Q1 2025 Ralph Lauren Corp Earnings Call
Speaker Change: 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 a call, please press star then zero. As a reminder, this conference is being recorded.
Operator: All of your questions will be answered at that time. If you should require assistance during a call, please press star then zero. As a reminder, this conference is being recorded. I'd now like to turn over the conference to our host, Ms. Corinna Vandergins. Please go ahead.
Corinna Vandergins: Good morning, and thank you for joining Ralph Lauren's first quarter fiscal 2025 conference call. With me today are Patrice Louvet, the company's President and Chief Executive Officer, and Justin Picicci, the 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.
Corinna Vandergins: 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. However, 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.
Corinna Vandergins: Principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filing. 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, which can be found on our Investor Relations website. With that, I'll turn the call over to Patrice.
Speaker Change: Good morning, everyone and thank you for joining today's call.
Patrice Louvet: Thank you, Corey. Good morning, everyone, and thank you for joining us on today's call.
Patrice Louvet: We started year three of our Next Great Chapter Accelerate Plan with continued momentum, keeping us on track with our fiscal 25 and long-term strategic commitment. Our first quarter performance underscores the power and growing desirability of our iconic brand around the world, with key moments that demonstrate our ability to resonate across cultures, geographies, and generations. Fueled by our culture of operating discipline and increased efficiencies, these investments will enable us to drive long-term sustainable growth and value creation well beyond our current three-year plan.
Speaker Change: We started year three of our next great chapter accelerate plan with continued momentum.
Speaker Change: Keeping us on track with our fiscal 'twenty, five and long term strategic commitments.
Patrice Louvet: And third, win in key cities with our consumer ecosystem. Ralph Lauren continues to be at the forefront of culture across geographies and demographics. Our high-potential categories, including women's apparel, outerwear, and handbags, together increased by mid-single digits, outpacing our total company growth rate as we continue to drive our strategy of foundational pieces to anchor her modern wardrobe. Top sellers in women's this quarter included our iconic cable knit sweaters, linen and oxford shirts, polos and shirt dresses in easier fits, and our canvas city jacket.
Speaker Change: Our first quarter performance underscores the power and growing desirability of our iconic brand around the world.
Speaker Change: With key moments that demonstrate our ability to resonate across cultures geographies and generations.
Speaker Change: This.
Combined with our diversified engines of growth and organizational agility gives us confidence that our long term strategy will continue to deliver.
Speaker Change: Even through these dynamic times.
Speaker Change: First quarter results exceeded our expectations led by international and positive retail comps across all regions with continued momentum across consumer metrics.
Speaker Change: Performance in our global direct to consumer businesses in Europe wholesale more than offset planned softness in North America wholesale.
Speaker Change: At the same time, we continue to invest in our strategic priorities, including marketing digital capabilities in our targeted ecosystem expansion across our top cities.
Patrice Louvet: Turning to our third key initiative, winning key cities with our consumer ecosystem, and we recently welcomed consumers back into our newly renovated Chicago flagship on Michigan Avenue. Our China momentum continued, with sales up low double digits this quarter over an exceptionally strong compare of up more than 50% last year. It was also recognized at the Global Fashion Summit in Copenhagen, and leveraging our nimble global supply chain and culture of operational discipline in order to mitigate ongoing disruptions, drive greater long-term efficiency, and better serve our consumers.
Speaker Change: CCD ecosystems around the world are driving elevation and consistency across all of our consumer channels and touch points.
Speaker Change: Each of these ecosystems is anchored by direct to consumer channels, including our stores and digital commerce sites, where we offer our most elevated consumer experiences and engagement in the first quarter, we drove solid DTC comp growth, while also expanding our connected ecosystems across key markets.
Speaker Change: Comps were up mid single digits in both our brick and mortar stores and digital channels.
Speaker Change: Globally, we opened eight new owned and partnered stores focused on our top cities largely in Asia.
Speaker Change: We recently welcomed consumers back into our newly renovated Chicago flagship on Michigan Avenue.
Speaker Change: In addition to our famed RL restaurant there.
Speaker Change: The store now also includes our first Ralph's coffee shop in the Midwest.
Speaker Change: With more than 30 coffee shops, and five restaurants.
Speaker Change: We are now engaging with over 3 million consumers annually through our hospitality business.
Speaker Change: <unk>, a new generation of consumers to our iconic brands around the world.
Speaker Change: By region growth was led by Asia up another high single digits, this quarter and consistent with our outlook.
Speaker Change: This was followed by better than expected performance once again in Europe.
Justin Picicci: It's a privilege for me to step into the CFO role, and I'm grateful for the support that Ralph, Patrice, Jane, and the board have all shown me throughout this transition. I know I speak for the entire Ralph Lauren team when I say we remain firmly committed to delivering on our strategic and financial objectives, leveraging the power of our timeless brand and strong momentum around the world. We had a solid start to fiscal 25, with first quarter top and bottom line results ahead of our expectations. Our AUR growth continues to be driven by favorable product, category, channel, and geographic mix, along with reduced discounts. Moving on to segment performance.
Justin Picicci: Starting with North America... All key markets delivered growth in the quarter, with the exception of the UK, where retail growth was offset by continued softness in wholesale. Retail comps were also up 9%, on top of a 13% increase last year, with strong growth in both digital and brick-and-mortar stores. China sales increased low double digits on top of an especially strong reopening compare of up more than 50% last year. Our strong balance sheet and cash flows continue to be key enablers of our fortress foundation, allowing us to make strategic growth investments in our business while returning cash to shareholders.
Speaker Change: Spring season to date sellout trends are.
Speaker Change: Our AUR at wholesale increased modestly consistent with recent trends on well positioned inventories in the channel.
Speaker Change: Looking ahead, we continue to expect North America wholesale declines to moderate through the remainder of fiscal 'twenty five with sell out more closely aligning to sell in maintaining our ability to chase replenishment on stronger performing core product.
Speaker Change: Our outlook also includes the planned exit of approximately 45 Department store doors. This fiscal year as we continue to proactively evaluate and refine our brand presence on a door by door basis.
Speaker Change: Moving to Europe.
Speaker Change: First quarter revenue increased 7%.
This was ahead of our expectations with both wholesale and retail sales outperforming our plan.
Speaker Change: All key markets delivered growth in the quarter with the exception of the U K, where retail growth was offset by continued softness in wholesale.
Speaker Change: Performance in Europe was led by retail with comps up 8% to last year, including one digital commerce up low double digits.
Speaker Change: AUR continued to grow strongly on top of last year's double digit percentage increase driven by our brand elevation with discount rates down significantly to last year, despite a competitive promotional environment.
Speaker Change: Europe wholesale increased 5% driven by strong reorder rates, notably at our digital partners following last year's channel reset.
Speaker Change: We continue to expect Europe wholesale channel growth in the low single digit range for fiscal 'twenty five with Q3 below the full year trend due to the planned timing of shipments as previously discussed.
Speaker Change: We remain encouraged by our branch rising consumer perceptions in Europe, as well as our teams strong execution, especially given the ongoing dynamic operating environment across the region.
