Ralph Lauren Q1 Profit Falls on Slowed Sales

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Ralph Lauren Safari

Ralph Lauren Safari

New York—Ralph Lauren Corp. today reported a lackluster first quarter where earnings and sales results were hit by unfavorable currency exchange and disappointing sales.

For the quarter ended June 29, the apparel and accessories company posted a 6.2% decline in net profit to $181 million, or $1.94 a share, down from $193 million, or $2.03 a share, from a year earlier. Still, the earnings beat analysts’ average estimate by 1 penny.

Net sales increased 3.8% to $1.65 billion, or 6% excluding currency impacts. Analysts’ estimate expected $1.648 billion in sales.

Gross margin fell 160 basis points to 60.7% driven by the integration of its Chaps

The company’s retail sales were up 3% to $879 while comparable store sales edged down 1%. (up 1% excluding currency fluctuations.)

Wholesale revenue grew 6% to $735 million, but licensing sales fell 6% to $39 million.

‘Encouraged by Fall and Beyond’

Gross margin fell 160 basis points (bps) to 60.7%, driven by the integration of the Chaps men’s sportswear operations and negative foreign currency impact.

“Despite an uneven global operating environment, we planned the business prudently and achieved sales and profit levels that exceeded our expectations, even as we make important investments in our long-term growth objectives and in the infrastructure to support them,” said Roger Farah, chief operating officer.

Farah noted the company’s first-quarter results were actually better than it expected in both United States and Europe with softness primarily in the shop-in-shop, or so-called concession shops, in Korea and Japan.

“We feel good about our products,” Farah told analysts on a conference call. “Early reads have been good. We are encouraged about fall and beyond.”

Looking ahead, Ralph Lauren Corp. still believes sales will rise in the low single digits, despite continued currency woes and discontinued businesses. For the year, the company says, sales should rise 4% to 7%.

“We expect that our more recent investments in new stores, e-commerce operations and international expansion will contribute to accelerated sales and profit momentum in the second half of the year,” Farah added.

In a research note, JPMorgan analyst Matthew Boss called Ralph Lauren’s efforts “moves for the long term” but said the pressure on profits and slowing retail sales would hurt the company’s shares.

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