Q2 2025 Ralph Lauren Corp Earnings Call
the fight against cancer.
Pink Pony remains an important part of Ralph Lauren's decades-long commitment to cancer prevention and treatment in underserved communities.
Turning to our third key initiative, winning key cities with our consumer ecosystem.
We remain focused on developing our key city ecosystems around the world.
Our ecosystem approach delivers both elevation and consistency across all of our consumer channels and touch points.
Within DTC, which comprises two-thirds of our business, we drove accelerated comp growth this quarter, while also expanding our presence in key markets.
Comps were up 10% above our expectations.
This outperformance was led by our brick-and-mortar stores, while our digital channel was in line with plan.
Globally, we opened 25 new owned and partner stores focused on our top cities, largely in Asia.
Store opening highlights during the period included Giverny, Tulsa, Wuhan and Shenzhen, among others.
By region, growth was led by Asia, up 10% this quarter and slightly ahead of our outlook.
This was followed by strong mid-single-digit growth in Europe, where our teams continue to execute well across key markets.
And importantly, North America returned to growth this quarter on ongoing strength in DTC and a more normalized wholesale trend.
Looking at China specifically, revenue was up low teens once again this quarter, on top of more than 25% growth last year.
This was driven by a combination of double-digit new customer acquisition, solid comp growth, new full-price stores and concessions, and expansion on newer platforms like Douyin.
Our brand desirability continues to grow as we focus first and foremost on building our business with domestic Chinese consumers.
As a reminder, China currently only represents 8% of our total company sales. While we are monitoring geopolitical and macro developments along with consumer behavior closely, we still see significant long-term opportunities ahead.
and our ecosystem expansion remains disciplined as we largely focus on our six key city clusters in the market.
And finally, touching on our enablers. Our business continued to be supported by our five key enablers.
In September, we published our annual Timeless by Design report, outlining our progress in delivering citizenship and sustainability programs that both leverage opportunities and manage risk to future-proof our business.
Notable highlights include achieving a 33% reduction in absolute greenhouse gas emissions as we transition to more sustainable energy sources across our value chain.
and continuing to drive innovation with sustainable materials, creating our first ever 100% recycled cotton polo shirt as part of our Paris Olympics collection this summer.
In closing...
Speaker Change: Roth and I are energized by our team's terrific progress through the first half of this fiscal year.
Speaker Change: building on the strength of our timeless brand and diversified growth drivers we remain focused on delivering consistently strong execution in spite of ongoing volatility in the broader operating environment.
Speaker Change: Looking ahead as the holiday season gets underway, we have momentum and we are still firmly on offense.
Speaker Change: We are executing on our long-term game plan, further elevating our brand and positioning in the marketplace, while remaining focused on what we can control.
Speaker Change: And with that, I'll hand it over to Justin to walk us through the financials and I'll join him at the end to answer your questions.
Thanks Patrice, and good morning everyone.
Our fiscal 25 is off to a strong start.
Speaker Change: We drove second quarter results ahead of our expectations across every key metric, underscoring the diversity of our strategic growth drivers, along with the continued momentum and growing desirability of our brand.
Speaker Change: Second quarter revenue growth exceeded our plan, driven by better than expected performance in our direct-to-consumer channel.
Speaker Change: Gross and operating margins were also above our outlook, with upside to gross margins enabling us to mitigate supply chain disruptions while also fueling additional investments in brand building and digital.
All three regions contributed to operating margin expansion.
Speaker Change: And we achieved all of this while continuing to navigate a highly uncertain global operating environment.
Speaker Change: This progress through the first half of the year gives us confidence in raising the full year outlook we introduced back in May.
Speaker Change: But before I get to guidance, let me walk you through our financial highlights from the second quarter, which, as a reminder, are provided on a constant currency basis.
Speaker Change: Total company second quarter revenue growth of 6% exceeded our outlook, led once again by our direct-to-consumer channels.
Speaker Change: Total company retail comps grew 10% as we increased our penetration of full price selling in each of our regions. Total digital ecosystem sales, including our own sites and wholesale digital accounts, increased high single digits.
Speaker Change: Total company adjusted gross margin expanded 170 basis points to 67.1%.
Speaker Change: This strong performance was driven by favorable mixed shifts towards our full price in international businesses, AUR growth, and lower cotton costs.
AUR increased 10% in the second quarter.
Speaker Change: This exceeded our mid-single-digit outlook, driven by greater-than-expected reductions in discounting across every region, as consumers responded positively to our Fall 24 offering.
Speaker Change: Our AUR growth also continues to be supported by long-term mixed benefits, channel, geographic, and product.
Speaker Change: We still expect mid-single-digit AUR growth for the second half of the fiscal year, as we rely less on like-for-like pricing this year.
Speaker Change: Adjusted operating expenses grew 7% to 55.5% of sales, up 60 basis points to last year.
