Q1 2026 Ralph Lauren Corp Earnings Call

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I'd now like to turn over the conference host Ms. <unk>. Please go ahead.

Good morning, and thank you for joining Ralph Lauren's first quarter fiscal 2026 conference call with me today are Patrice <unk>, the company's President and Chief Executive Officer, and Justin <unk>, Chief Financial Officer. After prepared remarks, we will open up the call for your questions, which we ask that you limit to one per.

Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren first quarter fiscal year 2026 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session; instructions on how to ask a question will be given at that time. If you should require assistance during the call, please press star, then zero.

As a reminder, this conference is being recorded.

I now like to turn over the conference to our host Miss Karina Vander, please go ahead.

Color.

During today's call are financial performance will be discussed on a constant currency adjusted basis a.

Our reported results, including foreign currency can be found in this morning's press release.

We will also be making some forward looking statements within the meaning of the federal securities laws, including our financial outlook.

Good morning, and thank you for joining Ralph Lauren's first quarter fiscal 2026 conference call with me today, our Patrice louvet the company's president and chief executive officer and Justin bichi Chief Financial Officer. After prepared remarks, we will open up the call for your questions which we ask that you limit to 1 per caller.

Forward looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward looking statements.

During today's call our financial performance will be discussed on a constant currency adjusted basis.

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.

Our reported results, including foreign currency, can be found in this morning's press release.

We will also be making some forward-looking statements within the meaning of the federal Securities laws, including our financial Outlook.

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.

For looking statements are not guarantees and our actual results May differ materially from those expressed or implied in the forward-looking statements.

With that I will turn the call over to Patrice.

Thank you Corey.

Our expectations, contain many risks and uncertainties principal risks and uncertainties that could cause our results to differ materially, from our current expectations, our detailed in our SEC filings.

Good morning, everyone and thank you for joining today's call.

We are encouraged by our strong start to the fiscal year.

With first quarter results that exceeded our expectations across the top and bottom line.

To find disclosures and Reconciliation 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.

In the midst of a highly dynamic global operating environment.

With that, I will turn the call over to Patrice.

Our growing brand desirability diversified drivers of growth than muscles of organizational agility and execution excellence are standouts as we continued to deliver on our long term strategic priorities.

We are encouraged by our strong, start to the fiscal year.

This quarter's performance underscores the power of our iconic brand with a unique ability to reach across geographies cultures genders and generations of consumers.

In the midst of a highly Dynamic Global operating environment.

The breadth and appeal of our lifestyle portfolio of products.

With timelessness value and quality more relevant than ever.

This quarter's performance underscores.

And our proven key city ecosystem model as.

As we continue to expand and elevate across every consumer touch point to be even more personal more engaging and more digitally connected.

Our strong first quarter results were once again broad based driven.

Driven by every geography and channel.

We delivered double digit topline growth in both Asia, and Europe and high single digit growth in North America.

With global comps up 13%.

This exceeded the expectations, we laid out in may.

Even as we chose to reinvest back into our marketing digital and ecosystem initiatives and return cash to our shareholders.

This strong early performance gives us confidence to take up our full year guidance.

Even as we remain cautious on the second half of the year.

Due to potential tariff related pressures on broader consumer behavior.

Despite macro headwinds, we remain well positioned and we are on offense based on our continued commitment to invest behind our brands and market share gains.

Our strong and growing geographical presence largely concentrated in our key cities in each region.

And our relentless focus on improving technology, AI and analytics to better serve our consumers and drive greater efficiencies in our business.

All underscored by our balance sheet and operating discipline.

Let me review a few highlights from the quarter.

Where we drove continued progress across our three long term strategic pillars.

As a reminder, these include first elevate and energize our lifestyle brand.

Second drive the core and expand for more and third win in key cities with our consumer ecosystem.

Starting with our efforts to elevate and energize our lifestyle brands.

The Ralph Lauren brand remains one of our most powerful assets.

Sitting at the epicentre of culture.

And inspiring people all over the world to step into their dreams.

In this dream of a better life.

It remains as relevant to consumers today as it was when Ralph started this company nearly 60 years ago.

As we expand our business across geographies categories and channels. Our teams are tapping into the power of our brand across a diversity of marketing platforms.

To reach our target consumers across generations.

Some highlights from the first quarter included <unk>.

First.

We continue to reinforce our luxury lifestyle positioning through major activations focused on our top cities.

In April we hosted our first ever fashion presentation in China.

With our Shanghai Risi events.

Which translated our spring 'twenty five Hamptons fashion show.

So in all Asian cast and Star studded event.

This was coupled with an innovative life shopping event on Dorian and.

