Ralph Lauren To Cut 15% Of Workforce In Online Shift; Shares Rise 5.4%

Ralph Lauren announced plans to slash 15% of its global workforce by the end of its fiscal year 2021 as the luxury apparel maker embarks on a reorganization effort to cut costs and shift more business to online sales to catalyze future growth.    

Investors welcomed Ralph Lauren’s (RL) move as shares closed 5.4% higher on Monday. The luxury fashion retailer said that the job cuts are expected to result in gross annualized pre-tax expense savings of about $180 million to $200 million. The savings will be realized primarily in the company’s fiscal 2022. In addition, Ralph Lauren expects to incur total estimated pre-tax charges of about $120 million to $160 million due to the workforce reduction plans.

As part of the reorganization plan, Ralph Lauren seeks to simplify its “global organizational structure and roll out enhanced technology platforms”. This includes the implementation of a cloud-based human resources and planning system globally and a company-wide initiative to simplify ways of working, better connect teams and digitize the product path. Ralph Lauren will also invest in new digital capabilities that support areas like omni-channel shopping, social commerce and augmented reality.

“The changes happening in the world around us have accelerated the shifts we saw pre-COVID, and we are fast-tracking some of our plans to match them – including advancing our digital transformation and simplifying our team structures,” said Ralph Lauren CEO Patrice Louvet. “These steps will enable us to progress our brand elevation journey and deliver Ralph’s vision in today’s dynamic environment – inspiring our consumers around the world and creating value for all of our stakeholders.”

In addition to the announced steps, Ralph Lauren said that it anticipates further actions as part of the fiscal 2021 strategic realignment plan, but didn’t specify what they would entail.

Shares in Ralph Lauren have taken a hit diving 36% this year, as muted demand for luxury sales and store closures during the coronavirus pandemic led to a decline in revenues and a larger-than-expected loss in the first fiscal quarter. Looking ahead, the average analyst price target of $77.05 implies upside potential of about 2.7%.

Following the reorganization plan, Piper Sandler analyst Erinn Murphy raised the stock’s price target to $78 (3.9% upside potential) from $71 while maintaining a Neutral rating.

Meanwhile, Cowen & Co analyst John Kernan last month cut RL’s price target to $61 from $78, but maintained a Hold rating.

“Given the brand’s significant exposure to the challenged North American wholesale channel, albeit reduced from prior years, we think further footprint distribution rationalization is likely to occur for the brand,” wrote Kernan in a note to investors. “Revenue recapture may not be linear even with the shift to digital and improved CRM [customer relations management] capabilities.”

The rest of the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 4 Buys, 5 Holds, and 1 Sell. (See RL stock analysis on TipRanks).

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