Ralph Lauren Corporation (RL) Earnings

Management highlights

- Strategic Growth Initiatives * Continue execution of a multi-year brand elevation strategy focused on three core pillars: building brand desirability, expanding a diversified lifestyle product portfolio, and delivering immersive consumer experiences in key global cities. * Maintain a focused key city expansion strategy: 22 new owned and partner stores opened globally this quarter, including first locations in new strategic markets (e.g. first Silicon Valley store with Ralph's Coffee, new Polo stores in Sydney and Perth). Expanded the RL mobile app to Korea, the first market outside North America to offer the app, with early performance exceeding expectations. * Accelerate strategic reduction of off-price sales and exit of lower-tier full-price stores in the back half of fiscal 27 to further elevate brand positioning. - Operational & Brand Highlights * Total company first quarter revenue grew 13% constant currency, with 12% overall retail comp growth. Digital ecosystem sales grew mid-teens driven by all regions. * Adjusted gross margin expanded 130 basis points to 73.6%, and adjusted operating margin expanded 150 basis points to 18.5%. Operating income grew 23%, driven by 15% average unit retail (AUR) growth, full-price selling, reduced promotion, and favorable mix shifts that offset incremental tariff, labor and material cost pressures. * Named one of Time Magazine's 2026 World's 100 Most Influential Businesses and one of the Wall Street Journal's Best Companies for the Future 2026, recognizing strong brand positioning and long-term strategic positioning. * Net inventory decreased 3% constant currency, with healthy inventory levels across all regions and channels aligned with demand. Maintained a fortress balance sheet with $1.9 billion in cash and short-term investments, $1.2 billion in total debt, and returned over $300 million to shareholders in the quarter via dividends and repurchases. * Advanced AI and technology initiatives: Improved digital user experiences, expanded brand discoverability across large language models, and participate in select AI tests to understand evolving consumer behavior on new platforms.

Guidance

- Full year fiscal 27 constant currency revenue growth guidance raised to 5% to 6% (mid-single digit centered), up from the prior 4% to 5% guidance, reflecting stronger than expected first quarter performance and sustained brand momentum. Foreign exchange is expected to negatively impact reported revenue growth by 50 to 100 basis points. - Regional full year guidance: North America revenue expected to grow low single digits (maintained); Europe revenue expected to grow low to mid-single digits (maintained); Asia revenue guidance raised to high single to low double digits, up from prior high single digit guidance. - Full year AUR growth guidance raised to mid to high single digits, up from prior expectations, with growth expected to offset modest freight and tariff cost headwinds. Second quarter AUR growth is expected to be mid to high single digits. - Full year operating margin expansion guidance raised to 60 to 80 basis points constant currency, up from prior 40 to 60 basis points. Full year gross margin expansion guidance raised to 50 to 70 basis points, up from prior expectation of modest expansion, driven by strong first quarter performance. - Marketing spend as a percentage of sales is expected to be approximately 8% for fiscal 27, maintaining prior guidance. - Full year tax rate is expected to be 21% to 22% (maintained), and second quarter tax rate is expected to be 19% to 20%. - Second quarter fiscal 27 constant currency revenue growth expected to be 5% to 6%, with foreign exchange expected to negatively impact growth by 100 to 150 basis points. Operating margin expansion is expected to be 80 to 100 basis points constant currency, driven by gross margin expansion. - Revenue and profit growth for full year fiscal 27 is expected to be weighted toward the first half, due to shipment timing, strong prior year compares, and accelerated strategic distribution reductions in the back half.

Segment performance

1. North America: First quarter revenue grew 13% year-over-year. Retail comps increased 9% led by full-price channels, with digital comps up 8%. Wholesale revenue grew 22%, with ~15 percentage points of growth driven by resumed shipments to a luxury wholesale account and shipment timing shifts from fiscal 26 Q4. North America contributes approximately 50% of total company revenue. 2. Europe: First quarter revenue grew 5% year-over-year. Retail comps increased 1% on top of double-digit prior year growth, with stronger growth in owned digital channels. Wholesale revenue increased 8%, with a 5 percentage point benefit from earlier shipment timing from Q2. Europe contributes approximately 30% of total company revenue. 3. Asia: First quarter revenue grew 25% year-over-year, with retail comps up 23% and double-digit growth across all channels. China led regional growth with over 40% sales growth, while Japan and Korea also delivered double-digit growth. Asia contributes approximately 20% of total company revenue, with China alone now accounting for 10% of total company revenue.

