Image source: Ralph Lauren.
What: Shares of Ralph Lauren (RL +1.36%) were looking spiffy today, as the stock gained after first-quarter results beat expectations. The stock finished the session up 8.4% and gained as much as 11.1%.
So what: The owner of the Polo brand has been struggling this year amid a broader swoon among retailers, but the company was able to overcome muted expectations in the period. Adjusted profits in the quarter fell from $1.09 to $1.06, but that easily beat the consensus at $0.89. On the top line, revenue fell once again as the retailer continues to execute on its turnaround, sliding 4% to $1.55 billion, but that was also better than estimates at $1.53 billion. Same-store sales plummeted 6%, evidence that the retailer is still far from turning the corner in rebuilding its brand.
CEO Stefan Larsson said, "We have made good initial progress in the execution of our Way Forward Plan," and he added that the company will balance near-term performance with long-term goals. The company aims to generate annual savings of $180 million to $220 million by closing 50 stores and laying off 8% of its full-time staff.
Now what: Like other luxury retailers, including Michael Kors and Coach, Ralph Lauren is struggling in a changing retail environment as department-store sales, a principal channel for such brands, are declining. Ralph Lauren expects revenue to fall in the mid- to high single digits for the current quarter and sees a low-double-digit decrease for the full year. Management, however, expects an operating margin of 10% for the full year, which would be an improvement over recent quarters.
While cost-cutting may help boost profits, the larger picture of declining sales and a brand that may be losing relevance to the like of fast-fashion houses is worrisome and deserves to be investors' focus.
