Ralph Lauren Corporation (RL) Earnings

Management highlights

### Strategic Plan Progress - Completed the first year of the *Next Great Chapter: Drive* 3-year strategic plan, with all top and bottom line results exceeding original expectations, and full-year reported revenue exceeding $8 billion for the first time in company history. - All strategic pillars delivered broad-based growth across geographies, channels, and product categories, while advancing long-term brand elevation. ### Strategic Pillar Highlights - **Elevate and energize the lifestyle brand** - Delivered high-impact global brand activations in Q4: 2026 Milan Cortina Winter Olympics/Paralympics outfitting (achieved #1 social media share of voice, drove new customer acquisition and increased luxury perception), women's runway show in New York, women's polo presentation in Paris, first men's Milan fashion show in over 20 years, and Lunar New Year activations across Asia including a Shenzhen drone show. - Added 1.4 million new DTC customers in Q4 (low double-digit increase year-over-year), grew social media followers by high single digits to ~70 million, and continued successful recruitment of younger, luxury, and women consumers. - **Drive the core and expand for more** - Core product growth was led by popular items including sweaters, linen/rugby shirts, seasonal outerwear, and children's collections. - High-potential categories (women's apparel, outerwear, handbags) continued to outpace total growth, with new handbag lines (including the upcoming fall 2027 Polo Blaze launch) planned to expand the category further. All accelerator categories are AUR (average unit retail) accretive. - **Win in key cities with consumer ecosystems** - Global DTC retail comps grew 17% in Q4 (on top of 13% growth last year), led by Ralph Lauren stores and digital. Asia led regional growth at ~30% comp growth, North America delivered mid-teens retail comps. - Opened 108 new owned and partner stores globally in fiscal 2026, including flagship locations in key markets, and purchased iconic store sites in New York SoHo and Boston Newberry Street to solidify long-term presence. ### Enabling Capabilities - Made significant progress integrating AI and advanced analytics to speed design iteration, automate distribution center operations, and improve customer discovery, earning recognition as one of Fast Company's Most Innovative Companies of 2026. - Expanded strategic partnerships with American manufacturers and donated $26 million to the Ralph Lauren Corporate Foundation to support cancer care initiatives. - Generated ~$750 million in free cash flow in fiscal 2026, returned over $700 million to shareholders via dividends and buybacks, and the board approved a 10% dividend increase. - Ended fiscal 2026 with a strong fortress balance sheet: $2.1 billion in cash/short-term investments and $1.2 billion in total debt, with net inventory up 5% (mostly current product aligned with future growth plans). ### Financial Highlights (Q4, constant currency) - Total revenue grew 12% year-over-year, ahead of mid-single-digit expectations. Total digital ecosystem sales grew mid-teens. - Adjusted gross margin expanded 40 basis points to 69%, outperforming expectations of a contraction, driven by strong 16% AUR growth and favorable channel/mix, which offset peak U.S. tariff headwinds and modest labor/material cost increases. - Full-year 2026 adjusted operating margin expanded 140 basis points to 15.4%, ahead of plan.

Guidance

- **Full Year Fiscal 2027 (constant currency):** - Total revenue growth expected to be mid-single digits (centered at 4-5%). A 53rd extra week is expected to add ~1 percentage point to reported growth. - By region: North America expected to grow low single digits; Europe expected to grow low-to-mid single digits; Asia expected to grow high single digits, with China growing mid-teens. - AUR growth expected to normalize to mid-single digits, after 15% growth in fiscal 2026. - Full-year operating margin expected to expand 40-60 basis points, with modest gross margin expansion and operating expense leverage offsetting continued brand investments. The 53rd week will provide a slight margin benefit. - Marketing spend is expected to increase to 8% of sales, up from 7.9% in fiscal 2026, continuing the pattern of marketing growth outpacing revenue growth. - Capital expenditures expected to be 4-5% of sales, in line with long-term targets, including investments in new stores, renovations, digital capabilities, and scaling AI/cloud technology. - Full-year effective tax rate expected to be 21-22%. - Foreign exchange impact is expected to be relatively neutral for both revenue and margins. - Margin expansion is expected to be stronger in the first half of fiscal 2027, due to a lower prevailing 10% U.S. tariff rate, with sequential tariff headwinds expected in the second half after the current tariff relief window expires. - **First Quarter Fiscal 2027:** - Constant currency revenue expected to grow mid-to-high single digits. - Operating margin expected to expand 80-120 basis points, led by gross margin expansion. - AUR growth expected to be high single digits, with contributions from all regions. - Effective tax rate expected to be 22-23%. - Foreign exchange impact expected to be relatively neutral.

