New Ralph Lauren CEO has work cut out for him after dismal year

Dive Brief:

  • The day after naming a new CEO, Ralph Lauren Corp. on Thursday reported a fourth quarter earnings loss of $2.48 per share on a reported basis and 89 cents per share on an adjusted basis, excluding restructuring and other charges mostly related to its Way Forward turnaround plan. Q4 revenue fell 16% to $1.6 billion, or 12% when taking into account currency fluctuations (which hit revenue by some 100 basis points) and on the 13-week to 13-week basis, the company said. The year-over-year revenue slide was in line with the company’s expectations, according to a company press release. 

  • Q4 wholesale revenue fell 17% to $777 million, or 15% on a 13-week to 13-week basis in constant currency, due mostly to strategic reductions in North American department stores. Q4 retail revenue fell 16% to $745 million, or 9% on a 13-week to 13-week basis in constant currency, mostly due to a decline in same-store sales from dips in traffic and average transaction size. Same-store sales took an approximate three percentage-point hit from by calendar shifts at Christmas and Easter holidays by about three percentage points; without that, same-store sales would have fallen 8% compared to the same period last year.

  • For Fiscal 2017, the earnings were a $1.20 loss per diluted share on a reported basis and $5.71 profit per share on an adjusted basis, excluding restructuring and other charges, compared to earnings per diluted share of $4.62 on a reported basis and $6.36 on an adjusted basis last year. Full-year revenue fell 10% to $6.7 billion, consistent with the company’s guidance last June of a low double-digit decline, in line with its Way Forward plan.

Dive Insight:

Ralph Lauren remains a formidable American brand, and founder/Executive Chairman/Chief Creative Officer Lauren himself trumpeted this in his statement Thursday while also trying to keep the focus on the company's ongoing turnaround.

“The retail landscape today is more dynamic than ever, but within this environment, our brand continues to be one of the most recognized and beloved all over the world,” he said. “Our performance for the year reflects our work to strengthen our brand, and I am confident that the actions we are taking, combined with our strong heritage, position us well to succeed. I am very excited to partner with Patrice Louvet, who will join as our CEO in July, as we continue our evolution.”

But the Way Forward plan is not yet gaining traction, considering that the company’s “disastrous” final quarter of its fiscal year shows that it “has rapidly gone from bad to worse,” according to GlobalData Retail Managing Director Neil Saunders. “On the bottom line, Ralph Lauren posted a $268 million operating loss for the quarter. Some of this is down to one-off restructuring charges, which came in at $125 million, but most of it is the result of the significant headwinds buffeting the top line,” Saunders said in a note emailed to Retail Dive.

The brand, while still iconic, is also common. Experts have long noted that its goods are a prime feature at off-price stores like those of TJX Cos. That isn’t cutting it, Saunders warned. “It simply isn't credible for a high-end brand to simultaneously showcase itself in a glitzy store on Madison Avenue while at the same time hawking a random assortment of sweaters thrown in a ragtag way on a table in Macy’s,” he said. “The two are incongruous and, ultimately, cheapen the image of the brand. We see some early signs of Ralph Lauren pulling back from less favorable channels, but it needs to work much faster if it is to rebuild its cachet.”

In addition to removing the stain from bargain racks, Saunders said the company must scale back its merchandise and discounts — both stated elements of the turnaround plan. But Saunders stressed urgency. “As much as it is positive that Ralph Lauren now seems to be acting to address its challenges, it must move quickly,” he said. “Given the company has been turning itself around in perpetuity, investors will be eager to see results. The appointment of Patrice Louvet will help with the delivery, if only because it creates some stability at the top.”

While some have questioned Louvet's background in consumer product retail, his experience with customers, brands and channels does fit with the areas on which Ralph Lauren needs to focus, he said. Plus, his lack of fashion expertise could actually be a good thing because it restores the dynamic from the brand’s most successful years, when Peter Strom and later Roger Farah kept an eye on the business side while the fashion side was left to Lauren, widely seen as one of the most visionary fashion mavens in history. “Ralph Lauren has always been good at listening to whispers before they become roars,” Howard Davidowitz, chairman of retail consulting and investment banking firm Davidowitz & Associates Inc, told Retail Dive last year

While time is running out, Ralph Lauren is poised for future success, despite the setbacks, Saunders said. “Ultimately, there is no denying that this has been the most dismal quarter of a gloomy year,” he added. “[I]t is now down to the new management team at Ralph Lauren to prove that the darkest hour comes before dawn."

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