Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren First Quarter Fiscal 2020 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 over the conference to our host, Ms. Corinna Van der Ghinst. Please go ahead.

Good morning and thank you for joining Ralph Lauren's first quarter fiscal 2020 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 Cori. Good morning everyone and thank you for joining today's call. We delivered first quarter results in line with our overall expectations including better than expected operating margin and double-digit EPS growth. Our performance this quarter was driven by strong continued momentum in our international markets both Europe and Asia and expense discipline across the organization. At the same time we continued to invest in elevating our brands and stabilize our North America business against a more volatile backdrop. As we indicated at the start of this fiscal year we are monitoring the global retail environment closely particularly around trade and macro conditions. Our teams remain intensely focused on managing through potential industry headwinds and executing on our strategic plan to deliver long-term sustainable growth and value creation. The three principles underlying this work include putting the consumer at the center of everything we do, elevating the brand, and balancing growth and productivity. During the first quarter we continue to drive our performance against the five strategic priorities that we laid out as part of our five year plan. These include first, win over new generation of consumers; second, energized core products and accelerate high potential underdeveloped categories; third, drive targeted expansion in our regions and channels; four, lead with digital across all activities; and fifth, operate with discipline to fuel growth. Starting with win over a new generation of consumers. In the first quarter we increased marketing investments by 19% to last year. We continued to shift our spend to channels that matter most to consumers today namely digital and social. Our key marketing initiatives this quarter centered around our Earth Polo launch, our new family campaign, and key sporting events that have cultural resonance and global appeal. In April we launched our Earth Polo made entirely…

Thank you Patrice and good morning everyone. Our first quarter financial results were in line with our expectations led by ongoing strength in Europe and Asia and growth in North America despite a more volatile retail backdrop. Globally our teams delivered solid top and bottom line results including operating margin expansion and double-digit EPS growth and we made progress against several of our key strategic initiatives globally. First quarter revenues increased 5% in constant currency and 3% on a reported basis. Our international business which represents about 45% of our sales delivered 7% top line growth in constant currency while North America delivered growth of 3%. Adjusted gross margin was up 10 basis points in the first quarter on a reported basis and flat in constant currency slightly better than our expectation of flat to down in the first half. Gross margins benefited from favorable product, geographic and channel mix largely offset by increased promotional activity in North America. Total company retail comps grew 2% in the quarter, AURs were up 1% with low single-digit growth in international. This was partially offset by a 1% decline in North America AUR due to increased promotional activity in our bricks and mortar channels to move through excess seasonal fashion inventory from spring. Looking ahead we still expect to drive AUR over the next three quarters consistent with our guidance of low to mid single-digit growth for fiscal 2020 and longer-term. AUR growth this year will be driven primarily in Europe and Asia by our ongoing strategy to elevate the brand, improve pricing and promotions, and accelerate product mix shifts such as an increased penetration of fleece and outerwear. We also expect positive albeit more moderate levels of AUR growth in North America as we one, rebalance assortments across core, seasonal core, and…

[Operator Instructions]. The first question comes from Michael Binetti with Credit Suisse. Your line is open.

Hey guys, good morning Jane and Patrice, thanks for all the -- a lot of detail there.

Good morning Michael.

Hey guys, so if I tried some of the quarter looks like North America is still a little sluggish but your international business is very, very strong. Your reiterated guidance I would like to assume has taken into account better international trends. What gives you confidence your international regions will be able to carry the top line especially if North America backdrop remains sluggish like you said and then I had a quick follow-up if I could?

Good, let me answer that one first and we will do your follow up later.

Sure.

