Consumer spending has been pretty weak in the U.S., as consumers are unwilling to spend despite the declines in gasoline prices. Thus, the retail sector is not very happy with the current scenario. Luxury retailers are especially finding it difficult to overcome the pressures and make customers buy. For instance, Ralph Lauren (RL, Financial), one of the leading marketers of clothes and accessories for men, women and children, is undergoing a tough situation. Its recently reported quarter was also a disheartening one, wherein both the top line and the bottom line were below the Street’s estimates. This resulted in a sharp fall in its share price. In fact, its shares have fallen by 15% in the last one year. Let’s take a look.
The details of the quarter
Revenue for the quarter rose 4.3% to $1.99 billion, as compared to the previous year. This was lower than the analysts’ estimate of $2.1 billion. In fact, the top line growth was lower if we take currency fluctuations into account. One of the primary reasons for this was a higher promotional environment in the U.S. On the other hand, Ralph Lauren’s stores provided no discount to the customers and were operating at full price. This made customers shift to other industry peers.
Furthermore, store traffic at its stores was less mainly because of the slowdown in the U.S. market, which made customers stay away from the premium stores. Also, a stronger dollar resulted in higher costs for the company. Thus, unfavorable currency movements were a deterrent. However, sales in the international market continued to grow, as people continued to shop at Ralph Lauren stores in the last quarter.
The adjusted earnings of the company dropped 9.3% to $2.41 per share, over last year. This was lower than the estimate of $2.52 per share. The retailer plans to reduce its costs by reorganizing its business.
By the segments
Retail sales surged 2% to $1.15 billion, over last year. This growth was mainly due to the new stores opened during the quarter. However, if we exclude the currency fluctuations, sales actually rose 5% during the period.
The Wholesale segment slipped 0.4% to $837 million, mainly because of the currency fluctuations. Excluding that, revenue rose 2% during the quarter.
Plans for the future
Ralph Lauren plans to integrate its operations into a centrally managed company. This reorganization will help in saving $100 million per year, making its bottom line grow.
Moreover, it plans to expand its international presence, especially in the regions such as Asia and Europe, where demand is on the high. It will also expand its e-commerce operations by strengthening its distribution network.
The company is also making strategies to attract more and more customers. For instance, it launched Polo for women last year and opened the first Polo flagship store in New York. This should help in expanding its customer base.
Winding it up
Along with a lackluster quarter, the company delivered a poor outlook for the rest of the year. It now expects sales to increase by 4% only, lower than the earlier estimate of 5% to 7%. Thus, the lowered outlook further disheartened the investors. On the contrary, an increase of 11% in the quarterly dividend was a respite. Still, investing in this company at this juncture might not be a wise decision.
