The Ralph Lauren First Quarter Fiscal Year 2024 Earnings Call has begun with the host, Corinna Van der Ghinst, welcoming all participants. Patrice Louvet, the company's President and Chief Executive Officer, and Jane Nielsen, Chief Operating Officer and Chief Financial Officer, are present. The call will consist of prepared remarks and a question-and-answer session, and the financial performance will be discussed on a constant currency basis. The company has also provided forward-looking statements and disclosed risks and uncertainties in their SEC filings.

In the first quarter of their Chapter Accelerate plan, the company delivered positive comps, double-digit AUR growth, and increased product quality and sustainability. They are investing in their iconic brand to inspire and engage consumers, drive desirability, and grow lifetime value. They are also balancing growth with agility and operational discipline to respond to evolving market dynamics, and are offsetting softness from their value-oriented consumers with growth in their full price businesses.

Ralph Lauren drove high engagements through celebrity dressing moments, such as Jennifer Lopez at the Met Gala, Taylor Swift, Crystal Young, Jill Biden, and a fictional polo photo shoot. They also reinforced their luxury lifestyle positioning through iconic lifestyle partnerships and activations in key global cities, such as Milan Fashion Week, Salone del Mobile, and California Dreaming key city takeovers. They held exclusive private client events and influencer campaigns in Paris, Shanghai, Tokyo, and Seoul.

In the first quarter, Ralph Lauren reinforced its leadership in the world of sports with a successful Wimbledon sponsorship, which included Encore presence and capturing iconic spectator style on celebrities and influencers. 1.2 million new consumers were added in the first quarter, and the company reached 53.5 million social media followers globally. Core products, which represent 70% of sales, grew mid-single digits and penetration to total sales increased by 350 basis points. These core products included iconic cable knit sweaters, linen shirts, chinos, double net sweatshirts, rugby shirts and tailored suit separates.

In the quarter, consumers are turning to brands they know and trust and styles that have longevity. This has been a competitive advantage for the company, and they are focusing on high-potential categories such as women's, outerwear, and home business, which have increased low double digits. The company launched a plastic-free sneaker, Polo Mirum, and is investing in developing key city ecosystems around the world, with a focus on elevating and connecting all consumer touchpoints. Full-price retail channels led the growth in the quarter.

In the quarter, Ralph Lauren experienced positive retail comps, driven by core Polo products and luxury collections, foreign tourist sales, and successful clienteling. The company opened 28 new stores and concessions, with the majority in Asia, particularly in China, where sales accelerated to more than 50% growth. Digital sales were flat, with strong growth in international markets offsetting declines in North America, which has become more promotional. Ralph Lauren implemented key interventions during the quarter to improve North America digital trends, which started to show improvement in June.

Patrice discussed the company's five key enablers, which include process improvements, new tools, ESG recognition, recognition as a best company for women, and a strong foundation. This has enabled the company to have diversified levers of growth, a broad lifestyle portfolio of products, and strong foundational enablers. Jane Nielsen then discussed the company's financial results, which were ahead of expectations.

In the first quarter, the company experienced positive revenue growth and gross margin expansion, returning to profitability with an adjusted operating margin of 13.7%. This was due to lower freight expense, 15% AUR growth, favorable channel, geographic, and product mix, as well as leveraging price to offset cost inflation. The company also made important investments while delivering strong shareholder returns, including $100 million in dividends and share repurchases.

The company has a multipronged strategy to increase AUR growth, which includes product mix elevation, more personalized and targeted promotion, select like-for-like increases, and disciplined inventory management. Adjusted operating expenses increased 40 basis points to 55.6% of sales in the first quarter, while marketing was 6% of sales. In North America, first quarter revenues decreased 10% due to the normalized timing of spring wholesale shipments and inflationary pressures on value-oriented consumers. In North America Retail, comps declined 6%, with strong growth in Ralph Lauren stores and softer performance in outlet and digital. Digital business was pressured in April and May, but improved trends were seen at the end of June due to key actions to improve sales and conversion.

In North America, Wholesale revenues decreased mid-teens compared to last year, with an 11% increase in AUR. In Europe, revenues increased 7%, with a 2% increase in retail comps, mid-teens increase in AUR, and mid-single digit growth in the digital ecosystem. Europe Wholesale increased 11%, with a 4-point estimated decrease in Q2 and Q3 due to earlier fall shipments. For the rest of fiscal '24, the company is focused on core products, digital enhancements, personalized communication, and selective promotions to drive improvement.

The company reported low single-digit growth in Europe, 18% growth in Asia, high single-digit decline in Licensing revenue due to transitioning out of a suiting license, and a 1% increase in net inventory. The company has a strong balance sheet with $1.7 billion in cash and short-term investments and $1.1 billion in total debt. They expect second quarter inventory growth to moderate in preparation for the holiday season.

