Ralph Lauren CEO: Consumers are battling headwinds, but higher-end shoppers remain resilient
It was almost a gold medal quarter for Ralph Lauren (RL).
But silver will have to suffice.
Shares of the apparel retailer rose 3% in premarket trading on Thursday, recovering from a drop on Wednesday despite reporting better-than-expected quarterly profits.
The company bucked the degree of soft results seen at rivals such as Levi's (LEVI), Lululemon (LULU), Nike (NKE), and VF Corp. (VFC) amid consumer pullback in discretionary spending.
Ralph Lauren's more refined assortment of high-end styles drove consumers into its stores globally — particularly in Europe, Japan, and China. Sales lifts from Ralph Lauren outfitting the US Olympics team and other events like the US Open also aided performance.
"I think it's pretty clear wherever you look that the overall consumer is being pressured by the cumulative effect of inflationary pressures and interest rates," Ralph Lauren CEO Patrice Louvet told me on Yahoo Finance's Market Domination Overtime.
"As far as our core consumer is concerned, we actually find them to be very resilient."
Ralph Lauren exited the quarter with inventory levels down 13%, while also reaffirming its sale and profit goals for the fiscal year.
"Solid [earnings] print with much better than expected results in Europe, North America a bit softer (but some timing shift impact), and Asia strong and in-line with the street (a positive given the negative noises from other consumer companies there recently). Think the stock moves higher on this," said JPMorgan's team following the earnings report.
Where the company saw a downturn was in its North American business.
Ralph Lauren continues to contend with dual headwinds of exiting underperforming department store locations and more cautious US shoppers.
In North America, the company's wholesale sales fell 13%, while e-commerce sales dropped 4%. Comparable sales at its physical stores increased 3%.
"So we've basically guided that this year we'll close about 45 doors in total. I think over the next two to three years, we'll probably close 150 doors," Louvet said.
"We're really clear that we're working for the long term. We're working to make sure that this brand comes through in all the touch-points consistent with Ralph's vision. We apply a pretty rigorous filter to where we show up and how we show up," he continued.
Q1: The earnings rundown
Net sales: $1.5 billion, +1% from the prior year vs. $1.49 billion estimate
North America revenue: -4% to $608 million vs. $619 million estimate
Europe revenue: +6% to $479 million vs. $447 million estimate
Asia revenue: +4% to $391 million vs. $386.4 million estimate
Adjusted gross margin: 70.5% vs. 70.2% estimate
Adjusted EPS: $2.70, up 15% from the prior year vs. $2.47 estimate
What else caught our attention: Forward comments
Q1 North America wholesale sales: -13%
Q1 operating margins: rose in all business segments, led by Europe and Asia
Q1 inventory: -13%
Full Fiscal Year Guidance
Constant currency sales: +2% to +3% (reiterated)
Operating profit margins: +100 to +120 basis points (reiterated)
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