Ralph Lauren Corporation

the Ralph Lauren Fourth Quarter and Full Year Fiscal 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 Vandekens. Please go ahead.

Good morning, and thank you for joining Ralph Lauren's fourth quarter and full year 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.

Thank you, Corey. Good morning, everyone, and thank you for joining today's call. We are pleased to report strong fourth quarter and full year results that exceeded our expectations on both the top and bottom line. This year's performance underscores the strength of our business and desirability of our brand around the world, with both strong loyalty among our existing consumer base and enabling new high-value consumer recruitment. Ralph and I are inspired every day by our team's engagement, agility, and execution, which is driving this progress. As we enter fiscal 23, our consumer remains healthy and motivated to invest in the timeless quality products we have always stood for. While we consistently adapt to ever-changing macro developments, our strong brand momentum will continue to be supported by multiple engines of growth. These include, first, continuing to drive brand heat and desirability, with increased marketing investment and a combination of iconic lifestyle campaigns and precision marketing. Second, leveraging our unique multi-category lifestyle proposition to drive the mix of sophisticated and casual dressing consumers crave. As we look ahead, there remain significant opportunities for category expansion and continued product elevation. And third, rolling out our key city ecosystem strategy which integrates a brand-elevating, cohesive consumer experience across our touchpoints. Originally developed in Asia, we're still in the early innings of scaling this model across each of our regions, including North America. Within this ecosystem, we lead with digital commerce, which continues to represent a significant growth opportunity while already solidly accretive to every region's profitability. Woven into all of these engines of growth is our focus on delivering positive impact in the world, across citizenship and sustainability. Our fourth quarter performance was a great example of the continued progress we're making across these priorities as we pivot to growth while maintaining our culture of productivity. Despite macro headwinds from COVID, the devastating war in Ukraine, and significant inflationary pressures, we expanded operating margin, and each of our regions reported strong double-digit topline growth fueled by digital. Let me take you through a few of our fourth quarter and fiscal 22 highlights across the strategic pillars of our next great chapter plan. First, on our efforts to win over a new generation, From our iconic brand moments at the Summer and Winter Olympics to our launches in gaming and the metaverse, consumers around the world are connecting more than ever to our brand positioning and product portfolio. We're also strengthening our relationships with higher income consumers across both our new and existing consumer base. This was particularly evident in the fourth quarter where we shifted a significant portion of this year's investments to drive brand desirability across a diverse range of activities. First, this March marked our celebratory return to the runway at New York's Museum of Modern Art, where our men's and women's fashion show immersed viewers in the world of Ralph Lauren as only Ralph can. On stage and in the audience were faces familiar to the brand, including Janelle Monáe, Gigi and Bella Hadid, Emily in Paris' Lily Collins, New York City Mayor Eric Adams, and our newest fragrance ambassador, Angus Cloud, from the hit show Euphoria. As we continued to amplify our events globally, we delivered our most successful TikTok campaign ever around the show. with our largest growth in new followers on the platform this year. You may have seen our exciting partnership with Morehouse and Spelman Colleges this quarter, honoring the legacy of HBCUs and their contribution to the culture of American fashion. Inspired by the rich heritage and esteemed traditions of these two schools, this creative collaboration is just one example of our commitment to evolve how we portray the American dream. in the stories we tell, and the faces and creators we champion. The collection, conversation, and press surrounding this collection spark strong consumer engagement and traffic to our North American digital flagship in the quarter. And we continue to strengthen our leadership in the world of sports through our high-visibility sponsorships of the Australian Open and Team USA at the Winter Olympics. This year's events were particularly thrilling as we celebrated the spirit of optimism and aspiration that these sports represent consistent with our brand values. These activations not only drove another quarter of strong top-line growth, but also helped recruit younger, full-price consumers to the brand, particularly on our digital channels. New consumers on our digital sites grew more than 70% to double L.Y., including an increased penetration of under 35 higher value consumers. Our online search trends also grew double digits to last year in Q4, significantly outperforming peers globally. Looking to fiscal 23, we will continue to drive this momentum and desirability with iconic brand moments in sports and culture across our portfolio, all of which you will see amplified across our global campaigns. Touching on our second key initiative, energize core products and accelerate high potential underdeveloped categories. Ralph Lauren is one of the few brands in the marketplace with the authenticity, quality, and credibility to deliver products across a range of lifestyle categories. As Ralph likes to say, the brand is not about chasing fast trends, but rather about living And I can't think of a moment where this has been more relevant as consumers come together again with a return to pre-pandemic activities. Our design team is leveraging the breadth of our portfolio to create products that our consumers can live in and feel confident in, regardless of what the new normal looks like for them. In