And 360 degree takeover across our stores.

Our door and digital media.

In addition to delivering a new record high for our China Q1 sales the campaign drove over 64 billion impressions with strong customer acquisition.

This was followed by our fall 25, modern Romantics Women's collection fashion show here in New York City.

Okay. So the easy elegance of relax tailoring with meticulous attention to detail and materials.

And in June we hosted our spring 'twenty six.

Mens purple label show in Milan.

Marrying timeless craftsmanship and sophistication with the spirit of adventure.

Beyond the runway, we delivered iconic celebrity moments from dressing beyond say on her cowboy Carter World Tour to Usher and Tyson Beckford wearing custom purple label looks at the met gala.

And most recently, we reinforced our leadership in the world of sports with another successful Wimbledon sponsorship where.

Where we drove the highest media value across all brands President and.

And 43 billion global PR impressions, a more than 40% increase to last year.

These activities are driving strong sustainable growth in new customer acquisition and engagement.

In the first quarter, we added one 4 million new customers to our DTC businesses.

A mid single digit increase to last year, driven by digital and full price store customers and.

And continuing to skew more toward women luxury and next generation younger cohorts.

And we increased our social media followers by high single digits to nearly $66 million.

Led by Instagram line, Dalian and take time.

Moving to our second key initiative drive the core and expand for more.

Ralph and our design teams continue to create beautiful products that serve our customers modern lifestyles.

All while staying true to what we stand for authenticity.

Quality and sophisticated timeless style.

This is more important than ever as consumers look to brands and styles that they know and trust that will last and deliver a compelling value proposition.

Ralph and our design teams, continue to create beautiful products that serve our customers, modern lifestyles.

Our growing value perception.

Together with our strong pricing power gives us confidence in our ability to continue on our elevation journey.

This begins with our core products.

Which represent more than 70% of our business.

Our core remains an important differentiator in an industry that is typically more reliant on fluctuating fashion trends.

Core product sales grew mid teens this quarter driven.

Driven by strength in seasonal sweater polo's.

Houghton cable knit and merino sweaters lightweight outerwear, including our beaten quilted jackets and our Bi-swing in Bay Porte Windbreakers.

Our newer linen offerings and caps.

Our special capsules this quarter centered on our sporting lifestyle.

Including our Candy shop Yankees baseball collection for opening day.

Another elegant installment of Wimbledon pieces.

Our high potential categories, including women's apparel outerwear and handbags.

Continued to be accelerators for our business.

Together these categories increased strong double digits outpacing total company growth in the quarter.

Women's apparel continued to be driven by our foundational core <unk>.

Along with a strong response to our seasonal styles.

Highlights included our cable knit Jersey, and polo bear sweaters linen shirts dresses are cotton, Kansas City jacket.

And our newest foundational handbag collection polo play, which launched earlier this spring.

Within our complimentary lifestyle categories, we unveiled our latest home collection.

Canyon Road at Salone del mobile in Milan This spring.

Inspired by the raw natural beauty of the American West.

The collection reinforces our position in luxury living.

Turning to our third key initiative went in key cities with our consumer ecosystem.

We continue to expand and invest disproportionately in our key city ecosystems.

Delivering a cohesive elevated brand experience across each of our consumer channels around the world.

Within DTC, which comprises the majority of our business, we delivered a another quarter of strong comp growth across regions.

Comps increased 13%.

This was above our expectations with double digit growth in both digital and brick and mortar stores.

Globally, we opened 24, new owned and partner stores this quarter, including our first Ralph Lauren store in Vancouver, now our second location in Canada, following our Toronto launch in 2023.

A purple label and double RL shop in Shin Seagate centered city Department store.

Marking the debut of our luxury brands in the Korean market.

And our newest candy shop concept in the luxury resort destination of Marbella, reinforcing our presence in the Spanish market.

All three regions outperformed our expectations again in the first quarter.

Led by international.

Asia was particularly strong accelerating to high teens growth driven by both China and Japan.

China grew more than 30% in the quarter outpacing our competitive set with a strong consumer response to our brand building initiatives, including our April fashion show in Shanghai.

And North America maintained healthy trends of high single digits with strength across DTC channels and stabilization in wholesale as planned.

And finally touching on our enablers our business continued to be supported by our five key enablers.

Some highlights include.

First as part of our focus on delivering best in class digital technology and analytics and following our successful predictive buying pilot over the past year in Asia and Europe. We will continue to expand this AI driven program to additional core styles in fiscal 'twenty six.

Enabling better chase and in stock availability on sizing and best selling products to drive both sales and inventory efficiencies.

