With Ralph Lauren (NYSE:RL) recently having had quarterly results, its overall performance seemed to be respectable. Overall, revenue grew 3% along with a 3% increase in comparable-store sales with retail locations benefiting primarily due to the impacts of favorable currency during this time period. The wholesale department of Ralph Lauren did not however perform well and experienced a 4% downfall in the period.
While gains were experienced in the gross margins, the increase in operating expenses did not allow these earnings to give investors a positive growth figure. Due to this factor, operating margins suffered a plunge causing the net income to fall by 10% in comparison to the same period a year ago.
While Ralph Lauren's results weren't as impressive as they normally are, they were still comparatively better off than what investors had feared. The company's earnings for the quarter came in at $1.80 per share, beating estimates. Ralph Lauren beat estimates by $0.05 which was enough to allow the shareholders to breathe a sigh of relief and to be reassured of the fact that the retailer is doing its best to ensure a positive outcome from the impact it had suffered in the first term quarter
While the company is still expecting to see a rise in their overall revenue by 6%-8% as the fiscal year progresses, this may not be achievable. With persisting ongoing weaknesses in the operating margins due to expenses associated with global expansion along with costs associated with marketing, chances of experiencing a loss in earnings seems highly possible.
Keeping aside growth expectations, developments are also underway being put into effect by the company to boost its margins further. Ralph Lauren is working on developing its e-commerce segment of the company. In the fiscal year 2014, the e-commerce segment helped the company earn $500 million in revenues which shows great potential for further investment in this area. While the e-commerce operations of the company vary according to geography, it was mentioned by the management in the United States that if shopping was switched to being done online, the company would greatly benefit. While this may certainly be profitable, it should also be noted that e-commerce operations of Ralph Lauren have only begun to spread in Europe. Thus, in order for the retailer to achieve similar profitability in Europe as that of the United States, it would have to invest in the e-commerce business in Europe. In Asia however, work is still being done to bring online operations to Southeast Asia and China with the company operating in Korea and Japan.
Change In Store Strategy
Ralph Lauren has also begun changing the way its stores are arranged. Visitors walking into a Ralph Lauren store would normally see the Polo staples of the brand on display however a shift in strategy is being employed by the company. Displays have been replaced with luxury goods and accessories. This shift in strategy is geared towards the brand wishing to make a clear distinction between their Polo line and their desire to be a serious retailer in the high end luxury industry. An instance of this could be seen with the launch of their Ricky handbag having a starting price of $2,500 going up to $18,000. Doing so has allowed the company to enter into competition with the likes of Louis Vuitton, Hermes, Valentino and Dior. While the decision and strategy behind it are clear, signs of the handbag doing well are not very clear as it being outsold by the cheaper Celine Trapeze.
While the strategy is most likely aimed towards achieving higher margins, another possible explanation is for the company wishing to attract increased sales from Asia. While Asia at present only contributes 12% towards the current sales of the company, expectations are very high. In 2013, China was reported to have contributed by 47% on global spending on luxury goods. With the Ralph Lauren brand being relatively new for the people of China, the retailer is making use of this factor and bringing about a shift in how it sells its brand image while at the same time focusing on entering the luxury goods market as well.
Thus, in conclusion it could be said that while Ralph Lauren has been able to continue being a strong competitor in the market with the emergence of rising brands, in order for the company to grow further and boost its margins, it must expand to maintain its market share in well known locations along with building business in new areas. Steps are being taken by the brand to avoid such a scenario such as its concentration on global markets, further investments into e-commerce and entering the luxury goods market. With revenues being earned from these arenas as mentioned, the likelihood of Ralph Lauren being able to boost its margins seems possible.
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