Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Corporation Fourth Quarter Fiscal Year 2025 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. If you should require assistance during the call, as a reminder, this conference is being recorded. I would now like to turn over the conference to our host, Ms. Karina Vanderkins. Please go ahead.

Good morning, and thank you for joining Ralph Lauren Corporation's fourth quarter and year-end fiscal 2025 conference call. With me today are Patrice Louvet, the company's President and Chief Executive Officer, and Justin Padicci, 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. 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, Karina. Good morning, everyone, and thank you for joining today's call. As we close out this third and final year of our next great chapter Accelerate plan, we are proud to have delivered strongly on both our strategic and financial commitments. Our achievements this fiscal year embodied so much of what Ralph Lauren Corporation stands for, as one of the most beloved iconic brands in the world. As Ralph would say, it's never been just about a tie or a polo shirt or a sweater. It's about the values that are so authentic to us. Quality, effortless style, time well spent together with family and friends, stepping into our dreams. This year's performance clearly demonstrates the growing desirability of our brand, which remains our most powerful asset and is resonating with consumers around the world. The breadth and appeal of our lifestyle portfolio of products, with an emphasis on elegant, timeless style and authenticity, and our proven key city ecosystem model enabling consumers to engage and transact with the world of Ralph Lauren Corporation like never before. These diverse drivers of growth spanning geographies, channels, and product categories have enabled us to successfully execute our plans while navigating global volatility over the past several years. And they will continue to drive our growth into the future. We reported fourth quarter results that exceeded our expectations on both the top and bottom line. This strong performance was broad-based, driven by every geography and channel. For the full year, we delivered 8% top-line growth, including record revenues for our international businesses in Europe and Asia, which together now comprise the majority of total company revenues. And adjusted operating profits grew 24%. This exceeded the expectations we laid out last May, even as we chose to invest in our long-term strategic…

Thanks, Patrice, and good morning, everyone. Fiscal 2025 was another successful year for Ralph Lauren Corporation. We delivered on the financial commitments we laid out last May and made meaningful progress against our long-term strategic priorities. We closed out the year with fourth quarter results that exceeded our expectations across revenues and gross and operating margins. All three regions contributed to both revenue growth and operating margin expansion. In addition to driving excitement and desirability for our brand and product around the world, we were especially proud to reinforce our strong quality of sales, consistent with our long-term elevation strategy. At the same time, our strong balance sheet and cash flow generation enabled us to continue investing behind our key strategic growth drivers while maintaining our commitments to shareholders. We generated $1 billion of free cash flow this year, enabling us to return $625 million to shareholders through dividends and repurchases. And our Board of Directors recently authorized a 10% increase in our annual dividend and an additional $1.5 billion in share repurchases to support future returns. These results are strong proof points of our multiple drivers of growth as we enter the new fiscal year in the midst of a more uncertain global consumer backdrop. Let me walk you through our financial highlights from the fourth quarter, which as a reminder, are provided on a constant currency basis. Total company fourth quarter revenue growth of 10% was above our 6% to 7% outlook, driven by better performance in both our direct-to-consumer and wholesale channels. This year's later Easter shifted about one point of sales growth from the fourth quarter into the first quarter of next fiscal year. By region, Europe led our performance with sales increasing 16%, followed by Asia up 13%, and North America up 6%. Total company…

You may remove yourself from the queue at any time by pressing star two. We ask that you limit yourself to one question per caller. Once again, please. The first question comes from Matthew Boss with JPMorgan.

Thanks and congrats on another great quarter. Thank you, Matt. So, Patrice, given the continued strong performance in a choppy environment, how are you thinking about the health of your consumer across regions, in today's more uncertain backdrop or what changes, if any, are you making to your strategy? And then Justin, maybe could you just help bridge the delta between high single-digit revenue growth in the first quarter relative to low single digits for the full year? Or what are you embedding in the back half by region relative to performance that you're seeing today?

