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.
In his new book “Hollywood Royale,” Andy Warhol’s Protégé Matthew Rolston celebrates the Eighties revival of Hollywood glamour. Featuring more than 100 portraits taken by Rolston from 1977 to 1993, the book contains photos of icons like Michael Jackson, Cyndi Lauper, and @drewbarrymore, pictured here in 1991. “Hollywood Royale,” out today, will be accompanied by an exhibition opening at Los Angeles’ Fahey/Klein Gallery on March 1. #wwdeye
"Nowadays when life is not so happy with everything going on in the world, I think people come to me for a little bit of whimsy and color and fun." - Designer Rebecca De Ravenel on her cult-favorite jewelry line. (📸 : @vsteves) #wwd40
“Everyone is talking about how the retail industry is struggling, but I think it’s an incredible time because brands who are doing something different and innovative are setting themselves up for the future,” said @adamgoldston, who founded the luxury athletic brand @apl with his brother @ryangoldsten. The Goldston’s are part of WWD’s 40 under 40: a group of industry notables. See the rest of the list on WWD.com. (📷: @vsteves) #wwd40
@eyeswoon blogger Athena Calderone debuted her first-ever cookbook, “Cook Beautiful,” which is heavily centered on the presentation and visual expression of food. Pictured here are her miso glazed carrots from the book. Get the recipe on WWD.com. (📷: @johnny_miller_) #wwdeye
“It’s passion that helps get anybody to a certain point and it’s what’s propelled me,” said Kith founder @ronniefieg, one of WWD’s 40 under 40: a group of industry notables who are changing the face of retail, fashion and beauty. Fieg, who opened a Manhattan flagship on October 7, began his career at age 13 as a stock boy and salesman for footwear chain David Z. “I think staying true to [my] beliefs, hard work and passion have gotten me to where [Kith] is today.” See the rest of the 40 at WWD.com. (📷: @vsteves) #wwd40
25-year-old @samweaving is about to break out this fall, starring in Netflix’s horror film “The Babysitter,” fittingly out today on Friday the 13th. That’s not the only place you’ll be seeing her, though — Weaving’s got a role Showtime’s “SMILF” and another alongside Frances McDormand and Woody Harrelson in “Three Billboards Outside Ebbing, Missouri.” Though she’s got a full plate at the moment, there’s one role she’s got her eye on: Marilyn Monroe. “I’m a little too young at the moment, but it’s on my bucket list,” the actress told WWD (📷: @dandoperalski) #wwdeye
BFF's Poppy Jamie and Suki Waterhouse celebrated the launch of their bag line Pop x Suki at Nordstrom last night. "The line is really about our friendship, and how we are so different but complement each other," said Waterhouse. 👯 (📷: Katie Jones) #wwdeye
After designing the new @louisvuitton and @bulgariofficial flagships and a @chanelofficial boutique opening in Japan, @petermarinoarchitect has another project on his plate: The Lobster Club. Located in the Seagram Building, it’s the famed architect’s first restaurant project in New York, serving up modern Japanese brasserie-style cuisine. Bronze hues, bespoke material detailing, blush and chartreuse tones and a heavy emphasis on Picasso can be seen throughout. Mark your calendars for Nov. 1 for the much-anticipated opening. (📷: @clint_spaulding) #wwdeye
Did you know: @carlychaikin of "Mr. Robot" has been painting for about a decade? The actress, who plays Darlene on the show, is a self-taught artist who lists Salvador Dalí and Chuck Close as some of her idols. Chaikin told WWD that painting is a form of meditation for her — A much-needed one given the intensity of "Mr. Robot." See a piece Chaikin is working on at WWD.com (📷: @jilliansollazzo) #wwdeye