Q3 2025 Ralph Lauren Corp Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Ralph Lauren third quarter fiscal year 2025 earnings call. At this time, all participants are in a listen only mode.
We will conduct a question and answer session and instructions on how to ask a question will be given at that time. If you should require success. During the call. Please press Star then zero as a reminder, this conference is being recorded.
Speaker Change: Like to turn over the conference to our host that's Corinna van der <unk>. Please go ahead.
Speaker Change: Good morning, and thank you for joining Ralph Lauren's third quarter fiscal 2025 conference call with me today are Patrice <unk>, the company's President and Chief Executive Officer, and Justin The Chi Chi Chief Financial Officer.
Speaker Change: After prepared remarks, we will open up the call for your questions, which we ask that you limit to one per caller.
Speaker Change: During today's call are financial performance will be discussed on a constant currency adjusted basis.
Speaker Change: Our reported results, including foreign currency can be found in this morning's press release.
Speaker Change: We will also be making some forward looking statements within the meaning of the federal securities laws, including our financial outlook.
Speaker Change: Forward looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward looking statements.
Speaker Change: Our expectations contain many risks and uncertainties principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings.
Speaker Change: To find disclosures and reconciliations of non-GAAP measures that we use when discussing our financial results you should refer to this morning's earnings release and to our SEC filings that can be found on our investor Relations website.
Patrice: With that I will turn the call over to Patrice.
Patrice: Thank you Corey.
Patrice: Good morning, everyone and thank you for joining today's call.
Patrice: We entered this important holiday quarter with a clear game plan, along with strong brand and product momentum.
Patrice: And our teams around the world delivered particularly well.
Patrice: Executing our long term strategy across geographies channels and categories.
Patrice: Outperform our financial commitments.
Patrice: This quarter's results underscore the powerful combination of our iconic timeless brand and products.
Patrice: Our durable and diversified levers of growth.
Patrice: And our ability to connect authentically with consumers across genders generations end markets through our proven G City ecosystem model.
Third quarter results with revenue up double digits exceeded our expectations in every geography.
Patrice: Cross the top and bottom line.
Patrice: Our strong first half brand momentum.
Patrice: And strategic investments carried into the fall holiday season, driving better than expected consumer demand in each channel.
Patrice: And the agility of our global supply chain enabled us to meet the upside to demand during the quarter.
Patrice: Our retail business led our performance again deliver.
Patrice: Delivering double digit comp growth along with improving trends in digital.
Patrice: D. G. C continues to be a leading indicator of our growing brand desirability and the power of our ecosystem model.
Patrice: We are encouraged that this momentum is now also delivering accelerated growth in wholesale as we continue to elevate and reposition the channel.
Patrice: Building on our high impact summer of sports and Hampton's fashion event.
Patrice: We invested in innovative marketing campaigns to engage and inspire consumers around the world.
Patrice: This is translating to high quality, new customer acquisition and full price selling in the marketplace.
Patrice: Third quarter retail AUR grew another double digits on higher full price penetration and lower than planned promotions.
Patrice: At the same time, we continue to operate with discipline to improve our expense management across the organization and strengthen our balance sheet.
Patrice: This enables us to invest behind our strategic priorities.
Patrice: All while delivering double digit growth in profitability and returning cash to our shareholders. Let me take you through a few highlights from the quarter.
Patrice: Where we drove continued progress across our three strategic pillars.
Patrice: As a reminder, these include first elevate and energize our lifestyle brand <unk>.
Patrice: Drive the core and expand for more and third winning key cities with our consumer ecosystem.
Patrice: First on our efforts to elevate and energize our lifestyle brand.
Patrice: Across generations and geographies.
Patrice: We continue to harness the power of our iconic brand.
Patrice: Cutting through culture across key moments in fashion celebrity sports gaming and music.
Patrice: Some highlights from the third quarter included <unk>.
Patrice: First our global holiday campaigns, which translated the magic and timeless elegance of Ralph Lauren around the world.
Patrice: In New York City, you May have interacted with our AI powered polo bear blowing kisses from our Madison Avenue flagship Windows.
Patrice: Or our immersive holiday pop up shop at Saks Fifth Avenue, featuring our handbags and Ralph's coffee shop.
Patrice: At our Gangnam store in Seoul.
Patrice: Stars, Jay Why park, and Isa Kong lit up the night with special performances at our Ralphs, New York event.
Patrice: And in Europe, we drove top city Activations in London, and Milan, Munich, and Paris, staying top of mind following our powerful Olympics presence this past summer.
Patrice: Second our very Ralph documentary launch in Shanghai.
Patrice: Complete with a spectacular drone show over the historic Bund waterfront.
Patrice: And star studded gala with friends of the brand like Crystal Young and Suzhou.
Patrice: Highlighting ralph's journey and unique position in fashion.
Patrice: The campaign was a special opportunity to share our brand values with Chinese consumers.
Patrice: Generation more than 30 million livestream views and 67 billion impressions.
Patrice: Finally, we outfitted an incredible roster of celebrities, including Demi Moore, Selena Gomez, Eva Longoria and Mikey Madison at the L. Women in Hollywood event.
Patrice: Ariana Grande and Jonathan Bailey selected Ralph Lauren for the weekend movie premiere in London.
Patrice: As did they called Kidman for the cover a W magazine.
Speaker Change: Together these activities are driving strong sustainable growth in new customer acquisition and engagement.
Speaker Change: In the third quarter, we added a record 1.9 million new consumers to our DTC businesses.
Speaker Change: Low double digit increase to last year.
Speaker Change: This continued to be led by younger higher value and less price sensitive cohorts.
Speaker Change: Our brand further strengthened across key consumer metrics with increases across brand consideration purchase intent and net promoter scores globally.
Speaker Change: And we grew both our value perception and luxury equity scores, particularly with Nextgen consumers.
