Ralph Lauren: Harder, Better, Faster, Stronger?

Ralph Lauren Corp RL hosted its very first investor day on June 7, with the new CEO Stefan Larsson announcing the company’s long-term targets.

Citi’s Kate McShane maintains a Buy rating on the company, while raising the price target from $101 to $107.

Investor Day

During the Investor Day, Larsson introduced a more streamline organization and retail structure, as well as plans to focus on the core businesses over the next four years and beyond.

McShane mentioned that in line with expectations, the CEO also announced additional reductions in SG&A and “immediate plans” to alter the supply chain.

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“Larsson believes a faster & more efficient supply chain will be a key driver to RL’s improved merchandising, better inventory mgt, and improved margins, consistent with our recent proprietary industry work on the apparel supply chain,” the analyst said.

Long-Term Guidance

Ralph Lauren guided to a top line decline in FY17, driven by an LDD wholesale decline and MSD-HSD retail decline.

Operation margins were also guided to decline to 10 percent in FY17, despite the preliminary guidance of margins expansion in FY16.

“Though mgt guided a 3rd consecutive year of EPS declines, we think the LT algorithm with a path to more sustainable, risk-mitigating growth will give investors more confidence that RL can return to positive earnings & better ROI in the next few yrs,” McShane went on to say.

Management also guided to weaker than expected sales and gross margins, driven by near-term inventory clearance and weaker operating margins.

The EPS estimate for FY17 has been lowered from $6.32 to $5.27.