Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Second Quarter Fiscal Year 2024 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. I'd 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 second quarter fiscal 2024 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, our financial performance will be discussed on a constant currency basis. Our reported results, including foreign currency, can be found in this morning's press release. We will also be making some forward-looking statements within the meaning of the federal securities laws, including our financial outlook. Forward-looking statements are not 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 and principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings. To find disclosures and reconciliations of non-GAAP measures that we use when discussing our financial results, you should refer to this morning's earnings release and to our SEC filings that can be found on our Investor Relations website. With that, I will turn the call over to Patrice.

Thank you, Corey. Good morning, everyone, and thank you for joining today's call. We continue to deliver solid progress on our Next Great Chapter Accelerate plan in the second quarter. Through an uncertain global macro environment, our iconic brand and timeless products continue to resonate with consumers all around the world. And our multiple engines of growth across categories and regions, enable our teams to deliver against our strategic and financial commitments even in a choppier backdrop. Second quarter results exceeded our expectations on the top and bottom line. We were particularly encouraged by an acceleration in our retail performance with positive comps across every region and channel in the period. The strength and growing desirability of our brand is underpinned by our continued pricing power, with AUR up another 10% on top of 18% growth last year. In addition, consistent with our plan, we continue to focus on balance sheet and expense discipline. This is fueling our investments in high-impact brand moments spanning geographies and demographics, all while delivering profitability ahead of our expectations. Looking ahead, as the important holiday season gets underway, we are executing on our long-term game plan and keenly focused on what we can control. We are elevating our brands and positioning in the marketplace while staying grounded in the realities of the macro environment. With more than six consecutive years of AUR growth, a cumulative increase of over 70%, we are confident in our pricing power in the market. Now it's important to remember that AUR growth is an output of our overall elevation work that has included evolving our product categories, product mix, and shopping experiences in addition to promotional pullback. This fundamental reset in our pricing architecture gives us the flexibility to continue driving our long-term brand elevation while also reacting with…

Thank you, Patrice, and good morning, everyone. We drove second quarter results ahead of our expectations while making strategic growth investments that will continue to support our business in the second half and in the long term. Second quarter revenue growth exceeded our guidance driven by better-than-expected performance in our DTC channels in North America and Europe, along with continued momentum in Asia, led by China. Gross and operating margins were also above our outlook despite ongoing cost headwinds and high levels of strategic investments in the quarter as planned. Our continued brand elevation, favorable channel, and geographic mix shifts, coupled with our focus on cost savings and productivity fueled our investments in sustainable long-term growth. Leveraging our strong cash flow, we delivered approximately $275 million to shareholders in the form of dividends and share repurchases this fiscal year-to-date. We are on pace with our long-term shareholder return commitments while maintaining our fortress balance sheet one of our key enablers that serves us well through times of uncertainty. With this discipline, we entered the holiday season with clean and healthy inventories. With our elevated brand clear strategy and targeted investments, we are proud of the progress we are making on our multiyear Next Great Chapter Accelerate plan. We remain committed to both our fiscal '24 outlook outlined back in May and our three-year targets, while recognizing that we are still operating in a highly volatile environment. Let me take you through our second quarter financial highlights, which, as a reminder, are provided on a constant currency basis. Total company revenues in the second quarter increased 2% led by double-digit growth in Asia. Revenue in North America and Europe declined slightly to last year, with Europe impacted by timing shifts as noted on our last call. Total company comp increased 6%,…

[Operator Instructions]. The first question comes from Michael Binetti with Evercore ISI.

Maybe two quick ones here. Patrice, you guys maintained the outlook for the year, you referred to, obviously, the macro uncertainty in the prepared remarks. What do you think about as the factors in your control that enabled you to maintain the back half commitments and beyond, especially if the environment deteriorates further from here? And then I guess, maybe a jump all for both of you, but how do we think a little bit beyond this year on the wholesale side, particularly in North America, you made some comments on your thoughts on the channel now. Do you feel like the channel is under-inventoried at this point? And how do you think about the opportunity to fill in wholesale next year as we look a little bit beyond the calendar year?