Speaker Change: Turning to Asia.
Speaker Change: Revenue increased 9% with growth across all markets.
Speaker Change: Retail comps were also up 9% on top of a 13% increase last year with strong growth in both digital and brick and mortar stores.
Speaker Change: China sales increased low double digits on top of an especially strong reopening compare of up more than 50% last year.
Speaker Change: While our 618 holiday sales significantly outperformed the market, we continued to experience normalizing consumer trends post pandemic as reflected in our reaffirmed outlook of low teens, China growth this year.
Speaker Change: Sales in Japan, our largest market in the region increased high single digits supported by key marketing campaigns and a rebound in tourist spending which returned to pre pandemic levels this quarter.
Speaker Change: Moving to the balance sheet.
Our strong balance sheet and cash flows continue to be key enablers of our fortress foundation, allowing us to make strategic growth investments in our business, while returning cash to shareholders.
Speaker Change: We ended the quarter with $1 8 billion in cash and short term investments and $1 1 billion in total debt.
Speaker Change: We generated about $245 million in free cash, enabling returns of approximately $225 million in the form of dividends and share repurchases. This quarter, even as we continued to make important long term investments in our brand technology and ecosystems.
Justin Picicci: We generated about $245 million in free cash, enabling returns of approximately $225 million in the form of dividends and share repurchases this quarter, even as we continue to make important long-term investments in our brand, technology, and ecosystem.
Speaker Change: Net inventory decreased 13% to last year slightly better than our plan.
Speaker Change: Our inventory levels continued to be well positioned relative to our outlook for each region and heading into the important fall holiday season.
Speaker Change: With weeks of supply improving versus last year, despite incremental shipment delays related to the Red Sea.
Speaker Change: Looking ahead.
Speaker Change: Our outlook remains based on our best assessment of the current geopolitical backdrop as well as the macroeconomic environment.
Speaker Change: This includes inflationary pressures and other consumer spending related headwinds.
Speaker Change: Supply chain disruptions.
Speaker Change: And foreign currency volatility among other considerations.
Speaker Change: For fiscal 'twenty five we continue to expect constant currency revenues to increase low single digits centering on about 2% to 3%.
Justin Picicci: For Fiscal 25, we continue to expect constant currency revenues to increase in low single digits, centering on about 2 to 3 percent. However, foreign currency is now expected to negatively impact revenue growth by about 150 basis points. Given the structural headwinds we've seen in the Japanese yen over the past few years, we'll be taking select like-for-like price increases in Japan this fiscal year. We still expect gross margin to expand 50 to 100 basis points driven by a favorable mix shift towards our international and full price DTC businesses. We successfully renegotiated our annual freight contracts in the first quarter, encompassing the majority of our ocean freight requirements.
Speaker Change: Our outlook continues to include stronger growth in DTC and caution around the North America wholesale channel, where demand is improving but still challenged.
Speaker Change: Foreign currency is now expected to negatively impact revenue growth by about 150 basis points, driven primarily by Asian FX.
Speaker Change: Given the structural headwinds we've seen in the Japanese yen over the past few years will be taking select like for like price increases in Japan This fiscal year.
Speaker Change: With regards to this year's revenue cadence, we still expect the first and third quarters to trend below our full year outlook largely based on the planned timing of wholesale receipts.
Speaker Change: The third quarter is also impacted by additional factors specific to this year, notably.
Speaker Change: Short or holiday selling window between Thanksgiving and Christmas compared to last year and.
Speaker Change: And volatility around the U S presidential election, and potential related impacts on consumer behavior.
Speaker Change: We continue to expect operating margin to expand about 100 to 120 basis points to a 13.5% to 13.7% range.
Speaker Change: In constant currency relative to our fiscal 'twenty, two investor day base period. This keeps us on track to deliver our 15% operating margin target this year.
Speaker Change: We still expect gross margin to expand 50 to 100 basis points, driven by favorable mix shift towards our international and full price DTC businesses.
Speaker Change: Continued growth in AUR more than offsetting headwinds from incremental labor and other non cotton raw material costs.
Speaker Change: And favorable cotton costs.
Speaker Change: We successfully renegotiated our annual freight contracts in the first quarter encompassing the majority of our ocean freight requirements.
Justin Picicci: Based on this visibility, our outlook continues to include minimal impact from freight in the first half of Fiscal 25, followed by incremental headwinds from higher spot rates, non-cotton material costs, and labor in the second half of the year, as we called out in May. We are well positioned following several years of proactive diversification into other supply markets and the development of near-shoring capabilities. Currently, China represents a high single-digit percentage of our finished goods coming into the U.S. for the second quarter.
Speaker Change: Based on this visibility our outlook continues to include minimal impact from freight in the first half of fiscal 'twenty five.
Speaker Change: Followed by incremental headwinds from higher spot rates non cotton material costs and labor in the second half of the year as we called out in May.
Speaker Change: In addition, we are closely watching the risk of potential additional China tariffs along with the rest of the industry.
Speaker Change: We are well positioned following several years of proactive diversification into other supply markets and development of near shoring capabilities.
Speaker Change: Currently China represents a high single digit percentage of our finished goods coming into the U S.
Speaker Change: And for fiscal 'twenty five foreign currency is expected to negatively impact our gross and operating margins by about 40 basis points.
Speaker Change: For the second quarter.
Justin Picicci: We expect revenues to be up low to mid-single digits in constant currency, centered around 3-4%, led by our DTC channels. Wholesale is expected to improve sequentially from Q1 as North America sell-in more closely aligns to sell-out trends. Based on favorable tax credits realized in the first quarter, we now expect our fiscal 25 tax rate to be in the range of 22 to 23 percent for the full year, while the second quarter is expected to be in the range of 21 to 22 percent.
Speaker Change: We expect revenues to be up low to mid single digits in constant currency centered around three years to 4% led by our DTC channels.
Speaker Change: Wholesale is expected to improve sequentially from Q1 as North America sell in more closely aligns to sellout trends.
Speaker Change: Digital trends in Europe are expected to be pressured by the timing of an end of season sale shift into Q1.
Speaker Change: Foreign currency is expected to negatively impact revenues by approximately 160 basis points.
Speaker Change: We expect second quarter operating margin to expand approximately 80 to 120 basis points in constant currency with roughly 110 to 130 basis points of gross margin expansion more than offsetting higher operating expenses due to the timing of key marketing campaigns this quarter.
Speaker Change: Including the Summer Olympics, and our September fashion show.
Speaker Change: We still expect marketing investments to grow at a faster rate than the first half of the year and decline in the second half.
Speaker Change: Excluding marketing we continue to expect second quarter operating expense to leverage slightly similar to our Q1 trend.
Speaker Change: And foreign currency is expected to negatively impact gross margin by roughly 40 basis points and operating margin by 50 basis points in the second quarter.
Speaker Change: Based on favorable tax credits realized in the first quarter. We now expect our fiscal 'twenty five tax rate to be in the range of 22% to 23% for the full year, while the second quarter is expected to be in the range of 21% to 22%.
