$RL Q4 2026 Earnings Conference Call

Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren fourth quarter fiscal year 2026 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions on how to ask a question will be given at that time. If you should require assistance during the call, please press star then zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Miss Karina Vanderan. Please go ahead.

Good morning. Thank you for joining Ralph Lauren's fourth quarter fiscal 2026 conference call. With me today are Patrice Louvet, the company's president and chief executive officer, and Justin Bachi, chief financial officer. After prepared remarks, we will open up the call for your questions, which we ask that you limit to one per caller. During today's call, our financial performance will be discussed on a constant currency adjusted basis. Our reported results, including foreign currency, can be found in this morning's press release. We will also be making some forward-looking statements within the meaning of the federal securities laws, including our financial outlook. Forward-looking statements are not guarantees, and our actual results may differ materially from those expressed or implied in the forward-looking statements. Our expectations contain many risks and uncertainties. Principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings. To find disclosures and reconciliations of non-GAAP measures that we use when discussing our financial results, you should refer to this morning's earnings release and to our SEC filings that can be found on our investor relations website. With that, I will turn the call over to Patrice.

Thanks, Patrice, and good morning, everyone. We delivered strong financial performance and made meaningful progress on our next great chapter drive strategy in fiscal 26. We exceeded the expectations we laid out last May with healthy revenue growth across every region and channel, underscoring the strength of our diversified growth drivers and further elevation of our brand, products, experiences, and environments. Gross margin also outperformed our outlook, supported by our compelling value proposition and pricing power, which enabled further improvements in quality of sales, more than offsetting meaningful headwinds from tariffs as we progressed through the year. And each region contributed to operating margin expansion this year as disciplined expense management enabled reinvestment in our key strategic priorities supporting sustainable growth and long-term value creation. This strong performance is underpinned by our key enablers including our talented teams around the world, our advanced analytics and technology capabilities and our fortress balance sheet. Let me walk you through our financial highlights from the fourth quarter, which as a reminder are provided on a constant currency basis. Total company fourth quarter revenue grew 12% ahead of our mid-single-digit outlook driven by better than expected performance in both our direct to consumer and wholesale channels. By region, Asia once again led our performance, increasing 28%, followed by North America up 8% and Europe up 6%. Total company retail comps increased 17%, accelerating from the prior quarter with double-digit growth in both our own digital and brick-and-mortar channels. Total digital ecosystem sales, including our own sites and wholesale digital accounts, grew at a mid-teens rate, reflecting broad-based growth across all regions. Total company adjusted gross margin expanded 40 basis points to 69% compared to our expectation of roughly 100 basis points of contraction this quarter. The expansion was primarily driven by stronger than expected AUR growth and favorable channel mix which more than offset the planned step up in US tariffs to peak levels as well as modest headwinds from higher labor and non-cotton material costs. AUR increased 16% in the fourth quarter with approximately half of the growth driven by stronger full price selling, reduced discounting and modest targeted pricing and the remaining half attributable to favorable product, channel and geographic mix. Looking ahead, AUR growth remains durable and we expect continued, albeit more normalized, mid-single-digit growth in fiscal 27 on top of last year's 15% increase. And in the first quarter, we expect high single-digit AUR growth with contributions from all regions. We expect this continued AUR growth to more than offset modest pressure from higher freight due to the recent increase in energy costs. Adjusted operating expenses increased 14% or 90 basis points as a percentage of sales compared to last year as higher marketing investments more than offset 60 basis points of leverage in non-marketing expenses. Marketing was 8.1% of fourth quarter sales compared to 6.6% last year, reflecting increased investment to support key campaigns, including the Winter Olympics and our fashion presentations in Milan, New York City, and Paris, and to drive brand momentum into fiscal 27. For the full year, marketing spend increased 21%, reaching 7.9% of sales, aligned with our outlook of 7.5% to 8% this year. With strong multi-year progress in new customer acquisition and healthy consumer metrics, we plan to continue growing our marketing investments above the rate of revenue growth to around 8% of sales in fiscal 27. Fourth quarter adjusted operating margin contracted 60 basis points to 9.7%. While full-year operating margin expanded 140 basis points to 15.4% in constant currency, ahead of our plan. Turning to segment performance and starting with North America, our largest region which is firmly on a growth trajectory, fourth quarter revenue grew 8% exceeding both our outlook and our next great chapter drive plan targets driven by 14% growth in our direct to consumer business. In North America retail, fourth quarter comps were up 16% led by our full price channels. Digital comps increased 21% supported by merchandising enhancements and full-funnel marketing activations notably around Team USA. North America wholesale revenue was flat and ahead of plan as stronger replenishment orders and full price selling offset a strategic reduction in off-price sales and further rationalization of lower tier wholesale doors. While sellout trends across the broader North America wholesale channel remain healthy, we continue to plan for modest growth in fiscal 27 in the context of a dynamic macro environment and given the potential for further industry consolidation. We also expect performance to be weighted towards the first half of the fiscal year reflecting the timing of shipments. Turning to Europe, fourth quarter revenue increased 6%, with balanced growth across both our direct consumer and wholesale businesses. By market, Germany, the UK, Italy, and Spain led our regional performance. Europe retail comps were up 5% on top of an extremely strong 18% compare last year, led by our own digital business. Europe wholesale increased 7% driven by better than expected reorders and healthy sellout trends exceeding our long-term outlook. Looking ahead, we expect a more normalized level of wholesale growth in fiscal 27, notably as we lap strong double-digit compares in the prior year with the strongest growth expected in the first quarter. We also anticipate modest headwinds to our EMEA business more broadly due to disruptions in the Middle East which represents a low