Ralph Lauren Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Second Quarter Fiscal 2021 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions on how to ask a question will be given at that time. If you should require assistance during the call, please press star then zero. As a reminder, the conference is being recorded. I'd now like to turn over the conference to our host, Ms. Karina Vandekens. Please go ahead.

Good morning, and thank you for joining Ralph Lauren's second quarter fiscal 2021 conference call. With me today are Patrice Louvet, the company's president and chief executive officer, and Jane Nielsen, chief operating officer and chief financial officer. After prepared remarks, we will open up the call for your questions, which we ask that you limit to one per caller. During today's call, We will be making some forward-looking statements within the meaning of the federal securities laws, including our financial outlook. Forward-looking statements are not guarantees, and our actual results may differ materially from those expressed or implied in the forward-looking statements. Our expectations contain many risks and uncertainties. Principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings. To find disclosures and reconciliations of non-GAAP measures that we use when discussing our financial results, you should refer to this morning's earnings release and to our SEC filings that can be found on our investor relations website. And now, I will turn the call over to Patrice.

Patrice Patrice Thank you, Cori. Good morning, everyone, and thank you for joining today's call. Our second quarter performance reflected solid progress on our path to return to growth. Our results were overall in line with our expectations with better than expected earnings driven by gross and operating margin expansion. While COVID-19 is still impacting physical store traffic and consumer behavior, we continue to take proactive measures to get ahead of these shifts and position our business to emerge from this crisis stronger than we came into it. These measures include accelerating our connected retail offerings globally, delivering high-value new customer acquisition, expanding key categories and international markets, and realigning our cost structure. Throughout this period, we remained steadfastly focused on elevating our brand, and we were encouraged that underlying AUR growth outperformed our expectations this quarter, which is reflective of more personalized communications, reductions in promotional activity, geographic channel and product makes benefit and strategic pricing increases. This acceleration of core strategies in the quarter remains consistent with the five strategic priorities that we laid out as part of our longterm plan. These include first win over a new generation of consumers. Second, energized core products and accelerate high potential underdeveloped categories. Third, drive targeted expansion in our regions and channels. Fourth, lead with digital across all activities. And fifth, operate with discipline to fuel growth. I will touch on a few of these areas in a moment. But first, let me review a few highlights related to our recovery this quarter. Overall, we were encouraged that our performance improved sequentially in each of our geographies, led by Asia, and across our digital channels globally. Nevertheless, while we are confident in our strategy to return to growth, we remain cautious as our path to recovery may not be linear over the next few months given meaningful traffic headwinds and a significant amount of uncertainty in the global environment. Looking across our regions, Asia is the farthest along on the path to recovery. This was driven by positive sales in the Chinese mainland, which returned to pre-COVID growth levels of more than 30% as government restrictions were lifted, as well as in Korea. Strong sequential improvement in our North America and Europe comp trends in the second quarter. And we continue to monitor each of our markets closely by channel. While our brick-and-mortar performance was still challenged due to store traffic headwinds, we reported solid digital comps in all three regions this quarter. This was driven by expanded connected retail offerings and an emphasis on product categories like home and loungewear that are resonating with consumers today, with notably less focus on formal tailored workwear and occasioned dressings. Within our wholesale business, we were also encouraged by sequential progress across regions this quarter, particularly on a sell-out basis and led by wholesale.com. Our sell-in continues to improve, but is lagging our recovery and direct-to-consumer S plan as we exited department store doors in the first quarter and focused on prioritizing inventory management in this environment. This near-term discipline is integral to building price harmonization across our ecosystem and to protecting the elevation and long-term equity of our brands. Next, I want to spend a moment digging a little deeper into our digital transformation, which cuts across everything we do, from how we create the best possible experience for our consumers to new ways of working as a company and with our partners. On the consumer-facing side, the continued acceleration of connected retail is central to our recovery and return to growth. We now have a comprehensive offering of connected retailing options, enabling our consumers to interact with the world of Ralph Lauren in new and more personal ways. These include virtual clienteling and appointment booking, buy online, pick up in store, curbside pick up, mobile checkout, and contactless payments. We launched our pilot Ralph Lauren virtual store experience this quarter, bringing our Beverly Hills flagship store experience online through a mix of multimedia and augmented reality capabilities. Wherever you are in the world, you can shop and interact with this unique store experience through your device. Along with our expanded connected retail options, we plan to roll out more virtual flagship shopping experiences this holiday and beyond. In addition to our consumer-facing enhancements, we also continue to digitize how we work as an organization. This quarter, we began to roll out our digital value chain initiative that will streamline how we bring products to market and make it easier for our teams to stay connected and agile. Some key components of this include implementing 3D digital product creation and virtual fittings, rolling out digital