Speaker Change: In closing.
Speaker Change: Ralph's vision of inspiring the dream of a better life is as relevant today as it was over 50 years ago resonating with our consumers around the world as well as our teams who proudly and passionately carry this vision forward and continue to execute with agility and dedication.
Justin Picicci: Ralph's vision of inspiring the dream of a better life is as relevant today as it was over 50 years ago, resonating with our consumers around the world, as well as our teams who proudly and passionately carry this vision forward and continue to execute with agility and dedication. While we are mindful of ongoing volatility and challenges in the broader operating environment, our business continues to be supported by our powerful, iconic brand and our multiple drivers of growth across geographies, categories, and channels.
Speaker Change: While we are mindful of ongoing volatility and challenges in the broader operating environment. Our business continues to be supported by our powerful iconic brand and our multiple drivers of growth across geographies categories and channels.
Speaker Change: And importantly, we remain committed to delivering on year three of our next great chapter accelerate plan.
Speaker Change: While at the same time investing in our strategic priorities to create long term value for our stakeholders.
Speaker Change: With that let's open up the call for your questions.
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Speaker Change: One moment please for the first question.
Speaker Change: The first question comes from Michael Binetti with Evercore ISI.
Michael Binetti: Hey, guys. Thanks for taking our questions here and congrats on a nice quarter.
Michael Binetti: One for Patrice I guess with the the amount of volatility we're seeing in the marketplace here, especially this last quarter from some of your peers that are reporting any any thought on why your consumers seem to be holding up relatively better than others in the market and do you think those trends are sustainable as you look ahead, and then I guess just to zero in on Europe.
Speaker Change: For a minute all the macro data points, there look pretty cautious.
Speaker Change: I know you guys had made a big splash with the Olympics, but could you speak to where you're seeing some of the strongest and maybe the weaker trends in DTC comps and it sounds like wholesale is outsized growth in the digital native retail channel with your largest partner I'm curious how sustainable you think the wholesale trends are in Europe.
Speaker Change: Alright, good morning, Michael Thanks, Thanks for your a double barrel question.
Speaker Change: Let me start on the first part let me start by saying how exciting is the rolling Thunder or the marketing Activations at Ralph Lauren right now.
Patrice Louvet: Just to list a few of the activities that have happened over the past few months, and the consumer is responding around the world. Our net promoter scores, as we mentioned in our prepared remarks, are up 400 basis points globally. Our online search grew 25% this last quarter, outpacing our entire competitive set. And this was even before the Olympics kicked in.
Speaker Change: Just to list a few of the activities that have happened over the past few months April fashion show in New York presence Exelon and our multimedia elements presentation in Milan Wimbledon. The Summer Olympics, obviously going on in Paris right. Now then we've got the U S. Open then we have our show that we are in a program for the holiday season, So exciting rolling Thunder.
Speaker Change: Activities right now and I think it's really clear based on that that Ralph Lauren is a powerful player not just in fashion, but also on culture.
Speaker Change: And the consumer is responding around the world our net promoter scores as we mentioned in our prepared remarks are up 400 basis points globally. Our online search grew 25%. This last quarter outpacing our entire competitive set and this was even before the Olympics kicked in.
Speaker Change: Of course, we're not immune to broader macro pressures on the consumer and listen we're well aware of the heightened concerns coming into the markets. This week.
Patrice Louvet: But from a fundamentals perspective, you can see that our core consumer is responding to these activations. Second, our elevated go-to-market strategy across key cities. China and Europe, and I'll come back to your question on Europe, are great examples of where we are running our play and bucking the market. And even within North America, which has been a little slower, we're encouraged to see how consistently strong our performance in our Ralph Lauren stores has been. And then third, and most importantly, our teams are executed. They're executing consistently, and they're executing with incredible agility.
Speaker Change: But from a fundamentals perspective, you can see that our core consumers responding to these activations.
Speaker Change: And really if you look at it beyond that what else is working well first.
Speaker Change: Our lifestyle portfolio of timeless products.
Speaker Change: Bolstered by our core are.
Speaker Change: It really continues to resonate and consumers are investing in quality, they're investing and authenticity.
Speaker Change: And at times of uncertainty and volatility we know consumers will lean into brands, They know and trust and Ralph Lauren is at the very top of that list.
Speaker Change: Second our elevated go to market strategy across key cities.
Speaker Change: China and Europe look back to your question on Europe are great. Examples of where we are running our play and bucking the market trends.
Speaker Change: And even within North America, which has been a little slower we're encouraged to see how consistently strong our performance in our Ralph Lauren store system, and then third and most importantly, our teams are executed.
Speaker Change: During consistently and they're executing with incredible agility.
Speaker Change: So you've heard me say this before but as a company and as a team we remain on offense.
Speaker Change: Operating with agility and focus on what we can control while of course staying in tune with the ongoing volatility in the environment.
Speaker Change: We have a proven diversified strategy that we've been executing over the past five to seven years, and we're going to continue to drive our brand desirability and leverage our multiple drivers of growth.
Speaker Change: Create long term value and actually Justin as your baptism of fire I'll, let you take the Europe question.
Operator: Fantastic. Will do so.
Speaker Change: Patrick will do so we're encouraged by the consumer demand, we see in Europe, and our sales grew quite nicely in Q1, we saw growth in all markets ex U K and a really strong DTC comp. We also saw the broader sort of environment.
Justin Picicci: So we're encouraged by the consumer demand we see in Europe, and our sales grew quite nicely in Q1. We saw growth in all markets, ex-UK, and a really strong DTC comp. We also saw, you know, the broader sort of environment continue to be very promotional, but we did not participate in those promotions.
Speaker Change: To be very promotional but.
Speaker Change: We did not participate in those promotions in fact, we pared back our promotions and saw some really nice quality of sale gains in that market on the wholesale side our business increase on.
Justin Picicci: In fact, we pared back our promotions and saw some really nice quality of sale gains in that market. On the wholesale side, our business increased, you know, on the back of really strong reorders. Especially notable is our digital peer plays, which really performed nicely in the quarter and are coming off of their second quarter click-and-a-half last year reset.
Speaker Change: On the back of really strong Reorders, especially notable is our digital pure plays.
Speaker Change: <unk> performed nicely in the quarter and are coming off of their second quarter second half last year reset.
Speaker Change: And then taking a big step back we do have a little bit of a tailwind from tourism, but domestic demand is really what drives our business in Europe, and we're seeing that really really performed well Patrice mentioned the macros, we're not immune we're watching the UK got their eye on southern Europe, We know FX turns back into a headwind with the stronger.
Justin Picicci: And then, you know, taking a big step back, we do have a little bit of a tailwind from tourism, but domestic demand is really what drives our business in Europe, and we're seeing that really, really perform well. Patrice mentioned the macros.
Justin Picicci: We're not immune, so we're watching the UK. We've got our eye on southern Europe. We know FX turns back into a headwind with the stronger dollar, and we know the Middle East and Red Sea situations persist.
Patrice: Dollar and we know the middle East and rescue situations persist, but we continue to forecast growth for the region and feel good about that outlook.
