How Ralph Lauren’s Turnaround Plan Is Starting to Pay Off

Ralph Lauren New York Fashion Week
Model Liya Kebede on the Ralph Lauren runway show at NYFW.
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Ralph Lauren’s plan to drive demand into its previously lagging business is beginning to yield results. And that’s good news for investors who have kept the firm’s stock in the green today — shares remained up nearly 11 percent, to $87.54, as of 12:30 p.m. ET.

The iconic brand topped first-quarter earnings estimates — producing profit of $60 million, or 72 cents per diluted share on revenues of $1.3 billion. Adjusted earnings per diluted share, at $1.11, blew past Wall Street’s forecasts for EPS of 94 cents. Meanwhile, sales — which declined 13 percent year-over-year — were in line with analysts’ bets. (In the previous comparable period, Ralph Lauren had posted a net loss of $22 million, or 27 cents per diluted share on a reported basis, and net income of $90 million, or $1.06 per diluted share on an adjusted basis.)

Last June — under the leadership of then-newly minted CEO Stefan Larsson — the company had initiated its “Way Forward Plan,” which included refocusing and evolving core product, cutting lead times, shuttering underperforming stores and aligning supply with demand. After a little more than a year, Larsson exited the post — and was replaced by former Procter & Gamble CEO Patrice Louvet in May — but the company has continued to execute the plan.

Despite the quick turnover, Ralph Lauren, executive chairman and chief creative officer, today sang the praises of the newly appointed chief of his namesake firm.

I am thrilled to welcome Patrice Louvet as my partner to continue the exciting evolution of our company,” said Lauren. “Patrice has the enthusiasm to discover what has made our brand so iconic and the capability to evolve our business. We are both committed to preserving the essence of our brand while actively evolving it to renew long-term growth. Our experiences and expertise will be a powerful and winning combination.”

In the first quarter, the company said it delivered on several key elements of its turnaround strategy, including moderating discount levels across regions and generating 210 basis points of adjusted gross margin improvement. Ralph Lauren also lowered inventory levels by 31 percent; reduced operating expenses by 13 percent on an adjusted basis; and has forged ahead on its plans to close 20 to 25 percent of its underperforming U.S. department store points of distribution by the end of fiscal 2018.

While we are addressing challenges in our business, we have significant opportunity ahead and we’re moving forward with urgency,” said Louvet, president and CEO. “Ralph and I are focused on actively evolving the brand expression and consumer experience so we can ultimately renew growth and get back to leading. We are continuing to build a strong foundation for future growth, as evidenced by our progress this quarter on the key elements of the Way Forward Plan.”

The firm’s full year-outlook remains unchanged. Revenues are expected to decrease eight percent to nine percent, excluding currency fluctuations. In the second quarter, a revenue decline of nine percent to 10 percent, excluding currency impacts, is expected.