Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Fourth Quarter Fiscal 2019 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. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Ms. Corinna Van der Ghinst. Please go ahead.

Good morning and thank you for joining Ralph Lauren's fourth quarter and full year fiscal 2019 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, Cory. Good morning, everyone and thank you for joining today's call. We're pleased to report fourth quarter and full year fiscal '19 results that delivered on our commitments with revenues, operating margin and double-digit EPS growth all coming in ahead of our outlook for both the quarter and the year. Our fourth quarter performance was driven by double-digit revenue growth in Asia and Europe on a constant currency basis and better-than-expected AUR growth globally. North America also made continued progress on returning to a healthier base with ongoing elevation of our brand and a planned reduction of our off-price channel penetration, though we recognize that we still have more work to do on this multiyear journey. On balance, our company outperformed on core metrics this year with several areas of our business delivering ahead of expectations and a few that require more work. Moving forward we're focused on leveraging the successes while also applying the learnings from this first year of our next great chapter strategic plan. As we close out fiscal '19, Ralph and I are proud of the work our teams have done this year. We're encouraged by the strong progress we've made on our strategic plan to deliver long-term, sustainable growth and value creation. In a moment, Jane will take you through the fourth quarter and fiscal '20 outlook, but first let me start by reviewing our fiscal '19 highlights across the five strategic priorities in our plan. As a reminder, these include first, win over a new generation of consumers. Second, energize core products and accelerate high potential underdeveloped categories. Third, drive targeted expansion in our regions and channels. Fourth, lead with digital across all activities and fifth, operate with discipline to show growth. Starting with over new generation of consumers, as we outlined…

Thank you, Patrice and good morning everyone. Our team's performance this quarter and throughout the year, returned our company to top line growth, while continuing to drive higher EURs, expand operating margin and return more cash to shareholders. It's a good start to our journey with a clear path on our work ahead. Fourth quarter revenues increased 1.2% in constant currency and were down 1.5% on a reported basis. Our international businesses delivered double-digit top line growth in constant currency, more than offsetting both the negative impact of the Easter shift into Q1 and our deliberate reduction in North America off-price sale. Adjusted gross margin expanded 30 basis points in the fourth quarter and 50 basis points in constant currency. Benefiting from reduced promotional activity and favorable product, geographic, and channel mix. Adjusted operating margin in the fourth quarter was 6.4%, up 80 basis points on a reported basis and a 110 basis points in constant currency. Adjusted operating profit dollars grew 12% to last year. SG&A expense declined to 53.8% of sales, down from 54.2% last year, as we lap the acceleration in marketing investments made in the second half of FY'18. Marketing spend declined 8% to last year in the fourth quarter but was up 13% on a full-year basis as we focused on winning over a new generation of consumers. Our dollar spending levels in the fourth quarter were roughly similar through the last three quarters of fiscal '19. We continue to make progress toward our long-term objective of increasing marketing to about 5% of sales, while also focusing on productivity to achieve our operating margin expansion goals. We closed the year with marketing at 4.3% of sale. Our teams are intensely focused on driving operating efficiencies across our business. Initiatives this year included consolidation of our…

[Operator Instructions] The first question comes from Ike Boruchow with Wells Fargo. You may ask your question.

Hi, good morning, everyone, and congrats on a great year. I guess, one -- first question for Patrice. As you reflect on the first year of the next great chapter plan. I guess my question is, how are you feeling about the long-term strategy one year-end? Maybe could you go on. Let us know, little bit more about where you think you've outperformed versus maybe underperformed versus prior expectations and any need to revise any of the information you gave us at the Analyst Day and then, a quick one follow-up for Jane. North America wholesale would love a little bit more detail on how to think about Q1 and the rest of the year, tying together the off-price pullback, spring fashion softness that you highlighted for 4Q. Just any other color on that channel would be great?