The company expects constant currency revenues to increase by low single digits in fiscal '24, with Asia expected to grow double digits and Europe by low single digits. Operating margin is expected to expand by 30-50 basis points, with gross margin expanding by 100 basis points due to reduced freight costs, favorable geographic and channel mix and increased AUR. For the second quarter, revenues are expected to be flat to slightly up, with North America expected to show sequential improvement following negative timing shifts in Q1.

The company expects second quarter Europe and digital ecosystem sales to be lower due to the shift in fall shipments reported in Q1. Operating margins are expected to expand in Q3 and Q4 and for the full year, and the tax rate is expected to be in the range of 23-24% for the full year and 21-22% for the second quarter. The company is investing in digital ecosystems and marketing activations for fall holiday, with the goal of stronger revenue growth in the second half of the year. They are inspired by Ralph's vision to build lifelong consumer relationships and leverage powerful core products in high potential categories.

Patrice Louvet reported that the company had a successful quarter and that their strategies are in place to drive growth in North America despite some near-term headwinds. Louvet noted that the company's value and luxury brand perception scores are growing faster in North America than any other region. He also answered a question from Matt Boss about their long-term Investor Day top line algorithm and Jane's confidence in mid-teens operating margins for the company.

The company is confident that it is in a strong position to deliver long-term results despite near-term pressures. They are on track to meet their Investor Day targets and have multiple engines of growth that give them the flexibility to lean in where they need to. They have invested in direct-to-consumer business, multiple product categories, customer acquisition, inventory, and operating discipline.

Jane Nielsen is confident in the company's long-term brand elevation journey, which is driven by three key revenue growth drivers: new customer recruitment, select unit growth, and AUR growth. Despite the current environment, consumer value perception metrics have remained high, giving the company confidence in its long-term AUR trajectory. The company is aware of the pressures of the current environment and is focusing on delivering value to their customers during key moments such as back-to-school and holiday.

Jane Nielsen was asked about the second quarter guidance and the operating margin. She explained that the operating margin will be between 9.5% and 10%, and that the increase in gross margin is due to a favorable geo-mix and less promotion in the marketplace due to inventory levels. She also mentioned that the first quarter marketing spend was not mentioned.

Jane Nielsen explains that the second quarter will see an improvement in the North American top line, while they remain cautious. They will be spending 8% of sales on marketing, which is their peak dollar growth for the year. The softness in North America wholesale has allowed them to lean into the DTC channel, which has a gross margin benefit but is OI margin neutral. This is impacting their expense to leverage.

The company is investing in digital platforms, freight, and AUR to increase gross margin and grow in the long-term. They are seeing AUR up 15%, which they expect to continue to rise due to like-for-like pricing, and they are seeing different trends between the value consumer and the higher-end consumer globally.

Patrice Louvet is pleased with how their core consumer is responding to their product offerings, in particular the move towards more sophisticated casual wear. This trend is seen across Asia, China, Europe, and North America. They are seeing the greatest price sensitivity on their basic categories due to inflationary context, but are continuing to increase their AUR and value perception.

Jane Nielsen states that North America's wholesale business is expected to have a low point in Q1 and build sequentially as the year progresses, exiting in a flat to positive range. For Europe, there will be a 4-point impact to Europe in Q2 and Q3 due to full price selling, but overall the wholesale business is expected to be flat to down low single digit. When asked about the level of promotional activity for the upcoming holiday season in North America retail, Nielsen stated that there is potential for improvement starting in Q2.

North America is expected to increase revenues in the second half of the year due to interventions like outlet interventions, digital ecosystem investments, and brand moments. The company is also looking to be smart and pragmatic in the current environment by responding to consumer moments with targeted promotional activity and AUR growth that leads to gross margin expansion.

Jane Nielsen and Patrice Louvet discussed the success of the company's consumer acquisition strategy in the first quarter, which saw 1.2 million new consumers engaging with the brand. They attribute this success to investments in the brand, consumer intelligence, and AI-driven personalized communication, as well as the use of content and products that appeal to higher-value consumers. The growth of new consumers is consistent around the world and is supported by expanded marketing activities, such as experiential fashion moments and celebrity dressing.

Ralph Lauren is seeing success in their women's business due to their product offering resonating with their target consumer, their presence in gaming and metaverse related activity, and their increased presence on social media platforms. They are seeing growth in the Lauren brand and Polo product, as well as an 11% increase in U.S. wholesale AUR. They have not experienced any pushback from their wholesale partners on price increases.

Ralph Lauren has stood for quality, timeless style, and confidence in what customers are buying for 56 years. This is translating into growth in linen, suit separates, dresses, and handbags, with the consumer responding well to the elevation of the product, particularly the women's business. Wholesale AUR is up 11% this quarter, but the growth is expected to moderate as inflation pressures abate.

Jane Nielsen of the company discussed the inventory levels and how they planned to moderate them throughout the year. She mentioned that they are in excellent shape compared to their industry peers and expect higher inventory trends as they exit the year. She also mentioned that they have the flexibility to be agile with demand variability due to the health of their inventories.

The conference has concluded and the results of the second quarter will be shared in November. The participants are encouraged to take care and have a great day.

This summary was generated with AI and may contain some inaccuracies.