Michael Kors and Ralph Lauren Revenue Rise due to Reduced Discounting

While Michael Kors and Ralph Lauren reported a sharp drop in sales in its latest first quarter earnings, due to a reduction in discounts in their own retail stores, as well as a pull back on merchandise sold through department stores, profits exceeded expectations which could indicate improved consumer spending in the US.

Customers are willing to pay full retail prices on products if the style was right, according to Michael Kors chief executive, John Idol, who used the brand’s made-in-Italy Bancroft bag as an example, which although priced higher at US $1,000 sees strong demand.

“If it’s the right product you don’t have to have these aggressive markdowns at retail,” explained Idol, according to Dow Jones Newswire.

Idol, however, made note that that the upturn in company revenue was offset by its sales decline, largely a result of reduced discounts.

While Michael Kors’ revenue decreased by 3.6% to US $952.4, it far exceeded analysts expectations of US $918.6 million. Store sales fell 5.9% while department store sales plummeted 23%.

At Ralph Lauren, earnings also surpassed analysts’ estimates as the chain’s bottom-line profited from fewer discounting events and reduced inventory. For the first quarter, Ralph Lauren raked in US $59.5 million, compared with a loss of US $22.3 million, the previous year.

The company’s new CEO, Patrice Lovuvet, who took the reigns only last month, made note that it was making leeway on its “Way Forward” turnaround plan, which largely includes strengthening its e-commerce operations, and reducing stores as well as in-store inventory levels further, including department stores.

The company’s inventory levels were pulled back by 31% in Q1, which it says will be reduced further by 20 to 25% during the second half of the year. In a recent address to analysts, the company also confirmed it would be ditching 25% of its struggling department store outlets in an attempt to boost profit margins further.

As for Michael Kors, it too saw reduced in-store foot traffic, adding that its management would focus more on brand innovation to drive sales and margins.

“We are encouraged by our first quarter performance, although we (Michael Kors) continue to believe that fiscal 2018 will be a transition year for our company, as we focus on laying the foundation for the future by executing on our strategic plan,” Idol said in a statement.

 

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