Ralph Lauren Corp.’s new chief executive officer Stefan Larsson has hit the ground running — literally, and he’ll be logging plenty of frequent flier miles to boot.
In a telephone call following the company’s report of second quarter earnings — profits and sales for the period were lower than a year ago, but the company managed to beat Wall Street’s estimates – Larsson, who started his new position this week, spoke about his key priorities over the next few months. “Number one is to learn the business as quickly as possible, what’s made this company great,” he said.
“Number two is with the team to assess where we stand right now and slowly start to refine our growth [plans] for the future. In order to do that, I plan to spend time with the team across the country. I plan to travel — because we have a global presence — to the stores in the U.S., and the stores in the different channels going to Europe and Asia. I want to meet with the customers to understand their needs.
“Third, I want to spend time with the investment community to get to know them. All of this is to build a solid foundation to lead the company forward,” Larsson said.
He’s starting out on the right foot with investors, who liked the company’s second quarter earnings and sent its shares soaring by 14.9 percent to close at $130.50 in Big Board trading.
For the three months ended Sept. 26, net income fell 20.4 percent to $160 million, or $1.86 a diluted share, from $201 million, or $2.25, a year ago. Net revenues slipped 1.2 percent to $1.97 billion from $1.99 billion, which included a 1.3 percent decrease in net sales to $1.92 billion from $1.95 billion. Included in net sales was a 1.7 percent slide in wholesale net sales to $927 million from $943 million and a 1 percent dip in retail net sales to $996 million from $1.01 billion. The balance was from licensing revenues, which rose 5 percent. Wall Street was expecting EPS of $1.74 on revenues of $1.95 billion.
Ralph Lauren, executive chairman and chief creative officer, said, “We achieved several critical goals, including the worldwide launch of Polo Sport, implementation of the new global brand structure, and strong growth in our international businesses during the quarter.”
The company said that wholesale sales rose 3 percent on a constant currency basis, driven by strength in Europe across all brands. In the retail segment, consolidated comparable store sales fell 1 percent on a constant currency basis, and was down 6 percent on a reported basis. Gross profit for the quarter was $1.1 billion, and the gross profit margin was 56.6 percent.
In the telephone call, Christopher H. Peterson, president of global brands, attributed the second-quarter beat to the global brands reorganization initiatives that are beginning to show results. “That is a big part of it,” he said, noting also cost savings on SG&A, fewer SKUs, lower sourcing costs and better full price selling.
The company raised its estimate of annual expense savings from the program to $110 million from $100 million.
Peterson said that pulling back on SKUs is just a “small piece” of the overall strategy, noting that the effort is about trying to control the promotional cadence, which helps to manage the inventory buy and elevate full price selling. “The consumer is reacting and buying. The only place we’ve seen a sort of a slow down in consumer purchases is at the U.S. department store channel. That has been the result of foreign tourist [traffic] being down and to warmer weather,” he said.
Peterson said that tourist traffic has been up in Europe and Japan, and that is likely to continue through the holiday season, due to the strength of the U.S. dollar.
The company is completing its business planning for the Polo men’s product line through fall 2016. It is also the business where the company will be able to test a strategy of moving lighter weight products into three deliveries for company stores in the South and in other warmer weather locales. According to Peterson, the idea is to meet the current trend in its stores that the company has seen of consumers “buying more wear-now products.” The new line hasn’t been shown yet to its department store buyers, but Peterson is confident of a positive reaction. “
Certainly in [our] conversations with department stores, they are seeing the same trends,” he said, and that translates into both wear-now product and differentiated product assortment to suit a store’s local climate needs.
As for the Polo’s women’s business, Peterson said it has been stronger internationally. Many European and Asian stores were originally Blue label locations, which have since been converted to women’s Polo stores. The women’s Polo business has surpassed the size of the Blue label business at those sites, and at price points that are below where Blue label was, he said.