Ralph Lauren Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren fourth quarter fiscal year 2026 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 the conference over to our host, Ms. Karina Bandigan. Please go ahead. Good morning. Thank you for joining Ralph Lauren's fourth quarter and year-end fiscal 2026 conference call. With me today are Patrice Louvet, the company's president and chief executive officer, and Justin DiCicci, 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 reflect on this past year, our teams around the world executed with excellence and agility to deliver a strong first year of our Next Great Chapter Drive strategic plan. We drove broad-based performance across our lifestyle categories, geographies, and channels, all while continuing our long-term journey of elevating our positioning in the marketplace. And to our customers around the world who are engaging with Ralph Lauren like never before, we want to thank you for stepping into our world and for your enduring loyalty. From your TikTok posts that feature your interpretation of a Ralph Lauren Christmas, a classic quarter zip, or Team USA gear, to all of you who have waited patiently for a cup of Ralph's coffee. We're inspired by the ways in which you're interpreting Ralph's vision and have made us a part of your everyday lives. Our consumers' passion and unique loyalty are a testament to the power of our iconic brand and our ability to connect authentically across generations and cultures. And these deep connections are translating into healthy, consistent, sustainable growth and value creation across our business. In the first year of our drive plan, both our top and bottom line results exceeded expectations, supported by our diversified drivers of growth and our strongest quality of sales to date. Our reported full-year revenues surpassed $8 billion for the first time, driven by growth across our retail and wholesale channels in every region. Operating margins exceeded our expectations, reflecting gross margin expansion more than offsetting the meaningful impact of tariffs and disciplined expense leverage with our cost savings used to fuel investments in our long-term strategic priorities. From our rolling thunder of brand activations to new AI capabilities and expanding our key city ecosystems. This established model of balancing operating discipline and agility with investments in long-term growth gives us the confidence to continue expanding margins, including over the remainder of our plan and longer term. And we achieved all of this while accelerating returns to shareholders, including taking up our dividend once again this year. Let me take you through a few recent highlights across the three strategic pillars of our plan. 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. Starting with our efforts to elevate and energize our lifestyle brand, we are engaging with consumers in more powerful ways than ever before. Cutting through cultural moments via sports, entertainment, and style. Our advanced data and analytics are delivering brand activation insights that give us the confidence to further increase our marketing investments to support long-term sustainable growth. Key highlights from the fourth quarter included, first, we reinforced our leadership in the world of sports. As the official outfitter of Team USA since 2008, we were proud to once again participate in the world's biggest stage in sports. at the 2026 Milan Cortina Olympics and Paralympics. The spirit of the Games and the athletes' passion and pursuit of greatness is authentically connected to our brand values. We activated around the world and across the Games with celebrities and friends of the brand, including Usher, Sean White, Maggie Rogers, Snoop Dogg, and Taylor Swift, who kicked off the opening ceremony broadcast wearing our Team USA polo bear tee. Our Olympics activations supported our new customer acquisition and elevation strategies, as we achieved the number one share of voice across social media, and drove further increases in luxury perception, brand relevance, and consideration. We also invited consumers to step into Ralph's vision of timeless style through our women's collection runway show in New York City, our women's polo presentation in Paris, and our first menswear show in Milan in more than 20 years. Each of these events showcased the effortless elegance of our brand, seamlessly blending heritage with modern sensibilities. And in Asia and around the world, We welcome the Year of the Horse with a series of exciting Lunar New Year activations designed to deepen our connection with consumers. From our digital red envelopes on WeChat to our spectacular drone show in Shenzhen, a stunning dynamic constellation that combined our brand's heritage and spirit of optimism with a rich cultural symbolism. Around the world, these activations are driving strong, sustainable growth in new customer acquisition and retention. In the fourth quarter, we added 1.4 million new customers to our DTC businesses, a low double-digit increase to last