Ralph Lauren sees sales gaining next year, shares soar

Wed Feb 6, 2013 11:37am EST

(Reuters) - Both Ralph Lauren Corp's (RL.N) holiday quarter results on Wednesday and its early sales forecast for next year pointed to renewed momentum for the fashion company after a rough patch in 2012, sending shares to their highest levels since May.

The company cited strong demand in the Americas and an improvement in Europe, its second biggest market, as well as its fast growing e-commerce business. It forecast sales growth would accelerate in the fiscal year starting in April.

"It shows there's still so much untapped demand for his brands," said independent equities analyst Marie Driscoll.

The clothier and retailer, whose portfolio also includes brands such as Club Monaco and Chaps, said gross profit margin rose 2.2 points to 59.3 percent during the quarter that ended December 29, helped by lower product costs and a bigger percentage of sales coming from more profitable items.

The company now expects a bigger improvement in its operating profit margin for the year than initially projected, and shares were up 7.5 percent to $177.26 in morning trading.

Net revenue including licensing sales in the quarter rose 2.2 percent to $1.85 billion.

Ralph Lauren forecast that company wide revenues would rise by a "mid-single-digit" percentage in the current fourth quarter.

The performance, and the forecasts, stand in contrast to earlier reports by Ralph Lauren, when it spoke of weak sales in Europe and when sales at its own stores were growing more modestly.

Sales at Ralph Lauren this fiscal year have suffered from its decision to phase out stores and boutiques operated by local partners in China and replace them over time with company-run shops in better spots.

The discontinuation of the American Living brand, which was dropped by low-price department store J.C. Penney Co Inc (JCP.N) last year, also hurt.

Excluding those two factors, revenue rose 5 percent in the quarter.

Wholesale revenue, which comes from sales to department stores such as Macy's Inc (M.N) and others that carry its brands, was down 2 percent, a much gentler drop than in the previous quarter. The company was hurt by a decision to pull back on shipments to department stores in Europe, where shoppers have broadly cut back on shopping.

At Ralph Lauren's own stores open at least a year, revenue was up 4 percent, also a better performance than last quarter. The company said that Superstorm Sandy, which debilitated a huge swathe of the U.S. East Coast last fall for days, lowered that figure by between 1 and 2 percentage points.

More of future sales growth is expected to come from its retail efforts as it looks to become less reliant on its wholesale business, Chief Operating Officer Roger Farah told investors on a call.

The improvement in Europe, where Farah said business is "probably better than we expected" was a big reason shares rose, Morningstar analyst Peter Wahlstrom said.

"The fact that shoppers there bought Ralph Lauren shows how strong the brand is," he said.

Investors were also buoyed by news that the company would open a number of stores in China next fiscal year, including a flagship, positioning to begin taking advantage of Chinese consumers' appetite for Western high end brands.

Net income rose 27.6 percent to $215.7 million, or $2.31 per share, in the third quarter ended December 29, from $169.0 million, or $1.78 per share, a year earlier.

(Reporting by Phil Wahba in New York; Editing by Gerald E. McCormick, Kenneth Barry and Nick Zieminski)