Good morning, Matt, and thanks for your question. So I'm going to start with the last part of your question and then address the consumer, and then we'll turn it over to Justin. So first of all, the last few years have really demonstrated that our strategy can deliver through very different types of environment. We have strong brand momentum with significant potential to continue growing across key markets and to continue to take market share. And we have proven resilience in our business model supported by strong execution by our teams across our key cities around the world, our agile and diversified supply chain, and our powerful balance sheet. So I would say the backbone of our strategy is as relevant today as it was a few years ago, and will remain broadly unchanged. Obviously, we'll be sharing more updates when we get together later this year for Investor Day. Alright. But the key tenants are we're continuing to invest in our brand, and continuing to focus on driving desirability and value perception, across generations. We're continuing to leverage the breadth of our lifestyle portfolio leaning into products that consumers know and trust, from our iconic sweaters to Oxford shirts to pony caps, and then we're deepening and expanding our key city ecosystem go-to-market model. With our brand really resonating around the world. That's one of the things Justin and I are most excited about our recent performance is the breadth of our performance across the markets wherever you go. The brand is resonating from Milan and Munich all the way to Shanghai, Melbourne, and closer to home here in New York. Now we're truly aware of the uncertainty that defines the current environment, one element of our culture and capabilities that we really reinforced in recent years is…

Hey, Matt. So as Patrice mentioned, yeah, we're still seeing really nice momentum in our business across regions. And for our full-year outlook, you saw it's got pretty consistent growth trends for international led by Asia followed by Europe. North America is where we took a bit more of a cautious approach to our preliminary guide given the macro environment and the impact of cost inflation on consumer spending and notably for that second half of the year. Now we're focusing on our current trends. Right? The Q1 guide still reflects positive growth. Right? And she really a call on our part the macro. So it's really consumer sentiment, and the expectation that customers have to deal with significant pricing across the board as a result of cost inflation. It's our best estimate at this time of those two. And if they improve for the second half and the risk doesn't materialize, then we'll start opportunities to chase into and capture that higher demand that we saw as super hollowing.

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

Great. Thank you so much. Justin, understand that the tariff situation is still unfolding and your outlook is subject to change based on, you know, some of these moving targets. But how should we think about your pricing strategy for fiscal 2026, especially in the context of all the AUR growth you've already delivered over the past eight years?

Thanks, Jay. You know, our company is well-positioned to manage to a variety of cost headwinds. As Patrice just talked, we've been on a multiyear strategic journey to elevate our brand, our products, our customer environment, and experience it. And one notable output of that, of course, has been AUR, which has grown every quarter for the past eight years. It is up pretty meaningfully over that same period of time. Another important output has been our luxury and value perceptions, which are also grown progressively over time. So the fall 2025, you know, we proactively plan for select pricing action in North America and certain of our other global markets like Japan, whereas as we all know, we're offsetting several years of structural FX headwinds. With the recent tariff announcements, what we're doing is we're assessing and reactivating our various proven levers to offset related impact. And these levers include first as you know, we've already significantly diversified our global supply chain over the past eight, nine years. And as the cost equation shifts, continue to reallocate production to markets with lower overall landed costs. At the same time maintaining our high levels of quality. You know, today, as a result of our diversification, no single country is over 20% of our production exposure. In our China and the US production is a single-digit percentage. Second, we're working together with our strategic supply chain partners to drive greater cost efficiencies. Third, continuing to drive overall cost savings across the value chain and increasingly leveraging AI analytics enable even more efficient inventory planning. And fourth, assessing selective pricing actions and further reductions in discount, both in North America and in our other regions with the continued focus on providing a compelling value proposition to our consumers. So specifically, your question, expect AUR for Q1 to trend consistently with the quarter we just reported. So up roughly high single digits to last year. For the balance of the year, staying flexible. We have a range of established levers that can activate that needs.

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

Thanks for all the detail today. Congrats on a great quarter. Justin, could you just double click a little bit on the comment that you made earlier on pricing? It sounds like you had some that you do have included in the year. That you I think you phrased it as proactive, but it sounds like you're kind of included pricing in full for the tariffs that are on the table right now for the back half of the year. Maybe just some commentary there. And then if you could just maybe offer a little bit more color to one of your answers earlier on revenues by the geographies and first quarter to understand. It sounds like momentum is continuing across all three where we need to be mindful of any shifting or one-offs as we think about building up the model by the geographies and segment for the first quarter? Thank you.

Sure. So on pricing, just to take a step back, for a moment. Right? So we're on a long-term brand elevation journey. You've seen our AUR grow along with our value perception. And there are a number of durable drivers behind the AUR growth. Right? There's product elevation and mix. There's channel. And geo favorable mix. There's discount reductions, and there's targeted pricing. Right now, to discuss expect a high single-digit AUR growth. And in Q1, consistent with past quarters, but, you know, tariffs and any related medication actions have a minimal impact on that quarter. So while the situation is fluid and still evolving, we're confident have the flexibility to do what we need to do to offset any potential cost. Edwin, you saw Stuart during inflation. You saw a suit with freight cost, Pete. You saw a suit for structural FX weakness. And as you would expect, we're approaching this by looking at our full toolkit to mitigate any potential cost headwinds. Right? And one of those tools is price, but there are other tools as I just laid out. Now did proactively take price as I mentioned for fall 2025, a few months ago. So we're focused on, you know, reassessing additional opportunities as the situation evolves and really the number one foundational focus is ensuring the customer seeing value in our Elevation Board. Across product, marketing, experience, and environments.