year, led by digital and Ralph Lauren stores. We were encouraged by our continued momentum in building brand equity this year, including increased luxury and value perception scores, and our ongoing recruitment of women, luxury, and younger customers. And we increased our social media followers by high single digits to approximately 70 million, led by Instagram, Line, and Douyin. Looking ahead, we remain focused on building brand desirability as we inspire people to step into their dream of a better life. Moving to our second key initiative, drive the core and expand for more. Ralph and our creative teams continue to bring his cinematic vision to life with our commitment to quality and timeless signature styling. Capturing the easy elegance of a life well lived. It's not about chasing fashion cycles or trends. This philosophy shapes how we drive our core products as well as our high potential and complementary lifestyle categories. enabling us to deliver our unique form of inclusive luxury. Starting with our core, which represents more than 70% of our business, core product sales grew mid-teens, both for the quarter and full year. Recent highlights include a diverse range of sweaters, linen and rugby shirts, while our seasonal Bayport cotton windbreakers Chino and RL67 tweed jackets led the transition into spring. We also introduced our coastal, Maine-inspired children's collection, delivering double-digit performance led by our core cable knit, flag, and pullover sweaters, and down jackets in Q4. Our high-potential categories, including women's apparel, outerwear, and handbags, continue to be accelerators for our business. Together, these categories increased more than 20% for both the quarter and full year, outpacing total company growth. In women's, we drove outsized performance across multiple categories, from our core cable knit and jersey sweaters to lightweight outerwear and colorful linen shirts. Meanwhile, playful iterations of fleece sweatshirts and hoodies are appealing to next-generation consumers. and our oversized windbreaker was the highlight of our polo fashion presentation in Paris. Our spring handbag campaigns focused on our foundational polo play collection, featuring bright tops of color, stripes, and seasonal new textures. We also unveiled our newest foundational handbag family at Paris Fashion Week, the saddle-inspired polo blaze, which we are excited to launch this fall. Special releases this quarter included our Major League Baseball capsule, featuring an exclusive release in Japan, ahead of the World Baseball Classic, and our Team USA collection for the Winter Olympics, reflecting the sophisticated style and bold energy of the games. Moving into Fiscal 27, we will continue to leverage the unparalleled breadth of our lifestyle product offerings. both connecting with consumers around the world while driving resilience in our business. Turning to our third key initiative, winning key cities with our consumer ecosystem. From the rich backdrop of our Palazzo in Milan during Salone del Mobile, to our holiday chalet in Sloan Square, and the cozy elegance of a dinner at the Polo Bar in New York, our teams continue to raise the bar for innovative consumer lifestyle experiences. Through our timeless storytelling, we are bringing Ralph Lauren to life in our top 30 cities around the world while also laying the groundwork for long-term growth in our next 20 cities. Within DTC, which comprises the majority of our business, we delivered another quarter of healthy comp growth across regions. Global comps increased high teens on top of 13% growth last year. led by our Ralph Lauren stores and digital commerce. By region, Asia once again led our growth, with sales up nearly 30%, driven by all key markets. China's sales accelerated to more than 50% growth as we continued to drive our brand desirability and engagement. Our China performance was supported by an exceptionally strong Lunar New Year, along with further expansion across our top six city clusters and on Douyin. Europe also delivered high-quality results this quarter on top of last year's strong compares. And we're encouraged by the momentum in our largest region, North America, led by mid-teens retail comps. As we continue to deepen our presence in our top cities, we opened 108 new owned and partner stores globally this year, New store highlights included our new emblematic store at Chengdu IFC Mall in China, along with new stores in Vancouver, London, Munich, New Delhi, Sydney, and more. We also purchased our iconic store locations in New York City's Soho and on Boston's Newberry Street this year to reinforce our long-term presence in these key U.S. markets. And finally, touching on our enablers. our business continues to be supported by our five key enablers. Recent highlights include, first, as part of our focus on advanced technology, AI, and analytics, we made significant progress in enhancing our creativity, productivity, and customer engagement. We accelerated the iteration of core icons in the design process. successfully integrated