After poor Q3, Ralph Lauren expects the new CEO to drive growth

Ralph Lauren Corporation has reported net income of 193 million dollars, or 2.27 dollars per diluted share, for the third quarter of fiscal 2016, compared to reported net income of 215 million dollars, or 2.41 dollars per diluted share, for the third quarter of fiscal 2015.

“2015 was a year of transition,” said Ralph Lauren, Executive Chairman and Chief Creative Officer, adding, “While our recent results have been disappointing, I am greatly encouraged by the changes that are already taking place since the appointment of Stefan Larsson as our new CEO. He has my full support as he conducts his comprehensive review of our business and takes the lead to move us forward. We have built one of the strongest global brands in the industry and our goal is to further strengthen the brand, drive strong financial performance and deliver shareholder value.”

Third quarter financial review

Net revenues declined 1 percent on a constant currency basis and 4 percent on a reported basis to 1.9 billion dollars, below the guidance provided in November of 0 percent-2 percent reported revenue growth. While international net revenue grew 6 percent in constant currency, North America revenue declined 4 percent on the back of above-average temperatures for most of the fall and Holiday period, a decline in foreign tourist traffic and product assortment challenges in the Lauren brand. The decline in reported net revenues included approximately 300 basis points of negative impact from foreign currency effects.

In the third quarter, wholesale segment sales decreased 3 percent on a constant currency basis as a decline in sales in North America offset increased sales in Europe. Reported wholesale segment sales declined 6 percent to 786 million dollars. Retail sales were in line with the prior year on a constant currency basis owing to growth in new stores and e-commerce, but was offset by negative comparable store sales. Reported retail segment sales declined 3 percent to 1.1 billion dollars. Consolidated comparable store sales decreased 5 percent on a constant currency basis and 7 percent on a reported basis.

Licensing revenues of 47 million dollars were in line with the prior year period in both constant currency and on a reported basis.

After poor Q3, Ralph Lauren expects the new CEO to drive growth

Gross profit down 20 basis points than expected

Gross profit was 1.1 billion dollars, excluding restructuring and other charges of 10 million dollars. Gross profit margin was 56.8 percent, which was 20 basis points lower than the prior year period, reflecting unfavorable foreign currency effects. On a constant currency basis, gross margin was up 30 basis points compared to the prior year period.

Net income was 193 million dollars, or 2.27 dollars per diluted share, excluding restructuring and other charges. This compared to reported net income of 215 million dollars, or 2.41 dollars per diluted share, for the third quarter of fiscal 2015. Earnings per diluted share increased 4 percent from the prior year period, excluding foreign currency impacts and restructuring and other charges. On a reported basis, net income was 131 million dollars or 1.54 dollars per diluted share in the third quarter.

The company ended the third quarter with 501 directly operated stores, comprised of 151 Ralph Lauren stores, 76 Club Monaco stores and 274 Polo factory stores. The company also operated 589 concession shop locations worldwide at the end of the third quarter. In addition to company-operated locations, international licensing partners operated 89 Ralph Lauren stores and 28 dedicated shops, as well as 133 Club Monaco stores and shops at the end of the third quarter.

Updates fiscal 2016 outlook

The company now expects consolidated net revenues for fiscal 2016 to be up approximately 1 percent in constant currency and down approximately 3percent on a reported basis. This compares to previous guidance of flat on a reported basis and up 3-5 percent in constant currency. Based on current exchange rates, the company continues to expect that foreign currency will have an approximate 400 basis point negative impact on fiscal 2016 revenue growth.

In the fourth quarter of fiscal 2016, the company expects consolidated net revenues to be flat to down 2 percent on a reported basis, and based on current exchange rates, foreign currency will have an approximate 150 basis point negative impact on revenue growth.

 

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