Wall Street for the most part seemed to approve the multipronged turnaround strategy outlined by Ralph Lauren Corp.‘s new chief executive officer Stefan Larsson at Tuesday’s investor day.
Even though shares of the stock slipped for the second day in a row, Wednesday’s dip was just 32 cents, or 0.3 percent. Ralph Lauren shares closed at $93.74 on the New York Stock Exchange.
But while analysts thought the planned changes were necessary, that didn’t mean they were all issuing “buy” ratings on the stock. Many are maintaining their “neutral” or “hold” ratings on shares of Ralph Lauren.
Miller Tabak + Co. analyst Rick Snyder on Wednesday downgraded the stock to “hold” from “buy,” citing the lack of visibility and the duration of a possible turnaround. He said before the firm’s investor day presentation, 2017 was presumed to be a transition year and 2018 was believed to the year for a return to revenue growth and margin expansion. “We now believe that 2108 will a stabilization year that will feature flat revenues and some gross margin expansion. We anticipate the gross margin expansion in that year will result in a more normalized rate after inventories are purged in 2017,” he said. The analyst noted that the company expects a return to revenue growth in 2019, but added that market share gains and improved margins aren’t expected until 2020.
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While Snyder agreed that some steps, such as shortening lead times and reducing inventories, are the right ones to take, he expressed concerns over the lack of financial specifics from the company. “Management was unable or unwilling to offer any specifics on the path to the planned midteen operating margin in 2020 other than ‘SG&A will be lower.’ Instead of offering any guidance on metrics, management repeatedly told the audience that the plan was evolving….We understand that Ralph Lauren is in transition, but the lack of visibility provided yesterday reduces the potential investment strategy to ‘hope’ in our opinion,” Snyder concluded.
BB&T’s Corinna L. Freedman has a “buy” rating on the stock, and reiterated her $115 price target. But she also noted “some turnaround details were scant.” Freedman said she walked away “optimistic,” and thought current guidance and share price made shares of Ralph Lauren a “compelling entry point for longer-term investors.” That’s even though Freedman said certain questions linger, such as the “fate of its now noncore brands.”
Dana Telsey of Telsey Advisory Group has said the changes are “needed and necessary.” She has an “outperform” rating on the shares.
Wells Fargo’s Ike Boruchow has a “neutral” rating on the shares. He said the company “will need to take some near-term pain to reestablish a healthy and sustainable base of revenues.” He maintained the firm’s “market perform” rating, its equivalent of a hold or neutral rating, with a valuation range between $96 and $98. Boruchow noted that earnings per share guidance for fiscal 2017 of $5.35 to $5.55 is below the Street’s estimate of $6.32. He said he is encouraged by the investor day commentary, and concluded, “While the story is not without many risks, we believe this was a step in the right direction of identifying the issues and initiatives to help position the brand for return to growth in the coming years.”
Also maintaining market perform, neutral or hold ratings were John Kernan at Cowen & Co. and Matthew R. Boss at J.P. Morgan.
Presented as the Way Forward plan, Larsson outlined steps such as shortening lead times, focusing the product line to key core items, plus a bit of fashion merchandise that varies by season, store closures and another round of job cuts — 8 percent of full-time staff, or 1,000 jobs — in essentially what is a complete overhaul of the company’s operations.