Second as part of our multi year next generation transformation project, we were excited to launch automation in our European distribution Center this quarter.

We will roll out new automation capabilities to our other regions over the course of this fiscal year.

Enabling greater supply chain efficiency and savings.

And ultimately better demand fulfillment for our consumers as we get product to the right place at the right time.

We were also proud to be recently named one of America's best employers for women by Forbes.

And finally this June.

Ralph received the Fragrance Foundation 2025 Hall of Fame Award.

Recognizing his enduring impact on the fragrance industry as well as creative influence on modern culture.

In addition, our polo 67 fragrance featuring Yankees Captain Aaron Judge one to 2025 fragrance of the year Award men's prestige.

Congrats to Ralph and our fragrance team.

In closing.

Ralph and I are encouraged by the strong start to this fiscal year.

Our teams are navigating an uncertain operating environment with dedication and agility to continue driving our strategic priorities.

These priorities will continue to focus on harnessing the power of our iconic brand to drive desirability and recruit new consumers across generations.

Creating timeless products with a strong value proposition that consumers love and trust.

And investing in brand experiences that inspire our consumers and immerse them in the world of Ralph Lauren.

With all of this underpinned by our strong balance sheet.

Culture of operating discipline.

And growing ability to utilize advanced AI and technology to drive sustainable long term growth and value creation.

We hope you'll tune into our Investor day. This September to hear more from our talented leadership team about the next leg of our next great Chapter journey.

And with that I'll hand, it over to Justin and I will join them at the end to answer your questions.

Thanks, Patrice and good morning, everyone. We.

We delivered a strong start to fiscal 'twenty six with continued progress on our long term strategic priorities and first quarter results exceeding the expectations, we laid out in may.

Revenues were ahead of our outlook led by international underscoring, our growing brand desirability and ability to connect authentically with consumers around the world.

We reported positive comp growth in every region and childless quarter and we achieved this while further advancing our continuous elevation journey with improved quality of sales a stronger full price selling and lower discounting resulted in higher than expected gross and operating margins.

This performance was a testament to the.

The incredible passion and dedication of our teams who are executing with excellence amid what continues to be a highly dynamic global operating environment.

Strength of our balance sheet, and our agile diversified supply chain, which we built to both mitigate global disruptions and support our long term growth.

And the diversity of our strategic growth drivers across geographies channels lifestyle categories and consumer demographics.

This quarter of solid performance and our continued momentum give us confidence to raise our full year outlook, even as we remain cautious on the broader macroeconomic backdrop, primarily in the second half of the fiscal year.

But first let me walk you through our financial highlights from the first quarter, which as a reminder are provided on a constant currency basis.

Total company first quarter revenue growth of 11% was above our high single digit outlook led by strong performance in our direct to consumer channels.

This year's later Easter shifted less than one point of sales growth into the quarter from the fourth quarter of fiscal 'twenty five as expected.

By region Asia led our performance with sales, increasing 19% followed by Europe up 10% and North America up 8%.

Total company retail comps increased 13% driven by an acceleration in our own digital business and ongoing momentum in our brick and mortar channels.

Total digital ecosystem sales, including our own sites and wholesale digital accounts grew mid teens led by North America and Asia.

Total company adjusted gross margin expanded 160 basis points to 72, 1%.

The increase was driven by AUR growth favorable mix shift towards our full price and international businesses, and lower cotton costs, which more than offset higher labor and non cotton material cost.

AUR increased 14% in the first quarter exceeding our high single digit outlook and supported by strong full price selling trends reduced discounting and favorable channel and geographic mix.

We currently expect high single digit AUR growth for the second quarter of fiscal 'twenty six.

This reflects our ongoing brand elevation strategy, which includes selective pricing actions in North America and Asia for 425.

In addition to AUR growth, we expect continued unit growth in targeted markets channels and categories.

Adjusted operating expenses declined 70 basis points to 55, 5% of sales up 10% to last year.

The increase was primarily driven by higher marketing and variable selling expenses.

First quarter marketing investments increased to seven 5% of sales from six 7% last year supporting our always on cadence of Activations in each region as Patrice discussed we.

We still expect marketing as a percentage of sales to be approximately seven 3% in fiscal 'twenty six.

First quarter adjusted operating margin expanded 230 basis points to 16, 6% with operating profit increasing 29% both ahead of guidance.

Moving to segment performance.

And starting with North America.

First quarter revenue increased 8% above our expectations due to strong performance in our direct to consumer business.

In North America retail first quarter comps increased 12% led once again by our Ralph Lauren stores.

Digital comps increased 19% on strong brand momentum as we advance our investments and site enhancements and optimize our merchandising and marketing.

