Ralph Lauren Earnings Show Quiet Luxury Still Resonates

Ralph Lauren’s revenue rose 14% year over year in the first quarter. (Riccardo Milani / Hans Lucas/AFP via Getty Images)

Ralph Lauren stock fell Thursday morning, even though the company reported another strong quarter and raised guidance for the full year.

Ralph Lauren reported first-quarter adjusted earnings per share of $3.77, better than analysts’ projections for $3.51, according to FactSet.

Revenue for the quarter ended June rose 14% year over year to $1.72 billion, ahead of the Street’s forecast for $1.66 billion.

The company saw growth across all its segments and geographies, including an 8% revenue bump in North America, and a 21% jump in sales across Asia, driven by more than 30% growth in China. Most of the 24 new stores Ralph Lauren opened in the quarter were in China.

The first quarter outperformed the company’s expectations, giving management the confidence to increase its full-year outlook. The company now expects revenue to increase by a percentage in the low- to mid-single digits on a constant currency basis, compared with the prior outlook for an increase in the low-single digits.

Strong demand in the current quarter also undergirded the company’s optimism. Management expects second-quarter revenue to grow in the high-single-digit percentage on a constant currency basis.

The stock was down 8.7% to $276.56 Thursday, likely tied to management’s warning that the second half of the year could be more challenging. The company believes tariff-related price increases could pressure consumer budgets and affect operating costs.

“The big unknown sitting here today is the price sensitivity and how the consumer reacts to the broader pricing environment and how sensitive that consumer is,” Justin Piccici, Ralph Lauren’s chief financial officer, said on the company’s earnings call. “That’s what we’re watching very closely as we head into the second half.”

It isn’t an immediate worry now, however. “We haven’t really seen any softening of the macro set into the business at this point,” Piccici said in an interview with Barron’s.

Shares are up 22% this year.

Ralph Lauren also tweaked its margin outlook. It now expects operating margin to expand about 0.4 to 0.6 percentage point in constant currency, more defined, and perhaps better than previous guidance for margins to expand “modestly.” The margin improvement stems largely from operating expense leverage.

First-quarter operating margin was 15.9%. Gross margin was
72.3%, 1.8 percentage points above the prior year. The improvement in profit margins was driven by lower cotton costs, as well as growth in Average Unit Retail, or the average price an item is sold at. These margin enhancers more than offset pressure from tariffs and other product costs, Ralph Lauren said.

Ralph Lauren’s pricing increases are partially due to pulling back on discounts, Piccici said, a key part of the company’s strategy to position itself as a luxury brand. The company has taken a targeted approach to raising prices over the past few years, which has helped the brand grow its luxury perception, he added. The efforts have worked, aided in part by broader consumer shifts favoring so-called “quiet luxury,” or investing in understated, quality pieces.

So far, Ralph Lauren’s core customer—which skews higher-income—hasn’t balked at the increases, Piccici said. This gives Ralph Lauren some wiggle room to raise prices in response to new tariffs if needed.

“The customer has let us know they will follow us on that journey, but we’ve got options,” Piccici said.

Write to Sabrina Escobar at sabrina.escobar@barrons.com