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Ralph Lauren said first quarter revenues remained flat year-on-year at $1.5 billion, as recovery in China failed to offset a dip in the US. Shares fell 3 per cent in pre-market trading.
“We started year two of our ‘Next Great Chapter: Accelerate’ plan with continued progress on our long-term strategic commitments,” CEO Patrice Louvet told analysts during Thursday morning’s earnings call. “Our first quarter results exceeded our expectations on both the top and bottom line in what continues to be a highly dynamic global operating environment.”
The decline in US consumer spend impacted the quarter’s results, as revenues dropped 10 per cent year on year to $632 million, after a 3 per cent fall last quarter. It’s a heavy hit, as North America is Ralph Lauren’s largest market. Louvet attributed this decline primarily to the pullback of the aspirational luxury consumer in the US. “We continue to be mindful of macro inflationary challenges facing our more value oriented consumers, particularly in North America,” he said.
Luxury companies across the board are feeling the pinch thanks to the US downturn. The local market is also consolidating. Tapestry, parent company of Coach and Kate Spade, said Thursday it is acquiring Capri Holdings, the owner of Michael Kors and Versace, in an $8.5 billion deal.
Louvet pointed out that the “value-oriented” consumer is becoming a smaller percentage of Ralph Lauren’s base as the brand targets luxury customers. COO and CFO Jane Nielsen said she expects North American revenues to increase in the second half of the year thanks to digital investments and key moments like the brand’s forthcoming New York Fashion Week show.
In Europe, the company’s second largest market, sales rose 8 per cent to $450 million. Asia rose 13 per cent to $378 million, continuing last quarter’s growth in the region led by China’s comeback. “Across Europe and Asia, we drove brand heat through experiential events like our California Dreaming key city takeovers, exclusive private client events and influencer campaigns to build our presence in both new and existing ecosystems from Paris to Shanghai, Tokyo and Seoul,” Louvet told investors. He also flagged store openings in cities including Amsterdam, Taiwan and Kuala Lumpur to anchor city presence. These are part of the brand’s 28 store openings in the quarter, the majority of which were in Asia with a focus on China.
China sales grew more than 50 per cent year over year — with easier comps due to last year’s lockdowns, Nielsen flagged. Louvet also highlighted that more than 40 per cent of transactions in the country are from new consumers. “Looking ahead, we still expect China to remain one of our fastest growing markets,” he said.
For the year, Ralph Lauren’s forecast is muted, and takes into account inflationary pressures and foreign currency volatility. The brand has maintained its guidance, and anticipates revenues to increase in the low-single digits. It expects Asia to lead top line growth, up double-digits, followed by low-single digit growth in Europe, Nielsen said. The brand forecasts a low-single digit decline in North America based on softer spring trends in the first half of the fiscal year.
“Ralph and I are energised by our team’s solid start to this fiscal year,” Louvet said. “We continue to focus on offence, agility and pragmatism in these dynamic times. And, we believe Ralph Lauren is firmly in a position of strength to deliver on our strategic commitment underpinned by Ralph s timeless vision and the strength of our iconic brand.”
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