Justin Picicci: But we continue to forecast growth for the region and feel good about that outlook, being cautiously optimistic in Europe. And just to add, I'm really proud of the work our European teams are doing in a volatile context, whether that's how the brand is showing up. And, you know, having had the opportunity to see the brand in Paris recently and across European markets, we're showing up in an elevated, engaging way. And the quality of execution and the touchpoints that we have, whether that's in our stores, online, or with our wholesale partners, is absolutely fantastic. So still cautious about the environment, but really excited about the work that our teams are doing there. Thank you.
Speaker Change: Actually optimistic in Europe and just.
Speaker Change: Really proud of the work our European teams are doing in a volatile context, whether that's how the brand is showing up in.
Speaker Change: Having had the opportunity to see the see the burn in Paris.
Speaker Change: Lee and across European markets with showing up in an elevated engaging way and the quality of execution and the touch points that we have whether that's in our stores online or with our wholesale partners is absolutely fantastic. So still cautious on the environment, but really excited about the work that our teams are doing there. Thank.
Operator: Thank you. Next question, please. Thank you. The next question comes from Laurent Vasilescu with BNP Paribas.
Speaker Change: Thank you next question. Please. Thank you. The next question comes from Laura Wasielewski with BNP Paribas.
Laurent Vasilescu: Oh, good morning. Thank you very much for taking my question.
Laura Wasielewski: Good morning. Thank you very much for taking my question, Justin It's nice to see that you maintain that full year guide, especially as such and in such a volatile environment right now with Q1 coming in ahead of your outlook can you talk about why you maintain the full year guide is it just the continuation of broader caution that you called out back in May.
Justin Picicci: Justin, it's nice to see that you maintain the four-year guide, especially in such a volatile environment right now. With Q1 coming in ahead of your outlook, can you talk about why you maintained the full-year guide? Is this just a continuation of the broader caution that you called out back in May?
Speaker Change: Or how confident are you that you can still deliver on this plan, even if the consumer environment gets tougher from here and then secondly from a modeling standpoint, how should we think about North America wholesale for <unk> in the full year on a year over year basis. Thank you.
Speaker Change: Thanks, Laura and first off I, just want to say, it's great to join who treats in your all in today's live call I've already had the good fortune to meet many of you in my former role and I look forward to spending more time with you in the future.
Speaker Change: Solar up to your question. Yes, we were pleased we were able to maintain our full year guide on both the top and bottom line in line with our three year commitments and also consistent with sort of our general approach to guidance at this point early in the fiscal ahead of the all important holiday season.
Speaker Change: And coming into the year, we assumed status quo continuation of recent customer behavior and macro trends and with today's report we maintain that view and that includes caution around the global macro and consumer backdrop wholesale channel softness in North America, and also some incremental pressures from product.
Speaker Change: It's largely in the second half of our fiscal year, but taking a step back for a second we have been building a durable strategy for a number of years and routes really felt the ultimate timeless brand and we're facing a potentially tougher consumer backdrop, we're going to continue to lean on our brand a really strong brand that brings with it that clear value.
Speaker Change: Proposition that consumers know and trust, we're going to lean on our products.
Speaker Change: Consumers rely on them for power quality and authenticity.
Speaker Change: We're going to in our diversification and growth drivers and also our flexible supply chain, we're going to lean on our inventories that are well positioned and we're going to focus on our productivity and then we have our fortress balance sheet underlying it all which we know is a key differentiator in the industry.
Justin Picicci: So looking ahead, you know, this year and beyond, I think we feel good about how we're positioned, but we're going to continue to operate with agility and discipline in this environment, which is quite dynamic. We always knew Q1 was going to be our most challenging quarter for North America wholesale and for North America in total. And going forward, we do expect sell-in to more closely align with that current sell-out, that down low single-digit range as we move through fiscal 25. So, a stabilization. And this is going to start in the second quarter.
Speaker Change: So looking ahead this year and beyond I'd say, we feel good about how we're positioned but were going to continue to operate with agility and discipline in this environment, which is quite dynamic.
Speaker Change: And in terms of the wholesale trending question, we're encouraged by our improving wholesale seasonal sell out trends in North America over the past few seasons.
Speaker Change: That said our outlook remains cautious in channel demand still remains relatively soft and down modestly versus last year in Q1, specifically, our North America wholesale revenue was pressured by a few factors. The first we had some full priced shipment timing shifts that pressured Q.
Speaker Change: One we also had a pretty meaningful off price reduction.
Speaker Change: Our with our clean and well positioned inventories if you ex those items, our underlying full price sell in for the quarter was pretty in line with our spring seasonal sellout trends of that down low single digits.
Speaker Change: We always knew Q1 was going to be our most challenging quarter for North America wholesale and for North America in total and going forward. We do expect for sell in to more closely align with the current sell out at down low single digit range as we move through fiscal 'twenty five.
Speaker Change: So a stabilization and this is going to start in the second quarter.
Justin Picicci: We also continue to keep our inventories really clean in that channel and well-positioned. You know, we want to be able to chase demand if and when we see it, especially on the core. And, you know, we remain focused on really driving growth where we see the green sheets, right, where our strategy is, top doors, digital. We've had a really solid, positive sellout in Q1, and our upper-tier businesses, all areas where we're seeing traction.
Speaker Change: We also continue to keep our inventory is really clean in that channel and well positioned and we want to be able to chase into demand if and when we see it especially on the core and we remain focused on really driving growth, where we see the green shoots right, where our strategy is top doors digital we've had a really solid positive sellout in Q1 and our offer to you.
Speaker Change: Businesses, all areas, where we're seeing traction.
Speaker Change: Great. Thank you next question Angela. Thank you. The next question comes from Matthew Boss with J P. Morgan.
Matthew Boss: Great Thanks, and congrats on a nice quarter.
Patrice Louvet: Great thanks and congratulations on a nice quarter. Thanks, Matt. So Patrice, with international outperformance across both Europe and Asia, I guess what innings do you see the brands rising on?
Speaker Change: Thanks, Matt.
Matthew Boss: So patrice with international outperformance across both Europe and in Asia, I guess, what inning do you see the brand's elevation strategy today on the international front or any changes in direct to consumer momentum that you've seen so far in the second quarter and then Justin just could you elaborate on drivers of the embedded S.
Justin: G&A leverage in the back half of the year and as the multiyear opportunities still to drive SG&A leverage.
Patrice: So thank you Matt for that question I'm not sure that baseball analogies actually works for elevation strategy as the game is never going to end.
Patrice Louvet: So thank you, Matt, for that question. I'm not sure the baseball analogies actually work for our elevation strategy because the game's never going to end, that's driven all the activities and focus over that time. So expect us to continue to drive that. You know, we're continuing to drive AURs even where we have the highest AURs in the world in the market, like China, for example, or Japan. And I have to say, I'm really excited to see the momentum that we have that is so broad-based, right? A really strong Japanese performance this past quarter.
Speaker Change: So certainly where we are in international is where our brand is most elevated.
