Ralph Lauren Corp. reported another quarter of robust growth, but cautioned it wasn’t sure how US consumers would respond to tariffs and price hikes in the second half of the year.
“This quarter’s solid performance and our continued momentum give us confidence to raise our full-year outlook even as we remain cautious on the broader macro economic backdrop, primarily in the second half of the fiscal year,” Ralph Lauren Chief Financial Officer Justin Picicci told analysts during an earnings call.
Shares fell as much as 7.9%, reversing gains in premarket trading. The stock had surged 31% this year through Wednesday’s close, topping the 7.9% gain for the S&P 500.
The company posted quarterly sales for its fiscal first quarter that beat estimates. It also raised its annual revenue outlook to a range with a high end calling for a percentage gain at a mid-single-digit rate. That excludes currency fluctuations and tops Wall Street’s average estimate for a 3.6% advance.
Ralph Lauren has been a standout among US apparel companies, managing to steadily increase prices in recent years — even before tariffs hit – while amplifying its offering to handbags and women’s clothing and attracting more shoppers who skew younger, female, international and are less price sensitive.
China Growth
That’s helped the company decrease discounts and buffer more sluggish demand in the US with solid sales growth in Europe and Asia. Ralph Lauren generates less than 10% of its revenue in China and investors see potential for a continued increase in demand from shoppers in the country.
Revenue in China rose 30% in the most recent quarter from a year ago. Across Asia and Europe, sales increased by a double-digit percentage while North America gained 8%.
Ralph Lauren’s results “underlines the fact that the slowdown in luxury is concentrated at the top end of the market where much higher price points continue to push some consumers – especially middle-income segments – away,” GlobalData analyst Neil Saunders wrote in a research note. “In accessible luxury, which includes brands like Ralph Lauren and Coach, performance is far better.”
Price Increases
The investor debate around Ralph Lauren centers in part on whether the apparel company will be able to keep raising its average prices, which it has been doing through boosting how much it charges shoppers for items and also by cutting back on discounts and selling more expensive items, such as handbags.
In the most recent quarter, Ralph Lauren increased the average price of its items by 14% in its direct-to-consumer channel.
That growth in average unit retail, as the crucial retail metric is called, along with greater sales in more profitable geographies and lower cotton costs more than offset the cost pressures from tariffs and other items, the company said. That boosted profit last quarter.
Ralph Lauren executives have said “that only about 1/3 of the average unit retail increase since 2018 has been from like-for-like increases, which helps us get comfortable that they can still take price,” Citi analyst Paul Lejuez wrote in a research note before the company reported earnings.
Written by: Jeannette Neumann @Bloomberg
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