Ralph Lauren, Capri ride wave of inflation-resistant luxury demand
Published August 9, 2022
(Reuters) - Ralph Lauren Corp (RL.N) and Michael Kors-owner Capri Holdings (CPRI.N) blew past earnings estimates, underscoring an unwavering demand for luxury apparel and handbags from wealthy consumers who remain largely unscathed by red-hot inflation.
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Surging prices have had little impact on middle- and high-income households who have been happily splurging on designer labels, using what they saved during the pandemic when everything from foreign holidays to eating out came to a halt.
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"High-income consumers are shopping in a way that is different from other times of inflation," Jane Hali & Associates analyst Jessica Ramirez said.
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"Their priority is to shop for events they are returning to now after coming out of lockdowns and this is putting luxury goods companies in a good place."
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Still, shares of both the companies fell about 3% in weak broader market as their sales in China still proved to be a sore spot due to recurring COVID-19 lockdowns.
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Capri Chief Executive John Idol said he was "less optimistic" about the pace of the demand recovery in the key luxury goods market.
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Meanwhile, European rivals LVMH (LVMH.PA) and Gucci-owner Kering (PRTP.PA) have also seen a strong increase in their sales, benefiting from some luxury spending shifting to Europe as U.S. tourists took advantage of a stronger dollar.
BALLOONING INVENTORIES
Capri and Ralph Lauren recorded an increase of 66% and 47%, respectively, in inventories at the end of their first quarters, as the companies expedited seasonal product shipments to avoid last year's supply chain delays.
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The higher spending on freight to get products to shelves faster caused gross profit margins at Capri and Ralph Lauren to decline, despite the companies increasing prices.
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A STRONG GAME
Ralph Lauren's revenue rose 8.3% to $1.49 billion in the first quarter, while Capri's revenue rose 8.5% to $1.36 billion, both beating analysts' expectations.
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Excluding items, Capri earned $1.50 per share, topping estimates of $1.36, while Ralph Lauren's profit of $1.88 per share beat expectations of $1.75, according to Refinitiv IBES data.