single-digit percentage of our EMEA revenue as well as softer inbound tourism into Europe. Moving to Asia, fourth quarter revenue increased 28% ahead of plan with all markets contributing to growth for both the quarter and the full year. Retail comps grew 25% with strong double-digit growth in each channel. We continue to build top of funnel brand awareness and purchase intent across the region through high impact marketing activations with more to come in fiscal 27 as we celebrate our 50th anniversary in Japan. China once again led our regional growth with sales up more than 50% in the quarter supported by exceptionally strong Lunar New Year performance along with healthy comps and high-quality new customer acquisition. Asia digital ecosystem sales increased double digits in the fourth quarter. We continue to expand our elevated presence across Chinese social platforms while scaling our own digital sites in China, Japan, and Korea. Moving to the balance sheet, our strong balance sheet and cash flow generation remain key enablers as we execute our strategic plan and deliver value to shareholders in a dynamic operating environment. We ended the period with $2.1 billion in cash and short-term investments and $1.2 billion in total debt. During fiscal 26, we generated approximately $750 million in free cash flow and returned more than $700 million to shareholders through dividends and repurchases. Our board of directors recently approved a 10% increase in our annual dividend, reflecting our continued commitment to strong shareholder returns while reinvesting in our business to drive high quality growth and compelling returns on invested capital. Fourth quarter net inventory increased 5% in constant currency with a healthy composition of current product in each region aligned with our future revenue growth outlook. Looking ahead, our initial outlook for fiscal 27 is based on our best assessment of the current operating environment, including the geopolitical backdrop, foreign currency dynamics, and broader macroeconomic trends. Our guidance does not currently assume any potential impact from tariff refunds. Based on ongoing volatility in the environment, this outlook is subject to change as macro conditions evolve. Our fiscal 27 outlook is aligned with our next great chapter drive targets. We expect full-year constant currency revenue to increase mid-single digits to last year on a 52-week comparable basis centered around 4 to 5%. Fiscal 27 includes a 53rd week which is expected to add approximately one point to revenue growth. While our core consumer has remained resilient exiting fiscal 26 and into the start of fiscal 27, our outlook reflects prudence around consumer demand as well as modest cost pressure related to recent energy price volatility. Similar to last year, however, if the consumer is stronger than anticipated, we have built the capabilities to capture additional demand supported by our proven supply chain agility as well as the strength and high penetration of our core and replenishment products, which continue to resonate with consumers across our markets. By region for fiscal 27, we expect North America revenue to grow approximately low single digits aligned with our long-term targets with continued momentum in our direct to consumer business and healthy wholesale sell-through, partly offset by ongoing strategic investments in quality of sales and lower tier door exits. We expect Europe revenue to increase approximately low to mid single digits, reflecting solid underlying growth balanced with a measured approach to the consumer backdrop and near-term macro pressures, including elevated energy costs and disruption to Middle East partner sales and tourism as well as lapping strong fiscal 26 compares. And we expect Asia revenue to increase approximately high single digits driven by our strong brand momentum and expansion opportunities across key markets. We expect China to grow approximately mid-teens this year, slightly ahead of our next great chapter drive targets and as we lap outsized growth of 40% in the prior year. We currently expect full-year operating margin to expand in the range of 40 to 60 basis points in constant currency with modest gross margin expansion and operating expense leverage more than offsetting our continued brand investments including ongoing quality of sales initiatives, strategic door exits, and further distribution optimization. The 53rd week is expected to have a slight benefit on operating margin for the full fiscal year. Foreign currency is expected to have a relatively neutral impact on both revenue and gross and operating margins in fiscal 27. Gross and operating margin expansion are expected to be relatively stronger in the first half of the fiscal year, largely due to the benefit of a lower prevailing tariff rate of 10% for most of the period following the US Supreme Court's ruling earlier this year. Our outlook currently includes a sequential increase in tariff headwinds in the second half of fiscal 27, which assumes that rates rise above the current 10% level following the expiration of the tariff relief window. Nevertheless, we expect second half gross margins to be in line with our drive target of modest expansion year-over-year. For the first quarter, we expect constant currency revenue to increase approximately mid to high single digits. We expect operating margin to expand approximately 80 to 120 basis points in constant currency led by gross margin expansion. Gross margin is expected to benefit from AUR growth as well as product, geographic and channel mix more than offsetting the modest impact of increased tariff cost versus the prior year. Higher marketing in the quarter is expected to be fully offset by leverage of non-marketing operating expenses. Foreign currency is anticipated to have a relatively neutral impact on revenue and gross and operating margins in the quarter. We expect our first quarter tax rate to be in the range of 22 to 23%. And a full-year fiscal 27 tax rate of approximately 21 to 22%. Capital expenditures are expected to be in the range of approximately 4 to 5% of sales in line with our long-term outlook. This includes traditional capital investments such as new stores, renovations, and digital commerce capabilities as well as our ongoing multi-year next generation transformation initiative. In addition, we will continue to invest in priority areas to advance our AI capabilities and scale cloud-enabled technologies that support our long-term growth and operating model. In closing, our next great chapter drive plan is progressing well, supported by our diversified growth drivers globally and the excellent execution and agility of our teams. With topline and AUR growth, as well as gross and operating margin expansion, all exceeding our expectations and more than offsetting the impact of tariffs and higher energy costs, we are delivering strong returns. At the same time, we are advancing our elevation journey, improving the quality of our sales and optimizing our distribution to enhance our product and brand experience for consumers. Together, these actions further strengthen our foundation and position us well to drive healthy, consistent, and sustainable growth, reinforcing our confidence to continue investing behind our business both now and over the long term. With that, let's open up the call for your questions.