automation to support teams in our global distribution centers, and enabled brand discovery across agentic search and commerce. In addition, we were proud to be named one of Fast Company's most innovative companies of 2026, recognizing the exciting innovations across our business. from the design and storytelling efforts behind our Polo Ralph Lauren for Oak Gloves collection, to how we are leveraging AI to bring our iconic styling to our consumers' fingertips with Ask Ralph and more. And as we focus on enabling resilient partners and communities, this quarter, we announced our expanding partnership with the Council of Fashion Designers of America, CFDA, to provide financial support for American manufacturers who play a critical role in our global sourcing approach. And finally, we are proud to have endowed the Ralph Lauren Corporate Foundation with a $26 million contribution to support the Foundation mission, including its work across cancer care in communities around the U.S. In closing, Ralph and I are exceptionally proud of our team's progress. And on behalf of Ralph and our leaders, I want to thank you, team, for your excellent execution through this first year of our Next Great Chapter drive plan. We met or surpassed each of our financial commitments and key consumer metrics, while also continuing to invest back into our strategic growth priorities, laying the groundwork for healthy, sustainable long-term growth and value creation well into the future. While we are in touch with the dynamic global operating environment, we remain on offense, focused on what differentiates Ralph Lauren and our ability to create value through our diverse growth drivers, including our powerful brand, our iconic core with acceleration in our high potential categories, and significant geographic expansion opportunities with a focused approach on our top cities. all enabled by our talented team's proven ability to execute. With that, I'll hand it over to Justin, and I'll join him at the end to answer your questions.

Thanks, Patrice, and good morning, everyone. We delivered strong financial performance and made meaningful progress on our next great chapter drive strategy in fiscal 26. We exceeded the expectations we laid out last May with healthy revenue growth across every region and channel. underscoring the strength of our diversified growth drivers and further elevation of our brand, products, experiences, and environments. Gross margin also outperformed our outlook, supported by our compelling value proposition and pricing power, which enabled further improvements in quality of sales, more than offsetting meaningful headwinds from tariffs as we progressed through the year. And each region contributed to operating margin expansion this year, as discipline expense management enabled reinvestment in our key strategic priorities, supporting sustainable growth and long-term value creation. This strong performance is underpinned by our key enablers, including our talented teams around the world, our advanced analytics and technology capabilities, and our Fortress balance sheet. Let me walk you through our financial highlights from the fourth quarter, which, as a reminder, are provided on a constant currency basis. Total company fourth quarter revenue grew 12% ahead of our mid-single-digit outlook, driven by better-than-expected performance in both our direct-to-consumer and wholesale channels. By region, Asia once again led our performance, increasing 28%, followed by North America up 8% and Europe up 6%. Total company retail comps increased 17%. accelerating from the prior quarter, with double-digit growth in both our own digital and brick-and-mortar channels. Total digital ecosystem sales, including our own sites and wholesale digital accounts, grew at a mid-teens rate, reflecting broad-based growth across all regions. Total company adjusted gross margin expanded 40 basis points to 69%, compared to our expectation of roughly 100 basis points of contraction this quarter. The expansion was primarily driven by stronger than expected AUR growth and favorable channel mix, which more than offset the planned step up in U.S. tariffs to peak levels, as well as modest headwinds from higher labor and non-cotton material costs. AUR increased 16% in the fourth quarter, with approximately half of the growth driven by stronger full-price selling, reduced discounting, and modest targeted pricing, and the remaining half attributable to favorable product, channel, and geographic mix. Looking ahead, AUR growth remains durable, and we expect continued, albeit more normalized, mid-single-digit growth in fiscal 27, on top of last year's 15% increase. And in the first quarter, we expect high single-digit AUR growth, with contributions from all regions. We expect this continued AUR growth to more than offset modest pressure from higher freight due to the recent increase in energy costs. Adjusted operating expenses increased 14% or 90 basis points as a percentage of sales compared to last year. As higher marketing investments more than offset 60 basis