Speaker Change: We continue to increase our social media followers by low double digits to last year.
Speaker Change: Sure passing 64 million led by Instagram threads line tick Tock and Dorian.
Speaker Change: We plan to continue building on this brand strength with powerful new engagements into fiscal year, 'twenty six and beyond.
Speaker Change: Moving to our second key initiative drive the core and expand for more.
Speaker Change: Since our company's inception, Ralph and our design teams have focused on creating timeless products that endure.
Speaker Change: This holds especially true in the current environment, where we continue to see consumers turn to brands, They know and trust that consistently deliver quality and value.
Speaker Change: At Ralph Lauren this starts with our core products, which represent more than 70% of our business and includes some of our best known styles.
Speaker Change: From our iconic mesh polo shirts, so cable knit sweater and polo caps.
Speaker Change: Sales of our core products increased low teens ahead of our total company growth in the third quarter.
Speaker Change: Our high potential categories, including women's apparel, outerwear and handbags together increased 20%.
Speaker Change: Women's and outerwear highlights this quarter included quilted middleweight and puffer jackets, Houghton cable knit and rural Cashmere sweaters are coveted polo bear sweaters and shirt dresses.
Speaker Change: Handbags also exceeded our expectations with sales up strong double digits to last year.
Speaker Change: Supported this holiday by an exclusive collaboration with Mr bags in China, and pop ups in New York City and Paris.
Speaker Change: Polo Women's led this performance once again supported by our Polo Iga bag.
Speaker Change: With new seasonal colors, and fabrications like chocolate and swayed.
Speaker Change: Other special releases this quarter included our double RL capsule with Navajo artist Zephyr in EM.
Speaker Change: This represents the second collaboration in our groundbreaking artist in residence program.
Speaker Change: Focused on empowering and celebrating artisans within the communities that have historically inspired our designs.
Speaker Change: And our annual Ping Pony collection, supporting Ralph Lauren's long standing commitment to cancer care and research.
Speaker Change: Turning to our third key initiative when in key cities with our consumer ecosystem.
Speaker Change: We continue to focus on developing our key city ecosystems around the world.
Speaker Change: These ecosystems support the long term elevation of our brand by inviting consumers to step into the world of Ralph Lauren with consistency across each of our consumer channels and touch points.
Within DTC, which comprises two thirds of our business, we drove accelerated comp growth this quarter.
Speaker Change: Comps increased 12%.
Speaker Change: Above our expectations led by double digit growth in brick and mortar stores, while our own digital sites also performed ahead of plan.
Speaker Change: Globally, we opened 34, new owned and partner stores focused on our top cities largely in Asia.
Speaker Change: Store opening highlights during the period included.
Speaker Change: Polo boutiques in Hong Kong specific place in Beijing, China World Mall, both featuring Ralph's coffee.
Speaker Change: Our stunning new Ralph Lauren collection shop for women at Harrods in London, one of our most elevated spaces to date.
Speaker Change: And our vibrant candy store polo shop in Edinburgh, St James quarter.
Speaker Change: As we continue to test and learn with new store formats. The candy store represents a new smaller format concept for us with fun highly flexible spaces there.
Speaker Change: The dual gender shops are curated with our most iconic polo products that play on our love of color from sweaters and rugby shirts to a rainbow of pone caps and mesh polo's.
Speaker Change: Each of our three regions outperformed our expectations this holiday.
Speaker Change: We were particularly encouraged by mid teens growth in Europe.
Speaker Change: Supported by broad based strength across our markets, including a return to growth in the U K.
Speaker Change: Asia also continued to perform well with mid teens growth, including China sales up more than 20%.
Speaker Change: In North America accelerated to high single digit growth this quarter on ongoing strength in DTC and a meaningful improvement in wholesale trends.
Speaker Change: And finally touching on our enablers.
Speaker Change: In addition to our strategic priorities our business continued to be supported by our five key enablers.
Speaker Change: Sharing a few highlights.
Speaker Change: Ralph and I are incredibly proud of our teams their engagement and love for what we do is evidenced not only in their excellent execution.
Speaker Change: And then how they show up for one another and the communities we serve.
Speaker Change: Whether that's our corporate teams volunteering hundreds of hours to support our retail teams during the peak holiday season or.
Speaker Change: Our teams across every region working directly in our communities to support those in need.
Speaker Change: Their commitment to our business our brand and our values is unmatched.
Speaker Change: And just a few weeks ago.
Speaker Change: Ralph became the first fashion designer ever to receive the presidential medal of freedom.
Speaker Change: America's highest civilian honor.
Speaker Change: The award recognized Ralphs extraordinary contributions to culture and society as a visionary designer.
Speaker Change: Trailblazing entrepreneur innovative business leader and dedicated philanthropist.
Speaker Change: His vision continues to inspire us here at the company every day.
Speaker Change: Congratulations to Ralph.
Speaker Change: In closing we are strongly encouraged by our team's progress through the first three quarters of this fiscal year, including the important holiday season.
Speaker Change: At the same time, we remain sharply focused on what's ahead for Ralph Lauren leveraging the incredible power of our brand and durable diversified drivers of growth to stay on offense into the next year and beyond.
Speaker Change: And with that I'll turn it over to Justin and I'll join him at the end to answer your questions.
Justin: Thanks, Patrice and good morning, everyone.
Justin: Our strong third quarter performance reinforces the confidence we have in our diversified growth drivers and premium position in the marketplace.
Justin: As our teams continued to deliver with excellence on our near term commitments. We remain focused on investing in the strategic priorities that will enable us to better serve our customers and sustain our growth into the future.
Justin: These include our brand.
Justin: The continued elevation of our products, our digital capabilities and technology and our top city ecosystems around the world.
