Ralph Lauren Purple Label Men's Spring 2020

Valérie Hermann’s departure as president of Ralph Lauren Global Brand was attributed by one analyst to product strategy differences.

As reported, Hermann, who confirmed late Friday afternoon that she was leaving the company, effective Sept. 30, had been responsible for Ralph Lauren, Polo Ralph Lauren, Lauren, Chaps, and Home. On Monday, Lauren’s stock closed at $107.34, down 2.7 percent. While the overall apparel/retail sector had a down day, the market overall inched into positive territory with the Dow Jones Industrial Average rising 17.70 points to close at 27,171.90.

Michael Binetti, managing director of Credit Suisse, wrote in a research note Monday, “Ralph Lauren has been transparent about some recent tension as it tries to balance its assortment between newly recruited younger/urban consumers versus Ralph Lauren’s heritage older/higher income consumer. We think Hermann led the push to recruit younger customers, but recent volatility with Ralph Lauren’s core classic customer has caused some concern.

“A potential near-term shift in product strategy as Hermann departs could add some execution risk in the near term. Separately, Hermann recruited a lot of senior talent to Ralph Lauren, adding some risk of further turnover,” he added.

But according to the Credit Suisse note, Ralph Lauren’s decision to refocus on core classics is the right long-term move.

“As we’ve noted, we expect a massive marketing push behind Ralph Lauren’s most classic products (like the iconic Polo shirt) in the near term. Further, with signs the Nineties logo trend is fading, a shift back to classics could be well-timed. That said, Ralph Lauren needs to articulate a clear strategy for recruiting new customers with compelling product without alienating legacy customers,” the note said.

Credit Suisse is maintaining its “outperform rating” for Lauren.

It said Ralph Lauren is now trading near its three-year price-to-earnings low of 13.8x. “Our recent management meetings reinforced our confidence that Ralph Lauren embedded enough conservatism in GM/SG&A to deliver on its [full-year 2020] guidance (and Ralph Lauren was clear that guidance embeds a difficult macro backdrop.) Finally, Ralph Lauren’s big $60 million [share repurchase authorization] should let it defend the stock amid any near term macro or strategic volatility disruption,” the note said.

Credit Suisse is maintaining its $158 target price.

Unrelated to Hermann’s departure, Goldman Sachs downgraded Ralph Lauren’s stock on July 17 from “neutral” to “sell” on concerns that the North American wholesale clothing market remains weak and is getting weaker. Goldman also cut its price target to $103 a share.

Patrice Louvet, president and chief executive officer of Ralph Lauren spoke recently about the need to balance fashion with more core merchandise.

“We probably have in some instances invested too much in the fashion concept part of our business. For us, it’s really a question of balance and how do we develop it,” said Louvet, discussing fourth quarter numbers in May. Louvet emphasized that the brand still believes in having a “luxury halo” and that it was more a matter of making sure that the approach is right.

Louvet said at the time that the company’s “Next Great Chapter” plan was off to a good start, and in its first year, “we outperformed our commitments across key metrics, including revenue, quality of sales, operating income and EPS.” He noted that the company returned to revenue growth one year ahead of plan and average unit retail was better than expected across all regions and channels. The company saw particular strength across its international regions.

Hermann joined Ralph Lauren in 2014 as president of Ralph Lauren Luxury Collection, overseeing  Black Label, Purple Label, fine jewelry, eyewear, timepieces, handbags, RRL and fragrance.  At the time of her hire, Ralph Lauren said that the luxury part of the business had grown to the point where it deserved its own focus. “Anything that has to do with luxury, she will be president of,” said Ralph Lauren at the time. Her original mandate was to  leverage the strength of these brands and spearhead the strategy, merchandising, distribution and overall expansion of the global luxury businesses. Each of the division presidents of these categories reported into Hermann.

During her tenure she assumed greater responsibility for more of the company’s products, and three years ago, got oversight of all Lauren’s global brands which are Ralph Lauren, Polo Ralph Lauren, Lauren, Chaps, and Home. But the businesses have faced challenges, especially in the North American market.

The company expects to release first-quarter fiscal 2020 results on July 30.

 

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