points of leverage in non-marketing expenses. Marketing was 8.1% of fourth quarter sales compared to 6.6% last year. reflecting increased investment to support key campaigns, including the Winter Olympics and our fashion presentations in Milan, New York City, and Paris, and to drive brand momentum into fiscal 27. For the full year, marketing spend increased 21%, reaching 7.9% of sales, aligned with our outlook of 7.5% to 8% this year. With strong multi-year progress in new customer acquisition and healthy consumer metrics, we plan to continue growing our marketing investments above the rate of revenue growth to around 8% of sales in fiscal 27. Fourth quarter adjusted operating margin contracted 60 basis points to 9.7%, while four-year operating margin expanded 140 basis points to 15.4% in constant currency, ahead of our plan. Turning to segment performance. and starting with North America, our largest region, which is firmly on a growth trajectory. Fourth quarter revenue grew 8%, exceeding both our outlook and our next-grade chapter drive plan targets, driven by 14% growth in our direct-to-consumer business. In North America retail, fourth quarter comps were up 16%, led by our full-price channels. Digital comps increased 21%, supported by merchandising enhancements and full-funnel marketing activations, notably around Team USA. North America wholesale revenue was flat and ahead of plan, as stronger replenishment orders and full-price selling offset a strategic reduction in off-price sales and further rationalization of lower-tier wholesale doors. While sellout trends across the broader North America wholesale channel remain healthy, we continue to plan for modest growth in fiscal 27 in the context of a dynamic macro environment and given the potential for further industry consolidation. We also expect performance to be weighted towards the first half of the fiscal year, reflecting the timing of shipments. Turning to Europe. Fourth quarter revenue increased 6%, with balanced growth across both our direct-to-consumer and wholesale businesses. By market, Germany, the UK, Italy, and Spain led our regional performance. Europe retail comps were up 5%, on top of an extremely strong 18% compare last year, led by our own digital business. Year of wholesale increased 7%, driven by better-than-expected reorders and healthy sellout trends, exceeding our long-term outlook. Looking ahead, we expect a more normalized level of wholesale growth in fiscal 27, notably as we lap strong double-digit compares in the prior year, with the strongest growth expected in the first quarter. We also anticipate modest headwinds to our EMEA business more broadly, due to disruptions in the Middle East, which represents a low single-digit percentage of our mere revenue, as well as softer inbound tourism into Europe. Moving to Asia, fourth quarter revenue increased 28% ahead of plan, with all markets contributing to growth for both the quarter and the full year. Retail comps grew 25%, with strong double-digit growth in each channel. We continue to build top-of-funnel brand awareness and purchase intent across the region through high-impact marketing activations, with more to come in fiscal 27 as we celebrate our 50th anniversary in Japan. China once again led our regional growth, with sales up more than 50% in the quarter, supported by exceptionally strong Lunar New Year performance, along with healthy comps and high-quality new customer acquisitions. Asia digital ecosystem sales increased double digits in the fourth quarter. We continue to expand our elevated presence across Chinese social platforms while scaling our own digital sites in China, Japan, and Korea. Moving to the balance sheet. Our strong balance sheet and cash flow generation remain key enablers as we execute our strategic plan and deliver value to shareholders in a dynamic operating environment. We ended the period with 2.1 billion in cash and short-term investments and 1.2 billion in total debt. During fiscal 26, we generated approximately 750 million in free cash flow and returned more than 700 million to shareholders through dividends and repurchases. Our board of directors recently approved a 10% increase in our annual dividend, reflecting our continued commitment to strong shareholder returns while reinvesting in our business to drive high quality growth and compelling returns on invested capital. Fourth quarter net inventory increased 5% in constant currency, with a healthy composition of current product in each region aligned with our future revenue growth outlook. Looking ahead. Our initial outlook for fiscal 27 is based on our best assessment of the current operating environment, including the geopolitical backdrop, foreign currency dynamics, and broader macroeconomic trends. Our guidance does not currently assume any potential impact from tariff refunds. Based on ongoing volatility in the environment, this outlook is subject to change as macro conditions evolve. Our fiscal 27 outlook is aligned with our next great chapter drive targets. We expect full-year constant