Ralph Lauren Corp. is showing what can happen with earnings when the consumer is put at the forefront of a company’s initiatives and strategies. A big part of its initiatives has been centered on how to grab consumers’ attention through increased marketing spending that’s weighted more toward the digital and social media channels.
The impact has been that the fashion group on Tuesday posted first-quarter results that bested Wall Street’s consensus estimates. The expectation was that Lauren would post adjusted earnings per share of $1.36 on revenues of $1.36 billion. Instead, the group reported adjusted EPS of $1.54 a diluted share on revenues of $1.39 billion.
Ralph Lauren, executive chairman and chief creative officer, said the progress in the first quarter gave him “confidence in our future as we celebrate 50 years in business.”
But while earnings and revenues topped expectations in the first three months, the group is less bullish about the full year, projecting that revenue trends will be tougher in the second six months of the year.
Still, Patrice Louvet, president and chief executive officer, said the company was on track to return to long-term, sustainable growth and value creation. He attributed that to a focus on the core principles of “putting the consumer at the center of all we do, elevating and energizing our brand and balancing productivity and growth.”
In the call to Wall Street analysts Tuesday, Louvet said, “Our goal is to recruit millions of new consumers into our brand each year. To achieve that, we are continuing to increase the marketing investments to digital channels that matter most today.”
In the quarter, the company increased its marketing spend by 20 percent. Louvet spoke about leveraging the power of cultural events influencers, noting Lauren’s sponsorship on digital and social media celebrity testing and events with influencers during Wimbledon. He said British actress Poppy Delevingne took over Polo’s Instagram stories and shared her take on Wimbledon. Other celebrities such as Emma Watson, Eddie Redmayne and Coco Lee, among others, all wore Polo to the event, and the end results was the generation of “over six billion total impressions globally from [our] extensive social media presence.” Another example was the firm’s spring 2018 Purple Label campaign, which featured Japanese actor and pop star Akira.
The ceo said the company expects its digital channel to return to growth “in the second quarter as we reposition it as our most important flagship store.” While comps at ralphlauren.com declined 2 percent in the quarter versus a year ago, the company said that was still a “significant sequential improvement” from the fourth quarter of fiscal year 2018.
Louvet told analysts the company will continue to elevate and improve its digital presence for its European sites, and in the first quarter upgraded the platform for directly operated digital software, similar to what was done last fall for its North American site. He explained that the updated software improves the consumer experience with better search tools and filters, easier to shop product pages, more personalized recommendations and a streamlined check-out process.
As for product, limited editions helped to drive interest and excitement. The ceo said the launch of CP-93, which originally became available in 1993 to celebrate the sailing’s America’s Cup, along with a new marketing campaign that “celebrated the heritage, while generating new excitement for the update fashion collection,” contributed to many of the styles “selling out within days.”
Across its core categories, Louvet said the company is refreshing fabrications. One example he gave was the use of a stretch poplin for men’s shirts and a new chino pant that uses stretch fabric. Another focus has been on building out its underdeveloped categories, such as denim, outerwear, wear-to-work, footwear and accessories. He said denim sales were up midsingle digits in the quarter, and that another strong category was outerwear, which featured lighter-weight and functional fabrics for both casual weekend and wear-to-work styles that helped drive growth for the quarter.
Another key initiative was international expansion.
“We are focused on building a compelling and competitive ecosystem,” the ceo said, explaining that the network includes digital; small-format stores, and renovated stores and shops to drive comps growth. Louvet reiterated a point made at the company’s Investor Day last month — there’s a growth opportunity on the international front because the company is ‘underdeveloped in markets like China and select European countries.'”
He told analysts, “Inland China is our largest opportunity,” and noted that the digital business is growing rapidly in the country through JD.com and WeChat. “This growth was supported by targeted marketing and social media and influencer engagement,” Louvet explained.
As for where all that growth in China is headed, Louvet said: “As we continue to expand and raise our brand awareness, we are on track to achieve our long-term goals of reaching half a billion dollars of revenue [in China] in five years.”
Jane Nielsen, chief financial officer, told analysts that key initiatives for the quarter were centered on “delivery, strong year-over-year growth, lower discounts, higher gross margins and operating profit growth.”
She also noted that in North America, full-price sales on the direct-to-consumer site were “up about 5 percent in the quarter.” She told analysts, “We ended the quarter with $2.1 billion in cash and investments, up from $1.7 billion at the end of last year’s first quarter.”
For the full fiscal year 2019, Nielsen said expectations are for revenues to be down slightly in constant currencies, including an expected decline in North America, with growth in its international business. Revenue trends are expected to be more challenging in the second half, mostly due to heavier planned reductions in shipments for the third and fourth quarters.
Investors were initially upbeat about the earnings beat at the start of Tuesday’s trading session, but the revenue expectations for the fiscal year eventually dragged down shares as the day progressed. Shares of Ralph Lauren were down 0.7 percent and closed at $134.98.