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NEW YORK — Ralph Lauren Corp. is pushing into China at last, and expects the move will lift its business worldwide.
This story first appeared in the May 23, 2012 issue of WWD. Subscribe Today.
The company plans to open 60 stores in Greater China within the next three years. The first 15 units, slated to start opening in Beijing, Shanghai and Hong Kong around mid-fall, will bow by the end of fiscal 2013, around the end of March. Once that presence expands, the company expects it will get a bigger piece of the business from Chinese tourists traveling to Europe.
The company is still identifying premier locations for the balance of the 45 new sites, and it already has a few firm commitments in place for locations in shopping malls scheduled to open in 2014.
“We are in the midst of transforming our presence in Greater China, a region that we believe will become an important driver of growth for us over the long term, and have some magnificent new stores planned for the next several years,” said Ralph Lauren, chairman and chief executive officer.
Comparing the company to other luxury brands, Roger Farah, president and chief operating officer, said a larger percentage of their business in Europe comes from Chinese tourists, reaching up to 20 percent, compared with Ralph Lauren’s 2 percent.
“We don’t have a presence in China yet, so we’re not as well known [to the Chinese consumer],” Farah told WWD. “We don’t see them coming into Europe shopping for [our] brands based on big [marketing] statements in China.”
The Chinese boost will come in handy in Europe, where Farah admitted the firm is seeing the impact of the economic travails in the euro zone. As a result, the company is cautious in its estimates for European sales since it is seeing a slowdown in the business. He said, “We [do] expect to see increases for fiscal 2013, but lower in terms of gains compared with last year,” said Farah.
That is likely to impact the company’s wholesale sales results next year, which also will be affected by the company’s continuing shift to more of a retail model and less of a wholesale one. The current forecast for fiscal 2013 is for a low-single-digit decline in wholesale sales and a low-double-digit increase in retail sales. Farah explained that the estimates reflect the reduced distribution in China due to the repositioning effort toward more company-owned retail sites and the exit of American Living at J.C. Penney stores. He emphasized that where the wholesale accounts were converted into retail, comps are expected to rise as sales at those doors increase.
The cautious outlook caused Ralph Lauren’s shares to slip slightly by the end of Tuesday’s trading after rising as high as $161.30 in intraday trading. They closed up 2.7 percent on the Big Board, at $150.27.
The 2013 outlook comes off of a year that saw Ralph Lauren’s net income leap 29 percent in the fourth quarter, beating estimates by 14 cents, and 20 percent for all of fiscal 2012.
For the fourth quarter ended March 31, net income was $94.4 million, or 99 cents a diluted share, from $73.2 million, or 74 cents, last year. Wall Street’s consensus estimate from analysts was 85 cents.
Net revenues rose 13.7 percent to $1.62 billion from $1.43 billion. That included a 10.2 percent rise in wholesale net sales to $828 million from $751.5 million and a 19 percent gain in retail net sales to $751.5 million from $631.3 million. Comparable-store sales rose 12 percent. By segment, ralphlauren.com posted a 30 percent increase in comps, Ralph Lauren stores gained 5 percent, factory stores rose 10 percent and Club Monaco saw a 14 percent growth rate.
For the year, net income rose 20 percent to $681 million, or $7.13 a diluted share, from $567.6 million, or $5.75, last year. Total net revenues rose 21.2 percent to $6.86 billion from $5.66 billion.