Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Fourth Quarter and Full-Year Fiscal 2022 Earnings Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. [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 fourth quarter and full-year fiscal 2022 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 Web site. And now, I'll turn the call over to Patrice.

Thank you, Cory. Good morning, everyone, and thank you for joining today's call. We are pleased to report strong fourth quarter and full-year results that exceeded our expectations on both the top and bottom line. This year's performance underscores the strength of our business and desirability of our brand around the world, with both strong loyalty among our existing consumer base and enabling new high-value consumer recruitment. Ralph and I are inspired everyday by our team's engagement, agility, and execution, which is driving this progress. As we enter fiscal '23, our consumer remains healthy and motivated to invest in the timeless quality products we have always stood for. While we consistently adapt to ever-changing macro developments, our strong brand momentum will continue to be supported by multiple engines of growth. These include, first, continuing to drive brand heat and desirability with increased marketing investment and a combination of iconic lifestyle campaigns and precision marketing. Second, leveraging our unique, multi-category lifestyle proposition to drive the mix of sophisticated and casual dressing consumers crave. As we look ahead, there remain significant opportunities for category expansion and continued product elevation. And third, rolling out key city ecosystem strategy, which integrates a brand-elevating, cohesive consumer experience across our touch points. Originally developed in Asia, we're still in the early innings of scaling this model across each of our regions, including North America. Within this ecosystem, we lead with digital commerce, which continues to represent a significant growth opportunity while already solidly accretive to every region's profitability. Woven into all of these engines of growth is our focus on delivering positive impact in the world, across citizenship, and sustainability. Our fourth quarter performance was a great example of the continued progress we're making across these priorities as we pivot to growth while maintaining our culture…

Thank you, Patrice, and good morning, everyone. We closed our fiscal '22 with strong fourth quarter and full-year results that demonstrated meaningful progress toward our next great chapter goal along with execution excellence by our teams and broad-based performance across our business. All three regions are back to top line growth. Our revenues are now slightly ahead of pre-pandemic level. And our operating profit dollars are also 30% higher all while ramping up investments and marketing, digital, new stores, and people. Compared to two years ago, our businesses are over 25% bigger in Asia, nearly 10% bigger in Europe, and North America is reset and delivering growth on a much healthier foundation. At the same time, our balance sheet enabled us to return significant excess cash to shareholder in line with our capital allocation principle. And we resumed our quarterly dividend and share repurchases this year. With the reset behind us, we are driving multiple growth engines across our brands, channels, and geography that will not only deliver more sustainable growth but also help to mitigate ongoing macro challenges. Let me take you through our fourth quarter financial highlights. Total company revenues increased 18% to last year on a reported basis, and 22% in constant currency, with double-digit growth in every region. This includes roughly five points of negative impact from our deliberate North America resets last year. Revenues exceeded both our fiscal '19 and '20 pre-pandemic results despite the resets. Ralph Lauren digital ecosystem sales grew low double-digits in constant currency on top of the challenging compare of more than 60% growth last year. Our owned Ralph Lauren digital sites grew 18%, reflecting our strong product assortments, new consumer acquisition, expanded connected retail capabilities, and high-impact marketing. Digital margins remain strongly accretive to our profitability again this quarter. Total…

[Operator Instructions] The first question comes from Matthew Boss with JPMorgan.

Thanks, and congrats on a nice quarter.

Thanks, Matt.

So, Patrice, with the macro backdrop having changed across many of your key markets, since the February call, I guess what gives you confidence entering FY'23 to continue your pivot to offense despite the tougher backdrop, maybe what structural changes support your pricing structure? And can you touch on the total addressable market for refined casual exiting the pandemic and how you see the Polo brand position?

