NEW YORK — Ralph Lauren Corp. may be planning to shutter the Rugby chain, but retail remains its future growth engine.
The company said Friday that after the second quarter ended, the firm approved a plan to discontinue its Rugby brand operations “in order to focus resources on higher growth, more scalable global opportunities with the core Ralph Lauren brand.” The company will close 14 stores and the e-commerce site over the balance of fiscal 2013. It expects to record pretax charges of $20 million to $30 million during the second half of the year, with 75 percent expected to be booked in the third quarter.
Ralph Lauren, chairman and chief executive officer, said, “We continue to make excellent progress on our long-term growth objectives as we invest along many dimensions, including new stores and e-commerce platforms and emerging merchandise categories and regions.”
While the corporation hasn’t set any targets for how much of its business it wants to come from retail, the group’s ongoing global expansion — especially in Asia — is likely to tilt the balance more toward its own retail operations rather than wholesale. That will be the case even though, for now, margins are better in wholesale.
According to the firm’s president and chief operating officer, Roger Farah, the company’s wholesale margins, primarily apparel-driven, are in the 25.5 percent range. Retail margins are 17.4 percent, he said.
In a conference call to Wall Street analysts, Farah noted that to get to the same margin percentage range as wholesale, the company would have to “create store layouts that are productive with high allocations to accessories, while still giving quality presentation to our apparel [assortment].”
Accessories — handbags, small leather goods, footwear and more broadly, even watches and eyewear — are still a small component of the firm’s overall business segmentation. That’s likely to increase over time.
In response to an analyst’s query about a possible global consumer trend in an accessories boom and its impact on an apparel-driven firm, Farah said, “We think the Ralph Lauren aesthetic translates beautifully into accessories.…One of the interesting realities of our results to date, both the extraordinary margin in wholesale and the extraordinary margin we now operate in retail, is without high penetration to accessories, which, properly executed, brings with it higher profit margins. So I think we’re making good progress. I think we’re making quality progress. I don’t think we’re looking to jam this business artificially in the early stages.
“And my guess is over the long term, it’s going to be a very big part of what we do, and that will be more prevalent in Asia and some of the emerging markets than perhaps some of the more mature markets.”
Farah emphasized, “But I don’t want to back off the apparel business. I think we’re very pleased with the way we’ve got our market share and our positioning in all the key apparel categories.”
The future retail growth will most likely be driven by Asia.
“Regional development in Asia will swing [the business] more toward retail,” he said.
The firm is opening smaller hub stores in the 5,000- to 10,000-square-foot range that are geared toward supporting key flagship locations in the major Asian markets. And when it finds the appropriate flagship sites, those are likely to be in the 20,000- to 40,000-square-foot range, Farah said. RELATED STORY: Ralph Lauren Spring 2013 >>
But first, it’ll have to give some thought on whether to exercise the change-in-control option in the Chaps license held by Warnaco Group Inc. now that PVH Corp. is buying Warnaco in a deal valued at $2.9 billion.
“We’re just thinking about it,” Farah said. The announcement of the PVH acquisition was made on Wednesday.
If it does, that would swing Ralph Lauren’s revenue balance temporarily more toward wholesale. The last time the apparel manufacturer became more “Ralph Lauren, Specialty Retailer,” was in the second quarter of fiscal year 2004. That was before it acquired some of its licensees, which moved the business mix primarily back to wholesale.
Farah stressed the retailer-wholesaler balance doesn’t overly concern the company. “We believe in letting the business grow properly,” he said.
The company on Friday posted lower second-quarter results, but still bested Wall Street’s consensus estimates for diluted earnings per share by 14 cents.
During the quarter ended Sept. 29, the company was impacted by decisions to discontinue American Living at J.C. Penney Co. Inc., store closures associated with the firm’s Greater China network repositioning efforts and negative impacts from foreign currency translations.
For the three months, net income fell 8.5 percent to $213.7 million, or $2.29 a diluted share, versus $233.5 million, or $2.46 last year. Net revenues were down 2.2 percent to $1.86 billion from $1.9 billion. Wall Street was expecting diluted EPS of $2.15 on estimated revenues of $1.84 billion.