And revenue psychology?

So the revenues by geography, I talked a little bit about this before. We think about the shape of the year, you know, overall, we're guiding sort of that low single-digit growth. I would say led by Asia at that sort of high single-digit mark followed by Europe. In that mid-single-digit growth range, and then with North America with that caution in the second half overall down low to mid-single digits.

Next question, please.

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

Morning, everyone. Given the as we think about next year, how are you thinking about marketing spend? And, Patrice, the potential categories of women, outerwear, and handbags did very well up high teens. How are those being planned going forward, and what are you seeing there? And just lastly, the real estate ownership of SoHo was very interesting. What is the real estate plans for this upcoming fiscal year and does any other ownership being thought about? Thank you.

Alright, Dana. Thank you. Good morning. Listen, on marketing, you know, that we've taken marketing up significantly over the past few years. It used to be less than 4% of revenue, were a record high 7.3% of revenue this past fiscal year. We expect to continue at that level the fiscal year that we just started. What that enables is a portfolio of marketing activation that enables us to talk to many different generations ranging from activities around the Hampton show to our Major League Baseball activation in Tokyo to Roblox Polo Beach activity. So expect that to continue. And then as we've talked in prior meetings, you know, over time, we would like to continue to expand our marketing investments while also continuing to expand the overall profitability of the company. So more to come on that when we get together for Investor Day in September. I'm glad you noticed our high potential categories of done particularly well. We're really pleased with the work that our teams are doing on women's apparel outerwear across all brands, and handbags. We have very nice momentum across all three. We are building scale across these businesses. I feel very good about the capabilities that we have in place. These markets, as you know, to use Matt's favorite terminology of TAM, total addressable market, have significant potential for us. And so you're going to see us continue to build on the core because that's the foundation of this company. And the core did well again this quarter. But continue to drive accelerated performance across all three of these different businesses where the consumer is clearly responding across generations. When it comes to real estate, I'm turning over adjustment.

Perfect. So then, you know, when you think about our capital allocation, principles that we've talked, they're consistent and they remain largely unchanged. So first and foremost principle is investing in our business focused on strong ROI opportunities, right, both in the short term and the longer term. And I would include targeted real estate acquisitions here as well. You know, the Prince Street purchase really about investing in our business by pursuing a selected key location of store that we plan to be in for the long term that plays an iconic role in our key city ecosystem right. New York City, one of our key top ecosystems. French ReStore, our global Polo flagship. We've been there for many years. It's a really smart investment to purchase this location. To future-proof our business in this critical market, and it also results in pretty meaningful year-over-year P&L benefit due to the rent save. You know, we're on a DTC-like growth path here, and this is reinforcing that strategy by putting our balance sheet to work a little bit more and show that we can do both. We can deliver on our short-term commitments and also continue to make investments in longer-term growth.

And, Dana, I think as you look ahead, exactly to Justin's point, as we build these key city ecosystems, we're going to be very selective where we see these real estate opportunities but where we have prime presence that we believe will be important for the business for the long term. And if there's an option to put our resources to use in a smart way, then we will do that. But expect us to do that very selectively for iconic locations.

Next question, please.

Thank you. The next question comes from Ike Borja with Wells Fargo.

Hey, everyone. Let me add my congrats to the quarter, to the brand, Heat. Maybe, Justin, wanted to kind of focus on the US wholesale channel. So you've kind of seems like sell on sell has been stabilized. The, you know, the channel is growing a little bit, but I know you've got some door closures and you're still refining it to some extent. Can you kind of just talk about the outlook for that channel from a growth perspective and how and how you're kind of thinking about it multiyear from here?