Justin: Third quarter results meaningfully exceeded our expectations across revenues and gross and operating margins delivering one of our most successful holidays to date.
Justin: All three regions contributed to operating margin expansion as planned with North America reporting its highest third quarter adjusted operating margin. Since we began our elevation journey more than seven years ago.
Justin: And we achieved all of this while continuing to strengthen our balance sheet and cash flows with approximately $980 million and free cash flows and $500 million in returns to shareholders year to date.
Justin: This continued progress gives us confidence in raising our full year outlook once again.
Justin: But first let me walk you through our financial highlights from the third quarter, which as a reminder are provided on a constant currency basis.
Justin: Total company third quarter revenue growth of 11% was above our outlook with better than expected performance in both our direct to consumer and wholesale channels.
Justin: Total company retail comps grew 12% as our holiday product offering and marketing campaigns resonated with consumers across regions.
Justin: Total digital ecosystem sales, including our own sites and wholesale digital accounts increased mid teens accelerating from prior quarter trends.
Justin: Total company adjusted gross margin expanded 190 basis points to 68, 3%.
Justin: This strong performance was driven by AUR growth reduced promotions and favorable mix shift towards our full price businesses and lower cotton costs.
Justin: Partially offset by higher freight expense to mitigate east coast Port disruptions.
Justin: AUR increased 12% in the third quarter.
Justin: This exceeded our mid single digit outlook as demand for our core and seasonal products drove better than expected both price selling trends.
Justin: Our ability to drive strong sales early in the quarter through Black Friday week also enabled us to pull back on planned promotions through the remainder of the period.
Justin: As a result, we reduced our global discount rate by more than 500 basis points meaningfully greater than expected.
Justin: In the fourth quarter, we are planning for high single digit AUR growth as we pull back further on end of season discounting across all regions. Following our strong holiday sell throughs in Q3.
Justin: Adjusted operating expenses grew 10% to 49, 7% of sales down 30 basis points to last year.
Justin: The improvement was driven by higher than expected sales and the planned cadence of marketing investments, which represented seven 1% of third quarter sales compared to 7.5% last year.
Justin: We continue to expect full year marketing at about 7% of sales.
Justin: Excluding marketing adjusted operating expense rate was flat to last year as ongoing cost savings offset continued reinvestment in our business.
Justin: Our adjusted operating margin expanded 230 basis points to 18, 7% and operating profit increased 27% both ahead of plan.
Justin: Moving to segment performance.
Justin: And starting with North America.
Justin: Third quarter revenue increased 7% exceeding our expectations.
Justin: While momentum continued in our retail channels, we were especially encouraged by our return to growth in wholesale this corner.
Justin: In North America retail third quarter comps increased 8%.
Justin: Brick and mortar comps were up 10% with strong growth in both full price and outlet stores.
Justin: Digital comps increased 3% improving sequentially as we invested in more targeted marketing merchandising and site enhancements under our new digital leadership.
Justin: And our digital wholesale business accelerated to low teen sellout in the quarter.
Justin: Total North America wholesale revenues increased 6% above our expectations.
Justin: Our wholesale AUR increased mid single digits on well positioned inventories in the channel.
Justin: Full price sell out was in line with our sell in this quarter supported by a strong fall product offering and growth in core replenishment.
Justin: We expect our wholesale selling to be up slightly in Q4 and continued to be generally aligned with our sellout trends.
Justin: Our outlook now includes the planned exit of 60 Department store doors this fiscal year.
Justin: 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.
Justin: Moving to Europe.
Justin: Third quarter revenue increased 16% driven by strong performance across our retail and wholesale channels.
Justin: Growth was supported by brand momentum from this year's highly impactful marketing activations.
Justin: All of our key markets delivered growth in the quarter led by double digit revenue growth in Germany, France, Italy and Spain.
Justin: And encouragingly sales grew in the U K this holiday as our underlying trends in the market continued to improve.
Justin: In Europe retail comps increased 17% to last year above our expectations.
Justin: Growth was balanced across our brick and mortar and digital channels.
Justin: Europe AUR continued to grow strongly on top of last year's low double digit increase driven by our brand elevation.
Justin: Similar to recent quarterly trends, our discount rates declined meaningfully to last year, despite a competitive promotional environment.
Justin: Europe wholesale increased 14% to last year also above our plan supported by strong reorder trends and the previously discussed timing shift of receipts from the second quarter.
Justin: Excluding the shifts wholesale would've increased roughly low double digits to last year.
Justin: Our digital wholesale sales increased strong double digits, driven by continued brand momentum of digital pure play accounts.
Justin: This performance was especially notable given challenging compares from last year's restocking in the channel.
Justin: We continue to expect stronger Europe wholesale growth in the second half of fiscal 'twenty, five including Q4 based on solid underlying trends and the receipt shifts from Q2 into Q3 and Q4.
Justin: Looking ahead, we remain encouraged by our team's strong execution and our elevated positioning across channels in Europe.
Justin: And we are focused on delivering powerful new connections with customers in the year ahead as we build on the momentum from our recent brand initiatives.
Justin: Turning to Asia.
Justin: Revenue increased 15% reflecting growth in all markets.
Justin: Retail comps were up 14% on top of a similar 14% increase last year with strong growth in both digital and brick and mortar stores.
Justin: Asia results exceeded our outlook led by continued outperformance in China.
Justin: Our China market grew more than 20% to last year above our plan and driven by comp growth high quality, new customer recruitment and key marketing moments, including our very Ralph event in Shanghai and singles day live streaming Activations.
Justin: Sales in Japan were also strong growing low double digits to last year supported by accelerated domestic consumer trends driven by key brand Activations V IC engagement and luxury events, along with continued tailwind from inbound tourism.
Justin: Partnerships with K talent, including Mark Lee Winter and summer and growth onto Cow also helped deliver solid growth in Korea, and the broader Asia region. This quarter.