Speaker Change: The increase was driven by the planned timing of marketing investments, which represented 8.7% of sales this quarter, as we focus on driving new customer acquisition and long-term brand desirability.
Speaker Change: Key campaigns included our Spring 25 runway show in the Hamptons, Team USA at the Olympics, and our Grand Slam sponsorships.
Speaker Change: We continue to expect full-year marketing at about 7% of sales.
Speaker Change: implying lower spend in the second half of the year, notably in Q4.
Speaker Change: Excluding marketing, adjusted operating expense rate was flat to last year as increased reinvestment to drive our digital business was offset by corporate cost savings.
Speaker Change: and our adjusted operating margin expanded 120 basis points to 11.7%.
Moving to segment performance and starting with North America
Speaker Change: Second quarter revenue inflected back to growth, up 3% and exceeding our expectations.
Speaker Change: Continued momentum in retail more than offset a modest planned decline in wholesale, which normalized from Q1 trends.
In North America retail, second quarter comps accelerated to 6%.
Speaker Change: Brick-and-mortar comps were up 9% with strong growth in both full price and outlet stores.
Speaker Change: Digital comps declined 2%, improving sequentially as we invested in more targeted marketing, merchandising, and site enhancements under new digital leadership.
Speaker Change: Our digital wholesale business remained encouraging, with positive high single-digit sellout in the quarter.
Speaker Change: Total North America wholesale revenues decreased 3% in line with our full price sellout this quarter.
Speaker Change: Our Wholesale AUR increased mid-single digits, stronger than recent trends, on well-positioned inventories in the channel.
Speaker Change: We continue to expect our wholesale sell-in to remain generally aligned with sell-out through the remainder of the fiscal year.
Speaker Change: Our outlook still includes the planned exit of 45 department store doors this fiscal year.
Speaker Change: While the ongoing exits are not material to our financial results, we continue to proactively evaluate and refine our brand presence on a door-by-door basis.
Thank you for watching!
Moving to Europe.
Speaker Change: Second quarter revenue increased 6%, driven by strong performance across our retail channels.
Speaker Change: All key markets delivered growth in the quarter, with the exception of the UK, where underlying trends are improving.
Speaker Change: In Europe retail, comps increased 15% to last year, well exceeding our expectations.
growth is balanced across our brick-and-mortar and digital channels
Speaker Change: Europe AUR continued to grow strongly on top of last year's high single-digit increase driven by our brand elevation with discount rates down significantly to last year despite a competitive promotional environment.
Speaker Change: Within DTC, you were especially encouraged by our performance in France and Germany, which both delivered high single-digit growth this quarter.
Speaker Change: Within France specifically, we delivered our highest ever brand consideration scores, led by women's and next-gen consumers, supported by our marketing amplifications around our summer of sports, including the Olympics.
Thank you for watching!
Speaker Change: Europe wholesale increased slightly and below our full-year outlook of low single-digit growth reflecting strategic reductions in excess sales to the off price channel and shifts in receipt timing to the second half of the fiscal year related to Red Sea disruptions.
Speaker Change: Excluding these impacts, underlying growth in our Europe wholesale business would have been up approximately mid-single digits for the quarter.
Speaker Change: Looking ahead, we still expect challenging compares in our digital pureplay accounts as we lapped significant restocking that took place in the second half of last year.
Speaker Change: That said, we expect total Europe wholesale growth to improve sequentially in the second half of fiscal 25, based on solid underlying trends and the receipt shifts from Q2 into Q3 and Q4.
Speaker Change: We remain encouraged by our team's strong execution and the strengthening brand perception in Europe, especially given the ongoing dynamic operating environment across the region.
Turning to Asia.
Revenue increased 10% reflecting growth in all markets.
Speaker Change: Retail comps were up 11% on top of an 8% increase last year with strong growth in both digital and brick-and-mortar stores
Speaker Change: Asia results exceeded our outlook, led by strong performance in Japan and China.
Speaker Change: Japan grew low teens to last year and accelerated from first quarter trends supported by key marketing campaigns, stronger full-price selling, and continued tailwinds from inbound tourism.
Speaker Change: China also grew low teens, consistent with our outlook for the quarter and full year, driven by comp growth, high-quality new customer recruitment, and expanded distribution.
Moving to the balance sheet.
Speaker Change: 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 $1.7 billion in cash and short-term investments and $1.1 billion in total debt.
Speaker Change: We generated about $300 million in free cash this fiscal year to date, enabling returns of approximately $375 million in the form of dividends and share repurchases, even as we continue to make important long-term investments in our brand, technology, and ecosystems.
Speaker Change: Net inventory decreased 6% to last year, in line with our plan.
Speaker Change: Weeks of supply improved versus last year despite ongoing disruptions related to the Red Sea.
