Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Fourth Quarter and Full Fiscal Year 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question and answer session. 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 2023 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 1 per caller. As a reminder, last year's fourth quarter and full year included an extra week in the fiscal calendar. All growth for these periods will be discussed on a constant currency 52-week comparable basis. Reconciliations can be found in this morning's press release. During today's call, 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 guaranteed, 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, Cory. Good morning, everyone, and thank you for joining today's call. When we met last September here in New York, we outlined our ambition to become the world's leading luxury lifestyle company and build a business that lives up to the potential of our powerful brand. As we close out the first year of our Next Great Chapter: Accelerate plan, we are particularly proud of the progress we have made on our strategic commitments in pursuit of this goal. Our teams around the world executed exceptionally well through a highly dynamic global operating environment to deliver another quarter and full year of strong performance. We over delivered on the top line this year with 10% constant currency growth, supported by all 3 regions. This included positive comps, further AUR growth, and brand-accretive ecosystem expansion across our top 30 cities. At the same time, we continue to balance this growth with a relentless focus on productivity and operational discipline. This is enabling us to fuel our long-term initiatives and also grow our profitability on a constant currency basis. As we called out at the beginning of fiscal '23, the global environment has been and continues to be choppy. Throughout this, our teams are demonstrating agility and flexibility to respond to evolving consumer demand and market dynamics. As we continue to drive our strategy of long-term brand elevation across every region and channel, overall, our performance this year underscore the general resilience of our core consumer, and growing desirability of our brand around the world. This translated to another quarter of double-digit AUR growth globally, even as we took targeted actions to keep our inventories clean and well positioned. We are well aware that a subset of our consumers who are more value-oriented are increasingly pressured by macro and inflationary…

Thank you, Patrice, and good morning, everyone. We are encouraged by this year's progress on our Next Great Chapter: Accelerate plan, which remains on track even with numerous macro challenges that our teams have faced this year. We leveraged our strong brand, multiple strategic growth drivers and superior operational capabilities to deliver strong financial results in a dynamic environment. For the full year, we delivered 10% revenue growth in constant currency, exceeding our guidance with growth in every region. We expanded operating margin and grew profits ahead of top line growth in constant dollars, consistent with our 3-year plan. Adjusted operating margin expanded to 13.7% in constant currency, with operating profit dollars up 15%. Our continued brand elevation and culture of cost discipline were key to our strong results and provided flexibility to more than offset softer gross margins as we focused on keeping inventories clean and well positioned in the marketplace. Operating with discipline will continue to be an important element of our long-term strategic plan with productivity helping to manage changing market dynamics and fuel our investments in sustainable long-term growth. And we continue to make important investments in our business while delivering strong shareholder returns, including more than $650 million this year in the form of our dividends and share repurchases. Exiting the year, we remain confident in both our strategic direction and our fortress foundation enablers, which are allowing us to drive our strategic initiatives even through times of uncertainty. Our full year and fourth quarter financial performance underscored this position of strength through dynamic times. Let me take you through some highlights from the quarter. Total company revenues in the fourth quarter increased 9% in constant currency, above our outlook, led by double-digit growth in Asia. Results included about 180 basis points of negative headwind…

The first question comes from Matt Boss with JPMorgan.

Congrats on a really nice quarter. So Patrice, how are you feeling today about your long-term Investor Day guidance exiting year one? And can you help put us into context, just given the more challenged North American and European consumer that you called out for this year in the outlook? And then, Jane, could you just elaborate on your confidence in pricing power for the brand as you cited strong AUR as a continued driver for your gross margin outlook in FY '24?

