Q3 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Ralph Lauren third quarter fiscal 2020 earnings call. At this time all participants are in to listen only mode. Later, we will conduct a question answer session and instructions on how to ask a question would be given at that time, if you should require.
Since joining the call. Please press Star then see Ralph.
As a reminder, this conference is being recorded I'd now like to turn all conference over to our house must Kareena band again. Please go ahead.
Good morning, and thank you for joining Ralph Lauren third quarter fiscal 2020 conference call with me today are Patrice <unk>, the company's President and Chief Executive Officer, and Jane Nielsen, Chief Operating Officer, and Chief Financial Officer.
After prepared remarks, we will open up the call for your question, which we ask that you limit to one per caller.
During today's call, we will 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 in uncertain.
Cheez it could cause our results to differ materially from our current expectations are detailed in our FCC 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 where I see see filings that can be found on our investor Relations website.
And now I will turn the call over to Patrice.
Thank you Corey.
Good morning, everyone and thank you for joining todays call.
We continue to make strong progress on our next great job to plan.
With third quarter results ahead of our overall expectations, including better than expected revenues operating margin and double digit EPS growth.
Over the important holiday season or teams consistently executed across each of our strategic priorities, enabling us to elevate our brown and deliver for consumers across every touch point.
The solid foundations, we put into place to reposition and elevate our brown helped to drive positive comp growth across all three regions, excluding the impact of Hong Kong this quarter.
We were also encouraged by your growth of 6% as we invest in brand elevations, who are products marketing distribution and unique consumer experiences.
At the same time, we continued to execute key initiatives.
Stabilized in North America business against an evolving retail landscape.
As I've shared before.
Three principal underlying this work include.
Putting the consumer at the center of everything we do.
Elevating the brand across all consumer touch points and balancing growth and productivity.
And we're doing all of this while managing too volatile industry dynamics, including the recent who want a virus outbreak, which we are actively monitoring.
Our top priorities are to keep our employees and consumer safe.
That's a he'd be advice of local and international health authorities.
The situation is a dynamic one.
Continue to assess the implications for our business across retail <unk> corporate and our supply base.
Our thoughts are with the many impacted by this virus.
During the third quarter, we drove our performance across the five strategic priorities that we laid out as part of our five year plan deliver long term sustainable growth and value creation.
These include.
First.
We know brand new generation to consumers.
Second energize core products and accelerate high potential underdeveloped categories.
Third.
<unk> targeted expansion in our region and channels.
Sure.
Lead with digital across all activities and Sip operate with discipline to fuel growth.
Starting with went over new generations of consumers.
We're investing in media channels that matter most of consumers today, mainly digital and social and remain on track towards our long term marketing investment target that's 5% of sales.
In the third quarter marketing increased 16% to last year as we shifted investments back into the key holiday selling period.
We're encouraged by consumer engagement for cross generation through our campaigns and programs.
Notably or total social media followers surpassed 40 million in the third quarter double digit increase the last year led by a 30% organic increase on Instagram.
Let me touch on some of the highlights from a holiday campaigns this quarter.
First we lost a fully integrated holiday campaign across social media television or own stores in digital sites and wholesale environments, which we called every moment as a gift.
Among the exciting Activations online, we drove strong engagement to our snapshot holiday shopping filter.
And our first ever global digital game.
The holiday run.
Well I connick polar bear dash through the streets, a New York City, Paris, London, and Tokyo to collect festive bubbles in signature flooring products.
We also launched it digitally targeted campaign for a Lauren women's ready to wear business in North America. This season.
String supermodel and mom Lilly Aldridge along with her family. It was the first dedicated campaign for the brand in many years, that's significant media support behind it.
We were encouraged by the early consumer response, as we work to get the Lauren women's business <unk> on a positive trajectory.
Well North American mobile App.
We drove a successful seven days southern drops program featuring limited edition releases and one of the kind experiences.
The highlight of the week was our five horsemen rugby shirt, which sold out in just 15 minutes online.
Hey, congratulations to Ralph Lauren Golf Ambassador Justin Tom as you captured as 12 Courier when that's a century tournament the champions last month.
Our real legs to capture the number one spot in the Fedexcup stampings.
Moving onto our second she initiative energize core products, then accelerate high potential underdeveloped categories.
In the third quarter, Ralph and our design team drove excitement in core product categories, while also expanding into our five high potential underdeveloped categories.
While we were pleased with the overall performance of these categories or outerwear in sleeves programs, where the clear standouts this holiday.
Outperforming or total sales trends on both the sell in <unk>.
Then sell out basis.
Popular styles included heavyweight Parkas, Quilted car codes light and mid way down jackets Windbreakers insurer styles.
