Ralph Lauren net income drops 61% in the first quarter 2016
Ralph Lauren Corp.’s profit plunged in its latest quarter, hit by higher costs and lower U.S. sales, intensifying pressure on its new chief executive to outline a strategy that will return the company to growth.
Net income dropped 67% to $41 million in the three months that ended April 2, weighed down by the cost of closing stores and trimming expenses. Sales excluding newly opened and closed stores fell 6% for the period and total revenue fell 1% to $1.9 billion. Excluding currency fluctuations, revenue rose 3% internationally, but fell 1% in the Americas.
Stefan Larsson, who became CEO in November, said he spent his first months at the company doing a “deep dive” to understand how the business works. Mr. Larsson said the company hasn’t focused enough on developing its core offering, described its cost structure as inefficient and said it isn’t “nimble enough in the marketplace.”
Mr. Larsson plans to layout his strategy at an investor day in June. But he touched on the broad outlines on Thursday, which include simplifying the business, cutting expenses, streamlining sourcing, managing inventory more efficiently and offering better quality, more relevant products for which consumers would be willing to pay a premium.
Shares of the company rose 1.7% to $85.94 in midday trade in New York, as the company’s adjusted profit and revenue didn’t fall as much as Wall Street had expected. Over the past 12 months, shares have fallen around 35%.
He said he has spent much of his time focusing on the U.S. market, particularly sales through department stores, which have struggled with declining traffic and excess inventory.
“We’re working very closely with our big customers,” Mr. Larsson said of the department stores. “I feel confident we have a plan to get back to strength.”
Sales through third parties fell 6% to $942 million in the period, mainly due to sales declines in North America, eroding the 6% growth in retail sales the company had in the period. Gross margin shrunk to 54.5%, compared with 55.4% a year ago as the company marked down merchandise to clear excess inventory.
Mr. Larsson, who previously ran Gap Inc.’s Old Navy division and was a longtime executive at H&M Hennes & Mauritz AB, has begun to build his management team with the addition of two former H&M executives, one to oversee global business development and the other as head of sourcing. Last week, he gave Valerie Hermann, who has run the company’s luxury collections, the additional responsibilities of women’s collections and accessories.
The company has also begun to reconfigure its store base by converting some of its outlet stores to hybrid locations that also include full-priced merchandise. It added 27 directly owned retail stores in the recently completed fiscal year for a total of 493 locations.