Yahoo Finance Ralph Lauren’s Q4: An EPS Beat, Muted Outlook and a New CFO
Updated May 23 at 4:23 p.m. E.T.
Patrice Louvet likes to talk up the “agility” that lets Ralph Lauren Corp. follow the consumer wherever they might go — from formal fashions to more casual looks to styles for the home.
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But that is just a part of the equation at Ralph Lauren, which also leans heavily on the timelessness of its brand and, during Louvet’s nearly eight-year tenure as chief executive officer, a consistency that has served the company well on Wall Street.
Ralph Lauren topped profit expectations and continued to elevate its brand positioning in the fourth quarter. Average unit retail prices rose 13 percent in the company’s direct-to-consumer network, which accounts for about two-thirds of its business. That’s 28-straight months of increasing prices in the DTC business, which has helped shelter the brand from troubles in the wholesale channel.
Still, in a nod to the difficult consumer landscape, the company forecast revenue growth of 2 to 3 percent this year — just below the 4 percent Wall Street had anticipated.
“We are a company that is focused on promises made, promises kept,” Louvet told WWD in an interview on Thursday. “If you look at our track record of delivery, we have consistently delivered in line and or better than our commitments for many, many quarters and years now. And that’s the positioning we want to have for this company in investors’ minds, which is: This is a reliable player that delivers consistently and has very robust foundations, a strategy with multiple drivers of growth and a brand that has strong desirability.”
While investors focused first on the sales outlook and traded Ralph Lauren’s shares down when results were initially released, the stock reversed course and closed up 3.3 percent to $169.57 on Thursday.
“Looking ahead, we are cautiously optimistic,” Louvet said. “We are seeing strong resiliency from our core consumer, which is typically a higher value consumer, a less price sensitive consumer. And we’re seeing strong engagement from that consumer with our brand and the breadth of our product offering.
“We’re seeing consumers lean into our icons and our staples, which is not surprising because in times of uncertainty and volatility, we know consumers tend to gravitate toward brands they trust and product categories they know,” he said. “They’re clearly being choiceful and discerning on what they invest in. And I think that’s reflected in the fact that they’re investing disproportionately into our core products, our staples, products you can wear this year, next year and in 10 years.”
In the quarter, Ralph Lauren’s net income jumped 180 percent to $90.7 million, or $1.38 a diluted share, from $32.3 million, or 48 cents, a year earlier. A good part of that boost came from a decrease in the cost of goods sold, which was driven by lower cotton prices. The company said cotton costs had a neutral impact on gross margins in the quarter, but are expected to be a tailwind this year and next after two years of cost pressures.
Adjusted earnings of $1.71 a share came in 5 cents ahead of the $1.66 analysts had penciled in, according to Yahoo Finance.
Revenues for the three months ended March 30 increased 1.8 percent to $1.57 billion from $1.54 billion. Comparable sales in the direct to consumer business grew by 6 percent, driven by price increases and full-price retail sales.
Ralph Lauren, executive chairman and chief creative officer, said: “Our brand has always been about inspiring people to live the life of their dreams. We marry elegance and style in aspirational worlds — from our recent fashion show featuring elevated classics to the vibrant home line we showcased last month in Milan — our teams around the world are delivering our vision with passion and care.”
Women’s fashion, which accounts for 29 percent of the business, remains a potential growth area for Ralph Lauren, especially as 56 percent of its shoppers are women.
“The women’s opportunity we’re tapping into through first more deliberate communication toward that consumer group, which we historically haven’t had,” Louvet said. “There’s been some really exciting evolution to our product offering, particularly on Polo Women’s that is resonating really well with consumers leaning into core items. Think linen and chambray shirts, think unconstructed jackets.”
It’s an opportunity that Ralph Lauren will try to grab with the power of its brand.
“From our shows to outfitting global celebrities to sponsorship of the world’s most exciting sports championships, think Wimbledon, the U.S. Open, the Olympics, the gaming championships going on around the world,” Louvet said. “Ralph Lauren is firmly at the intersection of culture, capturing the attention of consumers of all ages in all markets with major moments ahead this year.”
But Louvet is headed into the new year with a new finance chief by his side.
Justin Picicci was promoted to chief financial officer after a multiyear succession plan. Picicci is picking up the title from Jane Nielsen, who will remain chief operating officer through fiscal 2025.
It’s a switch that put some analysts on guard.
Tom Nikic, an analyst at Wedbush, said that Picicci has “big shoes to fill.”
“Ralph Lauren has been one of the steadiest performers in our group in recent years, due in large part to the guiding hands of their strong executive team — CEO Patrice Louvet who joined seven years ago and COO/CFO Jane Nielsen who joined eight years ago,” Nikic said in a research note.
“Ms. Nielsen is one of the strongest CFOs in the industry, and her track record with RL was exemplary — average unit retail prices up a cumulative 70 percent during her tenure, EPS up approximately 80 percent since fiscal 2017,” he said.
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