Justin: Moving.
Justin: 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.
Justin: We ended the quarter with $2 1 billion in cash and short term investments and $1 1 billion in total debt.
Justin: Our teams continue to leverage our agile and diversified supply chain to manage through global industry disruptions.
Justin: With regards to the recently announced U S tariffs on goods from China, Mexico, and Canada, We currently anticipate a minimal annual impact.
Justin: Third quarter net inventory decreased 5% to last year, even as we improved our in stock rates, a popular core and seasonal products to fulfill a stronger than expected consumer demand this quarter.
Justin: Inventories in each of our regions are well positioned as we exit holiday and enter the spring season and.
Justin: And we still expect to end fiscal 'twenty five with inventories generally aligned to revenue growth.
Justin: Weeks of supply continued to decline as we improve our inventory efficiency through initiatives like our predictive buying model, which is designed to put our core top selling styles in the right channels at the right time.
Justin: This new buying framework is just one element of our upcoming next generation transformation strategy, which will bring together, our new global ERP system with integrated business planning tools and more productive agile logistics to align with our increasingly global DTC oriented business.
Justin: Going forward.
Justin: Looking ahead.
Justin: Our outlook remains based on our best assessment of the current geopolitical backdrop as well as the macroeconomic environment.
Justin: This includes inflationary pressures tariffs and other consumer spending related headwinds.
Justin: Supply chain disruptions and foreign currency volatility among other considerations.
Justin: For fiscal 'twenty five we now expect constant currency revenues to increase approximately 6% to 7% up from 3% to 4% growth previously, reflecting our strong year to date performance.
Justin: Foreign currency is now expected to negatively impact full year revenue growth by about 100 to 150 basis points due to a stronger U S dollar.
Justin: We now expect operating margin to expand about 120 to 160 basis points up slightly from our prior outlook driven by gross margin expansion of about 130 to 170 basis points.
Justin: In constant currency relative to our fiscal 'twenty, two investor day base period. This puts us on track to exceed our 15% operating margin target this year.
Justin: Foreign currency is expected to negatively impact both our gross and operating margins by about 30 to 50 basis points.
Justin: For the fourth quarter.
Justin: We also expect constant currency revenues to increase in a range of approximately 6% to 7%.
Justin: Foreign currency is expected to negatively impact revenue by approximately 300 basis points.
Justin: Wholesale is expected to remain on its positive trajectory as North America sell in more closely aligns to sellout and Europe wholesale receipts continue shifting to the back half of the fiscal year from Q2.
Justin: Our outlook still includes approximately one point of negative impact in the fourth quarter from the timing of Easter, which shifts into Q1 of fiscal 'twenty six.
Justin: We expect fourth quarter operating margin to expand approximately 120 to 140 basis points in constant currency driven by roughly 80 to 120 basis points of gross margin expansion and modest operating expense leverage.
Justin: Marketing as a percent of sales is expected to be about flat to last year in the fourth quarter as we concentrated a higher share of this year's marketing dollars on our summer of sports and holiday campaigns.
Justin: Foreign currency is expected to negatively impact gross and operating margins by approximately 60 to 80 basis points in the fourth quarter.
Justin: We still expect our fiscal 'twenty five tax rate to be in the range of 22% to 23% for the full year, while the fourth quarter rate is expected to be around 24% to 25%.
Justin: And lastly, our outlook includes capex in the range of $200 million to $250 million.
Justin: In closing.
Justin: Guided by Ralph's creative vision, our teams captured the magic of the holidays and delivered on our purpose of inspiring the dream of a better life.
Justin: Our strong performance this quarter further underscores Ralph Lauren's unique emotional connection with consumers around the world.
Justin: This combined with our diversified growth drivers and organizational agility reinforces our confidence in delivering against both our financial and strategic commitments to ensure sustainable value creation into the future.
Justin: With that let's open up the call for your questions.
Justin: Ladies and gentlemen, if you wish to ask a question. Please press Star then one on your touch somehow.
Justin: We're here account, indicating you had been placed into Q you may remove yourself from queue at any time by pressing star to if youre 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 do you have a question. Please press star one at this time.
Speaker Change: One moment please for the first question.
Speaker Change: The first question comes from Jay sole with UBS.
Speaker Change: Great. Thank you so much but you just have one question, it's kind of in two parts. The first part is as you look across your brand momentum private assortment growth markets and more what would you consider the biggest drivers of your outperformance this holiday and how much of the beat would you attribute to near term factors versus more sustainable drivers looking at then.
Speaker Change: Part of that question is if you could just elaborate a little bit more.
Speaker Change: What's really driving the growth in womens and handbags.
Speaker Change: Yes.
Speaker Change: The newer categories to grow categories that you've been talking about for a while thank you.
Speaker Change: Sure well good morning, Jay Thanks for your question.
Speaker Change: Look we just delivered a high quality quarter right.
Speaker Change: Alright, and then I think what Youre seeing is the cumulative effect of a more multi levered strategy in action.
Speaker Change: Land is resonating with consumers around the world in every single market. Our teams are executing with excellence across the key facets of our business, whether that's product stores merchandising marketing logistics and this is happening and we can't lose sight of that and what remains a pretty volatile environment.
Speaker Change: We've been building this over the years right as I think many of you know so this is not the result of one marketing program or one activity in the market or one specific engagement with a consumer group the combination and the cumulative effect of what we've been doing for many quarters now in many years and the drivers are durable.
Speaker Change: Just as a quick reminder, three things that I would highlight first brand strength.
Speaker Change: Which is really fueled by a rolling Thunder of marketing Activations, Ryan and if you look back not just last quarter, but for several quarters now the combination of the Olympics, our immersive Hamptons fashion show, a very Ralph Premier in China or innovative holiday campaigns. All of that is contributing to this brand strength across a wide.