In North America wholesale revenue increased 2% as we continue to take market share in what remains a broadly volatile channel.

Full price sellout was ahead of sell in this quarter supported by solid core replenishment trends.

Our digital wholesale business continues to perform well with sellout up double digits.

While we are encouraged by our stabilized trend in the channel over the past year, we are maintaining our cautious outlook for fiscal 'twenty six given the potential macro pressures across the broader North America market.

We plan to exit another 90 to 100 wholesale doors in fiscal 'twenty six with approximately half of these related to Hudson's Bay.

Moving to Europe.

First quarter revenue increased 10%.

This was ahead of our expectations driven by balanced growth across our retail and wholesale channels.

The majority of our key markets delivered growth in the quarter led by Germany, France, Italy, and Spain, reflecting strong brand and product momentum.

Europe retail comps increased 10% to last year with balanced growth across our stores and digital channels.

Our Europe digital ecosystem grew mid single digits on top of a solid comparing the previous year.

Europe wholesale also increased 10% driven by continued momentum across both our spring seasonal offering and reorders of core product.

The majority of our key markets, delivered growth in the quarter led by Germany France, Italy and Spain reflecting strong brand and product momentum.

We continue to expect full year revenue growth for Europe to be at the high end of mid single digits and meaningfully weighted to the first half of the year.

Channels.

We continue to anticipate significant deceleration in the second half based on first a planned shift in wholesale receipts. This year from chase Reorders to preorder bookings to service full price demand more effectively.

Our Europe digital ecosystem grew mid-single digits on top of a solid comparison in the previous year.

Your pulse sale, also included 10% driven by continued momentum across, both our Spring Seasonal offering and reorders of core product.

And second a lapping of last year's timing shifts related to the Red Sea disruption.

We continue to expect full year Revenue growth for Europe to be at the high end of mid single digits and meaningfully weighted to the first half of the year.

Turning to Asia.

First quarter revenue increased 19% exceeding expectations with every key market contributing to growth.

Retail comps were up 18% with digital and brick and mortar store comps both accelerating from the prior quarter powered by our marketing activations across the region.

We continue to anticipate significant deceleration in the second half. Based on first, a plan shift in wholesale, receipts this year from Chase free orders to pre-order. Bookings to service full price demand more effectively and second a lapping of last year's timing shifts related to the Red Sea disruption.

Turning to Asia.

China led our performance with sales up more than 30% to last year on continued comp growth strong new customer recruitment and impactful marketing moments, notably our activations in Shanghai.

First quarter Revenue, increased 19%, exceeding expectations with every key Market contributing to growth.

Sales in Japan, our largest market in the region increased high teens to last year, driven by strong full price selling and reduced discounting along with continued tailwind from foreign tourism.

Retail comps were up 18% with digital and brick-and-mortar store comps. Both accelerating from the prior quarter powered by our marketing, activations, across the region.

China LED our performance with sales up, more than 30% to last year on continued comp growth.

Moving to the balance sheet.

Our strong.

<unk> balance sheet and cash flow generation has been key enablers of our fortress Foundation supporting investments in our strategic growth drivers, while maintaining our commitments to shareholders.

Strong new customer Recruitment and impactful marketing moments, notably our activations in Shanghai.

We ended the quarter with $2 3 billion in cash and short term investments and $1 6 billion in total debt.

Sales in Japan are largest market in the region, increased High Teens to last year, driven by Strong full price selling and reduced discounting along with continued Tailwind from foreign tourism.

Moving to the balance sheet.

Net inventory increased 18% to last year, reflecting strong global demand for our products strategic receipt pull forwards, including to mitigate the impact of tariffs in North America and foreign currency headwinds.

Our strong balance sheet and cash flow generation. Have been key. Enablers of our Fortress Foundation supporting investments in our strategic growth drivers. While maintaining our commitments to shareholders

Excluding tariff related actions inventory growth for the quarter would've been approximately in line with revenue growth.

We ended the quarter with $2.3 billion in cash and short-term investments and $1.6 billion in total debt.

We expect inventories to moderate progressively as we move through the year and to end fiscal 'twenty six roughly in line with revenue growth.

Looking ahead.

Net inventory, increased 18%, to last year, reflecting strong, Global demand for our products. Strategic receipt, pull forwards, including to mitigate the impact of tariffs in North America and foreign currency headwinds.

Our outlook remains based on our best assessment of the current operating environment geopolitical backdrop and macroeconomic trends.

Excluding tariff related actions inventory, growth for the quarter would have been approximately in line with Revenue growth.

This includes Paris, and other inflationary pressures supply.

Supply chain disruptions and foreign currency fluctuations among other considerations.

