Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Fourth Quarter and Full Year Fiscal 2024 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'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 fourth quarter and full-year 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 adjusted 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 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. Defined 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, Cori. Good morning, everyone, and thank you for joining today's call. As we close out year two of our next great chapter Accelerate Plan, we are proud to have delivered strong progress once again on our core strategic and financial commitments. Supported by the incredible dedication and agility of our teams, this year's performance underscores, both the strength and resilience of our multi-levered plan. In particular, we drove progress on, first, clearly increasing the desirability of our timeless brand, which is resonating with consumers of all ages and enabling continued pricing power in the market. Second, leveraging the breadth and authenticity of our lifestyle portfolio of products. And third, continuing on our long-term strategic pivot toward direct-to-consumer channels, which now represent about two-thirds of our total business compared to 55% when I joined the Company. This is where we can drive the best expression of our brand and own customer engagement while reducing our exposure to wholesale. All of this is underpinned by our key enablers and culture of operating discipline. These are key differentiators behind our consistent execution, which enable us to fuel our strategic growth initiatives for the long term. We closed out fiscal year '24 with solid fourth-quarter performance, including top line growth and operating margin expansion that exceeded our expectations. For the full year, we delivered 3% top line growth with 40 basis points of operating margin expansion, driving more than 20% adjusted EPS growth. Results were at the high end of the targets we laid out last May, even with unexpected macro headwinds across several of our key markets throughout the year. This year's performance also puts us firmly on track with our long-term financial commitments and demonstrates continued progress across our three strategic pillars. As a reminder, these include, first, elevate and…

Thank you, Patrice, and good morning, everyone. Fiscal '24 was an important year for Ralph Lauren. Our teams executed exceptionally well in what continues to be an uncertain broader operating environment. We delivered on the financial and strategic commitments we laid out over a year ago. We continued to elevate our consumer experiences, products, and storytelling, driving both our continued shift towards higher-value consumers and 28 consecutive quarters of AUR growth. And our timeless brand brought truly iconic moments that only Ralph can deliver to our consumers around the world. We achieved all of this while continuing to drive greater efficiencies and invest in our long-term strategic priorities to enable future sustainable growth. In addition, we returned approximately $600 million to shareholders in the form of dividends and share repurchases this fiscal year, on track with our Investor Day commitment to return approximately $2 billion through fiscal '25. And this morning, we announced a 10% increase in our quarterly dividend for fiscal '25. Let me take you through our financial highlights, which as a reminder are provided on a constant-currency basis. Total Company fourth quarter revenue growth of 3% exceeded our expectations, driven by continued strength in DTC and better-than-expected sequential improvement in wholesale. This year's earlier Easter contributed around 50 basis points to Q4 results as planned, but will negatively impact next quarter. By region, Asia once again led our performance with sales increasing high-single-digits. North America grew 2%, and Europe was up slightly, both ahead of our expectations. Total Company comp increased 6%, led by strong performance across brick-and-mortar channels. Total digital ecosystem sales, including owned sites and wholesale digital accounts grew mid-single digits supported by strong results in our owned and pure-play sites in Europe. Total Company adjusted gross margin expanded 510 basis points in the quarter…

[Operator Instructions] The first question comes from Jay Sole with UBS.

Great. Thank you. First, Jane, I just want to say congratulations and thank you for all the great things you've done at Ralph Lauren at your time there and continued success as you transition to the COO role. I have two questions. First for Patrice.

Thank you, Jay.

You delivered on your fiscal '24 -- thank you, Jane. You delivered on your fiscal '24 targets and your guidance is calling for continued top line growth and operating margin expansion for fiscal '25, which will land you at your three-year targets. But the global environment still seems tough out there with competitors calling out challenges in Europe and China. Can you talk about what you are seeing in the business that will enable this continued momentum? And then secondly, just on the guidance for this year, how are you thinking about direct-consumer channel growth versus wholesale channel growth? Thank you so much.

Jay?

Hello? Can you still hear me?

Sorry. Can you repeat the follow-up question?