Okay, well listen good morning. We are indeed pleased with our continued momentum both in Europe and Asia. If you kind of step back and look what the key drivers were for the performance there, they really center around the work our teams have done on brand, product, and distribution, alright. So let's actually start with product. Our product is actually resonating well with the Asian and European consumers and our team has done a very good job balancing our offering between core, seasonal core, and seasonal fashion across all the channels as well as and this is important as we think through AUR plans as well as mixing into higher AUR categories like outerwear or fleece. On the brand front it is actually I find really inspiring to see the work that our teams are doing to elevate the brand and connect with our target consumers whether that's an existing consumer group or the new generation that we want to bring into the family. That's probably most visible in the recent highly impactful activation that the teams have done around Wimbledon in Europe and actually in parts of Asia as well and the unique connections that we've built with the key celebrities and influencers in China for example. And then on the distribution front our teams are elevating our presence in existing quality distribution points while expanding both online and you heard a few examples through our prepared remarks and in full price stores leveraging our new Polo boutique formats both in Europe and in Asia. And all of that is translating into what we are working to build in key cities which is this consumer centric eco system which means the consumer wherever he or she wants to shop. So those are I would say three key drivers…

Sure, thanks for the detail. If I could just ask Jane back to your comments on AUR details that you gave, still positive globally but negative one in North America. You said you cleared some product, can you talk about the guidance, you signaled slight -- it seems like you're signaling a slight reacceleration of low to mid single-digits for the remainder of the year. In particular you mentioned some targeted price increases in North America. We haven't heard that from you in a while. Can you talk about where you see opportunity and maybe help us reconcile that with some of the ongoing expectations to stay competitive on the promotional backdrop in the North America industry?

Sure, well as we look at pricing Michael we really see opportunities that we've called out in the past. So we continue to work on sharper promotion, we are continuing to move into better product and category mix, and a better balance of our merchandising assortment which is going to be favorable to pricing as we move forward. And then as you noted we called out that we have done competitive benchmarking and looked at select opportunities to take to get pricing in targeted and select areas. It is a part of our overall pricing approach and will really start to play out for us in the second half. But we've incorporated that into our guidance, we expect that our AUR journey will improve as we move into the second half while being cognizant that in North America with our efforts especially in the second quarter to move through some of our spring products, there will be a little more pressure on that AUR growth although we do expect overall AUR growth to improve more moderately in North America.

Okay, very, very helpful. Thanks again for all the details.

Thank you. Our next question comes from Matthew Boss with J.P. Morgan. Your line is open.

Thanks, a nice quarter in a tough backdrop.

Thanks Matt.

Maybe Patrice on the North American Apparel landscape both at wholesale and your own retail, I guess what exactly have you seen change versus maybe three or six months ago and I guess in light of that any changes specifically in your strategy necessarily to navigate the underlying reaching at cross currents [ph]?.

Sure, so listen as we look at the overall picture actually the U.S. consumer remains relatively healthy, right, in our space. But we have taken a slightly more cautious view of the retail environment for the year ahead. We continue to clearly see challenges with brick and mortar traffic like both full price and outlets including foreign tourist volatility. And our focus now is really to make sure we offset this through higher conversion and accelerated efforts in marketing across channels in North America. Probably three things I would call out here, the first one is taking steps to mitigate the brick and mortar traffic and the promotional headwinds, right. So if you look at the factory channel in particular we have a number of interventions underway. One is making sure we've got the right product mix and improving our offering across all the price points including elevated products as well as having the right entry price points. Two is working on our store marketing and particularly the window signage which is very important for this business. And then also working on marketing outside of the center to bring people into the center. So we're partnering with the landlords and leveraging all their platform probably more than we've ever done to really activate traffic and bring traffic into the center. And then we were also raising the bar in terms of quality and targeting of our e-mail marketing. We have a very strong database that we can leverage and we're getting a lot more precise in terms of the messaging for the specific target group. So the combination of those factors we believe will lead to an improvement. And then you heard Jane talk about targeted price increases as well, right, where we believe we have largely driven by what…

Great, and then maybe just a follow up Jane, help us to think about the components of the North American comp maybe between e-commerce and brick and mortar, if we were thinking about the second quarter versus the back half of the year?

Yeah I think on North America comp I think we're seeing that there will be some pressure on the digital compass we move through the year from these international flows that we called out in this quarter. But in the second half we believe that on digital some of the investments that we're making in personalization and driving better mobile conversion will start -- you'll start to see those pay out in the back half. And then in terms of the overall bricks and mortar comp you will see some improvement as we move through the year, again part of that is AUR led and so it'll be back more weighted in the second half as we move into the layers of pricing that we talked about.

