The paragraph is an introduction to Ralph Lauren Corporation's Third Quarter Fiscal Year 2025 Earnings Call. The operator welcomes participants and informs them that a question-and-answer session will follow the prepared remarks. Karina Vanderkins, the host, introduces the event, mentioning the presence of Patrice Louvet, the President and CEO, and Justin Padicci, the CFO. She outlines that the company's financial performance will be discussed on a constant currency adjusted basis and highlights that forward-looking statements will be made, which involve risks and uncertainties as detailed in their SEC filings. Participants are directed to consult the morning's press release and the company's SEC filings for further disclosures. The call is then turned over to Patrice Louvet.

The company entered the holiday quarter with a strong strategy and brand momentum, achieving double-digit revenue growth that surpassed expectations globally across several metrics. The success was driven by a strong retail performance, strategic investments, and agile supply chain management. The direct-to-consumer (DTC) channel highlighted the brand's desirability, supported by innovative marketing campaigns, which led to high-quality customer acquisition and increased full-price sales. Additionally, the company focused on improving expense management and strengthening its balance sheet.

The paragraph details Ralph Lauren Corporation's strategic efforts in the third quarter to elevate and energize its lifestyle brand across various platforms and regions. The company focused on global holiday campaigns, engaging consumers through innovative experiences like the AI-powered Polo Bear in New York City and special events in major cities such as Seoul and across Europe. Additionally, the launch of the "Very Ralph" documentary in Shanghai, accompanied by a drone show and gala, aimed to connect with Chinese consumers and highlight the brand's values, resulting in significant online engagement and visibility.

The paragraph highlights recent successes and strategies of Ralph Lauren Corporation, primarily focusing on high-profile celebrity endorsements and collaborations, which have bolstered brand engagement and new customer acquisition. The company experienced significant growth in younger, higher-value consumer segments, with increasing social media followers driving brand strength. Ralph Lauren emphasizes timeless core products, constituting over 70% of their business, with sales outpacing overall company growth due to a focus on quality and trust. The plans for future growth include continuing these strategies into fiscal year 2026 and beyond.

The paragraph highlights a 20% increase in high-potential categories for a company, emphasizing strong sales in women's apparel, outerwear, and handbags. The success is attributed to popular items like jackets, sweaters, and exclusive collaborations, such as the Polo ID bag and partnerships with artists and organizations like Mr. Bags and the Double RL capsule. The company's commitment to integrating operations in key global cities is part of its strategy to elevate the brand. This approach propelled significant growth, especially within brick-and-mortar and digital sales, with the company opening 34 new stores, mainly in Asia.

During the period, Ralph Lauren Corporation opened new stores, including Polo boutiques in Hong Kong and Beijing, a women's collection shop in London's Harrods, and a candy store concept shop in Edinburgh. These stores showcase iconic Polo products with a focus on vibrant colors. The company experienced mid-teens growth in Europe and Asia, with China sales up over 20%, and high single-digit growth in North America. The success is attributed to strategic priorities and the dedication of the teams, who actively support each other and the communities they serve. Additionally, Ralph Lauren was honored with the Presidential Medal of Freedom.

The paragraph highlights Ralph's significant impact as a designer and leader, inspiring the company's ongoing success. It discusses Ralph Lauren Corporation's positive performance in the first three quarters, especially during the holiday season, and outlines strategic focuses, including brand elevation and digital improvements. Justin Padicci emphasizes the company's strong third-quarter results, driven by diversified growth and premium positioning. North America saw notable success, and the company strengthened its financial position, enabling it to raise its full-year outlook.

In the third quarter, the company experienced an 11% revenue growth, surpassing expectations due to strong performances in its direct-to-consumer and wholesale channels. Retail comparative sales increased by 12%, and digital ecosystem sales rose by mid-teens. The adjusted gross margin increased by 190 basis points to 68.3%, driven by higher average unit retail (AUR) growth and a favorable sales mix. AUR exceeded expectations with a 12% increase, reducing promotions and discount rates significantly. For the fourth quarter, the company plans for high single-digit AUR growth by minimizing end-of-season discounts. Adjusted operating expenses increased by 10%, but as a percentage of sales, they decreased by 30 basis points compared to last year. Marketing investments were slightly lower than last year, at 7.1% of sales, with a full-year expectation of around 7%.