Patrice: And you go to Shanghai or go to London, or you go to Munich.
Patrice: The way the brand shows up and it's clearly that's translating into strong performance, we're going to continue to consistently elevate our storytelling, our product offering and our consumer experience online and digital I don't think that actually ever starts for the company and if you look at the history of what Ralph has built over the past 57 years.
Speaker Change: I think that's been a through line.
Speaker Change: That's driven all the activities and focus over that time, so expect us to continue to drive that.
Speaker Change: Considering as Ravi you ours, even where we have the highest AUR in the world in a market like China for example.
Ravi: Or Japan, I have to say I'm really excited to see the momentum that we have that is so broad based right really strong Japan performance this past quarter.
Speaker Change: China still double digits in an environment, that's complicated, but we're doing well in Australia.
Speaker Change: Also doing well in our key markets in Europe doing well as you heard from Justin earlier. So the elevation journey continues the key for US as we do this is value perception right is to make sure that as we elevate we're bringing the consumer along empty and she consistently value CS competitive attract.
Speaker Change: The value in what we have to offer and I think that underpins our multiyear AUR expansion.
Patrice Louvet: You can't just take pricing and assume the consumer will follow you. It's got to be done in the context of... Broad Elevation. Candidly, I think our priority right now, in addition to fueling that, is how do we drive the same level of elevation in North America?
Speaker Change: Can't just take pricing and assume the consumer will follow you it's got to be done in the context.
Speaker Change: Broad elevation.
Speaker Change: Our priority right now in addition to fueling that is how do we drive the same level of elevation in North America and.
Speaker Change: And the starting point was lower because of historical activities.
Speaker Change: So many years back in terms of over distribution of the brand in <unk>.
Speaker Change: We rely on some promotional activity and so we are working diligently to get to the same level in North America. As we are around the world and you see that play out in our full price stores here in North America with very strong comps again, this quarter and if you've had a chance to visit our stores around our key cities you can really see the great work that our teams are doing.
Speaker Change: We engage with consumers, providing a unique experience.
Speaker Change: On the Opex for everyone. So Matt on the SG&A outlook and so our fiscal 'twenty five guide implies about 20 bps of SG&A leverage.
Matt: Weighted in the second half really due to a couple of factors a little bit of the wholesale stabilization, but mostly timing of market. So if you think about our marketing activations this fiscal year and the first half we've got two fashion shows we at the Olympics a number of key major moments are marketing Rick is going to be a bit higher and you saw it in the first quarter, you'll see it again.
Matt: The second quarter, a bit higher and we're leveraging in the first quarter ex marketing, we expect that trend to continue as well, but on a total SG&A trend that marketing rate is going to come down in the second half of the fiscal year, you're also going to see us start to scale. Some of the key investments we've been making in the past 12 to 24 months.
Speaker Change: Our including around talent and service in some of our DTC strategic growth investments when it comes to the multi year opportunity to drive leverage I think as we've seen begin this fiscal year, we're expecting a more balanced contribution to profitability between our gross profit expansion in our <unk>.
Patrice Louvet: When it comes to the multi-year opportunity to drive leverage, I think, as we've seen this fiscal year begin, we're expecting a more balanced contribution to profitability between our gross profit expansion and our SQ&A leverage, and I think we expect that to continue beyond 2020.
Speaker Change: G&A leverage and I think we expect that to continue on beyond fiscal 'twenty.
Speaker Change: Thanks next question please.
Speaker Change: Thank you. The next question comes from John Kernan with TD Cowen.
John Kernan: Thank you. The next question comes from John Kernan with TD Cowen.
John Kernan: Excellent. Thanks for taking my question.
John Kernan: Just a nice to see the seven handle on gross margin.
John Kernan: What are the remaining opportunities within product margin do you still have room for higher AUR is.
Speaker Change: And lower markdowns is there a channel shift that you will continue to benefit from I think DTC could push 70% of revenue. This year is there anything to help us unpack that would be helpful.
Justin Picicci: Sure. So, John, you know, when I take a step back and I think about the really strong gross margin expansion, continued strong gross margin expansion in Q1, which continues to drive profitability and really reinforces the durability of our brand elevation strategy. And when we think about the drivers, many of them are durable and are going to continue on, right? So we think about things like favorable product mix as we elevate our product, right, as we grow our hypo categories. All this is going to be a durable driver.
Speaker Change: Sure So John I take a step back and I think about so really strong gross margin expansion continued strong gross margin expansion in Q1, which continues to drive profitability. It really reinforces the durability of our brand elevation strategy and when we think about the drivers. Many of them are durable that are going to continue on right. So we think about things like.
Speaker Change: Favorable product mix as we elevate our product right as we grow our hypo categories. All this is going to be a durable driver, we think about the favorable channel and geographic mix right as we shift or continue to expand DTC youre going to see that benefit and as we continue to outpace.
Justin Picicci: We think about the favorable channel and geographic mix, right; as we shift or continue to expand DTC, you're going to see that benefit. And as we continue to outpace our growth in Asia, you're going to see that benefit in Europe, obviously, helping us nicely as well. And then when you take a step back, AUR, you know, we're going to see AUR continue to grow on the backs of that product and marketing elevation.
Speaker Change: Our growth in Asia, you're going to see that benefit in Europe, obviously, helping us nicely as well.
Speaker Change: And then we took a step back AUR, we're going to see AUR continued to grow on the backs of that product and marketing elevation.
Speaker Change: Less of a like for like price increase component as inflation moderates, but youre still going to see that solid mid single digit AUR growth that you've seen this quarter and that we expect this year and then.
Justin Picicci: Less of a like-for-like price increase component as inflation moderates, but you're still going to see that solid, you know, mid-single-digit AUR growth that you've seen this quarter and that we expect this year. And then, you know, we had a couple of years of headwinds there. We have seen that start to come through, and we expect that to continue to come through as we move through this year, more weighted to the second half.
Speaker Change: We had a couple of years of of headwind there we.
Speaker Change: We have seen that start to come through and we expect that to continue to come through as we move through this year more weighted to the second half, but then as we get into next year, we'll get the second tranche of that.
Justin Picicci: But then, as we get to next year, we'll get the second tranche of that on loss-free capture, and that's another sort of durable driver beyond this fiscal year. On the headwind side, I would just call out, you know, this year, freight, you know, we're ex-Red Sea. We feel like we're pretty well-positioned. We did a pretty good job negotiating our annual contracts, but we do have some uncertainty there, largely in the second half, depending on which way the spot rates go.
<unk> recapture and that's another sort of durable driver beyond this fiscal year on the on the headwind side I would just call out this year freight.
Speaker Change: Ex Red Sea, we feel like we're pretty well positioned we've got a pretty good job in negotiating our annual contracts, but we do have some uncertainty they are largely in the second half depending on which way the spot rates go and FX continues to be a bit of a drag but taking a step back we feel really well positioned with our durable gross margin drivers in <unk>.
Justin Picicci: And FX continues to be a bit of a drag. But taking a step back, we feel really well-positioned with our durable gross margin drivers in fiscal 25 and beyond. Good morning, and thank you for taking our questions.
