What's going on?
Ralph Lauren reported its quarterly results before the market opened on Wednesday and, although the company made a loss, shares popped up 8.5%!
What does this mean?
Technically Ralph Lauren lost $31 million last quarter, but most of that loss was caused by restructuring costs as part of the company’s turnaround plan. Without those costs, the fashion retailer would have made $128 million. Either way, the company beat investors’ expectations, and that’s why its stock jumped.
Some think the brand that’s synonymous with country clubs and prep schools has lost touch with today’s consumers. While it’s too early to say, the stock’s recovery could be a sign that investors think it may be on the right path to fixing that (although the stock is still down this year).
Why should I care?
For the stock: New leadership can be a good way to enact change.
Ralph Lauren himself is still the chairman and largest shareholder, but the company brought in a new CEO (for the first time in the company’s history) last November who’s been tasked with righting the yacht ship. Under his new plan, the company is spending $400 million this year to streamline its organization, alter its real estate, and decrease manufacturing costs in hopes of a turnaround.
The bigger picture: It’s proof that luxury is a balancing act.
High-end brands are often synonymous with quality and exclusivity – however, there are only so many people that can afford them. So the question becomes how you can grow the business past a certain point? Some retailers try to sell more to each customer or up their prices. Others move downmarket and lower prices to reach a wider audience – which can be good for the stock in the short-term, but over time can degrade the quality and exclusivity that made the brand popular in the first place (which Ralph Lauren has been experiencing).