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Ralph Lauren, the US luxury retailer, warned revenues were expected to decline in the current quarter due to weakness in the global economy and as it overhauls its distribution network in mainland China.
The weaker outlook came as the group reported better-than-expected earnings, which saw net revenue rise 4 per cent to $1.59bn in the quarter ended June, up from $1.53bn in the comparable period last year.
Growth was attributed to a robust performance in North American clothing and improved sales at factory outlets and online stores. But heavy exposure to troubled European markets, particularly Italy and Spain, the effects of a strong dollar and higher inventory costs thanks to a spike in cotton prices were highlighted as ongoing concerns.
Net income in the quarter rose 5.1 per cent to $193m, or $2.03 per share, up from $184m, or $1.90 per share, from the same quarter last year. Analysts had forecast net income of $1.78 per share, according to FactSet.
Roger Farah, chief executive, said the group closed 60 per cent of its partnered distribution network in Greater China, while sales within lucrative department store concessions in South Korea and Japan declined.
Ralph Lauren this month said it was temporarily shutting all its stores in Argentina due to high import taxes and currency restrictions.
Mr Farah said he remained cautious about growth for the rest of the fiscal year with net revenues expected to fall by a “mid-single-digit” percentage in the three months ended September.
However, rising sales at group-owned stores, primarily fuelled by tourist spending, should help offset a planned reduction in wholesale business to department stores and other retailers.
“The outlook for consumer spending and global economic growth remains challenging and we are planning our business accordingly,” Mr Farah said.
Unlike many luxury brands, Ralph Lauren is yet to fully benefit from the booming appetite of Chinese consumers for Western prestige products. Chinese customers generated just 2 per cent of annual group sales.
“For several European rivals, Chinese purchasing power creates 25-40 per cent of sales – this is a market we have yet to fully tap,” Mr Farah said.
Ralph Lauren said it planned to focus on building its share of sales from Chinese tourists over the course of 2013.