Speaker Change: 25 and beyond.
Speaker Change: Thank you next question. Please. Thank you. Your next question comes from Brett Crouch with Goldman Sachs.
Brett Crouch: Good morning, and thank you for taking my question.
Operator: Thank you. Next question, please. Thank you. The next question comes from Brooke Roach with Goldman Sachs.
Brett Crouch: Are you seeing any signs of increased price sensitivity of your customer, especially in North America, either in your value customer or your more premium customer and as you head into the holiday season, what strategies are you implementing to engage the value focus customer while maintaining the quality of sales gains that you've achieved at the brand.
Brett Crouch: You.
Speaker Change: Thanks for that so.
Justin Picicci: Thanks for that. So, you know, I guess when I think about full-price performance, our full-price business is performing really, really well. Our core customer continues to be resilient, and we're seeing really good related momentum in that business. You know, our brick-and-mortar comp growth continues to be led by our full-price Ralph Lauren stores. We're seeing strong gross margin expansion with strong quality of sales. We're seeing reductions in the off-price channel, which you saw come through in our wholesale numbers in North America.
Speaker Change: I guess when I think about the full price performance our full price business is performing really really well our core customer continues to be resilient and we're seeing really good related momentum in that business, you know our brick and mortar comp growth to be led by our full price Ralph Lauren stores, we're seeing strong gross margin expansion with strong quality of sales we're seeing.
Speaker Change: <unk> in the off price channel, which you saw come through in our wholesale numbers in North America, and our new consumer acquisition is bringing in higher quality less price sensitive higher basket consumers. We feel good about that business I would say that from a value oriented perspective.
Justin Picicci: And our new consumer acquisition is bringing in higher quality, less price-sensitive, higher basket consumers. And we feel good about that business. I would say that from a value-oriented perspective, you know, it's a subset of our consumers, a smaller part, still pressured given the current macroeconomics, but we have a playbook that we've established to convert this consumer. It's very tactical.
The subset of our consumers smaller part still pressured given the current macroeconomics, but we have a playbook that we've established that convert this consumer it's very tactical it's targeted compelling.
Justin Picicci: It's targeted, you know, compelling price value, product propositions, personalized communications. And we're seeing that connect. We're not immune to the macros, and we know they're still out there, so we're going to monitor the environment and react accordingly, but we're leveraging the architecture that we've built up over the past few years to be able to continue to convert that subset of value-oriented consumers. And AUR in Q1, despite being in a really challenging environment, not only increased its total company but increased across all of our regions. So, you know, really pleased with the continued progress and the proof of concept in our grant elevation strategy. Next question, please. Hi, good morning. Just in the U.S.
Speaker Change: Compelling price value product propositions personalized communications and we're seeing that connect we're not immune to the macros and we know they are still out there. So we're going to monitor the environment and react accordingly, but we're leveraging the architecture that we built up over the past few years to be able to continue to convert.
Operator: Next question, please.
Speaker Change: At subset of value oriented.
Speaker Change: Consumers and AUR in Q1, despite being in a really challenging environment.
Speaker Change: Not only increase the total company, but increased across all of our regions. So really pleased with the continued progress in the proof of concept in our brand elevation strategy.
Speaker Change: Okay next question please.
Speaker Change: Thank you. Your next question comes from Bob careful with Guggenheim.
Speaker Change: Hi.
Speaker Change: Good morning, just on the U S wholesale North American wholesale can you spend some more time just on the top 100 stores I know youre closing some additional ones just so where do you think you are in the consolidation of the U S wholesale and with with some of the <unk>.
Speaker Change: Additional closures that you had this year. Thanks.
Bob Careful: Bob Good morning.
Speaker Change: Well as you know we've been on a journey of elevating.
Speaker Change: Our wholesale presence pretty meaningfully over the past few years in North America.
Speaker Change: Wholesale has a strategic role to play in our go to market model quality wholesale really around brand discovery. So while we are leaning more into DTC and as you know that's the majority of our business now and the share of our total business will continue to expand we believe in quality wholesale.
Patrice Louvet: will continue to discover. The key focus areas, indeed, are our top 100 doors, and digital, where we're doing particularly well. And then, listen; we continue to prune those doors that we feel do not enable us to showcase the brand in the right way. We, I think, have guided that this year we'll be shutting down 45 lower-tier doors this fiscal year. Last year, we shut down 20, right? The impact is going to be relatively minimal in terms of business impact, but I think the way the brand shows up in North America will help us continue to drive the elevation.
Speaker Change: Key focus areas and indeed, our top 100 doors digital what we're doing particularly well and then listen we continue to prune those doors.
Speaker Change: We feel do not enable us to showcase the brand in the right way.
Speaker Change: I think guided that this year will be shutting down <unk> 45, lower tier doors. This fiscal year last year, we shutdown 'twenty right. The impact is going to be relatively minimal in terms of business impact, but I think in the way the brand shows up in North America that will help us continue to drive the elevation.
Patrice Louvet: You know, going forward, I think if you asked me for a number, we'd probably close 20 doors per season, you know, 40 doors per year for a total of 150 door exits for the future, recognizing that we've shut down thousands of doors over the past few years.
Speaker Change: Going forward I think if you asked me for a number we'd say, we'd probably close plenty doors per season 40 doors per year for a total of 150 door exits for the future recognizing that we've shut down and thousands of doors over the past few years. So we've got a good healthy foundation, we're going to continue to challenges and what's encouraging.
Patrice Louvet: So we've got a good, healthy foundation. We're going to continue to build on it. And what's encouraging is when we look at recent share performance in those businesses, we're growing share. And while, as you heard from Justin, obviously, that segment, and as you guys, of course, know, that channel continues to be pressured, but we're growing share in that environment. And we're excited about that, and we want to continue to fuel that. And then in the higher-tier wholesale, we're actually seeing very strong growth rates. So we're quite encouraged by that as well, and we continue to see.
Speaker Change: Is when we look at recent share performance in those in those businesses, we're growing share and while the as you heard from Justin honestly that segment and as you guys of course know that.
Speaker Change: China continues to be pressured, but we're growing share in that environment.
Speaker Change: And we're excited about that and we want to continue to fuel that and then in the higher tier wholesale actually we're seeing very strong growth rates. So we're quite encouraged by that as well and we continue to see quality of sales increase over the <unk>.
Patrice Louvet: And we continue to see quality of sales increase over the past couple of quarters in that channel, which also gives us a reason to believe that we've got the right growth trajectory in place in that channel. Next question, please. Thank you. The next question comes from Jay Sole with UBS. Great. Thank you so much. Patrice, could you talk a little bit more about the high-potential category?
Speaker Change: Past couple of quarters in that channel, which also gives us.
Speaker Change: We are still gives us a reason to believe that we've got the right growth trajectory in places in China.
Speaker Change: Next question. Please thank.
Jay Sole: Thank you. The next question comes from Jay Sole with UBS.
Speaker Change: Thank you. The next question comes from Jay sole with UBS.
