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

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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 (NYSE:RL), 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% increase, according to IBES data from Refinitiv.

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

Ralph Lauren’s net revenue rose 18% 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% 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% in premarket trading amid broader market declines.