The paragraph discusses the company's financial performance, highlighting that adjusted operating expenses remained stable due to cost savings, leading to an increase in adjusted operating margin and operating profit. In North America, third-quarter revenue grew by 7%, with notable increases in retail and a return to growth in wholesale. Retail comps rose 8%, with brick-and-mortar up 10%, and digital comps increased 3%. North American wholesale revenues grew by 6%, and mid-single-digit increases in the wholesale average unit retail (AUR) were achieved. The company plans to exit sixty department store locations, aligning its brand presence more strategically. In Europe, third-quarter revenue grew by 16%, driven by strong retail and wholesale performances supported by impactful marketing efforts.

In the latest quarter, all key markets experienced growth, with notable double-digit revenue increases in Germany, France, Italy, and Spain. The UK also saw improved sales trends during the holiday season. In Europe, retail comparables rose by 17%, surpassing expectations due to balanced growth in both physical and digital channels. Europe benefited from increased average unit retail prices and reduced discount rates despite a competitive promotional environment. Wholesale in Europe grew by 14%, aided by strong reorder activity and a timing shift in receipts. Digital wholesale sales saw significant double-digit growth. The expectation is for continued strong wholesale growth in the latter half of fiscal 2025, bolstered by positive trends and receipt timing adjustments. In Asia, revenue rose 15%, with robust growth in all markets, especially in China, exceeding projections. The company is optimistic about continuing to strengthen customer connections and build on its brand momentum globally.

The paragraph highlights the company's significant growth in the China market, with sales increasing by over 20% due to successful customer recruitment and marketing events. Japan also experienced strong sales growth driven by domestic consumer trends and tourism. In Korea and the broader Asia region, partnerships with K-talent and growth on platforms like Takao contributed to solid growth. The company maintains a strong balance sheet, with $2.1 billion in cash and $1.1 billion in total debt, enabling strategic investments and shareholder returns. Despite global supply chain disruptions and new US tariffs, the company expects minimal impact and reports a 5% decrease in net inventory while improving stock rates for high-demand products. The company is focused on aligning inventory with revenue growth through improved inventory efficiency and predictive buying strategies.

The paragraph outlines a company's transformation strategy, emphasizing a new buying framework as part of integrating a global ERP system with business planning tools and agile logistics. Despite geopolitical and macroeconomic challenges like inflation, tariffs, and currency volatility, the company expects its fiscal 2025 constant currency revenues to grow by 6-7%, up from previous estimates, although foreign currency fluctuations might negatively affect growth and margins. Operating margins are projected to expand, surpassing a 15% target. For Q4, constant currency revenue is expected to grow by 6-7%, but foreign currency will have a negative impact. Wholesale performance is expected to be strong, although there is a minor negative impact anticipated in Q4, shifting to Q1 FY2026.

In the fourth quarter, Ralph Lauren Corporation anticipates an expansion of operating margin by 120 to 140 basis points, driven by gross margin growth and modest operating expense leverage. Marketing expenses as a percentage of sales are expected to remain stable due to focused spending on key campaigns. Foreign currency is projected to negatively impact margins by 60 to 80 basis points. The fiscal 2025 tax rate is estimated to be 22% to 23%, with a fourth-quarter rate of around 24%. Capital expenditures are forecasted between $200 to $250 million. The company highlights its strong performance, driven by creative leadership and consumer connection, to ensure sustainable value creation. The call is open for questions, starting with Jay Sole from UBS.

