Ralph Lauren Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Fourth Quarter and Full Year Fiscal 2024 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 that call, please press star, then zero. As a reminder, this conference is being recorded. I'd now like to turn over the conference to our host, Ms. Karina Van Der Gans, please go ahead.

Good morning, and thank you for joining Ralph Lauren's fourth quarter and full year fiscal 2024 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, our financial performance will be discussed on a constant currency adjusted basis. Our reported results, including foreign currency, can be found in this morning's press release. We will also 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 will turn the call over to Patrice.

Thank you, Corey. Good morning, everyone, and thank you for joining today's call. As we close out year two of our Next Great Chapter Accelerate Plan, we are proud to have delivered strong progress once again on our core strategic and financial commitments. Supported by the incredible dedication and agility of our teams, this year's performance underscores both the strength and resilience of our multi-levered plan. In particular, we drove progress on, first, clearly increasing the desirability of our timeless brand, which is resonating with consumers of all ages, and enabling continued pricing power in the market. Second, leveraging the breadth and authenticity of our lifestyle portfolio of products. And third, continuing on our long-term strategic pivot toward direct-to-consumer channels, which now represent about two-thirds of our total business compared to 55% when I joined the company. This is where we can drive the best expression of our brand and own customer engagement while reducing our exposure to wholesale. All of this is underpinned by our key enablers and culture of operating disciplines, These are key differentiators behind our consistent execution, which enable us to fuel our strategic growth initiatives for the long term. We closed out fiscal year 24 with solid fourth quarter performance, including top line growth and operating margin expansion that exceeded our expectations. For the full year, we delivered 3% top line growth with 40 basis points of operating margin expansion. driving more than 20% adjusted EPS growth. Results were at the high end of the targets we laid out last May, even with unexpected macro headwinds across several of our key markets throughout the year. This year's performance also puts us firmly on track with our long-term financial commitments and demonstrates continued progress across our three strategic pillars. As a reminder, these include, 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 highlights from the fourth quarter and year. First, on our efforts to elevate and energize our lifestyle brand. Ralph Lauren is at the intersection of culture, spanning fashion, celebrity, sports, gaming, and music moments as we expand across geographies and demographics. And our team put our brand at the forefront of the conversation this year. From our iconic runway shows in New York City and Milan, to singles day activations in China, Fortnite gaming partnerships, and Taylor Swift on the cover of Time. This strong momentum continued through the fourth quarter. Key campaigns included, first, our sponsorship of the Australian Open Tennis Championship in January, which was officially the world's most attended Grand Slam of all times. Now in our fourth year, the tournament is quickly becoming one of the most iconic events of our sports calendar across social media, our on-court uniforms, and off-court spectator style. Our brand was featured on more than 700 celebrities and friends of the brand, including Korean pop sensation Crystal Young, Elle Macpherson, and comedian Celeste Barber. This enabled us to significantly extend our brand reach with over 400 million social media impressions globally. In March, we released the second capsule of our groundbreaking Polo Ralph Lauren Artist-in-Residence campaign. focused on empowering and celebrating artisans within the communities that have historically inspired our designs. Together, the first two capsules featuring Navajo designer Naomi Glasses generated more than 6 billion PR impressions, and the collaboration represented our second highest online search trend of the year. Our Lunar New Year activations across social platforms like Douyin and WeChat also generated another successful holiday event, with high single-digit sales growth significantly outpacing peers and double-digit growth in new customers in China. In the world of gaming, we want to congratulate Ralph Lauren-sponsored esports team T1 for winning the League of Legends World Championship this year, T1 became the most winning team in gaming history and drove important visibility for our brand as we continued to recruit new, younger consumers through exciting digital platforms. We also outfitted iconic celebrities, including Beyonce on her new Cowboy Carter album tour and Reba McEntire at the Super Bowl. Both were radiant in Western-inspired ensembles one of Ralph Lauren's signature design codes. And beyond the quarter, we continue to drive excitement across the worlds of fashion and sports, including our intimate Fall 24 Women's Collection fashion show here in New York City a few weeks ago, and the upcoming Olympic Games in Paris, where we are once again the official outfitter of Team USA, a cherished partnership since 2008. These activations are driving strong, sustainable growth in new customer acquisition and engagement. In fiscal 24, we added over 5 million new consumers to our DTC businesses, consistent with our long-term expectations. Our brand consideration, purchase intent, and especially our net promoter scores all increased to last year, led by next-generation under-35 consumers and women. And we grew our followers on social media by low double digits to last year to over 58 million, led by Instagram, Line, Douyin, and TikTok. Ralph pioneered a company of firsts. From our earliest forays into fashion-sponsored sports partnerships to our popular coffee shops and restaurants that drive viral social media engagement. And our teams will continue to drive brand heat and elevation by leading on next-gen platforms and leveraging our powerful new data science models to drive lifetime consumer value. Moving next to our second key initiative, drive the core and expand for more. As the market continues to demonstrate, consumers are turning to brands they know and trust and styles that live beyond one season. In addition to our powerful brand, Ralph Lauren has one of the most authentic, recognizable, and broad-based portfolios of lifestyle offerings in the world, one that resonates across our diverse customer base and sets us apart from other brands. And Ralph and our design teams continue to create and reimagine beautiful styles that capture the modern consumer's changing lifestyle through our unique lens. while also embodying the quality, craftsmanship, and sophistication that have come to define our brand. Our core products, which now represent more than 70% of our business, grew low single digits in the fourth quarter and high single digits for the full year ahead of total company growth. Performance in core was led by our cable knit, crew neck, and polo bear