We expect inventories to moderate progressively as we move through the year and to end fiscal 26 roughly aligned with Revenue growth.

Looking ahead.

Given the high level of volatility in the current context, our outlook continues to be subject to change as trade dynamics and other macro factors continue to evolve.

Our Outlook remains based on our best assessment of the current operating environment, geopolitical backdrop, and macroeconomic trends.

This includes.

For fiscal 'twenty six we now expect constant currency revenues to increase low to mid single digits up from low single digits previously led by growth in our Asia and Europe businesses.

Paris and other inflationary pressures.

Supply chain disruptions.

And foreign currency fluctuations among other considerations.

We continue to expect this year's performance to be heavily weighted to the first half with first half revenues now assumed up roughly high single to low double digits in constant currency.

Given the high level of volatility, in the current context, our Outlook continues to be subject to change as trade, Dynamics, and other macro factors continued to evolve.

Foreign currency is currently expected to benefit revenue growth by about 150 to 200 basis points. This year based on the weaker U S dollar, notably versus the Euro and Japanese yen.

For fiscal 2026, we now expect constant currency revenues to increase low to mid single digits, up from low single digits previously, led by growth in our Asia and Europe businesses.

While our consumer trends remain consistent with recent quarters, we continue to take a more cautious view on the second half of the year.

We continue to expect this year's performance to be heavily weighted to the first half with first half revenues. Now assumed up roughly High single to low double digits in constant currency.

This is largely based on the potential impact of tariffs and related industry wide price increases in the U S.

We now expect operating margin to expand approximately 40 to 60 basis points in constant currency compared to our prior guidance of a modest increase.

Foreign currency is currently expected to benefit Revenue growth by about 150 to 200 basis points this year. Based on the weaker US dollar notably versus the Euro and Japanese Yen.

We continue to expect operating margin expansion to be primarily driven by operating expense leverage.

While our consumer Trends, remained consistent with recent quarters, we continue to take a more cautious view on the second half of the year.

Based on our strong Q1 performance and latest view of the tariff landscape now expect gross margins to be up slightly to last year with AUR growth discount reductions and favorable geographic and channel mix offsetting negative impacts from tariffs and non cotton material costs.

This is largely based on the potential impact of tariffs and related industrywide, price increases in the US.

We now expect operating margin to expand approximately 40 to 60 basis points in constant currency, compared to our prior guidance of a modest increase.

We continue to expect operating margin expansion to be primarily driven by operating expense leverage.

While the U S tariff landscape remains fluid the assumptions embedded in our original fiscal 'twenty six outlook remain broadly consistent with the announced rates as of August 1st based on our current understanding of their application.

And we will continue to leverage our proven toolkit to actively manage cost inflation headwinds as they emerge.

Based on our strong q1 performance and latest view of the Tariff landscape. We now, expect gross margins to be up slightly to last year with Aur growth discount, reductions and favorable, Geographic and channel mix offsetting negative impacts from tariffs and non-cotton material costs.

This includes our.

Our significantly diversified supply chain and ability to flex our cross production countries, while maintaining our high quality standards.

Partnering with our suppliers to drive efficiencies in our cost of goods and broader supply chain operations.

While the US tariff landscape remains fluid, the assumptions embedded in our original fiscal. 26 Outlook remain broadly consistent with the announced rates as of August 1st based on our current understanding of their application.

And taking selective pricing actions and strategic discount reductions acutely focused on continuing to deliver a compelling value proposition for our customers.

And we will continue to leverage our proven tool kit to actively manage cost inflation headwinds as they emerge.

This includes.

Foreign currency is now expected to benefit gross and operating margins by about 10% and 40 basis points, respectively in fiscal 'twenty six.

ified supply chain and ability to flex across production countries, while maintaining our high quality standards

Partnering with our suppliers to drive efficiencies and our cost of goods in broader supply chain operations,

For the second quarter.

We expect constant currency revenues to increase approximately high single digits.

and taking selective pricing actions and strategic discount. Reductions acutely focused on continuing to deliver a compelling value. Proposition for our customers.

Foreign currency is expected to benefit revenues by approximately 100 to 150 basis points.

We expect second quarter operating margin to expand approximately 120 to 160 basis points in constant currency, largely driven by operating expense leverage and reflecting a more normalized level of marketing investment following last year's Olympics.

Foreign currency is now expected to benefit gross and operating margins by about 10 and 40 basis points, respectively in fiscal 26.

Foreign currency is expected to benefit gross and operating margins by about 10% and 20 basis points, respectively in the second quarter.

We expect our second quarter tax rate to be in the range of 15% to 17% with the lower end of that range, reflecting certain potential discrete tax benefits.

