Ralph Lauren’s sales growth has eased in its latest quarter, but an analyst described this as natural maturation rather than a loss of momentum.
The company’s net revenue rose 9 per cent year-on-year to $2.2 billion in the second quarter, moderating from a 14 per cent uplift in the first quarter.
GlobalData MD Neil Saunders noted that this is the first time in six quarters that revenue growth has been in single digits. However, he said this is mostly due to natural maturation rather than a sign of a business losing momentum.
The growth itself was also impressive, given it was against a very high bar of a 16.5 per cent increase last year, he added.
In North America, revenue rose 6 per cent, with mid-single-digit growth in both store and digital comparables.
According to Saunders, a broader lifestyle proposition has been helpful in increasing the spending of existing customers, especially in women’s apparel.
“The way in which Ralph Lauren reaches consumers is also improving across North America. While physical expansion has been relatively gentle, the push to open more stores in key locations has improved the visibility of the brand, and it has allowed more consumers to experience the full essence of Ralph Lauren, which is only completely expressed in its own stores.
“The addition of Ralph’s Coffee shop to newer locations has also been a very powerful way of getting more consumers to interact and build cultural connections with the brand,” he said.
Asia did a disproportionate amount of heavy lifting, with revenue soaring 28 per cent and comparable store sales up 24 per cent.
Saunders attributed the growth to the company’s decision to build a stronger presence through stores and digital. He added that this investment, along with the strong and highly respected brand positioning in the region, will pay increasing dividends, especially if the US growth trajectory moderates.
Europe was a weak spot during the quarter, with a modest 1 per cent increase in revenue and a 4 per cent decline in comparable store sales. According to the analyst, this was partly because consumer pressures on the continent are greater than in other places, coupled with reduced tourism.
“This leaves Ralph Lauren with some work to do in revitalizing demand in the region – although the holiday quarter is one in which the brand usually shines in Europe,” he added.
On the bottom line, net income rose from $283 million a year ago to $297 million.
The company now expects revenues to grow 6-7 per cent in constant currency, up from the previous guidance of 5-6 per cent. The additional 53rd week this year is expected to contribute 1 point to revenue growth.
According to Saunders, growth may soften next quarter as a result of earlier shipments and some continued pullback of off-price sales.
“Even so, the forecasts remain respectable against the prior year, and the underlying brand heat and continued new customer acquisition – including from younger shoppers – paint a picture of a brand that is firmly on the front foot,” he said.