Speaker Change: Our inventories are well positioned heading into the holiday season in each of our regions, including North America, despite the three-day East Coast port strike in early October.
Speaker Change: Our teams leveraged our agile and diversified supply chain to preemptively reroute a portion of our fall holiday receipts to the West Coast, along with select use of air freight in anticipation of a potential strike.
Speaker Change: And we continue to closely monitor and protect incoming supply ahead of the next deadline for contract negotiations in mid-January.
Speaker Change: We still expect to end fiscal 25 with inventories generally aligned to revenue growth.
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, supply chain disruptions, and foreign currency volatility, among other considerations.
Speaker Change: For fiscal 25, we now expect constant currency revenues to increase in a range of approximately 3 to 4 percent, up from 2 to 3 percent previously.
Speaker Change: Our outlook continues to include stronger growth in DTC and our international markets.
Speaker Change: With regards to this year's revenue cadence, the third quarter is expected to be negatively impacted by the timing of this year's Thanksgiving and Christmas holidays, including a shorter holiday selling window and a shift in post-Christmas sale dates in our North America outlets into Q4.
Speaker Change: These headwinds are expected to be partly offset by a roughly five point shift of Europe digital comps into Q3 due to the earlier timing of Boxing Day sales this fiscal year.
Speaker Change: Our fiscal fourth quarter will also be negatively impacted by a late Easter, which shifts into Q1 of fiscal 26.
Speaker Change: Despite all of these moving pieces, we remain confident in our underlying trends and expect to deliver solid growth in both our Q3 and Q4 comps.
Thank you for watching!
Speaker Change: We now expect operating margin to expand about 110 to 130 basis points, up slightly from our previous outlook to a range of 13.6 to 13.8 percent.
Speaker Change: In constant currency relative to our fiscal 22 investor day base period, this keeps us firmly on track to deliver our 15% operating margin target this year.
Speaker Change: We expect gross margin to expand 80 to 120 basis points, driven by a favorable mix shift towards our international and full price DTC businesses, continued growth in AUR, and lower cotton costs.
Speaker Change: These drivers are expected to more than offset incremental headwinds from labor, non-cotton raw material costs, and rerouting inventories into the U.S. from the East Coast.
Speaker Change: And for Fiscal 25, foreign currency is expected to negatively impact our gross and operating margins by about 20 basis points.
for the third quarter.
Speaker Change: We expect revenues to increase in a range of 3-4% in constant currency, led by our DTC channels.
Speaker Change: Wholesale is expected to continue improving sequentially from first-half trends as North America's sell-in more closely aligns to sell-out and Europe wholesale receipts shift from Q2 into the back half of the fiscal year.
Speaker Change: foreign currency is expected to benefit revenue by approximately 10 to 50 basis points
Speaker Change: We expect third quarter operating margin to expand approximately 100 to 140 basis points in constant currency, driven by gross margin expansion.
Speaker Change: Marketing as a percentage of sales is expected to be roughly in line with last year in the third quarter to support our global holiday activations and lower in the fourth quarter.
Speaker Change: And foreign currency is expected to have a roughly neutral impact on both gross and operating margin in the third quarter.
Speaker Change: We still expect our fiscal 25 tax rate to be in the range of 22 to 23 percent for the full year, while the third quarter rate is expected to be around 22 percent.
Speaker Change: And lastly, our Outlook includes CapEx in the range of 250 to 300 million.
In closing.
Speaker Change: We are strongly encouraged by our team's execution, focus, and dedication in what continues to be a highly uncertain global operating environment.
Speaker Change: All brands are not created equal and Ralph Lauren remains one of the most powerful and authentic brands globally.
Speaker Change: This gives us the credibility to grow not only our core businesses but also continue to expand our high potential categories.
Speaker Change: And we are building on our momentum. Ralph's vision of inspiring the dream of a better life continues to resonate across generations and geographies. And we remain committed to supporting the thoughtful expansion of the businesses that will bring this vision to life over the near and longer term.
With that, let's open up the call for your questions.
Speaker Change: Ladies and gentlemen, if you wish to ask a question, please press star, then one on your touch-tone phone.
Speaker Change: You will hear a tone indicating you have been placed into queue. You may remove yourself from the queue at any time by pressing star 2.
Speaker Change: If you're using a speakerphone, please pick up the handset before pressing the numbers. We ask that you limit yourself to one question per caller. Once again, if you'd like to ask a question, please press Star 1 at this time.
One moment, please, for the first question.
Thanks for watching!
The first question comes from Matthew Boff with J.P. Morgan.
Thanks and congrats on another really nice quarter.
Thank you, Matt.
Matt: So international has been a key driver of your consistent outperformance for for more than a year now. Could you elaborate on the on the enablers driving the outsized level of growth?
