Ralph Lauren Q2 Profit Up 18% as U.S., Europe Sales Surge

Holiday at Ralph Lauren

New York—Ralph Lauren Corp. said today its second quarter profit increased nearly 18% driven by double-digit sales increases in the United States and Europe.

But while the company raised its full year forecast, its share  prices declined in early trading this morning as its third quarter estimates were lower than expected and its gross margin was squeezed by higher costs.

For the quarter ended Oct 1., Ralph Lauren Corp, formerly Polo Ralph Lauren, reported its net income surged 17.4% to $233.5 million, or $2.46 a share, from $205.2 million, or $2.09 a share, a year earlier.

Net revenue climbed 24% to $1.85 billion, driven by a 20% gain in its wholesale sales to $995.5 million and a 31% increase in its retail sales to $861.3 million.

The results easily exceeded analysts’ average estimate for $2.46 on revenues of $1.84 billion.

Full Year Sales Forecast Increased

The company credited its higher net revenues primarily to global wholesale shipment growth, strong retail sales worldwide and favorable foreign currency effects. “A contributing factor was growth in international revenues, which rose 60% in the first quarter and accounted for 36% of the company’s consolidated sales,” the company said, noting its expansion in Europe in both retail and wholesale.

Although Ralph Lauren’s gross profit in the quarter jumped 21.0% year over year to $1, 07 billion, its gross margin contracted to 56.6% from 58% a year ago. The decline in gross margin was mainly due to increased cost of goods sold partially offset by better geographic and channel mix and increased prices on some products, the company said.

“Our products are an important driver of our success, as are the proactive planning and merchandising strategies that are not only supporting market share gains, but also helping to mitigate substantial cost of goods inflation,” said Roger Farah, president/ceo. “And while we continue to face margin pressure for the remainder of the year, even as we contend with considerable market volatility and geopolitical uncertainty, we are excited about our long term growth prospects.”

As a result of its momentum, the company increased its fiscal 2012 sales forecast to a high-teens-to-low 20% rate, up from its prior prediction of mid-to-high-teens. Analysts’ average estimate expects $6.75 billion for the year.

As for the current quarter, which includes holiday sales, the company expects net revenues to increase at a low-teens rate, while analysts’ average estimate expects revenues to grow 13.8% to $1.76 billion.

In its retail division, total comparable store sales rose 13% during the second quarter, reflecting 5% growth at Ralph Lauren stores, a 14% increase at factory stores and 24% growth at Club Monaco stores. RalphLauren.com sales increased 25%.

Licensing revenues increased 3% to $48 million in the quarter as higher domestic apparel product royalties more than offset lower fragrance royalties and a decline in both home and international licensing royalties related to the transition of formerly licensed operations to directly controlled operations.

During a conference call with analysts, Farah was asked about the impact of economic uncertainty on holiday sales: “Our past experience suggests that the volatility in traffic has more to do with sentiment than it does with our customers’ ability to spend. Having said that, the near-term outlook for the global economy historically has been a good indicator for discretionary sales trends but has slowed. And while we are raising our sales and profit outlook for the year, it’s important to remember in the context of geopolitical uncertainty, the critical holiday selling period is still ahead of us.”

 

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