by Brian Lipton
Ralph Lauren
Stefan Larsson and Ralph Lauren

Ralph Lauren Corporation is making major restructuring changes to its organization, including changing its leadership team, removing three layers from its organizational structure, and letting go of approximately 100 employees and closing 50 stores.

The company’s new strategies were announced on Tuesday by Stefan Larsson, the company’s recently installed president and CEO, during Ralph Lauren’s investor day. As part of its new “Way Forward Plan,” the company also intends to reduce supply chain lead times, employ best-in-class sourcing and execute a disciplined multi-channel distribution and expansion strategy to help make it more profitable.

In total, Ralph Lauren expects its Fiscal 2017 restructuring activities to result in approximately $180-$220 million of annualized expense savings, in addition to the $125 million of annualized cost savings associated with the company’s Fiscal 2016 restructuring activities.

“We have assessed every value-creating component of the company and, with our Way Forward Plan, we will build on our strengths, refocusing on our core brands and instilling a financial discipline that is highly focused on return on investment,” said Larsson. “We have a powerful, authentic brand with unique elasticity, and we will bring our company to a stronger place than ever before by connecting our brand voice more closely to consumers and evolving our operating model. Our multi-year growth plan will lead Ralph Lauren – one of the few truly iconic brands in the industry – to profitable sales growth and long-term shareholder value creation.”

The company also expects to incur restructuring charges of up to $400 million as a result of the Fiscal 2017 restructuring activities and up to a $150 million inventory charge associated with the reduction of inventory out of current liquidation channels. These charges are expected to be substantially realized by the end of Fiscal 2017.

In the first quarter of Fiscal 2017, the Company expects consolidated net revenues to decline at a mid-single digit rate, while it expects consolidated net revenues for all of Fiscal 2017 to decrease at a low-double digit rate due to a proactive pullback in inventory receipts, store closures, pricing harmonization and other quality of sale initiatives, combined with the weak retail traffic environment in the U.S.

Conversely, Ralph Lauren expects to stabilize performance in Fiscal 2018 and pivot to growth off of a smaller, more profitable base in Fiscal 2019, with improving operating margins in both fiscal years.