Speaker Change: Group of consumer courts. The second piece is the breadth of our lifestyle portfolio, which we continue to believe is a key competitive advantage in our space right and this is both the combination of our strong core that's.
Speaker Change: That's resonating with consumers around the world So strong core our cable knit sweater.
Speaker Change: Our polo shirts, our Oxford shirts.
Speaker Change: Our polo cats, our Blazers, and then high potential categories and you touched on them. So I'll come back to that like women's handbags, like women's apparel, and outerwear, which are performing particularly well and have significant runway not just for one quarter or two quarters, but actually for many many years and then the third durable driver in.
Speaker Change: In our mind is the power of our key city ecosystem.
Speaker Change: Go to market model, alright, with our focus on top 30 cities around the world.
Speaker Change: And making sure that we are centered on the consumer we want to serve and continuously elevating across every channel and every touch point. So we give the consumer he or she and incredible experience wherever they want to shop at any point in time within the city clusters.
Speaker Change: I would add to these three durable drivers. The fact that we have built an agility muscle inside the company.
Speaker Change: And thats been serving as particularly well to navigate what has been.
Speaker Change: Goes back to Covid.
Speaker Change: The logistics issue with the Red Sea in the esports strike concerns and so on and so forth, enabling us to just navigate a volatile environment and seize on opportunities as we see them I think what's pretty telling in this past quarter as our topline was up 11% our inventories down 5% indicates how well our teams have been.
Speaker Change: Reactive nimble and smart with the use of our inventory across the country the country.
Speaker Change: So stepping back we're pleased with the way the quarter came through we feel good about the strategic framework that we have and that we're executing against with the durable drivers and we are actually excited about the magnitude of the opportunities ahead of us across product across geographies and across channels and we remain confident that the key elements.
Speaker Change: Of our strategies will continue to deliver on these opportunities in the fourth quarter and beyond as we remain one on offense and to focus on what we can control now when it comes to our high potential categories women's apparel.
Speaker Change: And handbags, and I would add outerwear to that you saw the numbers. This quarter. They are up 20% very strong performance and listen at this all starts by making sure we have a strong.
Speaker Change: Foundational core from a product standpoint.
Speaker Change: And our teams both our polo women's team a handbag team has done a really nice job defining aware, we should play defining how we should show up at which price points.
Speaker Change: With products that are distinctive recognizable and.
Speaker Change: Quentin essentially Ralph Lauren and I think that's that's resonating very well and we're going to continue to build on the core the.
Speaker Change: The second piece is we've changed our marketing significantly across these businesses right.
Speaker Change: And we now have much more dedicated activations.
Speaker Change: On women's apparel much more dedicated activations on our handbags, we're integrating our handbags much better until the overall proposition. So for those of you who were counting at a recent fashion show most of the models who walked the runway wore a handbag that would not have been the case five years ago.
Speaker Change: And then the third area is being very thoughtful on distributions right and we've really improved distribution both in DTC.
Speaker Change: And in wholesale a combination of the footprints and also the presentation right and that includes experimentation we're doing in some of our stores. So those of you who get a chance to go to Tokyo, you will see we've transformed our Capp Street store actually into a women's only store as part of our learning and experimentation exercise and we've been Super excited.
Speaker Change: With the response that we've seen from consumers because as you all know on this call women and men don't show up the same way and we want to make sure that we're studying the products the consumer experience in a way that really is going to run it resonate with these individual consumers. So early days on this journey.
Speaker Change: Foundation of our strategy for the company is what we're applying here, it's not that different right. It's how do we engage in the right way how do we have the right core offering with exciting fashion sprinkled in and then how do we really show up across points of distribution in a way that that resonates when I look at the total addressable market and we will have this conversation in more detail.
Speaker Change: When we get together for Investor Day later this year the size of the women's apparel market is humongous and our price points and we are still while we have scale right because of its.
Speaker Change: A multibillion dollar business for us for women's apparel.
Speaker Change: We saw a very very small market share. The same is true for handbags right, depending on the numbers $80 billion to $90 billion segment, we're far from from those numbers. So significant runway there and same thing for outerwear. So we're excited about.
Speaker Change: Our core is resonating and obviously that will always be priority one at Ralph Lauren, but we will continue to lean into these selective high potential categories, where the brand is resonating our teams are in touch with the consumer and we've got significant runway.
Speaker Change: Thank you your next question please.
Speaker Change: Thank you. The next question comes from Laura that's a rescue with BNP Paribas.
Laura: Good morning, Thank you very much for taking my question.
Speaker Change: Patrice Justin appreciate Youre not.
Laura: Guiding for the next fiscal year.
Speaker Change:
Speaker Change: Or your fall Investor day, but just yet, but with North America and lasting back to growth. This year, how should we think about the trajectory of the North American business from here. Thank you very much.
Speaker Change: Good morning, everyone.
Speaker Change: Taking a step back so when we started our next great chapter strategic journey several years ago, we made a number of very deliberate choices right to elevate our brand to elevate our distribution and this is especially true in North America right.
Speaker Change: Lessening, our exposure to lower tier department stores, and reducing our off price business by 50% while at the same time strengthening our full price proposition in penetration and expanding margins. So we set out earlier.
Speaker Change: Elevate our brand in the marketplace and establish that healthier foundation for long term consistent.
Speaker Change: And we're now seeing the impact of these efforts come through.
Speaker Change: In our improved North America results.
Speaker Change: The multiple drivers of growth that Patrice just talk there is relevant.
Speaker Change: For North America as they offer our other two regions and we're really encouraged by how each of our North American channels.
Speaker Change: It's contributing to our growth on the DTC side, we've delivered now six consecutive quarters of solid comp growth led by our full price stores with meaningfully less disk.