Speaker Change: that you're seeing in Europe and China. What gives you confidence that this momentum can be sustainable? And then Justin, with operating margins now tracking to mid-teens constant currency this year, could you speak to multi-year margin drivers that you see remaining?
Speaker Change: Well, good morning, Matt. Thanks for your question. I really want to start by saying that we're really proud of our team's execution in every region right now.
Speaker Change: And yes, our performance in key international markets has been quite strong in what hasn't been a particularly easy operating environment.
Speaker Change: But whether you look at China, Japan, Germany, France or Italy, we're driving elevation, we're driving domestic demand with highly engaged new and existing customers.
Matt: As you saw in our guidance increase this morning, our strategy is delivering and we have confidence in our continued momentum ahead. So why is that? And I would call out three core reasons that are going to sound familiar to you, Matt.
First, we have a very unique
Timeless Brent
Matt: that we are nurturing and investing behind. You saw this with the rolling thunder of marketing and cultural activations
Matt: ranging from the Olympics to Wimbledon to the US Open to an incredible fashion show in the Hamptons and more.
Matt: And we remain committed to investing in our brand, not just in the summer, not just during holiday, this holiday, but really with an always-on mindset. And that is serving us very well around the world.
Matt: The second point is that our teams are designing and delivering product that's resonating with consumers across geographies and across generations.
Speaker Change: Timelessness and Style. Ranging from our powerful core, you will have heard that our core was up 70% of the business and was up double digits, so performing strongly this quarter again.
Speaker Change: Innovative items based on recent trends, like barn jackets, like our polo ID bags, like our Apollo 67 fragrances A broad range of products is really resonating with consumers and I think it's this breadth, and depth of Ralph Lauren's lifestyle portfolio
and our ability to flex.
Speaker Change: that are two competitive edges in an ever fickle fashion market.
Speaker Change: The third point is we have a proven elevated go-to-market strategy.
Speaker Change: This is well underway in places like China and across Europe.
where we've zeroed in on our Tier 1 top cities.
Speaker Change: All right, we talked some of them on the call and in North America We're implementing a similar strategy We're encouraged by the inflection back to growth
with five quarters of Comp Girls under our belt.
Speaker Change: with latest quarter North America comps up six, but in general I think we see we're seeing performance across all the key cities be strong starting with our brick-and-mortar stores. So listen, I've said it before but it bears repeating
In a volatile environment, Ralph Lauren is firmly on offense.
Speaker Change: We have momentum, our multilever strategy is working, and we're going to keep executing with agility and excellence.
Speaker Change: And with that, I'll turn it over to Justin to answer your margin question.
Justin: Hey Matt. So on the margin question, you know, we're focused on delivering on our commitments, right? That's consistent with what you've been seeing. We'll continue to balance delivering on our margin targets while also considering and making investments that's going to deliver for the longer term.
Justin: We took up our guide for this year's operating margin expansion to 110 to 130 basis points up, implying that we're firmly on track with our...
Justin: fiscal 25 investor day target of that 15% but 15% is not a ceiling you know we're going to continue to focus on driving large expansion along with
continued strategic investments to deliver long-term growth.
We could, yes, reinvest in upside into marketing, for example.
Justin: And if you think about the longer term, beyond fiscal 25 strategy, the brand elevation strategy continues and from a margin expansion perspective, it will likely be a combination of modest gross margin expansion, supported by the durable levers that we've talked.
Justin: and expense leverage as we scale the investments that we make.
Speaker Change: We'll go to the next question, please, Angela. Thank you. The next question comes from Jay Soule with UBS.
Great, thank you so much.
Jay Soule: Justin, can you talk about your confidence in Ralph Lauren's pricing power?
Justin: throughout maybe a less favorable pricing environment ahead and how much farther do you think
Justin: you can go with pricing, and then maybe Patrice, can you just talk about the performance of the full-price stores in the U.S. in the quarter and how that impacts your view on store opening potential, you know, looking out next year and beyond. Thank you.
Thanks Jay.
Patrice: Our brand has been an important backbone to our price and power. And we've put in a lot of work over the last seven plus years to invest in and to elevate our brand. And we'll see these investments, these brand building investments continue for this holiday and also beyond.
Patrice: And, as you know, we planned for mid-single-digit AUR growth this year, coming off a few years of like-for-like pricing that we took to offset cost inflation.
Patrice: If we lean less on like for like in the near term, our longer term AUR drivers are remarkably durable and they're flexible.
illustrating, so on the product side.
Patrice: We're still elevating, starting with our Corinne icons, and tapping into category opportunities like women's, like outerwear, like handbags. You know, consumers are clearly gravitating to the higher end of our assortment because of our marketing, our elevated experiences, and our investments in quality.
Patrice: Another steady benefit to AUR is around our strategic and deliberate changes in geo and channel mix with a particular focus on growing that high quality full price distribution across all of our regions.
