Investors are wrong to sell off shares of the retailer just as a turnaround is starting to gain traction
Ralph Lauren is trying to recapture the place it once held in the consumer imagination. That is not an easy process. It has meant closing stores, jettisoning labels and pulling back on discounts, all while the company struggled to find stable leadership. Now, under CEO Patrice Louvet, Ralph Lauren appears to be clawing its way back.
On Tuesday, November 6, 2018, the company reported earnings of USD 2.26 a share for its fiscal second quarter, beating estimates of USD 2.16 a share, on revenue of USD 1.69 billion—which also exceeded analysts’ estimates, of USD 1.65 billion. Still, investors sent shares down 8 % Tuesday, November 6, 2018 morning. (Before Tuesday, the stock had been up 32 % this year.)
Sales growth of 1 % in North America does not, admittedly, inspire much excitement. But it marks a turnaround from quarters of declines; when the company reported its fourth-quarter results in May, North American sales were still down 14%. Now sales are growing. In Asia, meanwhile, sales were up 13 %. The company had expected revenue to be slightly down for the year. Now it is guiding to flat to slightly up, while still expanding gross margins.
Contrary to the investor reaction, the numbers suggest that Ralph Lauren is gradually building momentum—returning to long-term sustainable growth without making trade-offs.
The company has focused on digital investments, including improving its site and e-commerce operations, as well as expanding its footprint in China, where it is under-represented relative to its peers. It plans to open 50 stores this year, predominantly in mainland China.
That new focus may be thanks to the leadership of Mr. Louvet, who took the helm last year. Though no fashionista—Mr. Louvet was previously Procter & Gamble ’s top beauty executive—he has returned the company to basic principles: what does the consumer want? How is the consumer experiencing the brand?
That shift is starting to pay off. Investors should be encouraged.