Ralph Lauren's North America woes cloud profit beat, shares fall 8%

Luxury apparel maker Ralph Lauren Corp beat Wall Street estimates for quarterly profit on Tuesday, benefiting from higher demand in international markets, but weak sales in its biggest market, North America, disappointed investors.

Same-store sales in North America recorded its sixth quarter of decline in the last two years, falling 4% in the fourth quarter ended March 30.

Under Chief Executive Officer Patrice Louvet, the company has been spending more on advertising to rebuild its brand image and boost margins in its home market.

“We still have more work to do,” Louvet said in a post-earnings call with analysts.

Shares of the company fell 8% in morning trade. The company’s stock has been under pressure from an escalation in tariff war with China, from where it sources a third of its raw materials.

“We have accelerated the diversification of our supply chain to mitigate the long-term impact of any potential tariff outcomes,” Chief Financial Officer Jane Nielsen said.

The 52-year-old fashion house has also stepped up its investments in expanding overseas, while building up its e-commerce business to make up for declining sales in North America.

In China, one of its fastest growing market, Ralph Lauren has partnered with Alibaba’s TMall, JD.com and WeChat to sell its products. Sales in Mainland China grew 30%, powering a 10% growth in Asia, excluding the impact of currency fluctuations.

Revenue from Ralph Lauren’s Europe business grew 11% in the quarter. The company also raised its quarterly dividend by 10% and set aside about $300 million for capital expenditure in fiscal 2020.

Net revenue fell 1.5% to $1.51 billion due to a strong dollar, but beat estimates of $1.48 billion, according to IBES data from Refinitiv.

On an adjusted basis, the company earned $1.07 per share and beat estimates of 90 cents.

Up to Monday’s close, Ralph Lauren’s shares have lost about 9% of its value this month, while the S&P 500 Apparel, Accessories and Luxury Goods Index has fallen more than 8%.