Ralph Lauren, seeing more price stability, roars in 3Q

Ralph Lauren is reporting a big third quarter, beating Wall Street expectations for both profits and revenue

NEW YORK -- Profits at Ralph Lauren soared in the third quarter and the high-end retailer topped almost all expectations on Wall Street by any metric.

Profit jumped from $120 million in the same period last year, to $334.1 million, with more customers buying goods at full price, rather than waiting for promotions, the company said.

Shares rose nearly 10% in early trading Tuesday.

Ralph Lauren and other retailers are facing a myriad of challenges including a trade war with China, unrest in Hong Kong. Now, a new virus in China threatens to disrupt the supply network of U.S. companies.

The New York company has temporarily closed about half of its 100 plus stores in mainland China because of the virus and is monitoring the outbreak, it said Tuesday. Less than 4% of Ralph Lauren's total sales comes from China, the company said.

Ralph Lauren in recent years had been forced to discount a lot of the clothing its sells at department stores. The company has begun raising the average price on some of its products, 6% in the latest quarter, and it raised its spending on marketing by 16% in the quarter.

The company reported per-share earnings of $4.41, or $2.86, when removing non-recurring events. That far exceeds the $2.45 that industry analysts were looking for, according to a survey by Zacks Investment Research.

Revenue of $1.75 billion was also better than expected.

In Ralph Lauren's North American retail business, comparable store sales in North America rose 4%, driven by a 4% increase in brick and mortar stores and a 6% increase at ralphlauren.com. North America wholesale revenue decreased 8%.

Comparable store sales rose 3% in Europe, driven by a 2% increase in brick and mortar stores and a 15% increase in digital commerce. Europe wholesale revenue increased 2%.

Comparable store sales in Asia fell 1%, with growth in both brick and mortar and digital commerce operations more than offset by a decline in Hong Kong. Excluding Hong Kong, comparable store sales increased 2%.

Ralph Lauren expects net revenue growth in the range of 2% to 3% this year on a constant currency basis. The outlook continues to include the impact of tariffs and business disruptions in Hong Kong, but not the potential impact from the newly emerged coronavirus in Asia.

That virus is cutting across all business sectors.

The lockdown of Wuhan, the center of the outbreak and a manufacturing center of 11 million, has disrupted production of liquid crystal and light-emitting diode panels, according to IHS Markit technology research, now a part of Informa Tech. That has depressed supplies and pushed up prices for manufacturers that use them in computer displays, TV sets and other products.

A clampdown on travel could depress auto production and sales and prices of oil, iron ore and other materials from Australia, Brazil and African suppliers to China's huge industries, forecasters say.

China is the world’s biggest importer of many commodities, including oil. The price of Brent crude, the benchmark for international oil trading, has fallen to about $55 per barrel from $70 in early January, partly due to weak Chinese demand.

General Motors Co. and other automakers are telling employees to limit travel to China, their biggest market.

Global companies increasingly rely on China, the world's No. 2 economy, as a major buyer of food, cars, movie tickets and other goods. But that has left them more exposed than ever to the pain of its latest abrupt slump.

Executives at Ralph Lauren said they'd already been diversifying its supply chain because of the tariff fight between the U.S. and China. That, they said, would allow them to more deftly navigate the virus outbreak.

Share of Ralph Lauren Corp. rose $9.96 to $123.22.

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Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on RL at https://www.zacks.com/ap/RL