Ralph Lauren is stepping down as CEO after 50 years

Ralph Lauren is stepping down as CEO after 50 years

Among the first tasks likely to be tackled by Ralph Lauren's newly-appointed CEO, Stefan Larsson, will be to target "low hanging fruit" such as supply chain enhancements, inventory realignment and cost management, analysts believe.

Ralph Lauren this week announced his decision to step down as CEO of the eponymous firm he founded nearly 50 years ago, with Larsson, president of Gap Inc's Old Navy division, taking the helm from November.

The company's share price was up 13.6% yesterday (30 September), reflecting investor enthusiasm over the new management addition.

“Judging by his distinguished experience, we think Stefan Larsson, in his role as Ralph Lauren CEO, will bring a new creative angle, deep supply chain and global operational knowledge, as well as a focus on increasing speed to market,” said Cowen & Co analysts.

During his time heading up Old Navy, the division enjoyed three consecutive years of profitable growth, adding US$1bn in sales. Key to this was his overhaul of Old Navy's supply chain, ensuring a quicker roll-out of new products, which is also being rolled out across the Gap and Banana Republic brands. Prior to his time at Gap, he spent 15 years at Swedish retail giant Hennes & Mauritz (H&M).

With a storied tenure, the analysts believe expectations will be high for Larsson in his first year and the Street will likely look past near-term quarterly results as he reviews operations, addresses quick operational fixes to show progress and develops a long-term strategic vision reflecting his own stamp on the business.

Indeed, the changeover comes as Ralph Lauren battles falling profits, with earnings dropping 41% in its latest quarter. Gross margin was down 120 bps, and sales slipped 5% due to currency fluctuations.

“We think actionable low hanging fruit to make an immediate impact could include inventory realignment, tightening cost management, an analysis of store growth plans and supply chain enhancements,” the analysts noted. “It is too early to gauge whether any divisions or initiatives will be jettisoned. We expect the SAP and e-commerce platform initiatives will continue as they are expected to be margin enhancing post implementation and transition.”

Analysts at UBS Investment Bank agree. “Larsson brings a track record for optimising operations quickly,” they say, adding: “A new CEO could be the needed catalyst to put RL back on path to margin expansion and accelerating EPS growth.”