Jay Sole: Great. Thank you so much.
Jay Sole: Talk a little bit more about the high potential category women's apparel outerwear handbags, I think you mentioned, Jennifer Lawrence carrying the polo IV bag.
Speaker Change: You mentioned that grew mid single digits.
Jay Sole: In the quarter outpaced total company growth can you talk about the progress you've made over the last 90 days and what your outlook is for the rest of the year for those high potential categories. Thank you.
Speaker Change: Yeah, we're excited about that business Jason. Thanks for your question. We're excited about it because we know the market. The total addressable market is quite meaningful across all screen women's apparel outerwear and handbags. We're excited because the consumer is telling us that our brand resonates in that space and we're excited because our teams are building great.
Patrice Louvet: Yeah, we're excited about that business, Jay, so thanks for your question. We're excited about it because we know the market, the total addressable market is quite meaningful across all three, women's apparel, outerwear, and handbag. We're excited because the consumer is telling us that our brand resonates in that space, and we're excited because our teams are building great capabilities in terms of both marketing, product offering, and go-to-market for us to be competitive there.
Speaker Change: Capabilities in terms of marketing product offering and go to market for us to be competitive there. So if you kind.
Patrice Louvet: So if you kind of parse them out, women's apparel was the standout, continued momentum, double-digit growth in that business, AUR growth as well, so we're continuing to elevate, market share gain, and really, if you look at the drivers from a product standpoint, it's really foundational strategy and core, right? That's what's driving it, which makes it sustainable, right?
Speaker Change: Kind of parse them out womens apparel was the stand out alright continued momentum.
Speaker Change: Double digit growth.
That business AUR growth as well, so we're continuing to elevate market share gains and really if you look at the drivers from a product standpoint, it's really foundational strategy and core.
Speaker Change: That's what's driving it which makes it sustainable right, that's not driven by fashion items, which may be hot today, but tomorrow. These are items that are core the timeless that are authentic.
Patrice Louvet: This is not driven by fashion items, which may be hot today but cold tomorrow. These are items that are core, that are timeless, that are authentic, so think sweaters, think linen, and polo shirts. We have a very strong focus on iconic shirt dresses this quarter that's really responding well for women. And if I go back to Matt's baseball analogy earlier, I think it does apply here.
Speaker Change: So think sweaters think lyndon in polo shirts, we have very strong focus on iconic shirt dresses. This quarter, that's really resonating well for womens and if I go back to Matts baseball analogy earlier I think it does apply here women's where like in the second inning alright in terms of taking advantage of that of that object because as you know historically.
Patrice Louvet: Women's were like in the second inning, all right, in terms of taking advantage of that opportunity because, as you know, historically, we've been more of a male-focused company. So, I think that's something we are really pleased with because we've seen strong performance and momentum in that category for many quarters and years now, with so much more to go. So this season we saw strength in our lightweight outerwear, I think canvas city jackets, linen windbreakers, denim, with outperformance across really every single channel. So, a good foundation there.
Speaker Change: We've been more of a male focused company outerwear is something we are really pleased with because we have seen strong performance and momentum in that category for many quarters and years now with so much more to go. So this season, we saw strength in our lightweight outerwear think Kansas City jacket Linden windbreaker.
Speaker Change: <unk> seven.
Speaker Change: With outperformance across really every single channels. So good foundation, there I think you know that.
Patrice Louvet: I think, you know, the key evolution for us in this category is the realization that you need outerwear every single day of the year, not just in the fall or in the winter. And we have great propositions across the portfolio to reflect that. And then handbags are a category that's really important for us because, if you look at the size of the market around the world and how fragmented that market is, it's a major opportunity for us.
Speaker Change: The key.
Speaker Change: Evolution Jay for Us in this category is the realization that you need outerwear every single day of the year not just in the fall or in the winter and we have great propositions across the portfolio and then handbags.
Speaker Change: The category, that's really important for us because if you look at the size of the market around the world and how fragmented that market as it is a major opportunity for us.
Patrice Louvet: We are, you know, gradually building momentum in this space. The thing I would call out, and I'm glad you noticed Jennifer Lawrence wearing her yellow Polo ID handbag, among others, is the work that's been done on Polo. And what we're seeing is continued success on our foundational collections, Polo ID, different colors, different silhouettes. And you're going to see that continue to evolve.
Speaker Change: We are progressively building momentum in this space the thing I would call out and I'm glad you noticed Jennifer Lawrence wearing our yellow Hello, IV handbag. Among others is is the work that's been done on polo and what we're seeing is continued success on our foundational collections below IV different colors different silhouette.
Speaker Change: Yes.
Speaker Change: And youre going to see that continue to evolve, but I think we're really building an it bag with the polo IV and we're seeing that resonate really around the world with great strengths in Asia, but also strong relevance here in the U S.
Patrice Louvet: But I think we're really building an it bag with the Polo ID, and we're seeing that resonate really around the world, with great strengths in Asia, but also, you know, strong relevance here in the U.S. and across Europe. We're seeing our Lauren business also strengthen as we've elevated that proposition: better quality design, better styling, better presentation of the product.
Speaker Change: And across Europe, we're seeing our Lora business also strengthened as we've elevated that proposition.
Speaker Change: Better quality design better styling better presentation of the product and then we've had some exciting innovation on collection with our RL 888 bag that we continued to showcase.
Patrice Louvet: And then we've had some exciting innovation in collection with our RL888 bag that we continue to showcase and are seeing a good response to. So listen, we don't guide by category, but I think it's reasonable to assume that our high potential categories will consistently outperform the trend of the total company. And if you look at the size of the markets for each of these, we're talking tens of billions of dollars.
Speaker Change: We are seeing good good response too so it isn't we don't guide by by category, but I think it's reasonable to assume.
Speaker Change: That are high potential categories will consistently outperformed the trend of the total company and if you look at the size of the markets for each of these we're talking tens of billions of dollars. So even if we just after a fraction of those markets that represent significant building blocks not just for this three year phase that we started in December 'twenty two.
Patrice Louvet: So even if we just capture a fraction of those markets, they represent significant building blocks, not just for this three-year phase that we started in September 2022 but really for the longer-term potential of the company. Thank you. Thank you. The next question comes from Dana Telsey with Telsey Advisory Group. Hi, good morning, everyone, and nice to see the progress.
Speaker Change: But really for the longer term potential of the company.
Dana Telsey: Thank you. Next question, please. Thank you. The next question comes from Dana Telsey with Telsey Advisory Group.
Speaker Change: Thank you next question please.
Patrice Louvet: Thank you. Thanks, Dana. I think you're going to get an even better answer from Justin, so I want to turn it over to you.
Thank you. The next question comes from Dana Telsey with Telsey Advisory group.
Dana Telsey: Hi, good morning, everyone and nice to see the progress Patrice as you think about the retail channel and full price versus outlet stores. How is the outlet store performance. What are you seeing there and on the expansion of full price you had some smaller footprints to how you're thinking of the potential and then just on.
Patrice Louvet: Patrice, as you think about the retail channel and full price versus out...