Ladies and gentlemen, if you wish to ask a question, please press star then one on your touchtone phone. You will hear a tone indicating you have been placed in queue. You may remove yourself from queue at any time by pressing star two. If you are using a speaker phone, please pick up the handset before pressing the numbers. We ask that you limit yourself to one question per caller. Once again, if you have a question, please press star one at this time. One moment, please, for the first question. The first question comes from Matt Boss with JP Morgan. Your line is open.

Thanks, and congrats on another nice quarter.

So, Patrice, you exceeded expectations in the first year of this plan. What were the largest drivers and are they sustainable in years two and three of the plan? By region, North America and Asia for next year. You've outlined in

Europe's at the lower end. Are you seeing anything that worries you about the health of the consumer or your brand momentum in Europe? And then for Justin, 13% global comps this year on top of 10% the year before. What's your confidence in mid-single-digit same-store sales off this higher base or just any areas of give back that you would flag at all?

And that on the comp question. So after our strong year one of revenue growth, you know, moving into year two as we guided, expecting ongoing total company revenue growth, mid-single-digit growth across regions and we feel good about that. Fiscal 27 still full price growth, no shifts, but one thing to be mindful of is we do have some strong compares specifically as we get into the second half of the year, but no pull forward of comps, and we still feel good about the longer term sort of year-over-year expectations on revenue growth and comps that we shared at our investor day back in September.

Thank you. Next question, please.

Thank you. The next question comes from Jay Soul with UPS. Your line is open.

Great. Thank you so much, Justin. You know, year one of the next great chapter drive plan was clearly ahead of your three-year targets while this year, you know, fiscal 27 it looks like it's more back to on-ago. Can you just walk us through how you're thinking about investment priorities to continue driving strong momentum into the future and balancing growth investments with margin durability and also if you can tell us how you're thinking about marketing as percent of sales for this year that would be helpful as well. Thank you.

