July 31, 2018 / 12:14 PM / a year ago

Ralph Lauren beat fuelled by fewer discounts, cost cuts

(Reuters) - Ralph Lauren Corp (RL.N) topped quarterly profit and revenue estimates as the luxury apparel maker benefited from a focus on offering fewer discounts and cost cutting, sending its shares up over 5 percent on Tuesday.

FILE PHOTO: A man walks past Ralph Lauren Corp.'s flagship Polo store on Fifth Avenue in New York City, U.S., April 4, 2017. REUTERS/Brendan McDermid/File Photo

The New York-based fashion company, like peers Tapestry Inc (TPR.N) and Calvin Klein-owner PVH Corp (PVH.N), has pulled heavily discounted products from department store shelves to regain its premium brand status.

Ralph Lauren, known for its signature Polo shirts and classic tweed blazers, is also investing in its core brands, cutting jobs, reducing excess inventory and shutting underperforming stores, while pushing its supply chain to bring the latest fashion to stores faster.

The company boosted spending on marketing by about 20 percent mainly for its Spring Polo campaign that features its iconic white Polo shirt, helping the men’s Polo shirts category grow double digits percentage in the quarter.

Ralph Lauren also tweaked its revenue forecast for fiscal 2019. It now expects revenue to be down slightly, compared with a low-single digit decline it forecast earlier.

“Improvements in the business, as well as the raised guidance help increase investor confidence in long-term growth,” said RBC Capital analyst Brian Tunick.

Ralph Lauren’s shares rose as much as 8.8 percent to an over three-year high of $147.79, before paring gains. They have gained over 30 percent this year.

The iconic brand is also expanding in international markets through new small-format stores as its biggest North America market saturates.

“Mainland China is our largest near-term opportunity,” Chief Executive Officer Patrice Louvet said on a post-earnings call, adding that the tariffs announced so far have had a minimal impact on business.

Ralph Lauren is also wooing millennials through new designs that add embroidery, print and color blocking, refreshed fabrics and increased functionality.

Net income jumped 83 percent to $109 million in the second ended June 30, also helped by a lower tax rate.

Excluding certain items, the company earned $1.54 per share, going past analysts’ average estimate of $1.36, according to Thomson Reuters I/B/E/S.

Gross margins increased 120 basis points to 64.4 percent, while average revenue per unit sold rose 8 percent.

Revenue rose 3.2 percent to $1.39 billion, the first increase in at least 13 quarters, also topping estimate of $1.36 billion.

The company is targeting a return to revenue growth in fiscal 2020 in constant currency.

Reporting by Aishwarya Venugopal in Bengaluru; Editing by Bernard Orr and Sriraj Kalluvila

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