Ralph Lauren Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Third Quarter Fiscal Year 2023 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. Carina VanderKans, please go ahead.

Good morning and thank you for joining Ralph Lauren's third quarter fiscal 2023 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. With that, I'll turn the call over to Patrice.

Thank you, Corey. Good morning, everyone, and thank you for joining today's call. We were pleased to deliver another quarter of better-than-expected performance, including through the important holiday season. All three regions contributed positively to revenue growth, and at the same time, we made strong progress on the strategic priorities we outlined last September in our next great chapter, Accelerate Plan. We have multiple levers of growth and a broad lifestyle portfolio of products. Combined with the agility muscle our teams have built over the last several years, this puts us in a position of strength to become the world's leading luxury lifestyle company, even amid macro uncertainty. A key element of this strategy is our commitment to brand and product elevation, as we have demonstrated over the past five years. And we're doing all this while maintaining flexibility to respond to consumer demand and market dynamics. This translated to another quarter of double-digit AUR growth, even as the broader marketplace became more promotional as anticipated. We also continue to drive a culture of operating and cost discipline, which enabled us to meet our operating margin targets in the period. As our guidance reflected from the start of this fiscal year, the global environment has been choppy. We are encouraged that our core consumer has remained generally resilient which reflects the growing desirability of our brand. At the same time, we continue to watch our more value-oriented customers and channels carefully. In this environment, we are taking a pragmatic approach to merchandising, pricing, and inventory planning. As we navigate ongoing macro uncertainties, we remain steadfast in driving our three strategic pillars of long-term growth and value creation. These are, first, elevate and energize our lifestyle brand. Second, drive the core and expand for more. And third, win in key cities with our consumer ecosystem. Let me take you through a few of our third quarter highlights across each of these strategic pillars. First, on our efforts to elevate and energize our lifestyle brand. We continue to invest in our most powerful asset, our timeless luxury brand and way of life to inspire and engage our consumers and ultimately drive lifetime value. We continue to build our brand desirability with consumers while also growing their value perception of our brand. This is enabling us to grow both market share and AUR. In the third quarter, we drove a diverse range of both global and localized brand activations showcasing the Ralph Lauren lifestyle. We kicked off the quarter with our California Dreaming Fashion Show at the Huntington Library in LA. This represented our first ever show on the West Coast where we had historically been underdeveloped and have an opportunity to scale our presence. From there, we launched into holiday with our Gift of Togetherness campaign featuring friends of the brand like Shalom Harlow and Tyson Beckford. Our local flagship events range from a family-friendly pop-up skating rink in Ginza to live musical performances at Bond Street in London. These campaigns leverage our authentic brand values around family and togetherness, combined with unique, localized engagement to excite and delight our consumers around the world. For Polo lovers, we offered our 7 days, 7 drops on our Polo 67 fan app. With a limited edition collection of custom-made skis, vintage ski jackets, and collectible posters from the RL Archive. In Asia, we drove another successful Singles Day event, ranking number two for men's apparel and number four for women's apparel on Tmall. The campaign included our first ever Tmall cat face logo collaboration, generating billions of impressions across online and offline channels in China's key cities. And as we continue to lead in gaming and the metaverse, we launched an innovative collaboration with Fortnite targeted to next-gen consumers with additional exciting partnerships to come for spring and fall 23. Together, these activations are both re-engaging existing customers while also attracting younger, full-price consumers to our business. In our DTC businesses, we added 1.6 million new consumers this quarter, consistent with recent trends. We exceeded 51 million social media followers globally, a high single digit increase to last year, led by double digit growth on Instagram. And our online search trends continue to significantly outpace our peers across our top markets globally, driven by our core categories. Moving to our second key initiative, drive the core and expand for more. Across our organization, we are committed to becoming the leading luxury lifestyle company globally. This starts with the work Ralph and our creative teams are doing every day to offer sophisticated, timeless products that meet the needs of our consumers across their modern lifestyles. Ralph Lauren has a unique positioning in the marketplace that has enabled our brand to thrive over 50 years. Our brand stands for much more than a single product or category. It invites our customers to step into their dream of a better life. At the heart of our business is our collection of iconic core products which represent 70% of sales and remain a consistent driver of our business season after season. Our core products grew high single digits in the third quarter, led by sweaters, seasonal core knits, sweatshirts and suit separates. Our core also establishes the foundation and credibility to grow our high potential categories. These include