Sure. Well, good morning, Matt. Few things I would call out here, first of all, I think as all of you know, we significantly repositioned our company over the past couple of years, right? And we're coming into this new fiscal year with strong momentum. We now have multiple engines of growth, and we're delivering growth across every brand, every channel, every region, with opportunities for continued acceleration across each of them. So, our game plan is working. And I believe our deep brand strength, our demonstrated pricing power, and more diversified growth strategy becomes even more important during these turbulent times. There are few things I would call out. One, our consumer remains strong around the world, all right? And as we recruit new consumers, you saw this past quarter, we recruited 1 million new consumers, 5 million over the past fiscal year. We've been fundamentally pivoting our base towards higher-value full-price consumers who are less promotion/price sensitive. Second, as we've talked in prior calls, our designers and our merchants have been spot-on with this post-pandemic style of dressing and our products are driving desirability as they leverage the full breadth of our lifestyle portfolio. Third, our supply chain is built to be flexible and resilient. There's been a lot of work that's gone on over the past two, three years to get us there. And we now have proven our agility over the past couple of years, and I think I have a lot of confidence going into the continued turbulent environment. And then lastly, we've built a culture of cost discipline in the company, and we continue to drive value through productivity as well. So, listen, of course, we're grounded in reality and we're tracking closely consumer sentiment, bigger cost headwinds, including FX as well as COVID…

Next question, please.

Thank you. The next question comes from Michael Binetti with Credit Suisse.

Hey, guys, thanks for all the detail here. Want to ask you two quick ones. I guess you seem to be against the trend here with your guidance of constant currency expansion for both gross and operating margins this year. Given the macro backdrop, what gives you confidence in your current margins and their sustainability? And then as a follow-up, on the North America wholesale business, I know you said that it was a plan of 1%, including the 53rd week. I know you've done a lot of work there. It does seem like that channel is still holding back the model a little bit relative to the other channels growing a lot faster. And Jane, I thought it was interesting that it was up 1%. You said POS was up 20%. I think North America wholesale was up 21% on a two-year basis, and POS was up 45%. So, there's just a big gap that keeps rolling forward with North America wholesale. How do we think about that growth rate in '23? Is it mid single-digit to sustain the 8% constant currency revenue growth, maybe some thoughts there to help us understand how North America is positioned for the year?

Sure. Thanks for the question, Michael. Let me start with the first, about our guidance. We are comfortable with our fiscal '23 guidance at this point. Our momentum and our track record of expanding both our gross margins and our operating margins through our Next Great Chapter plan are really a strong foundation for our fiscal '23 guidance. And as you saw, our business trends are good. Now, clearly, we're watching the macro headwinds very carefully. So, as we thought about our guidance, particularly in gross margins and in operating margins, we really tried to take a balanced approach, balancing both risks and opportunities that we saw and we tried to do this across our guidance. We are encouraged as we look ahead. And let me give you a few reasons why. First, our consumers are resilient. They're at the higher end of income demographics, and they've proven, through COVID that their desire for the brand has increased and that they've come back repeatedly. Second, our value perception, our quality score, and our purchase intent have strengthened through the pandemic, even with the backdrop of us taking pricing up 50% over the last two years. So, quality, value, and purchase intent all up in the face of that kind of pricing; that gives us tremendous confidence. And third, we are maintaining new consumer acquisition momentum of younger and higher-quality consumers through this journey, and we intend to continue that and investing in that. And that's a very important part of our gross margin journey. And then finally, our team, obviously, they've managed through disruptions and headwinds, and have done so with great agility. And we have confidence in our ability to navigate the macro headwinds doing that. We're confident in these drivers to expand our gross margins this year and beyond, and feel that we're on a very solid ground to achieve our mid-teens operating margin, that's our longer-term goal. And feel that this year will put us a step closer to getting to that goal. Now, on North America wholesale, what you've seen, in up 1% in terms of overall, there is about 20 points of headwind from Chaps in that number. So you will recall, Michael, that we took Chaps out of our owned and operating model and we moved it to a license model, that impact is sitting on North American wholesale growth. Without that impact, we would have been up mid-20%. Now, that is going to continue. We lap out of that transition in August, and there is about $17 million of revenue in the first-half of fiscal '23. So, you will see that continue, but we expect the underlying growth in wholesale to be quite healthy, and we're very encouraged by the progress that we're making there, but you will see that in the first-half of fiscal '23.

Yes, you look -- you see, Michael, through our share performance, I think, a truer reflection of how we're doing in that channel. And actually, we're really pleased with, one, the partnerships that we've built with our key wholesale partners and, two, the momentum that we have from a consumer voting standpoint, which is really what share measure is all about. And we're growing share in men's meaningfully, we're growing share in kids, we're growing share in home. We're now growing share in women's ready-to-wear, three quarters in a row of share growth in women's ready-to-wear, excited about the progress both on Polo women's and on Lauren, in particular. So, fundamentally, to your point on where does this stack up relative to our growth drivers in North America, we think wholesale is actually very nicely positioned, now that it's been reset, and we're certainly seeing the consumers vote very clearly in favor of our brands.