Thank you, Matt, and good morning. Well, let me first reground us in the fact that we just finished an above algorithm year on revenue and on track on profit. So we continue to build our business for the long term. And this past year's progress puts us on the path to deliver on our long-term plan. So to answer your question very simply, our long-term ambitions have not changed. And this confidence is really grounded in a number of unique strengths which are particularly relevant in choppier environments. First of all, a brand that people love and desire that we are continuing to invest in. Second, core products that consumers know and trust that aren't based on seasonal fashion or trends. And we know that during choppier times, consumers tend to gravitate back to these more iconic categories and iconic products. And so for us here, think about Polo shirts, Oxford shirts, blazers, dresses and even ties are back. Third is strong operational fundamentals, which I think have been demonstrated throughout the past few years. Fourth is multiple growth levers, and you saw that play out in this quarter again. And then finally, a proven ability to flex to consumer demand. So these factors give us broad confidence that we continue to be on track with the goals that we laid out about 9 months ago. Now let me offer some perspective on how we're thinking about the consumer overall to the second part of your question, and I know this is a top of mind question for many of you on this call. First of all, I would say our core consumer is resilient. And we are seeing that around the world in Asia, in Europe and here in North America as well. And that segment is growing…

Yes. Thank you. So Matt, I would say an emphatic yes. We have pricing power that we expect to continue into the future. And I can't think of a better proof point than we saw this year, putting up 12% AUR growth to offset inflation. But importantly, I think we are uniquely positioned as we go forward because our pricing power is grounded in our brand elevation journey, and a proven multiyear strategy of executing a pricing strategy with multiple levers, not just like-for-like pricing, but product elevation, category momentum and movement, structural geographic advantages that we have that are coming through in our consumer metrics. Our consumer value perception has never been higher despite the price increases that we've taken. Our perception as a luxury brand has continued to grow and continues to grow and is certainly where our strategy intends to continue. And our model gives us flexibility because we are keenly aware of where we are in the macroeconomic time frame. But our pricing model in its multiple levels gives us flexibility to meet consumers where they are, all while still elevating the brand and you'll see us do that into the coming year.

The next question comes from Jay Sole with UBS.

I have a two-part question. The first part really follows up on some of the pricing comments you just made. How does this more pressured macro environment impact your overall brand elevation strategy. Are you taking a more flexible approach to pricing or discounting in this backdrop? And then the second question is, Jane, you talked about the fortress balance sheet the company has. How is that going to let you play offense? Patrice, I've heard you used this comment that you can play offense through this tough economic environment. But what does it going to allow you to do both from an operational standpoint and a sort of a return cash to shareholder standpoint in fiscal '24?

So I think it is fair to say that the environment has been more pressured. And listen, we expect it to stay volatile as we come into this new fiscal year. We are still -- you just heard that from Jane, we're still firmly committed to our elevation strategy, which we started well before COVID over 5 years ago. And why? Because it's working. The strategy has served us well through stronger and weaker macro backdrops. We're seeing strong consumer response to what we are doing. And I think it's pretty clear also to Matt's earlier question that our brands continue to have strong pricing power in the marketplace across every region, right? You saw AUR grew across every single region this past fiscal year, in this past quarter. And we believe this is becoming an even bigger differentiator for Ralph Lauren relative to peers in this environment. And we are guided by the consumer here, right? And as Jane mentioned, the consumer response to our brand elevation on product, on storytelling, on selling environment continues to be strong. And the AUR is an outcome of all of that, and we feel quite good about our ability to continue on this journey, and then Jane, I'll turn it over to you for some more color on the second part of Jay's question.

Sure. And Jay, I would just add to what Patrice said on our pricing journey, that you've seen us in the last 2 quarters to be flexible while still putting up double-digit AUR growth, be flexible to the need of the more value-oriented consumer. And as we think about the coming year, we've built that flexibility into the model based on what we're seeing in consumer trends. So we feel really good about that flexibility while still continuing obviously to elevate even in a difficult environment. And then your question on the balance sheet. The balance sheet honestly gives us the flexibility to be brave and do what we need to do for our business. So you saw us during COVID be able to hold inventory when demand was a little softer. The strength of our brands have such a core assortment allowed us to do that and to make sure that we could continue our elevation journey and not be forced in discounting. It allows us to be brave in investing during times of volatility, both in marketing, which you've seen us do consistently through this reset period, and we intend to continue to do even in our guidance today, we expect marketing to be up 7% -- to be up to 7% of sales as we move into the future and to invest ahead of return on growth drivers. You saw us do that on digital, invest in local sites that take some time to pay off, but are good for the long-term health of the brand and consumer outreach and invest in doors that we know will be a halo to the brand, attract consumers and be good investments over time. So we really do believe in it as an enabler.

The next question comes from John Kernan with TD Cowen.

