After less than two years at the helm, Ralph Lauren CEO Stefan Larsson to exit the company

Designer Ralph Lauren, right, poses in his office with Stefan Larsson.

Feb. 2, 2017 12:15 PM PT

The lovefest between Ralph Lauren and Stefan Larsson didn’t last long. Ralph Lauren Corp. said president and chief executive officer Stefan Larsson will leave the company on May 1.

The company, which will conduct a search for a new ceo, said it will continue to execute the Way Forward Plan laid out in June, now a hallmark of Larsson’s short tenure. Investors were rattled, sending shares of the company down 10.3 percent to $78.39 in midday trading.

Chief financial officer Jane Nielsen will lead the execution of the plan until the ceo search is completed.

Ralph Lauren, executive chairman and chief creative officer, said, “Stefan and I share a love and respect for the DNA of this great brand, and we both recognize the need to evolve. However, we have found that we have different views on how to evolve the creative and consumer-facing parts of the business. After many conversations with one another, and our board of directors, we have agreed to part ways. I am grateful for what Stefan has contributed during his time with us, setting us in the right direction with the Way Forward Plan.”

The executive chairman said the company has “built a strong foundation for future growth, including strengthening our team, refocusing our brands, evolving our products and our marketing, improving our operations and reducing our costs.”

Larsson said that the Way Forward Plan is “on track.” He added, “Ralph will always be an inspiration to me, and I am grateful to have had this experience.”

The news of Larsson’s departure was made on the same day the company posted third-quarter results for the period ended Dec. 31. Net income fell 37.4 percent to $82 million, or 98 cents a diluted share, from $131 million, or $1.54, a year ago. Net revenues were down 11.9 percent to $1.71 billion from $1.95 billion. By segment, both wholesale and retail net sales saw declines.

The company said wholesale net sales fell 26 percent to $582 million, while retail net sales slipped 2.2 percent to $1.1 billion. Consolidated comparable-store sales fell 5 percent, but were down 4 percent on a constant currency basis. Both components contributed to a net sales decrease of 12.1 percent to $1.67 billion for the quarter. The balance of revenues came from licensing income.

Of the quarterly results, Larsson said the company lowered inventory levels by 23 percent to better match demand and “significantly improved our ability to match supply to demand by reducing premarket commitments to 15 percent of our inventory buys for fall 2017 from 60 percent for fall 2016.”

Larsson said that the firm was still on track to get halfway to its goal of a 9-month lead time by the end of the current fiscal year, and 90 percent by the end of the next fiscal year.

The company also closed another 12 underperforming stores during the third quarter.

During the morning conference call to Wall Street analysts, Larsson said he remained confident about the ability of the management team to “drive the company back to high-performance.”

Larsson said that as he begins his transition, the company’s cfo will “take charge of the execution of our plan. Jane and I have been copilots since she joined and will work closely together to make this transition successful.”

Nielsen said on the call that the company’s improved discipline in the assortment creation is allowing “us to buy closer to market and reduce early commitments…. As a result, we are by far much more informed, which will significantly improve our ability to manage inventory to demand. The initial feedback from our wholesale customers that have seen our product has been very positive.”

She said that the company has begun rebalancing its distribution and its off-price wholesale business, as well as looking at quality of sales initiatives in its direct-to-consumer e-commerce business.

“The actions will continue to impact our results in the fourth quarter on our e-commerce site,” she said, adding that “E-commerce has been our over-promoted channel and we are moving to harmonize pricing across channels and reduce promotion depth. These are the first steps in the execution of our plan to come back to high-performance in North America. They are difficult, but necessary actions to build a healthy pace to grow from. We expect these actions to continue to the first half of fiscal 2018.”

Overseas, the cfo said store comps improved in Europe and in Asia, despite lower markdown rates.

She said the company is on track to close 50 stores in the current fiscal year, and has already shuttered 27 year-to-date. “That puts us on track to achieve the savings that we identify from store closures of approximately $70 million,” Nielsen said.

Company executives also spoke briefly about border adjustment taxes in response to an analyst question. They noted that “there’s not a lot of clarity right now on the various proposals” and that there’s a lot of speculation. One executive said the company is “closely monitoring any decisions made by the new administration. We obviously are looking across our supply chain and looking for opportunities to mitigate any impact that we might see.”

The company maintained current guidance for fiscal year 2017, which pegs revenues to decrease to a low double-digit rate as the company continues to execute on the Way Forward Plan. The guidance does not include severance payments in connection with Larsson’s departure. For the fourth quarter, the company said it expects revenues to be down mid-teens on a reported basis.

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