All right. Well, Michael, welcome back. Thanks for your question. Our teams continue to execute really well in a tough environment. And while we're planning for things to remain choppy for the foreseeable future, I think this quarter showed once again that we can deliver on our commitments. There are a few reasons for that, and I just want to call out the top three. First one is our brand is our most powerful asset, and we're driving momentum and desirability. As we cut through culture and appeal across generations through a variety of platforms, I actually think we have probably one of the most diversified broadest marketing programs in our space, ranging from the fashion show we did recently at New York Fashion Week, to two sports partnerships, Wimbledon and Ryder Cup U.S. Open just this last quarter through dressing celebrities like Beyoncé, you heard that in the prepared remarks to actually influencers wearing us spontaneously to gaming with Fortnite. So, a broad range of activities. We continue to invest in our brands for the long term, and we're seeing consumers respond to that. The second point, which is actually quite important during challenging periods like this for consumers is our iconic core products anchor us think beautifully made casual wear sweaters, maybe blazers, tweet jackets, Oxford shirts, really the foundations of a wardrobe. And these timeless products deliver through cycles and when things get more challenging, we know consumers tend to gravitate back to core products, products, and brands they know and trust. And in addition to that, we continue to have significant growth opportunities in women's and in outerwear. And then the third point, and you heard this in our prepared remarks, is our DTC channels are really where we can best control the consumer experience --…

Even though I can't jump very high. Let me just frame the thinking that we have on wholesale longer term and to date. Wholesale is an important environment for us, for consumer discovery. We know from our consumer work that when a consumer buys and experiences Ralph Lauren quality, we can hook them. And so, it's an important and profitable channel for that important consumer discovery. Just from what we've done for many years, our focus on managing matching sell-in to demand and tight inventory management is something that we're doing today. Our inventories are well controlled and something that as we think about the future is something that we have to continue to lean into, along with leveraging our core, which resonates well with that consumer being able to chase into variable demand allows us to meet those consumer needs, and I think will serve us well into the long term, working with our partners to personalize our marketing with loyal consumers that we have across the channels. And then importantly, all wholesale is not created equal. There's a bifurcation between top-tier wholesale, where we're growing, and doors across the markets. Top city, top doors are performing meaningfully better the balance of fleet. And that's where we can do some interventions that Patrice described that are working in DTC, like investing capital and renovating, make sure we have great environments, investing with our partners in greater service levels. We know that, that works, those doors are performing better and is a place where we can concentrate resources and give an ROI. So, I think we have a good operating game plan and strategic game plan for wholesale. Where -- we saw pullback in about two-thirds of our doors, we evaluate every day, where should we be and looking at that on a door-by-door basis and we'll continue to do that into the future.

The next question comes from Bob Drbul with Guggenheim.

Good morning, and thanks for taking my question. Patrice. I guess, Jane, can I follow up on the balance sheet? The balance sheet is very strong. We've heard some of your peers update their capital allocation strategies. And what Patrice just referred to as early uncertain environment, how are you planning to manage the balance sheet capital allocation going forward? Are you doing anything differently? And also, can you just elaborate a bit more in terms of I don't know, country trends or really what you're seeing throughout Europe with the outlook that you've given us again? Thank you.

Sure. Thanks for the question. The current operating environment is volatile. But our performance through it makes us even more committed to our strong balance sheet and culture of operating discipline, all of the things that are really critical to our Fortress Foundation with the agility of our team, it's what really enables us to continue to drive the plans through tougher times. And we think that our focused foundation and the way we manage our balance and our commitment to capital allocation is increasingly a strong differentiator for us -- and we're always interesting and interested in doubling down on just differentiation. So, I think the short answer is we're going to continue on passionate about discipline in managing our balance sheet and sticking with our capital allocation principles, which drives growth and investments and return capital to shareholders. And it's not just words and principles, it's producing results for our shareholders. We're on track with our capital allocation and shareholder return commitments that you heard us talk about at Investor Day. At the halfway mark, we returned about $1 billion to shareholders in the form of share repurchases and dividends. Our cash position remains extremely strong. We're in a net cash position, and our leverage is nearing our historical levels and those levels are usually low with our targeted one-time to two times EBITDA leverage. And our inventories are clean. Our inventories are down 5% this quarter with units down double digit. And importantly, North America inventory was down double digits and Europe in constant currency was down mid-single digits. Again, we expect to end the year tight inventory discipline that inventory will be down as we exit the year, improving our overall terms. So, we're more committed than ever Just on the country trends that we're seeing across Europe.

