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Slowing economies in Europe and the Far East are pinching Ralph Lauren Corp.
This story first appeared in the August 9, 2012 issue of WWD. Subscribe Today.
In reporting a 5.1 percent increase in profits in the first quarter, the fashion company Wednesday said it expects consolidated net second-quarter revenues to decline by a mid-single-digit percentage with a low-double-digit fall in wholesale revenues offset by a mid-single-digital increase in retail sales. Wall Street pushed the company’s stock down 1.2 percent to $151.17 on the second-quarter outlook.
Roger Farah, president and chief operating officer, told Wall Street analysts during a conference call that there were some challenging traffic trends in Ralph Lauren stores in Europe, and in concession shops in Korea and Japan, due to global economic issues impacting discretionary luxury spending. In addition, the company has found its factory stores to be “resilient” as consumers become more cautious in general around the world, Farah said. Also growing have been the company’s sales online, he added.
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In a telephone interview, Farah noted there’s been some slowdown in the gateway tourist locations. “Sales have flattened out, they’re not growing at the rate that it was,” he said, attributing the data extrapolation to purchasing patterns in the stores.
Still, fashion items are selling. “We see customers gravitating toward newness in fashion. When they’re buying what’s new in fashion, price doesn’t matter. [So far, based on] fall receipts, the early winners are the most fashionable items,” Farah said.
He noted leather and suede items that were hard to find in other markets were winners at Ralph Lauren stores. Also doing well were boot sales.
As for issues a year ago over raw goods costs, Farah said cotton is back to its normal range of 83 cents a pound, with other textiles, such as leather, trims and cashmere, flattening out.
Even labor costs, which had been rising, have flattened out.
“As demand for products has slowed up a bit, factories are not running up at full blast, so costs are coming back in line,” Farah said.
But Ralph Lauren’s warning about a softer second quarter comes amid growing concerns of weakening consumer demand worldwide — even as luxury groups such as PPR, LVMH Moët Hennessy Louis Vuitton, Tod’s and Compagnie Financière Richemont SA express optimism about the second half. Late last month, Coach saw its shares dive 18.6 percent after the company reported lower-than-expected sales. Lew Frankfort, chairman and chief executive officer of Coach, attributed the rare sales miss to a “softened” U.S. economic backdrop, despite internal research that consumer brand loyalty remained strong.
On Wednesday, Ralph Lauren said that for the three months ended June 30, net income attributable to the company was $193.4 million, or $2.03 a diluted share, from $184.1 million, or $1.90, a year ago. Total net revenues rose 4.4 percent to $1.59 billion from $1.53 billion. That includes a net sales gain of 4.4 percent to $1.55 billion from $1.49 billion. Included in the sales gain was an increase of 3.1 percent in wholesale sales to $694.1 million and a rise of 5.4 percent in retail net sales to $857.3 million.
Ralph Lauren, chairman and chief executive officer, said, “Our products are the lifeblood of our success, and we are building on our leadership position in apparel to create exciting new avenues of growth with handbags, footwear, watches and jewelry.”
Farah said on the conference call that “sales growth and margin structure were both better than we anticipate.” He also said consolidated sales growth was impacted in part by the closing of 60 percent of the company’s Greater China distribution network and unfavorable currency fluctuations.