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Oct 29, 2020

Ralph Lauren drops most since June on long road to recovery

Ralph Lauren clothing sits on display inside a store on Madison Avenue in New York.

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Ralph Lauren Corp. dropped the most since June amid concerns about the impact of the latest wave of Covid-19, spoiling a quarter in which it posted profit that topped expectations.

The apparel maker said its results for the remaining two quarters of the fiscal year would be “adversely impacted by the pandemic and prolonged demand recovery.” With new restrictions in place in France and Germany and rising coronavirus cases in North America, the company remains “cautious,” Chief Financial Officer Jane Nielsen said on a call with investors.

Chief Executive Officer Patrice Louvet said the company is working to rely less on hard-hit areas like its North America wholesale business and off-price retailers like TJ Maxx. Over the past few years, it has pulled back from each of these sectors by about 50%, he said.

“We’re pro-actively reducing our exposure to what we could call the most structurally-challenged areas of the business,” Louvet said in an interview.

Ralph Lauren shares fell as much as 9.2 per cent in New York, the biggest intraday drop since June 11. The stock had fallen 37% this year through Wednesday’s close. Apparel companies have faced a difficult 2020, with clothes becoming less of a priority for those working at home. Sportswear sales have outpaced other categories.

Global sales in the quarter fell 30 per cent to US$1.19 billion, barely missing estimates for US$1.21 billion, amid continued steep declines in North America and Europe.

Asia was a bright spot, with shoppers reopening their wallets to buy luxury goods, like designer clothes and handbags in several markets. Sales only fell 7% and mainland China returned to pre-pandemic with a growth rate above 30 per cent.

There are signs that the company’s strategy to add more prestige to the brand via higher prices is paying off. Adjusted earnings were $1.44 a share, topping estimates of 90 cents.

The company also highlighted it has US$2.4 billion in cash and investments. Liquidity is of growing concern for investors with so many retailers and apparel brands under pressure during the pandemic.

--With assistance from Richard Clough.