Patrice Louvet has been on a mission to move Ralph Lauren Corp. higher — pushing its average unit retail prices up nearly 70 percent over the past four years.
That drive, part of a larger push to elevate the brand, has been paying dividends for a while and on Thursday helped the company turn in better-than-expected fiscal third-quarter sales and profits.
Now, the steady campaign of price gains — which pushed third-quarter prices up 10 percent on top of 19 percent gains a year ago — is giving the brand a little extra cushion in an increasingly mixed up market.
“We expect the environment to continue to be really choppy, but we’re used to that now,” Patrice Louvet, president and chief executive officer, told WWD.
During the chaos of the last few years, Ralph Lauren has been learning to move quicker and be flexible, using the breadth of its assortment to double down on what’s hot, like more tailored looks for men.
“Through the ongoing uncertainty our teams have built an agility muscle that’s really servicing us quite well,” Louvet said. “Our Next Great Chapter strategic plan is the right plan, even in a tough environment.”
Third-quarter net income slipped 0.6 percent to $216.5 million, or $3.20 a diluted share, from $217.7 million, or $2.93, a year ago.
But adjusted earnings of $3.35 came in well ahead of the $2.92 analysts projected. And revenues for the three months ended Dec. 31 increased 0.9 percent to $1.83 billion from $1.82 billion.
Revenues were up 7 percent in constant currencies, driven by a 16 percent increase in Asia, a 13 percent rise in Europe and a 1 percent bump up in North America.
Wall Street was supportive and sent shares of the company up 1.8 percent to $119.70.
Zachary Warring, a stock analyst at CFRA Research, said the company was a “best-in-class apparel retailer with strong management, but we think shares are fully valued as consumer demand slows and inventory remains elevated, which we see pressuring margins.”
And Tom Nikic, an analyst at Wedbush, noted that “Ralph Lauren management continues to perform extremely well on their strategic vision, and they’re offsetting pockets of softness — domestic outlets and wholesale, China brick-and-mortar — with strength elsewhere in the enterprise.”
Lauren, Louvet & Co. have been tweaking the company’s product mix to emphasize higher-priced goods, focusing on markets with faster growth, better targeting promotions and raising prices as well.
Average unit retail price, the CEO said, “is an outcome of the work we’re doing on increasingly brand desirability. If you’re not improving brand desirability [and] shopper experience, there’s a limit to how much you can drive AUR.”
The overall price increases give the company “space” to react where price cuts are necessary to move excess goods or give wary consumers an extra push, according to Louvet.
“If we need to be a little more promotional to work through inventory in a specific channel, we have that flexibility, but our general direction is consistent,” he said.
That does come with costs, though.
Adjusted gross margins for the quarter came in at 65.2 percent, down 80 basis points from a year earlier, but up 80 basis points in constant currencies.
Gross margins came in weaker than the company expected due to promotions to drive conversion in the company’s outlets, stronger-than-expected post-Christmas sale days, and higher duties in Europe.
Still, Louvet said the brand’s “core consumer is resilient” with the U.S. strengthening and that China is “very promising” now that it’s reopening after the government dropped its strict zero-COVID-19 stance.
Ralph Lauren held up pretty well during the restrictions in China, but the reopening also seems to have taken something of a toll.
Louvet said that, at one point, 98 percent of the people on company’s China teams either had COVID-19 or had recovered from a bout of the illness.
“Now, we are fully reopened,” he said.
Europe is also holding up better than many expected.
Ralph Lauren continues to expect revenues will increase about 8 percent for the full year, in constant currencies and on a 52-week basis.
That stands out in a fashion landscape that seems to be retrenching with more companies — including competitor Capri Holdings — pulling back on their revenue outlooks.
“Our iconic lifestyle brand endures through both good and tough times because it stands for more than any single product or category,” said Ralph Lauren, executive chairman and chief creative officer. “It inspires people all over the world to step into their dreams — and they turn to Ralph Lauren to help create the lifestyle they want to live — forever grounded in authenticity, quality and timelessness.”
Neil Saunders, managing director of GlobalData, noted: “At a time when many other luxury players are posting modest declines in revenue, Ralph Lauren has put out a pleasingly positive set of numbers which show growth on an overall basis across all regions. Admittedly, the uplifts are very modest — with total revenue growing by just 0.9 percent — but given they come off the back of stiff prior-year comparatives and a tough market, they nevertheless represent a very solid performance.”