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Ralph Lauren “heading in the right direction” despite tough Q1

Strong currency headwinds blew a hole in Ralph Lauren’s Q1 sales ambitions as the restructuring lifestyle giant continues to struggle.

However, its founder/CEO Ralph Lauren assured his signature business will not be blown off course: “We are making the right strategic decisions and investments to support the future growth of the company,” he said.

But it’s tough. For the opening fiscal 2016 quarter, both sales and profits tumbled, albeit ahead of analysts’ jaundiced expectations, hurt by the strong dollar, hefty costs, and a still sluggish retail landscape weighed down by heavy discounting and weak shopper traffic.

Revenue fell 5.3% to $1.62bn for the three months ended June 27 but would have been unchanged had it not been for those currency issues. That was also just ahead of analysts’ $1.61bn view. Same-store sales, meanwhile, fell 8%.

The company said around 20% of its sales come from foreign tourists visiting its stores around the world. While tourist traffic has picked up in Europe and Japan, where local currencies have weakened, traffic remains depressed in the US, due to the dollar’s strength.

The West Coast ports shutdown earlier this year alongside cold winter leading into the spring season also took their toll, said chief operating officer Jacki Nemerov. That created an environment of heavy discounting, particularly online.

In the midst of a reorganization to cut $100m in annual costs, net income in the quarter fell to $64m/73 cents a share, from $162m/ $1.80 a year ago, dragged down in part by $34m in charges related to the new corporate structure.

Earnings, adjusted for restructuring costs, were $1.09 per share, beating analysts expectations for $1 per share.

For the current quarter, the company expects revenue to grow 3-5%, excluding currency impact. For the full year, revenue is expected to grow in the mid-single digit range, although the strong dollar will drag down sales by about 4.5%.

The CEO added: “I am confident that our new organisational structure will allow us to make our already powerful brands even stronger, and the investments we are making today will create significant value for shareholders over the long term.”

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