The pony is on the move.
Ralph Lauren Corp. charged back from last year’s lockdowns in the fiscal second quarter — and now Patrice Louvet is looking to maintain that momentum in the face of inflationary pressure and supply chain turmoil.
“All in all, our game plan is just to run the play using the plan we have while mitigating the headwinds,” Louvet, president and chief executive officer, told WWD.
Ralph Lauren — like many other companies — reset during the pandemic with an eye toward coming out of the crisis stronger. And while COVID-19 hasn’t gone away, the company is pushing forward as best it can and is ready to take advantage of any opportunities that do come.
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“We know our brand is still bigger than our business, so, lots of runway moving forward,” Louvet said. “Our mind-set right now is really about fueling our momentum, investing in growth.”
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Second-quarter profits tallied $193.3 million, or $2.57 a diluted share, up from losses of $39.1 million, or 53 cents, a year ago when the pandemic kept shoppers close to home. Adjusted earnings of $2.62 came in well ahead of the $1.99 analysts projected.
Ralph Lauren’s revenues for the quarter ended Sept. 25 jumped 26 percent to $1.5 billion from $1.2 billion. Global digital ecosystem revenues grew 45 percent, with 35 percent growth at the company’s owned digital channels.
While the company boosted its revenues outlook for the full year — to growth of 34 percent to 36 percent from the 25 percent to 30 percent previously projected — investors seemed to worry over higher costs in the business and sent shares down 9.7 percent to $117.13 on Tuesday.
The second-quarter topline growth was supported by the brand’s efforts to elevate its positioning and to increase prices, which have risen for 18 straight quarters at Ralph Lauren. Average unit retail prices rose 14 percent.
But if Ralph Lauren has been nudging its prices higher as part of its brand strategy, the company is also operating now in a world that’s become more expensive.
Prices in general have been rising — cotton in particular has taken a big step up — but Louvet said the brand’s power and image will help it mitigate these inflationary pressures.
“We have confidence in our ability to continue to leverage our pricing power in this contest,” he said.
The supply chain tangle is a more complex problem in some ways and one that the CEO said would take longer to sort out.
Vietnam factories were shut down for 12 weeks due to COVID-19, but Louvet said they were back up and running now.
“The production side of the supply chain should be in a healthy position as we start calendar [year] 2022,” the CEO said. “The logistics piece will take a longer time to sort itself out. We expect that to be a headwind through 2022 as capacity catches up as people build inventory.”
The power of the Ralph Lauren brand can push higher prices and capture consumer attention, but it can’t magically transport containers piling up at U.S. ports back to China to ship out the next round of orders or suddenly produce more ready and willing truck drives to deliver to stores.
In the meantime, Louvet & Co. are mitigating the disruptions by making use of the full breadth of Ralph Lauren’s supplier base, near shoring where possible and using air freight when necessary.
On the front end of the business, the CEO said the brand was:
• Recruiting new customers, bringing in a “younger, higher value, less promotional sensitive customer.”
• Taking advantage of changes in consumer behavior as they return to the office and venture out more. “We’re selling tuxedos and evening gowns…like there’s no tomorrow,” said Louvet, although the category is still not a big part of the overall business.
• Continuing to push on the digital business even while stores are open, building in more omni options, like buy online, return in store. The CEO described e-commerce as a kind of “digital surround sound” that enhanced the store experience.
• And focusing on a “key city approach,” seeing top cities instead of whole countries. By way of example, he pointed to China, where the company opened a store in Beijing and then moved on to Shanghai, opening a store there and viewing the businesses from more of a stand-alone perspective.
While China has largely been viewed as the big consumer market of the future, the picture has been muddied there somewhat as Beijing cracks down on big tech, the celebrity culture that helps market fashion and more.
Louvet said the country is a mid-single-digit piece of the overall Ralph Lauren business and remains “a major growth opportunity.”
“We are seeing our brand really resonate well with our target customer there,” he said. “We have seen a lot of support from the Chinese authorities on some of our trademark challenges and issues there.
“From what we’re experiencing on the ground, with our supply chain, with our team, with the consumers, with the authorities, we feel well positioned and are still very optimistic about our future in that market,” he said.
In a sense, Louvet’s job is to keep all these different complex parts of the business — from brand to supply chain to digital — all working together.
And even though there is an exploration in some parts of the market into whether or not digital businesses would be worth more on their own — Saks Fifth Avenue split off its e-commerce business and Macy’s and Kohl’s are being pressured to follow suit — Louvet said Ralph Lauren works best as one whole.
“We know an omnichannel customer is more valuable than a mono channel customer,” he said when asked about the growing trend that has so far only touched department stores.
“For us, we believe it’s critical to keep it together,” he said, noting that maintaining the experience was the best way to connect with the consumer and create value.
“There was this narrative a few years ago around, ‘The store is dead, retail is dead, consumers are going to shift fully to digital,” Louvet said. “For me, boring retail is dead, but engaging retail is thriving.”
He pointed to in-store updates, like coffee shops, that have drawn big lines and consumer interest.
“It’s part of bringing in an exciting and differentiated experience to the store,” he said.
In short, Ralph Lauren is evolving, but sticking to its knitting.
Ralph Lauren, executive chairman and chief creative officer, said: “We continue to grow and evolve in ways I never imagined, all while holding true to the spirit of timelessness that defines who we are. As we enter the holiday season with a greater sense of hope in the world, I am proud of how our teams are coming together to inspire optimism and love in everything we create — from our iconic products to our expanding digital, hospitality and store experiences all over the world.”
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