NEW YORK — Ralph Lauren’s American Living will soon be no longer at J.C. Penney.
This story first appeared in the February 9, 2012 issue of WWD. Subscribe Today.
The label developed by Lauren’s Global Brand Concepts Division will make its last shipments of American Living for spring-summer.
Roger Farah, Ralph Lauren Corp.’s president and chief operating officer, told analysts during a conference call about the firm’s third-quarter results, “We were at the end of a five-year commitment to American Living,” noting that the door is open to further dialogue.
There were rumblings in December that American Living might be a casualty of the reinvention plan orchestrated by Ron Johnson, J.C. Penney Co. Inc.’s chief executive officer. Launched in 2008, it was deemed pricier than what the retailer’s customers were used to, and in 2009 opening price points were lowered.
Further signs the brand might not be part of Johnson’s vision came in his presentation here last month, when American Living was not one of the focal points.
Analysts shrugged off the news of the label’s demise, however. Shares of Ralph Lauren jumped 9.2 percent to close at $171.49 on Wednesday after the firm posted third-quarter results that were essentially flat from a year ago due to higher production costs, but that still managed to beat Wall Street’s expectations.
For the three months ended Dec. 31, profits inched up 0.4 percent to $169 million, or $1.78 a diluted share, versus $168.4 million, or $1.72, last year. The consensus estimate among analysts was $1.67 a share. Selling, general and administrative costs rose 15.1 percent in the quarter to $754.3 million from $655.3 million.
Total sales rose 17.2 percent to $1.76 billion from $1.50 billion, which included a 10.9 percent gain in wholesale sales to $750 million and a 22.4 percent jump in retail sales to $1.01 billion. Including licensing income, total revenues for the quarter rose 16.6 percent to $1.81 billion. Comparable stores rose 12 percent, reflecting gains of 31 percent at ralphlauren.com, 17 percent at Club Monaco stores, 9 percent at factory stores and 7 percent at Ralph Lauren stores.
Ralph Lauren, chairman and ceo, said, “The progress we are making at our retail segment is very encouraging, particularly as we continue to invest in new stores and e-commerce worldwide.”
Farah told Wall Street analysts during a conference call that while the firm experienced margin compression, it expects to “begin to see some relief with our fall 2012 shipments.”
In a telephone interview, Farah explained that the relief will come from reduced cost inflationary pressures. “The cost of cotton has come down meaningfully from its peak this time last year,” he said. “Cotton is the dominant raw material that we use. Last year, everything went up. Wool, silk, leather, metals, but cotton went up 2 to 2.5 times and has now retreated back to a more normal [pricing range].”
The chief operating officer also said that while labor costs have not gone down, they haven’t continued to escalate at the rate they had before. “It’s more manageable for fall 2012 and beyond,” Farah said.
He also said that growth in China will be “just down a tick,” emphasizing that the concerns about the slowdown are “overstated” and a bit “misleading.” He noted that China’s economy is so big that it “can’t keep packing on 9 or 10 percent a year. Any country right now would sign up for an 8 or 9 percent growth rate.”
According to Farah, Club Monaco is gearing up to launch its e-commerce site in the U.S. and Canada in March. The contemporary brand, which features a feminine and sexier product line that is resonating with the female consumer, is expected to become a bigger global platform over the next few years.
The company said due to stronger-than-expected third-quarter performance, it is now expecting consolidated revenues for fiscal 2012 to increase by 20 percent, versus previous forecast growth percentages in the high teens to low 20s.