NEW YORK • Ralph Lauren is making progress in its battle with the discount rack.
But the effort is coming at a cost.
The American fashion brand, which has seen its clothes heavily marked down at department stores and off-price chains, posted earnings that topped analysts' estimates last quarter - thanks in part to cutting inventory and selling more apparel at full price.
The by-product of that push: Sales plunged during the period.
Ralph Lauren, like other apparel chains, has been struggling with weak sales due to sluggish spending on apparel and accessories.
Its margins have also taken a hit as competition in the industry has intensified.
"Ralph Lauren has been turning itself around for a very long time. It goes back to over two years now," said Mr Neil Saunders, managing director of GlobalData Retail.
"There is a lack of confidence among investors that the company would be able to pull through all the initiatives it is now talking about."
The company has been trying to reduce costs by cutting jobs and shuttering stores, including its flagship Fifth Avenue one in New York.
The current situation reflects the challenges and opportunities facing chief executive Patrice Louvet, who takes the helm in July.
While there are more optimistic signs about Ralph Lauren's ability to bolster profit, he has to pull the company out of a sales tailspin.
Mr Saunders said: "It is now down to the new management team at Ralph Lauren to prove that the darkest hour comes before dawn."
The stock dropped as much as 2.9 per cent to US$70.65 (S$98) in New York trading on Thursday, reaching its lowest level since 2009.
Mr Louvet, a veteran at US consumer goods giant Procter & Gamble, was named to the CEO post on Wednesday.
His appointment follows the abrupt announcement in February that Mr Stefan Larsson was leaving the job. He had disagreed with the 77-year-old Ralph Lauren over the creative direction of the brand.
Profit was US$0.89 a share in the fiscal fourth quarter, excluding some items. That handily beat the US$0.78 predicted by analysts.
Same-store sales were far worse than expected - partly because the company is reining in its inventory so aggressively.
Gross margin rose 0.9 of a percentage point to 55.4 per cent, underscoring that the effort to get shoppers to pay full price is bearing fruit.
The company expects the margin to expand in the first quarter, interim CEO Jane Nielsen said.
The fashion house has also lowered its inventory level by 30 per cent during the quarter and that will continue to come down in the first half of the year.
Ralph Lauren has been trying to cut down the time it takes to get new fashion items to reach the market to nine months from 15.
By spring next year, about 35 per cent of its business will have a lead time of six months or less, Ms Nielsen said.
It is also on track to close as much as 25 per cent of its retail partners' locations by the second half of fiscal year 2018, she added.
For fiscal year 2018, the company expects sales to fall 8 per cent to 9 per cent, excluding the impact of foreign currency.
That would put the figure at about US$6.1 billion or more - higher than the average projection of US$6.07 billion among analysts.
BLOOMBERG, REUTERS
