Ralph Lauren Corp.’s president and CEO Stefan Larsson means business.
During his first investor day since taking the helm in November 2015, Larsson laid out an aggressive “Way Forward” plan for the company. The strategy includes 50 store closures, 1,000 job cuts and estimated savings of up to $220 million.
“Part of the challenge [has been] our undisciplined retail expansion,” Larsson told analysts and investors Tuesday. “We have stores in the portfolio today that we have decided to close because of two reasons: They don’t strengthen the brand, and they don’t drive profitable sales growth.”
Larsson said he tapped former H&M executive Fredrik Hjalmers as head of expansion in order to develop and carry out a new-and-improved distribution and expansion plan.
Founder Ralph Lauren was also on hand at the investor day, voicing his support for Larsson’s new line of attack.
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“I’m entrusting my baby with [Larsson],” Lauren said. “And that baby has to grow up … With Stefan, I felt he had the background and the excitement and the energy and the knowledge that I don’t have. I bought this company to a certain level, and I understood everything that’s going on. I don’t understand all the things that work every day.”
Larsson, the former global president of Old Navy, was tapped for the CEO slot when founder and former CEO Ralph Lauren decided to shed one of his titles at his eponymous brand last year. Over the past nine months, analysts and industry insiders had been waiting for Larsson — who reportedly came to Ralph Lauren highly recommended — to show his turn-around muscle.
Now that the CEO has made his big move, much of market watchers’ reactions have ranged from positive to neutral.
“We were impressed by the extensive analysis undertaken at Ralph Lauren, as well as the comprehensive plan laid out by Larsson and his team. We were particularly impressed and encouraged by the support exhibited by Lauren for Larsson,” Nomura Securities Inc. analyst Robert Drbul wrote Tuesday. “There is clearly a lot of change under way and ahead for this global brand and company, which retains significant brand equity and a very strong financial position … While we believe many of these initiatives are necessary, we are maintaining our neutral rating on the shares given the long road ahead.”
Other key aspects of the CEO’s strategy plan include cutting production lead times from 15 months to nine months while reducing excess inventory.
“We believe Ralph Lauren has growth opportunities overseas, especially in China where the brand is extremely underpenetrated, but this will take time to bear fruit as the company undergoes the ‘Way Forward’ strategic restructuring under CEO Stefan Larsson,” Cowen and Co. analyst John Kernan wrote Tuesday. “Operational improvements from the new strategy are expected to produce sales and margin expansion longer term, but near-term transitional reset will occur, weighing on sales and margins.”
One factor that has pressured Ralph Lauren’s stock since Tuesday’s meeting is its lower-than-expected FY17 guidance. The company predicted that sales would be down low-double digits, with a low-double-digit decline in wholesale and a mid-single-digit to high-single-digit slip in retail.
As of 11 a.m. ET Wednesday, Ralph Lauren’s stock remained in the red, shedding 99 cents, to $93.07.