Ralph Lauren Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren second quarter fiscal year 2022 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 VanderGinst. Please go ahead.

Good morning, and thank you for joining Ralph Lauren's second quarter fiscal 2022 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 Pagano- Thank you, Cori. Good morning, everyone, and thank you for joining today's call. We are delivering strong progress on our fiscal 22 plan with second quarter performance exceeding our expectations across all key financial and consumer engagement metrics. Our brand elevation strategy, which cuts across our product, marketing, and distribution channels, is resonating with consumers in every region. We're driving these results despite greater than expected disruptions in the global supply chain and extended COVID restrictions in key markets like Japan. And while we continue to face a volatile environment The work we have done to build a resilient supply chain over the last several years, as well as our significant AUR elevation, will continue to be competitive advantages as we navigate emerging challenges and mitigate risk. To give you some context and color, our supply chain is intentionally diversified across multiple markets, a key initiative we started over four years ago. This allows us to quickly shift production when certain markets are affected by COVID or other issues. We've created a strategic supplier program whereby we prioritize our partners with a presence across multiple markets, enabling these shifts to happen even more seamlessly. And we have proven pricing power, elevating our AUR across every channel and geography over the last four and a half years so that we have room to absorb near-term pressures we've seen in our business, such as tariffs or current inflationary headwinds. This built-in agility gives us confidence as we continue to navigate a volatile global operating environment ahead. But I want to be clear that this is not just about our ability to play defense. Even as macro challenges arise or subside, Ralph Lauren is firmly driving offense to position the company for long-term sustainable growth. We are leveraging our strong momentum to further accelerate investments across brand building, personalization and new customer recruiting, digital, and key markets and categories in the months ahead. Reflecting on the last quarter, a few key highlights. First, our overall recovery is outpacing our expectations. This was led by outperformance in Europe and North America, with Asia in line with our plan and positive to fiscal 20, or double L-Y, despite extended COVID measures, as our product assortments resonated strongly with consumers globally. Second, our digital momentum continues, following our reset work across product, pricing and promotions last year. In our digital operating margins, continue to be strongly accretive to our overall company margin rate. And third, our elevation strategy is translating across all channels, including positive trends and wholesale across regions. On top of all of this, we made further progress toward our long-term target of mid-teens operating margins, with second quarter margins of 17%, representing the highest Q2 rates since fiscal 13. And we achieved this even as we continue to reinvest for future growth and plan to increase returns to shareholders over the next several quarters. Our performance demonstrates our team's strong execution against the five strategic pillars that we outlined at the start of our next great chapter plan. Let me share a few highlights from the quarter across each one. First, on our efforts to win over a new generation. We continue to invest in our brand-building initiatives to drive both new customer acquisition and retention in order to fuel long-term growth. In the second quarter, we further strengthened our brand consideration, purchase intent, and net promoter scores globally, while Ralph Lauren brand sentiment also improved across every region. Some of our key campaigns underpinning these results included the continuation of our summer sports program with the US Open Tennis Championships here in New York, as well as Team USA's victory at the 2021 Ryder Cup in golf. These came on the heels of our sponsorship of the US Olympic team in Tokyo earlier in the quarter. Together, these campaigns generated over 71 billion media impressions in the second quarter, as we continue to inspire new generations of athletes and dreamers. In September, we celebrated the return of fashion's biggest night, the Met Gala. And what better opportunity to showcase this year's theme of American fashion than with one of the most iconic American brands, Ralph Lauren. Celebrities and influencers from Jennifer Lopez and Ben Affleck to Chance the Rapper and Lily Aldridge were featured in our designs, driving strong engagement and traffic to our channels. Ralph's design of Lily Collins' wedding dress, some of you will know her as Emily in Paris, garnered worldwide media attention. And we were excited to announce a new collaboration this quarter with Zepetto, a metaverse, or virtual world, where users' avatars can socialize and create content. This partnership represents the latest frontier in digital engagement in which users can purchase exclusive digital Ralph Lauren apparel for their 3D avatars for the first time ever. Early engagement has outpaced our expectations with 100,000 items already sold in just a few weeks. In all, we added 1.4 million new consumers to our direct-to-consumer channels alone this quarter. a 19% increase to last year. And our total social media followers continue to grow, reaching 46.9 million globally, led by Instagram. Moving to our second key initiative, energize core products and accelerate high potential underdeveloped categories. Ralph and our design teams continue to inspire consumers around