- Strengthened Balance Sheet and Liquidity with Over $2.7 Billion in Cash & Investments and Continued Expense Reduction Actions
- First Quarter Revenues Were $487 Million Reflecting Adverse Impact from COVID-19
- Ralph Lauren Digital Comp Sales Accelerated to 13% Growth, with Digital Operating Margin Expanding More than 1,000 Basis Points to Last Year
- First Quarter Average Unit Retail Increased 25% driven by Geographic and Retail Channel Mix Shifts and Ongoing Brand Elevation and Quality of Sale Initiatives; Underlying AUR Up High-Single-Digits
NEW YORK—Ralph Lauren Corporation (NYSE:RL), a global leader in the design, marketing, and distribution of premium lifestyle products, today reported earnings per diluted share of ($1.75) on a reported basis and ($1.82) on an adjusted basis, excluding certain net benefits partially offset by restructuring-related charges, for the first quarter of Fiscal 2021. This compared to earnings per diluted share of $1.47 on a reported basis and $1.77 on an adjusted basis, excluding restructuring-related and other net charges, for the first quarter of Fiscal 2020.
“We are living through an incredible period of change — whether related to the devastating spread of COVID-19 around the world or the call to systemically address racial injustice,” said Ralph Lauren, Executive Chairman and Chief Creative Officer. “Through it all, we are focused on continuing to build a business that stands the test of time — staying true to who we are while taking action that enables us to deliver our brand vision for decades to come.”
“The past few months have marked a period of extraordinary challenge, but also agility and resilience,” said Patrice Louvet, President and Chief Executive Officer. “Our financial performance this quarter reflects an unprecedented three months of COVID-19-related impact around the world. We are taking the opportunity to leverage this period of disruption to accelerate our core strategic focus areas, drive new areas of growth, and realign our resources accordingly.”
COVID-19 Update
From the onset of the global COVID-19 pandemic, our priority has been to ensure the safety and well-being of our employees, consumers and the communities in which we operate around the world. We continue to follow the guidance of local governments and global health organizations as we safely return our businesses to growth. Additional actions taken in the first quarter include:
- Store Reopenings. Currently, nearly all of our physical owned stores have reopened across North America, Europe, and Asia. Following reopening, our stores continued to operate at limited hours and consumer capacity, in accordance with local health guidelines. During the first quarter, the majority of stores in our key markets were closed for an average of 8-10 weeks, resulting in significant adverse impact to our traffic and revenues.
- Online Operations. Our global digital flagship businesses continued to operate during the first quarter. As consumers increasingly embrace omni-channel retailing, we are bolstering our connected retailing capabilities including digital clienteling, Buy Online Ship From Store, Buy Online Pick Up From Store, curbside pickup, and other initiatives to facilitate and enhance the consumer experience.
- New Health and Safety Protocols. We continue to take careful precautions across all of our facilities, including stringent health and safety protocols in our stores, offices, and distribution centers to protect both our employees and consumers.
- Cost-Reducing Actions. Key cost reduction actions taken in the first quarter included: reductions in executive compensation and temporary employee furloughs; negotiated rent abatements and lower variable rent expense due to COVID-19-related closures; and reduced corporate and selling expenses. Our Board of Directors also agreed to forgo their quarterly cash compensation for the first quarter of Fiscal 2021.
- Balance Sheet and New Debt Issuance. In addition to a robust balance sheet going into the pandemic, we have taken further preemptive actions to preserve cash and strengthen liquidity while navigating the evolving global pandemic. On June 3, 2020, we completed the issuance of $500 million of 1.700% 2-year notes and $750 million of 2.950% 10-year notes. A portion of the net proceeds were used to pay down the $475 million outstanding on our Global Credit Facility, and we plan to use the remainder for general corporate purposes, including the repayment of $300 million of 2.625% 5-year notes due August 18, 2020.
Key Achievements in First Quarter Fiscal 2021
As we continued to navigate the evolving global pandemic, we delivered the following highlights across our strategic priorities in the first quarter of Fiscal 2021:
- Win Over a New Generation of Consumers
- Drove strong consumer engagement and conversion through campaigns including our signature Pride campaign and capsule, RL @ Home program, exclusive capsules with Zalando and Asos, and our “Polo Shirt: Design For Good” competition on the Polo app
- Our teams pivoted marketing investments away from in-store activations and major sporting events and toward values-based, digital brand-building activities during store closures. More selective marketing through the pandemic and timing shifts drove our first quarter marketing spend down 34% to last year
- Energize Core Products and Accelerate Under-Developed Categories
- Continued to drive AUR and brand elevation journey across every region, despite significant revenue headwinds resulting from the pandemic. Excluding COVID-related shifts, underlying AUR grew high-single digits with double-digit growth in North America and Europe
- As stores reopen, our consumers are progressively shifting back to our core pre-COVID-19 categories. Home and Loungewear are also emerging as high potential, under-developed lifestyle categories
- Drive Targeted Expansion in Our Regions and Channels
- Performance improved sequentially by month across all regions throughout the quarter, led by digital commerce comp growth of 13% in the first quarter
- Chinese mainland sales increased mid-teens to last year in constant currency, on track to return to pre-pandemic growth levels in the second quarter of Fiscal 2021
- Lead With Digital
- Strong digital momentum in the first quarter, with positive comps in our owned Ralph Lauren digital sites across all three regions. Global reported sell-out performance in our wholesale digital businesses was also up strongly to last year
- Enhanced our connected retailing capabilities and digital offerings with the launch of Buy Online Pick Up in Store and curbside pickup in North America, digital clienteling and expansion of Buy Online Ship from Store globally
- Operate With Discipline to Fuel Growth
- Adjusted operating expenses declined 30% to last year, primarily driven by savings from employee furloughs, lower rent and reduced corporate and selling expenses
- Inventories declined 22% at the end of the quarter, reflecting double-digit declines across all geographies to ensure healthy inventory positions across channels
- Improved cash conversion cycle to last year through a combination of lower accounts receivable and extended days payable, despite challenging global retail conditions
First Quarter Fiscal 2021 Income Statement Review
Net Revenue. In the first quarter of Fiscal 2021, revenue decreased by 66% to $487 million on a reported basis and was down 65% in constant currency, with declines across all regions due to COVID-19 business disruptions. Foreign currency negatively impacted revenue growth by approximately 100 basis points in the first quarter.
