Ralph Lauren to trim management, close stores

A model walks the runway at the Ralph Lauren Fall/Winter 2016 fashion show during New York Fashion Week on February 18, 2016 in New York City.

Victor Virgile | Gamma-Rapho | Getty Images
A model walks the runway at the Ralph Lauren Fall/Winter 2016 fashion show during New York Fashion Week on February 18, 2016 in New York City.

Stefan Larsson is bringing his Old Navy playbook over to Ralph Lauren, as the CEO seeks to speed up the amount of time it takes the brand’s fashions to hit the shelves.

Meanwhile, the company said it will trim several layers of its management team and close stores as it restructures its operations, moves that are expected to save the brand up to $220 million annually. But not before some short-term pain.

In the first quarter, the company expects revenue to decline at a mid-single digit rate. For the full year, it expects sales to decrease at a low-double digit rate as it reduces its inventory levels, closes stores, and faces continued weak traffic at its stores. That guidance excludes the restructuring and inventory charges associated with its latest restructuring activities.

Shares of Ralph Lauren fell roughly 7 percent in early trading.

Larsson, who was named CEO of Ralph Lauren in September, lifted the lid on his plan to reignite sales growth at the specialty apparel brand on Tuesday, at the company’s first-ever analyst day. Several of the initiatives paralleled the tactics he used to catapult Gap’s Old Navy brand under his leadership.

They include cutting back on the time it takes a product to go from design to store shelves and improving the company’s sourcing capabilities.

Larsson outlined how the company now uses 15-month lead times, meaning that it takes more than a year for its designs to be created and put in stores. As a result, it’s planning and buying a season’s assortment before the prior year’s merchandise goes on sale, causing it to improperly forecast supply and demand.

Over the past three years, Ralph Lauren’s sales have risen 7 percent, compared to an inventory build of 26 percent. That imbalance has led to more promotions and a skewed focus on outlet and other discount channels.

Larsson said Ralph Lauren will also tweak its distribution and expansion strategies and trim costs, though he said he remains committed to the wholesale business.

The company plans to become a more “nimble” organization by moving from an average of nine to six management layers. These restructuring activities, which include trimming its organizational structure and real estate portfolio, are expected to save about $180 million to $220 million annually.

Those savings are in addition to the $125 million of annual cost savings the company previously announced.

Ralph Lauren expects the latest restructuring moves to result in charges of as much as $400 million. It also anticipates up to a $150 million inventory charge. These charges are expected to be mostly realized by the end of the current fiscal year.

In addition to these changes, Larsson said the company would funnel more of its resources toward its three biggest labels, Ralph Lauren, Polo and Lauren. Its iconic styles (think blazers), which make up some 30 percent of its styles, drive 70 percent of its business. The company has already trimmed the number of its styles by 33 percent, which management said should boost its margins.

Shares of Ralph Lauren have fallen roughly 30 percent over the past year.

Ralph Lauren executives will be making further presentations to analysts throughout the day.

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