Rescuing Ralph Lauren Won't Be Quick

His moves so far and his track record at Old Navy should buy him some time.

After Wednesday's retail bloodbath -- when Macy's said its crummy results will likely last all year, sending its stock plunging 15 percent, taking other retailers down with it -- investors were pleasantly surprised Thursday to see less-than-horrible results at Ralph Lauren, a big department-store vendor. 

Shares spiked by 6 percent at the open on Thursday and held onto some of those gains even as department-store shares kept falling. Call it the "Stefan Larsson bump." 

Since joining Ralph Lauren last November, Larsson has accelerated a reorganization aiming to cut $125 million in annual costs by the end of fiscal 2017 (up from the originally planned $110 million ). He's closed dozens of stores. He's shaken up management ranks, appointing new leaders and showing multiple executives the door. And he's managed to do all this while maintaining (at least publicly) the praise of 76-year-old founder Ralph Lauren, who had been the company's only CEO for its 50-year history before appointing Larsson and who remains executive chairman and chief creative officer. 

It didn't hurt that the company had lowered Wall Street expectations back in February, when it cut its full-year outlook to 1 percent sales growth from an earlier prediction of 3 percent to 5 percent growth. Under-promise, over-deliver, yadda, yadda. 

Unseemly Returns

Ralph Lauren's shares are down 37 percent this year

Source: Bloomberg

No doubt, Ralph Lauren has a ways to go. Sales fell by 6 percent at established stores in the latest quarter from the year before, even lower than Wall Street was expecting. Larsson has not yet been able to end a streak of six straight quarters of sales declines. Ralph Lauren is feeling the pain of struggling department stores such as Macy's and Nordstrom. And like Macy's, its international tourist business is suffering -- those sales fell 25 percent from the year before. 

Rock Bottom?

Year-over-year change in sales at established Ralph Lauren stores

But let's remember that Larsson, who has been credited with the resurrection of Old Navy over the past five years, didn't turn around that business all at once, either. But once he got sales going, they skyrocketed.

That's because Larsson took the fast-fashion chops he had honed over 15 years at Hennes & Mauritz and applied them to Old Navy, giving shoppers on-trend denim jackets and activewear at a faster pace than corporate siblings Gap and Banana Republic could do. 

Larsson Effect

Year-over-year sales at established Old Navy locations

Source: Bloomberg

To be sure, sales at Old Navy tanked almost immediately after Larsson's departure, despite Gap CEO Art Peck's comments to Bloomberg News last September that "Stefan is a great leader, and we appreciate his contribution, but we have a team that built the operating model, and we've got momentum."  

So much for that. But for now, that's not Ralph Lauren's problem. 

Ralph Lauren is of course a different challenge. What works for a fast-fashion retailer such as Old Navy and H&M might not work for a luxury retailer like Ralph Lauren, which makes money not only at its own stores and website, but also through licensing agreements and sales to department stores and off-price stores such as T.J. Maxx.

Getting the most of that distribution mix, and shifting emphasis more toward the retail stores and digital channels Ralph Lauren controls, rather than department stores, could be key to streamlining costs and boosting sales growth and margins.

Just as important is figuring out what consumers want. Given Larsson's ability to do that at H&M and Old Navy -- along with his efforts so far to shake up what had become a stodgy clothing maker -- investors should be willing to give him some more time.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Shelly Banjo in New York at

    To contact the editor responsible for this story:
    Mark Gongloff at

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