Great, best of luck.

And that's all Easter adjusted Matt.

Okay, thank you.

Thank you. Our next question comes from John Kernan with Cowen. Your line is open.

Hi, good morning Patrice and James. Thanks for taking my question. I wanted to go back to international, obviously a point of strength. And maybe go back to some of the targets you laid out at the Investor Day about a year ago. Can you talk about the $500 million in revenue you expect in China, it feels like there's obviously a lot of momentum there right now, maybe you can talk about both the digital and physical direct expansion that's going on there right now and then maybe have a follow up on Europe? Thank you.

Sure, you will attack this one Jane. So yes our goal is to indeed get Greater China to $0.5 million in revenue. We're making good progress. Again this quarter Mainland China up 30%, Greater China up 12%, continuing to see a strong progress across both digital and brick and mortar. To your point on those different platforms, I mean our thinking is really six big cities [indiscernible] Shanghai, Beijing, Taipei, and Hong Kong. And we build omnichannel eco systems across all of these with both brick and mortar presence, some more iconic elevated presence, and some kind of hard working from the revenue productivity stand point with our new Polo Boutiques coupled with our work with pure players and we've got a really nice partnerships and momentum with JD, with Timor [ph] and with WeChat and then also some strong partnerships from the concession stand point. And we're continuing to drive where we are and expand. So we expect from a brick and mortar standpoint to open about 40 stores this fiscal year so about one a week if you remove the holidays. And on our way to achieving what we talked about last year on Investor Day which is around 150 stores across Greater China and then we continue to invest in expanding our digital presence through existing platforms and new platform and take advantage of all the key events that are happening there. So, we participated in 618 recently and actually had strong performance across the board with our various partners on that whether that was team JD or others. And we're doing specific programs with WeChat. And just so in general we feel good about where we are relative to the guide path that we had laid out for ourselves on our way to $0.5 billion and we sometimes get the question are you seeing any changes with the consumer in China right now and the answer so far is no. But the brand continues to resonate well with consumers and we're actually pleased with the mix of consumers we're getting both from a gender standpoint men and women, pretty balanced and also from an age standpoint, we're bringing in a lot of young consumers into the franchise.

Hey John I would just add that we were very pleased with our digital commerce this quarter in China and across Asia. It was up 26% so a real comp accelerator. We expect that dynamic to continue. We were also pleased with what we saw overall in terms of the comp acceleration that was coming from our newer Polo Boutique stores that Patrice called out notably in China which has been the focus of our new doors. So that is durable and we're encouraged by that continued momentum.

Just a quick follow up on Europe, your strength there both in wholesale, retail, and within digital as well. So just wondering how we should think about Europe as your frame of guidance for the rest of the year, I know there's some moving pieces in macro environment so just how should we think about the quarterly flow of Europe as we go into the rest of the year? Thank you.

Yeah, John what we've seen in Europe and let me just give you the component pieces, we still see the underlying trends for your wholesale as about mid single-digit. There are obviously some shipment timing that goes on in Europe but we've been talking about that as the underlying trend and we see that as sort of the ongoing underlying trend for Europe wholesale. On the bricks and mortar side you've seen us have a pretty steady positive comp. We'd expect that to continue especially as we are overlapping the investments that we made in our factory outlet channel. That overlap will start to -- the benefit of that overlap with the investments that we made in inventory will start to tail off in the second half as we anniversary that but we're still encouraged by our bricks and mortar comp in Europe. And then as we anniversary the replatform of our digital site in Europe the first half will be stronger than the second half as we anniversaried that overlap but positive trends in Europe in e-commerce.

Got it, thank you.

Thank you. The next question comes from Kate Fitzsimons with RBC Capital Markets. Your line is open.

Yes, hi, good morning. Thank you for taking my question. Jane my question is more on the cost saving efforts that you have done year-to-date. As you think about fiscal 2020 where do you see buckets of opportunities on the expense side as the year progresses, you spoke to some supply chain -- media buy here in Q1, any other movers [ph] you can share with us as the year progresses just in light of this more volatile environment that you're seeing? And then secondly, any update on the distribution center consolidation product or the headquarter relocation project, any update there would be helpful? Thank you.

