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Ralph Lauren Corp (RL.N: Quote,Profile, Research, Stock Buzz) reported better-than-expected results for the holiday quarter, helped by double-digit sales growth at its own stores as well as increased sales to department stores, and the clothing maker raised its margin forecast.
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Its shares rose more than 10 percent on Wednesday.
So-called affordable luxury continued to do well over the holidays, as illustrated by Ralph Lauren's results and those of Coach Inc (COH.N:Quote, Profile, Research, Stock Buzz), which reported last month.
Also on Wednesday, shoe and clothing maker and retailer Jones Group (JNY.N: Quote, Profile,Research, Stock Buzz) said its results got a lift from its higher-end shoe brands like Kurt Geiger and Stuart Weitzman, which helped its gross margin rise despite weaker sales of the company's more basic items.
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Ralph Lauren, with brands ranging from mid-tier basics to high-end luxury labels such as Polo, Club Monaco and Chaps, said revenue rose 17.2 percent in its fiscal third quarter that ended December 31, to $1.81 billion, topping analysts' average forecast of $1.75 billion, according to Thomson Reuters I/B/E/S.
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The sales charge was led by a 12 percent gain at its stores open at least a year, with sales at Club Monaco stores rising the most.
Ralph Lauren also got a lift from department stores such as Macy's Inc (M.N: Quote, Profile,Research, Stock Buzz), which enjoyed a stellar holiday season. Wholesale sales were up 11 percent during the quarter.
The sales gains eased investor concerns about the pressure from rising product costs on gross margins, which have been a drag on Ralph Lauren's share prices since October
"Investors are focusing on sales growth in this environment," independent retail analyst Marie Driscoll said, noting that Wall Street was impressed by "across the board" increases at all of Ralph Lauren's divisions.
That included gains overseas for a company that still gets the bulk of its sales in North America and Europe. So far this year, international sales are up more than 40 percent.
But sales in China -- far and away the world's fastest-growing luxury market -- were modest, and Ralph Lauren is in the middle of an overhaul of how it sells products there.
The company will have closed more than half of the locations in China where its products are sold, planning to replace them with higher-end shops over which it would have more control.
On a call, Chief Operating Officer Roger Farah said it has closed 95 points of distributions in China, more than the 65 initially planned. But Farah said taking a step back in China, even at the cost of lower sales there in the short term, was worth it long term.
"It's not a question of if for us in China, it's a matter of when," Farah told analysts on a conference call.