Other successes this season included woven shirts sweaters.
Dan.
In addition to the holiday drops in or mobile App, We released our limited edition Polo sport outdoors collection in November.
The products retailed on our own digital Commerce sites, North America up in select flagship stores around the world.
We also partnered with influential specialty retailers, including Bodega, Fred Ziegel essence rounds in the UK and beams in Asia. Other exciting projects. This quarter included an exclusive holiday capsule was lendl.
The polo sport collaboration with machine. So one of the largest fashion online retailers in Korea and.
No. We tried many program for singles day in China.
Moving onto our third key initiatives.
Targeted expansion in our region and channels.
Our long term expansion strategy remains focused on building a cohesive elevated Ralph Lauren experience across our retail wholesale digital commerce presence in key cities around the world.
During the third quarter, we opened 48, new owned and operated stores and concessions globally.
In closing 31 locations.
This included 37 openings in Asia.
We also continued to invest indoor refreshes across our own stores and wholesale partners in key markets as we work to elevate our fleet across every touch point.
Our city by city ecosystem approach drove strong results in the quarter with Chinese mainland filled up more than 30% in constant currency driven by comp growth and new stores.
Total China sales were up 6% to last year in constant currency despite headwinds in Hong Kong that we discussed last quarter.
In Europe, we opened six owned and partner at full price stores, including polo boutiques in Covent Garden in London Torino examples in Lisbon.
We're making good progress, but we still have significant expansion opportunities with only 46 full price stores across Europe.
Well all of this complemented by our successful expansion into new specialty wholesale accounts and digital commerce growth.
Which brings me to our fourth key initiatives lead with digital.
Our global digital ecosystem, including our directly operated flagship Sykes Department store Dot com pure players and social commerce increased low double digits in the third quarter in constant currency.
The strong performance exceeded our expectations across all three regions. This was driven by double digit growth in Europe, and Asia with North America up high single digits, improving from solid performance in the first half.
Starting with Europe.
Digital sales were up height genes in the quarter with solid performance across both owned and wholesale digital accounts led by digital pure play retailers.
We added six new partners, including we saw the enrollment literally Soc shop in the UK and Brown Hamburg in Germany.
Our directly operated digital sites in Europe also saw further momentum delivering 15% comp growth this quarter.
Highlights included the November launch of our pull mobile app in the UK.
Well first app launched outside of North America.
And the new digital commerce flagship for Switzerland, as we expand or localization efforts by market.
In Asia digital ecosystem sales were also up double digits led by the Chinese mainland.
We launched new partnerships this quarter with my or in Australia, as well as Cmos luxury selected platform in China.
Lastly, our digital growth in China accelerate it on the launch of buy online ship from store fulfillment to leverage our store inventories.
Let me try to orders contributed to roughly half of our digital growth in the quarter.
Turning to North America.
Third quarter comps on Ralph Lauren Dot Com were up 6% largely inline with our expectations. We saw softness from international consumers due to FX, an import restrictions in Asia.
Those are the first half of the year.
However, sales to domestic shoppers single digits as we started to drive improvements in mobile.
Site, personalization and rebalancing, our buys emphasize stronger selling core and seasonal core products.
Lastly, we continued to build partnerships with newer digital platforms in North America, which are extending our reach to new and younger consumers in the third quarter, We launched women's polo on daily look the premium subscription based personal styling service.
The men's polo on Simmons specialty designer boutique online.
We also added kids to rent the runway joining our Lauren women's Polo and club Monaco brands on the platform.
Touching on our 50 initiative operate with discipline to show growth.
In the third quarter, we focused on challenging every cost and improving our efficiencies.
Adjusted operating margin expanded 10 basis points slightly ahead of our expectations with stronger than expected topline growth, partly offset by the plant timing of higher investments around holiday marketing and new stores.
One important margin driver for us and a central part of our next great shots or strategy.
It is raising a you are the elevate the brand globally and create value.
We are using multiple leavers to realize you are increases, including lower discounts elevated product mix geographic and channel shifts and strategic ticket price increases.
We began phasing in strategic ticket price increases in our North America factory outlet channel in late September.
Followed by our North America full price wholesale and direct to consumer doors in spring 20.
Leveraging the success, we've had implementing this strategy in Asia and Europe.
Ticket increases reflect our competitive benchmarking analysis.
Our focus on providing a superior value proposition for consumers.
We were encouraged by the impact of these initial price increases this fall.
Well traffic was still a headwind for factory business, we were able to drive positive comps in this channel through an 8% increase you are in the quarter.
This was on top of 8% you our growth last year and well above our expectations.
No. It is still early in this journey, we're focused on elevating our brand positioning in the North American market and globally. That's part of our you are led strategy.