Yeah, sure. The second question is, can you talk about how you're thinking about DTC channel growth for fiscal '25 versus wholesale channel growth? Thank you.

Sure. Well, good morning. So just on your first question and then Jane will cover your second question. Fiscal '24 was a strong proof point that our strategy continues to deliver, even with the continued macro and channel headwinds out there. And we were really encouraged that we were able to deliver at the high end of what we guided at the start of the fiscal year. And that we reinforced that we're on track with our three-year targets, both on the top and the bottom line, including our 15% operating margin constant-currency goal. Overall, I would say that the key areas of strength that we saw over the past fiscal year are what we expect to meet again in fiscal '25. Our strategy is working and we're going to continue to execute on the key tenants of it. So first, I'd say we're driving continued momentum in our brand elevation and brand heat. And you saw -- you heard in the script some of the key data that supports that with a lifestyle product offering that is really connecting with consumers around the world, whether that's in Shanghai, LA, or Paris. The Australian Open is actually, a really good example of a franchise that we've built in just a few short years, and our outsized growth in net promoter scores is an important indicator of our brand desirability and the strength of our business. And next up, we have Wimbledon, gaming championships, the Olympics, the US Open still to come this summer. So a lot of brand events that will help us continue to drive this brand [deep] (ph) and desirability around the world. Second is our pivot to DTC, and our pivot to DTC continues, right? You saw the strong performance this past quarter on comps for DTC, and in fiscal year '25, we expect DTC to lead growth again with healthy increases across both brick-and-mortar and digital channels following the in-store interventions we made over the last year and our online storytelling. And third, we're leaning into our multiple drivers of growth also from a regional standpoint. So Asia continues to scale up nicely with company-leading revenue growth and margins that are now strongly accretive to the total company. So like in fiscal '24, we expect positive growth across every market in Asia this coming year, led by China. And Europe has also outperformed our expectations despite all the macro headlines ranging from challenging consumer sentiment to high inflation. This speaks to our brand's strong and elevated positioning across the region and momentum across channels in the market, where we delivered the highest AUR growth last year. So we're obviously, not immune to market challenges. However, we talk a lot about agility in this Company, as well as our diversified drivers of growth. And this is serving us well as we focus on consistency of strong execution on top of all the moving parts. And then on guidance, I'll turn it over to you, Jane.

Sure. Jay, we continue to be optimistic and confident about our DTC growth. While we're still cautious about the macros, we're expecting our DTC growth to be in the range of we -- where we landed for this year in about a mid-single-digit growth range, and then we are expecting wholesale business in North America to be about better aligned to where we saw our sell-out in North America, which was down low to mid-single digits to be that second-half trend will continue through the full-year in North America. That's our call right now as we think about where we'll be. And then EMEA, you know, there is -- there's been some quarterly volatility. We expect there to be some quarterly volatility as we come into this next year, especially as we look at Q1 and Q3 due to shipment timing, but in general, we're looking for growth in European wholesale in that low single-digit range.

Great. Next question please, Angela.

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

Hi. Good morning, everyone. And, Jane, congratulations and continued best wishes at Ralph Lauren and after. And can we dig a little deeper into your outlook for North America this year? Outside of wholesale, which was still guided down, but moderating from the declines of the past year, how do you think about the rest of the business and margin opportunities? And can you reach your total operating margin target of 15% if the wholesale channel remains weaker? Then I have a quick follow-up.