Speaker Change: And we believe this is a pretty good bellwether of how our brand and our product is resonating with consumers and notably within DTC our own digital business is now back on a growth trajectory.
Speaker Change: On the wholesale side as we mentioned in the prepared remarks, we've been working to stabilize our business season overseas and we've seen a return to growth in the channel a little faster and a little stronger than we anticipated even as we continue to scale back and prove our lowest tier doors, but clearly the progress we're seeing in DTC.
Speaker Change: <unk> is coming over and starting to translate the wholesale and this is evidenced by the positive responses, we're seeing from top tier luxury accounts, where we're admittedly still in the early stages of our expansion.
Speaker Change: While we're not going to guide for next year or the years beyond just yet stabilizing that North America wholesale business, it's an important milestone on our long term strategic journey.
Speaker Change: And put together with the momentum we have in Houston, We've established a solid foundation to deliver sustainable revenue growth and operating margin expansion for both our largest region North America and for the company.
Speaker Change: Thank you next question please.
Speaker Change: Thank you. The next question comes from Matthew Boss with J P. Morgan.
Matthew Boss: Thanks, and congrats on a great quarter.
Speaker Change: Thanks, Matt.
Speaker Change: No.
Speaker Change: So Patrice could you speak to the foundational investments that are now in place that are that are really driving that double digit growth in Europe, and China, maybe just elaborate on continued market share opportunity abroad, and white space do you see for further store growth.
Speaker Change: And then Justin just maybe could you talk to the balance that youre striking between reinvestment in the business, notably with marketing, which is obviously delivering clear returns relative to continued margin expansion multi.
Speaker Change: Sure.
Speaker Change: No.
Speaker Change: Foundational investments for us really across marketing right.
Speaker Change: You followed us closely that we've increased our marketing spend as a percent of revenue quite meaningfully over the past few years, we're around 7% now as we've said in prior conversations. This is not the sealing the message to the marketing teams is you have no limit on marketing investment the only constraint is our ROI.
Speaker Change: So we expect to continue to increase marketing spend as we expand margin over time.
Speaker Change: Key elements of the marketing Activations have really evolved over time. So we now have a very broad portfolio of rack marketing activations that range from fashion moments I wouldn't call them shows because they are much more than shows our cultural moments through obviously, all the sports Activations. The work we're doing in it with Influencers on social media platforms gaming et cetera.
Speaker Change: Rob.
Speaker Change: The second area, where we're investing is odyssey store openings alright.
Here.
Speaker Change: On the one hand, I'm actually really pleased with the work. The teams are doing on comp performance because look at our comp performance across the regions right plus 8% in the U S plus 17% in India, plus 14% in APAC. So the foundation store footprint is delivering and this is true both across our full price stores.
Speaker Change: Our outlet and our own digital.
Speaker Change: We also know we have continued opportunities to expand our footprint.
Speaker Change: Across key cities. So we expect this year to open around 85 new stores.
Speaker Change: This is consistent with the three year target, we gave out during Investor day, two and a half years ago 250, new stores. This is true.
Speaker Change: In the U S that I know you talked in EMEA and APAC, where obviously, we have store opening opportunities in the U S. We're opening.
Speaker Change: Next month in March on Jackson Street in San Francisco, as we look to expand on the West Coast, where we have significant white space.
Speaker Change: We also have significant opportunities in Europe through both our owned and partner stores and the teams have done an excellent job expanding our footprint.
Speaker Change: Yeah.
Speaker Change: The new store openings really delivering nicely relative to our expectations and of course in Asia will continue to expand we've got key opportunities first and foremost in China was a really nice momentum there, but we also have opportunities in Korea or footprint is still quite limited we have opportunities in Japan, so that that will continue.
Speaker Change: And the last thing I would say from a market share standpoint.
Speaker Change: Is.
Speaker Change: You know I come from a business where on July <unk>, we had 95% market share. So it's hard to grow market share.
Speaker Change: The good news in this business is highly fragmented alright, and no one really has any meaningful market share. So the market is very large the business is the category is very fragmented while we have good positions of leadership in a number of categories. We're still relatively small from a market share standpoint, and what we've seen this past quarter.
Speaker Change: <unk> is.
Speaker Change: As continued market share expansion across men's across children.
Speaker Change: And meaningful share expansion, obviously across across women's and handbags as we were talking earlier with J. So I think the combination of continue to drive marketing spend.
Speaker Change: And lean into high ROI activities with a broad range of Activations in this rolling Thunder approach.
Always on.
Speaker Change: Yeah.
Speaker Change: Strong new customer recruiting which will drive market share growth.
Speaker Change: <unk> continued selective choice for footprint expansion in our top 30 cities.
Speaker Change: It is a bit of a flywheel for us and so we expect that to continue to deliver again being very targeted and focused on how and where we show us because we know one of the risk is to dilute ourselves by being overextended on overexposed.
Speaker Change: Matt in terms of the balance between investment and flow through you know our philosophy really remains unchanged try to balance reinvestment in the longer term growth of our branded business with delivering on or in the case of this quarter exceeding our near term operating margin commitments and you saw this in Q3 will be balanced growth with investing back into the base.
Speaker Change: Including in marketing, where we continue to meaningfully increase our spend year over year and for Q3, our Opex came in line.
Speaker Change: With our expectations, we delivered SG&A leverage and that importantly came along with really high quality development. So we feel like we're striking that right balance and get the PUC is through that as we move forward.
Speaker Change: Thank you next please.
Speaker Change: Thank you next question comes from Dana Telsey with Telsey Advisory group.
Dana Telsey: Hi, good morning, and congratulations on the nice very nice progress.
Dana Telsey: You talked about brick and mortar and what you're seeing given the acceleration you've seen around the world, particularly in North America, what changed and how is the outlet performance.