And finally I want to provide an update on our journey to further integrate citizenship and sustainability into our business.
More than 50 years ago, Ralph built our company based on the idea timelessness.
Creating products that are meant to be worn loved and passed onto the next generation.
This continues to inspire everything we do as we build the business to deliver value for shareholders and all of our stake holders for the next 50 years.
As part of this work in December we announced a new commitment to power all of our globally owned and operated offices distribution centers and stores with 100% renewable electricity by 2025.
We also took the Arctic shipping pledge committing to reroute shipping to avoid the environments, we delicate Arctic area.
Driving diversity and inclusion across our business is another important piece of this work.
We're pleased to report that we have achieved our gender parity goal of equal representation in our leadership positions at the VP level and above more than three years ahead of our target.
In closing Ralph and I are energized by our team's execution over the important holiday quarter.
We are encouraged by the progress we're making what our next great chapter plan across the business.
While we are mindful of the challenges across all markets globally. We are intensely focused on delivering on the commitments. We have made across every aspect of our business as we look to drive long term sustainable growth and value creation for all of our stakeholders.
And before I turn it over to Jane.
Sadly I want to note the recent passing over a long time board member and friend Arnold Aronson.
On behalf of Ralph and the entire organization I want to express our deepest gratitude for his kindness wisdom and service to our company over nearly two decades.
Now over to Jane and I'll join her at the end to answer your questions.
Thank you Patrice and good morning, everyone.
Our third quarter results demonstrate solid execution of our strategy three this holiday season, and our teams agility and navigating a dynamic global geopolitical and retail environment.
We delivered top and bottom line growth and good progress across key metrics, including 6% you our growth double digit growth in digital commerce, and gross and operating margin expansion.
Coupled with solid inventory control.
Third quarter revenues increased 1% on a reported basis and 2% in constant currency.
Every region posted positive revenue growth driven by mid single digit constant currency growth in Europe and Asia. Despite the ongoing headwinds in Hong Kong as well as slight growth in North America, excluding the impact in Hong Kong total company topline grew 2.5%.
Constant currency and every region delivered positive comps as we work to elevate our brand across every consumer touch points drive product quality reduced promotional levels and enhance our digital presence.
Adjusted gross margin was up 60 basis points in the third quarter, both on a reported and constant currency basis gross margins benefited from AIU, our growth of 6% on better pricing lower promotions and elevated product mix along with favorable.
Channel and geographic mix.
These more than offset investments in product elevation, and sustainability and diversification of our supply chain.
Looking ahead, we are encouraged by the early results of our fall pricing actions and expect our.
Strength to continue through the rest of the year driving our full year expectation of low single digit AIU our growth for fiscal 2000.
Our inventory positions for both our direct to consumer and wholesale businesses.
Current and well controlled coming out of this holiday season.
And we remain focused on managing our inventories with discipline and leveraging our supply chain agility and responsiveness.
Adjusted operating margin in the third quarter was 14% up 10 basis points on reported basis and in constant currency.
Adjusted operating profit dollars grew 3% to last year adjusted operating expense increased to 48.2% of sales up 50 basis points to last year, both on a reported basis and in constant currency.
Marketing was the key driver, we spending up 16% in the quarter as we shifted investments back into the key holiday selling period versus last year's focus on our Fiftyth anniversary show and related events in the second quarter, we still expect marketing spend to grow ahead of sales for the full.
Year fiscal 20, as we invest behind our brands with an emphasis on digital media.
Excluding marketing our adjusted operating expense leverage 20 basis points to last year as our teams generated operating efficiencies across our business.
The highlights from third quarter include first we continue to drive efficiencies across our end to end supply chain, including incremental savings across facilities labor airfreight and consolidation of materials, all contributing to mitigate the impact of terrorists. This way.
It is also delivering an improved experience for our consumers, including faster delivery speed on digital orders over the peak holiday period. For example, we more than doubled our penetration of orders delivered in two days or less over the prior year.
We also piloted a new fast track model in the quarter, where we were able to meaningfully accelerate the development of special product concepts from design to shelf.
Leveraging our investments in digital product development, we designed produced and delivered an exclusively sweater to a key wholesale customer in just 16 days right in time for Black Friday.
I'll just one early example, we expect this model to be a growing part of our supply chain as we continue our progress toward our 369 months lead time targets.
Moving onto segment performance.
Starting with North America.
Revenue increased slightly in the third quarter as strong growth in our retail business more than offset wholesale revenue declines.
Adjusted operating margin was 22.3% 830 basis point decrease to last year with operating margin expansion in our retail businesses more than offset by X gene a de leverage in our wholesale business on lower sales in the retail channel in North America comps were up.
