A look at profitability and margins in fiscal 1Q17
Ralph Lauren (RL) has been struggling, like other retail apparel and fashion companies, to maintain sales and margins in a highly promotional environment, especially in the US.
In the current quarter, although Ralph Lauren reported a decline of over 4% in its top line, it beat expectations. Adjusted profit also declined from $1.09 in fiscal 1Q16 to $1.06 in fiscal 1Q17, but easily beat the consensus of $0.89.
Gross margin improves on lower product costs and better sales mix
Ralph Lauren (RL) reported an improvement of 130 basis points in adjusted gross profit, driven by favorable sales mix shifts, lower product costs, and an improvement in quality of sale metrics in Asia that were driven by certain initiatives. Its adjusted gross profit stood at $949 million while the gross profit margin was 61.1%.
Ralph Lauren reports operated loss on high expenses
Ralph Lauren (RL) reported an operating loss of $31 million on a reported basis, including restructuring and other related charges of $159 million. On an adjusted basis, however, the company reported operating income of $128 million and operating margin of 8.2%, 60 basis points below the same quarter last year. The lower operating margin was mainly attributable to fixed expense deleverage on lower net revenues, which was partially offset by a higher gross margin.
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Comparing profitability to peers
Ralph Lauren’s GAAP operating margin of -2% during the quarter is among the lowest in the apparel and fashion peer group. Hanesbrands (HBI), VF Corp. (VFC), Coach (COH), and Michael Kors (KORS) reported operating margins of 15%, 8.6%, 10.1%, and 18.9%, respectively, in their last reported quarters.
Read the next section to learn about the profitability of the company’s key segments.