Ralph Lauren Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Third 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, this conference is being recorded. I would now like to turn over the conference to our host, Ms. Karina Vandegans. Please go ahead.

Good morning, and thank you for joining Ralph Lauren's third 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 law, including our financial outlook. Forward-looking statements are not guaranteed, 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.

Thank you, Corey. Good morning, everyone, and thank you for joining today's call. Our third quarter performance reflected strong underlying progress on our path to quality, sustainable long-term growth. Overall, revenues improved sequentially and were in line with our expectations. Stronger-than-expected recovery in Asia was offset by the impact of continued COVID-19 resurgences across Europe, while North America was roughly in line with our expectations, even with additional COVID pressures. Meanwhile, our focus on brand elevation, improved quality of sales, and cost discipline drove better-than-expected gross and operating margin expansion in the quarter. with double digit AUR growth and digital profitability exceeding our expectations. And while COVID is likely to remain a near-term headwind, there is reason to be hopeful as we start the new year and vaccines begin to roll out. Ralph and I are incredibly proud of the dedication, resilience, and agility our teams have shown in not only managing through the pandemic, but also positioning the company to emerge stronger than we came into it. As part of this, we balanced reset activities with an acceleration of our core strategies, including strengthening our brand and bolstering our marketing and new customer acquisition, expanding key categories and international markets, scaling our connected retail offerings globally, continuing to prune non-elevating distribution, and further realigning our cost structure. These actions are consistent with the five strategic priorities that we laid out as part of our long-term plan prior to COVID. These include, first, win over a new generation of consumers. Second, energize 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 in a moment, but first let me provide some updates specific to this quarter's performance. As we anticipated at the start of the holiday season, the global retail environment remained volatile due to the pandemic and other macro factors. Nevertheless, Apart from the impact of COVID resurgences, we were encouraged by several bright spots in each of our regions this quarter, led notably by Asia and our digital channels globally. Asia, which we view in many ways as a blueprint for our progress in other markets, grew 14% to last year. This was driven by continued momentum in the Chinese mainland, with more than 40% reported growth. Japan returned to positive growth in the quarter, while Korea was up double digits. In North America, performance continued to improve sequentially and was in line with our expectations, despite rising COVID cases in many of our key markets. Our strategy of elevating our brand across digital, department stores, and off-price is well underway, and we're still on track to complete the significant portion of this work in fiscal 21. Europe was the most challenging segment this quarter, with the majority of our stores closed for a full month of the key holiday period. In addition to the government-mandated shutdowns, there were also significant operating and travel restrictions throughout the quarter, which have continued into our fourth quarter to date. In many ways, these second and third wave restrictions have been more disruptive than the first wave of shutdowns we experienced last spring, as they varied greatly by market and by day. Third quarter traffic headwinds were partly mitigated by a strong acceleration across our owned and wholesale digital channels in Europe. This was driven by our expanded connected retail programs, exclusive capsules with partners like MyTheresa and ASOS, holiday campaigns, and influencer activations. We also leveraged this period of disruption to continue our long-term brand elevation in the region, acquiring new, high-value consumers and driving increased AUR despite a highly promotional competitive environment. These actions should help position our brands for healthier recovery and ecosystem expansion once we emerge from COVID. By channel, digital continued to be a key driver of our performance, with digital sales accelerating in all three regions this quarter. We continue to scale up our connected retail offerings and emphasize gifting and key product categories for holiday. These included our iconic sweaters, holiday bear programs, home and loungewear that are resonating with consumers today. In our brick and mortar stores, as I mentioned, traffic was challenged due to COVID, particularly in Europe and North America. But we were strongly encouraged that our teams were able to deliver higher conversion in these channels with double-digit AUR growth and reduced discounting, while also starting to leverage our new connected retail offerings this holiday. We also continued to invest in targeted new store expansion in key growth markets, with 23 new stores this quarter, primarily in Asia. Within our wholesale business, we were encouraged by continued sequential progress across regions, particularly on wholesale.com. We still expect pressure on our reported selling trends in the near term as we deliberately exited department store doors early in the pandemic and prioritized inventory management in this environment. As a reminder, 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. Turning to our efforts to win over a new generation. In the third quarter, we continue to ramp up our personalization initiatives, shift our brand building efforts increasingly toward digital, and leverage the authentic values that have been central to our brand since Ralph started this company more than 50 years ago. Let me touch on some of the highlights from this quarter. First, we launched a fully integrated and diverse Family is Who You Love holiday campaign across social media, our own stores and digital sites, and wholesale environments. We also focused more than ever on creating innovative digital experiences that immerse the consumer in the world of Ralph Lauren. These included our groundbreaking virtual flagship store experiences in Beverly Hills, New York, and Paris, where consumers around the world can experience our brands and the full breadth of our assortment in a