Ralph Lauren's 'Way Forward Plan' Will Take Some Time To Make An Impact

Wells’ Fargo analysts believe that although Ralph Lauren Corp RL appears confident about its FY guidance and the long-term drivers of its “Way Forward Plan”, it's likely to take time before the business starts seeing any real positive inflection.

Way Forward Planp

Following a sell-side breakfast with CFO Jane Nielsen, the analyst mentioned, “The heavy lifting has begun, as RL is working to get out of less productive retail doors and wholesale distribution, shortening lead times, cutting off the unproductive ''tail'' and focusing on the core.”

Given the focus on higher quality of sale going forward, the analysts believe that Ralph Lauren’s business needs to shrink.

Management intends to reinvest supply chain savings into developing higher quality products, aiming at a “much healthier” customer and business base.

Results Will Take Time

“However, Nielsen stated that sales won't just inflect out of nowhere next FY, as the large wholesale business takes longer to reset and top-line could remain pressured through 1H,” the analysts stated.

Although cost efficiencies and inventory tools are in Ralph Lauren’s control, the analysts noted that the demand environment was difficult and an inflection was unlikely this early in the turnaround process.

The EPS estimates for FY 2017 and FY 2018 have been lowered from $5.60 to $5.55 and from $6.06 to $5.90, respectively.