Revenue performance for the Company’s reportable segments in the first quarter compared to the prior year period was as follows:
- North America Revenue. North America revenue in the first quarter decreased 77% to $165 million. In retail, comparable store sales in North America were down 64%, driven by a 77% decrease in brick and mortar stores and a 3% increase in digital commerce. North America wholesale revenue decreased 93%.
- Europe Revenue. Europe revenue in the first quarter decreased 67% to $121 million on a reported basis and decreased 64% in constant currency. In retail, comparable store sales in Europe were down 62%, with a 75% decrease in brick and mortar stores partly offset by a 44% increase in digital commerce. Europe wholesale revenue decreased 71% on a reported basis and decreased 68% in constant currency.
- Asia Revenue. Asia revenue in the first quarter decreased 34% to $172 million on a reported basis and decreased 32% in constant currency basis. Comparable store sales in Asia decreased 33%, with a 35% decline in our brick and mortar stores partly offset by a 68% increase in digital commerce.
Gross Profit. Gross profit for the first quarter of Fiscal 2021 was $349 million and gross margin was 71.5%. Adjusted gross margin was 71.8%, 730 basis points above the prior year on a reported basis and up 880 basis points in constant currency. Gross margin expansion was primarily driven by favorable geographic and channel mix shifts due to COVID-19 as well as AUR improvements across all regions.
Operating Expenses. Operating expenses in the first quarter of Fiscal 2021 were $517 million on a reported basis. On an adjusted basis, operating expenses were $524 million, down 30% to last year, primarily driven by savings from employee furloughs and rent relief, as well as reduced corporate and selling expenses. Adjusted operating expense rate was 107.5%, compared to 52.3% in the prior year period.
Operating Income (Loss). Operating loss for the first quarter of Fiscal 2021 was $168 million and operating margin was (34.5%) on a reported basis. Adjusted operating loss was $174 million and operating margin was (35.7%), compared to 12.2% in the first quarter of Fiscal 2020.
- North America Operating Loss. North America operating loss in the first quarter was $25 million on a reported basis and $40 million on an adjusted basis. Adjusted North America operating margin was (24.3%), compared to 20.9% for the first fiscal quarter of Fiscal 2020.
- Europe Operating Loss. Europe operating loss in the first quarter was $17 million on a reported basis and $18 million on an adjusted basis. Adjusted Europe operating margin was (14.8%), compared to 22.0% for the first quarter of Fiscal 2020. Foreign currency negatively impacted adjusted operating margin rate by 910 basis points in the first quarter.
- Asia Operating Income. Asia operating income in the first quarter was $10 million on a reported basis and $13 million on an adjusted basis. Adjusted Asia operating margin was 7.4%, compared to 18.8% for the first quarter of Fiscal 2020. Foreign currency negatively impacted adjusted operating margin rate by 120 basis points in the first quarter.
Net Income (Loss) and EPS. Net loss in the first quarter of Fiscal 2021 was $128 million, or ($1.75) per diluted share on a reported basis. On an adjusted basis, net loss was $133 million, or ($1.82) per diluted share. This compared to net income of $117 million, or $1.47 per diluted share on a reported basis, and net income of $142 million, or $1.77 per diluted share on an adjusted basis, for the first quarter of Fiscal 2020.
In the first quarter of Fiscal 2021, the Company had an effective tax rate of approximately 26% on both a reported and an adjusted basis, resulting in an income benefit. This compared to an effective tax rate of approximately 20% on a reported basis and 21% on an adjusted basis in the prior year period, resulting in an income tax provision.
Balance Sheet and Cash Flow Review
The Company ended the first quarter of Fiscal 2021 with $2.7 billion in cash and investments and $1.9 billion in total debt, compared to $2.0 billion and $692 million, respectively, at the end of the first quarter of Fiscal 2020.
Inventory at the end of the first quarter of Fiscal 2021 was $773 million, down 22% compared to the prior year period.
Full Year Fiscal 2021 and Second Quarter Outlook
Due to the ongoing high level of uncertainty and evolving situation surrounding COVID-19, we continue to suspend all future guidance.
We continue to expect our financial results for both the second quarter and full year Fiscal 2021 to be significantly adversely impacted by the pandemic and prolonged demand recovery. Though the timing and path of recovery in each market presents many uncertainties, including the potential for second waves of outbreaks across various markets, we have developed scenarios through which we plan to safely return our businesses to growth and value creation.
We are in the process of carefully evaluating our long-term operating structure to align with our evolving strategic priorities, with a focus on six key areas: team organizational structures, enterprise-wide processes, our distribution center and corporate office real estate footprint, our door presence across owned direct-to-consumer and wholesale partners, discretionary expenses, and our brand portfolio.
