WWD Digital Daily

Ralph on the Rise

Strong sales, earnings lift shares of Ralph Lauren.


Ralph Lauren Corp. is riding higher, but it still has to keep moving.

Despite a “challengin­g” retail scene in the U. S., disruption­s from massive protests in Hong Kong and trade war tariffs on goods made in China, Patrice Louvet, president and chief executive officer, sounded notes of optimism in an interview with WWD after the company reported fiscal second- quarter gains.

“We came in slightly ahead of expectatio­ns,” Louvet said of the quarter. “We feel like we've got the right plan, we're in execution mode.”

The firm's second-quarter earnings rose 6.9 percent to $182.1 million, or

$2.34 a diluted share, from $170.3 million, or $2.07 a year ago — with EPS benefiting from the company's repurchase of 2.6 million shares during the quarter.

Adjusted EPS of $2.55 came in well ahead of the $2.39 analysts had penciled in. And revenues for the three months ended Sept. 28 inched up to $1.71 billion from $1.69 billion.

The performanc­e was strong enough to drive shares of Ralph Lauren up 14.6 percent to $115.65 on Wall Street.

While LVMH Moët Hennessy Louis Vuitton's $15 billion-plus pursuit of jeweler Tiffany & Co. has raised anew the question of whether top-tier brands need to either join up with one of the big groups or build brand portfolios, Louvet said Ralph Lauren stood on its own.

“We believe we have within our four walls exciting growth opportunit­ies for many, many years to come,” the ceo said, pointing to new channels and new geographie­s. “We think we're well positioned as a stand-alone company, so we're not interested in being part of a bigger group, nor do we believe we need to add new brands.”

He did keep the door open for a little dealmaking on the side.

“We are interested in M&A that would bring capabiliti­es,” he said, noting for instance that a deal with an accessorie­s company that would help build Ralph Lauren's expertise in the area could be of interest.

“Fundamenta­lly, our strategy is to run with the Ralph [ brand],” he said.

Louvet's five-year plan to develop that business features five strategic priorities that have the company working to appeal to a new generation of shoppers, energize its core products, expand in its regions and channels, lead with digital and operate with discipline.

Ripples from those priorities showed up throughout the quarter, when 21 million consumers watched Ralph Lauren's spring 2020 runway show live on Weibo in China, the brand linked with both Wimbledon and the U.S. Open in tennis and the Friends 25th anniversar­y capsule collection at Bloomingda­le's and on ralphlaure­n.com generated more than 1 billion media impression­s. (The company has also been gearing up for the “Very Ralph” documentar­y, which will show on HBO on Tuesday.)

Ralph Lauren has successful­ly raised its average unit retail prices and the ceo said inventorie­s were in good shape heading into the holiday season. The company has cut its department store distributi­on by 25 percent and is becoming much more digital. During the quarter, its global digital business expanded by a percentage in the low-teens in constant currencies with growth of more than 30 percent internatio­nally while the expansion in the U.S. was described as “modest,” by the company.

The approach at Ralph Lauren relies heavily on the power of branding — something the company has long been known for since its start in 1967.

“What really sets us apart is the purpose behind this brand,” Louvet said. “We're not an apparel company.…In our minds, we're much more than that. Our purpose is to inspire the dream of a better life through authentic and timeless style.

“In today's world, that is really important in the way the consumer perceives the brand,” he said. “This is a storytelli­ng brand.”

And the story the company has for Wall Street is that it's a brand strong enough to overcome disruption in the market. Among them is the business in Hong Kong, which Louvet said took “a big hit,” with sales falling 27 percent during the quarter, compared with 22 percent growth in mainland China.

Also serving up some turbulence are complicati­ons from the pending Brexit and trade war tariffs on Chinese-made goods. While the trade pressure might ease, with Beijing and Washington apparently inching toward a deal, the company's guidance includes a $10 million hit to the cost of goods for this fiscal year to account for the duties on the books now.

Jay Sole, a stock analyst at UBS, said the quarter's “solid result will cause some of the bearishnes­s to reverse.”

“The company is showing it continues to execute its turnaround plan and drive solid EPS growth,” Sole said. “Plus, we maintain our view Ralph Lauren's valuation already reflects a fair amount of negativity.”

But Sole also noted that Wall Street's own estimates for Ralph Lauren's earnings have been falling and that the company slightly lowered its implied EPS guidance for the full year.

“This may signal to the market Ralph Lauren's ‘self-help' story is running out of ways to continue driving strong earnings growth,” Sole said. “If the market starts to believe Ralph Lauren's long-term EPS growth outlook is deteriorat­ing, we think its [price-to-earnings ratio] will not return back toward its historical averages.”

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 ??  ?? The Ralph Lauren Wear-to-Work collection is based on the
"Friends" series.
The Ralph Lauren Wear-to-Work collection is based on the "Friends" series.
 ??  ?? Patrice Louvet
Patrice Louvet
 ??  ?? Ralph Lauren
Ralph Lauren

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