Sure. Thank you, Dana. And let me start where you left off and just say that we are on track to achieve our 15% constant-currency target this year even with some modest declines from North America wholesale, and importantly, we expect all three regions to contribute to margin expansion. So we feel really good about the geographic diversity of our margin expansion this year. Let me just take a step back and take a high-level view on your question on North America and particularly North America wholesale. It now represents about -- North America wholesale now represents a meaningfully smaller percentage of our business, down from -- it's now about 16% of our business down from about 25% of our business previously. So the impact as we shifted to DTC has reduced meaningfully. And similarly to the broader company, we're really encouraged by our performance in the DTC channel, and that carries through to North America in this coming year. We expect DTC to continue to lead North America growth with healthy comps across our stores and digital, plus a handful of new store openings in North America. And on the wholesale side, while we still expect declines in North America, as I mentioned, we expect a meaningful improvement from where we landed this year at about 10%. We expect, as I said to be much more aligned to where we saw sell-out in the second half or in that down low-to-mid single-digit range, and we feel good about how our inventories are positioned in the channels. And we also are encouraged by the investments that we're making in wholesale. We continue to invest in the top 100 doors there and I feel good about our partnerships across that channel. On the gross margin side, we are expecting benefits from cotton costs and less channel mix pressure from wholesale, and that's expected to drive North America operating margin as we move into fiscal '25.

And your quick follow-up, Dana?

You have a follow-up. Yeah.

Yeah. The follow-up on AUR, which has been so strong in the past few years, how are you thinking of the progression this year? And I think the target has been around mid-single digits that you stated. How should we be thinking about AUR growth going forward?

Yes, Dana. We're really proud of our AUR growth over the last 28 quarters. It's been grounded in brand elevation and it's been based on multiple factors that have driven AUR over the last years. And what we're confident about is that we can continue to drive AUR growth. We're going to drive it through brand mix, channel mix and geographic mix. Those things are durable and stable into the coming year. And we're going to have some pressure release for not having to take the -- so much like-for-like pricing because of the cotton benefits and productivity benefits that we see coming into this year. So as we look forward, we expect our AUR to be in the mid-single-digit range. And of course, there may be some variability by quarter. Any good plan has alternate strategies that we can execute at any given time, and we'll do that as we see the market evolve. But our outlook now and our guidance is grounded on that mid-single-digit range.

Great. Next question, please.

Thank you. The next question comes from Matthew Boss with JPMorgan.

Great. Thanks, and congrats on your next chapter, Jane.

Thank you.

So, Patrice, given your multi-year elevation effort, where do you see the brand positioned today, maybe versus your ultimate goal in both the US and Europe? And coming off the mid-single-digit global DTC comps, could you just elaborate on new customer acquisition trends that you're seeing? And then, Jane, just on SG&A, help us to think about SG&A relative to revenue growth moving forward.

Sure. Good morning, Matt. So first, I would say we feel really good about the progress we're making on the brand positioning and the brand elevation, right? And our core strategy continues to be, as Jane -- as she just mentioned, brand elevation because there's significant runway ahead for us around the world. What we are seeing in the consumer perception data is very encouraging, very strong brand consideration, score improvement, very strong, purchase intent strengthening, and net promoter scores that are building quarter-on-quarter. So feel very good about that. And I think, Matt, you know this business very well. What's pretty unique about us is the breadth of our portfolio and the breadth of our appeal, right, because we appeal to eight-year-olds and we appeal to two-month olds. We have this broad range of products. And I think our brand positioning at this point in time in particular with the core values of authenticity, timelessness, style, quality are really resonating around the world. The elevation is never going to stop. So you can expect us to continue to fuel that through our storytelling, through our product offering, and through the consumer experience that we offer, both online and in brick-and-mortar stores. In terms of new consumer recruiting, which is part of our lifeblood, right, we often talk about the fact that the key drivers of top line growth for us are going to be bringing in new consumers, select unit growth, and AUR growth as Jane just talked about. Another strong quarter of new consumer recruiting around the world, over 1 million for this quarter, 5.3 million for the full fiscal year, close to 60 million social media followers now, up double-digits. We -- our new consumer recruiting machine across our different DTC channels is working well. This is DTC data. Fortunately, we don't have wholesale data, but it's working well and we're going to continue to lean into that, leveraging the breadth of our marketing programs that range from the sports partnerships that we have with the Olympics coming up to celebrity dressing to different activations that we have in the gaming space and so on and so forth. So I'm very encouraged by the overall momentum that we're seeing on the brand by the breadth of the appeal, and one of that -- I think the major pivots that we've been able to achieve over the past few years is this appeal to that younger generation, making the brand hot again for that younger generation in every markets around the world, and we're going to continue to fuel that.

