Ralph Lauren Corp. shares fell in pre-market trading after the company reported third-quarter results that included a 10 percent drop in same-store sales and said it expects fourth-quarter net revenue to be down 8 to 10 percent.
For the three months ended Dec. 30, the net loss was $81.8 million, or $1 a share, against net income a year ago of $81.3 million, or 98 cents. On an adjusted basis, excluding restructuring-related and other charges and the impact of tax reform, diluted earnings per share were $2.03, versus $1.86 a year ago. Wall Street was expecting $1.87 in diluted EPS.
Net revenues slipped 4.2 percent to $1.64 billion from $1.71 billion. Wall Street’s consensus was $1.63 billion. The company said the decline was due to initiatives to increase quality of sales, reduce promotional activity and elevate distribution. It also cited brand exits and “lower consumer demand.”
Revenue in Europe rose 8 percent to $378 million and was up 7 percent to $251 million in Asia. Revenue in North America — the market that has remained a challenge for all brands and retailers — was down 11 percent to $886 million. Comparable-store sales in North America also fell 10 percent, including a 3 percent dip in brick-and-mortar stores and a 27 percent decline in e-commerce sales. The decline in e-commerce sales was due primarily to a planned reduction in promotional activity and lower traffic.
Shares of Ralph Lauren were down 7.4 percent in pre-market trading to $105.88 at 8:39 a.m.
Ralph Lauren, executive chairman and chief creative officer, said, “as we prepare to celebrate our 50th anniversary and look ahead to the future, we continue to focus on evolving the expression of our iconic brand and its rich heritage to connect with today’s consumers in all the ways they experience our brand.”
Patrice Louvet, president and chief executive officer, said, “Focused execution on our key initiatives, especially during the important holiday period, delivered better-than-expected results for the third quarter as we drove lower discounting and better quality of sales overall.”
The ceo added that there is “still a lot of work to be done to return to industry-leading revenue and earnings growth, but these results give us confidence that we are on the right track.”
Louvet said during the morning conference call to Wall Street analysts that the company has been “working on reigniting growth while continuing to drive productivity.” He noted that “this will drive value to our shareholders.”
The ceo also spoke about progress on the company’s key strategic initiatives, as well as the shift to a digital-first mind-set. He noted that the company just completed its first Snapchat activation, and said the consumer shift to online is not just about purchasing goods. That shift is creating a “whole ecosystem,” he said, that includes shopping, research and other activities.
The company’s key initiatives have been and continue to be: elevating the brand through improved quality of sale, distribution and product; evolving product, marketing and the shopping experience; expanding the digital and international presence, and working in new ways to drive productivity and agility.
The company said it delivered across the key initiatives during the third quarter. It noted that the average unit retail across its direct-to-consumer network was up 4 percent compared to last year, and that adjusted gross margin was up 250 basis points compared to last year. Further, evolved product assortment “drove improvements in Polo fall seasonal product sell-out trend,” the company said. Other accomplishments in the quarter included a reduction in operating expenses in constant currency from increased efficiencies even as marketing investment year-over-year rose 27 percent, and the lowering of inventory levels by 16 percent versus last year, along with improved inventory turns.
The company ended the quarter with $2.1 billion in cash, short- and long-term investments and $589 million in total debt. That’s compared with $1.5 billion and $589 million, respectively, in the same year-ago quarter.
For the fourth quarter, the company expects revenue to be down 8 to 10 percent, excluding the impact of foreign currency. For fiscal 2018, the projection is for net revenue to decrease 8 to 9 percent, also excluding the impact of foreign currency.