We expect second quarter, operating margin to expand, approximately 120 to 160 basis points. In constant currency, largely driven by operating expense leverage and reflecting a more normalized. Level of marketing investment Following last year's Olympics,

We now expect our full year fiscal 'twenty six tax rate of approximately 19% to 20%.

Foreign currency is expected to benefit gross and operating margins by about 10 and 20 basis points. Respectively, in the second quarter.

And in addition to increasing our annual dividend by about 10% at the start of this year, we repurchased $250 million in shares in the first quarter.

In closing.

We expect our second quarter tax rate to be in the range of 15 to 17% with the lower end of that range reflecting certain potential discrete tax benefits.

Our teams are successfully executing on both our near and long term strategic priorities as we start this new fiscal year.

We now expect a full year. Fiscal, 26 tax rate of approximately 19 to 20%.

Inspired by Ralph's enduring vision consumers everywhere are engaging with our brand in more meaningful ways than ever before all while we remain true to the values that define us.

And in addition to increasing our annual dividend by about 10% at the start of this year. We repurchased 250 million in shares in the first quarter.

In closing.

I'll use like optimism authenticity quality and togetherness that resonate not only here in New York with customers across the world.

Our teams are successfully executing on both our near and long-term strategic priorities. As we start, this new fiscal year.

As we navigate a highly dynamic macro environment, we continue to focus on mitigating industry disruptions through our operating discipline strong balance sheet and organizational agility at.

Inspired by Ralph's enduring vision, consumers everywhere are engaging with our brand in more meaningful ways than ever before.

All while we remain true to the values that Define us.

At the same time, we are leaning into opportunities and staying on offense investing in our brand our products, our experiences and our capabilities to better serve and create lasting connections with our customers.

values like optimism authenticity quality and togetherness that resonate not only here in New York but with customers across the world,

With that let's open up the call for your questions.

as we navigate a highly Dynamic macro environment, we continue to focus on mitigating industry, disruptions through our operating discipline, strong balance, sheet, and organizational agility.

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At the same time, we are leaning into opportunities and staying on offense, investing in our brand, our products, our experiences and our capabilities to better serve and create lasting connections with our customers.

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With that, let's open up the call for your questions.

Ladies and gentlemen, if you wish to ask a question, please press star 1 on your touchtone phone.

One moment please for the first question.

The first question comes from Matt Boss with Jpmorgan.

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Hey, Matt.

We ask that you limit yourself to 1 question per caller. Once again, if you have a question, please press star 1 at this time.

1 moment, please for the first question.

Hey can you hear me.

Good morning.

Okay, great Thanks, and congrats on another great quarter.

The first question comes from, Matt boss with JP Morgan.

So patrice with with your Investor day on tap this fall and I'm sure you'll talk more at that time about the long term strategy, but with the recent strength of the business what have been the largest drivers of upside how much of this do you see as sustainable and what would you need to see to turn more positive on your consumer outlook for the second half of the.

I'm at.

Hey, can you hear me?

Yes, good morning.

Okay, great. Thanks. And congrats on another great quarter.

A year and then Justin how best to think about the drivers of back half gross margin maybe relative to the expansion levers that you saw in the front half of the year.

Good morning, Brad. Thanks. Thanks for your question, so starting with the consumer outlook first as you know we've been shifting our business towards a more elevated full price consumer base.

Uh, so Patrice with with your investor day on tap this fall? I'm I'm sure you'll talk more at that time about the long-term strategy. But with the recent strength of the business, what have been the largest drivers of upside? How much of this do you see as sustainable? And what would you need to see to turn more positive on your consumer outlook for the second half of the year and then Justin

And this has served us well as our core consumer around the world remains resilient and that's true both in Asia across Europe and here in North America.

How best to think about the drivers of back? Half, gross margin, maybe relative to the expansion levers that you saw in the front half of the year.

Second while we are encouraged by our momentum as.

As far as our back half is concerned.

I'd say that were continuing to proceed with caution.

Good morning, Matt, thanks. Thanks for your question. So, starting with the consumer Outlook, uh, first as you know, we've been shifting our business towards a more elevated.

Full price consumer base.

Alright, we need to really see how consumers respond to the start of the fall holiday season.

And what will be an uncertain potentially inflationary environment.

And this is sort of this well as our core consumer around the world remains resilient and that's true both in Asia, across Europe and here in North America.

Regardless, we're staying on offense, we're focusing on what we can control we have the benefit of our diverse drivers of growth that have helped us and enables us to perform through many different environments.

Second, while we are encouraged by our momentum.

