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Ralph Lauren Posts Wider-Than-Expected Loss After Coronavirus Slams Sales

By John Rosevear – May 27, 2020 at 4:06PM

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How soon can it recover?

Ralph Lauren (RL -2.68%) posted a wider-than-expected quarterly loss and suspended its future guidance amid the continuing uncertainties stemming from the coronavirus pandemic. 

Many of Ralph Lauren's stores around the world, and many of the department stores that carry its apparel, home goods, and accessories, were forced to close during the quarter that ended on March 28, as local and national governments imposed social-distancing measures to try to slow the spread of the COVID-19 virus. Sales were also hit by the ongoing protests in Hong Kong, a key market for the company, it said. 

Ralph Lauren said most of its physical stores in Asia, about two-thirds of its stores in Europe, and roughly half of its stores in North America have now reopened. But the company's sales may take time to rebound, with consumers reducing discretionary spending amid a likely global recession. 

Ralph Lauren earnings: The key numbers

Ralph Lauren reported a net loss of $50.5 million in the quarter that ended on March 28, its fiscal fourth quarter, or $0.68 per share on a non-GAAP adjusted basis. Revenue declined 15% from the year-ago period to $1.27 billion. 

Wall Street analysts polled by Thomson Reuters had expected adjusted earnings per share of $0.01 on revenue of $1.29 billion, on average. A year earlier, the company reported adjusted earnings of $1.07 per share on revenue of $1.51 billion. 

Revenue fell in each of Ralph Lauren's three business regions, largely for the reasons you'd expect.

  • In North America, revenue fell 11% from a year ago, to $629 million, on disruptions related to the COVID-19 pandemic. Wholesale revenue fell 12%; retail revenue fell 13%, including a 15% decline in brick-and-mortar store sales and a 7% drop in online sales.
  • In Europe, revenue fell 19% from a year ago, or 16% excluding exchange rate effects, to $353 million. Retail sales in the region fell 16%, including an 18% decrease in brick-and-mortar store sales and a 2% drop in digital commerce. Wholesale revenue fell 21%, or 18% excluding exchange rate effects.
  • In Asia, where stores closed earlier in the quarter and sales were hampered by protests in Hong Kong, revenue fell 22% from a year ago to $214 million. Online sales rose 15%, but that gain was more than offset by declines due to extended brick-and-mortar store closures. 
A Ralph Lauren store in Paris.

About two-thirds of Ralph Lauren's stores in Europe have now reopened, it said. Image source: Ralph Lauren.

An update on liquidity and inventory

As of March 28, the end of Ralph Lauren's 2020 fiscal year, it had $2.1 billion in cash on hand, $1.2 billion in total debt, and $736 million in inventory. A year earlier, it had $2 billion in cash, $689 million in debt, and $818 million in inventory. 

During the quarter, Ralph Lauren drew down $475 million from its revolving credit facility and imposed a series of cost-reduction measures to bolster its balance sheet. Those measures included suspensions of its dividend and stock repurchasing program; before the COVID-19 crisis, the company had repurchased about $152 million of stock in the quarter. 

What Ralph Lauren himself said

Ralph Lauren's executive chairman, Ralph Lauren, said the company's longtime focus on the idea of timelessness will serve it well as it works through the pandemic and its aftermath:

For more than 50 years, we have embraced the idea of timelessness -- it defines not only our products but our business and our culture. It has guided us through the best and the worst of times and will carry us through this unprecedented challenge too.

Together our leaders and teams worldwide remain focused on not only enduring through this global pandemic but thriving for decades to come, and supporting the communities where we operate around the world.

Looking ahead: No guidance for now

As mentioned, the company declined to give specific financial guidance for the upcoming fiscal year. It did say that it expects both the upcoming quarter and the new fiscal year to be "significantly negatively impacted" by the pandemic, but that it has plans to safely return its business to growth as conditions improve.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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