women's, outerwear and our emerging home business. Together, These high potential categories increase low teens in the quarter. Women's represents our single largest long-term opportunity for market share gains and category growth as a company. We are trading her into the brand, across categories to drive lifetime value, and up to more elevated styles, with women's AUR up 12% in the third quarter. Highlights from the period included our dedicated head-to-toe holiday campaigns for both Polo Women and Lauren, including the expansion of our Polo ID bags in new seasonal fabrications. Other product highlights and special releases this quarter included the official launch of our Polo Originals line, elevating the upper tier of our core brand with high-quality AUR-enhancing styles that pay homage to Polo's roots, our exclusive navy and gold logo collection capsule with influential Japanese retailer Beams, and our Fortnite collaboration with core icons featuring the new Llama player logo and our Polo Stadium collection of digital and physical products. Through these dynamic times, we continue to leverage the breadth of our brand and assortments to give consumers what they want as their lifestyles evolve. This enables us to flex from stay-at-home sweatshirts to return-to-work outfits to wedding dresses and evening wear. Switching to our third key initiative, winning key cities with our consumer ecosystem. We continue to invest in our long-term strategy to develop our key city ecosystems around the world in the third quarter. with a focus on elevating and connecting all our consumer touchpoints across every channel, starting with digital. Third quarter sales for our total Ralph Lauren digital ecosystem, including our directly operated sites, departmentstore.com, pure players, and social commerce, increased high single digits in constant currency. Our Asia digital ecosystem once again delivered the fastest growth globally, This included another strong singles day with double digit new customer acquisition and sales significantly outperforming our peers, even as we grew AUR by 28%. Within our own digital sites, sales grew low double digits globally in the third quarter. As part of our fully connected ecosystems, we also continued to open new physical stores that enable consumers to engage directly with our brands around the world. We opened 55 new stores and concessions, focused on our top cities globally this quarter, with the majority again in Asia, particularly the Chinese mainland. Our brand momentum and opportunities in China remain strong. We reported third quarter mainland sales of high single digits in constant currency. This was an encouraging result in light of widespread COVID disruptions following the relaxation of zero COVID policies in the period, with over 90% of our stores impacted by full closures, reduced trading hours, and staffing levels. As our dedicated teams on the ground continue to manage near-term disruptions with agility, we expect the country's reopening to be a net positive as we continue to strengthen our growing presence in this key market. Elsewhere in the region, we continue to drive double-digit constant currency growth across Japan, Korea, Australia, and Southeast Asia, where we opened our first Ralph's Coffee experience in Kuala Lumpur this quarter. In addition to our sustained momentum across Asia, we remain bullish on our long-term growth opportunities and ability to strategically drive lifetime value across North America and Europe. In Q3, we opened our largest children's store in the world on Via de la Espiga in Milan. Located across from our flagship, we are now able to showcase the full breadth of our luxury lifestyle proposition in this important market. We also launched our first full-price emblematic store in Barcelona, another influential fashion market, as we continue to build our connected ecosystems across the region. And finally, touching briefly on our enablers. In addition to our strategic priorities, our business continued to be supported by our five key enablers. In the third quarter, we were proud to be recognized on Fast Company's 2022 Brands That Matter list for our collaboration with Morehouse and Spelman Colleges launched last March. This groundbreaking partnership was 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. We were also recognized as one of Fortune's world's most admired companies, moving from number six last year to number two this year for our sector. And on the sustainability front, we highlighted our first cradle-to-cradle certified product just a few weeks ago with our luxury gold cashmere sweater. The first of its kind luxury product to achieve this global standard, this is just one part of our commitment to enable our past and future products to live on responsibly. This sweater is the first of five iconic products that we plan to make C2C certified by 2025. In closing, our strong performance through the first three quarters of the year underscores our consistency and strong execution. This is underpinned by the power of our brand and Ralph Lauren's multiple drivers of long-term sustainable growth and value creation. Ralph and I are proud of our team's continued agility execution, and productivity as we effectively navigate a dynamic global operating environment. Our focus on offense, agility, and pragmatism continues to inspire our approach moving forward. And I just want to take a moment to welcome our newest board member, Wei Zhang, former president of Alibaba Pictures and SVP of Alibaba Group, who joined us this quarter. Her leadership experience across international business development, focusing on China, entertainment, media, and corporate social responsibility make her a unique addition to our board. With that, I'll hand it over to Jane to discuss our financial results, and I'll join her at the end to answer your questions.