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Ralph Lauren (RL) to Offload Club Monaco Brand to Regent

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Ralph Lauren Corporation (RL - Free Report) is progressing well with its “Next Great Chapter” plan, which mainly focuses on creating a simplified global organizational structure. In the latest development, the company has agreed to offload its Club Monaco brand to Regent, L.P, which is a leading private equity firm. This transaction, which is likely to be completed by the end of June, reflects the company’s solid focus on its Next Great Chapter plan. Other details of the deal remain under wraps.

We note that the sale of the Club Monaco label will enable Ralph Lauren to focus on its core namesake brands. The Club Monaco brand has been contributing to the company’s performance for the past 22 years. Management expects Regent to capitalize on the strategic and operational expertise to continue driving Club Monaco’s growth.

In order to accelerate its “Next Great Chapter plan,” management announced a fiscal 2021 Strategic Realignment Plan last year. The latest initiative primarily revolves around evaluation of the company’s brand portfolio, with key focus on core brands to deliver sustainable growth. Markedly, the sale of Club Monaco coupled with the licensing of the Chaps brand will conclude the company’s portfolio evaluation.

More on the Strategic Realignment Plan

Under its “Fiscal 2021 Strategic Realignment Plan,” management has laid out plans to curtail its global workforce by the end of fiscal 2021. As part of the initial targets under the plan, the company anticipated delivering low to mid-single digit revenue compounded annual growth rate (CAGR) and mid-teen operating margin by fiscal 2023, at constant currency. Additionally, it anticipates marketing spend to rise nearly 5% of revenues by fiscal 2023, while capital expenditure is expected to represent 4-5% of revenues. Furthermore, the company plans returning 100% free cash flow to shareholders over the next five years, amounting to about $2.5 billion on a cumulative basis through fiscal 2023 in the form of dividends and share repurchases.

As part of the Fiscal 2021 Strategic Realignment Plan, management announced plans to reduce headcount by the end of fiscal 2021, the transition of the Chaps brand to a fully-licensed model and close its Polo store on Regent Street in London. The company is on track with the transition of the Chaps brand, in sync with its long-term brand elevation strategy. It has entered into a multi-year licensing deal with an affiliate of 5 Star Apparel LLC, a division of the OVED Group, to be effective from Aug 1, 2021. Per the deal, 5 Star Apparel will manufacture, market and distribute men’s and women’s products of the Chaps brand. Also, this deal will help Ralph Lauren focus better on its core brands and reduce dependence on North American stores.

Further, the company recently announced additional realignment actions for its real estate footprint under the Realignment Plan. It plans to further consolidate its global corporate offices to better align with its current organizational profile. It also expects to consolidate its existing North America distribution centers to drive greater efficiencies, improve sustainability and enhance customer experience.

The realignment initiatives are collectively expected to attract pre-tax charges of $300-$350 million. Moreover, these actions are estimated to generate gross annualized pre-tax expense savings of nearly $200-$240 million, after the completion of sustainability by the end of fiscal 2022. The company expects to reinvest a portion of these savings into its business.

Impressively, this Zacks Rank #1 (Strong Buy) stock has rallied as much as 23% in the past three months compared with the industry’s growth of 6.7%.

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