Ralph Lauren's second upgrade runs through Asia
The retailer beat its own sales and margin forecasts. Asia drove most of the revenue increase, while Europe and shipment timing complicate the holiday outlook.
Ralph Lauren expected sales growth of 5%–6% for its September quarter, excluding currency swings. It delivered 9.6%, then raised its annual growth outlook for the second time this fiscal year.
Asia is increasingly important to that result. Strong store sales there helped the clothing company outpace its forecasts, while Europe's physical stores drew fewer shoppers and some North American wholesale shipments arrived ahead of schedule.
The earnings improvement also holds up after removing a large tariff refund. That leaves a stronger business heading into the holidays, with some uneven demand to navigate.
Asia supplied most of the extra sales
Quarterly revenue rose to $2.19 billion from $2.01 billion. Asia sales climbed to $571.3 million from $445.6 million, supported by both existing stores and an expanding retail network.
Research by Ticker Byline shows that Asia supplied about 69% of the increase in reported group revenue. The calculation compares each region's additional sales dollars with the total increase.
Comparable retail sales in Asia rose 24%, including strong growth in both physical stores and online shopping. Across the company, comparable retail sales rose 10%. Average selling prices also improved, helped by full-price sales and shifts in the mix of products, regions and channels.
Europe's comparable retail sales fell 1%, with physical stores down 4% despite 9% growth online. The company attributed the store weakness to lower traffic. Europe's total revenue still rose, helped by wholesale and new retail locations.
The profit gain survives the refund adjustment
A tariff refund of $82.3 million lifted reported gross profit. Ralph Lauren removed that benefit from its adjusted results, along with a related $33.2 million charitable-donation expense and other specified costs.
Adjusted earnings per share still rose to $4.64 from $3.79. The adjusted operating margin, which shows the share of sales left after operating costs, was 15.5% at constant exchange rates, versus 14.1% a year earlier. That roughly 1.4-percentage-point improvement exceeded the 0.8–1-point increase forecast in August.
| Original May outlook | August update | November update |
|---|---|---|
| 4%–5% | 5%–6% | 6%–7% |
Ralph Lauren also raised its annual adjusted operating-margin expansion target to 0.8–1 percentage point from 0.6–0.8 point in August. An extra fiscal week is expected to add about one percentage point to annual revenue growth separately.
The holiday quarter gets less help from timing
North American wholesale sales rose 8%, but earlier shipments from the second half supplied about four percentage points of that increase. For the December quarter, Ralph Lauren expects currency-adjusted revenue growth of 3%–4%, with shipment timing and planned reductions in off-price sales subtracting about one percentage point.
Cash generation has improved too. Operating cash flow for the first half reached $618.2 million, versus $229.3 million, helped by inventory and tax-payment timing. The company completed its planned $500 million of fiscal-year share repurchases while retaining additional authorization.
The next results will show how the Asia-led recovery carries into the holidays as the shipment benefit unwinds and Europe works through weaker store traffic. The Ralph Lauren company profile tracks the forecasts, cash, financing and shareholder returns.