Ralph Lauren's turnaround takes hold as profit, revenue beat Wall Street

Ralph Lauren Corp’s quarterly revenue and profit beat Wall Street estimates on Thursday, selling more of its high-end clothes at full price and keeping a lid on costs, sending its shares up more than 5 percent on Thursday.
 

Known for its signature Polo shirts and classic tweed blazers, the company is in the midst of a two-year turnaround plan that seems to be taking hold, as margins and revenue increase across its store-base.

“There is finally a faint light at the end of Ralph Lauren’s long tunnel of reinvention,” Neil Saunders, managing director of research firm GlobalData Retail said.

Ralph Lauren’s stock was up 5.4 percent at $94.28. Shares of department store operators and Ralph Lauren customers, Macy’s Inc and Kohl’s were up nearly 2 percent, while Gap rose up 1.5 percent.

Ralph Lauren had been struggling to compete in a brutal retail sector, as fast-fashion apparel brands and a rapid decline in traffic to malls and stores due to the shift to online shopping, knocked established names to the side.

The luxury retailer was also hurt by allowing department stores and off-price retailers such as TJX to discount its products heavily.

To regain its luxury stature with customers, Ralph Lauren embarked on a two-year cost-cutting plan that included pulling back inventory from department stores and outlets, cutting jobs, and streamlining its management layers to reduce bureaucracy.

“In our view, these corrective steps are necessary, even if they do splash the sales line with more red ink,” Saunders said.

The New York-based company’s net income rose to $143.8 million or $1.75 per share in the second quarter ended Sept. 30, from $45.7 million or 55 cents per share, a year earlier. 

Adjusted gross margins in the quarter rose 3 percent and revenue per unit sold across its stores climbed 5 percent from last year.

Profit before charges beat Wall Street estimates of $1.89 by 10 cents.

Sales fell 9 percent to $1.67 billion, hurt in part by its decision to pull back from department stores and factory outlets. But that figure beat analysts’ estimates of $1.65 billion, according to Thomson Reuters I/B/E/S.

The company also raised the lower-end of its 2018 operating margin forecast to 9.5 percent to 10.5 percent from its previous expectation of 9 percent to 10.5 percent.