Patrice: And lastly, you'll see us continue to invest in this newer muscle of customer acquisition, focusing really on customers who enter the brand as high-value consumers, meaning they start shopping with us at full price and with bigger baskets.
This customer shift enables us to pull back on
Patrice: promotions and discounts, and discount less over time. So we've consistently demonstrated we can flex these and other various levers up or down to adapt to whatever the current macro or the current pricing environment may be, including when that environment is more competitive.
Patrice: And AUR, it's ultimately an outcome of these drivers, and in turn, it drives gross margin. And there, we've seen solid expansion both in the quarter and over the past few years, and we expect more of that to come as we move forward.
Speaker Change: Morning Jay. On the full price store question, well listen, Ralph Lauren stores, full price stores in North America continue to lead our performance consistent actually with the last 14 quarters.
Speaker Change: driven by traffic, right? So we have a model that's working here. I think the things to highlight are...
Strong continued momentum despite strong compares.
Patrice: We're continuing our elevation efforts in our full-price stores. Those of you who get a chance to visit it, hopefully you experienced that. And we draw favorable makes from full-price selling and from women's growth, which has been a disproportionate contributor to our performance.
Patrice: Our promotional discounts are actually down in Q2, supporting further the full price point I was making earlier. So, we feel very good about the momentum we have in our full price stores. Our team is doing an excellent job in North America in these stores, engaging with consumers.
driving client selling, showcasing product that consumers are looking for.
I'm really encouraged by the progress we're making in new store openings, so we're still leaning into that. We have many opportunities around the world and in North America. You'll recall we guided at Investor Day two and a half years ago that we would open fifteen to twenty stores.
New full-price stores in North America. We are on track for that.
Patrice: The next one, I believe, is in San Francisco on Jackson Street. We're happy to actually return to San Francisco with a Ralph Lauren store. So excited about that. And you're going to continue to see us.
Patrice: drive that part of our business disproportionately, continue to expand the footprint. And what we're also really pleased about is the flow-through that we're seeing from a profitability standpoint in these stores, consistent in North America and around the world.
Thank you. Next question, please.
Speaker Change: Thank you. Next question comes from Michael Benetti with Evercore ISI.
Michael Benetti: Hey guys, congrats on a nice quarter. I know you guys were busy at work.
Michael Benetti: A couple for me. On U.S. wholesale, down 3% in the quarter, you said it should trend forward at a pace close to sellout from here. Could this be positive this year, based on what you're seeing, and maybe what are the initial orders?
for Calendar 25 looking like, and then on...
Michael Benetti: On SG&A, Justin, it sounded for a while like it'll be a bigger driver in the next multi-year plan. If we exclude marketing, SG&A was about flat on 6% revenue growth. I'm curious, you know, can you start to lever SG&A, excluding marketing, on mid-single-digit growth?
Speaker Change: and how to think about timing when you see SGA start to pivot to leverage.
Sure. Thanks, Michael.
So on the North America wholesale performance,
Speaker Change: expected. We saw our sell-out and sell-in align in Q2 at that down low single digit. And when you pick that apart, there are green shoots there. You know, we're seeing our more upper tier distribution work really well. We're seeing top key city doors outpace the fleet. And we're seeing digital continue to outperform.
Speaker Change: in the corner. So certainly some green shoots that we're leaning into. As you know, we're calling for kind of a stabilization of that down low single digit as we head through the back half of the year, but certainly encouraged by the stabilization.
Speaker Change: On the SG&A leverage, our guidance for this fiscal year, as you know, implies
Speaker Change: S.G. and A. Leverage, and as we saw again this quarter, we continue to balance delivering on the short-term with
Speaker Change: reinvesting upside behind our business and brand to drive growth for the longer term. And as you mentioned, looking at the first half of the year, you know, in Q1, we delivered SG&A leverage, xMarketing.
Speaker Change: And in Q2, our rate was flat when you strip out marketing. We had some big brand moments in the first half of the year, some of which we didn't have in the first half of last year, like the Olympics and our fashion shows, which drove the deleverage. So we're making choiceful decisions.
to invest behind our brand.
Speaker Change: and you're seeing that play through. And we're still, by the way, taking up our...
Speaker Change: our profitability guide, right? So we're seeing it flow through both in the.
current year and then also for the longer term.
Speaker Change: Overall, if you take out the quarterly timing of marketing, we're delivering leverage in the first half. And looking ahead, we expect our marketing rate to rebalance versus last year, notably in Q4, which is a smaller.
Speaker Change: Quarter. So I think we feel pretty good about the control we have around our expenses and decisions we're making to reinvest some of that upside. To your point on, you know, the revenue growth to leveraging, you know,
Speaker Change: Again, I think that we're pretty much there, you know, with wholesale stabilization and with our DTC growth that we've seen, I think we've got some optionality and we do plan on delivering leverage for the full year. Next question, please.
