It's gotta be a confusing time to be running a legacy international fashion and retail business. You know you need to adapt and evolve your business model to stay relevant and profitable, but as we've learned, there is more than one way to do that. And sometimes, like in the case of iconic American brand Ralph Lauren, there are disagreements within the company on which direction is best — even if both parties know it's the way forward.
Yes, I just made a pun about Ralph Lauren's turnaround plan, which is called the Way Forward Plan. It was implemented last year by CEO Stefan Larsson, who joined the company and replaced Lauren in the role at the end of 2015 and who announced Thursday that he would be leaving the company. The reason? He and Lauren disagreed about "how to evolve the creative and consumer facing parts of the business," explained Larsson during the company's third-quarter earnings call the same morning. They disagreed so much that they made a "mutual decision" to part ways. Asked to elaborate, Larsson said, "The most detailed I can be is to just say it comes down to decisions relating to how to evolve those areas, products, marketing, and shopping experience and we're really worked hard." The announcement has already sent stocks plunging.
A search for a new CEO is underway, and Larsson's replacement will have their work cut out for them. Revenue declined 12 percent to $1.7 billion in the third quarter of fiscal 2017. The North American business performed particularly poorly with a 15 percent revenue decline, caused largely by a decline in wholesale revenue, which decreased 25 percent. The company said wholesale shipments were "strategically reduced" to cut down on excess inventory. Profits were also down, to $82 million on a reported basis, (or $155 million when adjusted for restructuring costs) from $131 million in the same period last year.
Despite Larsson's departure, the company will continue with its Way Forward plan, and CFO Jane Nielsen outlined its progress. The Plan is mainly about focusing on core product, becoming more nimble and matching inventory in demand to avoid excess. Nielsen said the number of SKUs for fall 2017 have been reduced by a double-digit percentage compared to last season; development costs have been lowered, and the company has been able to reduce the amount of product it needs to produce before wholesale orders come in — meaning it can buy more based on demand. She also said the company is closer to getting to a nine-month lead time — it will be halfway there by the end of fiscal 2017 and 90 percent there by the end of next year. The company also closed 12 stores in the third quarter and 27 year-to-date; by the end of this year, it will have closed 50. The closures will save the company $70 million, she added. For fiscal 2017 as a whole, Nielsen expects revenue will decline in the low double digits.