Ralph Lauren beats Q2 forecasts, lifts outlook, and shares fall 8.3%

Ralph Lauren beat forecasts on both the top and bottom lines in the quarter ended September 26, and it raised its outlook for the year. Net income climbed 43 percent to $296.6 million, or $4.87 a diluted share.

Adjusted earnings hit $4.64 a share, coming in 38 cents ahead of the $4.26 analysts had expected, according to Yahoo Finance. Revenue rose 9 percent to $2.2 billion, ahead of the 5.8 percent increase Wall Street had pencilled in.

The company now expects constant-currency revenue to rise 6 percent to 7 percent this year, up from the 5 percent to 6 percent range it had previously given. President and chief executive Patrice Louvet called it another beat-and-raise quarter reflecting consistent execution.

Investors were more cautious. Shares traded down 8.3 percent to $378 in midday dealings, even as the company kept a market capitalisation of $22.5 billion. The company has turned more cautious on Europe in the near term, even as its overall growth outlook keeps rising.

Ralph Lauren is the American fashion house founded in 1967 that spans luxury apparel and lifestyle goods. Second-quarter sales rose 10 percent in constant currencies, with gains in each region, though the source figures for individual regions are not broken out here.

What the chief executive said about the reset

Louvet, who became chief executive nine years ago, declared the reset over. "Our reset is fundamentally complete," he told WWD, ticking off a wholesale pullback, an off-price pullback, a promotional pullback and the elevation of the brand and its customer base.

He framed the prize in size. The market runs to a little more than $400 billion globally and is growing in the low single digits, he said, while Ralph Lauren is close to being a $9 billion company, about a 2 percent share.

"So we see significant runway ahead on men's, on women's, on children, on hospitality, on home, many, many different fronts," Louvet said. His stated ambition is quality, consistent growth at midsingle-digit revenues, and he said the company is well on track to deliver it.

Neil Saunders, managing director of GlobalData, called the quarter's growth "impressive," while noting it was the first time in six quarters that revenue growth was in single digits. He read that as natural maturation rather than lost momentum.

Saunders added that a broader lifestyle proposition has raised spending by existing customers, especially in women's apparel. Categories such as handbags are also gaining traction and pushing up average spend, he said.

On Europe, where business has slowed most, Louvet urged discipline but also continued investment in stores and marketing to win share that pays off when times improve. Of the macroeconomic environment, he said the company is planning prudently across regions.

"We're getting a lot of new consumers in Asia," he said. "We want to make sure they're coming to us, not just for one purchase, but actually for a lifetime." He would not commit to replicating 35 percent growth in China every quarter.

Louvet pointed to brands that grew fast and then struggled, naming none, though the source piece lists Lululemon, Gucci and Vans as examples from the wider industry. "Winning five years from now and 10 years from now" is the aim, he said.

Prices and the outlet channel

Average unit retail prices rose 9 percent in the direct-to-consumer network, driven by full-price selling and favourable geographic and channel mixes. That was the 38th consecutive quarter of AUR growth, a nine-and-a-half-year run that has transformed the business.

"It's ludicrous to think that you can elevate just one part of the ecosystem without touching the rest," Louvet said. The outlet channel, once a stack-them-high discount model, is becoming a more elevated local-store approach, and consumers are responding.

Ralph Lauren, executive chairman and chief creative officer, struck an optimistic holiday tone. "These values are deeply personal to me and remain at the heart of our company and everything we create," he said, pointing to nearly 60 years of guidance.

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Images: Ralph Lauren