Hey, good morning, Ike. So I guess on the first part of your question. Overall, we are actually pleased with what we delivered in year one of our next great chapter plan. While there's of course always more work to do, we believe our strategy is working and our plan is on track. So as a result, we remain very comfortable with the five-year targets we laid out last June at Investor Day. To your point on wins and opportunities, let me just touch on a few on both sides. So in terms of the things that we -- key highlights in terms of performance, one is we returned to growth a year ahead of plan and more importantly, we actually achieved this with a continued focus on profitable, quality growth, right? And you can see that through the progress that we've made on AURs throughout the fiscal year of high-single digits and through the continued expansion in operating margins throughout the year as well. Second thing I would highlight is the fact that we've significantly increased our brand-building investment, with a strong focus on social and digital to really elevate the brand, energize the brand, and win over a new generation for our first strategy. The third area to highlight is, I think, terrific work by Ralph, the design team and the overall organization on strengthening our core product, which has been a very important driver of the top line improvement over the past year. And then fourth and final point in terms of highlights is the digital space and the expansion space. So we completed the digital platform upgrades for our flagships in North America and in Europe, we launched our flagship in China. Both Europe and North America businesses insected back to positive comps this year after…

Yes. Ike just on the -- on your question on North America Wholesale. You saw us come out of the year with our full price wholesale business down in the low single digits. As I think about the coming year, our focus is really to get back to stabilize that business really as Patrice called out focus on the wholesale.com business for growth. And as I think about the mix of full price and off-price to stabilize the full price, but off-price will continue to be down throughout the year on a more normalized flow basis, but you will see modest declines, modest to moderate declines, in the off-price business throughout the year, but on a more stable basis. Next question please.

Thank you. The next question comes from Matthew Boss with JPMorgan. You may ask your question.

Thanks. Maybe on the margin front. Could you just help outline the gross margin puts and takes this year relative to the 30 to 50 basis points annual expansion outlined in the five-year plan? And maybe just walk through some of the drivers behind the return to SG&A leverage this year?

As we look at the coming year in terms of gross margin, we expect about half of our operating margin leverage will come from gross profit. The drivers or our tailwinds are really pretty stable. The largest driver has been our pricing activity and our reductions in promotion. that will continue. What you'll see is a moderation of the benefit that we're seeing from channel mix, as our wholesale business will -- our focus is on stabilization and a moderation of the benefit of geographic mix, those are two will still remain tailwinds. But because North America, our expectation is stabilization and that performance, those benefits will start to moderate versus what you saw this year. Our headwinds that we see coming forward are that we will have some transactional pressure in our gross margin this year. Product cost that you saw as realized in the fourth quarter will continue notably into the first half. Some of those pressures and then we are taking a more cautious approach to inventory and so there will be some slight pressure from inventory actions that we're taking that will impact our overall COGS. As we look to SG&A overall, we have -- we are going to continue on our journey of cost discipline. We've had very good results from the cost leadership committee that we've established and we're continue to go against our indirect expenses. You've seen as it takes some significant distribution actions, consolidating our footprint, working on some of our automation within our distribution sites, consolidations of inventory, those will help from an SG&A's perspective. We're also consolidating our corporate headquarters, which will be a slight pressure points this year, but will be a leverage point into the future. And we're also leveraging more digital technology, leaning into digital design in our design teams, digital sample making. Those are the initiatives that are helping us get to SG&A leverage on top line growth of 2% to 3% in constant currency. Next question?

Thank you. The next question comes from of the Laurent Vasilescu with Macquarie. You may ask your question.

Good morning, and thanks for taking my question. Congrats Jane on your additional responsibilities.

Thank you, Laurent.

Jane, I believe you talked about 80 vendor and renegotiated contracts in the fourth quarter that drove a 14% reduction in addressable expenses. Can we parse out the dollar benefit in the fourth quarter and will these cost initiatives flow through for the balance of the quarters in FY '20?

The part of what I just talked about in terms of the cost leadership committee, those renegotiated expenses re -- contracts resulted in a 14% decrease in those contracts. But you will see that benefit and it's part of our SG&A leverage story as we move forward. And of course, we're not done. Those 80 contracts are just the beginning. We intend to review all of our contracts, obviously prioritizing the largest ones and the ones that are at expiry point first. But this is an ongoing effort for us.

Next question please?

Thank you. The next question comes from Michael Binetti with Credit Suisse. You may ask your question.

Hey guys, good morning. So thanks for taking our question, Jane let me ask you on the operating margin guidance for this year in U.S. dollars takes you pretty close to 12% next year. So very good progress obviously but if we think back to the Analyst Day when you gave us the range of mid-teens and if I just interpret that as 15% as one of those scenarios that would need about 100 basis points per year after this year to get to that range which is obviously an inflection in the margin improvement rate after this year, what you think is required in the business at this point to get to that scenario to see the operating margins accelerate in the out years?

