, the company said it delivered on several key elements of its turnaround strategy, including moderating discount levels across regions and generating 210 basis points of adjusted gross margin improvement. Ralph Lauren also lowered inventory levels by 31 percent; reduced operating expenses by 13 percent on an adjusted basis; and has forged ahead on its plans to close 20 to 25 percent of its underperforming U.S. department store points of distribution by the end of fiscal 2018.
Phil Wahba of Reuters reported that the turnaround is not over yet:
Still, it is way too soon for the company to declare victory: While slightly above Wall Street forecasts, revenue fell 13.2% to $1.35 billion, and same-store sales, a closely watched metric, were down 7%.
The retailer is far from the only “accessible luxury” brand to rethink its strategy. Coach and Michael Kors are also getting out of department stores, tired of their promotion-driven business model and weary of chronic shopper traffic declines. Meanwhile, clothing chains like Gap Inc (GPS, +2.25%) and Abercrombie & Fitch (ANF, +0.20%) have been working to speed up production times to better compete with the likes of Zara and the other chains that have stolen market share from Ralph Lauren.