Speaker Change: Thank you. Next question comes from Dana Telsley with Telsley Advisory Group.
Dana Telsley: Hi. Good morning, everyone. As you think of the progress that you made both in the core assortment, where basically it accelerated to up low double digits from up low singles last quarter, and the high potential categories up mid-teens from up mid-single digits,
Speaker Change: Is that in all channels? Is it globally? How do you see the increasing resonance? And given you mentioned the beginning, new customers, is that part of the driver too? And then I have a follow-up. Thank you.
Sounds good, Dana.
Speaker Change: can't wait for your follow-up. Justin is chomping at the bit. Listen, as far as the product lineup is concerned and its resonance around the world, it's actually very consistent.
Speaker Change: So our core is resonating in Tokyo, in Seoul, in Shanghai, in Milan, and I could go on and on. So we're seeing very consistent response to our foundational item, right? Our polo shirts, our cable knit sweaters, our sports coats.
Speaker Change: And this is actually really exciting to see. And we're leaning into that. I think at a time where consumers are worried about their future around the world, where they're more discerning on how they spend their money, they really turn to brands they know. They turn to product categories they trust.
and obviously Ralph Lauren has incredible credibility in these categories. So, you're going to see that everywhere around the world and it's not a one-quarter phenomenon. We've been seeing that for a while. It's in part the result of our strategy, which is to focus on the core first and then expand for more. On the high potential category, same story. I mean women's, particularly driven by Polo women's, have been doing particularly well over the past few quarters and certainly a real highlight.
Speaker Change: this quarter. We are seeing that resonate everywhere around the world and when I travel and you see a lot of young women sporting our polo cap or our bear sweaters, whether that's in Asia, Europe or here in North America.
Same is true for Out of Wear, and obviously we're now really in the season of Out of Wear, but we've shifted that business to be an always-on business as opposed to a seasonal business, and we've seen strong, consistent growth on that, and then we're really pleased with the handbag progress.
Speaker Change: This is driven by Polo ID and that whole collection, which is really resonating with that younger
Speaker Change: Again, you'll see that consistently around the world. One of the things that gives us confidence moving forward is the breadth of our.
performance, right? This is not driven by...
one region
Speaker Change: One channel, one product category. We have a very diversified growth model, and it's really playing out here We're seeing pretty consistent performance Around around the world you saw North America now back to growth DTC comps
Speaker Change: double-digit and that's, you know, pretty true around the world. So, we're running the game plan.
focused on our top key cities.
Speaker Change: but very consistent around the world and we're seeing very consistent consumer response.
Speaker Change: You had a follow-up, Dana, which you're very lucky we don't give follow-ups. I know. For Justin, this is a Justin one. So as you think about tariffs, what percent of your goods are directly imported, including how much comes from China, and how do you adjust either sourcing or pricing to the end consumer?
Justin: Thanks, Dana. So, you know, our global sourcing and supply chain is agile and well positioned. We have strong partnerships around the world, and that's really served us well and been a key differentiator for us through the pandemic and beyond.
and we've significantly diversified.
Justin: that sourcing footprint over the past seven plus years and develop alternate production for our key product categories as well as near-shoring.
Justin: capabilities for our regions. As part of that global diversification, China now represents about high single-digit percentage of our globally sourced units, about the same as our China sales.
penetration.
Justin: So, you know, we'll wait and see what, if any, future policy ultimately gets passed, but we've navigated tariffs successfully before, including not so long ago, and we're going to remain agile and continue to proactively develop and scale new global supply chain opportunities to mitigate any potential risks and disruptions.
Thank you. Next question.
Justin: Thank you. Next question comes from Paul Kearney with Barclays Capital.
Good morning. Thanks for taking my question.
All right, just drilling down on comp sore film.
Justin: performance in the quarter. In North America, can you provide further detail on outlet and the results from some of the changes you have made in the stores on staffing and product? And then Europe came in significantly ahead of expectations for all the reasons, Patrice, that you already went through. But what are some of the drivers versus your expectations and how to think about that performance for the remainder of the year? Thank you.
Thank you.
Speaker Change: So on on the North America kind of trends kind of taking a step back and a really really pleased with our
performance in our brick-and-mortar comp up.
where we saw just continued momentum, solid traffic.
Speaker Change: On the outlet side, we also saw acceleration, really, really off the backs of some really strong
Speaker Change: So we were able to see kind of traffic drive conversion kind of picked up. And so we did see a pickup compared to.
Speaker Change: Q1. I think in general for DTC as we think about going forward, you know, we expect continued strength, but we know we're up against
Justin: a compressed holiday period, and we also have an end-of-season outlet sale shift in Q3, so we do expect continued momentum, but a bit of a moderation in that growth as we look forward.
Justin: first half, our performance, you know, we're really encouraged by Europe.
