July 30, 2019 / 12:44 PM / 3 months ago

Ralph Lauren hints at weakness in North America business, shares fall

(Reuters) - Ralph Lauren Corp (RL.N) said on Tuesday it expects full-year sales in North America to be pressured by a tough retail environment and weakness in spending by foreign tourists, overshadowing upbeat quarterly earnings and sending its shares down about 4%.

FILE PHOTO: A man walks past Ralph Lauren Corp.'s flagship Polo store on Fifth Avenue in New York City, U.S., April 4, 2017. REUTERS/Brendan McDermid/File Photo

The fashion house, like other apparel companies, is trying to revive growth after years of heavy discounting and a strategy of flooding the market with its lower-end goods.

The New York-based company has launched limited edition apparel, invested heavily in new marketing strategies and partnered with professional golfer Justin Thomas for the sporting season to reinvigorate sales of core products like its Polo shirts.

But fierce competition in the apparel industry and the popularity of online shopping have weighed on fashion houses, which rely heavily on brick-and-mortar stores for a major chunk of their sales.

Ralph Lauren has taken a slightly more cautious view of the retail environment for the year ahead and continues to see challenges with brick-and-mortar traffic, including foreign tourist volatility, Chief Executive Officer Patrice Louvet said on a post-earnings call with analysts.

Wholesale business was the biggest driver of the company’s 3.1% growth in revenue in North America in the quarter, which was offset by weaker-than-expected retail same-store sales.

Internationally, the company continued to perform well, with revenue rising 1.5% in Europe and 4.3% in Asia.

“We expect continued strength in our international businesses and a more challenging outlook for North America,” Chief Financial officer Jane Nielsen said.

Wall Street remains squarely focused on the retailer’s North American market performance, which in large part speaks to why shares of the company reversed course to fall about 4% after rising about 6% in trading before the bell, analysts said.

“The market feels like North America is a leading indicator for the business in the other parts of the world,” UBS analyst Jay Sole said.

“People are concerned that market (North America), which is around half the business, is going to weigh on the company’s ability to grow.”

For the second quarter, the company forecast net revenue to rise by about 1% on a constant currency basis and expects a stronger dollar to pressure revenue growth by about 90 to 100 basis points.

The company maintained its revenue forecast for the rest of the year.

Net income rose to $117.1 million, or $1.47 per share, in the first quarter ended June 29 from $109 million, or $1.31 per share, a year earlier.

Excluding one-time items, the company earned $1.77 per share, while net revenue rose to $1.43 billion.

Analysts were expecting a profit of $1.66 per share and revenue of $1.42 billion, according to IBES data from Refinitiv.

Reporting by Nivedita Balu in Bengaluru and Melissa Fares in New York; Editing by Anil D'Silva and Paul Simao

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