the fourth quarter, consumers gravitated back to more sophisticated luxury and formal wear looks while we also continue to drive a mix of elevated but comfortable casual styles. As we continue to drive brand heat and new consumer acquisition, special collections this quarter included the Polo Color Shop, our pre-spring ode to the easy, luxurious style of the Côte d'Azur, our Morehouse and Spelman Colleges collection, which sold out almost immediately, our Team USA Olympic styles featuring intelligent insulation technology and inspiring our next generation of outerwear, and our Lunar New Year gifting celebrating the Year of the Tiger. We're also proud to open our first iconic World of Ralph Lauren home shop at Harrods this quarter, with more to come as we build on this high potential category. And in April, we launched our first unisex fragrance, Polo Earth, a consciously designed vegan fragrance featuring sustainably sourced ingredients and recycled packaging. Shifting gears to our third key initiative, drive targeted expansion in our regions and channels. We continued our long-term strategy of investing in our key city ecosystems around the world in fiscal 22. with a focus on elevating our touchpoints with the consumer across every channel. During the year, we opened 122 new stores and concessions in top cities globally. This fiscal year marked our first emblematic concept stores in China, in Beijing and Shanghai, our first European flagship opening since 2010 in Milan, and our first slate of full-price North America store openings since 2016. The vast majority of our store openings continue to be in Asia, and particularly the Chinese mainland, where our brand momentum remains strong despite recurring COVID lockdowns. Our fourth quarter mainland sales were still up more than 25% to last year in constant currency. And our Lunar New Year performance across the market significantly outpaced the competition as we continue to build our brand for a local audience. We further expanded our successful key city ecosystem model to other markets around the world this quarter. In North America, we just opened one new full price store in Century City, Los Angeles and relocated one store in Ball Harbor, Miami for a total of eight new full price openings this fiscal year. Overall, coming out of fiscal 22, we are strongly encouraged that North America's turnaround is well underway as we fire on all cylinders following our final phase of major distribution resets over the past year. Moving to our priority of leading with digital. Sales for our total Ralph Lauren digital ecosystem, including our directly operated sites, departmentstore.com, pure players, and social commerce, grew low double digits in the fourth quarter, and more than 80% to double LY in constant currency. For the full year, digital grew more than 40% to last year and 65% to double LY, reaching 26% of total revenue. This is consistent with our penetration levels during the height of COVID when stores were closed. Within our own Ralph Lauren digital sites, sales grew 18% in the fourth quarter and more than 70% to double LY. We continue to drive strong full price selling as we deliver the right mix of product and invest in AI-powered targeting and new full-price consumer acquisition. We also launched new localized digital commerce sites to support our ecosystem expansion globally. This includes our first digital flagships in Australia and the Middle East, as well as 15 new ship-to destinations largely across broader Europe. During the year, we expanded on the connected retail capabilities we launched during the pandemic, from virtual selling appointments to endless aisle product availability. Looking ahead, we will focus on scaling these capabilities, along with our full catalog mobile app launched this past holiday, to provide our consumers with a seamless, elevated brand experience across every touchpoint and our entire portfolio. Moving to our work to operate with discipline to fuel growth. Our teams have operated with incredible agility to mitigate emerging macro challenges, delivering both gross and operating margin expansion again in the fourth quarter, despite increased cost headwinds. In addition to implementing a culture of operating discipline across our company, over the last 24 months, we have driven further efficiencies in how we operate. from the launch of digital product design and virtual showrooms to digitizing our supply chain in order to enable real-time visibility and planning. We also continue to make significant strides across our global citizenship and sustainability commitments over the past quarter and fiscal year. Let me highlight a few high-impact initiatives. Meaningfully progressing towards our target of at least 20% underrepresented race and ethnic groups on our global leadership team by 2023. Delivering a $2 million donation in scholarships for students at historically black colleges and universities through the Ralph Lauren Foundation. Launching the U.S. Regenerative Cotton Fund to support long-term sustainable cotton production in the U.S. Unveiling Color on Demand, the world's first scalable, zero-wastewater cotton dyeing system. And bringing to market Clarus, a first-to-market patented technology and critical step in scaling our use of recycled cotton. And recall that in fiscal 22, we incorporated key ESG metrics into our executive compensation plans for the first time. In closing, This year has been an exciting chapter on our journey to elevate our brands and pivot to offense. Ralph and I are proud of and encouraged by the passion, collaboration, and execution of our teams. Together, we have fundamentally repositioned our business and are already starting to yield positive results across our multiple engines of growth. Looking ahead, we have strong confidence in this growth model and will continue to invest behind this year's momentum to deliver long-term value creation. We remain keenly focused on what we can control while continuing to navigate an uncertain global environment. We look forward to sharing more with you at our Investor Day on September 19, and 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.