In the paragraph, Patrice Louvet discusses the success of their brand during a high-quality quarter, attributing it to the long-term effects of their multi-levered strategy. This strategy involves consistent excellence across various business facets like product management, marketing, and logistics, despite a volatile market environment. Louvet emphasizes that the brand's strong performance isn't due to a single marketing initiative but rather the cumulative impact of ongoing efforts over many quarters and years. He highlights three key drivers: the strength of the brand, bolstered by continuous marketing activities like the Olympics, Hamptons fashion show, and other innovative campaigns, which have resonated across diverse consumer groups.

The paragraph discusses the company's strategic advantages and recent performance. It highlights the broad lifestyle portfolio, including core products like sweaters and blazers, and high-potential categories such as women's handbags and outerwear. The company focuses on a key city ecosystem go-to-market model to enhance consumer experiences in major global cities. An "agility muscle" has been developed to navigate volatile environments, enabling the company to adapt and seize opportunities. In the past quarter, the company reported an 11% increase in top-line performance and a 5% reduction in inventory, reflecting effective strategy execution and inventory management.

The paragraph discusses Ralph Lauren Corporation's strategic focus on expanding opportunities across products, geographies, and channels. The company is particularly excited about high-potential categories such as women's apparel, handbags, and outerwear, which have seen strong growth. They emphasize building a strong product foundation, with teams identifying effective strategies and defining price points to maintain brand distinctiveness. The company has revamped marketing efforts for women's apparel and handbags and improved product distribution through both direct-to-consumer and wholesale channels. Additionally, they are experimenting with store formats, such as transforming the Cat Street store in Tokyo into a women's only location, which has received positive consumer feedback.

The paragraph outlines a company's strategy for engaging with different consumer segments, emphasizing the differences in shopping behaviors between women and men. The company aims to tailor products and consumer experiences to resonate with individual consumers, focusing on women's apparel, handbags, and outerwear markets, where they see significant growth potential despite having a small market share in these vast markets. The strategy is prioritizing their core offerings while exploring high-potential categories. The paragraph concludes with a transition to a Q&A segment where Laurent Vasilescu asks about the future trajectory of the North American market, and Justin Padicci begins to respond.

The paragraph describes a strategic effort undertaken by a company to elevate its brand and distribution, particularly in North America. This involved reducing reliance on lower-tier department stores and cutting cost-price businesses by half to focus on full-price sales, thereby expanding margins. The company reports success, with improved North American results seen across various channels. Their Direct-to-Consumer (DTC) channel has experienced six consecutive quarters of growth, driven by full-price stores and a growing digital business. The wholesale side is also stabilizing and returning to growth sooner than expected, aided by positive responses from top-tier luxury accounts. While they are not providing future guidance yet, stabilizing the North American wholesale business marks an important step in their long-term strategy.

The paragraph discusses the strategies driving growth for a company, particularly in Europe and China. Patrice Louvet highlights key foundational investments, notably in marketing and store openings. Marketing spend has significantly increased to around seven percent of revenue, with no set limits as long as there's a positive return on investment (ROI). The marketing strategy includes diverse activations such as fashion and cultural moments, sports events, and collaborations with influencers, as well as ventures into gaming. Additionally, there's an emphasis on opening new stores to further expand their market presence.

The paragraph discusses the company's strong compensation performance across various regions, with significant growth in the US, India, and APAC. It highlights the successful foundation store footprint and plans to open around 85 new stores this year, aligning with a three-year target of 250 new stores. The expansion includes new locations in the US and Europe, particularly in key cities like San Francisco and significant opportunities in Asia, especially China, Korea, and Japan. The company operates in a fragmented market where no single entity holds significant market share, presenting ample growth opportunities.

The company has been expanding its market share across various categories, including men's, children's, women's, and handbags. They are implementing targeted marketing strategies and expanding their presence in key cities, focusing on not overextending themselves. The balance between investing in long-term growth and meeting short-term financial goals is maintained, with increased spending in marketing leading to high-quality revenue growth. Their operational expenses are in line with expectations, and they are achieving SG&A leverage, suggesting they are managing growth and investments effectively.

