(Adds Ralph Lauren executive and analysts' comment; updates
By Aditi Shrivastava
Feb 5 Designer clothing company Ralph Lauren
Corp said it expects increased promotions to eat into
gross margins, spooking investors who had earlier pushed the
stock higher on a strong sales outlook.
Ralph Lauren's shares rose as much as 6 percent in early
trading on Wednesday but reversed course to trade down 3 percent
The clothier, known for its Polo and Lauren by Ralph Lauren
brands, said on its conference call that it expects full-year
operating margin to be 110-120 basis points lower.
"We are just being a little bit cautious with regard to the
environment we are operating in," Chief Administrative Officer
Chris Peterson said on a conference call.
Many traditional retailers have had to discount heavily in
the holiday shopping season to persuade Americans to open their
wallets. This ultimately squeezed profit margins across the
"We are encouraged by Ralph Lauren's top line momentum ...
however the ongoing margin pressure keeps us sidelined for now
as earnings per share revisions remain downward," analyst Evren
Kopelman of Wells Fargo said.
The weak margin outlook took the shine off the company's
improved sales forecast and better-than-expected third-quarter
The company's shares slipped to $146.00, their lowest in
more than a year, before easing a little to trade down 2.5
percent in midday trading on Wednesday.
Ralph Lauren said it expects full-year 2014 revenue to rise
7 percent - the high end of its previously projected range of
The company, founded and run by American style icon Ralph
Lauren, has been opening more of its own stores to rely less on
its wholesale business, which sells clothes to upscale retailers
such as Macy's Inc.
Ralph Lauren is also repositioning itself in China, closing
locations that were run by local partners and replacing them
with its own stores.
Sales at its retail stores, excluding certain items, rose 10
percent to $1.1 billion, accounting for 55 percent of total
revenue in the quarter. Comparable store sales rose 2 percent.
Ralph Lauren, whose portfolio also includes brands such as
Club Monaco and Chaps, said wholesale revenue rose 14 percent to
Brian Sozzi, chief executive of research firm Belus Capital
Advisors, said Ralph Lauren's quarterly performance was
surprisingly strong given that apparel margins at other
retailers were decimated during the holiday season.
Sozzi said the company's strong core product margins stood
out, indicating it was winning market share from rivals.
Ralph Lauren said it expects fourth-quarter sales to rise
10-12 percent, which translates to $1.81-$1.84 billion. Analysts
on average expect current-quarter sales of $1.81 billion,
according to Thomson Reuters I/B/E/S.
The company's net income rose to $237 million, or $2.57 per
share, from $216 million, or $2.31 per share, a year earlier.
Revenue, including licensing revenue, rose 9 percent to
$2.01 billion in the quarter ended Dec. 28.
Analysts on average had expected a profit of $2.51 per share
on revenue of $2.03 billion.
"The brand's higher price points and general appeal to more
affluent shoppers has insulated it from some of the pressures
that affected more commoditized brands," Moody's senior credit
officer Scott Tuhy said.
(Additional reporting by Siddharth Cavale; Editing by Saumyadeb