Ralph Lauren Corp. is deep into turnaround mode, but it’s slow going and more changes appear to be looming.
In his first official talk with Wall Street, the company’s newly minted president and chief executive officer Patrice Louvet said a “strong foundation” is still being built to allow for future growth of the brand, which includes a sizable pullback from department stores and a leveling off of a more recent reduction in markdowns in stores and online.
Along with taking back more control of the brand and its position in the marketplace, Louvet said he and chairman and chief creative officer Ralph Lauren are working to “evolve” the brand and how it’s “experienced and expressed to win the hearts and minds of consumers globally.”
Louvet also noted that it’s the company’s intention to become a leader in a retail industry that is set to emerge from an ongoing period of change.
“To say the retail industry is at an inflection point would be an understatement,” Louvet said during a call with analysts. “Technology has transformed the way consumers shop and connect with retail brands. Retail store closures are near a 20-year high. To stand out and compete in this environment consumers expect an omnichannel shopping experience that’s unlike anything they’ve seen before. While not easy, I see it as our job to redefine the shopping experience of the future.”
The company is already working to get in front of a younger and more digitally dependent consumer with last month’s launch of an influencer effort on Instagram, where a new Ralph Lauren polo shirt design will be released monthly through November.
Chief financial officer Julie Nielsen also noted that the company is set to roll out a new global family campaign “with a strong outdoor and digital component” as an example of revived brand building.
Although the company still has plenty of work to do, Wall Street was heartened by Louvet’s talk and Ralph Lauren’s somewhat improved results for its first fiscal quarter, which were in line with its previous guidance. Shares jumped up trading to a six-month high of $88.75.
Such a rise makes a so-called “mini-tender offer” by TRC Capital Corp., a Canadian investment firm, for up to 1.5 million shares of Ralph Lauren at $72 per share seem like a particularly bad deal. TRC is known for such below-market offers, which essentially bank on investors selling their shares directly without checking current market prices.
Ralph Lauren said its not associated with the offer and advised its investors against selling their shares as they are below market value and subject to “numerous conditions.” The Securities and Exchange Commission also warns investors against participating in such tender offers.
Ralph Lauren’s stock was pushed up after it posted consolidated net revenue of $1.35 billion for its first fiscal quarter, a 13 percent decline from the same period last year, and yielded net income of $59.5 million, compared with a net loss of $22.3 million a year ago.
But sales are still lagging, with revenue in North America and Europe particularly affected by changes in the company’s wholesale timing and presence and the brand’s pullback on markdowns, with declines of 17 percent and 14 percent, respectively.
Comparable store sales were also down in North America by 8 percent, while e-commerce sales dropped by 22 percent. Comp sales fell 8 percent in Europe, along with a 5 percent decline in e-commerce sales in the quarter.
With the industry’s push toward digital, however, Louvet said the Ralph Lauren web site is gearing up to be the company’s flagship as well as “an e-commerce machine.” By the end of the fiscal year, he said, the web site is expected to be “something we’re excited about.”
As for how he intends to improve sales or if he intends to realign Ralph Lauren’s internal restructuring plan, referred to by the company as the “Way Forward Plan,” Louvet said “it’s too early to talk about the evolution of our strategy,” but he did allude to more belt-tightening in the company’s future.
“We aim to increase our productivity by continuing to simplify and streamline our operations company-wide so we can invest in growth,” Louvet said.
Growing revenue will be a central focus in the months to come, according to Louvet, as will making Ralph Lauren “more digital” and “more global.”
Although the company said at the time of the Greenwich store closure that no other doors were set to be shut, Nielsen said Tuesday that five stand-alone stores were closed during the first quarter, while six opened, giving the company a total of 467 locations. That number is expected to remain flat this year.
Plans for the company outside of branding efforts are also a mystery to financial analysts like Ike Boruchow of Wells Fargo, who said in a note that “the company’s future still lacks transparency” and that it’s “not out of the woods.”
Boruchow, however, characterized Ralph Lauren’s results as a “very nice start” to its fiscal year, and pointed to the company’s second-quarter outlook of revenues down by between 9 percent and 10 percent as a good sign. Wall Street had projected declines of more than 12 percent for the quarter.
“While both retail and wholesale continue to shrink, we believe the Way Forward Plan initiatives are gaining some traction,” Boruchow added. “Importantly, while growth is still a ways away, and further pullbacks remain important for the health of the brand, Ralph Lauren is executing on its promised initiatives and demonstrating discipline in a challenged environment.”
Matthew Boss of J.P. Morgan also struck a positive tone in a note, saying the first-quarter results leave the company with “ample flexibility to invest in forward-looking product and marketing initiatives,” while creating a possibility for better-than-expected quarters going forward.
But Christian Buss of Credit Suisse offered a more neutral take, noting that “visibility on a return to revenue growth remains opaque” despite Ralph Lauren’s turnaround being “well under way.”
As for when Ralph Lauren may return to growth, Nielsen said the company is “not ready to call the inflection point precisely.”
“We are looking to balance efficiency with getting back to growth,” Nielsen added. “But it has to be sustainable, profitable growth.”
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