Now to the first part of your question on durability of the drivers, but simply these drivers of durable alright first.

Right, we need to really see how consumers respond to the start of the Fall holiday season.

And what will be an unsort and potentially inflationary environment?

The strength of our brands is our ability and value proposition.

Along with the continued high quality recruiting of customers you saw again $1 4 million new customers this past quarter younger higher value customers.

Now regardless we're staying on offense, we're focusing on what we can control. We have the benefit of our diverse drivers of growth that have helped and enabled us to perform through many different environments.

So is the breadth of our lifestyle product portfolio, combining our core categories with our three high potential growth opportunities and again, you've seen strong performance this past quarter across stores and we expect that to continue.

Now, to the first part of your question on the durability of the drivers. Um, simply, these drivers are durable, right?

The strength of our brand is our ability and value proposition.

And then three is our expanding presence across key city ecosystem around the world and there are so many white space opportunities still ahead of us as.

Along with the continued high-quality recruiting of customers, you saw again 1.4 million new customers this past quarter—younger, higher-value customers.

As we stay focused on building these really robust ecosystems.

When you pair these durable drivers with our operation Journal discipline, our agility and.

Who is the breadth of our lifestyle product portfolio, combining our core categories with our 3, high potential growth opportunities. And again, you've seen strong performance this past quarter across those, and we expect that to continue.

And how we are enabling the business with capabilities like data Tech and AI.

We're in a position of strength to deliver for our customers moving forward.

And then 3 is our expanding presence, across key City, ecosystems around the world. And there are so many white, space options, still ahead of us.

So we're going to save the rest for Investor day, but I would say, we're just getting started.

As we stay focused on building these really robust ecosystems.

With a lot of white space still to cover across all of our diversified growth drivers.

when you pair these durable drivers with our operational discipline our agility,

And that on the question on the gross margins on the back half as you said, we've taken up our gross margin guide for the full year from flat previously or slightly up versus Earl Y driven by some really strong year to date performance. So we're now expecting a bit of expansion what that updated outlook continues to imply as the first half.

And how we're enabling the business with capabilities like data, Tech and AI.

We're in a position of strength to deliver for our customers moving forward.

So we're going to save the rest for investor today, but I would say we're just getting started.

With a lot of white space still to cover a cross. All of our Diversified growth drivers.

A strong second half a bit lower due to really the tariffs and the cost inflation pressure or tailwind remained durable rate AUR growth continued promo pullback targeted pricing as we proactively plan for fall favourable product mix elevation channel and Geo mix tailwind.

Habitat cost favorability as well the most meaningful offset is really the incremental cost inflation from the tariffs the big unknown sitting here today is the price sensitivity and how the consumer reacts to the broader pricing environment and how sensitive that consumer and so that's what we're watching.

Very closely as we head into the second half.

Thank you next question please.

Thank you. The next question comes Sanjay so with UBS.

Great. Thank you so much of a two part question first Justin you updated your guidance a little earlier in the fiscal year than we've seen in the past.

Can you walk us through your updated guidance assumptions what changed to drive the increase in does this include any changes in expected tariff impacts and Patrice just wondering if you can dig in a little bit to the handbag business, what you've seen over the last 90 days your conviction that the company can continue to grow strongly in handbags going forward. Thank you.

And that on the uh on the question on the gross margins on the back. So as you saw we we've taken up our gross margin guy for the full year from Flat previously. A slightly up versus lie, driven by some really strong year-to-date performance. So we're now expecting a bit of expansion. What that updated Outlook continues to imply is, the first half is strong second half a bit lower due to really the tariffs and the costs inflation pressure. Our Tailwind remain durable, write any work growth continued promo, call back targeted pricing as we talk, proactively plan for fall capable products. Um, mix elevation Channel and geomix Tailwind, um, and we have the cotton costs favorability as well. The most meaningful offset is really the incremental cost inflation from the tariffs. The bigger known, uh, sitting here today is the, the, the price sensitivity and how the consumer reacts to the broader pricing environment and how sensitive that consumer is. That's where

Watching, very closely as we head into the second half.

Thank you. Next question, please.

Thank you. The next question comes from. Jay soul with UBS.

Yeah sure. Thanks, David So you know.

Overall, we started the year and somewhat unusual macro backdrop with a meaningful level of uncertainty I would say across markets and policy. When we introduced at premium guide back in May and now it's still early in the fiscal year to year and as you mentioned, we typically wait to see how.

Great, thank you so much. I have a 2-part question first. Justin, you updated your guidance. A little earlier in the physical year than we've seen in the past. Can you walk us through your updated guidance assumptions? You know what changed to drive the increase and does this include any changes and expected tariff impacts and Patrice. Just wondering if you can dig in a little bit to the handbag business. What you see on the last 90 days, your conviction that the company can continue to grow strongly in handbags going forward. Thank you.

