RALPH LAUREN CORP Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Pillars: Three pillars driving progress: elevate and energize the lifestyle brand, drive the core and expand for more, win in key cities with consumer ecosystem.
• Brand Elevation: Marketing investments across fashion, sports, gaming, etc. Global Spring 2025 Hamptons campaign, sports activations, celebrity endorsements. Added 5.9 million new DTC consumers and over 65 million social media followers.
• Core and Expansion: Core product sales grew low double digits, led by cable knit sweaters, outerwear, hats. Newer linen offerings up double digits. High potential categories (women's apparel, outerwear, handbags) up high teens. Handbag sales grew double digits, with Polo Play handbag family launching strongly.
• Key Cities Ecosystem: DTC comp growth accelerated, with 83 new owned/partner stores opened, especially in Asia. North America DTC had mid-single digit growth, Europe and Asia had double-digit growth.

Segment Performance

• North America: Fourth quarter revenue increased 6%. Retail comps increased 9%, with digital comps up 8%. Wholesale revenue increased 2%. The region delivered its highest fourth quarter adjusted operating margin since the Elevation journey began. 60 department store doors exited this fiscal year, with plan to exit about 90 doors in fiscal 2026.
• Europe: Fourth quarter revenue increased 16%. Retail comps increased 18%, led by digital channels. Wholesale increased 14%. All key markets delivered growth, with sales growing in the UK for the second consecutive quarter.
• Asia: Fourth quarter revenue increased 13%. Retail comps up 15%, led by China with over 20% growth to last year, driven by strong brand activations, new customer recruitment, and Lunar New Year moments. Japan saw mid-teens growth.

Guidance

• Fiscal 2026 Outlook: Constant currency revenues expected to increase low single digits, led by Asia (high single-digit) and Europe (mid-single-digit). North America has a cautious outlook for the second half.
• First Quarter: Constant currency revenues expected high single-digit growth. Operating margin expected to expand ~150-200 basis points in constant currency, driven by gross margin expansion and operating expense leverage.
• Tariffs and Costs: Assessing levers to mitigate tariff impact, including supply chain diversification, working with suppliers for efficiencies, selective pricing, and discount reductions. Gross margins expected flat to last year, offset by AUR growth and favorable mix.

Risks

• Tariffs: Expected to be a headwind, but company is better positioned with international business at 57% of revenues, higher gross margins, and agile cost mitigation strategies.
• Inflationary Pressures: Including freight, cotton, and non-cotton materials; company is managing through supply chain diversification and selective pricing.
• Consumer Pullback: Uncertainty in global consumer behavior, particularly in the US, which is factored into North America's cautious outlook.
• Foreign Currency Fluctuations: Expected to have minimal impact on revenue and margins in fiscal 2026.

Question and Answer

• Q: 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? A: Patrice Louvet stated core consumers remain resilient, with full-price sales growing healthily. Strategy remains focused on investing in brand, leveraging lifestyle portfolio, and deepening key city ecosystems while staying agile.
• Q: 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? A: Justin Padicci mentioned assessing levers like supply chain diversification, working with suppliers for efficiencies, selective pricing, and discount reductions to mitigate tariff impact, with AUR expected to trend high single-digit in Q1 and flexible for the rest of the year.
• Q: 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. A: Justin Padicci explained assessing and reactivating levers to offset tariff impact, including supply chain diversification, driving cost efficiencies, leveraging AI for inventory planning, and selective pricing actions.
• Q: 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? A: Patrice Louvet said marketing spend is expected to remain at ~7.3% of revenue, with continued activation across generations. High potential categories (women's apparel, outerwear, handbags) are seeing strong momentum and will continue to be built upon.
• Q: 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? A: Justin Padicci noted encouragement by sequential improvement in the US wholesale channel, with sell-in aligning with sell-out and solid quality of sales. Outlook considers macro pressures but sees momentum with focus on pruning lower tiers and adding to top-tier distribution.
• Q: Good morning. Let me add my congrats as well. 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? A: Patrice Louvet highlighted China's strong performance with over 20% growth, driven by marketing activations and store expansions. Justin Padicci stated gross margins expected flat for fiscal 2026, offset by AUR growth and favorable mix, with a stronger first half expected.
• Q: 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. A: Justin Padicci expressed confidence in operating margin expansion through SG&A leverage and continued investment in growth. AUR gains potential across all regions, driven by product mix, channel/geographic mix, promotional pullback, and pricing, with opportunities in China and other markets.
• Q: 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. A: Patrice Louvet stated no callouts of slowing brand momentum or anti-American sentiment concerns in international markets, as brand values are globally relevant, and no material pushback seen at this stage.