I'll jump on that training balls. So, Bob, I think there are a few observations that apply to all the regions, and then I'll give you specifics for each individual one. So, the observations applied to all the regions is environment is choppy, but our core consumer remains resilient, right? And we're seeing actually a nice growth with our core consumer a higher value, less price-sensitive consumer, and that's true across all three regions. We're also seeing really good performance this quarter. I think it's one of the highlights of the quarter in our DTC channels across all the regions. So, every channel, every region, positive comp growth, brick-and-mortar and digital. Third area is we are continuing to recruit new consumers, and we're continuing to recruit new consumers in Asia, in North America, and in Europe, higher value, less price-sensitive younger consumers. And our general internal metrics of traffic and ADT and AUR are consistently up across all three regions. So those are common elements. We have seen improvement in our outlets with our, particularly our more value-sensitive consumers. The interventions that Jane and I have been talking about have been impactful during the past quarter. So, we're quite encouraged by the strengthening that we've seen in our outlet channel and our ability to really connect with that smaller consumer group, but still they are a value-oriented consumer. Now if I look at things by region. So North America, our biggest region, down 1%. Again, DTC growing right, comps up 4% in DTC and North America, growing across all the channels. The pressure Jane mentioned, it is more in wholesale. And here, we have differentiation between high-end wholesale, as you highlighted, Jane, the markets of this world where we are growing the top doors of our largest partners where we…

The next question comes from Matthew Boss with JPMorgan.

Great. Thanks. Patrice, so maybe could you elaborate on the structural building blocks that you've put in place, which you think drove the material acceleration at direct-to-consumer here today? And then how you see the brand position in the holiday to potentially continue to take share? And then, Jane, could you just outline the drivers of the raised gross margin outlook for this year? And if there's any change to mid-teens operating margins as the target as we think to next year?

Good morning, Matt. So, our game plan continues to be driven by our overall goal, which is and strategy, which is brand elevation across our three pillars: brand building, driving the core, and expanding to more from a product standpoint, and expanding our TCD ecosystem. What we have seen in terms of short-term interventions that have really resonated well in DTC have been the work that we've done on products leaning harder into core because during these challenging times, as I mentioned earlier, consumers are gravitating towards core products. And for us, those are our more elevated products, so less seasonal items, less tees shorts and fleece and what are truly iconic Ralph Lauren products, jackets, Oxford shirts, heat separate, cable mix sweaters. That's on product. When it comes to digital, part of the improvement has been also driven by an enhanced search capability that we've implemented as well as different brand presentations for our ADT product description pages, which are driving both traffic, ADT and conversion -- for our outlets in particular, we relooked at our staffing model to make sure that we're providing the consumer with a great experience every single day and hour of the week. And that shift has actually translated into stronger traffic, stronger ADT, stronger AUR across the channel. And then I referred to our broad marketing program earlier, and I think the team is doing a really nice job making sure that each individual element is connecting with that target customer and we're seeing the benefits of that. And then finally, I would add, as Jane and I mentioned earlier, that for those more value-oriented consumers, we have done in a very limited and very targeted way promotional activity that has helped close the sale with them. And what we're pleased about is…

Just on gross margin, Matt, we're really pleased to raise our outlook to 120 basis points to 170 basis points of gross margin expansion in constant currency for this year. There are really three primary drivers. Freight, we are seeing upside in freight, notably in ground transportation that's more than offsetting cotton headwinds now. So, more opportunity in freight -- we are also seeing upside in AUR. We put up a double-digit AUR growth this quarter while growing gross margin and reigniting DTC. So, we believe that for Q3 and Q4, we have upside to our AUR and channel mix. The acceleration in DTC that Patrice called out in Q2, we'd expect that performance to continue for the balance of the year. We still have a cost headwind in cotton. But again, I think we've more than fully offset that. And we're seeing some of our productivity initiatives flow through, as we said, a little more balanced in COGS than in SG&A, but we are realizing those productivity initiatives, and that's gross margin as well. So very encouraged by that. And as we look at the progress we've made this year, there's no change in our Investor Day guidance to mid-teens constant currency OI growth. We remain firmly committed to that goal and firmly committed to our outlook in FY '24, while recognizing that we're operating in a highly volatile environment. We know what we need to do we need to continue our top-line growth. We need to continue to drive our cost productivities. And we need the investments that we're making and the investments that we're making, we know will pay off not only in the second half but into FY '25. So, we're happy to remain committed, and to our Investor Day guidance of mid-teens.

The next question comes from Rick Patel with Raymond James.

Thank you, good morning, and congrats on strong execution in a tough macro. I was hoping you could help us understand the higher comps in the outlet channel impressive results given the pressure on the consumer there. Can you talk about the changes that you implemented that drove that result and how we should think about the sustainability of that growth going forward?