Justin: So, you know, with two quarters of solid performance behind us.
Justin: healthy underlying trend growth, growth in Q2 across all key markets X the UK which the underlying trend
Justin: was growing when you take out some of the off-price noise. You know, we feel good taking our outlet up to that higher end of the initial guide. So, leaning towards that plus low to mid single-digit range with DTC at the higher end and wholesale at the lower end.
Justin: You know, we continue to be cautiously optimistic based upon our team's strong execution and our strengthening brand perception in the market.
Next question, please.
Speaker Change: Thank you. The next question comes from Brooke Roach with Goldman Sachs.
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Speaker Change: Good morning and thank you for taking our question. Patrice, you commented a few times about strong full price sales momentum for the brand. As you evaluate the brand's discount rate overall in North America across both the full line and outlet store channels, how close are we to optimal discount rates overall? And what are the plans for pricing and promotions as we move into this holiday season and beyond? Thank you.
Speaker Change: So I guess headline message, Brooke, is first of all let me start globally and then I'll double click on North America. Globally this quarter and our general trend has been reduced promotional activity.
Speaker Change: Right, and actually that's contributed to the the stronger than expected AUR this past quarter of 10%. So direction of travel is reduction of discount that applies to North America as well.
Justin: And you know we're on an elevation journey, so our expectations will continue to mix AUR.
Justin: up. I think from a like-for-like pricing, we're going to stay relatively stable for the foreseeable future. Obviously, we'll stay in touch with how costs evolve, but I don't think we're going to need any specific like-for-like pricing.
Justin: Bar, Japan, where we're working through kind of durable FX changes.
Justin: And then on the promotional front, I'd say direction of travel is elevation, so pullback on promotion is our game plan. But we're going to stay nimble, alright? And given the magnitude of progress we've had on AURs over the past seven years now,
Justin: We have the flexibility to get sharper where we need to get sharper. But in general, our expectation is we're going to continue to run the play as we've been doing these past few quarters, continue to pull back on promotion. I don't know, Brooke, I don't know how to define, I wish I could give you a good answer on that. I don't know how to define what optimal promotional...
Justin: is because it's very dependent on the competitive environment we operate in. If we were the only brand, that would be easy to define, but consumers have choices.
Justin: But this being said, I think we're laser-focused on making sure that we drive excitement with our target consumers, that we drive engagement, that they see the value in investing in raw foreign products, and I think as you can see from our performance this quarter and our confidence in the future, we plan to continue to run that play.
Next question.
Speaker Change: Thank you. The next question comes from Laurent Vaskelescu with BNP PowerBus.
Speaker Change: Oh, good morning. Thank you very much for taking my question.
Speaker Change: Justin, I think you mentioned that AURs, for the good morning Patrice, I think it was mentioned that AURs expectations for the full year is to be mid-single digits, which I think implies AURs to be up low single digits.
Speaker Change: Which then, I don't know, does that imply that unit velocity is now starting to become positive?
Speaker Change: for this year and potentially beyond. And then just quick modeling point, Justin, I think you mentioned the Boxing Day, the five-point tailwind.
Speaker Change: to 3Q, but I think you also mentioned that the headwind from the U.S. holiday, shorter holiday, and Easter, though on those two headwinds, can you maybe...
to the audience.
Speaker Change: parse out what those are in terms of like percentage point headwinds as we kind of model out for the 3Q and 4Q. Thank you very much.
Speaker Change: Sure, thanks Noron. And I'll do the second first. So in terms of the puts and takes, the compressions and the shifts for the second half that would be the guidance, I would say that the holiday shifts and compressions have less than a point of net headwind on our Q3 revenue. And the flip side, we're expecting about a one point net benefit to our Q4 revenue from these shifts. So still really solid underlying trends.
Speaker Change: in the second half, despite some of these puts and takes. On the unit growth question, we do expect moderation from our Q2 AUR growth levels, but still healthy AUR growth in that low-to-mid single-digit range. You know, if you think about, you know, Q2, what's really interesting is, you know, we drove double-digit comp and double-digit AUR growth. So, you know, we're not
Speaker Change: buying share, we're taking share. And so when you think about
Speaker Change: We do remain focused on driving unit growth in addition to AUR. In fact, we're doing that today in targeted categories, markets, channels. Think Asia, think Europe, think our full price channels, think our high growth categories, handbags, sweaters. So,
Speaker Change: As we lean less into like-for-like pricing with inflation pooling and AUR growth moderates,
Speaker Change: You know, we do expect to see that gap between AUR growth and total unit growth continuing to contract.
Speaker Change: And next question, please, Angela. Thank you. The next question comes from Chris Nardone with Bank of America.