sweaters, transitional outerwear, iconic mesh polos, linen shirts and shirt jackets, and sophisticated casual sports coats. Our polo player chino caps, as seen on Kendall Jenner and Jennifer Lawrence, are also resonating strongly with existing customers while attracting new, next-gen customers as a trend-right entry point to the brand. As we continue to build on the long-term foundation of our core, we also delivered strong growth in our high potential categories, including women's, auto wear, and home. Together, these categories increased mid single digits in the fourth quarter and high single digits for the full year. This strong performance was driven by both auto wear and women's. Women's now comprises about 29% of total company sales, up 100 basis points to last year, and still represents our most significant long-term growth opportunity. Top sellers in women's this quarter included our iconic cable knit and polo bear sweaters, linen and seasonless chambray shirts, cable knit polos, lightweight outerwear, and shirt dresses. In addition, this fiscal year, we moved our directly operated furniture business to a highly experienced licensed partner, with proven success in luxury furniture design, production, and distribution. While we still see significant long-term growth opportunities for the category, this move will enable us to better serve our home customers and expand the category with elevated products and white glove service consistent with our brand. With the transition now complete, this will enable us to put even more emphasis on handbags, a directly operated business as our third high potential category. Other exciting releases this quarter included the successful launch of our newest fragrance, Polo 67, with a global campaign featuring New York Yankees captain Aaron Judge, and our Lunar New Year, Year of the Dragon capsule, celebrating prosperity and opportunity with both strong AUR and sell-through rates. Looking ahead, we will continue to drive our core icons while leveraging the breadth of our brand and assortments to fuel excitement and desirability. Turning to our third key initiative, win in key cities with our consumer ecosystem. Our key city ecosystems around the world are driving elevation and consistency across all of our consumer channels and touchpoints. Each of these ecosystems is anchored by direct-to-consumer channels, including our stores and digital commerce sites, where we offer our most elevated consumer experiences and engagement. During the year, we drove strong DTC comp growth while also expanding our connected ecosystems across key markets. Comps were up mid-single digits in both our brick-and-mortar stores and digital channels. Globally, we opened a total of 78 new stores and concessions, focused on our top cities, with the majority in Asia. This includes several iconic Ralph Lauren stores over the past year, notably new stores in Amsterdam, Singapore, Prague, and Charlotte, our first T-City ecosystem in Canada, including our first Toronto store, and the launch of our Canadian digital flagship, and our first Ralph's Coffee shops in Paris and Dubai. And we continue to develop and test new concepts, including our latest opening, a new women's polo store on Cat Street in Tokyo, which sits at the epicenter of Tokyo's street fashion culture. With more to come. By region, growth was led by Asia, consistent with our long-term plan. followed by better than expected performance in Europe and North America. China was once again a standout, with sales up low double digits this quarter over a more normalized post-COVID compare, and up 30% for the full year. Our China business has more than doubled versus pre-pandemic levels, now representing 7% of total company sales, with significant growth opportunities still to come. Our expansion remains disciplined as we largely focus on our key city clusters, supported by highly dynamic local marketing and digitally led ecosystem expansion to recruit new customers to the brand, an elevated assortment of high quality icons that align particularly well with the old money or quiet luxury aesthetic, and the strong continued execution of our local teams. And finally, touching on our enablers. Our business continued to be supported by our five key enablers. I'll share a few highlights from the quarter and year. First, as part of our focus on delivering best-in-class digital technology and analytics. Over the past several years, we have embedded a culture of operating discipline, including more rigorous inventory management. To further support this, we started testing our sophisticated predictive buying model in Asia and Europe stores this year. This AI-driven model enables better in-stock availability on sizing and best-selling products to drive incremental sales and improve conversion. Based on the pilot's early success, we plan to continue scaling its use to around 25% of our international DTC businesses in fiscal 25. And as we continue to embed citizenship and sustainability in everything we do, we were proud of the recognitions we received this year. In particular, being named one of Forbes' world's best employers in 2023, a top-rated ESG performer by Sustainalytics, and the best company for women to advance by Parity.org for the fourth consecutive year. In closing, Ralph's unwavering vision of authenticity and timeless style is resonating around the world, transcending fashion trends and generations. From the easy elegance of our runways to the incredible energy and thrill of sports partnerships, Ralph Lauren continues to define a luxury lifestyle that is uniquely our own. This year's performance keeps us firmly on the offense, delivering across our multiple drivers of growth with a plan that is not dependent on any single channel, geography, or category. All of this is supported by the dedication, passion, and agility of our teams, who are executing with excellence to bring our brand to life through our dynamic campaigns and consumer experiences in stores and online. And as we look to fiscal 25, we will continue to drive this brand momentum and consistently execute on our plan, all while investing in our key strategic priorities to deliver long-term sustainable growth and value creation. And before I hand it off to Jane to discuss our financial results, you will have seen from this morning's press release that we named Justin Picicci our new Chief Financial Officer. Jane will continue in the role of Chief Operating Officer through fiscal 25 while ensuring a seamless CFO transition. Ralph and I are incredibly grateful for her leadership and impact in the CFO position. helping to guide our company through significant transformation over the past seven years. And we look forward to continue partnering with Jane as COO. And we're excited to welcome Justin, who steps into the CFO role effective today and will join us on our next earnings call. With nearly 20 years at the company, Justin is an experienced leader who has worked closely with Jane and me and successfully served in a range of senior finance roles at Ralph Lauren around the world. Ralph, the board, Jane, and I have the utmost confidence in our ability to deliver together continued strong growth and value creation, building on the foundations we've established. With that, I'll hand it over to Jane, and I'll join her at the end to answer your questions.