Dana Telsey: Is that an area of growth in terms of new stores and then can you expand on what you're doing in AI the impact and the opportunity. Thank you.
Dana Telsey: Sure So I'll.
Dana Telsey: Talk a little bit about sort of the what we're seeing in brick and mortar. We did see continued strong performance in both our full price in our outlet stores really across all regions in Q3, and very consistent with sort of a Q2 trends our full price stores continue to lead our growth and then our Q3.
Dana Telsey: Outlet comps actually accelerated on a really strong responses to our product offering and enhancements, we've made around the world and staffing and experience and taking a step back really importantly, we delivered in these brick and mortar channel really strong quality of sales really strong AUR growth on it shouldnt be positive traffic trends increase.
Dana Telsey: <unk> basket, so really feeling good about that performance and consistent.
Dana Telsey: Really across our regions in North America, specifically similar trends and again I would say, our Ralph Lauren stores oil prices continued to lead our performance and that's consistent with what we've been seeing over the past couple of years will be driven by traffic and AUR.
Dana Telsey: And then.
Dana Telsey: It's a big opportunity for us so we're leaning into it.
Dana Telsey: I'd say from a headline standpoint that we look at AI, both through creativity lands' end of productivity lands right. That's how we really want to be leveraging these new capabilities.
Dana Telsey: On the creativity lines, what you see is it's not our stores our website, but we're leveraging actually generate that AI to help with search and consumer navigation. We're obviously leveraging AI with our contact center in the way, we engage with consumers and this philosophy is really the contact center should be much more than a problem.
Dana Telsey: Resolution centre it should be one of our biggest stores and how do we use that for consumer engagement and introduction of the broader range and obviously generate today very helpful. Here. Our creative teams are using it for mood boards. For example, so on the number of application areas on the creativity side and consumer engagement.
Dana Telsey: And then on the operational productivity.
Dana Telsey: We have started to leverage it in the context of predictive buying you heard in our prepared remarks, Justin talk about predictive buying which has really been an accelerator of our performance this past quarter actually around the world to be a lot smarter in what we buy.
Dana Telsey: We're also leveraging this in our allocation tools to be a lot smarter about how our products show up in the individual stores and where.
Dana Telsey: We're an experimentation mode.
Dana Telsey: The new terminology in this space as a gentex AI.
Dana Telsey: Let's follow things correctly, and so we are working with our partners to make sure that we continue to learn and leverage the best capability out there.
Dana Telsey: With obviously, a continued focus on authenticity and.
Dana Telsey: And human leadership.
Dana Telsey: With AI is thought of as a copilot as opposed to replacing how we operate but we're excited about the initial impact we're seeing in the different fields of application across the business.
Michael Binetti: Thank you next question. Please. Thank you. The next question comes from Michael Binetti with Evercore ISI.
Michael Binetti: Thanks for taking my question here and let me add my congrats on a great holiday obviously.
Michael Binetti: Maybe just a short term one for Justin first and then a follow up the 300 basis point increase to the revenue outlook ex currency, but only 20 basis points or so operating margin, maybe just a thought on.
Michael Binetti: What's changing on the flow through and how much of that might be specific to fourth quarter versus what kind of new costs, we should be thinking about that could roll over into early 2026 that we should read from that and then.
Michael Binetti: I guess a jump all the question, but we've seen small hints of the U S. Turning back to positive on a wholesale basis.
Michael Binetti: It's been hard to sustain obviously with what's going on in the end markets. There is there a reason you think.
Michael Binetti: We are in a period of more durable growth and positive North America wholesale you mentioned, some new distribution in luxury doors, we know the category expansion efforts I'm just curious how you look out and see how your confidence is that that can stay positive in North America. Thank you.
Michael Binetti: Sure. Thanks, Michael So as we think about Q4, a couple of things one we're going into a.
Michael Binetti: Smaller quarter. It's also a quarter that we have our decision sales in the quarter as well. So that is a part of the profitability shift we know in Q3, we had very strong full price selling and thats reflected in in our AUR in our gross margin numbers. There. So I would say that's probably the biggest difference between Q3 and Q4.
Michael Binetti: In terms of when you think about <unk>.
Michael Binetti: North America, wholesale and sort of where Iraq and we're encouraged by the underlying trends of that business coming out of keeping we've stabilized the business right. This was an important milestone an important step for our north American growth trajectory and for our operating margin contribution for North America, but we feel good about selling now aligned with sell out for a few consecutive.
Michael Binetti: And we're taking share, but even though the overall channel remained soft in a pretty volatile environment right, while still pruning our footprint. So we're definitely encouraged by the underlying trends were.
Michael Binetti: So we're happy with the direction of travel we feel good about how we're positioned in the channel and how we are thinking about it on a go forward basis.
Michael Binetti: I think when you when you look at our wholesale business in wholesale in general it's really important.
Michael Binetti: Suggestions earlier comments the segments, it's right because all not all wholesale is built the same way and so the way we think about it as luxury players the nieman Saks Bloomingdale's. The nordstrom's of this world the word golf's, where we've got significant momentum than we have wholesale dot com I think Macy's dot com in particular, we also.
Michael Binetti: Healthy momentum then you've got the top 50 doors of the key players where our partners are investing with us in people and capital.
Michael Binetti: The way the product is being designed and we're seeing that resonate and then theres the balance of the channel that continues to be challenged.
Michael Binetti: And you know that we're working through and we're working through two lenses here, which is in.
Michael Binetti: And those doors, where we want to say how do we ensure that with our partners those investments those activation. There is customer service and then we'll continue to prune and you heard Justin is all about the fact, we're going to we're going to eliminate another 60 doors.