So several things, one is continuing our journey on gross margin expansion which you'll see us do this year and which we successfully did last year and a big part of that is continuing the AUR journey that we’re on. This is an AUR led strategy and we've made good -- terrific progress on that really in FY 2019 with our AUR up 8%. So we have to continue that. We will also see accelerated leverage notably on SG&A which we called out in Investor Day as we continue to move through to top line growth and comp growth is an important part of that story. Another part of that story is also the new doors that we’re opening which have higher productivity and higher four-wall margins. So it does come online and stabilize, you'll see those be accretive overall to our operating margin expansion as well.

Next question, please.

And if I could just…

Sure.

Go ahead, Michael.

Sorry, so if I can ask a little bit more near-term on the gross margin outlook for how we should think about it for the first quarter given your fourth quarter, I think was a little bit below prior quarters. But obviously against a big, big comparison a year-ago and then you had some noise from I think an outsized off price pullback that I would have thought would have been a tailwind, I guess to gross margins in the fourth quarter, I’m just trying to take the puts and takes we have in the fourth quarter and roll it forward to how you're thinking about first quarter?

So as we think about first quarter, first of all we had a fantastic quarter in AUR growth this quarter. As we think about our guidance moving forward, we don't think it's prudent in this environment to guide to the kind of AUR growth of 8% roughly that we achieved this year into the future. So our AUR growth is more moderated and in line with the Investor Day guidance that we gave of low to mid single digit growth. So that's one factor. And then the other factor is in the first half, we do have more product cost pressures that you saw come into line in the fourth quarter, move into the first and second quarters in terms of gross margin expansion.

Next question, please.

Thank you. The next question comes from Kate Fitzsimons with RBC Capital Markets. You may ask your question.

Yes, hi. Good morning. I guess my question would be going back to the Investor Day, you guys spoke to $500 million in incremental digital sales seems like that business took a step back in here at the fourth quarter. But sounds like maybe that was due in part to the Easter shift. Can you just talk about some of the drivers into fiscal 2020 on digital and how we should think about the trajectory of that business going forward? Thank you.

Sure, sure. Good morning, Kate. Listen, the general direction has not changed which is we expect low double-digit growth from our digital commerce business year-on-year to get to the target that you mentioned. And again digital commerce for us is our own site. Its wholesale.com, it’s pure players and that is social commerce and we're seeing social commerce obviously accelerate. As you look at our performance this past quarter, optically, it may look like a slowdown, but actually, it is not a slowdown, this is completely consistent with our expectations. The Easter shift in North America is really the explanation between the 6% comp we delivered and the high single digit number that we look to deliver quarter-to-quarter, we estimate again the Easter shift is worth about 300 basis points. So very consistent with what we expected, very consistent with our run rate. There are a few things that we actually drove this quarter which should help sustain this type of performance in the area of functionality for our site that may be worth calling out here, relative to search suggestions, our checkout process we're driving greater availability of personalization across a broader range of products and we're also implementing or we have implemented Apple Pay and PayPal Express payment methods to the U.S. side and we're going to continue to raise the bar on functionality, on product and on brand building. So I think you should expect continued performance around high single digits from a North America site. And then in Europe, Europe is also in line with expectations. We're actually particularly pleased with the contributions of our Spanish sites. First time, we have a Spanish language site which launched a few months ago and so Europe is on a mid single digit trajectory. That's what we delivered in Q4, that's what we expect to deliver moving forward as well. And likewise here, we've also made a number of improvements to our site whether that's enhanced paper click, optimizing our search engine and then also localizing our sites in Italy and Greece and Netherlands and in Poland to make sure that whatever we offer really resonates with the local consumer. Then finishing the global tour, Asia is a very small business as far as our own site is concerned. So not material here but we were pleased with the results that came through. So all in all, looking ahead we’re still very much in line with what we called out for the $0.5 billion of digital commerce progress over the next few years and Q4 came in consistently with our expectations and we expect to drive this in fiscal year 2020 as well.

And I would just add Kate for a comment that in Q4, we saw the highest AUR growth across our digital, our own digital e-commerce platforms that we saw throughout the year. So consistent with what Patrice shared on Easter but very positive in terms of AUR growth.

Next question?

The next question comes from Omar Saad with Evercore ISI. You may ask your question.

Thanks for taking my question. Nice job this quarter. I wanted to ask a little bit more about the shared inventory. Maybe give us more details on what’s really coming online there, how it works, how the consumer will experience the benefits of shared inventory, what's the opportunity to the extent you have an idea and then maybe also if you could give a little bit more detail on your comments. Patrice on Lauren and Polo fashion, what needs to be done there? Thanks.

