February 5, 2014 5:10 pm

Top-end brands cautious about outlook

Ralph Lauren and Estée Lauder took the shine off strong US sales in the last quarter by painting a less enthusiastic outlook for future profit growth.

Lower company forecasts on profit margins from Ralph Lauren and caution from Estée Lauder damped investor confidence, after an early surge.

Ralph Lauren shares were down 2 per cent at $151.09 by midday in New York, while Estée Lauder was down by almost 5 per cent to $65.95, after rising as much as 8 per cent in premarket trading.

Ralph Lauren’s caution that increased promotions may eat into gross margins scared away investors who had earlier pushed the stock higher.

The company had reported a 9 per cent rise in like-for-like third-quarter sales to $2.2bn, fuelled by strong growth in its core North American merchandise.

Profits rose 10 per cent to $237m, or $2.57 in earning per share on a diluted basis, up from $216m, or $2.31 per share, a year earlier. Wall Street had predicted earnings of $2.51.

Ralph Lauren, founder and chief executive, said the accelerated profit and high single-digit revenue growth across all international markets in the last quarter had been driven by a surge in consumer appetite for the luxury brands at the highest end of its portfolio.

Similarly, Estée Lauder said demand across beauty product categories for top-price labels such as Jo Malone and Tom Ford had fuelled sales growth over the holiday season. However, margins were squeezed and the company faced a slowdown in the Asian market.

A 3 per cent rise in global sales to $3.02bn had been boosted by the company’s core US market, where revenue rose 5 per cent to $1.19bn.

Overall sales in Europe, Africa and the Middle East climbed 7 per cent in the company’s second-quarter to $1.18bn. But softer than expected results weighed heavily on the Asia-Pacific region, where sales slipped by 6 per cent to $643m amid currency headwinds and competitive pressures in markets such as China, Taiwan and Korea.

Diluted earnings per share of $1.09 slipped from $1.16 in the previous period.

Estee Lauder lowered the high end of its revenue outlook by one percentage point to the range of 6 per cent to 7 per cent, but affirmed its earnings outlook for the year.

Results from both companies confirmed that western markets had compensated for slowing growth in emerging economies.

Many mass market retailers had struggled to attract shoppers over Christmas in North America, causing discounting which spread across the industry.

The Ralph Lauren and Estée Lauder results came a day after US ‘accessible luxury’ group Michael Kors beat expectations as third-quarter revenue jumped 51 per cent in North America and more than doubled in Europe, with total sales of almost $1bn.

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.