Michael Binetti: Within that group this year, and we're going to continuously pruning to make sure we're showing up in the right place relative to how we want our projected Brian and from a profitability standpoint, So I think Michael it's it continues to be a pretty volatile environment. So really important to look at it in sub parts, but obviously, we're pleased that we're now stabilizing a business that's been a drag for this company for many years.
Michael Binetti: Yes.
Speaker Change: Thank you next question please.
Speaker Change: Thank you. The next question comes from John Kernan with TD Cowen.
John Kernan: Thanks for taking my question and congrats on a phenomenal holiday.
Speaker Change: Thanks, Justin.
Speaker Change: I think you said you reduced the global discount rate by 500 basis points in the quarter, obviously strong performance in wholesale and DTC just curious.
Speaker Change: How much more room do you have here to reduce discount rates I know, it's been part of the AUR story.
Speaker Change: Or I think you said in DTC was up double digits again.
Speaker Change: When you look at where you are from a full price sell through how much more.
Speaker Change: Space, you have to reduce the global discount rate.
Speaker Change: Yeah.
Speaker Change: It's definitely something we think about you know if you think about what's driven our AUR in our margin expansion over the past seven years right. There has been a couple of things right theres been sort of the favorable channel mix and product mix elevation has been like for like price and Theres also been to your point brand repositioning and disciplined inventory management and that promo.
Speaker Change: Kind of pull back and they've probably been about equal parts over the last.
Speaker Change: 567 years as we look forward, we believe that those drivers are all durable with the one caveat being like for like is going to be a target of driving that whether it be the guiding into to offset cost inflation and we see it or structural changes in costs like what we're seeing in Japan with foreign currency, but if you think about the drivers there.
Speaker Change: The promotional pullback driver.
Speaker Change: In this quarter.
Speaker Change: We pulled back promotions and all of our regions all of our channels. We saw really strong full price selling driven by our marketing and our product.
Speaker Change: And really what what happened was we were able to step change our promotions really across our entire ecosystem and thats something that it was done in North America, where we probably have a bit more runway in some of our channels like our outlet channel, but it was also done in China, where we're very very elevated highest eight.
Speaker Change: <unk> in the World and we still were able to pull back and to and to get some AUR growth and margin expansion from that promotional.
Speaker Change: So we feel really good about proof of concept in terms of this level going forward and our new consumer acquisition model that we've built up really focused on bringing in more full priced customers into the fray really gives us confidence that that's why we will continue and that this particular lever of AUR growth and gross margin expansion.
Speaker Change: A lot of runway as we look forward.
Speaker Change: Thank you Nick.
Okay.
Speaker Change: Thank you. The next question comes from Ike <unk> with Wells Fargo. Your line is open.
Speaker Change: Hey, good morning, everyone. Let me add my congrats I think Justin two for you.
Speaker Change: Can you just clearly your business is very idiosyncratic and youre doing a fantastic job on the markdowns. It globally, just curious the U S market. The U S wholesale market do you notice any changes.
Speaker Change: With inventory.
Speaker Change: <unk> cadence just across your competition or are we still kind of steady as she goes and then just a follow up on the demand creation questions. You've gotten I think you are at 7% you guys have kind of entered you'd love to take that up with momentum I mean should we expect that you continue to reinvest in that line item to keep to keep the flywheel going on demand.
Speaker Change: Going forward.
Speaker Change: Yes. So thanks for the question, taking the second one first on the marketing, 7% not a CRM application.
Speaker Change: Say that the mantra and we're certainly seeing very encouraging proof of concept in terms of the ROI behind our marketing investments and you can look no further than the past couple of quarters. So I think that that's something that absolutely. When you think about priorities for our capital and cash marketing tops the list and we're building.
Speaker Change: Really strong proof points to be able to continue to push that that 7% as we move forward I think when it comes to up wholesale look where we're very well positioned from an inventory perspective in that channel. That's always been an important facet of our sort of repositioning is pivot from sell in to sell.
Speaker Change: And really stay focused and keep our inventories lean and rely on our agile and flexible supply chain and baidu as we ramp up our predictive buying process is certainly kind of yes.
Add fuel to that fire to be able to chase into incremental demand as we see it particularly in our core styles. So we've kept our inventory.
Speaker Change: Aligned with that sort of any consumer sell out we're not seeing in our business promotions like we saw in our DTC space Theyre going down in Q3, we were able to kind of pull back as we saw some pretty favorable full price traction in the wholesale channel as well as what we saw in PTC translated over so we feel really.
Speaker Change: Good about how we're positioned from a stock perspective in that channel.
We will take the last question. Please Angela. Thank you. Our final question comes from Chris <unk> with Bank of America.
Chris: Thanks, Good morning.
Chris: There is a timeline of implementing your Nextgen transformation project and then how should we think about the specific capabilities that you'll be adding to help drive continued sustainable growth.
Chris: And apologies for the voice.
Speaker Change: Yeah. So thanks, Doug so on the N GT project.
Chris: As you know we're in the preliminary planning phase of this project.
Chris: Fiscal year and project is moving to a single global ERP also a predictive buying and allocation tool to enable kind of strategic inventory management as well as upgrading our warehouse management systems to allow for sort of seamless inventory movements across.
Chris: Channels within regions. So we've disclosed some of our preliminary cost in our 10-Q, beginning I think in Q1 of this year, which are not significant we're going to provide more update as we kind of wrap the planning phase. This year, if we get to finalize our related kind of solutions and contract. We've landed on a solution that we're working on <unk>.
Chris: Ending the size, so we'll give a better sense of the total project cost.
Chris: We expect that over the next kind of three to five years in the next quarter or so but I think when you think about just broad timeframe, we're talking phased implementations likely starting in fiscal 'twenty seven range.
Chris: Alright, well thanks, everyone for joining us today, we look forward to speaking with you on our fourth quarter and fiscal year end earnings call in late May and then we'll get together towards the end of the year for our next Investor Day, 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.