4% and ahead of our expectations, driven by 4% brick and mortar comps and 6% comps on our own digital commerce site.
Im order comps were driven by 8% increase in a you are on top of 7% growth last year. This strong growth reflects our targeted price increases and a reduction in promotions along with an improved product offering new marketing Activations and rebalanced Assortments tore.
Stronger selling core and Underpenetrated categories.
We also made key operational improvements such as the rollout of our at I'd technology across our fleet to prove out of stock replenishment sales.
In addition, new staffing optimization tools in our stores drove productivity and improve service in peak periods. Our factory business led our AIU our increase in North America with improved conversion.
While traffic continued to be a headwind in the channel. We are focused on driving better traffic trends through enhanced digital marketing and refreshed and differentiated store experiences.
Thompson, our North America directly operated digital Commerce business were up 6% our investments in mobile personalization and site navigation drove positive growth from domestic consumers in the third quarter.
Our digital business also benefited from favorable product mix towards categories like outerwear and fleece, along with a timing shift into the third quarter as we saw higher sell through in the holiday period versus clearance period in Q4.
Excluding this shift we still expect second half comps to improve incrementally compared to first half comps.
Sales to international shoppers purchasing on our U.S. site and shipping to U.S. and dresses remained soft in the third quarter and should remained a headwind through the rest of fiscal 2000.
Moving on to North America wholesale third quarter revenue declined 8% inline with expectations, excluding a decline in off price sales our underlying North America wholesale business was also down high single digits. However, our full price sell out improved from recent trends.
In the near term, we're focused on improving the consumer experience in the wholesale channels through in store refreshes expansion and underpenetrated categories and increased marketing.
Our inventories in the wholesale channel, our clean and down on a year over year basis.
We are driving a more favorable product mix, emphasizing or categories and testing targeted brand marketing for Lauren womens.
We continue to expect it will take some time for our wholesale business to start reflecting these strategic improvements, which have shown success in our direct to consumer channels.
Moving onto Europe third quarter revenue was up 3% on a reported basis and 5% in constant currency adjusted operating margin expanded 300 basis points, both on a reported and constant currency basis operating margin expansion was driven by strong gross mark.
Agents and ash DNA leverage in the retail channels in Europe comps were up 3% driven by 15% increase in our own digital commerce sites any 2% increase in our brick and mortar stores. The increase in our directly operated European digital Commerce business was.
Above our expectations driven by strong you are grows.
Solid merchandising execution and traffic increases along with the shift in seasonal product sales similar to our North America site across our Europe direct to consumer channels are ongoing efforts to elevate the brand and improved product mix continued in the third quarter with AIU.
Our up 10% on top of 11% increase last year. This is consistent with our long term strategy to drive higher quality of sales and price harmonization in the marketplace.
Wholesale revenue in Europe was up 5% in constant currency and also ahead of our expectations similar to Q2. This strong performance reflected solid sell out trends driving stronger reorders, particularly with our digital pure play partners.
Turning to Asia revenue was up 5% on both a reported and constant currency basis in the third quarter.
Excluding the impact of Hong Kong, where protest related store closures and tourism declines were ongoing headwind Asia revenues were up 9%.
This solid performance was driven by several markets in Asia led by Chinese mainland sales growth of over 30% in constant currency, our product and marketing initiatives are resonating well in this region and we continue to drive our digital efforts expand and elevate our store.
Our fleet and engage with local Influencers and celebrities.
Comps in Asia decreased 1% with slight you are declines excluding Hong Kong easy comps were up 2%.
Store closures and traffic declines to Hong Kong remained a challenge in the third quarter, but we were able to partially mitigate some of this impact by pulling forward a friends and family event in our factory stores.
We continue to expect Hong Kong to remain a near term headwinds, especially with the emerging impact of the Corona virus as Patrice mentioned.
Adjusted operating margin was down 50 basis points to last year on a reported basis and down 70 basis points in constant currency, driven by SGN age and leverage in Hong Kong.
Excluding Hong Kong margins were up 130 basis points in constant currency.
Moving onto the balance sheet, our balance sheet remains strong and we continue to return capital to our shareholders.
We ended the quarter with about 1.9 billion in cash and investments and 694 million in total debt, which compares to 2.1 billion in cash and investments and 687 million in debt at the end of last year's third quarter.
We repurchased 98 million in shares in the third quarter for a total of 498 million in repurchases year to date, we will continue to Opportunistically buy back stock and remain on track to complete our target of about 600 million in repurchases for full fiscal 20.
Moving on to inventory at the end of the third quarter inventory was down 1% to last year and flat in constant currency.
We still expect to end the year with inventories relatively aligned to our sales outlook.
Now I'd like to turn to guidance for the full year and fourth quarter fiscal 2000.
