US lifestyle brand, Ralph Lauren, posted an increase in profit after it kept a tight leash on discounting and inventory.
The luxury apparel maker posted a net income of $60 million, or 72 cents per share, in the first quarter ending July 1, compared to a loss of $22.3 million, or 27 cents per share, from the previous corresponding period. The retailer also stated its gross margin has increased by 210 basis points from a year ago, to 63.2 per cent.
In the first quarter of Fiscal 2018, revenue decreased by 13 per cent to $1.3 billion on a reported basis and 12 per cent in constant currency, driven by distribution and brand exits, a strategic reduction in shipments and promotional activity to increase quality of sales, as well as due to lower consumer demand.
“While we are addressing challenges in our business, we have significant opportunity ahead and we’re moving forward with urgency,” said Patrice Louvet, president and CEO. “Ralph and I are focused on actively evolving the brand expression and consumer experience so we can ultimately renew growth and get back to leading. We are continuing to build a strong foundation for future growth, as evidenced by our progress this quarter on the key elements of the Way Forward plan.”
Neil Saunders, managing director of GlobalData, said Ralph Lauren’s start to its new fiscal year is much the same way as it ended the last one: with sales lines splashed with red ink to indicate the severe declines across most divisions of the company.
“Some of this would be excusable if the iconic brand were at the start of a journey of reinvention, but this comes after multiple attempts to get the firm back on track – most of which have proved to be fruitless,” Saunders said.
“Nevertheless, with Patrice Louvet now in place as CEO and President, this is a fresh start of sorts for Ralph Lauren,” he said.
According to Saunders, propriety demands that Louvet is given some space and time to bring about change; however, he will be under no illusion that such change must come quickly if it is to satisfy investors who are increasingly nervous about the trajectory of the business.
“We believe the tenure of M. Louvet has a much greater chance of success than that of his predecessor, if only because he is much more likely to work effectively with Ralph Lauren who still exerts significant control over the brand that bears his name,” he said.
Saunders said there are already some initial signs of the direction of travel that the group will take under its new management team. Promotions have been cut back; inventory has been slimmed down; costs have been trimmed; and, distribution is being rationalized.
“Of these, we see the inventory and distribution decisions as the most critical elements,” he said.
Saunders said the scale of the task ahead should not be underestimated.
“To succeed, Ralph Lauren needs to both win back old customers and secure new ones – especially new, younger consumers who do not feel connected with the brand,” he said. “Fortunately for Ralph Lauren, our data show that the brand is not actively disliked and is, indeed, held in some affection. However, many lapsed, and non-consumers just do not see it as relevant and meaningful to them. Creating these customer connections is the real key to driving sustainable growth.”
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