Investors buy Ralph Lauren’s timeless Pitch

Focus on e-commerce and direct-to-consumer sales blunted coronavirus impacts in China, cushioning share prices as Ralph Lauren braces for a worse quarter.

By guest author Jinjoo Lee from Wall Street Journal

Captions and Graphics courtesy by Wall Street Journal

Ralph Lauren’s RL +1.16% fashions may be timeless, but its business has kept up with the times.

The apparel and home-products company posted a loss for the quarter ended March 28 and expects this quarter to be worse, yet its shares had a mild drop Wednesday—an indication that investors have faith in the brand’s longer-term performance as retail comes back to life around the world. The company reported an operating loss of $283.8 million, with the most marked decline coming from North America, its largest market.

Low expectations may have helped. Sales slid 15% last quarter compared with the previous year, slightly better than analysts’ consensus expectation. Ralph Lauren’s sales rebound in mainland China, its fastest-growing market, paints a moderately encouraging picture for the rest of the world. While revenue declined in the high double-digit range in February at the peak of store closures in the country, sales rebounded by early May.

The company’s continuing shift to e-commerce and direct-to-consumer sales seems to have paid off, as well as its focus on a growing social media presence, including TikTok. Its digital sales increased by mid-single digits in the last quarter and high single digits for the full fiscal year, driven by double-digit growth in Asia and Europe. In China, which saw the first impacts of the coronavirus pandemic, much of the sales rebound was driven by e-commerce. That is a promising sign for regions that experienced the worst of their pandemic lockdowns later in the quarter. In North America, the company said during the earnings call that it has seen e-commerce growth in May on a week-over-week basis.

Ralph Lauren has made efforts in recent years to elevate its brand value. Both last quarter and the one before, executives touted their success in increasing average unit retail, or the average price per item sold. In the last quarter, that measure increased by 8% from a year earlier, exceeding the company’s expectations.

The company’s continuing focus on hefty price tags will face a tougher test this quarter. Other apparel companies are applying steep markdowns online. For example, Levi Strauss LEVI -2.81% has a sitewide sale of up to 50% displayed prominently on its website.

In addition to evidence of a rebound in its North American and European markets resembling China’s in the following quarters, investors will need to see proof of Ralph Lauren’s ability to maintain its cachet online.