As a reminder, this guidance excludes restructuring and related charges and reflects our best assessment of the global retail landscape in the context of increased volatility from macroeconomic and geopolitical events, specifically our outlook still incorporates the impact of tariff.
Brexit and protest related business disruption in Hong Kong.
At this early stage our guidance does not include potential impact from the Corona virus outbreak given the dynamic nature of the situation. However, we are monitoring developments closely and will be transparent about the expected impact providing updates if needed.
For full year fiscal 20, we still expect revenues to be in the range of 2% to 3% growth in constant currency based on a better than expected holiday revenues should be slightly better than the low end of the range, we guided to last quarter.
Foreign currency is expected to have about 110 to 130 basis points of negative impact on revenue growth based on currency shifts. We now expect operating margin expansion at the high end of our previous range of 40 to 60 basis points in constant currency driven primarily by.
By gross margin expansion and slight SGN a leverage.
Foreign currency is estimated to have about 10 basis points of negative impact on operating margin in fiscal 2000.
Based on the timing of shipments our guidance now assumes a little less than $10 million of negative terrorists impact to our fiscal 20 cost of goods. We expect the majority of this impact in our fourth quarter. However, based on our supply chain diversification out of China.
And recent tariff reductions, we estimate tariffs will have about $12 million to $15 million of total impact in fiscal 2001, we now expect our full year tax rate to be about 20%.
For the fourth quarter fiscal 20, we expect revenues to be up slightly bolt on a constant currency and on a reported basis.
On currency is expected to negatively impact revenue growth by about 50 basis points in the quarter, we expect protest disruptions in Hong Kong negatively impacts our Asian comp by about five points in the quarter.
Operating margin for the fourth quarter is expected to be up slightly in constant currency and on a reported basis. Similar to Q3. This is primarily due to timing of SGN a investments with our highest number of new store openings weighted to the back half of the year largely offset.
Getting gross margin expansion in the quarter.
Fourth quarter tax rate is estimated at 26% above our full year expected rate based on our expectation of discrete one time items.
We look forward to sharing the details of our fiscal 21 guidance. When we report our fiscal year end in May.
In closing, we're proud of the focus agility and passion our teams around the world demonstrated this holiday quarter.
Guided by Ralphs vision, our teams elevated our brand delivering comp.
You are and profit growth.
All while maintaining discipline on inventories and costs.
Well, we're navigating in watching the challenges in the broader environment closely we are first and foremost committed to the safety of our employees partners and consumers. We believe we have the right strategy and team to deliver across our strategic priorities and crew.
Great value for the long term.
With that let's open up the call for your questions.
Yes.
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The first question comes from H. any with Barclays capital.
Good morning, and congratulations on continued progress in a very tough environment.
Great. Thank you good morning.
Typically I wanted to you gave such great color on sort of that or what was driving pricing increases.
It's accelerated in the back half of the year from the first half. Despite the tougher compares obviously you talked about where youre, taking selective price increases what did you learn about the price elasticity, particularly in North America and does this give you confidence in your ability to continue to take pricing up.
Over the next year so thank you.
Thank you for your question well, let me just step back a little bit the kinda give you the overall with.
Well, we're thinking about this the first thing I would say his brother elevation is really at the core of our strategy Alright, and then you are as obviously you've done a key component to that.
Second point on there you are is we have four drivers for you our that we're working on one is pulling back on promotional support and actually in the last quarter, we reduced our promotional pressure. The second is leveraging product mix and you saw us invest in categories I hire a you are like outerwear and please.
Third as long as she leveraging geographic control makes and then the final point does indeed targeted pricing.
No. We've actually started this journey are taking targeted pricing in the context of this brought to you our strategy.
In International I'd say past 18 24 months.
We've been pleased with the results that we've achieved there.
But it's really important to understand that it isn't just pricing in isolation. It's the result at work that we've done on elevating the brand across all the touch points. The work we've done on inventory on product on Brown on distribution that enables that we're at a stage now where we think the conditions are set for us to execute that in North America.
So as you as you mentioned, we've now has about a quarter under our belt in the factory outlet channel, which is where we started we're encouraged both by the way that seems to have executed they've done a terrific job and the consumer response across the board.
Because we saw significant to you our growth.
Now you are growth in isolation doesn't make any sense right. So your growth and this has got cold and we're pleased with the 4% comp growth that we achieved in North America.
In terms of and expanding this across.
Ecosystem for North America. The plan is actually to do that no. So literally as we speak we are implementing pricing.
For the consumer on the floors, both in our full price stores that wholesale.
Leveraging the learnings that we picked up in our execution in factory outlets were at the very beginning of this strange quite encouraged by what we've seen so far.