Absolutely. Good morning, Jay. Thanks for the question. So we've successfully step-changed our topline growth trajectory over the last few years of our next great chapter journey. And importantly, our core investment priorities, they remain consistent, right? We continue to be focused on three key areas. First, reinforcing our iconic brand and creating authentic lasting connections with both new and with existing consumers. Second, reinvesting back into our product, elevating quality, driving innovation, ensuring we're presenting a compelling value proposition to customers. And third, building out our key city ecosystems globally, right? Including with digital and AI-enabled capabilities to deliver that differentiated full lifestyle experience that's really unique to Ralph Lauren. At the same time, a critical enabler of our sustainable growth is continued brand elevation. This underpins all three of the priorities I just talked about. It includes investing behind the quality of our sales. So think things like strategically reducing discounting and off-price, increasing full price selling, further optimizing our distribution. You know, even as we leaned into meaningful quality of sales enhancements this past year, if you take a look at the most significant pressures throughout the course of our elevation journey in fiscal 26, we were able to inflect back to positive unit growth for the total company, drive healthy quality growth in our global wholesale businesses, and return North America, our largest region, to a sustainable growth trajectory, all while continuing to drive really strong momentum across APAC and EMEA. So taken together, this puts us at our most elevated position to date across product, brand, distribution, and enables us to continue to drive that healthy, sustainable growth going forward. On margins, you know, we've demonstrated over the past several years we can successfully do that balance of reinvesting with expanding. And that remains a core focus of ours going forward. And as we guided, we expect both gross and operating margin expansion in fiscal 27, more than offsetting modest increased pressure from freight and from potential tariffs. And we remain confident in our year-over-year margin progression that we laid out in our three-year plan back at investor day in September.

Thanks Jay. Next question, please.

Thank you. The next question comes from Laurent Vasllescu with B&B PARPA. Your line is open.

Oh, good morning. Thank you very much for taking my question. I wanted to follow up on Europe. Justin, I think you as you mentioned the guide for low to mid single digits, but if I heard correctly, you expect the strongest roads in the first quarter. Maybe can you unpack that a little bit more what you're seeing in that market? And then I think you also anticipate modest headwinds for EMEA. Particularly it sounds like more of inbound tourism. So I'd love to hear maybe can you quantify what your expectation is on terms of that headwind that would be very helpful. Thank you very much.

Thanks. So we continue to see healthy underlying demand across our EMEA business really supported by a resilient core consumer and that fiscal 27 outlook that you reference it reflects a more prudent view of the broader operating environment right but if you think about take a step back our core consumer remains resilient in all three of our regions right especially as we shift our customer base to be more full price and less price sensitive quarter over quarter year-over-year and that's including in EMEA where we continue to drive healthy underlying growth and we expect that growth to continue in fiscal 27. So we're batting for growth both in Q1 in that low single-digit range and on the lower end of our algo for the full year. That said, we are mindful of the macro pressures, right? The higher energy prices and sentiment pressures and we've taken these factors into account with our initial fiscal 27 outlook which reflects that more prudent view of the operating environment. We're also to your point monitoring tourism trends closely given the Middle East conflict and which we've seen soften a bit. But they do represent a very small portion of our business around. I mean our total Middle East business is low single digits of Europe and tourism is when you add on tourism you're still at low single digits of Europe even a smaller percentage of the total company. So monitoring closely will continue to stay in touch with the environment that we're operating in as always as it evolves and we know we have a proven agility as we saw this past year to respond if the consumer is stronger than we anticipate.

Next question please Julie. Thank you. The next question comes from Michael Benetti with Everore. Your line is open.

Hey guys, congrats on a great quarter. Let me ask to Patrice category expansion. You know, you mentioned the focus categories grew 20% in the quarter and in the year. Can you just tell us a little bit about how those contribute to the mid-single-digit growth this year or just bigger picture how they contributed to AUR in 26 and maybe talk a little bit about the opportunities for those categories to continue to outpace growth longer term. And then Justin in the fourth quarter, you know, AUR was up 16, DTC comps up 17. So it implies very low unit growth. As you think about the four to 5% total growth this year, DTC faster than wholesale, AUR you set up mid singles again. I'm going to ask probably for the ninth year in a row here. It seems like you're expecting units to decline in DTC again despite all the new customer additions, new store growth, new markets, new categories. How does the algorithm for unit growth work in your head this year, Justin?

Thank you. And on the units versus the AUR question, Michael, so our top line outlook for fiscal 27 of that mid-single-digit growth, it continues to be supported by our three diversified revenue drivers, right? High value new consumer acquisition, durable growth and targeted unit growth. So there are both durable drivers and meaningful runway ahead of us for all three of these topline growth engines. On units. We did inflect as I mentioned to total unit growth in fiscal 26 as our elevation journey continues to progress and the growth in units is where we want it to be right full price high potential categories that Patrice just talked digital China etc and it's now more than offsetting the step change elevation in those channels that still have kind of more distorted opportunities for elevation like outlets. That all said we're on a continued elevation journey. So we do expect AUR to continue to lead our growth and outpace units. We also expect units to continue to be slightly up as we think about our fiscal 27 outlook. Now we do assume some elasticity around units largely in EMEA given the macro pressures there but overall we feel really good about our three diversified durable topline growth drivers and you see it reflected in our on-algo guide.

