(Reuters) - Ralph Lauren Corp (RL.N) reported better-than-expected quarterly results and said it would pull back more inventory from department stores as it tries to keep a tight leash on discounting under its new Chief Executive Patrice Louvet.
Shares of the company soared as much as 11 percent to $87 in morning trading, clawing back most of their losses for the year.
Ralph Lauren’s profit beat comes at a time when the company has been keeping a razor-like focus on its inventory in an industry battered by sluggish spending and competition from online and fast-fashion retailers.
In a bid to regain its brand cachet, the company will pull back inventory from 20 to 25 percent of U.S. department stores during the second half of the year.
“It simply isn’t credible for a high-end brand to simultaneously showcase itself in a glitzy store on Madison Avenue, while at the same time hawking a random assortment of sweaters thrown in a ragtag way on a table in Macy’s,” said Neil Saunders, managing director of research firm GlobalData Retail.
Inventory levels fell by 31 percent in the first quarter ended July 1, Ralph Lauren said in a statement.
CEO Louvet, who took over the top job in May, is looking to build on the initiatives put in place by his predecessor Stefan Larsson.
“We are looking at these 3 buckets: Our own sites, our wholesale.com and pure plays,” Louvet said on a post-earnings call, adding that the company is actively looking to partner with the right online pure-play retailers.
The company, which shifted its e-commerce platform to Salesforce.com Inc’s (CRM.N) commerce cloud in April, has also been trying to reduce the time taken to get its low-end Polo and Lauren products to shelves to nine months from 15 to better compete with H&M (HMb.ST) and Inditex’s (ITX.MC) Zara.
Ralph Lauren’s adjusted gross margins rose 210 basis points to 63.2 percent as costs fell.
Excluding items, the company earned $1.11 per share, while sales fell 13.2 percent to $1.35 billion in the quarter.
Analysts on average were expecting adjusted earnings of 94 cents per share and revenue of $1.34 billion, according to Thomson Reuters I/B/E/S.
Ralph Lauren said it expected full-year revenue to decline by about 8 to 9 percent.
Reporting by Gayathree Ganesan in Bengaluru; Editing by Anil D'Silva