Volatile foreign currency impacts Ralph Lauren Q1 revenues

Ralph Lauren Corporation reported net income of 95 million dollars, or 1.09 dollar per diluted share, for the first quarter of fiscal 2016, which excludes restructuring and non-cash charges associated with its global brand reorganization. This compared to net income of 162 million dollars, or 1.80 dollars per diluted share, for the first quarter of fiscal 2015. On a reported basis, net income was 64 million dollars or 0.73 dollars per diluted share.

“We are making the right strategic decisions and investments to support the future growth of the company,” said Ralph Lauren, Chairman and Chief Executive Officer.

Net revenues were in line with the prior year period on a constant currency basis, driven by double-digit growth internationally, contribution from new stores and global e-commerce expansion. Reported net revenues declined 5 percent to 1.6 billion dollars in the first quarter. The decline in reported net revenues included approximately 500 basis points of negative impact from foreign currency effects.

Wholesale segment sales declined 6 percent on a constant currency basis. The company said that wholesale revenue in the quarter was negatively impacted by customers’ receipt plans due to an earlier Easter this year which was partially offset by double-digit constant currency growth in Europe. Combining 4Q15 and 1Q16, which is more reflective of the Spring/Summer season, global wholesale revenues were up approximately 2 percent in constant currency. Reported wholesale segment sales declined 9 percent to 642 million dollars.

Retail sales increased 3 percent on a constant currency basis, driven by contribution from new stores and e-commerce expansion. Reported retail sales declined 3percent compared to the first quarter of fiscal 2015 to 935 million dollars, negatively impacted by foreign currency movements. Consolidated comparable store sales decreased 2 percent on a constant currency basis and declined 8 percent on a reported basis.

Licensing revenues of 41 million dollars in the quarter were 6 percent above the prior year period in constant currency and grew 3 percent on a reported basis, reflecting higher royalties from increased sales of Ralph Lauren, Polo and Lauren products worldwide. Gross profit was 969 million dollars and gross profit margin was 59.8 percent, excluding restructuring-related non-cash charges of 3 million dollars. Gross profit margin was 120 basis points lower than the prior year period, reflecting unfavorable foreign currency effects.

In the 90 days since the announcement of a new global brand management organizational structure, the company established six global brand groups and filled the global brand president roles, as well as the key regional and channel positions. The company is on track to achieve 100 million dollars in annual expense savings associated with the restructure. The company ended the first quarter with 467 directly operated stores, comprised of 140 Ralph Lauren stores, 65 Club Monaco stores and 262 Polo factory stores. The Company also operated 558 concession shop locations worldwide at the end of the first quarter. In addition to company-operated locations, international licensing partners operated 79 Ralph Lauren stores and 24 dedicated shops, as well as 124 Club Monaco stores and shops at the end of the first quarter.

The company continues to expect consolidated net revenues for fiscal 2016 to increase by mid-single digits in constant currency. Based on current exchange rates, foreign currency will have an approximate 450 basis point negative impact on revenue growth. Operating margin is still expected to be 180-230 basis points below the prior year’s level due to negative foreign currency effects. In the second quarter, the company expects consolidated net revenues to be up 3-5 percent in constant currency, and based on current exchange rates, foreign currency will have an approximate 550 basis point negative impact on revenue growth.