Ralph Lauren RTW spring 2018

The second quarter was a good one for Ralph Lauren Corp., as the push for quality-of-sales — along with far fewer discounts and reduced off-price shipments — boosted the company’s bottom line.

Patrice Louvet, president and chief executive officer, said on a conference call to Wall Street analysts Thursday, “While we’re certainly not where we want to be yet, we are encouraged that second-quarter revenue was at the high end of our guidance and we outperformed on operating margin as our quality-of-sales initiatives overdelivered [on] our expectations.”

For the three months ended Sept. 30, the company posted net income of $143.8 million, or $1.75 a diluted share and $1.88 on an adjusted basis, on net revenues of $1.66 billion. Wall Street was expecting adjusted earnings per share on $1.88 on net revenues of $1.65 billion.

Shares of Ralph Lauren closed up 2.5 percent to $91.66 on the Big Board.

Louvet said the focus on driving “efficiencies” will continue through the rest of the year, and “we are on track to deliver our full-year targets.”

He also said that in the past few months, he’s met with many key suppliers and customers, as well as thousands of employees around the world, and that he and Ralph Lauren, the company’s founder and chairman, “have developed a very close and productive partnership.”

The four key initiatives that the company is focused on for quality growth, as well as to drive productivity, include elevating the brand, evolving the product, expanding digital and international, and finding new ways to “drive productivity and agility,” he said.

Patrice Louvet  Joshua Scott

What seems to have really boosted the firm’s second-quarter results was the work on improving quality of sale. Louvet told analysts the reduction in discount rates and increase in average unit retail led to an AUR gain of 5 percent across the company’s direct-to-consumer network. Further, gross margin was up 300 basis points and the company continues to close unproductive distribution in retail and wholesale, as well as “significantly” reduce its off-price shipments.

Helping the bottom line has been a more disciplined assortment, with certain key product updated in ways that have been “resonating with Millennials.” Louvet said the work was most evident in certain Polo merchandise, with the fall product having increased full price sell-through at higher AURs and gross margins.

He also spoke about creating limited-edition merchandise to give consumers a reason to engage with the brand. One example the ceo cited was the Stadium collection, originally introduced to celebrate the 1992 Summer Olympics, with replicas and modern interpretations that became available in September. According to Louvet, “We sold out several millions dollars within hours. Importantly, 78 percent of the people who purchased Stadium at a Ralph Lauren store in North America were new consumers to the brand.”

The ceo said the company has also upped its digital and social media outreach.

Other areas of focus include expanding both its digital and international presence. Mainland China continues to be a significant geographic growth opportunity for the firm. Louvet said revenue on the Mainland in fiscal 2017 was $50 million, and the company since then has increased its digital efforts and engagement with local influencers.

He also noted that the average age of the firm’s Chinese consumer is 34, with a 50-50 male-female mix. They are seeking higher-priced, fashion-forward merchandise and there is a higher accessories penetration rate in China than in other geographies, Louvet said. He also told analysts that the goal for Greater China — including Hong Kong, Macau and Taiwan — is to reach nearly $500 million in revenue in five years from $170 million in fiscal 2017.

Wells Fargo’s Ike Boruchow has a “market perform” rating on the stock. He noted that the Way Forward plan is working and — while still in the early innings — “upside remains.” He raised his price target to $85 from $79.

Cowen & Co.’s John Kernan has a “market perform” rating on the stock, and a price target at $100 from $97. “We think management sounds very coordinated on its plan to boost productivity and eventually top-line,” Kernan said.

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