Sure. It's really the execution of the different strategic pillars that we have in place. So first, I think as we talked earlier, be leaning into our core products and we see consumer -- strong consumer response, both on our men's business, very strong response on our women's business, strong improvement on our kids’ business. So, leading into core products, it's been intervention one, Rick, that's going to keep going, right? Intervention number two has been customer experience and making sure that we're servicing the customer in the right way, consistently throughout the week. And we know we have some opportunities to rebalance staffing and strengthen staffing in some areas to make sure that the customer walking through the door was getting the type of experience that they deserve from Ralph Lauren. Point number three is marketing activities and targeted marketing activities for that shopper for that consumer, leveraging both the centers, capabilities, and platforms and our own database. And then point number four, relates specifically to connected retail and how we leverage our connected retail capabilities. Now I don't know if you've been in some of our outlets recently, but we've implemented endless aisle screens, for example, where now you can shop the entire catalog from that store, full price outlet, anything that's available within the Ralph Lauren catalog, we also have digital clienteling for outlet customers, which has also been useful and driven the performance this past quarter and are structural. So, will continue to pay benefits moving forward. And then finally, as I highlighted earlier, for those more value-oriented consumers who need that little support to close the deal we have been able to implement limited targeted promotional activity further more value-oriented consumers while still being able to expand the AUR in that channel. So, five core interventions. I'm really proud of how nimble the organization has been as we've read consumer behavior, competitive environment. And we feel good that these interventions will serve as well through holiday and beyond.

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

Hi, good morning, everyone. Congratulations on the nice improvement. One of the things I noticed is when you talked about your core product and the improvement that you saw just in the core product, I think it was up high single digits compared to the first quarter up mid-single digits. In addition to the continuing strength of the women's outerwear and home business is up low double digits. In the core business, anything new on pricing, newness and product that you're seeing there that could continue as we move forward. And then on the AUR growth of 10%, how are you thinking of the magnitude of AUR growth for the balance of the year? And with new introductions like the RL 888, is that helping to drive AUR growth? And are you seeing anything different by region? Thank you.

Good morning, Dana. So, in terms of evolutions in our core products and products in general, what we're seeing is the consumer really gravitating towards this sophisticated casual, more elevated style. Right. And that's been consistent. We're seeing that both across men's and women. That really plays nicely to what Ralph and the teams have built over time, which is this notion of quality, luxury, authenticity, that's pretty -- I think, pretty unique to Ralph Lauren, and these are the categories that I highlighted earlier. So, our cash near cable mid-waters our tweet jackets, our garment dye Oxford shirts as illustration of that. We're going to continue to drive that. I think -- that's what consumers are looking for right now as they are more total in where they invest. They want to invest in pieces that are timeless, but they can wear beyond one specific season. So, we feel that's one intervention. Second intervention, which you will likely have seen, Dana, because you're quite close to all this, is the elevation that we're doing on Polo with the expansion of silver label. We had a beautiful campaign recently filmed in Goodwood, the Goodwood Festival that kind of highlights these beautiful new products so leather outerwear, suits, beautiful sweaters. And you're going to see us continue to lean into that because we're seeing strong consumer response within that. And then on the women's side, you highlighted it. We've been really pleased with the continued momentum we're seeing on women's, both on Polo, on collection, and on Laurence. So, across our women's portfolio. And again, these are iconic Ralph Lauren styles that you know well and that are really resonating with consumers right now?

Just on the near-term trajectory of AUR, as you mentioned, up 10% this quarter, we do expect there to be -- that we are past the peak of product cost pressures. So, the pressure to price with inflation a bit slightly in the balance of the year. But I think we're planning on AUR being in the high single-digit range as we close out the year. So again, strong AUR growth, what we're seeing is that consumers are penetrating into our higher-priced products. So, we're seeing a penetration increase into products over $100. We're also seeing our new consumers penetrate the new consumers that we're recruiting penetrate into higher AUR products, so higher individual products and higher basket. That's really given us the flexibility to do what Patrice talked about, which is reach a more value-oriented consumer with some highly targeted discounts, leveraging our one-to-one marketing personalization so that we can reach them directly. I don't expect to change in our AUR journey in the near term. And as you'll recall, AUR is really for us is about many levers. It's founded in the brand elevation journey that we're continuing -- and you'll see us continue our product mix elevation, which is going to where the consumers -- where consumer demand is going, but also building that agility and flexibility for us to continue to expand gross margins we took up our guidance and continue to drive strong DTC growth.

Dana, the way we talk about it a lot with our marketing teams is the following model: trade-in trade up, trade across, right? And those are the three kind of levers for us to drive growth. And given the breadth of our product offering and our lifestyle proposition, we have significant trade-up opportunities. So maybe sell less T-shirts, but more tweet jackets, more RL 888 bags, more outerwear, more So trade-up is a significant growth opportunity, which will serve us for years, if not decades. Trade across same thing. We bring you -- we trade you in and then there are so many different categories we can trade you across. So, I think these levers of growth kind of, again, roll back up to the diversification of growth drivers that this company now has. All right. It is time to close. So, thank you for joining us today and we look forward to sharing our third quarter results with you in February. Have a great day.

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