So, you know, I would say we're encouraged by the, you know, sequential improvement that we see in that channel stabilization of the business and recent quarters. We have sell-in aligning with sell-out and positive. Sell-out, which continues to date. Market shares across our brand portfolio and consistently solid quality of sales. So our brand's in a strong position here. And our presentation and door exposure in the channel, as you mentioned, is more elevated after we gone through the step change in refining our distribution. We've been on this multiyear journey to shift our customer base towards less price-sensitive consumers especially in the full-price channel. So this sort of fits that bill. In Q4, again, continuation of trend, and I would say no impact on our underlying trends today. But the macro headlines are pretty prevalent. In the US right now. Right? And they're weighing on consumer sentiment. So we want to be mindful of that in our assumptions and our outlook for the US for fiscal 2026 does take into consideration some unit elasticity in the second half, in reaction to broader industry price increases, particularly where consumers are more price-sensitive. Know, that said, we've got momentum here. Our strategy is, you know, continue to prune the lower tiers and add to the top. We have great track in our top-tier distribution and accounts. Strong traction in digital, strong traction in key doors. We didn't see no need in there. And take share and navigate what we expect to be a chat environment.

Thank you. Next question, please, Angela. Thank you. The next question comes from John Kernan with TD Cowen.

Good morning. Let me add my congrats as well.

Thank you, John.

Thanks, John. Exactly. Justin, I wanted to talk Europe. Obviously, tremendous growth, particularly in DTC. The set the geographic EBIT margin, you know, now at 26% at your highest margin region. Like, maybe talk more about know, the key city approach here, know, the high growth categories like women's and also the outlook for the operating margin here as it continues to provide a nice accretive margin, Mitch.

Absolutely, John. So we're encouraged by our underlying momentum here. And the meaning by our strong elevated brand positioning throughout the region. That a competitive advantage for us. We delivered another strong quarter in Q4 and really it was broad-based. Right? Growth across all key markets and all channels. And we saw that momentum continuing to Q1 to date across all of our key markets. And I think some of the marketing we've been activating in that region is really, really cutting through and driving strong new customer acquisition as well as strong traffic. We guided our continued growth in Europe in our 26 side. We're comping up against a pretty strong second half. And as you think about the backdrop that we're operating in, I would say we're encouraged by our positioning and performance, but still cautious with settlements still pressured despite easing inflation in market like the UK, in Germany, in Spain, and also there's still some geopolitics and we have the Red Sea and two wars that we can still, going on. So I guess from a guy's perspective, know, if the macros improve as we move through the year and the rest doesn't materialize, then think we feel good about our opportunities to capture the incremental demand. I think the key city eco strategy that we kind of started with in Asia and now have rolled out globally is really working well in Europe. And you're seeing not only from a marketing activation perspective, London, in places like Paris, etcetera. But also, it's think about what we're doing in opening up new stores, you know, Europe is an area where we have meaningful white space, and we're opening up new stores into that white space across regions focused on the key cities and that's another reason to believe that the momentum we have currently will continue both.

John, just to put some color on that in terms of the number of stores open. So in Investor Day, fiscal year 2020, when we were together in September 2022, we talked about opening 40 to 50 on and partner new doors across EMEA. We're right on track on that. We're actually slightly ahead of it. And for this fiscal year, we're planning ten new owned stores and another 25 partner stores. The starting point, as you know, across this region, was very limited presence. Right? We were particularly on full price. We're very dependent on wholesale and our teams in Europe have done a fantastic job just transforming how we show up where we show up, elevating the presence, leaning into direct to consumer, leaning into digital, and I think you're seeing that translates into the performance this past quarter and, honestly, this full year where Europe delivered double-digit growth for the full year in what continues to be, we often forget it, but a very challenging environment.

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

Good morning. Thank you very much for taking my question. Patrice, I wanted to ask about China. China was very strong in this quarter. I know you don't comment about the comment about what you're seeing, what your expectations are, that is that Asia growth of high single digit for fiscal year. And then Justin, on the gross margin, it mentioned that the tariff impact will start to materialize in 2H. Can you for the audience maybe quantify in basis part points terms what your gross margin for this year? Thank you very much.