Segment performance

By Geographic Segment (all figures constant currency, fourth quarter): 1. North America (largest segment): Revenue grew 8% year-over-year. Direct-to-consumer (DTC) revenue grew 14%, with retail comps up 16% and digital comps up 21%. Wholesale revenue was flat year-over-year, ahead of plan, as strong replenishment orders and full-price selling offset strategic reductions in off-price sales and lower-tier wholesale door rationalization. North America contributes approximately 50-55% of total company revenue. 2. Europe: Revenue grew 6% year-over-year, with balanced growth across DTC and wholesale. Retail comps grew 5% on top of an 18% comparison in the prior year, led by digital. Wholesale revenue grew 7%, driven by better-than-expected reorders and healthy sell-through trends. Europe contributes approximately 25-30% of total company revenue. 3. Asia: Revenue grew 28% year-over-year, with all markets contributing. Retail comps grew 25%, with double-digit growth across all channels. China led regional growth with Q4 sales up more than 50%, supported by strong Lunar New Year performance, healthy comps, and high-quality new customer acquisition. Asia digital ecosystem sales grew double digits. Asia contributes approximately 15-20% of total company revenue. By Product Category: - Core products (representing over 70% of total business): Grew mid-teens for both Q4 and full fiscal 2026. - High potential accelerator categories (women's apparel, outerwear, handbags): Grew more than 20% for both Q4 and full fiscal 2026, outpacing total company growth.

Risks & headwinds

- Macroeconomic and consumer demand uncertainty, particularly in Europe driven by elevated energy costs and weaker consumer sentiment, which could pressure unit growth. - Disruptions from the Middle East conflict have softened inbound tourism to Europe and reduced sales to Middle East partners; the Middle East represents a low single-digit percentage of EMEA revenue and an even smaller share of total company revenue. - Potential industry consolidation in the North American wholesale channel creates near-term uncertainty that is factored into guidance. - Ongoing U.S. tariff volatility: current 10% tariff rates are expected to rise in the second half of fiscal 2027 after the current relief window expires, creating margin pressure. - Recent energy price volatility has created modest upward pressure on freight costs. - Forward-looking results are not guaranteed, and actual performance may differ materially from expectations due to broader geopolitical and macroeconomic uncertainties, as detailed in the company's SEC filings.

Analyst Q&A

• Q: The company outperformed expectations in year one of the Drive plan; what drove this outperformance, is it sustainable, what concerns exist for European consumer health, and what is confidence in mid-single-digit growth off a higher base?

  A: Outperformance came from diversified growth drivers, not one-off factors: strong cross-generational global brand momentum that attracted more elevated, less price-sensitive consumers, a broad lifestyle product portfolio that enables consistent newness while staying true to the brand identity, and innovative in-person/digital consumer experiences. Core consumers remain resilient across all regions, though guidance takes a prudent view of Europe's macro environment. Management retains confidence in the mid-single-digit growth target, aligned with long-term plans, and notes proven agility to adjust to changing conditions. Strong comparable base effects in the second half do not reflect pulled-forward demand, and the long-term growth trajectory remains on track.

• Q: After outperforming in year one, what are the core investment priorities for fiscal 2027, how does the company balance growth investment with margin durability, and what is the planned marketing spend as a percent of sales?

  A: Core investment priorities remain consistent: reinforcing brand connections with new and existing consumers, reinvesting in product quality and innovation, and building out key city consumer ecosystems with digital/AI capabilities. Brand elevation, including strategic discount/off-price reduction and distribution optimization, underpins all priorities. The company has a proven track record of balancing reinvestment with operating margin expansion, and expects margin expansion in fiscal 2027 as planned. Marketing spend will rise to 8% of sales in fiscal 2027, up from ~3.5% a few years ago and 7.9% in fiscal 2026; there is no set ceiling, as investment is driven by strong ROI from recruiting high-value new consumers and boosting lifetime value.

• Q: High-potential accelerator categories grew 20% in fiscal 2026; how will they contribute to 2027 growth, and what is the outlook for unit growth this year after strong AUR growth led to very low unit growth in Q4?

  A: Accelerator categories (women's apparel, outerwear, handbags) will continue to outperform the company's mid-single-digit total growth target in fiscal 2027. There is significant long-term runway: women's apparel is already a ~$2 billion business with only 1% market share, and handbags are still in early expansion, with a new third core line launching this year. All three categories are AUR-accretive and will continue to support overall AUR growth. Total company unit growth inflected positive in fiscal 2026, with growth concentrated in high-value full-price channels, accelerator categories, digital, and China, offsetting declines from ongoing elevation of the outlet channel. In fiscal 2027, AUR will continue to lead growth, but total units are expected to be slightly up, with modest elasticity assumed only for EMEA due to macro pressures.

• Q: What is the outlook for wholesale growth in 2027, and how much of the guidance normalization is conservatism versus actual underlying demand weakness?

  A: Wholesale is now 30% of total business, with a three-pronged strategy focused on winning with luxury department store partners, growing digital wholesale, and retaining key premium doors. The company is seeing strong momentum and share gains across all three prongs, with partners aligned on the brand elevation strategy. Normalized low-single-digit growth guidance for North America reflects prudence amid potential industry consolidation, with underlying organic growth partly offset by ongoing off-price/lower-tier distribution reductions. For EMEA, guidance reflects a small degree of near-term prudence on macro conditions, with underlying normalized growth consistent with the mid-single-digit pace seen in recent quarters.