When Ralph Lauren's new CEO Stefan Larsson presented his turnaround plan on Tuesday, the market didn't know what to make of it. That confusion led Jim Cramer to do his homework and find out if Larsson's new plan really has legs.
"The market's reaction was downright schizophrenic," the "Mad Money" host said.
Initially Wall Street seemed to hate the plan, with the stock plunging $10 to $84 a share at the open. However by the close, the stock had rebounded back to $94.
Ralph Lauren's stock plunged 40 percent in 2015, followed by an additional 16 percent decline in 2016. Cramer boiled the problems of the company down to a decline in the apparel environment, Ralph Lauren's out of date supply chain and slowing revenue growth.
"Before they brought in the new CEO, there was a general feeling that the brand was in crisis," Cramer said.
Larsson's turnaround plan, called "The Way Forward" was designed with the idea to revitalize the company's core brand and get closer to the consumer. Larsson wants to eliminate a large amount of unproductive products and focus on selling high-quality merchandise through its primary brands Ralph Lauren, Polo and Lauren.
Larsson also plans to tighten the distribution system and streamline costs by cutting approximately 13 percent of the workforce.
"While this plan could set Ralph Lauren on a better long-term path, it's going to hurt in the short-term, hence the company's less than thrilling guidance," Cramer said.
The reality is that turnarounds take time. Cramer saw the same trajectory outlined with PVH, the parent company of Tommy Hilfiger and Calvin Klein, which took years to pull off.
Eventually, Cramer thinks Larsson will be able to deliver, though there could be short-term pain. Ultimately he thinks this one will make it.
"Why? Because in the end, the brand is iconic as ever, it was just too ubiquitous and too dated. Larsson is ending that, so call me a believer," Cramer said.
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