Thank you. Next question, please.

Thank you. The next question comes from Omar Saad with Evercore ISI.

Thanks for taking my question. Good morning.

Morning.

Great numbers on the digital side, you have a lot of momentum in that channel. Maybe you could elaborate on that integrated market digital strategy that you talked about earlier on, developed with China, rolling it out to other markets. Maybe you could talk about how it operates? Why it's so effective? And where you think the biggest opportunities are in that owned digital channel? Thanks.

Sure. So, our go-to-market approach is really characterized by the ecosystem lens. And we focus on our top three cities, and there we work hard to make sure we have the right brick and mortar and digital representation. And exactly to your point, we want the consumer to have a completely seamless experience, whether they're shopping online, on our app on our sites, or whether they're actually in our stores. What we have seen, and to some extent, COVID has been an enabler for that, the COVID crisis has been enabled for that, there's an acceleration of our connected retail capabilities, and there are ranges from digital clienteling, which is now ingrained in the way our teams work. So, the seamless connection between the store and the Web site for example, we have Boris, you're familiar with BOPIS, which is Buy Online Pick-up In Store, now we also have buy online return in-store. So, that's very seamless experience for the consumer. We've introduced the app a few months ago, which is also nicely connected to consumers purchase history. So, we're able to tell for those who are comfortable sharing that data, what's in your closet, and therefore we can use that data for really targeted one-to-one marketing to serve you in the way that fits best your shopping patterns. And then, we've recently introduced something I'm very excited about, which are endless aisle, actually screens in our brick and mortar stores, where even from a 1,000 square foot store you can now shop every element of the Ralph Lauren line. And we started to experiment with that in North America, and in several stores we're seeing very positive results. And it further gets to your point, Omar, of no longer really segmenting, this is brick and mortar, and this is digital, but for it to be a completely connected experience. Certainly our experience in Beijing and Sanlitun with the work that we've done with Tencent has also reinforced that leveraging, you know, the local kind of WeChat mini programs as a way to connect the consumer to our brick and mortar operations. But I think what you'll continue to see from us is a ramp up of these capabilities. And then, there's we stay in touch with what the consumer is looking for and we adjust our offerings and our experiences accordingly, but I feel very good about the momentum we have in digital across the company. And I think our penetration right now is about 26% of total revenue is digital. We've seen that hold up nicely as the stores have reopened. So, feel good about the sustainability of that, and our ambition is to make that over 30%. But again, the consumer should have absolutely seamless experience, and more and more a personalized experience.

And Omar, on your question about local sites, we opened up 20 local sites this quarter. They tend to be smaller markets. We opened North Africa, the Middle East, some larger markets; Australia, and Korea were also local sites that we opened this quarter. It was one of our key investments as we exited the second-half of this year and will continue as we move into next year. So, we're very pleased with our ability to reach digitally new markets in local language and local shift to addresses and we think that's going to be a very positive driver as we move forward.

Thanks. Next question, please.

Thank you. The next question comes from Laurent Vasilescu with BNP Paribas.

Good morning. Thank you very much for taking my question. Patrice and Jane, I appreciate you guys call three regions to drive positive revenue growth for FY'23. Jane, I think you mentioned that the largest dollar contribution should be from North America and the highest growth rate should come from Asia. Is it fair to assume that North America should grow about mid single-digit rate, Asia should grow low double-digit rate? And if that's the case, what is embedded in your Asia assumption for China growth this year.

So, we don't guide our regions exclusively, but we think that North America is positioned for strong growth as we move forward. We are very pleased about North America becoming an engine of growth. We expect Asia to be driven by the reopening of Japan, which would have significant market shutdowns through this year. And also China, while we contemplated the shutdowns in Shanghai and some of the key cities for Q1, which are material, Shanghai alone is 40% of our China business. We still expect strong double-digit growth as we exit the year, this year for China. We've seen China being very resilient through COVID. Our consumer scores there are some of the highest we have around the world, and we have seen very strong continued digital momentum even store comps have come back. So, we are very bullish about our China business. You saw it very sequentially strengthened this quarter. We are realistic about the impact of the shutdowns, but we have contemplated that for Q1, and still expect strong double-digit growth in China.

