What Led To A Sudden Drop In Ralph Lauren’s Share Price?

-4.53%
Downside
183
Market
175
Trefis
RL: Ralph Lauren logo
RL
Ralph Lauren

Shares of Ralph Lauren (NYSE:RL) tanked more than 10% before markets opened on June 7th after the company unveiled a restructuring plan. While the shares recovered in the day, they still closed over 2% below the previous day’s closing.

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The company expects its FY 2017 restructuring activities to result in $180-$220 million of annualized savings, in addition to the $125 million of annualized cost savings from its FY 2016 restructuring plan. This will occur as a result of streamlining its organization structure and right-sizing its cost structure. Some of the activities undertaken include:

  • 50 stores, roughly 10% of the company’s retail footprint, mainly high-end shops, will be closed.
  • Shipments to department stores will be reduced to induce scarcity and drive full-price sales.
  • Reduce production time by 6 months to translate into shorter production cycles and get products out quicker.
  • Strip out three layers of management and terminate 1,000 jobs.
  • 30% of the styles make up 70% of the business. Since 65% are considered unproductive styles, Ralph Lauren has cut them back by a third over the past six months.

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There are also rumors of the company poaching Coach CFO Jane Hamilton Nielsen, who has been credited with playing an important role in the turnaround of the company. Last week it was announced that Ms. Nielsen, who has been with Coach since 2011, was leaving “to pursue another opportunity” and is expected to remain with the company till September.

Such moves are the latest by Stefan Larsson, CEO of Ralph Lauren, to get the company onto a new course to better compete with more nimble rivals. In the past three years, the company’s market cap has halved and while sales have increased 7%, the rate of increase in inventory has been 26%.

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The company also provided guidance for FY 2017 which showed revenue declines to continue. Ralph Lauren expects the performance to stabilize in FY 2018, with improving margins in FY 2018 and FY 2019. The company also expects to return to profitable growth in FY 2019, with market share gains in FY 2020.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Ralph Lauren.
 
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