Good morning, Laurent. Okay. China, we're more than happy to talk about China. So delivered a strong quarter up 20%. This comes on top of 20% growth last quarter. In last fiscal year, this is on top of double-digit growth. So many quarters and years now of strong consistent performance in China, I am very proud of the work that our teams are doing in that market. What underpins this is a combination of really strong consumer engagement and marketing activation. And when we look at key metrics on our China brand performance, our awareness is increasing meaningfully, our luxury and value perception is among the highest in the world, our consideration, particularly among the younger cohorts, is increasing meaningfully. You are seeing the pace of marketing activations in China actually accelerate. Back in the fall, we did the very Ralph documentary showing in Shanghai. The number of people that viewed it live is in the tens of millions of people. We recently had very powerful Lunar New Year activations that, differently from many of our competitors, are not focused on promotional activity. But rather focused on new consumer recruiting through storytelling and engaging moments. Then we had our first fashion show in Shanghai just a few weeks ago. So marketing activation accelerating and being very impactful. We're also expanding our store footprints in a quality way, in an impactful way, and all the stores that we're opening are actually coming in ahead of our expectations, generally. Then we have strong comp performance that underpins that. If you look at our expectations for this fiscal year, you're right that we generally don't guide by market. But our expectation is we're going to continue to build on the momentum we have in China. As you know, this is still a big growth opportunity for us. You know, today, China is about 9%. Last quarter, I think it's 9% of total company, so significant opportunity for acceleration. And continued expansion. Our assumption at this point is that China will be up low double digits in the fiscal year. So maintaining this double-digit performance as we continue to activate, recruit new consumers, expand our footprint. And, Laurent, on the gross margin for fiscal 2026 call, so based on our current view of the cost headwind landscape, you know, for the full year, we expect gross margins to be flat with our durable tailwinds of AUR growth, discount reduction, and favorable product. Challenge, geographic mix. Offsetting the headwinds from cost inflation, including tariffs and also nonmaterial patent cost labor etcetera. And I would say from a quarterly cadence perspective, we're planning for a stronger first half. A gross margin perspective as opposed to the second half, which again speaks to the timing of when the cost headwinds are set.

Next question, please.

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

Thanks, guys. Good morning. For longer term, Patrice, can you discuss your confidence level in driving operating margins higher beyond this year's expectation of the modest expansion? Maybe it'd be helpful if you could discuss what geography still potential to see further AUR gains beyond the first half of this year.

So why don't we talk to him on this one? Because Justin is our resident expert on operating margin expansion. Sure. Why don't you take that? I'll talk to you. I'll talk to you.

Absolutely. So, you know, Chris, taking a step back, and we're really pleased with where we came in this year and how we over-delivered on our three-year commitment into our 15% operating margin target in 2022 rates at the end of fiscal 2025. I think as we think about the outlook going forward, you know, 15% cost dollar is not a ceiling. We're gonna continue to balance margin expansion with making investments in long-term strategic growth. So I think for this year, you see we've guided for modest operating margin expansion despite some macro pressures and some cost headwinds, that's really driven by SG&A leverage as we start to scale from the investments that you've seen us made. Over the previous couple of years. And I think, you know, beyond fiscal 2026 World Cup, more at our upcoming investor day but likely still expecting a combination of growth margin expansion, modest gross margin expansion, and operating expense leverage to be the driver of our profitability. And on AUR, Chris, the short answer is yes. The more expanded answer is as follows. We'll obviously, we'll guide when we get together for investor day on how to think about top-line growth for the next three years. But the way we think about it is really three drivers, right, for top-line growth. Continued AUR expansion, unit growth, and new consumer recruiting. Right? And you saw how closely new consumer recruiting and top-line growth correlated this year since new consumer recruiting at 5.9 million is up low double digits and, you know, we're growing high single digits. So strong correlation between the three. So all three will be drivers for top-line growth moving forward. As you look at the drivers for us of AUR growth, right, this is still the elevation strategy that's playing…

We'll take the last question, please. Thank you. The last question. Our final question comes from Tom Niedem with Needham. Your line is open.

Hey, everyone. Thanks for taking my question. It sounds like most of your macro-related cost caution is domestic. I was just curious, you know, if you're if there's any caution or if you've seen any, you know, kind of pushback from consumers outside the US, just, you know, kind of given some of the rhetoric around tariffs and, you know, given how, you know, kind of Americana focused, you know, the Ralph Lauren Corporation brand images. You know, I'm wondering if there's any caution around the international business given the political situation.

That's a good question. So I mean, you're right that most of our caution is domestic. Particularly in the second half of the year. As you can imagine, we're tracking consumer sentiment and social activity quite closely. Both for our industry and for our brand in particular. At this stage, we have no callouts in terms of slowing brand momentum or any concerns with anti-American sentiment that would apply to our business. Now it's important to keep in mind that ever since Ralph founded this company, this company is founded on values that are pretty universal. Right? You think about optimism, authenticity, timelessness, elegance, family, those are globally relevant and pretty universal. And I think resonating really well wherever we play, including markets where you might be concerned about anti-American sentiment. We are not seeing any of that at this stage. We continue to monitor that and make sure that we're engaging consumers in a way that's most effective and relevant for them. Alright. Well, thank you everyone for joining us today. We look forward to speaking with you on our first quarter earnings call in August. And in the meantime, take care and have a great day.

Ladies and gentlemen, you may disconnect