Ralph Lauren Is Gaining Ground, but CEO Patrice Louvet Is Staying ‘Positively Paranoid’
The company topped second-quarter forecasts and raised its outlook by sticking to its preppy play.
Big changes might be sweeping through fashion — luxury sales are off, China is weakening and President-elect Donald Trump promises to upturn Washington, again — but Ralph Lauren Corp. is sticking to the plan that’s made it a solid growth driver.
Still Patrice Louvet, president and chief executive officer, is careful to stay what he calls “positively paranoid.”
“We have momentum,” Louvet told WWD in an interview after the company beat second-quarter projections and raised its outlook for the year. “We’re optimistic about our future, but we also don’t take anything for granted, and we want to consistently recruit new consumers.
“We’re really happy to say that you can count on Ralph Lauren to consistently perform,” he said.
Ralph Lauren’s fiscal second-quarter net income increased slightly to $147.9 million, or $2.31 a diluted share, from $146.9 million, or $2.19, a year earlier as the company bought back stock and paid dividends worth a combined $375 million.
Adjusted earnings per share grew 21 percent to $2.54 — 13 cents ahead of the $2.41 analysts had penciled in, according to Yahoo Finance.
Wall Street liked what it saw and sent shares of the company up 6.7 percent to $221.88 on Thursday, giving the company a market capitalization of $13.7 billion.
The stock has some skeptics. Zachary Warring, analyst from CFRA Research, maintained his sell rating on shares of Ralph Lauren, while praising the work being done at the company.
“Although we believe Ralph Lauren is executing well, we cannot get past its valuation with shares trading over 18-times next-12-month estimates and well above its average on every time frame,” Warring said. “We think investors are overly optimistic about future growth and earnings.”
Revenues for the quarter ended Sept. 28 increased 6 percent to $1.7 billion from $1.6 billion. Comparable sales in the company’s direct-to-consumer business grew 10 percent, with retail comp increases across all of its regions.
Louvet, who has led Ralph Lauren as CEO for more than seven years, sees the brand as a steady presence in an ever-moving fashion world.
“This industry is characterized by trends and you see a lot of companies either create trends or ride trends and have a really nice run for three, four, five years,” the CEO said. “But very often it doesn’t end well because then the consumer is a bit confused as to what the brand stands for. If you’ve only relied on one trend, then the trend goes away, then you’re in a challenging situation.”
He didn’t offer specifics, but there are plenty of examples, from Gucci, which had a meteoric rise only to fall, to Vans, which relied on its classic styles when they were hot and saw the trend move on.
In Louvet’s view, Ralph Lauren is built on a steadier foundation with “a very consistent point of view, a very consistent set of values” that have been established and stuck to for 57 years.
“The challenge is in executing that in a way that’s relevant for the different generations as time goes by,” Louvet said. “What differentiates Ralph Lauren from many companies in our space is this clarity of positioning, consistency of execution and then keeping it fresh by broadening the marketing activity, by connecting with younger generation consumers, by innovating in the way we show up or in the types of products that we offer.”
Louvet said the looks that are “really performing particularly well” are core styles, like the cable-knit sweater, or the Polo shirt or the blazers, which make up 70 percent of the company’s business and grew double digits during the quarter.
Trump’s presidential election brings a new set of challenges to fashion, from the prospect of renewed trade wars to a new image abroad for America, but Louvet said the company is used to standing steady.
“We have lived through many different administrations,” the CEO said. “What we find is our values are pretty universal and are nonpolitical — our values of optimism, of authenticity, of family. We are going to stay focused on what we control. If we run our play, and we do it in a way that really connects with consumers, then we will be able to continue to build on our momentum. We are staying very clearly on offense.”
Ralph Lauren brought in 1.5 million new customers and increased average unit retail prices by 10 percent, both in its direct-to-consumer business during the quarter.
And Louvet said that growth in the customer base has been “very broad based” and not tied to the slowdown seen in the European luxury brands.
“They’re younger consumers,” he said of the brand’s new “recruits.” “So that’s an important characteristic relative to the historical makeup of the luxury category. They’re more diverse consumers and they’re higher-value consumers. We’re not seeing specifically what one might call a trade down from upper luxury.”
Revenues in North America rose 3 percent to $739 million while Europe was up 7 percent to $566 million and Asia was ahead 9 percent to $380 million.
The quarter’s results gave the company confidence to raise its outlook for the full year.
Ralph Lauren raised its annual revenue outlook to a gain of 3 percent to 4 percent in constant currencies, up from the 2 percent to 3 percent increase seen in August.
“We’re raising it now, even though we haven’t gone through holiday yet, which gives you a sense of the momentum and confidence that we have going into holiday,” Louvet said.
In short, the company is sticking to the playbook that made it a branded powerhouse while it flexes with the times.
Ralph Lauren, executive chairman and chief creative officer, said: “A spirit of optimism and the easy elegance of timeless style — these are elements that have come to define our brand. This summer was a celebration of all that we cherish, and as we turn our focus to holiday, we will continue inspiring people around the world to come together and step into their dreams.”