currency revenue to increase mid-single digits to last year on a 52-week comparable basis, centered around 4% to 5%. Fiscal 27 includes a 53rd week, which is expected to add approximately one point to revenue growth. While our core consumer has remained resilient exiting fiscal 26 and into the start of fiscal 27, our outlook reflects prudence around consumer demand, as well as modest cost pressure related to recent energy price volatility. Similar to last year, however, if the consumer is stronger than anticipated, we have built the capabilities to capture additional demand, supported by our proven supply chain agility, as well as the strength and high penetration of our core and replenishment products, which continue to resonate with consumers across our markets. By region for fiscal 27, we expect North America revenue to grow approximately low single digits, aligned with our long-term targets. with continued momentum in our direct-to-consumer business and healthy wholesale sell-through, partly offset by ongoing strategic investments in quality of sales and lower-tier door exits. We expect Europe revenue to increase approximately low to mid-single digits. reflecting solid underlying growth balanced with a measured approach to the consumer backdrop and near-term macro pressures, including elevated energy costs and disruption to Middle East partner sales and tourism, as well as lapping strong fiscal 26 comparison. And we expect Asia revenue to increase approximately high single digits, driven by our strong brand momentum and expansion opportunities across key markets. We expect China to grow approximately mid-teens this year, slightly ahead of our next great chapter drive targets, and as we lap outsized growth of 40% in the prior year. We currently expect full-year operating margin to expand in the range of 40 to 60 basis points in constant currency. With modest gross margin expansion and operating expense leverage, more than upsetting our continued brand investments, including ongoing quality of sales initiatives, strategic door exits, and further distribution optimization. The 53rd week is expected to have a slight benefit on operating margin for the full fiscal year. Foreign currency is expected to have a relatively neutral impact on both revenue and gross and operating margins in fiscal 27. Gross and operating margin expansion are expected to be relatively stronger in the first half of the fiscal year, largely due to the benefit of a lower prevailing tariff rate of 10% for most of the period, following the US Supreme Court's ruling earlier this year. Our outlook currently includes a sequential increase in tariff headwinds in the second half of fiscal 27, which assumes that rates rise above the current 10% level following the expiration of the tariff relief window. Nevertheless, we expect second half gross margins to be in line with our drive target of modest expansion year over year. For the first quarter, we expect constant currency revenue to increase approximately mid to high single digits. We expect operating margin to expand approximately 80 to 120 basis points in constant currency, led by gross margin expansion. Gross margin is expected to benefit from AUR growth as well as product, geographic, and channel mix, more than offsetting the modest impact of increased tariff costs versus the prior year. Higher marketing in the quarter is expected to be fully offset by leverage of non-marketing operating expenses. Foreign currency is anticipated to have a relatively neutral impact on revenue and gross and operating margins in the quarter. We expect our first quarter tax rate to be in the range of 22% to 23%. and a full-year fiscal 27 tax rate of approximately 21% to 22%. Capital expenditures are expected to be in the range of approximately 4% to 5% of sales, in line with our long-term outlook. This includes traditional capital investments, such as new stores, renovations, and digital commerce capabilities, as well as our ongoing multi-year next-generation transformation initiative. In addition, we will continue to invest in priority areas to advance our AI capabilities and scale cloud-enabled technologies that support our long-term growth and operating model. In closing, our next great chapter drive plan is progressing well, supported by our diversified growth drivers globally and the excellent execution and agility of our teams. With top line and AUR growth, as well as gross and operating margin expansion all exceeding our expectations and more than offsetting the impact of tariffs and higher energy costs, we are delivering strong returns. At the same time, we are advancing our elevation journey, improving the quality of our sales and optimizing our distribution to enhance our product and brand experience for consumers. Together, these actions further strengthen our foundation and position us well to drive healthy, consistent, and sustainable growth, reinforcing our confidence to continue investing behind our business both now and over the long term. With that, let's open up the call for your questions.