And to the point on your guidance long term relative to our expectations for you. Our growth. We continue to expect you are to grow low to mid single digits throughout the lifetime of warm.
Thank you in the next question comes from Michael Binetti with Credit Suisse. Your line is open.
Guys I, let me start with congrats on a really nice quarter, what sounds like a tough holiday.
Michael.
When I ask you in North America wholesale down 8% was bigger decline than we've seen since.
Maybe fourth quarter last year, and you were wrong, you are going against big off price.
Correction in the fourth quarter last year.
Lapping a negative 10.
If I add this to some comment you just made on now starting to raise prices in wholesale.
I'm traveling.
You guys think about the North America wholesale.
Numbers going forward from here, obviously, the compare gets easier you've got some pricing, but then do you think we're at a point, where we can you can see turning a corner on on North America wholesale turning positive yet at some point during the course of fiscal 21.
Then I also wanted to ask you about how you're thinking.
Through all the dynamics you just laid out about about margins for next year. It sounds like you're happy with how the the increased marketing is going obviously the results there on the topline.
But I'm wondering how you're thinking about gross margin as well for next year, which has been nice contributor for for several years now I mean did say you are should keep moving in the right place you're happy with tickets I'm wondering if we can you give Steve you still think the gross margin industry dynamics, we've seen in the first two years. The plan obviously similar next year.
Yeah, Michael it's James.
Let me answer you our gross margin question first and then I'll go to.
North America wholesale so we're really encouraged with what we saw in North America.
Gross margin.
Led by.
The.
Uh huh.
Those who are increases really.
Selected our ability to continue our discount reduction journey.
You are starting to see.
Nice contribution from product.
Any elevation.
Products that are assortments that are rebalancing of the core that.
So early stages, but we're starting to see that.
And then.
The consumer response.
Ticketing increases were also.
So that was giving me.
Yeah.
Gross.
Yeah.
It is.
For Q4, but I think the things that we've called out.
Reductions.
Yes.
Targeted.
Consumer value oriented.
Product mix.
Some tailwind benefits.
Yes.
Things are.
Able to manage.
Ladies.
Through the war three working those leverage so I continue to remain optimistic margin is a driver.
Hey.
Got it.
But is also durable.
The magnitude.
Yes.
The clear on our guidance, but encouraged I think it's.
I think.
So.
Hi, Good progress. There then if I turn to though your North America wholesale question I would tell you that again.
Hi.
Down.
Hey.
Meaningfully more that.
Yes, double digit decline last year double digits.
Yeah and again.
Hello of operations related.
Inventory clean.
And so we're really.
Looking at that channel.
A strategic standpoint that shouldn't be which is good partners.
There.
[laughter].
In terms of the timing of North America wholesale covered we know that will take some time right. So what.
Is encouraging to us is that we're on the right track.
Strong comp growth in DTC in North America this quarter.
Underlying trend in comp encouraging.
Quarter by quarter.
The underlying trend is encouraging.
Taking.
Wholesale.
He is called out.
Rebalancing assortments focusing on sale out.
Yeah.
This quarter.
And and restarting targeted marketing in the channel.
Very early.
Oh.
We're pleased with.
And were overall pleased with our marketing investments.
Either enabling our brand elevation.
Still encouraged as how that flows.
Next question please.
Thank you. The next question comes from Matthew Boss with JP Morgan.
Great. Thanks, and congrats on a nice quarter, maybe Patrice maybe Patrice and I know this is somewhat higher level, but as we think about differentiated versus undifferentiated retail I guess, maybe what inning overall do you see the brand today in North America. So maybe if you could touch on the whole.
Sale distribution, how you feel about your existing department store doors, maybe the number and the quality of the doors that you're in.
I know Jane just touched on the off price and then at retail where do you see the opportunity from a footprint perspective in terms of what you have today and the opportunity that you have going forward.
Hi, Jane is very happy that we're back to baseball analogy [laughter].
So listen on the differentiation front I think we're in the very early innings in North America actually right. So if you asked me for a number I'd probably say too.
Other nine.
I think we see opportunities.
To actually in the context of the brand elevation strategy.
To increase our presence in higher end wholesale.
Where we see opportunities both in North America next year on around the world.
We're also in kind of the current wholesale footwear, you know we reduced that significantly already right were down 25% from where we were about three years ago to make sure that the Brian shows up in the right plays we continue to assess the locations on a very regular basis working closely with our partners. So this is also dynamic process as far.
Did you see is concerned.
We believe we have opportunities obviously to continue to fuel our dot com operations, right, which isn't very important factor.
Part of our business and also similar to our thinking internationally with the introduction of although cheeks.
We believe there is an opportunity in North America to expand our.