And then, Matt, just on the second part of your question on SG&A leverage. Our fiscal '25 guidance implies about 30 basis points of SG&A leverage on our about 3% constant-currency top line. That we expect will be pretty consistent as we look at the second, third and fourth quarters in the first quarter, driven by the fashion show. We do expect a little deleverage, but entirely driven by marketing. And so you'll start to see our SG&A growth be behind our revenue growth in -- following Q1.

Great. Next question, please.

Thank you. The next question comes from Michael Binetti with Evercore ISI.

Hey, guys. Thanks for taking our question here. Jane, let me add my congrats. Thanks for all the help here over the years. I guess as we look at the AUR elevation strategy over a couple of years, I think the first parts of that strategy were in the DTC channel. I think you started working more recently on AURs in the wholesale channel. When you look at North America, in particular, given the guidance that you just gave us, how do we think about AUR versus units in that channel? I think you've been -- I think you're targeting trying to get units to a place of stability for a long time. I don't think it's probably stable or positive in the guidance you gave us. I'm just curious how you think about that this year and longer term. And then on North America, I guess the DTC growth, you gave us a number this year. I think you said mid-single digits for the year. Maybe this year and then longer term also how can we think about how much of that growth comes from the full-price channel compared to channels like the outlets? I know you've made a lot of progress changing what the shopping experience is in the outlets, but I think historically, that's been a little bit more of a price-constrained channel. So I'm curious how you see the portfolio evolving. Is more of the growth still going to come from the outlet channel, and how you balance that with what you want to do with AURs across the DTC business?

Sure. Thanks, Michael. One of the things as I step back from your question, we believe our brand elevation, our pivot to ecosystems and our pivot to DTC is going to continue to drive AUR growth into the future. So stepping back from that, in wholesale, we've always said that wholesale, especially in North America, is a few clicks behind what we've seen in DTC. I mean, we started this journey even pre-COVID saying we're going to lead with our DTC channels followed by wholesale. And we're very encouraged by what we've seen. In FY '23, we saw AUR -- strong AUR across wholesale in North America and in Europe. And that continued into FY '24, although as we closed out the year at a more moderate pace. We saw wholesale AUR growth in the third quarter and in the fourth quarter. And so we expect that to continue through FY '25. That will have some pressure on units, but we feel good about where the product mix is going in wholesale, our focus on those top 100 doors, and our ability to elevate that experience and elevate our product offerings in wholesale. We feel it's a strategy that's working. And you can see that in our guide coming into '25 where we expect a meaningful uptick, although not too positive in North America wholesale. And then just on DTC, what we've seen over the past two years is that our full-price stores have led our growth. What's encouraging to us with some of the investments that we've made in our outlet stores is that gap is narrowing. That's a positive thing because it means our outlet growth has accelerated. That's a dynamic that we're happy with and the dynamics that we expect to continue into FY '25. We expect that gap to be narrowed, but not based on a slowing, but based on better trends in outlet.

And I would also add, Michael, that we expect to continue to expand our full-price store footprint in the US so that will be an additional accelerator for the full-price business, which will continue to lead our overall DTC brick-and-mortar, whereas we do not expect to expand our outlet footprint.

Next question, please.

Thank you very much.

Thank you. Next question comes from Ashley Helgans with Jefferies.

Hey, good morning. Thanks for taking our question. So we just wanted to ask about gross margins with the first quarter up kind of in the 140 bps to 180 bps range, for the rest of the year, 50 bps to 100 bps. If you could just kind of give us the puts and takes? And then any update you can give us on traction you're seeing with younger consumers that'd be great. Thanks.

I'm sorry. Ashley, could you just repeat the last part of your question? I got the gross margin puts and takes.

Yeah. Just any sort of traction that you can talk about that you're seeing with the younger consumers.

