Ralph Lauren Restructuring Operations After Disappointing Results

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RL: Ralph Lauren logo
RL
Ralph Lauren

Reports suggest that Ralph Lauren (NYSE:RL) will move its warehousing and inventory management services from a North Carolina distribution center run by XPO to a new distribution center managed in-house. This move comes after the retailer announced its Q3 2016 results in which it reported a 39% year-on-year decline in its earnings. Management also lowered its FY 2016 guidance to a 3% decline in revenues from an earlier estimate of flat sales. Company management looks to manage its inventory better by shortening lead times, thereby optimizing inventory in relation to sales.  Accordingly, we believe the fashion retailer will benefit from handling its own distribution as this will give it a better grip on its inventory.

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 According to Kevin O’Marah, head of research for SCM World (a supply chain industry association), retailers are increasingly in-sourcing their distribution networks as they contend with the demand from online shoppers.  After disappointing Q3 2016 results, Ralph Lauren’s CEO in the  earnings call mentioned that the most important task for the company over the next few months would be to find answers to critical questions such as how does it strengthen its direct-to-customer channel so that its online channel can drive profitable growth. The company is also looking to improve the quality of its distribution, so that it can better manage pricing so as to increase full price selling and lower discounting.  With an action plan in place to execute against these goals, management can bring distribution in house to better support the company’s omni channel initiatives.

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The company is working on a new e-commerce platform which is expected to be launched in 2017 so as to help to drive its online sales. According to our estimates, e-commerce sales will drive the valuation of Ralph Lauren’s retail segment, which will increase steadily over our forecast period to reach $2.34 billion.

Ralph Lauren mentioned that shifting warehousing and inventory management services in house is part of its long term strategy.  We believe the move will enable the company to run its omni-channel initiatives efficiently. As it fulfils orders both from its stores and warehouses as part of this strategy, a higher control over its own warehouses is essential. As the company struggles to improve revenues and manage costs better in future, we believe Ralph Lauren will benefit from an operational restructuring in supply chain management.

 

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