Global apparel companies report mixed performance in Q2 FY24

MODERATE: GROWTH IN EITHER SALES OR PROFITS

Ralph Lauren (NYSE: RL)

Ralph Lauren Corporation is a global leader in the design, marketing and distribution of luxury lifestyle products in five categories: apparel, footwear and accessories, home, fragrances, and hospitality.

This NY-headquartered and NYSE-listed company announced its Q2 FY24 results on November 8, 2023. The global leader in the design, marketing, and distribution of luxury lifestyle products earned a revenue of $1.6 billion between July 1 and September 30, 2023. This was a 3 per cent increase on a reported basis and a 2 per cent increase in constant currency, compared to the same quarter last year. The revenue increase, ahead of expectations, was driven by a 10 per cent (13 per cent in constant currency) growth in Asia to $348 million and a 7 per cent increase (flat in constant currency) in Europe to $527 million, despite a marginal drop of 1 per cent in North America to $718 million. The favourable foreign currency impact contributed approximately 170 basis points to the revenue growth.

The gross profit, with a 65.5 per cent margin, amounted to $1.1 billion, surpassing the company’s outlook due to continued brand elevation and expense discipline, which more than offset ongoing product cost headwinds and higher planned marketing & digital investments during the reported quarter. Adjusted gross margin at 65.4 per cent exceeded that of last year by 80 basis points on both a reported and constant currency basis. The gross margins resulted from strong AUR growth across all regions, lower freight, and favourable channel and geographic mix shifts. However, net income was $147 million ($2.19 per diluted share) on a reported basis, while adjusted income was $141 million ($2.10 per diluted share). The respective performances for Q2 FY23 were $151 million ($2.18 per diluted share) and $154 million ($2.23 per diluted share).

For Q3, the company expects revenue to be up approximately 1 to 2 per cent in constant currency compared to last year, with foreign currency expected to negatively impact revenue growth by approximately 30 basis points. Constant currency operating margin is expected to remain roughly flat, with about 10 basis points of foreign currency benefit.

For the full fiscal 2024, the company continues to expect constant currency revenues to increase approximately by low-single digits compared to last year, around 1 to 2 per cent. This outlook reflects slightly increased caution around the wholesale channel. Based on current exchange rates, foreign currency is expected to negatively impact revenue growth by approximately 50 basis points for the full year.

Gunze (TYO: 3002)

Established in late 19^th century, Japan’s Gunze Ltd is in the business of functional solutions (plastic films, engineering plastics, electronic components, mechatronics), medical materials, apparel (innerwear, legwear, lifestyle wear, threads and accessories) and lifestyle creations that cover commercial facility development, landscaping and greening, sports club, spa, real estate development and engineering.

In early November, it released its second quarter FY24 (officially termed FY23) performance and reported net sales of 33,447 million yen, which was 5.7 per cent down from 35,481 million yen in Q2 FY22. The top two highest contributors—functional solutions and apparel—decreased by 3.6 per cent and 7.7 per cent, respectively, from the same quarter last year. On the same quarter-to-quarter comparison, the operating profit increased from 1,554 million yen to 1,714 million yen (up 10.3 per cent), and the ordinary profit increased from 1,516 million yen to 1,639 million yen (up 8.1 per cent).

The combined performance of Q1 and Q2 also followed the pattern of the second quarter, with a decline in sales but growth in profits. The company's consolidated revenue reached 65,153 million yen, decreasing by 3.3 per cent, and the operating profit reached 3,280 million yen, increasing by 15.1 per cent, when compared to the same six-month period in FY23.

For the full fiscal 2023, ending on March 31, 2024, the company projected net sales of 140,000 million yen and both operating and ordinary profits at 7,500 million yen. These numbers, when achieved, will translate into respective growths of 2.9 per cent, 29 per cent, and 24.6 per cent over FY22 performance. The projected EPS is 281.37 yen.

STRONG: GROWTH IN BOTH SALES AND PROFITS

Goldwin Inc (TYO: 8111)

Goldwin is a Japanese sports apparel manufacturer, founded in 1951, that offers an extensive line-up of brands for both sport enthusiasts to world-class elite athletes.

The company reported its second quarter financial performance on November 7, in which both sales and profits exceeded initial forecasts due to the effects of intense heat, inbound demand, and improved sales efficiency. Net sales increased from 45,309 million yen in Q2 FY23 to 51,096 million yen in Q2 FY24 (+12.8 per cent), mainly driven by increased demand experienced in The North Force owing to the resumption of travel, sports, and outdoor activities including mountaineering on one hand, and rising inbound demand with the inbound sales ratio accounting for approximately 20 per cent of directly managed store sales (the average for the second quarter was 18 per cent) on the other.

Gross profit increased by 12.9 per cent to 25,959 million yen, which represented 50.8 per cent of sales against 50.7 per cent last year. Net income of 7,323 million yen was a 25.3 per cent increase that reflected a 14.3 per cent margin versus 12.9 per cent in Q2 FY23. The number of directly managed stores in the second quarter reached 158.

After bottoming out in the first quarter, the company now expects a full-year gross profit margin of 52.5 per cent by promoting measures to improve the gross profit margin. The company further aims for long-term growth by achieving sales of over 120 billion yen (+6.9 per cent) and net income of 21,700 million yen (+3.4 per cent) for the full fiscal ending March 2024.

ALCHEMPro News Desk (KD)