Ralph Lauren beat analyst expectations for Q3 profit with earnings of $131m on revenue of $1.95bn. That was the good news, and good news was needed because the company saw its shares crashing over 22% yesterday. Ouch!
In fact, that profit figure may have beaten expectations but it was 39% down year-on-year and and the revenue figure was also down, from $2bn a year earlier.
The problem? One we’ve heard about before: a perfect storm of unseasonably warm weather in the quarter and falling tourist traffic in the US because of the strong dollar.
And the company expects more of the same, having downgraded its expectations for the full year.
But the really big news came from new CEO Stefan Larsson who said the company will undertake a review of all aspects of the business. He said it’s all about identifying growth areas. But reviews also usually mean the axe being taken to some business areas too.
Larsson told analysts he wants to focus on fewer brands (something we’re seeing in number of luxury companies, such as Paul Smith and Burberry, at the moment). That makes sense. Let’s face it, too many labels can confuse customers and are custom-made for supply chain inefficiencies.
Pricing, distribution and the department stores business will also be on the agenda.
So why will the review be so radical? Well business hasn’t been great for a while and Q3 really rammed that point home. Just look at the retail picture. Comparable retail sales fell a hefty 7% in Q3 with only 2% of that accounted for by currency effects. And wholesale fell 6% as North American department stores struggled.
There was a bright spot though – the firm’s sales at stores that are more local shopper-focused managed to rise. But in the modern luxury world, local shoppers just aren’t enough, unfortunately.