NEW YORK — The stronger dollar and infrastructure investments took a big toll on Ralph Lauren Corp. in the first quarter, but the company still managed to beat Wall Street’s consensus estimates for the period.
The company said net income fell 60.5 percent to $64 million, or 73 cents a diluted share, from $162 million, $1.80, a year ago. Excluding restructuring and noncash charges connected with its global brand reorganization, net income was $95 million, or $1.09 a diluted share, which beat Wall Street’s expectations of 99 cents.
As for revenues, the company also bested Wall Street’s estimates of $1.61 billion. Revenues slipped 5.3 percent to $1.62 billion from $1.71 billion. Net revenues included a 5.5 percent slide in net sales to $1.58 billion from $1.67 billion. Included in net sales was a 9.3 percent slip in wholesale sales to $642 million and a 2.6 percent dip in retail net sales to $935 million. Retail comps fell 8 percent, but on a constant currency basis declined 2 percent.
Shares of the company slipped 1.5 percent on Wednesday to close at $121.50.
“We are making the right strategic decisions and investments to support the future growth of the company,” Ralph Lauren, chairman and chief executive officer, said Wednesday.
Jackwyn L. Nemerov, president and chief operating officer of Ralph Lauren Corp., said during a call to Wall Street analysts that the company delivered results that “were better than our expectations. This was driven by the company’s attention to careful disciplined operational and expense management. We are pleased with these results in the context of the environment in which we operate and we are on track to deliver our plan for the fiscal year.”
She explained that the first half was negatively impacted by the Easter calendar, significant foreign-exchange pressure and the company’s infrastructure investments. In contrast, for the second half, “we expect to see both sales and profit improvement due to the launch of Polo Sport, in the opening of new stores, the impact of product-loss savings and pricing actions in the benefit of our restructuring activities,” she said, noting that the foreign-exchange pressures are expected to lessen as the year progresses.
The company said net revenues for the second quarter of fiscal 2016 are expected to grow 3 percent to 5 percent in constant currency.
The company saw global tourist patterns shift as consumers adjusted their travel and purchasing plans to make smart spending decisions. That has meant increases in traffic in Europe and Japan due to a weaker euro and yen, while the strong dollar has slowed sales in the U.S. Europe had a strong quarter, with revenue up 10 percent in constant currency, while in Asia revenue was up 9 percent in constant currency. About 20 percent of the company’s sales are driven by foreign tourists globally in its retail stores.
Nemerov also said that as the U.S. retail environment became more promotional, “[w]e made the decision to be less promotional than the landscape because we believe it’s critical to protect our brand.” She said that there has been positive feedback from retailers on the company’s decision to create a singular Ralph Lauren Collection label for women and the Ralph Lauren Purple Label for men.
Christopher H. Peterson, president of global brands, said the company has raised prices for the cruise and spring seasons in markets impacted by currency devaluations, an action that it said the last quarter it was planning on doing. “These pricing actions are generally in the mid to high single-digit range. Our retail partners have been very receptive to the price increases and we believe our competitors are implementing pricing actions as well,” he said.
Peterson noted the benefit would show up on the income statement in the back half of the fiscal year. “In addition, we continue to expect lower product costs in the back half of the fiscal year from lower raw material and oil prices,” he said.
Peterson also noted that the new operating model has a new design merchandise and assortment planning process that it is rolling out as a pilot program called the global line plan. The Polo men’s business will be the first brand to test the pilot for the fall 2016 season. Learnings from the pilot will help with the rollout to the other brands in spring 2017 and beyond, he said, adding that the new organizational structure essentially will lead to a “significant reduction in SKUs, as well as sample and design costs, which will lead to better inventory turns, higher gross margins and meaningful SG&A cost savings.”
As for an update on the brand management organizational structure, Peterson said six brand presidents have been identified, reflecting “an equal balance of Ralph Lauren veterans, with a significant experience inside the organization and outside critical category expertise.” The company has also begun identifying the design, merchandising, marketing and finance leads for their respective teams, he said.
A spokesman said the individuals identified for the brand presidents have yet to be revealed internally.