TC footprint smaller format stores, so that won't happen tomorrow morning, but as we look at kind of the next few years on where we want to take the brand and how we want to drive interactions with consumers across the country.
We do believe there are opportunities to expand the footprint so that the bright as better represented.
More to the in more dispersed way across the entire country.
All guided by our brand elevation strategy right. That's really the filter that we used to decide where we should be and then how do we ensure the differentiation is very clear by channel for the consumer both online and brick and mortar so that he or she knows exactly what to get in which location and how the brand will short differently based.
On the different environments.
Question. Please.
Thank you. The next question comes from Omar Saad with Evercore ISI.
Thanks, I'd add my credit congratulations nice quarter guys. I appreciate all the information I wanted to ask a follow up on the sales guidance you know obviously, it really strong quarter. Your comps accelerated you came in above your number you kind of kept the full year guidance. The same as or are there any timing issues going on especially with all that you are you know upticks it feels like.
Easier comparison in the image and the fiscal fourth quarter feels like there could be some opportunity for revenue upside. There is there something I'm missing and then follow up on the Corona virus and maybe it's related we're hearing stories of.
Double digit million population cities, there, but that like ghost towns right now, it's a pretty significant comp declines wondering if you're seeing any meaningful impacting your business and real time and is there anything on the supply chain side, we should think about in terms of disruption there potentially thanks.
All right.
Why don't I Uh huh.
Question in terms of the guidance first then in terms of revenue upside what we are thinking we called it out.
Because obviously Hong Kong will have a more meaningful impact.
As we head into the fourth quarter.
We've seen a travel.
Looking to deteriorate from the surge in the fourth quarter and this is obviously a big quarter for home.
In that it was lunar new year, and so we called out it we had about it.
Point impact.
Third quarter.
To about five point.
Yeah.
In the fourth quarters.
One factor.
That's going into that and then we called out.
Digital commerce that we had very with stronger than expected.
As we look at that.
And underneath the covers.
In Europe.
What we thought is that we sold out stronger oil price we had less.
Whereas in the fourth quarter asset quality of sale.
And so you'll see some of that sitting on our digital comps in the fourth quarter as we.
We also have.
Given the shorter holiday season, we moved to fulfill demand to make sure consumers had a good service.
And we'll have we'll have some more process returns in the fourth quarter.
And we were less promotional at the end of third quarter. So those are some things that are sitting in digital.
The biggest things.
There.
Yeah.
Third quarter revenue.
And then on the on the Corona virus and obviously, it's a highly dynamic situation right, but if we take a snapshot today for us in China, we have about half of our fleets close.
So Bob we own bone hundred 10 stores so.
Roughly half of that as close as we speak today.
We see we monitor that very closely.
As far as supply chain is concerned well first of all the other thing I would say relative to our business penetration in China just for the benefit all group is.
Wow.
The China option. He is a massive growth opportunity for us to southern side, it's a blessing to be underpenetrated today, because our business today is China represents less than 4%. So the total company business.
We still are very bullish about our ability to win long term in <unk> in that region and very excited about what we can do them on the supply chain for they'll say I'd say same thing Omar very dynamic situation.
We have been working as you know over the past year to year to diversify our supply chain. So they were less dependent on one market less dependent on China. So we have a greater ability to leverage.
A footprint that is much broader and much more flexible.
We were in the middle of the lunar new year vacation will need to see.
Which has been extended the week will need to see how employees return to the various factories posted vacation. So we're watching it we are working on being as agile as possible.
And.
We'll make sure we make the best of the situation that we're dealing with the priority and all of this right. Because this is a human sicher, we can't lose sight of the human dimension of all this August is.
It is to make sure that our employees are safe for consumers are safe.
And that we follow very closely the guidance both from the local in the global authorities on this on this health crisis.
Next question.
Thank you. The next question comes from Erinn Murphy with Piper Sandler.
Great. Thanks. Good morning took a couple of questions for me I get it treats just on the beef market opportunities. You gave that 16 Day example, could you talk a little bit more about where that product with produce then if you. If that's the opportunity how repeatable process and then just a follow up for a chain on the North American coal sale can you talk.
A little bit more during the quarter and what did you see with men's polo versus loring within that full price.
Thank you.
Right on budget took notice that example, that's actually really good.
I wish it was the pilot exercise for US It was a sweatshirt that we developed with one of our wholesale partners and we did execute it from ideas to delivery to the partnering in engine in 16 days.
We're not going to move our entire supply chain to 16 days, what what's key our Orlando system I understand what is the timing required to be well positioned to win.
And a specific category in a specific geography in a specific channel. So we still have kind of our nine takes three month lead times and then there was some projects where we want to have this ability to do to react in the in the span of days the specific project going was so sweatshirt.
