Ralph Lauren Q1 2017 Earnings: Company Beats Low Expectations

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RL: Ralph Lauren logo
RL
Ralph Lauren

Ralph Lauren (NYSE:RL) reported its first quarter results, ended June 2016, on August 10, 2016. The company exceeded the EPS and revenue expectations, which were quite low to begin with, which sent the stock price up over 8%.

Ralph Lauren Stock Price- August 11th

RL- Q1 2017- 1 RL- Q1 2017- 2

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See Our Complete Analysis For Ralph Lauren Here

While the company’s domestic business remains challenged, where revenues fell 11%, its international business is growing at a strong 10% rate. The company’s North American business is suffering from excess inventory and not having evolved its offerings to match consumer preferences, besides a tough retail environment. However, according to its CEO Stefan Larsson, the company has made good progress on its Way Forward plan, which involves refocusing on the product, marketing, and shopping experience, while at the same time evolving its operating model to a more demand-driven supply chain, better sourcing, and a multi-channel global expansion strategy. In this regard, the company has made massive changes to its leadership team, including appointments of Jane Nielsen, who worked on the turnaround at Coach and will be joining as the CFO after Labor Day, Halide Alagoz as the new Head of Global Sourcing, and Bill Campbell, who will be joining as the Head of Global Supply Chain, from Amazon. The head count in the organization has also been cut down by 8%, with layers in the management reduced from nine to six, which will result in SG&A savings of $115 million on an annualized basis. Eight of the anticipated 50 store closures were completed in the quarter, and there was a double digit reduction in the number of SKUs (stock keeping units) across the brands. The company had also stated its desire to shorten the lead time of their whole production process from fifteen to nine months, which will take a couple of years to implement. According to Larsson, 50% of the reduction will be completed by the end of the year, and 90% by the end of next year.

Ralph Lauren managed to improve its gross profit margin by 130 basis points, on the back of a favorable sales mix shift, lower product costs, and an improvement in Asia, where revenues increased 3%. The company has also closed 43 stores in the region, which were felt to be weakening the brand, while also cutting down on its average sale period by 30%, and decreasing the depth of its markdowns. These factors helped to improve the AUR (average unit retail) and gross profit. Europe witnessed a 14% growth in net revenues, primarily driven by a benefit from the timing of wholesale shipments, relative to the previous year. The company also reduced buys for the year to protect full price selling, increase stock turnover, and reduce excess inventory. However, going forward, the impact of the Brexit on consumer spending and geopolitical volatility in the region may hamper the earnings.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Ralph Lauren.
 
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