The paragraph discusses the strong performance of brick-and-mortar stores, particularly Ralph Lauren Corporation's full-price and outlet stores, across all regions, with notable growth in North America driven by positive traffic trends and increased average unit retail (AUR). The company is experiencing consistent growth in sales and sees a significant opportunity in artificial intelligence (AI). AI is being utilized to enhance creativity and productivity, particularly in improving website search, consumer navigation, and contact center engagement.

The philosophy of the company is to transform its contact centers into major points of consumer engagement, akin to large stores, rather than merely resolution centers. They are employing generative AI to enhance creativity and consumer interactions, such as using AI for mood boards and predictive buying, significantly boosting performance globally. AI is also being used to optimize product allocation in stores. The company emphasizes using AI as a supportive tool rather than a replacement, with a focus on authenticity and human leadership. Led by Justin, predictions indicate a modest increase in revenue outlook and a slight improvement in operating margin, excluding currency effects. The company is excited about the positive initial impacts of AI across various business activities.

In the paragraph, Justin Padicci addresses changes and uncertainties related to the fourth-quarter profitability and North America's wholesale market performance. He notes that the upcoming fourth quarter is smaller with end-of-season sales affecting profitability. While Q3 had strong full-price selling, leading to higher average unit retail (AUR) and gross margins, the shift in Q4 is anticipated. Despite the challenges, Padicci expresses optimism about North America's wholesale trends, highlighting stabilization and alignment between sell-in and sell-out over consecutive quarters. He acknowledges the volatile environment but remains positive about the direction and growth potential within the North American market.

The paragraph discusses the company's strategy for managing its wholesale business. It highlights the importance of segmenting the wholesale channels, as they are not all the same. The focus is on luxury retailers like Neiman's and Nordstroms, where there is significant momentum, as well as online platforms like Macy's dot com, which are also performing well. The company is collaborating with partners who are investing in key aspects like people and product presentation. However, there are still challenges in other parts of the channel, leading to a strategy of "pruning" less profitable locations. This involves closing around sixty underperforming locations this year to improve brand presence and profitability. The company acknowledges the volatile environment but is pleased with its current stabilization efforts in this historically challenging area. The paragraph ends with John Kernan from TD expressing congratulations and asking a question related to the company’s discount strategy.

The paragraph discusses the strategies that have driven the company's Average Unit Retail (AUR) and margin expansion over the past several years, including favorable channel and product mix, disciplined inventory management, and reduced promotions. Going forward, the company plans to focus on price adjustments to counteract cost inflation, particularly in response to foreign currency changes, such as in Japan. Recently, they have successfully reduced promotions across all regions and channels, resulting in strong full-price sales, particularly in North America and China, where they have achieved high AUR and market expansion.

The paragraph discusses a strategy focused on acquiring new customers who pay full price, which is boosting confidence in leveraging Average Unit Retail (AUR) growth and gross margin expansion. Justin Padicci, responding to a question, emphasizes that their marketing expenditure, currently at seven percent, is not the limit and they see strong returns on these investments. Marketing remains a top priority for capital allocation. He also notes their strong inventory position in the U.S. wholesale market, implying stability amid potential competitive pricing changes.

The paragraph discusses a strategic shift from focusing on inventory sell-in to sell-out by maintaining a lean inventory and leveraging an agile supply chain. It highlights efforts to enhance predictive buying to meet increasing demand, particularly for core styles, and notes a positive trend in full-price sales in both wholesale and direct-to-consumer channels, allowing for reduced promotions. A question is then raised about the timeline and capabilities of a next-gen transformation project. The response details plans to implement a global ERP, predictive buying tools, and upgraded warehouse systems to improve inventory management. Preliminary costs have been disclosed, with more updates expected as planning progresses.

The paragraph outlines that a solution has been found, and work is underway to secure a systems integrator (SI). Details on the total project cost and expected expenditures over the next three to five years will be provided in the next quarter. Stage implementations are anticipated to begin in fiscal 2027. Patrice Louvet mentions upcoming discussions at the fourth quarter and fiscal year-end earnings call in late May and the next Investor Day towards the end of the year. The conference call is concluded with a thank you from the operator.

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