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Nov 4, 2012
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Ralph Lauren profit beats as sales hold up

Nov 4, 2012

Clothing company Ralph Lauren Corp (RL.N) reported higher-than-expected quarterly earnings on Friday as revenue held up despite growing anxiety about luxury sales.

Ralph Lauren Spring-Summer 2013 (photo: Pixel Formula)

Revenue fell 2.2 percent to $1.86 billion, but that decline was less steep than the company's forecast of a mid-single-digit percentage drop, signaling that demand for higher-priced fashion held steady during the quarter.

Without the impact of store closings in China and the discontinuation of Ralph Lauren's low-priced American Living brand, revenue would have risen 3 percent, the company said.

Ralph Lauren shares were up 2.8 percent at $163.56 in midday trading.

In October, rival Burberry Group (BRBY.L), which had given a profit warning the month before, eased concerns about the luxury market's prospects when it said sales had steadied.

Sales at Ralph Lauren have suffered by its phasing out of stores and boutiques operated by local partners in China. It plans to replace the stores over time with company-run shops that it has said will be better spots that elevate its image.

The discontinuation of the American Living brand, which was dropped by low-price department store J.C. Penney Co Inc (JCP.N) earlier this year, has also hit Ralph Lauren's sales.

Despite the strong results, the company said the difficult global economy was forcing it to be cautious in its planning and forecasts, so it lowered its outlook for the fiscal year ending in March.

The company now expects revenue to be up 2 percent to 3 percent, compared with a previous forecast for mid-single-digit percentage growth.

Chief Operating Officer Roger Farah told investors on a conference call that European business was "stabilizing," but that it was too soon for a more optimistic forecast.

In the latest quarter, wholesale sales fell 8 percent, in part because Ralph Lauren shipped fewer goods to European stores. Sales at the company's own stores rose 5 percent, even with the closings in China.

Farah also said that sales in Japan and Korea were weak.

For the current quarter, which includes the holiday season, Ralph Lauren expects a low-single-digit percentage revenue gain, with sales at its own shops vastly outperforming its business at department stores such as Macy's Inc (M.N) and other retailers that carry its various brands.

This week, Hurricane Sandy forced the company to close 81 stores, about 20 percent of those it operates directly, and 12 were still shut on Friday. Still, Ralph Lauren said it expected only a "modest" impact on quarterly sales.

Net income fell 8.5 percent to $213.7 million, or $2.29 per share, in the second quarter ended September 29, from $233.5 million, or $2.46 per share, a year earlier.

Excluding one-time tax items, Ralph Lauren earned $2.45 per share, above the $2.15 Wall Street analysts were expecting, according to Thomson Reuters I/B/E/S.

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