Ralph Lauren expects margins to grow as the affluent shrug off inflation

Ralph Lauren Corp (RL.N) on Tuesday forecast higher sales and improved margins for the year as demand for its luxury clothing and accessories from its biggest markets in North America and Europe stays strong.

The spending power of higher-income customers has stayed unaffected by inflation in prices of essentials, and they are now splurging on fashion as they attend more social events with a broader easing of COVID-19 restrictions across the globe.

Luxury brand Ralph Lauren, which has raised prices to make up for increased freight and product costs, forecast fiscal 2023 gross margin to increase 30 to 50 basis points on a comparable, constant currency basis.

The 55-year-old apparel and footwear brand also forecast revenue to increase in high single digits, compared with Wall Street’s expectation of a 3.6 per cent increase, according to IBES data from Refinitiv.

Meanwhile, major discount US retailers have seen their profits dwindle. Walmart Inc (WMT.N), Target Corp (TGT.N) and Kohl’s Corp (KSS.N) have reduced their earnings expectations due to inflation.

Ralph Lauren’s net revenue rose 18 per cent to $1.52 billion for the fourth quarter, beating estimates of $1.46 billion. Excluding one-off charges, the company reported a profit of 49 cents per share, compared with estimates of 36 cents per share.

It also raised its quarterly cash dividend by 9 per cent to 75 cents per share.

For the current quarter, however, Ralph Lauren expects gross margin to be down slightly due to higher expenses and a strong dollar. It also projected COVID-19 lockdowns in China to dent its revenue.

Shares of the New York-based company rose nearly 2 per cent in premarket trading amid broader market declines.