Updated 4:47 p.m. ET Feb. 5
Ralph Lauren Corp. is still successfully pushing higher.
The company, which under president and chief executive officer Patrice Louvet has been steadily elevating the brand, blew past fiscal third-quarter earnings projections and raised its outlook for the year — although Wall Street still wanted a little more.
Net income rose 21.6 percent to $361.6 million, with adjusted earnings per share rising to $6.22 — 42 cents ahead of the $5.81 analysts projected, according to Yahoo Finance. Adjusted operating margins rose 220 basis points to 20.9 percent of sales. And net sales rose 12 percent to $2.4 billion, which translated into a 10 percent gain in constant currencies.
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“Yes, we had a great holiday, but we also think beyond the moment in time,” Louvet told WWD in an interview. “We are building not just for this quarter or next quarter, but for many years to come. I don’t think you can look at this past quarter and say, well, it was driven by one or two unique things that happened during the quarter.
“It’s the strategy coming to life broadly,” he said. “That’s one of the things that I’m particularly energized by is the breadth of the performance across markets, across brands, across product categories, across key cities, across genders, across generations. As you look ahead, that gives confidence that we have a plan that’s working.”
But investor expectations were high and shares of the company slipped 4.5 percent to $338.66 on Thursday.
Tom Nikic, an analyst at Needham & Co., recommended that investors “buy the dip.”
“Ralph Lauren reported another strong quarter, while providing conservative Q4 guidance that could yield another beat in three months. Shares are trading lower, which we think is partially due to extremely high expectations heading into the [quarterly results], as well as a few small nits to pick within the [report]. Specifically, we think investors are modestly concerned about the wide spread between DTC pricing and revenue growth — which implies a big decline in units sold — as well as a noisy quarter in Europe. But all in, we think the brand has strong momentum and we would continue to ride it.”
Louvet shrugged off Thursday’s stock decline.
“We always have this conversation the day before” an earnings release, he said. “Let’s not try to predict the stock reaction because we don’t control that and we don’t pretend to control that.”
The CEO has spent years tightening operations, revving up marketing and leaning into premium — efforts that pushed average unit retail prices up 18 percent in the quarter.
“All the [consumer] recruiting work that we’ve done over the past few years proved to be resilient even in this volatile environment,” the CEO said. “They actually showed up early in the season and so we saw outsized full-price demand early in the season, which allowed us to pull back further than we had expected on promotional activity, which explains the very high AUR [average unit retail] number.”
In North America, revenue increased 8 percent to $1.1 billion, with comparable store sales up 7 percent. In Europe, revenues were up 12 percent to $676 million, 4 percent on a constant currency basis, and the top line in Asia expanded by 22 percent to $620 million.
Ralph Lauren has managed to get more than its share of the spotlight lately, with people posting their version of the “Ralph Lauren Christmas” online and the quarter-zip navy sweater, paired with a matcha, taking off.
“Those were not disproportionate drivers for the business, although we’re quite happy to have them,” Louvet said. “The thing for me is that it really shows that our marketing teams are doing a very good job weaving the brand into culture.”
And the company expects those tailwinds to continue.
For the full fiscal year, Ralph Lauren now expects to post a revenue gain in the high-single to low-double digits on a constant currency basis, up from the prior outlook calling for a 5 percent to 7 percent bump. Operating margins are expected to expand by 100 to 140 basis points, up from the prior forecast of 60 to 80 basis points.
“We have the Winter Olympics kicking off — our biggest fashion show of the year,” Louvet said. “Two billion people will watch Polo men’s and women’s walk down the Olympics runway.
“The work we’re doing with influencers, the work we’re doing on social media storytelling with our campaigns like Mountain Living and Gifting, the compounding effect of these marketing activations, which are not a one-quarter thing — they’ve been going on for quite some time now — is fueling this brand strength.”
So Ralph Lauren is serving up a familiar version of the good life that it’s honed over nearly 60 years, but using very modern means to get its message out.
“Our holiday collection was inspired by the rugged landscapes of the American West, which have long been both a place of refuge and inspiration for me,” said Ralph Lauren, executive chairman and chief creative officer. “They reflect connections to the land, to family, and to each other — and as we start a new year with renewed optimism, they are a fitting reminder to dream big and find the space to become who you are.”