Ralph Lauren comes out fighting after poor results, promises big customer-centric changes

What’s going on at Ralph Lauren? Judging by an 18% share price slump Wednesday, its biggest ever one-day drop, there’s some fixing to do at the US giant.

Given that Q3 results missed expectations and Q4 projections that look even worse it was little wonder the high-end apparel and lifestyle company came out fighting. There are promises of a whole new brand management structure to make the customer king, while making sweeping changes to cut operational waste.

The changes have already begun with the firm talking about new technical fabrics, and growth in dresses, footwear and accessories – plus taking more control of licenses and a co-ordinated global supply chain.

So down to the facts and figures. Ralph Lauren said it had faced “unexpected challenges” in Q3 as earnings slipped 9.2% to $215m/$2.41 a share, down from $237m/$2.57 a year ago, on revenue up 0.9% to $2.03bn. Analysts were looking for $2.50 on revenue of $2.1bn.

It cited a tougher than expected promotional, competitive Holiday season and lower traffic to its stores.

Retail sales were brighter, up 2.1% to $1.1bn, but that was boosted by an impressive rise in e-commerce, up 17% with mobile traffic up 40%, and new stores. But then again, those all-important same-store sales fell 2%.

Wholesale revenues of $837m were largely flat against a year ago with RL pointing to lower shipments to the Americas. That was partly offset by growth in European wholesale.

Gross margins declined 120bps to 57%.

For Q4, it lowered its earnings, sales and margin outlook citing a strong dollar, weak consumer spending and significant FX headwinds. For the fiscal year ending March, sales are expected to rise 4% currency neutral, down from its previous expectation of 5-7% growth.

Although it remains “cautious” but says the company is still operating from a “position of strength” and is committed to investing in growth initiatives. There was also talk of raising prices in certain markets where currency has been devalued such as Japan, Canada and Europe.

So what is the company doing about it? Step forward COO Jacki Nemerov with news Ralph Lauren will implement a new global brand management structure over the next several months that aims to “operate in a more customer-centric way and provide substantial operating efficiencies.”

Further details weren’t provided so watch this space.

Last year, it launched Polo for women, supported by the opening of its first Polo flagship store in New York. While there wasn’t much news on how they’re performing the company said it sees “significant long-term opportunity” for the brand.

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