Ralph Lauren beats expectations in Q2 but cuts FY outlook on foreign exchange effects

Ralph Lauren’s Q2 results came in better-than-expected with revenues rising alongside a slender dip in net profit, but the company also warned that unfavourable foreign exchange movements are likely to harm full-year revenue growth. Ralph Lauren said that revenues grew 4% in Q2 to $2bn on the back of a strong performance at retail that included double-digit international growth. Total retail sales grew by 7% to $1bn, with consolidated same-store sales up by 1% in the period.

Wholesale sales grew 2% to $943m as all geographic regions saw increase, while licensing revenues also lifted 2% to $45m.

Operating expenses rose 7% to $846m, however, due to investments in global retail development, advertising, marketing and infrastructure that were partially offset by “disciplined operational management”. That meant operating income fell 3% to $286m while operating margin was 14.4%, better than the outlook provided in August but still 100 basis points below that of Q2 2014.

Net profit was $201m, a 2% fall on the $205m posted last year, while earnings per diluted share edged up 1% to $2.25. That beat a Thomson Reuters analyst poll, which had put the figure at $2.06.

“Our better-than-expected second quarter results showcase the operational discipline of our organization,” said Jacki Nemerov, president and COO. “Despite the challenging global macroeconomic environment, we continue to experience strong momentum in key areas of strategic focus, including double-digit revenue growth internationally and for our e-commerce business.

“We’re also delivering improved profitability for underlying operations, which is helping to fund investments in our longer-term objectives. I am confident we are well-positioned for the upcoming Holiday season, supported by the distinctiveness of our luxury lifestyle positioning and the desirability of our products.”

But Ralph Lauren also said that unfavourable foreign currency movements meant it is cutting its full-year revenue outlook to a growth of 5-7%, rather than its previously forecast 6-8%, while it also disappointed analysts by saying it expects Q3 revenue to grow 3-5%. They had expected revenues in the quarter to lift 9%.

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