Congrats for a nice quarter. Can you talk to just North America, in particular, a lot of us can see the macro environment here getting a little bit more difficult as we went through the spring. Just wondering what you're seeing in both the wholesale channel in North America, also the outlet retail channel and how that is informing your view for North America embedded in the guidance this year.

So what we see in wholesale is that, as we called out in the guidance, we do see a normalization of wholesale sales that were disrupted during the supply chain. And we expect that to be a heavy headwind in the first quarter. Now that's anomalous. We want to call it out. But underlying in terms of wholesale, we have seen some challenges in terms of replenishment orders and some caution in their more value-oriented consumers. So we've taken that into consideration as we've planned our inventories and know that they're taking a more cautious stance in both North America and in Europe, as they give us order -- as they place orders for receipts into spring. We've incorporated that into our guidance. We're more optimistic about certainly, what we've seen in our full-price store environment in North America, it's remained strong through this period, and we're encouraged by that. We are more cautious as we came into the fourth quarter in terms of the outlet consumer. We've been calling that out for several quarters, and we've incorporated that into our guidance as well. We are encouraged that we do see that all our consumers migrating up in terms of the categories that they're buying into. They're buying higher ticket items. Those value consumers are looking for a good deal, but we do see that migration up in terms of the product assortment, and we're adjusting our assortments accordingly. We did see basket growth and AUR growth across all our channels and are encouraged by that. We will follow that while being flexible for the consumers. But encouraged by the overall store environment, and we feel we have the tools to flexibly move through this environment.

And then wholesale, I would add to that perspective that the brand elevation strategy that we're applying is playing out well in the wholesale environment in the U.S. Jane, you mentioned AUR. AUR up 8% in wholesale this past quarter in a relatively promotional environment. Over the long term, we've been growing share in Men's, in Women's, particularly strength recently in Women's and in Children's. And I think we're nicely aligned with the strategic direction of our key wholesale partners.

The next question comes from Chris Nardone with Bank of America.

To dive a little bit deeper into your outlook for your European wholesale business and also your direct-to-consumer business this year, in particular, how should we think about the slowdown you're seeing in digital business and how does that compare to maybe some of the underlying trends in your brick-and-mortar channel?

So broadly across Europe, we've been very pleased with our digital progress. We're up substantially in terms of where we were pre-COVID, it's been a source of strength for us. In terms of what we're seeing on our digital growth, we expect continued growth in digital at a more moderate pace for Europe, but continuing our AUR journey in that channel and strong performance. As we look at the wholesale channel in Europe, it is more elevated and healthier than what we've seen in North America but we have seen pressure from pure players. Now that's playing out in our digital ecosystem in Europe, and it's playing out in our wholesale business in Europe. We have adjusted our inventories accordingly and expect to continue to grow with them in the long term, but do see pressure in the near term from the pure players that will play both into our digital ecosystem growth and will -- and plays out in terms of our total wholesale growth in Europe. But overall, it's an elevated offer. We continue to like our market share gains in that channel and are continuing the journey, but the pure plays are the pressure point.

And I would add that our biggest partner there is Zalando in Europe. Zalando is on the brand elevation strategy, pulling back on promotional activity and that's very consistent with where we want to take the brand in Europe. So strategically, we feel very good about the direction that Zalando is taking.

The next question comes from Dana Telsey with Telsey Advisory Group.

Two items that were called out is one, marketing spend and one on raw material costs. How are those being planned in -- what does it look like for fiscal '24 compared to '23? And then Patrice, would love to hear your take, just expand a little bit on wholesale. How do you see the difference in the wholesale channel operating models, North America versus Europe versus Asia? And how you're planning the business?

Maybe tack team on this. On marketing spend, as Jane mentioned in her prepared remarks, our strategy is to spend about 7% of revenue on marketing. That's roughly where we were this past fiscal year. That's where we will be this coming fiscal year. It won't necessarily play out exactly per quarter at 7% because obviously, we have fashion shows and those types of events that will skew the numbers in a particular quarter. But directionally, 7% of revenue, we expect modest revenue growth, so you can expect the absolute dollars of marketing spend to increase on the total brand. Jane, I'll let you do the raw materials.