Believe manufactured in mainland China.
And it's something that's replicable, which is why we shared as an example, it's a pilot but I think it's an indication also that organization is becoming more agile more aggressive in terms of unmanaged timelines and also more creative so I think you're going to continue to see from us.
Faster lead time, not just for the sake of lead times also just to understand what's required to to win in the marketplace.
And I would just add that we remain confident in the.
The goal that we laid out in Investor day.
Yet.
Our product.
Month or less.
Time, and we're making great progress.
He categories.
Moving.
Almost 80% of ours for sure.
Just six months or less and even working on faster so great progress by our supply chain.
In that area.
And then to the second part of your question regarding what we're seeing what we saw on.
Hello, and and Lauren brands, we did see.
Across the company that.
The polo brand really drove.
And that.
Specifically in North America wholesale we saw the polo.
Be stable and then driver for.
Lauren.
Oh, Yeah, we're seeing some positive.
They're very early.
Based on the marketing the country's called out and targeted.
Work that we're doing with our wholesale partners that one.
Makes sense believes that the Lord opportunity is an opportunity in North America wholesale that our consumer is still there and that sort into the right categories with the right.
<unk>.
At the consumer.
And so we saw some encouraging trends there.
Early to call the turnaround.
But encouraging.
Next question please.
Thank you. The next question comes from Alex while this like Goldman Sachs.
Good morning, Thanks, so much for taking the question.
Commented on some pretty strong performance in the outerwear segment through the for the quarter, which which was a tough category for some other so some good progress that I wonder if you could share some comments on the other underdeveloped categories. You mentioned denim with strong you know any comment on where we are in the progression for.
Accessories footwear and went to work and so forth.
Sure.
Yeah, we were actually really encouraged by the by the growth on outerwear, and frankly on becoming even more bullish on the size of price.
On the parts of the business as we build capabilities in house. So good momentum on outerwear on denim also performed well for us and actually contributed to the solid trends on our men's business I think the team is doing very good job in terms of understanding that customer we want to serve developing product that resonates and then fine.
Turning away to communicate and executed in store and the way that really connects with the consumer we're making good progress on wear to work probably the keeping to highlight here is the way we are complementing our line on particularly on polo women's and some of the work. That's also underway on Lauren really make sure that we have the right offering.
The meet that kind of wear to work consumer need so good progress there and if you remember this is an over simplified but we're well I really want to shift to being a it got a seven day.
Since solution as opposed to maybe two or three days a week.
Both from men and women. So I'm encouraged by the progress, we're making there as far as footwear and accessories. So we have talked about the fact that investor day that footwear and accessories.
Progress and impact would be more back loaded in the five year program.
Which is why you're seeing further acceleration on outerwear in denim first.
But we're making good progress on footwear and accessories job. One first was really building capability right working with Ralph having the right design talent, both on bags and on shoes, we brought some extraordinary talent from from a key players in this space that has joined us over the past year year and Uh Huh.
So that we make sure we've got people that really understand fundamentally how these categories work.
And then now working on bringing these products to life in the market. These things take about a time. So I expect the impact would be most visible in the outer years of the plan, but we're starting to see some are in some encouraging signs on different parts of the portfolio, but give us confidence that we're making the right progress and that we will see the benefits that we expect from from those two.
Categories as well.
Last question. Please Angela.
Thank you. Our final question comes from Rick Patel, with Needham and company.
Hi, Good morning, guys. Thanks for squeezing me in and I'll add my congrats as well I was hoping you could provide some more color on Europe wholesale you reported some nice growth there. Despite the negative impact that some timing shifts is there anything to call out aside from digital wholesale accounts and how sustainable is this growth.
We think about the run rate for this segment.
You know I think we're encouraged we.
Calling out.
Our you're at wholesale underlying trend is being in the range of what we called out for the long term started in the low to mid single digit growth. Obviously, there are pure plays partners, our leading macro but we're also encouraged with what we're seeing.
In our core rixson more traditional bricks and mortar partners in terms of their trajectory all.
Lord work.
Same store sales growth.
Areas and.
Fusion expansion that we're seeing I'm on a more regional basis with partners that we've had for.
Right.
A number of years, so that's very encouraging to us I think we see this as a as durable growth and we're encouraged by the progress that we're making and where the brand.
In the wholesale.
<unk> ecosystem I think it elevated.
The pricing is.
It's accretive to our overall portfolio.
And our inventories are in good shape.
There. So we were very pleased with progress.
Good so thank you everyone for joining us today, we look forward to sharing or fiscal year end result.
In fiscal year 21 guidance with you on our next call in early May.
Between now and then have a great time, thank you bye bye.
Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.
Yes.