Ralph Lauren earnings beat analysts’ estimates as the apparel chain’s bottom-line benefited from reduced discounting and inventory.
For the first quarter, Ralph Lauren earned $59.5 million, or 72 cents per share, compared with a loss of $22.3 million, or 27 cents per share, a year earlier.
The year-ago results reflected restructuring-related inventory charges of $54 million. Excluding restructuring costs of $700,000, adjusted earnings for the current period were $1.11 per share, easily beating analysts’ consensus forecast of 96 cents per share.
“Ralph Lauren’s profit beat comes at a time when the company has been keeping a razor-like focus on its inventory in an industry battered by sluggish spending and competition from online and fast-fashion retailers,” Reuters said.
Inventory levels fell by 31% in the first quarter and the company is planning to pull back inventory from 20% to 25% of U.S. department stores during the second half of the year.
“It simply isn’t credible for a high-end brand to simultaneously showcase itself in a glitzy store on Madison Avenue, while at the same time hawking a random assortment of sweaters thrown in a ragtag way on a table in Macy’s,” said Neil Saunders, managing director of research firm GlobalData Retail.
As part of its turnaround strategy, Ralph Lauren has also reduced sales in the off-price channel, engaged in fewer promotional periods, closed stores and exited underperforming brands. Its adjusted gross margins rose 210 basis points to 63.2% in the first quarter, helped by a double-digit decline in costs.
Same-store sales fell 7% in the quarter, better than the 7.5% drop expected by analysts and an improvement on the 12% decline in the fourth quarter of last year. Revenue in North America fell 17% to $710 million, but the company attributed that in part to “a strategic reduction in shipments and promotional activity to increase quality of sales.”
Looking ahead, Ralph Lauren said it expected full-year revenue to decline by about 8% to 9%. On news of the earnings Tuesday, its shares rose more than 13% to $88.53.