Amid Losses and Shifting Landscape, Ralph Lauren to Cut Department Store Count 25 Percent

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Battling dramatic changes in the U.S. retail market, Ralph Lauren is slashing its department store distribution.

In a Nutshell: As Ralph Lauren Corp. continues its “Way Forward” strategic plan aimed at driving quality of sales up by moderating discount levels across all regions, the company said Tuesday that it’s set to exit between 20 percent and 25 percent of “underperforming” U.S. department stores by the end of the fiscal year. The move comes as department stores are battling decreased store traffic in malls they often anchor, shifting consumer buying patterns that often favor e-commerce and a saturated overall retail scene.

Jane Nielsen, chief financial officer, said on a conference call that the plan to cut department store distribution is about halfway through its target and would be completed by the second half of fiscal 2018 that ends in April 1. However, Nielsen said the company’s e-commerce business with its retail partners remains strong. Ralph Lauren’s signature standalone stores, which stood at 467 at the end of the quarter, are expected to be about flat with the same time last year by the end of this fiscal year.

[Read more on department store sales: June Swoon for Retail Sales as Department Stores Flat]

The company said it also reduced the number of stock-keeping units 20 percent for fall, producing a more focused, higher margin assortment, and it shortened lead times to get 35 percent of its business on a six-month calendar and 90 percent on a nine-month cycle by the end of fiscal 2018 to drive improved buying and reduce markdowns.

The strategic plan helped in generating 210 basis points of adjusted gross margin improvement in the first quarter, while lowering our inventory levels 31 percent from last year.

Sales: In the first quarter ended July 1, revenue decreased 13 percent to $1.35 billion from $$1.55 billion a year earlier, driven by distribution and brand exits, a strategic reduction in shipments and promotional activity to increase quality of sales, as well as due to lower consumer demand. North America revenue fell 17 percent to $710 million, European revenue decreased 14 percent to $323 million and Asian revenue dropped 1 percent $209 million.

Earnings: Net income in the quarter was $59.5 million compared to a loss of $10.9 million in the year-ago period. Operating income in the quarter was $90 million, including restructuring-related and other charges of $47 million, compared to a loss of $31.2 million last year.

CEO’s Take: Patrice Louvet, president and CEO, said: “While we are addressing challenges in our business, we have significant opportunity ahead and we’re moving forward with urgency. Ralph [Lauren, executive chairman and chief creative officer] and I are focused on actively evolving the brand expression and consumer experience so we can ultimately renew growth and get back to leading. We are continuing to build a strong foundation for future growth, as evidenced by our progress this quarter on the key elements of the Way Forward plan.”

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