showrooms, and expanding our stepwise buying capabilities, enabling us to make purchase decisions closer to market. While I am encouraged by these successful rollouts in the midst of COVID, we still have significant opportunity to continue integrating digital into how we work to enable greater effectiveness and efficiency. Turning now to our efforts to win over a new generation. In the second quarter, we continued to ramp up our personalization initiatives, including targeted email campaigns with predictive AI and high-reach paid social media, helping to drive traffic and conversion to our channels. We added more than a million new customers to our direct-to-consumer platforms alone in Q2. And as consumers are learning to live and work in new ways, we are likewise developing new ways of inspiring and engaging them. Let me share a few of the highlights from Q2. First, we were the first ever fashion brand to enable consumers to mix and match branded garments inspired by real-life designs on Snapchat. through our Ralph Lauren Bitmoji collection. Over 10 million users dressed their Bitmoji in Ralph Lauren and tried on the collection over 250 million times this quarter. Our 360 degree marketing campaign included influencer and celebrity partnerships with a live stream concert by Chance the Rapper from our Chicago flagship and an augmented reality portal on Snapchat. Successfully connecting with Gen Z audiences, Ralph Lauren reached leadership share of voice on social media through this launch. We also announced the winner of our Polo Design for Good contest in Q2, entitled Just Let Me Breathe by artist Michelle Smith. This was a great example of how we are engaging with our super fans who submitted their artwork for display on an exclusive polo shirt. with the campaign generating more than 300 million PR impressions. It also connects to our core values, which Ralph established more than 50 years ago when he started this company, with all proceeds of the winning shirt going to COVID-19 relief. Other high impact activities to recruit new consumers this quarter included our partnership with the popular Netflix show Elite, outfitting BTS' official music video for Dynamite, a campaign supporting the Wimbledon Foundation in the absence of this year's tournament, and our continued sponsorship of the U.S. Open Tennis and PGA Championships as we further strengthen our position in the world of sports globally. These initiatives help to deliver an acceleration of our global brand awareness and purchase intent since the start of the pandemic. particularly with next-generation consumers. And our total social media followers exceeded 44 million in the second quarter, led by our expansion on TikTok, as well as double-digit growth on Instagram. Looking ahead, our upcoming holiday campaigns will focus more than ever before on digital experiences, from the expansion of our virtual stores to our Polo Bear game with a livestream gaming event on Twitch. Our campaigns will also feature a much greater emphasis on gifting this holiday across all of our channels. This represents a key opportunity globally with 74% of consumers we surveyed recently highlighting Ralph Lauren as a brand that is great for gifting. I also want to touch on our work to operate with discipline to fuel growth. Our ongoing focus on balancing growth with productivity has been an important element of our long-term plan. And this discipline is even more critical as we make hard choices to realign our cost structure so we can position the company to emerge from COVID stronger than we came into it and pivot back to growth. In the second quarter, we announced the first major action related to our fiscal 2021 strategic realignment plan. the simplification of our organizational structure. This is designed to enable our teams to move with even greater agility and focus on what matters most, including our digital transformation. Another element of our strategic review process we discussed last quarter was an assessment of our brand portfolio. Today, we announced that we are transitioning our CHAPS business to a fully licensed model. This shift is consistent with our long-term strategy from several aspects. First, it will enable us to put even greater focus on elevating our core namesake brand in the marketplace. Second, it will reduce our total direct exposure to the North America brick and mortar department store channel, notably the more moderate tiers. And third, this move will create incremental value for the company by setting up CHAPs to deliver on its potential with an experienced partner in the sector that is focused on nurturing the brand. We are making good progress on our multi-pronged realignment plan, which gives us increased confidence in our ability to start fiscal 22 strong with the right foundations in place. Importantly, I also want to take a moment to touch on our ongoing work to integrate citizenship and sustainability into everything we do. Q2 marked the kickoff of our participation in the CEO Action for Racial Equality Fellowship, focused on advancing racial equality and social justice in public policy. And the McKinsey Black Leadership Academy aimed at developing and empowering our next generation of black leaders on a global scale. On the sustainability front, We were excited to announce a minority investment in natural fiber welding, a leading sustainable material science startup that has revolutionized the use of natural fibers and reuse of cotton waste into patented high-performance materials. Our investment will help to expand the market and ecosystem that supports the use of recycled cotton. In closing, Ralph and I want to thank our teams for their incredible resilience, dedication, and agility as we continue to navigate through challenging conditions around the world. In this unprecedented environment, we recognize the opportunity to accelerate key strategic priorities and continue to deliver Ralph's iconic vision in an elevated way to all of our consumers across all of our channels. And before I turn it over to Jane, I want to extend a warm welcome to our newest board member, Valerie Jarrett. Valerie's breadth of experience across the private and public sectors and unparalleled expertise in government, law, and business will bring great perspective to the boardroom. And Ralph and I are confident that her experience and leadership will be invaluable. With that, I'll turn it over to Jane to discuss our financial results, and I'll join her at the end to answer your questions.