Working Capital

Ralph Lauren to Cut 1,000 Jobs, Book $400M in Charges

The high-end retailer is closing 50 stores, and expects its fiscal 2017 restructuring activities to generate $220 million of annualized expense sav...
Katie Kuehner-HebertJune 7, 2016

Ralph Lauren will cut about 1,000 jobs and close 50 stores, incurring restructuring charges of up to $400 million in fiscal 2017, as part of its so-called “Way Forward Plan” to boost sales and profits.

The jobs being eliminated represent about 8% of the company’s full-time jobs, spokesman Ryan Lally told Reuters.

“Ralph Lauren, like some other luxury brands, has been struggling amid sluggish spending on luxury apparel and accessories,” Reuters wrote. “The company’s margins have taken a knock as department stores discount heavily to get rid of excess inventory.”

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The New York high-end retailer on Tuesday said that it expects its fiscal 2017 restructuring activities to result in roughly $180 to $220 million of annualized expense savings, on top of the $125 million of annualized cost savings associated with its fiscal 2016 restructuring activities.

“We have assessed every value-creating component of the company and, with our Way Forward Plan, we will build on our strengths, refocusing on our core brands and instilling a financial discipline that is highly focused on return on investment,” the firm’s president and chief executive Stefan Larsson said in a press release.

Ralph Lauren also plans to take up to a $150 million inventory charge associated with the reduction of inventory out of current liquidation channels, in line with the restructuring plan. Both of these charges are expected to be substantially realized by the end of fiscal 2017.

Larsson told The Wall Street Journal that while the broad restructuring would save hundreds of millions of dollars, it would also dent sales as the company reduces merchandise sold to department stores and closes some of its own retail locations. Sales in the current fiscal year would fall around 12% after slipping 3% to $7.41 billion in the 12 months ended April 2.

“The restructuring is the first significant step by new Chief Executive Stefan Larsson to fix problems that have weighed on the company’s financial results,” the WSJ wrote. “They include too many brands and retail stores, and a reliance on department stores, where shoppers are hooked on discounts.”

The company gave guidance for the next several years. In the first quarter of fiscal 2017, ending June 28, 2016, the company expects consolidated net revenues to decline at a mid-single digit rate, and its operating margin to be about 110 to 160 basis points below the comparable prior-year period.

Ralph Lauren currently expects consolidated net revenues for fiscal 2017 to decrease at a low-double digit rate due to a proactive pullback in inventory receipts, store closures, pricing harmonization, and other quality of sale initiatives, combined with the weak retail traffic environment in the United States.

Capital expenditures are expected to be about $375 million in fiscal 2017, assuming roughly $200 million in share repurchases.

The fiscal 2017 guidance excludes the restructuring and inventory charges.

As a result of its Way Forward Plan, Ralph Lauren expects to stabilize performance in fiscal 2018 and pivot to growth off of a smaller, more profitable base in fiscal 2019, with improving operating margins in both fiscal years. In fiscal 2020, the company is targeting market share growth and a mid-teens operating margin.