Dana, what we see in raw materials is really actually encouraging. What we see in terms of tailwinds is that freight will go from about an 80 basis point headwind in fiscal '23 to about 100 basis point tailwind in fiscal '24. Now as we called out cotton inflation was at its peak in Q4 and we expect that to continue into Q1. But as we exit the year -- because we're long bought on cotton, about a year out. But as we exit the year, at the very end of the year, we will start to see cotton turn to an advantage in terms of raw materials. But we really won't realize that until fiscal '25. And so if you think about it in the big buckets, cotton and freight will sort of equalize each other. But we do see some other tailwinds in terms of our air freight is stabilized and won't be a pressure point. We expect to see continued product elevation and mix and structural advantages as Asia outgrows or leads to the growth from the rest of our regions. So we're very encouraged by what we can see and what we have visibility to now relative to the environment that we faced in fiscal '23.

And then your question on wholesale. So just stepping back a little bit, our direction of travel from a strategic standpoint is to pivot the company further into DTC. Our DTC today is about 63%, 64% of -- for the total company. And as we guided during Investor Day, we expect the numbers to be north of that in the coming years. Now we believe wholesale -- quality wholesale has an important role to play in our go-to-market model as well. If you do the world tour, in Asia, most of our business, if not all of it, is concession. So to a large sense, actually a DTC business. It's nicely elevated. We had really nice momentum there, as you saw in the results that we just announced. And so we're focused on running the play and continuing to drive elevation there. In Europe, it is a mix of concessions and wholesale. And in Europe, what we're working on is continued elevation. There's been some really nice work done in Germany, in France, we're looking very good in France and had really nice performance this past year in France wholesale in the U.K. In Southern Europe, there's opportunity to elevate. So we're putting emphasis on customers like El Corte Ingles, right, to make sure that we show up the way we want to show up in the appropriate doors. And then as we were just talking earlier and Jane mentioned some of this on pure players, pure players are an important part of our wholesale business today. It will be even more important in the future. And I'm actually quite excited about some of the strategic pivots that some of the European pure players are doing because it really lines up nicely with our strategic approach. And I refer to…

The next question comes from Laurent Vasilescu with BNP Paribas.

Congrats on a great quarter and a full year. Jane, I would love to get a little bit more color. Thanks for Dana's question on the bridge on the gross margin. But on the first quarter, can you maybe just kind of give us a little bit of a bracket on how we should think about gross margins? And then second, just following up on the Investor Day, I think you talked about $400 million plus of gross productivity gains. I think 2/3 of that coming from SG&A. Can you maybe just tell us or share with us any further insights or any further confidence you have to achieve those productivity gains.

Sure. Let me just start with the gross margin guidance. First of all, I just want to be clear, our Investor Day guidance on gross margin is unchanged. And I think our guidance both this year and this quarter reaffirms that we will be back on track for making gross margin progress. As you think about the first quarter, some of the things that we have that will, for gross margin expansion of 50 basis points to 100 basis points will play out in the first quarter. We expect that we will still have some pressure from FX in the first quarter. And -- but we are very encouraged by our pricing power and by the plans that we have, that we'll be able to expand gross margin 30 basis points to 50 basis points across the business. We have the AUR plans in place. We're basically offsetting inflation and we're continuing our journey to increase our both our category penetration in high-margin categories and our product penetration in the upper tiers of our product assortment. So we're very encouraged by that and expect the -- you'll start to see the progress that we've called out for fiscal '24 in Q1. And as we think about the $400 million that we committed to in Investor Day, we have achieved in fiscal '23, about 1/3 of that $400 million. So we're right on track for where we want to be. We expect another 1/3 or perhaps a little bit more in this year, in this FY '24. And so we're right on track with where we want to be for that $400 million commitment. We've -- we're on pace. And of course, as a cost discipline muscle, we are always looking for more. So we have a number of initiatives. I called out some in terms of AI that we're continuing to develop as we move forward and hope to overachieve as we move into -- through the strategic planning time line.

All right. Well, thank you, everyone, for joining us today and we look forward to engaging with you at our Annual Shareholder Meeting and first quarter fiscal '241 earnings call in early August. Until then, take good care.

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