Ralph Lauren Sales Hurt As it Chases More Premium Image

ralph lauren ready to wear february
Ralph Lauren's February 2017 Collection presentation at New York Fashion Week.
REX Shutterstock.

Ralph Lauren Corp. is seeing some uneven business as it continues to power through a series of turnaround initiatives aimed at improving its brand image.

The firm’s shares are in the red today — down nearly 3 percent to $111.12 as of 12 p.m. ET — after it posted a third-quarter sales decline of 4 percent to $1.6 billion, in line with estimates for sales of $1.63 billion.

The company said the slower sales were driven by its longer-term strategy, which seeks to increase quality of sales, reduce promotional activity and elevate distribution. Revenues were also hurt by brand exits and lower consumer demand.

Nevertheless, adjusted profits improved 7.7 percent year-over-year to $167 million, or $2.03 per diluted share, besting Wall Street forecasts for profits of $1.87 per diluted share. On a reported basis, Ralph Lauren posted a net loss of $82 million, or $1.00 per diluted share, a far cry from reported profits of $82 million, or 98 cents per diluted share in the same period last year.

Despite pressured sales, president and CEO Patrice Louvet, who took the reins in July 2017, credited the firm’s “Way Forward” plan with laying the groundwork for better results down the line.

“Focused execution on our key initiatives, especially during the important holiday period, delivered better-than-expected results for the third quarter as we drove lower discounting and better quality of sales overall,” Louvet said. “There is still a lot of work to be done to return to industry-leading revenue and earnings growth, but these results give us confidence that we are on the right track.”

On a call with investors, Ralph Lauren’s chief further doubled down on the major tenets of the turnaround plans, which started with previous CEO Stefan Larsson, whose tenure ended abruptly last year.

“We’re executing against four key initiatives: first, elevating our brand by improving quality of sales, distribution and product; second, evolving our product, marketing and shopping experience to increase our reach and appeal with new consumers; third, expanding our digital and international presence; and fourth, working in new ways to drive productivity and agility,” he said.

Among the favorable results during the quarter, the firm’s average unit retail across its direct-to-consumer network was up 4 percent over last year; its discount rates were down across all regions in retail; in Asia it delivered 3 percent constant currency comp growth; and inventory levels were down 16 percent year-over-year.

“As we prepare to celebrate our 50th anniversary and look ahead to the future, we continue to focus on evolving the expression of our iconic brand and its rich heritage to connect with today’s consumers in all the ways they experience our brand,” said Ralph Lauren, executive chairman and chief creative officer.

Looking ahead, the company continues to expect full-year net revenue to decrease 8 to 9 percent, excluding the impact of foreign currency, with Q4 revenues shedding 8 to 10 percent.