So shared inventory, from a consumer perspective it’s a benefit to the consumer because we will have less out of stocks, we'll have better management of our inventory and more fluidity to be able to service our e-commerce customers and flow to the stores from a larger stock of inventory. So that's the net benefit to the consumer, for us the benefit is also that we can prioritize inventory to the highest price selling, so we'll realize more full price selling. We're bringing all the inventory into our one distribution center that is serviced by an automatic -- automated sorter, so we are getting some fulfillment benefits from the leverage of that automation. So that's a benefit for us. And it also reduces pick times because we have shared pick pools, we can reduce the transit time as we go into picks and that's also a labor benefit for us. So we're quite encouraged with about it. The number one advantage is for the consumer but we also think that there are both operational savings and pricing advantages from shared inventory. We are early in our journey, we went live in Q4, we're happy with the start but we expect that to pick up steam as we move through the year.

And then on the product points Omar, let me start with Lauren. So Lauren what we're talking about, what we talked about in the prepared remarks is really Lauren Women's business actually our Men's business is doing well and that's the combination on the women's side of sportswear, dresses and accessories. And why we're seeing good performance around the world, we are seeing softness specifically driven by our North America wholesale business. Though as we kind of look at where the brand stands today, we actually feel good about the Lauren positioning and aesthetic, right? We believe that that can actually resonate with consumers. The key causes of the Lauren challenges that we're seeing are first on the product front, we need to focus more on the core categories that the Lauren brand is known for and that our consumers care about and expect. So that means greater focus on knits, greater focus on denim, athleisure and dresses. There's a category choice here that that we need to pivot on. And then the second point is that we need to strike a better balance between core and fashion and our assessment is we've probably skewed too much towards fashion in recent seasons and need to rebalance that. And then on the distribution front as you know Lauren is primarily in the U.S. a department store brand. And so we're focused on improving Lauren in this channel. We want to gain share, the definition of success for us is gaining share there. And part of the work we're doing is also elevating the brand presentation, investing in our shopping shops. So that we can create a more engaging and energizing environment. And then again getting the product balance right in those environments. So what are we doing about? First of all,…

Last question please?

Thank you. The last question comes from Paul Lejuez with Citigroup. You may ask your question.

Hey thanks. I just want to have a quick follow-up on your AUR comments, I'm curious if you could provide any color in terms of what you expect by region this upcoming year from an AUR perspective and then just second you mentioned, I think the decline in the tourist traffic might have had an impact on your retail business. I'm just curious if you were happy with how that business is trending with little local customers, how you feel about the outlet business just in general? Thank you.

Sure, why don't I take those three components in order and just in terms of AUR, we don't guide necessarily by region, so we don't guide AUR by regions. But I can tell you that we saw over delivery in terms of expectation in both Asia and Europe. That was meaningfully a part of the over delivery that we had for the year in terms of AUR growth. We expect that over the course of this year that they will be more in line with our mid single digit AUR growth guidance that we gave for the long-term and that really is one of the biggest changes we have from FY 2019 going into FY 2020. We think that's prudent. We have a lot of confidence in our ability to drive AUR. We’re certainly going to lean into it but we don't think it's prudent right now given the current environment to guide to a much higher AUR growth above our long-term guidance. On the foreign tourists side, we saw that in foreign tourism it was distinctly different. As you can imagine in North America and in Europe, in North America we saw foreign tourist traffic down 5%, last year at this time it was up 7%. It's been quite choppy through the year and it's been hovering around flat. Last quarter we saw it up 2% and ended the year about down 1%. It really flows that we see the biggest driver is foreign currency. So with the strengthening of the dollar, if that outcome was not surprising. In Europe, we saw foreign traffic up 8%. We do believe that that benefited our outlet comp in addition to the investments that we made to get back into inventory and the breadth of supply, we're very happy with the results…

Good, well listen thank you everyone for joining our call today. As I think you've probably heard, we're encouraged by our progress on our results as we continue to elevate the iconic business Ralph and our teams have built over 50 years as we continue to strengthen our connections to consumers around the world. We've got clear strength and momentum that we want to build on. We also have opportunities that we need to go and address that we're all focused on and we look forward to sharing our first quarter fiscal 2020 results with you in late July. Thanks and have a great day.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.