Thank you. Next question?

Thank you. The next question comes from Bob Drbul with Guggenheim.

Hi, good morning. I was just wondering if you could spend a little more time on the inventories either by region or how much in terms of in-transit is impacting it. Just curious in terms of like how you are planning mainly the European market with the orders on a wholesale basis. And I guess the second question would be around that same topic. But from the perspective of like late shipments to wholesale, I think you said supply chain was really impacting all your wholesale inventory. Has there been any change in your retail partners' willingness to take product whenever it comes even if it is late or miss shipping windows?

Sure. Thanks for the question, Bob. You saw our inventory increase in the fourth quarter. That was two factors. One, over the past three quarters, our sales numbers has significantly exceeded our inventory growth numbers. And so, this quarter we move to reset some of our inventory level. In addition and as I think as we've talked about, we made a move to take inventory earlier, especially for our wholesale account. And so, to address the challenge that you said, we want to maximize full price selling in our wholesalers. And so, you've seen us take inventories earlier. And hold it longer due to some of the supply chain delays that we are still experiencing and expect to experience through the first few quarters of this year. We have seen great partnership with our retailers. They are appreciative of our moves to secure their inventory and supply. And we feel great about our wholesale inventories. While they were up 16% this quarter, our sell out was up almost mid 20%, so, very healthy inventory, and no resistance at all in terms of taking our assortments and truly great partners in terms of our move to secure inventory for them.

Great. Next question please.

Thank you. The next question comes from Jay Sole with UBS.

Great. Thanks so much. Just wondering if you can elaborate a little bit more on your plans for the balance sheet for this upcoming year. And what your plans are for the free cash flow after you invest within the business? Thank you.

Sure. Thanks for the question, Jay. As we look at our capital allocation priority, it really hasn't change. So, number one is to invest in our business. And you saw -- take our CapEx up largely for growth-oriented initiatives, new stores. We are planning to open 200 new stores this year, which is a big step up from this year. We opened about 122. Digital infrastructure is an area of investment. And we feel great about digitizing our supply chain which is an important productive initiative. So, we are investing in our business and that's our first priority. From a balance sheet capital allocation perspective, first take up our dividend 9%, and we are committed to returning excess free cash flow to shareholders. We repurchased about $450 million of shares last year. We still have 1.6 remaining on our authorization. And expect to be able to continue -- returning excess cash to shareholders through this year about the same level you saw us do last year. So, we are encouraged by the health of our balance sheet. And we are encourage by our opportunity to invest in our business.

Let's go to the last question please, Angela.

Thank you. Our final question comes from Chris Nardone with Bank of America.

Hey, good morning, guys. Thanks for taking my question. Can you just talk a little bit more about the outlook for underlying sales growth in Europe ex-FX? In particular, are you seeing any cracks in consumer sentiment or any spending patterns in Western Europe markets?

Yes. So, we are encouraged by the underlying growth of our Europe business as we moved forward. The biggest impact that we see is FX. While we did see some pullback in Q4 with the war in the Ukraine, we are seeing consumers subsequently respond well and see nice traffic into our stores. So, we are encouraged by the European consumer. The underlying growth we expect to be consistent with our long-term guidance which was in the mid single digit range. And we expect Europe to be in that range this year -- mid to high single digit range this year. And we've fully contemplated some of the impact of the Ukraine war and impact to European sentiment in their guidance. It was about 1% of sale when we stopped shipment to Russia and Ukraine, and probably another percent in terms of overall overhang of the war to consumer sentiment.

And we are seeing this growth actually to be broad-based, right, so, 34% constant currency up in Q4 for total Europe. Both particularly driven by the U.K., by Germany, by Italy where we recently invested in our ecosystems in the [long] [Ph], so pretty well diversified growth, and for our earlier conversation, I think at this point we are feeling that the consumers that we appeal to is in good place in Europe. All right, thank you for your question, Chris.

Well, listen, thank you everyone for joining us today. We look forward to sharing our first quarter fiscal '22 results with you in August. In the meantime, stay safe and have a great day.

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