Ralph Lauren mulls overhaul after tough quarter; shares drop

Kim Bhasin and Nic Querolo

Ralph Lauren Corp. plans to revamp its structure as it looks to avoid the fate of several retail rivals who’ve been unable to weather the unprecedented season for apparel.

The company, which on Tuesday reported an adjusted loss per share for the first quarter that was worse than the average analyst estimate, said it’s evaluating its “long-term operating structure to align with our evolving strategic priorities,” with a focus on six main areas, including how it organizes its teams, its corporate office real estate footprint, where it sells its products and its overall portfolio of brands.

The review is aimed at setting up strategies for the next several years as the business emerges from the health crisis, Chief Executive Officer Patrice Louvet said in an interview.

“We’re making sure that we’re set up to win, in this new context, in the next three to five years. There’s an opportunity to reset in this environment, as we look at new consumer behaviors and the retail landscape,” he said. “We expect to share the outcome of this work and decisions over the next few months.”

Retail Ravaged

The in-progress overhaul underscores the significant steps retail brands must take as the coronavirus pandemic exacerbates an already-challenging consumer environment. Discretionary purchases, including clothing, have been hurt by widespread economic lockdowns, forcing more than two dozen retailers into bankruptcy this year alone.

Investors were unhappy with the results. Shares fell as much as 7.5% as of 9:31 a.m. in New York to $64.50, the lowest intraday level since May.

In terms of store footprint, the review is looking at the worldwide network, Louvet said. Ralph Lauren expects to open as many as 90 stores in 2020, with the vast majority in Asia, less than a dozen in Europe and only few in the U.S.

“The review will lead to some choices on areas we want to exit and areas that we want to open,” he said.

The company in the first quarter already took measures to curb costs, including cuts to executive pay and employee furloughs. Negotiated rent abatements and lower expenses due Covid-19 closures also helped shore up cash.

It is also setting goals to expand the diversity of its workforce, including interviewing two underrepresented candidates for every leadership position, Louvet said on the company’s earnings call. The goal is to have people of color represent at least 20% of the company’s global leadership by 2023.

Cautious Holiday

Louvet said he expects the past quarter to be the toughest throughout the crisis, but a lot of uncertainty lingers as retailers prepare for the crucial holiday season.

“We are approaching holiday cautiously,” Louvet said in the interview. “We don’t want to be in a situation where we need to discount.”

Ralph Lauren reported a loss of $1.82 a share in the quarter, worse than the $1.73 loss anticipated by analysts. Comparable-store sales plunged 57%, also trailing estimates.

North America revenue saw the biggest dropoff, plunging 77% to $165 million. Europe revenue decreased 67% and Asia fell 34%. Comparable sales also logged double-digit declines in every region, even as all three markets saw an uptick in digital sales.

While the results were “terrible,” they weren’t unique to Ralph Lauren, said Neil Saunders, managing director of GlobalData Retail. “However, as consumer preferences shift, the company needs to work harder to reinvent itself and to pivot into new channels and segments to secure growth.”