Sure, so Kate as we look to FY20 we do expect that the DC consolidation is going to be durable throughout this year in terms of the benefit that we got from consolidating those in addition to the activities that allowed which was inventory consolidation. So that will continue and are procurement work on indirect expenses is also durable through the year. So we take on obviously the largest vendor contracts first but we are systematically moving through nearly all of our indirect vendor renegotiations and those are paced through the year as those contracts expire and are renewed. So you can expect to see that continue through the year. And supply chain efficiencies that we are working with our wholesale partners on should also be positive as we move through the years. So not only just repacking our product, using cross stock activities but also some of the work that we called out on product suppliers where we can make products more sustainable and more cost advantaged is ongoing work. In terms of and also just organizational agility, based on some of the work that we've called out recently that we've done to simplify our organization you'll see some of that come through the payroll benefits as we move through the year notably in divisional cost structures and headquarter cost structures. Our work in terms of our headquarter consolidation is going well. You will not see that impact come through the financials until FY21. This is the year as we move that we do have some double rent expenses but you will see that be a durable benefit as we move through and we're very pleased with the supply chain consolidation. I'd say it's right on track with our expectations.

If I could just add, we were also reworking the different capabilities we have externally. So, indeed you have seen the work on media going from 12 agencies to 4, doing that across all social and digital as well. We are getting nothing but better and cheaper so better capabilities and lower cost.

Next question please.

Your next question comes from Laurent Vasilescu with Macquarie. Your line is open.

Good morning and thanks for taking my question. On the last call it was noted that half of the operating margin leverage expected for us by 2020 will come from the gross margin. Jane is that still the case and how should we think about the GM progression by quarter of the year? And then on marketing spend up 19%, how should we think about the second quarter and the full year?

Yes, so let me take your gross margin progression. We still -- as we've maintained our guidance and we still expect about half to come from gross margin expansion for the full year and about half to come from SG&A leverage again for the full year. As we look at the second quarter Laurent I see more, about two thirds of the operating margin expansion will come from gross margin expansion and about a third from SG&A leverage. So that's how you can think about the quarter. In terms of marketing expenses as we move through the year we had a strong first quarter and I would expect that second quarter will be slightly less robust in terms of marketing expansion as we anniversary a lot of our 50th anniversary activities. You'll see some leverage from marketing in the second quarter but then you'll see marketing growth in the third and fourth quarter.

We expect marketing all to increase ahead of sales again this fiscal year as we work our way towards marketing investments representing about 5% of total revenue.

Very helpful, thank you.

Thank you, last question please.

Thank you. Our final question comes from Dana Telsey with Telsey Advisory Group. Your line is open.

Hi, good morning everyone. As you think about the digital business and the progress that you're making there, how do you dissect it by region and also the AUR progress on digital promotions versus full price by region? Thank you.

So in terms of digital progress as we talked we're very pleased with what we're seeing in Asia and the benefit that we've had from our replatforming in Europe and the growth of those markets. We are investing in North America. I think Patrice call highlighted some of the pressures from international and we expect those benefits to start to play out in the second half and we're encouraged by that. In terms of our AUR are progression on digital, a) our digital AURs will really follow what we're putting in place across all of DTC and so the second half as we take some targeted pricing will be more robust than the first half. And the first half is weighted by clearing out of some of our spring product. But you'll see those promotion and list prices go into effect more in the second half.

Got it and then just lastly as you think about inventory levels, how do you see them progressing through the year, should we continue to see this rate of increase given the uncertainty with tariffs?

Starting in the second half you will see inventory that's closer aligned with our sales. We are trying to be quite flexible Dana as we manage BREXIT implications as well as China duty implications. And so we're going to be opportunistic as we were in this quarter and we accelerated some inventory into North America. So we're going to -- we're going to remain flexible on that but I think that as we move forward you will see inventory more closely aligned to sales.

Thank you.

Alright, very good. Well listen, thanks to all of you for joining this morning and we look forward to our next call early November. Have a great day.

Thank you.

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