Ralph Lauren Announced Restructuring Plan to Fix Current Problems

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Ralph Lauren Corporation (NYSE: RL) disclosed its restructuring plan on Tuesday aimed at saving hundreds of thousands dollars, which is the first step to reduce supply chain lead times, improve multi-channel distribution model and fix other problems that influenced firm’s financial results.

In the statement, the company expected to incur restructuring charges of up to $400 million and $150 million inventory charge for the reduction of inventory out of current liquidation channels. It is also expected that the restructuring activities will cause about $180-$220 million annual savings, which is more than the $125 million annual cost savings restructuring activities in 2016.

However, the restructuring plan will also decrease sales as the company reduces goods sold to department stores and closes about 50 of its own retail locations. The company expected its first-quarter revenue to decrease at a mid-single digit rate, and full-year revenue to decline at a low-single digit rate. Due to the cost saving from restructuring plan, operating margin is expected to be about 10% this year.

“Our performance has been disappointing over the last three years, and it doesn’t match the strength of the brand.” Stefan Larsson, President and Chief Executive Officer of Ralph Lauren Corp., said in an interview. Regarding fixing problems in sales to department stores as his top priority, he also came up with other strategies included eliminating layers of management, cutting around 1000 jobs and speeding the production cycle.

The stock fell 2.39% to $94.03 at 2:42 pm EDT. Shares of Ralph Lauren have fallen 30 percent over the past year as of Monday’s close.

“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.” Mr. Larsson said in the statement. 

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