Michael Kors, Ralph Lauren Make Progress on Turnaround Efforts
August 08 2017 - 12:24PM
Dow Jones News
By Suzanne Kapner
Two big U.S. brands, Michael Kors Holdings Ltd. and Ralph Lauren
Corp., showed some progress Tuesday on efforts to wean themselves
-- and shoppers -- off heavy promotions.
Both companies reported sharp sales declines in their latest
quarters, as they reduced discounts at their own retail stores and
pulled back the amount of goods sold through department stores.
However, profits were better than expected and executives at Kors
pointed to signs of improved consumer spending in the U.S.
Shares of Ralph Lauren rose 10% to $85.86 in morning trading.
Michael Kors shares surged nearly 20% to $44.65. The gains recouped
losses from earlier in the year, when both stocks had fallen
sharply.
Michael Kors Chief Executive John Idol said consumers were
willing to buy full-priced merchandise if the style was right. He
pointed to strong demand for the company's Bancroft handbag, which
is made in Italy and sells for roughly $1,000.
"If it's the right product you don't have to have these
aggressive markdowns at retail," Mr. Idol said.
But while the demand for full priced goods helped raise the
company's average prices, it was more than offset by a decline in
sales volume due to the reduced discounts, he continued.
Michael Kors revenue decreased 3.6% to $952.4 million in the
three months ended July 1. Sales at existing retail stores fell
5.9%, while sales through department stores dropped 23%.
At Ralph Lauren, quarterly revenue fell 13% to $1.35 billion,
including a 17% drop in North America, which was due to declines in
both its retail and wholesale channels.
Ralph Lauren's new CEO Patrice Louvet, who took the helm last
month, said that while he was largely sticking with a strategy laid
out by his predecessor that focused on streamlining operations, he
wanted to place more emphasis on increasing revenues going
forward.
One way he hopes to do that is by strengthening e-commerce,
where sales in North America fell 22% in the most recent period.
Mr. Louvet said he hasn't ruled out deepening Ralph Lauren's
relationship with Amazon.com Inc., where the luxury brand currently
sells a limited number of items. He said other partnerships with
online retailers are in the works such as a deal recently struck to
sell through Zulily, which is owned by home shopping retailer QVC
Inc.
While net income at Michael Kors fell to $125.5 million in the
period, from $147.1 million a year earlier, the results exceeded
analysts expectations. Likewise, for Ralph Lauren, where net income
totaled $59.5 million, compared with a loss of $22.3 million a year
earlier.
"Results and outlook were better than expected," wrote Jefferies
analyst Randal Konik in a note to clients about Michael Kors
results. He said that management's strategy of innovating and
elevating the brand is driving sales and margins.
Mr. Idol said plans call for small increases in wholesale sales
next year, providing the holiday season is strong. He also noted
that with the dollar weakening against the euro there is hope that
foreign tourists will return to the U.S.
"We are definitely seeing business improve in North America,"
Mr. Idol said. Although foot traffic to stores is still weak, he
said, "there's definitely a slightly better feeling that we're
seeing with the consumers coming into the store being a bit more
optimistic."
Ralph Lauren said it expects wholesale revenue to be down about
5% going forward. The company also said declines in spending by
foreign tourists had moderated.
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com
(END) Dow Jones Newswires
August 08, 2017 12:09 ET (16:09 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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