way that was previously only possible by walking into one of our beautiful stores. Amplifying the reach of our flagships to a global audience, digital traffic in these virtual stores was eight times greater than the foot traffic in these physical stores over the same period. We were also the first apparel brand to launch Snapchat's logo scan this holiday. This allows consumers to scan our iconic Polo Pony logo from any surface, including clothing items, ads, shopping bags, and more, to trigger an augmented reality experience that brings them into the world of Ralph Lauren and ultimately transact on our own site. And in Asia, we were excited to launch our livestream selling event with 360-degree activation for Singles Day, delivering more than 120 million impressions. We're investing in these new forms of selling, including social commerce, which we expect to become a greater part of the digital shopping experience long-term. Looking ahead, we will continue to partner with celebrities and influencers who embody our core values, along with being a part of key moments around the world. More recently, Ralph and I were particularly proud of our brand's participation in the US Presidential Inauguration. Overall, we are encouraged by the momentum we are seeing in consumer engagement across generations. Notably, our brand awareness and purchase intent have accelerated since the start of the pandemic, and we are seeing particularly strong growth from consumers under 35 and women. We added more than 1 million new consumers to our direct-to-consumer platforms alone in Q3, and our total social media followers reached 45 million in the quarter. This was led by continued momentum across key platforms like Instagram, TikTok, YouTube, and Snapchat, where our Ralph Lauren Bitmoji collection is connecting strongly with Gen Z consumers. Since the launch last August, over 20 million users have addressed their Bitmoji in Ralph Lauren and tried on the collection over 550 million times. This takes me to our long-term priority of leading with digital. Fiscal 21 continues to be a transformational year as we digitize our consumer platforms and experiences and how we work as a company. On the consumer-facing side, The continued acceleration of connected retail is essential to creating the best possible experience for our consumers and to our long-term growth. Building on our accelerated connected retail launches in the first half of the year, in the third quarter we added mobile point-of-sales across our North American retail fleet, appointment scheduling, and curated personal collections online. all while continuing to expand our digital clienteling programs globally. We also launched our Hong Kong Digital Flagship in time for holiday, which is an important part of our broader ecosystem strategy as consumers shop and travel in new ways. In addition to strengthening our digital commerce capabilities, we continue to build our social commerce presence and expand our partnerships with influential digital retailers around the world. Our teams executed a successful global launch campaign this holiday with Farfetch. We delivered lifestyle content tailored to next generation consumers, reaching over 15 million impressions globally, including the first ever editorial experience within the Farfetch app. We were encouraged by engagement rates that were three times higher than our competitive benchmark on this platform. And as we continue to digitize how we work as a company, we launched our integrated vendor management system in the third quarter with the majority of our suppliers. This new digitally centralized portal enables us to communicate seamlessly with our suppliers on everything from digital product creation to real-time tracking on our production status and factory capacity. It also enables us to track and support areas like gender diversity at the supplier level. This is all part of our broader goal of elevating our product, streamlining how we bring them to market, and making it easier for our teams to stay connected and agile, all while driving our sustainability and citizenship initiatives across everything we do. Touching on our work to operate with discipline to fuel growth, Our ongoing focus on balancing growth with productivity continues to be 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 actions related to our fiscal 2021 strategic realignment plan. These included, first, the simplification of our organization, enabling our teams to move with greater agility, and second, an assessment of our brand portfolio, resulting in the decision to move CHAPS to a fully licensed business. Today, we announce the next stage of our plan, which is focused on realigning and driving increased efficiencies across our global real estate footprint. While Jane will discuss these actions in more detail in a moment, I am pleased that we are making good progress on this multi-pronged plan. This gives us increased confidence in our ability to start fiscal 22 strong and 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. In the third quarter, we were proud to score 100% on the Human Rights Campaign Foundation's Corporate Equality Index and earn the designation as a best place to work for LGBTQ equality. On the supply chain and sustainability front, we have leveraged this period of change to continue diversifying across geographies and strengthening our relationships with suppliers. From improved capacity planning to implementing diversity and inclusion training and driving best practices in sustainability. In the third quarter, we reaffirmed our commitment to achieving our science-based greenhouse gas emissions targets and joined hundreds of other organizations in calling on the US federal government to reenter the Paris Climate Agreement, which the new administration recommitted to just a few weeks ago. We look forward to sharing further progress including our greenhouse gas reduction roadmap in our 2021 report update this June. In closing, Ralph and I are optimistic about the future of our business and encouraged by the work our teams are doing to emerge from COVID stronger than we came into it. We are spending this time doing the important work of elevating our brand, investing in key strategic areas, streamlining our business, and realigning our cost structure. We have made meaningful progress in delivering digital experiences for all of our consumers around the world and driving our direct-to-consumer channels, all while pursuing our goal of becoming a more equitable, diverse, and sustainable company. 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.