Next question please.

Thank you. The next question comes from Kendall Tisano with Bank of America. Your line is open.

Yes. Hi, thanks for taking my question. So on wholesale, both North America and Europe outperformed in the fourth quarter, as you plan for more normalized growth in fiscal 27. Curious what you're seeing today from your wholesale partners and how much of the normalization is conservatism as opposed to a change in the underlying demand environment. Thanks.

Yeah. And we are to that point Patrice really healthy quality growth across our wholesale businesses. So in terms of the normalized growth rate, you know, for North America, we expect that normalized rate to be in that up low single-digit range with some prudence in the near term given the context of the dynamic macro environment and given the potential for further industry consolidations. And I would just say that our underlying kind of organic growth rate is going to continue to be partly mitigated by ongoing brand elevation reinvestments, right, as we pull back on off-price and as we continue to sort of cull that lower level distribution. But we are guiding for North America, you know, up low single digits on fiscal 27 with both growth in DTC and wholesale. DTC on the higher side and wholesale on the lower side of that up low single-digit growth. And then on EMEA, our outlook for fiscal 27 is really in line with that regional guide for the full year of up low to mid single digits reflecting a little bit of prudence on the macros and some unit elasticity for full 27 quarters. Underlying normalized growth rate there is consistent what we've been seeing out of that channel which is that mid-single-digit growth and that's what we saw in fiscal 26 and for a number of consecutive quarters now.

Thanks Kendall. Next question please.

Thank you. Next question comes from Blake Anderson with Jeff. Your line is open.

Good morning, thanks for taking my question. I wanted to ask on AUR that continues to be really strong at double digits despite all the macro dynamics. I know your guidance is closer to mid-single digits and we've talked about AUR today. I just wanted to drill down a bit more on the outlet channel and the opportunity there especially at US and Europe. How much opportunity is there really from continued promo optimization and you talked a bit Patrice about the product mix. So be curious about that as well. Thanks so much.

So on the thanks for the question. So on the sort of the AUR outlook, so yes, we're you know expect AUR growth to remain healthy and durable as we think about fiscal 27 albeit at a more normalized level following sort of the outperformance we delivered over the past year plus. So we're guiding in that sort of in that mid-single-digit sort of range and that does reflect you know growth across all of our regions and really across all of our channels and outlets has always been the channel that probably had the most runway when we started the elevation journey. It's where we've made the most progress on AUR growth and it's where we probably still have the most opportunity as we look ahead. You know, if you think about, you know, discount rate as an example, so many levers to assess and activate, frequency, depth, duration, breadth, what product is included within promotion. So, as we get sharper with product performance analytics, customer segmentation, leveraging AI, we're going to be able to get more precise and more targeted with our offers tailoring specifically to customers by stores by channels. So I would say that you know across all of our regions still a lot of opportunity there and it's not just around the targeted marketing and communications and product offering but it's also about as we elevate the mix in those outlet channels that is a pretty meaningful driver of our AUR growth.

Thank you. Next question, please.

Thank you. The next question comes from Bob Derbal with BTIG. Your line is open.

Hi. Good morning. Congratulations. Great results. I guess the question I'd like to focus on is China. You know, when you look at, you know, the trends in China, you know, the cultural tolerance. Can you just unpack it a bit in terms of, you know, how you see this year playing out with these strong results?

We'll take one last question please Julie.

Thank you. Our final question comes from Paul Legee with Croup. Your line is open.

Hey thanks guys. You know, with the sponsorship of the Winter Olympics, it seemed to provide nice platform for the brands. I'm curious what kind of activations you're most excited about for this upcoming year, how that differs by region. Can you do anything tied to the World Cup? That's my first question. And then I was just curious on the margin expansion guidance, how much of that is simply regional mix versus region versus itself margin expansion. If you could talk about the dynamics of margins within each region, right?

And Paul on your operating margin, all three regions are expected to contribute to OP margin expansion in fiscal 27 including North America. We've got opportunity, you know, on gross margin expansion with our durable AUR growth drivers as well as on our expense leverage as we start to scale some of the fixed targeted investments that you've seen us make over the past couple of years.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.