Ralph Lauren Profits Decline 60%

As part of a restructuring effort, the company is taking a short-term hit on income in the hopes of saving money over the long term.
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Dhani Mau
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As part of a restructuring effort, the company is taking a short-term hit on income in the hopes of saving money over the long term.
Models at Ralph Lauren's New York Fashion Week: Men's presentation in July. Photo: Andrew H. Walker/Getty Images

Models at Ralph Lauren's New York Fashion Week: Men's presentation in July. Photo: Andrew H. Walker/Getty Images

As times change and businesses evolve, companies often find they need to restructure to stay efficient, keep pace with market trends and reach their full potential. Oftentimes, that restructuring hurts companies' bottom lines in the short term. Currently, that's true with Coach; and it's very true with Ralph Lauren, which reported its first quarter earnings for fiscal 2016 on Wednesday.

Due in large part to restructuring charges, the American lifestyle brand saw net income fall about 60 percent to $64 million, compared to $162 million during the same period last year. “We are making the right strategic decisions and investments to support the future growth of the company,” Ralph Lauren, the company's Chairman and CEO, wrote in a statement. “I am confident that our new organizational structure will allow us to make our already powerful brands even stronger, and the investments we are making today will create significant value for shareholders over the long term.”

For the past three months, the company has been reorganizing its management structure. So far, it's established six global brand groups and appointed a global brand president to each one, and filled regional and channel positions. It also began laying off staffers in mid-may — at least 750 according to WWDmeaning severance packages could have also cost the company significantly As a result, the company says it expects to save $100 million in annual expenses over the long term; in the short term, it expects to incur charges of $70 to $100 million, $45 million of which was incurred during this first quarter.

Reorganization costs aside, the company wasn't quite raking it in at the cash register either. Net revenues slipped 5 percent, partially due to negative currency effects. Excluding those, revenue growth was flat. 

Wholesale sales, which were notably strong in fiscal 2015, declined 6 percent on a constant currency basis in the first quarter. Sales in Ralph Lauren's own stores increased by 3 percent excluding currency effects.