Ralph Lauren Is Executing A 'Tough' Fashion Turnaround, Says BofA

Ralph Lauren Corp RL has struggled to remain relevant in the fashion world despite a 90s fashion renaissance.

The brand is undergoing a rebuilding process, but one analyst said she does not expect the company to achieve any sales growth until fiscal 2020.

The Expert

Bank of America Merrill Lynch analyst Heather Balsky downgraded Ralph Lauren from a Neutral to Underperform and lowered the price target lowered from $100 to $80.

The Thesis

While Ralph Lauren has long been known as an American icon and its classic polo shirt a wardrobe staple, the brand's image has gone stale amidst a retro style resurgence.

The brand must modernize, Balsky said in a Wednesday note. (See Balsky's track record here.) 

Ralph Lauren recently fell under the "brands teens hate" category in Piper Jaffray's "Taking Stock With Teens" survey.

The apparel maker is undergoing a consumer-facing turnaround to make the necessary changes, including SKU count rationalization; a focus on key items; adding limited edition ad availability items; investments in omnichannel strategies; and social media marketing, according to BofA.

Although the company is making the right moves in the turnaround, the new initiatives will likely weigh on margins, said Balsky, who does not foresee any sales growth until fiscal 2020.

“The brand became stale relative to peers, and was watered down by outlet and off-price-distribution. We think management recognizes this issue and key initiatives are focusing on modernizing the brand and reengaging consumers.”

Part of Ralph Lauren's problem has been the brand's heavy presence in outlet stores, which has trained the customer to wait for deals and off-price items — making it tougher for Ralph Lauren to sell items at full-price or at a lower discount, according to BofA. 

“Fashion-led turnarounds in apparel are tough to execute,” said Balsky. “We expect the outlet business to continue to weigh on full-price sell-through until RL launches a more differentiated product by channel, and even then, there is a risk that the product will not be different enough."

Price Action

Shares of Ralph Lauren were trading down 3.35 percent Wednesday afternoon at $96.79. 

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