Just in terms of gross margin drivers, we were very pleased with our gross margin expansion in Q4 up 510 basis points in constant currency. That was really driven by a few things. One, strong AUR growth. And what drove that AUR growth was a favorable channel mix, favorable geographic mix, product mix, and a significant pullback in discount. As we came into the fourth quarter, we were super tight on inventory and had much less going into clearance or in off-price channels. We also saw from a gross margin standpoint after AUR growth that freight continued to be a tailwind for us of about 100 basis points. And of course, this was the quarter where cotton turned from a headwind, which we've seen for the first three quarters into being about neutral into the fourth quarter. Then we had some pressure from FX of about 30 basis points. And then as we look forward, Ashley, we are seeing in FY '25, our continued gross margin expansion of 50 bps to 100 basis points, largely premised on lower cotton costs and some significant cotton recapture. About half of the cotton that we expect to recapture about 90 basis points will come into this fiscal year, you know, being a little heavier weighted to the back half and continued channel and geographic mix. We, of course, expect AUR growth to continue with a few headwinds in terms of some small incremental Red Sea pressures that we see now, obviously, FX and the weaker yen and some other product costs, higher labor costs in some of our markets and some inflation in non-cotton materials. But overall, pleased with where we landed the year and encouraged by our continued gross margin expansion journey into fiscal '25.

And Ashley, on new consumers. So new consumer -- younger consumers are leading our new consumer recruiting as a whole. So our penetration of younger consumers is increasing so think next-gen below 35. Very encouraged to see that. We have very targeted marketing activations to enable this. So this isn't just a result of luck. It's by intent. I think some of the things that we're doing on gaming and I think we're all learning the vocabulary here because of our T1 team winning against our G2 team. So we're sponsoring. Gaming teams are performing particularly well. You heard in the prepared remarks that our T1 team won the Global World of [Allegiance] (ph) tournament globally. We have significant activation with celebrities as well and a lot of them are spontaneously wearing us, right? There's a lot of heat around our polo hats, especially among younger women consumers, Taylor Swift wearing it, Jennifer Lawrence wearing it, and the list goes on. We're clearly in the conversation. If you track what's happening in social media and the conversations going on there, you'll hear and you'll see talk about Ralph Core, which obviously, we're really pleased to see. So good energy on that front. Our net promoter scores are growing the fastest among our younger consumers as well. So clearly, the experience they're having on our site and in our stores is resonating with them. So very encouraged by what the teams are doing in the markets to recruit those young consumers. Listen, we know that's the lifeblood for the Company for the long term and we're going to continue to lean into that.

Next question, please.

Great. Thanks so much.

Thank you. Next question comes from John Kernan with TD Cowen.

Thanks for taking my question, and Jane, congrats. You've done a phenomenal job.

Thank you.

Just on Europe. The comps in the direct business have really inflected here double-digits in the last two quarters. Its penetrate -- DTC penetration in Europe is a lot lower than North America. How do we think about DTC and wholesale in Europe with that -- the wholesale channel being a tough macro period right now?

We've been -- so yes, good reminder, John, that the context is challenging in Europe. But our teams are doing a terrific job, I think connecting with consumers and leveraging the different channels. You saw the DTC performance this past quarter up double-digits, both brick-and-mortar and digital. So really nice momentum. Our flagship stores are hitting record highs this year across different key cities in Europe. And -- so we expect to continue to drive that. We have really nice plans in terms of footprint expansion for stores across Europe. You remember at the beginning of this journey, we were at 19 stores across all of Europe, right? I don't have the exact number here, but I think we're closer to north of 50 stores at this point with actually more to come. So opportunities to continue to expand our footprint. The team is doing a great job driving comps in our full-price stores. On digital, there's really good momentum on our own digital, which we have a number of levers that we have now a good handle on that we're going to continue to push. And then on the -- so expect, I think the share of DTC to continue to expand, John. On the wholesale side, it has been -- it's a mix of both pure-play and obviously brick-and-mortar and then bricks and clicks. We've seen recent strength in -- with our pure players as we align strategies with what they're focused on, including our biggest pure-play partner in Europe, Zalando, where we're now both on an elevation strategy, which is serving us really, really nicely. We've done some reset this past year in Spain and in the UK for wholesale, consistent with our philosophy and approach in the US, both with the ECI and the Frasers Group. So working off a healthier foundation and feeling like the work that the teams are doing on the ground in terms of getting the brand connected to the consumer, to Ashley's earlier question, getting connected to that younger consumer is working well. So we remain cautiously optimistic about that region. We are not oblivious to your point, John, on all the headwinds out there, whether that's inflation, consumer sentiment, obviously, the two wars that are going on, which is why I think our guide -- we feel our guide is right based on the current conditions, but are excited about the momentum that the team is driving there.

