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Wednesday, October 5, 2022
HomeTechnologyRalph Lauren expects faster growth thanks to pricing and new customers

Ralph Lauren expects faster growth thanks to pricing and new customers

Ralph Lauren Corp. expects sales growth over the next three years that’s faster than Wall Street’s estimates. To do that, it aims to pick up new customers and continue raising prices.

“This company is now poised to accelerate growth and value creation, and we have the momentum to prove it,” CEO Patrice Louvet said in an interview with Bloomberg News. Canada and the U.S. in particular represent a growth opportunity that investors may be underestimating, he added.

Ralph Lauren (No. 80  in the 2022 Digital Commerce 360 Top 1000) will continue to cultivate younger customers. Louvet credits young shoppers with helping to push online sales to 26% of revenue. He expects that figure to reach about 33% in the next several years.

The apparel brand targets revenue growth in the mid-to-high single digits in each of the next three fiscal years, including the current one. That’s according to a statement published Monday ahead of a presentation to investors. The new outlook, which excludes currency-related fluctuations, covers the fiscal years that run through the first three months of 2025.

Ralph Lauren’s strategy builds on the company’s work in recent years to close unproductive stores while cutting back on promotions and offering pricier items. If achieved, high-single-digit sales growth would outpace the average of estimates compiled by Bloomberg. That compilation shows analysts expecting expansion of 1.6% in the current fiscal year and about 4.5% in the following two periods.

Fewer discounts

Ralph Lauren targets average price increases for its merchandise in the mid-single-digit range over the next several years, Louvet said. The figure, known as average unit retail, climbed 64% since the company’s last investor day in 2018, he added. The company has achieved this, in part, by decreasing its reliance on discounts in department stores. Thus, Ralph Lauren now sells nearly two thirds of its products via its own stores and websites.

Those higher average prices have helped to boost sales and attract more affluent customers willing to pay higher prices. That’s a trend retailers refer to as “elevating the brand.” Ralph Lauren won’t tarnish its renewed cache by resorting to heavy discounting this holiday season like it has in past years, Louvet said.

Still, he anticipates major promotions at the end of the year from retailers that are trying to regain lost market share — or whittle down excess merchandise that has built up because of supply-chain snafus.

“We want to be a lifestyle luxury company,” he said. “We won’t be oblivious to the environment we operate in, but we will not resort to aggressive promotional activity to drive our business.”

The company is also betting on growth in women’s merchandise in the long term. It ultimately aims to have the category represent half of sales — up from around 30% now. Louvet said he wants to seize on the fact that more than half of the customers who come into Ralph Lauren stores are women, but they are often shopping for male friends and family.

Targets 15% operating margin

Ralph Lauren is targeting operating margin of at least 15% by fiscal 2025. The retailer plans to spend about 4% to 5% of revenue on capital expenditures annually during the three-year span. Ralph Lauren aims to open several hundred more stores in the next three years. The news stores will mainly be in China, South Korea and Japan, Louvet said.

In the U.S., the company has space to expand in California and the West Coast, he said. Ralph Lauren plans to open 15 to 20 more stores in the U.S. through the beginning of 2025.

The company will return about $2 billion to shareholders over the period via dividends and share repurchases.

Ralph Lauren’s balance sheet gives it “flexibility to selectively pursue M&A with a focus on advancing our operational and digital capabilities,” Jane Nielsen, chief financial officer, told investors. She highlighted Ralph Lauren’s minority investment in Natural Fiber Welding Inc., which manufactures recycled cotton, as an example of the type of deals the company is interested in. The company’s three-year targets don’t include a potential acquisition, she said.

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