The euro crisis and the uncertain economic conditions have had an adverse effect on the performance of many luxury products retailers in the past. An example is the famous watch maker Fossil (FOSL), which reported a weak performance a few weeks back. It was mainly due to the soft European market which constitutes around 30% of Fossil’s universe. Its results brought fear and stocks fell drastically, losing nearly 50% after the results. But the earnings report of Ralph Lauren (RL, Financial), another luxury retailer, suggests that we shouldn’t let this fear get the best of us. Let’s understand why.
A strong performance
Revenue for the quarter was up 4% to $2 billion. It is actually quite heartening to see a premium fashion chain perform remarkably well in such an uncertain situation with the difficulties of rising costs and inflation which increased input prices. Moreover, this is fourth consecutive quarter that the company has posted increase in sales and profits. However, this is just the beginning. The apparel retailer also has a strong dividend, paying out 45 cents a share for the quarter. This has certainly brought smiles to investors’ faces and they have reasons to keep smiling further.
Why Ralph Lauren is doing well
Lower tax rate and a decrease in the number of shares outstanding increased profits for the quarter. Strong growth in the wholesale and the retail segments along with Ralph Lauren’s efforts to expand its operations helped drive sales volumes. The growth in wholesale division was driven by increased demand for accessories, especially handbags, and also due to eliminations of certain home product categories which were previously licensed and are now under the direct control of the company.
The company has been putting a lot of effort in its online operations and is planning to strengthen its foothold further in the online shopping market. The efforts paid off and the revenues from the segment increased 30%, driving the overall retail sales. Growth in retail sales was also driven by new stores introduced by the retailer recently. In fact, Ralph Lauren has massive expansion plans. It is planning to expand its geographical presence by opening a total of 60 new stores in the next three years.
Conclusion
Though such impressive results have shown positive signs and the fact that there are cash rich consumers who are willing to spend on lifestyle products, there are huge concerns about economic conditions in Europe which might bring weak performances in the coming year. On the other hand, the growing accessories segment and the company’s plans to expand its presence in China can do wonders, especially if the economic uncertainty stabilizes in the coming months.
