Resources Connection (RGP) is Trying to Mitigate the Revenue Decline by Cost Reduction

Palm Valley Capital Management, an investment management firm, has issued the first-quarter 2026 investor letter for the ”Palm Valley Capital Fund.” A copy of the letter is available to download here. In the first quarter, the fund gained 0.74%, while the S&P SmallCap 600 rose 3.51%, and the Morningstar Small Cap Total Return Index saw no change. Initially, small caps surged, with the S&P 600 achieving nearly a 10% year-to-date increase by mid-February. However, shares later declined due to the Iran war and its effects on energy prices. The letter also explored how technology influences the workplace and employment. Additionally, reviewing the fund’s top five holdings can reveal its best investments in 2026.

In its first-quarter 2026 investor letter, Palm Valley Capital Fund highlighted stocks like Resources Connection, Inc. (NASDAQ:RGP). Resources Connection, Inc. (NASDAQ:RGP) is a global consulting and professional services provider to business customers. On April 8, 2026, Resources Connection, Inc. (NASDAQ:RGP) closed at $3.52 per share. One-month return of Resources Connection, Inc. (NASDAQ:RGP) was -0.28%, and its shares lost 33.58% over the past 52 weeks. Resources Connection, Inc. (NASDAQ:RGP) has a market capitalization of about $117.93 million.

Palm Valley Capital Fund stated the following regarding Resources Connection, Inc. (NASDAQ:RGP) in its Q1 2026 investor letter:

“Two of the other top quarterly Fund detractors were Resources Connection, Inc. (NASDAQ:RGP) and Flowers Foods (ticker: FLO). RGP has been unable to stem revenue declines, which the firm has mitigated through aggressive cost reductions. The result has been meager, but positive, earnings. During its January earnings report, the company officially acknowledged AI pressure for the first time, citing “reduced demand in traditional finance roles as clients increasingly adopt artificial intelligence and automation.” The management of Robert Half, another Palm Valley staffing holding concentrated in finance, claims the opposite— that AI is not appreciably impacting its business. While it’s possible RGP is AI washing its underperformance, the market has rendered a harsh judgment, with shares trading for 1.5x cash and less than RGP’s average annual operating profit for most years prior to 2025.

When we first established portfolio exposure to the staffing sector, the problem was clearly cyclical, with COVID over hiring suppressing subsequent temporary labor demand. However, many investors now have structural concerns. Our staffers serve various industries, and some, like RGP, have more perceived AI exposure. Yet even in industries where AI negatively impacts employment, the need for staffing can persist. Disruption tends to increase labor uncertainty rather than simply reducing labor demand. As job requirements shift and planning horizons shorten, companies could become more reliant on flexible, temporary labor to manage that uncertainty, which cements the relevance of staffing firms even in a soft employment backdrop. U.S. staffing revenues have inflected higher, very modestly, in early 2026, after three years of industry declines. Although it has become more difficult to pinpoint normalized demand for the staffing space, the shares of several industry participants like RGP are pricing in a permanent impairment. We’re assuming some mean reversion.”

In addition, please check out our hedge fund investor letters Q1 2026 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.