the world as they begin to incorporate sophisticated casual styles back into their closets. while still seeking elevated comfort with categories like loungewear. We are uniquely positioned to capture this evolving hybrid way of dressing given the breadth of our portfolio. And we're also making strong progress on our high-potential categories like outerwear and denim. During the second quarter, we drove our core sportswear categories along with seasonal styles such as transitional sweaters and fleece, as we headed into early fall selling. On the men's side, we saw strength across bottoms, including denim, active styles, and shorts, as well as sweaters and performance sleeves. Though a small part of our business prior to COVID, tailored clothing and dress shirts continued to show sequential improvement. In women's, we drove outsized performance in sweaters, sweatshirts, mid-layer knits, and bottoms. Outerwear, including transitional quilted jackets, updated blazers and denim jackets, also grew double digits to double LY. This should bode well for the key outerwear selling period of fall and holiday. We also launched our new Ralph's Club fragrance globally with a digital-first campaign featuring Luca Saba and Gigi Hadid. This marked our first major fragrance launch in China. And in its first month, It ranked among the top three men's fragrances in key markets around the globe, including in the US. And more than 75% of purchases on RalphLauren.com were made by consumers who were new to the brand. This takes me to our third key initiative, drive targeted expansion in our regions and channels. We continued the build out of our brand elevating key city ecosystems around the world in the second quarter. with 35 new stores and concessions opening in top cities globally and 13 locations closed. The majority of these store openings were in Asia, and particularly the Chinese mainland, which continues to represent a significant long-term growth opportunity for our brand. Despite COVID-related shutdowns in July and August, our mainland sales were still up more than 25% to last year, and more than 70% to double our Y in constant currency. And comp trends rebounded quickly in September once restrictions were lifted. We opened our second emblematic store experience in China at Shanghai's Cary Center this quarter, following our first opening in Beijing this spring. The emblematic concept provides an example of how we are transforming the retail experience. with digital integration throughout, exciting in-store activations, and hospitality features like Ralph's Coffee that are fueling new consumers' acquisition. Early performance is well ahead of our expectations, and these stores are also lifting overall growth trends in their respective omnichannel ecosystems. Moving to our priority of leading with digital. Our global digital ecosystem including our directly operated sites, departmentstore.com, pure players, and social commerce, grew approximately 45% in the quarter in constant currency and 50% to double LY. Our digital momentum continues, even as traffic returns to physical stores, driving a benefit to our overall operating margin mix. This is the result of our continued digital investments focused on content creation, data analytics, and AI to serve our consumers through an elevated connected retail experience. Now, touching on our work to operate with discipline to fuel growth. As I mentioned, our teams continue to operate with agility and focus to mitigate supply chain headwinds, delivering better than expected gross and operating margins in the second quarter. At the same time, We continue to drive expense discipline as we accelerate both near-term and multi-year investments in the back half of the year to fuel long-term growth. And lastly, on our brand portfolio, we successfully transitioned CHAPS from our North America wholesale business to a licensed model in the second quarter, as previously announced. This completes our exit from moderate-priced U.S. department stores. enabling our teams to focus on our core namesake brands and elevated positioning in the marketplace. I also want to take a moment to highlight our ongoing work to integrate citizenship and sustainability into everything we do. We recently announced the launch of the US Regenerative Cotton Fund in partnership with the Soil Health Institute. Funded by the Ralph Lauren Corporate Foundation, This program works directly with farmers to transition 1 million acres of American cotton cropland to regenerative production. In all, it is set to eliminate 1 million metric tons of carbon dioxide equivalent from the atmosphere by 2026, both increasing sustainable cotton supply and making important progress in the urgent call to action on climate. We are proud to share today that this program is being recognized at the COP26 International Meeting on Climate as an innovation spread partner by the Agriculture Innovation Mission for Climate. In addition, this quarter, we joined the Global Fashion Agenda's strategic partner group to prioritize sustainability in fashion, as well as the Ellen MacArthur Foundation as a partner in its mission to create a circular economy for apparel. And we were also honored to be recognized as one of the 2021 best places to work for people with disabilities by the Disability Equality Index, and as one of the world's best employers of 2021 by Forbes. In closing, Ralph and I are strongly encouraged by the company's progress through the first half of the fiscal year. All channels and geographies are showing strong momentum as we build on the healthier foundation we set over the past 18 months. Our performance, along with the resilience of our supply chain and pricing power in the market, give us confidence as we accelerate our investments in the back half to support long-term growth. So 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.