Ralph Lauren Expects Mainland China Growth Back to Positive in Q2

The Ralph Lauren Corporation, owner of an umbrella of Ralph Lauren brands and the casualwear brand Club Monaco, reported double-digit revenue decline due to the COVID-19 pandemic and Hong Kong protests. While Asia experienced the largest fall group-wide in Q4, the company’s chief financial officer said mainland China will get back on its feet quicker than others. 

The US-based fashion giant reported a revenue decline of 15% to $1.3 billion in the fourth quarter of fiscal 2020, ending on March 28 of this year. Asia, which accounts for around 16.5% of the group’s revenue for FY2020, experienced the largest fall, declining  22% while compared to an 11% revenue decrease in North America and 19% in Europe during the same period. 

The company is likely to report its Q1 of the fiscal year 2021 results in late August, which would cover a crucial period for its global recovery from roughly April to June. But analysts are more interested in the future recovery rather than the past loss. When JP Morgan analyst Matthew Ball inquired about productivity at worldwide brick-and-mortar stores, Ralph Lauren’s CFO Jane Nielsen gave an example of China’s store performances as reference, stating: “Traffic remained weak in the initial weeks but with strong conversions. So buyers who were coming to the stores were motivated.”

As February saw the biggest decline — over 80% — there have been strong recovery signs in both March and April in Asia. “Everything was returning positive in early May [in Asia] as Beijing and other large cities’ restrictions were lifted. We expect to be strongly back to growth in Q2 of this year in mainland China,” Nielsen said in the latest earnings call, while suggesting that the recovery trajectory in North America may not be as fast.

Ralph Lauren has been noticeably ramping up its presence in Asia. After Chief Executive Officer Patrice Louvet came into his position in late 2017, he has been bullish on Asia growth and relevant regional initiatives. In China, Ralph Lauren launched e-commerce channels on its Chinese website and via its WeChat Mini Program in September 2018. More recently, in addition to having over 600 concessions within department stores, it had opened 10 new directly operated Ralph Lauren stores and seven Polo factory stores over the last fiscal year alone, faster than the pace of new store openings in other markets. As the effects of COVID-19 continue in Europe and the US, the greater China region’s positive reopening appears to be a ray of sunshine for Ralph Lauren. If the company decides to continue its investment in Asia, now is a good time to do so. 

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Earnings Brief, Fashion