Risks & headwinds

- Macroeconomic uncertainty in Europe, including elevated inflation, depressed consumer sentiment, energy price volatility, and reduced tourism and partner sales disruption from Middle East geopolitical tensions, leading to soft overall store traffic in the region. - U.S. Section 301 tariff headwinds: Management expects 10% tariff rates in the first half of fiscal 27, followed by a return to high-teens reciprocal tariff rates in the second half, which creates cost pressure. - China faces difficult compares in the back half of fiscal 27 after very strong first quarter growth, which will moderate year-over-year growth rates in the second half. - General global macroeconomic volatility and uncertain consumer demand environment that could impact performance across regions.

Analyst Q&A

• Q: Can you discuss confidence in sustaining brand momentum, how a stronger luxury market impacts Ralph Lauren, and what drivers of Q1 gross margin expansion we can expect going forward? /

  A: Patrice notes that sustained momentum comes from the long-standing brand elevation strategy across three pillars, not just marketing: differentiated brand storytelling, a broad diversified lifestyle product portfolio with high-growth categories, and immersive in-market experiences in key cities. The firm holds a distinct inclusive luxury position spanning price points and categories, so a stronger luxury market is a tailwind for traffic and consideration aligned with its elevated positioning. Justin adds Q1 gross margin beat driven by better than expected AUR growth and favorable mix that offset incremental tariffs, with expansion structurally underpinned by durable drivers. Gross margin expansion will be stronger in the first half due to current tariff assumptions, with full year expansion guidance raised to 50-70 bps on the back of Q1 outperformance.

• Q: How much further can AUR growth continue on the elevation journey amid a potentially more challenging pricing environment, and can you elaborate on sustaining China's 40% Q1 growth going forward? /

  A: Management notes that brand elevation is an ongoing journey, with AUR as an outcome not a goal, and nine straight years of AUR growth already achieved. Growth and elevation can coexist: Q1 delivered both AUR and unit growth alongside improved quality of sales, with multiple durable drivers of AUR growth including higher full-price sell-through, favorable mix, and targeted pricing. The firm has built flexibility into pricing architecture to adjust for market conditions without compromising strategy. For China, strong growth is driven by effective global + local marketing, strong performance in core and high-growth categories (women's, handbags), and a disciplined key city retail expansion strategy. Full year fiscal 27 China growth is expected to be mid-teens as it laps strong prior year comparables, with long-term low double digit growth expected, and the firm is still early in unlocking China's potential at just 10% of total company revenue today.

• Q: Can you unpack macro impacts and trends in Europe, and what cadence should we expect for revenue and margin in the region for the rest of the year? /

  A: Patrice notes that brand equity is strengthening across Europe, with disproportionate strength in Germany, Italy and Spain, and the firm is gaining market share despite broader macro pressure. The firm continues to invest in marketing activations and new store openings to drive elevation, maintaining its existing strategy with prudent oversight of the consumer context. Justin adds full year low to mid-single digit growth remains expected, with growth weighted toward the second half due to strong first half prior year comps. Operating margin is expected to expand for the full year, with Q1 margin pressure driven by timing of increased marketing investment and one-time large-scale activations that did not occur in the prior year.

• Q: Is it appropriate to target the high end of your 2028 long-term revenue guidance, and will marketing spend move toward the upper end of your guided range after recent strong overperformance? /

  A: Management notes that North America is on a solid high-quality growth trajectory, with balanced mid-single digit growth expected in Q2, and the firm will leverage agility to capitalize on incremental demand opportunities as it arises. Marketing spend has increased steadily from 3.5% of sales to ~8% this year, with strong ROI from investments driving continued upward adjustment. The 7.5% to 8.5% three-year guided range remains in place, but it is not a ceiling: if new high-ROI activation opportunities emerge, the firm will increase marketing spend in parallel with continued operating margin expansion.