Justin: The benefit of lower cotton prices, how much of a benefit is that to gross margin. How long does that continue and does it help offset any of the supply chain costs. Thank you. Thanks, Dana I think you're going to get even better answer from Justin I wanted someone who is just hey, Dana thanks for the thanks for the question.
Justin Picicci: Hey Dana, thanks for the question. You know, we're pleased with the solid brick-and-mortar comp we put up in Q1, growth across all of our three regions. Now, I would say Ralph Lauren's full-price stores were a standout globally, continued strong performance across all of our regions, including in North America, and, you know, driven by traffic. You know, and of course, we get a little bit of a tourism kiss, but again, domestic consumer momentum and also some pretty tough comparisons.
Justin: We're pleased with the.
Speaker Change: A solid brick and mortar comp we put up in Q1 growth across all of our three regions now I'd say, Ralph Lauren full price stores were a standout globally continued strong performance across all of our regions, including in North America, driven by traffic and of course, we get a little bit of the tourism catch but again.
Speaker Change: Domestic consumer momentum and offered some pretty tough compares on the outlet side comps were stable or consistent with recent quarters.
Justin Picicci: On the outlet side, you know, comps were stable, consistent with recent quarters with AUR growth and conversion trends also stable. In North America, you did see a little bit of a sequential slowdown just due to the negative Easter timing shift into Q4, but underlying growth was consistent with Q4. And you know, our outlook, if you look beyond the quarter, reflects a continuation of those underlying organic trends, with the one call-out being, once we get to Q3, we know we have a bit of pressure with the shorter holiday selling window versus... On cotton, so just kind of a quick refresher, we expect about 175 basis points of benefit over the next two years, so 25 in fiscal 26.
Speaker Change: With AUR growth and conversion trends also stable.
Speaker Change: In North America, you did see a little bit of a sequential slowdown just due to the negative Easter timing shift into Q4 with underlying growth consistent with with Q4 and our outlook. If you look beyond the quarter reflects a continuation of those underlying organic trends with the one call out.
Speaker Change: Once we get to Q3, we know we have a bit of pressure with the shorter holiday selling window versus the prior year on cotton, So just kind of a quick refresher.
Justin Picicci: We're still on track to recapture our cotton costs as planned in fiscal 25. We expect to recapture about half of the 175 BIPs this year, and it's going to be back-weighted, as I mentioned previously, towards the second half of the year, because that's the way it came onto our P&L, the same way it's coming off of our P&L in terms of timing. And that is reflected in our gross margin guidance, about 50 to 100 basis points, and we did see a modest tailwind in Q1 from that cotton benefit.
Speaker Change: We expect about 175 basis points of benefit over the next two years. So 25 in fiscal 'twenty six first of all on track to recapture our cotton cost as planned in fiscal 'twenty five we expect to recapture about half of the 175 bps.
Speaker Change: This year and it's going to be back weighted as I mentioned previously towards the second half of the year because that's the way it came onto RP announced the same way, it's coming off of our P&L in terms of timing and that is reflected in our in our gross margin guidance about 50 to 100 basis points and we did see a modest tailwind in.
Speaker Change: Q1 from that cotton benefit.
Operator: Great, we'll go with the last question, please, Angela. Thank you. Our final question comes from Brooke Patel with Raymond J. Good morning and congrats on the strong execution and squeezing me in here. I was hoping you could provide additional color on the outlook for D2C as we think about digital versus brick-and-mortar.
Speaker Change: Okay, well go to the last question. Please Angela.
Brooke Patel: Thank you. Our final question comes from Brooke Patel with Raymond James.
Speaker Change: Thank you our final question comes from Brian <unk> of Raymond James.
Brian: Good morning, and congrats on the strong execution and squeezing me in here.
Brian: I was hoping you could provide additional color on the outlook for D. C. As we think about digital versus brick and mortar with consumer behavior continuing to evolve do you see the most opportunity to show off your brand and capture demand more towards one channel versus the other and also how do we think about the shape of growth for BTC. This.
Brian: Year.
Speaker Change: Given some of the work Youre doing on North America Digital and also the Activations you have planned for the year.
Speaker Change: Sure. Thanks for the question Rick Yeah, I would say growing our digital business is a key priority for us and it's a focus point of our global elevation strategy, you're seeing nice growth on a global basis and in Q1 sort of international leading that growth that you're seeing nice growth and we expect that sort of balanced DTC growth.
Speaker Change: Queen our stores and our digital network to continue as we move through the year. So continued momentum coming out of Q1 on North America, specifically in Q1, our total digital ecosystem sales were up low single digits right and that was driven by solid sellout performance in our digital wholesale.
Justin Picicci: Solid sellout performance in our digital wholesale channel, where we're outpacing both last year and the competitive set, and also our new Ralph Lauren Canada site that we launched last fall. Our own North America digital comps were down a bit in the quarter, 4%, on the back of softer traffic trends.
Speaker Change: Channel where were outpacing both last year and the competitive set and also our new <unk>, Canada site that we launched last fall our owned North America digital comps were down a bit in the quarter, 4% off a softer traffic trends and where we have opportunity here and we're focused on improving.
Justin Picicci: And we know we have opportunities. And we're focused on improving that growth trajectory this year and beyond. And we've put into place a number of interventions to get us there.
Speaker Change: That growth trajectory this year and beyond let me put into place a number of interventions to get US. There. We've made talent investments in digital commerce and consumer technology are really geared towards enhancing the consumer experience. We're investing in site speed, we're curating, our offering really focusing on more core and pop sell.
Justin Picicci: We've made talent investments in digital commerce and consumer technology, really geared towards enhancing that consumer experience. We're investing in site speed. We're curating our offering, really focusing on more core and top-selling products, making sure they're available and not out of stock.
Speaker Change: <unk> products, making sure they are available on our out of stock, we're refining our personalized communications to customers to drive traffic and conversion.
Justin Picicci: We're refining our personalized communications to customers to drive traffic and conversion and full-price new customer acquisition. And we continue to build and scale on the investments that we've made and will continue to make, like around our search platform and the Canada site that I recently mentioned. You know, we know we can win in this space. We've seen what we can do and what we do in Europe and in Asia. We're going to leverage those learnings as well, and based on that and the interventions put into place, we do expect our North America-owned digital performance to improve going forward, notably in the second half of this year.
Speaker Change: And full price new customer acquisition, and we continue to build and scale on the investments that we've made and will continue to make like around our search platform in the Canada side that I that I recently mentioned.
Speaker Change: So we can win in this space, we've seen what we can do and what we're doing in Europe and in Asia, we're going to leverage on those learnings as well and based on that and the intervention put into place. We do expect our North America own digital performance to improve going forward, notably in the second half of this fiscal year.
Speaker Change: Good well listen thank you everyone for joining us today, we look forward to speaking with you on our second quarter earnings call in November and until then take care and have a great day.
Operator: Well, thank you everyone for joining us today. We look forward to speaking with you on our second quarter earnings call in November. And until then, take care, and have a great day.
Speaker Change: Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.
Operator: Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.