Of the net revenues, net sales also fell 2.2 percent to $1.82 billion from $1.86 billion, which were comprised of an 8.1 percent decline in wholesale net sales to $914.5 million from $995.5 million. The decline reflected in part a planned contraction in wholesale shipments. The bright spot was retail, which partially offset the wholesale decline. Retail net sales rose 4.6 percent to $900.9 million from $861.3 million, reflecting in part the incremental contribution from new stores and e-commerce operations offset by store closures connected with the Greater China network repositioning. On a constant currency basis, comparable-store sales rose 5 percent.
The balance of net revenues was from licensing income.
EXCLUSIVE: Two and half months after John Targon, cofounder and codesigner of Baja East, was hired as creative director of the contemporary division at Marc Jacobs, he has left the company, WWD has learned. Marc Jacobs International, which is owned by LVMH Moët Hennessy Louis Vuitton, confirmed Targon’s departure in a statement: “John Targon is a talented designer and we appreciate the work he has done here. Ultimately working together did not make sense for the brand and we wish him the best.” Read the story by @jessiredale, link in bio. #wwdnews
@theluxurycollection is officially launching a collection, tapping Sofia Sanchez de Betak for the capsule. Over 30 styles will be featured in the Chufy x The Luxury Collection, debuting next month at Bergdorf Goodman, The Webster, FiveStory and more. De Betak, known as “@chufy,” drew inspiration for the collection from her trips to Japan in the past year #wwdfashion
@lhd, founder and CEO of @thewebster, has teamed up with @lebonmarcherivegauche for the European launch of her ready-to-wear line, LHD. The launch will come with an exclusive pop-up opening today that’s set to run through May 20. Located on the second floor, it carries her debut Miami-themed resort collection, launched in November as see-now-buy-now. #wwdfashion
@longchamp, which marks its 70th anniversary this year, just opened its biggest U.S. store on Manhattan’s Fifth Avenue. On the lower level there’s a floor-to-ceiling display of the brand’s iconic Le Pliage bag – in all of its different colors, shapes and sizes. Customers can also have their product personalized in-store by imprinting names, initials or emblems. #wwdfashion (📷: @ericmtownsend)
“Whenever I’m in that place of sound and music, I don’t have fear or nervousness…This album has a lot of themes of courage and boldness and I want to be the soundtrack for people’s lives. I’ll be so happy if [my songs] evoke strength in people, which I know music has done for me,” says @kimbramusic of her newest album “Primal Heart.” The New Zealand-born singer sat down with WWD to talk about her music, newest tour and connecting with hear fans — read more on WWD.com #wwdeye (📷: @jilliansollazzo)
Luxury handbag resale company @rebagofficial is planning to sell a rare collectible for $70,000: the @hermes White Crocodile Himalayan Birkin. The exclusive Birkin sold for about $100,000 in 2008, when @davidbeckham bought one for his wife @victoriabeckham to add to her collection. Read more about the rare Birkin on WWD.com #wwdaccessories
With her costume pearl necklace and what-you-see-is-what-you-get style, Barbara Bush, who died Tuesday at age 92, was a straight-shooter from start to finish.
Born Barbara Pierce in New York City, Bush served as the 37th first lady, as well as the country’s second lady from 1981 to 1989. In addition to being part of the longest presidential marriage — 73 years — Bush also had the unlikely distinction of having one son, George W., become the 43rd president and another son, Jeb, run unsuccessfully in 2016. Having served as second lady during the Reagan administration’s two terms and lived all over the world during her own husband’s ascending political career, Barbara Bush made it clear that literacy — not fashion — was her priority. Read more from Rosemary Feitelberg’s obituary on the late First Lady in WWD.com, link in bio. #barbarabush #wwdnews
Western and ’90s trends have influenced denim for fall 2018. Think raw, dark and coated jeans mixed with bold prints and tough leather. #trendtuesdays #wwdfashion (Styled by @thealexbadia;📷: @ryanplett)