Ralph Lauren Corp. is shifting gears, eyeing a new global brand management operating model that could yield $100 million in annualized savings once fully implemented.
That’s a move that could offset external issues down the road, particularly if currency pressures continue — as they did this past quarter — and U.S. store traffic remains a risk for the company.
On Thursday, the company posted a rare miss on third-quarter profits and revenues, and lowered the fourth-quarter bar with its second guidance revision downward in the past year.
Investors were not happy and sent shares of Ralph Lauren down 18.2 percent to $139.71 in Big Board trading.
For the three months ended Dec. 27, net income fell 9.3 percent to $215 million, or $2.41 a diluted share, from $237 million, or $2.57, a year ago. Net revenues inched up 0.9 percent to $2.03 billion from $2.02 billion, which included a 0.8 percent gain in net sales to $1.99 billion. Wholesale net sales fell 0.4 percent to $837 million, while retail net sales gained 1.7 percent to $1.15 billion. Consolidated comparable-store sales fell 2 percent. Wall Street analysts were expecting income of $2.50 a share on $2.09 billion in revenues.
The company saw modest growth in the Americas, hurt by lower customer traffic to brick-and-mortar stores including its outlet channel, although the e-commerce business grew at a double-digit rate. Overseas, the best trends were in Northern Europe, while it saw recovery in Southern Europe and steady expansion in Central Europe. The company also saw high single-digit constant currency growth in Asia.
The firm, citing foreign exchange and unpredictable global consumer spending, cut its full year revenue growth guidance and now expects it to expand 4 percent in constant currency. The revised outlook is the second time the company lowered guidance. In October, it cut its forecasts to 5 to 7 percent from its earlier 6 to 8 percent range.
Ralph Lauren, chairman and chief executive officer, said, “Our year-to-date results reflect continued focus on our long-term strategic growth initiatives.” He cited the opening of several stores around the world, upgrades to the company infrastructure and Polo for women as some of the recent corporate projects.
Jackwyn L. Nemerov, president and chief operating officer, said in an interview, “We had a very strong dress season, with terrific growth in footwear and accessories.” She also noted that the new technical fabrications in its Polo line has had positive responses, boding particularly well for the global launch of Polo Sport for men and boys in the fall.
Christopher H. Peterson, chief administrative officer and chief financial officer, said in the joint interview, that now that the company has bought back a number of licenses — both by geographic region and product category — it made sense to start investing in systems to view its data on a global basis. Calling it a “significant change” that the company has been considering for some time, Peterson said the new structure will unleash the power of the company’s different brands and provide better brand consistency.
A global supply chain team is already in place, which helped with sourcing and delivery in the third quarter as the company, like others, dealt with the West Coast port situation. The team has also helped the company better leverage volume growth and be more disciplined with managing product minimums, reducing product lead times and consolidating shipments.
While some specifics are still to be decided — Peterson said there’s been no decision yet on whether the company will hire an executive to lead the global brand management team, nor even any decisions on whether there will be individual brand leaders reporting to a central team leader if that were the case — the idea is to have a core group of individuals focusing on one brand so there is a consistency in product and brand messaging across the entire line worldwide. Some staffers work across multiple projects on the firm’s eight brands.
The cfo said the company will provide more details in May when it reports fourth-quarter results.