Seriously…There was only one reason to be long RL, and it was because Steffan Larsson – perhaps the best CEO choice Ralph could ever have made (at any price/cost) -- was given the keys to the car, and had the full buy-in from Ralph to fix a very serious brand problem.
We moved RL up from our Long Bench three months ago for just that reason. This is a company that just 18 months ago people (including moi) thought would earn $10 per share this year. It’s on track to earning closer to $5.50. Brand problems take a long time to fix – but they can definitely be fixed – that is a fact. My view was that with someone with as stellar a track record as Larson coupled with both the mandate and the capital budget could reverse this ship. These things take a LOT of time…Larsson was comped in options and stock that vest in ‘18/’19 – he has no reason to hit numbers today. He has every incentive to over-invest today to build generational wealth tomorrow (the guy is only 43 years old).
All in, when speaking to people on RL I sounded something like this…”I think we’re near the end of a bottoming process in earnings and brand momentum. Could we see $4.50 before we see $8.00? Fer sure. It’s probably too early to buy it – but given how close we are to the bottom, plus the quality of the new team, the brand, the 30-year track record, etc…I could argue that it’s too late not to be doing the real work long side.”
#wrong
Based on what I see today, I would not touch this stock at any price until I look Mr. Lauren in the eye and see what the real plan is – and if he’ll stick to it. I need to see why his long-term Brand vision clashed with the Brand/Execution vision for the best CEO prospect we’ll see in Retail in a generation.
$4.50 is off the table. There’s no reason why $3.00 can’t be the next stop.
