By Uday Sampath Kumar
(Reuters) – Higher prices for Ralph Lauren Corp’s <RL.N> down jackets and fleeces during the crucial holiday season boosted its margin and helped the company beat quarterly profit estimates on Tuesday, sending the fashion house’s shares up over 8%.
The company said it was assessing the financial impact of shutting about half of its 110 stores in China due to the coronavirus outbreak. It gets about 4% of its total revenue from China, a growth market for luxury goods makers.
Sales in China remained strong, rising 30% in the third quarter, benefiting from a marketing drive on social media channels TikTok and WeChat.
The company said it was able to increase product prices and cut promotions due to a ramp up in marketing, especially on social media through supermodels and actors, which has helped lift its brand image.
Heavyweight parkas, coats, light down jackets and wind breakers were among Ralph Lauren’s bestsellers during the holidays, Chief Executive Officer Patrice Louvet said.
“The company’s winter wear was on trend in terms of color and silhouette,” Jessica Ramirez, analyst at research firm Jane Hali & Associates said. “They got them right.”
Ralph Lauren’s adjusted gross margin rose by 60 basis points in the quarter, driven by a 6% gain in average prices at its own stores and website.
However, new advertising campaigns on television and in stores, as well as a new holiday-themed Snapchat filter drove Ralph Lauren’s marketing expenses higher by 16% in the quarter.
Net revenue rose 1.4% to $1.75 billion in the quarter ended Dec. 28, inching past average analysts’ estimate of $1.72 billion, according to IBES data from Refinitiv.
Its wholesale revenue in North America fell 8% as a record number of consumers shopped online during the holiday season, leading to a drop in traffic at department stores Macy’s <M.N>, J.C. Penney Co Inc <JCP.N> and Nordstrom <JWN.N>.
Ralph Lauren said it expects fiscal 2020 revenue, excluding fluctuations in foreign exchange, to rise 2% to 3%.
The company’s net income rose nearly three-fold to $334.1 million, or $4.41 per share, lifted by a one-time tax benefit.
Excluding one-time items, the New York-based company earned $2.86 per share, beating analysts’ expectation of $2.45 per share.
(Reporting by Uday Sampath in Bengaluru; Editing by Saumyadeb Chakrabarty and Arun Koyyur)