Chris Nardone: Good morning. Can you elaborate on your outlook for China for the rest of the fiscal year and confirm whether you've altered your expectations for the back half relative to your initial guidance? And then longer term, is there still significant opportunity to expand your door count in China? And if you could talk through how you're balancing and investing in the region today with the current macro climate?
Thank you very much.
Speaker Change: Yeah, obviously China is on many people's minds these days, Chris.
Speaker Change: First of all, we feel very good about the momentum we've had in China. We've been growing 17 quarters in a row.
Speaker Change: and, you know, through COVID, through the uncertainty on luxury, through pressured consumer sentiment. So, we are energized by the near and long-term growth opportunities in China, again, up 13% this past quarter.
Speaker Change: and what's driving it is the combination of new customer acquisition, double-digit growth this quarter,
Speaker Change: Solid comp growth across a, you know, meaningful store footprint now. I'll get to your question on expansion. New full price stores. We're excited about a store we just opened in Shenzhen that looks absolutely stunning. It's off to a very strong start.
Speaker Change: And then also new platforms, right? We are learning about Douyin and learning how to do that well. Actually, our women's polo designer is in China as we speak with the teams to work through how best to showcase polo women to Chinese consumers on that platform.
Speaker Change: These drivers are durable road drivers for the company. The brand is resonating very nicely.
...burp...
Speaker Change: product categories are connecting, as I mentioned earlier on Dana's question, really nicely with the Chinese consumer and our focused key city ecosystem on the top six cities in China, I think are motoring quite nicely. So our ambition for China is unchanged and we, you know, today China is about 8% of the total company.
Speaker Change: So still a relatively small share of total raw flora and the potential to be much more important.
specifically on store opening. So we
Speaker Change: which is pretty consistent with what we said in prior years. A number of those stores are in China, but we're being very disciplined and I actually really appreciate the work our teams are doing.
Speaker Change: in that market to be highly selective on where we show up, how it connects to the ecosystem.
Speaker Change: And the idea is not to just expand for expansion's sake and, you know, get short-term benefits, but really build the brand for the next 5, the next 10, the next 15 years.
Speaker Change: And we continue to have significant runway in an environment that, you know, is volatile and we obviously stay very much in touch with that, but continue to be ambitious about the opportunities for us in China, along with other geographic opportunities in Europe.
Speaker Change: in the West of North America, then we're really back to our diversified growth driver strategy.
Great. And we'll go with the last question, please, Angela.
Speaker Change: Thank you. Our final question comes from John Kernan with TD Cowen.
Excellent. Thanks, Jake, my question. Congrats on another great quarter.
Thank you. Thanks, John.
Speaker Change: Patrice, Europe comps up 15. It's your least penetrated region from a DTC perspective. How are you thinking about both factory stores and full price stores in Europe? It seems like there's there's some green shoots here. The comps on top of what you put up last year are obviously really impressive.
Speaker Change: So that's a very timely question because I was actually talking to our DTC leader from Europe yesterday.
Speaker Change: in this very space. Listen, we're really pleased with the work our teams are doing on the ground.
Speaker Change: in Europe on DTC, both actually brick and mortar, and great performance on digital as well. So this is not a one-quarter story. We've been delivering consistently in Europe, nicely ahead of our expectations for a few quarters now.
Speaker Change: To your point, we're still very underpenetrated. When you benchmark to a number of our competitors, while we have expanded our store presence meaningfully...
Speaker Change: As we think through kind of the next phase of growth, and we'll talk more about that, you know, next year, in terms of what the next three years look like, we see significant opportunities for continued store expansion.
Speaker Change: either in key cities where we are already in where our footprint is is limited right there are a number of key cities where we only have one store
Speaker Change: We have opportunities to do more. In London, we don't know the exact number, but we have between five and 10 stores, and there's opportunity to do more than that. So we're feeling good about the key cities that we are in.
Speaker Change: And then there are a number of cities where we actually don't have a footprint that remain significant opportunities for us. So we're on track with our investor day targets. We said we open between 40 and 50 full-price stores, either owned or partnered. We're on track with that.
Speaker Change: We opened a total of 44 new stores since fiscal year 2022.
about 20 stores this fiscal year.
Speaker Change: Our EMEA leader was telling me recently, 14 stores in the past quarter in Europe, so we're on track with the game plan that we've laid out. We have significant growth opportunity, but similar to my comment earlier on China, we are being very selective on where we show up, what we build.
Speaker Change: and how we're going to engage with the consumer in the context of the ecosystem that we're building in each of the cities.
Speaker Change: but ambitious and excited about what the future looks like for us in EMEA and very grateful for the outstanding work that our teams are doing there across the markets.
Speaker Change: Thank you for joining us today. We look forward to speaking with you on our third quarter earnings call in February. Until then, on behalf of Ralph, Justin, and the rest of our team here at Ralph Lauren, happy holidays and early happy holidays and take care.
Speaker Change: Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.
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