Shares of the company shot up 8.4 percent to $124.17 on Tuesday after the firm’s fiscal third-quarter sales and profits came in better than expected.
Patrice Louvet, president and chief executive officer, told WWD that the “Next Chapter Plan” was bearing results.
Certainly, the firm’s 18 percent increase in marketing expenditures and the other strategic steps the company has taken seem to be having an impact.
“Average unit retail prices were better than expected across all the regions and all the channels we operate in,” Louvet said. “This is really the result of the work we’re doing to elevate the brand, to improve marketing, better engage with consumers, improve product and pull back on promotions.”
The increase in prices — the trend was particularly strong online, where prices rose 9 percent — stood out in what the ceo described as “a more promotional environment.”
Net profits tallied $120 million, or $1.48 a diluted share, reversing year-ago losses of $81.8 million, or $1. Adjusted earnings hit $2.32 a share, well ahead of the $2.14 Wall Street projected. Revenues for the quarter ended Dec. 29 increased 5.1 percent to $1.73 billion, topping the $1.66 billion analysts had penciled in.
The company’s strategic plan has it focused on winning over a new generation of shoppers, energizing core products and accelerating underdeveloped categories, targeted expansion, leading with digital and operating with discipline.
The effort could be seen across the business.
Importantly, Ralph Lauren has been cutting back on its off-price distribution and still managed to drive North American sales up 3 percent.
“Our strategy is really to get the off-price channel back to its strategic role, which is really to manage excess,” Louvet said. “It helps us elevate the brand, it helps us reduce the presence of lower-priced presentations around the market and it has a positive impact across all the key metrics you can think of. We’re very keen to make sure we show up at the right price point, at the right brand presentation.”
While the company’s business at home strengthened, the brand also gained ground in the vital growth market of China, which has been on investors’ radar since Apple warned last month of a sales slowdown in the region. Ralph Lauren’s Greater China business saw revenues gain 19 percent in constant currencies.
Overall the company’s revenues in Asia grew by 10 percent in the quarter to $275 million and the European business also grew 10 percent to $415 million. The 3 percent expansion in North America encompassed a 3 percent drop in wholesale, flat brick-and-mortar sales and a 21 percent increase online.
“We are fortunate to be underdeveloped in China, which represents a massive growth opportunity for us,” said Louvet, noting that just 5 percent of the company’s business comes from the market. “Think of the other luxury players, they’re close to 25, 30, 35 percent penetrated in China.”
But the company’s fastest-growing outlet is the web, consistent with broader industry trends.
“Strong digital momentum that really accelerated throughout the quarter across our entire digital ecosystem,” including the company’s own web site, the sites of wholesale retail partners and pure-play e-tailers. “Our digital ecosystem revenues this quarter were up 20 percent,” the ceo said.
Some of that growth — and the effort to draw in new, younger shoppers — could be seen in the brand’s collaboration with Palace, the U.K. streetwear brand. The pair launched a casual collection of men’s wear in November that was sold on the Ralph Lauren Polo app as well as the company’s digital flagship in Europe and through Palace’s retail network. The collaboration exceeded Ralph Lauren’s expectations, generating more than two billion impressions with roughly 75 percent of the people who purchased a look new to the brand.
Despite some solid steps forward, there are also plenty of potholes ahead.
“We stay in touch with the uncertainties relative to the political and trade situation, but as far as the consumer is concerned, from what we saw in our network…the consumer remains relatively healthy,” Louvet said.
“Based on this quarter we’re actually feeling confident that our strategic investments in product, in marketing, in digital and in international expansion are on the right track. Obviously we still have work to do, but we’re encouraged by the progress. We’re about nine months into our Next Great Chapter plan…and we feel like we’re on track.”
Ralph Lauren, executive chairman and chief creative officer, added in a statement: “Our passionate teams are focused on staying true to the authentic expression of the Ralph Lauren lifestyle while evolving with the changing consumer and global retail landscape around us. As we continue to strengthen the foundations of our business and elevate our iconic brand, I am pleased with the progress we are making.”