Yeah. I would just summarize on the guide to say it's premise of more normalized wholesale trends and then solid continued comp growth across all DTC channels. So really encouraged. We recognize and I think are clear-eyed about the challenges from, as Patrice mentioned, the war, inflation pressures, but cautiously optimistic about it.

Great. Well, go ahead with our last question, Angela.

Thank you. Our final question comes from Laurent Vasilescu with BNP Paribas.

Thank you very much for taking me -- taking me as a last question. Patrice, I think you mentioned Asia will grow high-single digits, but will be led by China. I know you don't mention or don't talk about quarter-to-date trends, but just love to get your perspective on what you're seeing in China. And then Jane, I have to ask a modeling question for your last earnings call. How do we think about marketing as a percentage of sales for the year? And then I think you mentioned because of the activation in the first quarter around marketing, how do we think about it for the first quarter as well? Thank you very much.

Thank you, Laurent. Listen, we're all really proud of our team's execution in China, and the momentum that's been built and that's been sustained over many quarters and years now. And China now represents about 7% of our total business. It was 3% prior to COVID. So clearly, strong growth and we expect it to lead the growth for the Company moving forward. I think that -- you're right that we don't comment on inter-quarter performance, but the general perspective on China is listen, the consumer is pressured, right? We know the consumer sentiment is challenging there, but we're continuing to do very well. We grew double-digits this past quarter on top of 40% the year prior because it was a COVID reopen quarter. So nice continued momentum across our key cities, strong AUR growth. What's really working there is the team is doing a great job connecting the brand with the local consumer, tapping into this whole quiet luxury moment. I think the core values of the company and what we stand for is really connecting with the consumer very effectively. Our core products, our staples, our icons are really resonating. So think cable knit sweaters, think our Oxford shirts, polo shirts, unconstructed jackets, we're seeing consumers lean into that. Then the ecosystem that we focus on these top six cities that we've historically called out is working quite effectively across the different channels. So strong performance this past quarter. We expect that to continue. Of course, you know, we have to take into account that the 30% growth we delivered this past fiscal year in China benefited from a weaker base period. So if you kind of remove that, we expect China to return to strong but more normalized compares following the different COVID lapse, still driven by the brand energy and the brand heat and the brand momentum that we have there. Ralph core also resonating there. Our -- the breadth of our product offering and the excellent execution of the team from an ecosystem standpoint, fueled in part by continued expansion, right? So not only do we have comp growth, but we're continuing to expand our footprint from a store standpoint.

Okay, Laurent, for my last question. Remember, Q1 is going to be -- we expect growth on a revenue basis to strengthen as we move into Q2, Q3 and Q4. But Q1 will represent a meaningful growth in marketing expense, up double-digits. And then as you look through the balance of the year as a percentage of sales, I think that what we spent in Q and in fiscal '24 is a pretty good proxy with a little more marketing expense growth in the second quarter given that that's the Olympic's quarter.

All right. Well, thank you everyone for joining us today. On behalf of Ralph, myself, and the entire Ralph Lauren family, Jane, we want to express our deep appreciation for everything that you have achieved as you conclude your tenure as CFO of this company. We look forward and I look forward to continuing to partnering with you as our Chief Operating Officer. And we also extend a warm welcome to Justin, who several of you have already met and many of you will have the opportunity to meet in the coming months. We will host our virtual annual shareholder meeting and first quarter results in August. And until then, take care and have a great day.

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