The fall holiday season starts to play out before we revisit guidance, but our performance. So far has pretty clearly beat the expectations. We shared in may and that gave us the confidence to take up our guidance. So a few related points to call out here.

Yeah sure. Thanks James.

so, you know, overall

First I would say our updated guide reflects our over delivery on Q1 as well as our latest view on Q2 both are.

Our better than we expected back in May and really driven by all three of our regions and based on a continuation of our solid performance trends and on a reported basis foreign currency also becomes a bit of a benefit based on how we're seeing the spot rates play out today.

Second I would say our latest expected tariff outlook, specifically based on the recent announcements through this week is broadly in line with our May guidance. So we continue to actively manage the related pressures leveraging our proven toolkit that report and we were actually able as I mentioned to take up our gross margin outlook slightly based on.

We started the year in in a somewhat unusual, macro backdrop with a meaningful level of uncertainty, I would say across markets and policy. When we introduced that prelim guide back in May and now it's still early in the fiscal year here. And as you mentioned, we typically wait to see how the whole holiday season starts to play out before we revisit guidance. But our performance so far, has pretty clearly beat the expectations we shared in May and that gave us the confidence to to pick up our guide. So, a few related points to call out here. Um, first I would say our updated guide, reflects our over delivery on q1, as well as our latest view on Q2, both are better than we expected back in May and really driven by all 3 of our regions and based on that continuation of our solid performance Trends and other

Our performance to date.

We I would say our view on demand for the back half of the year. We Havent remains unchanged at this point you heard from our prepared remarks, we're still assuming a cautious outlook for the second half based on a number of drivers with interest rates to consumer confidence and in reaction to price inflation as I just thought I'd say there's generally.

Less visibility on the macros as we go into the back half of the year now if this second half scenario doesn't materialize and we see our current momentum continue we know we've got the supply chain in place to chase into demand across all of our regions you saw during the prior years and more recently in the quarter, we just scrap at our plan as we've been.

<unk> is to continue to update the street as the environment that we're operating evolves just given how dynamic things are right now our focus as Patrice mentioned earlier, staying agile staying on offense and declines like these of uncertainty and disruption lead to what we can control and take advantage of opportunities.

Good morning, Jay.

So handbags very exciting category for us as you know one of our three high potential categories, and we'll talk more at Investor day, but the size of the opportunity is very meaningful for us.

We're in the very early stages of development, we have a pretty unique portfolio with a three brand offering between polo Lauren and collection.

ERS from interest rates to consumer confidence and and reaction to price inflation. As I just talked. I'd say there's generally still less visibility on the macros as we go into the back half of the year. Now if this second half scenario doesn't materialize and we see our current momentum continued. We know we've got the supply chain in place to chase into demand across all of our regions. You saw us doing the prior years and more recently in the quarter, we just wrapped and our plan, as we've been talking, is to continue to update the streets as the environment that we're operating evolves just giving how Dynamic things are. Right now our focus is Patrice mentioned earlier, staying agile, staying on offense and through Times Like These of of uncertainty and disruption lean into what we can control and take advantage of opportunities.

We have been able to build some foundational propositions across all three that are really delivering very nice results, including over the past 90 days to your question and we're coupling that with innovation.

Good morning, J. Um, so handbags. Very exciting category for us as, you know, 1 of our 3, high potential categories and we'll talk more in an investor day, but the size of the opportunity is very meaningful for us. And we're in the very, the very early stages of development.

Including the polo play launch that came out recently, which is seeing a very strong initial response and we're excited to see that it's actually coming as designed incremental so Paulo IV, including collection. The route side, which is also getting very strong response, so foundational businesses innovation, that's really kicking in nicely and you can.

We have a pretty unique portfolio with a 3 brand offering between Polo Lauren and collection.

we have been able to build some foundational propositions across all 3 that are really delivering very nice results including over the past 90 days to your question and we're coupling that with innovation

That we will continue to iterate on these platforms as we build a strong long term pillars.

The third thing I would say is I think what's resonating with consumers with these propositions is one they complement the overall lifestyle for the women that we are engaging with and at the end of the day, we are a lifestyle brand.

Second is the value proposition is.

Including the polo play launch that came out recently which is seeing a very strong initial response and we're excited to see that it's actually coming as designed incremental to Polo ID, including collection, the Ralph bag which is also getting a very strong response. So foundational businesses Innovation, that's really taking in nicely and you can expect that we will continue to iterate.

Is really well positioned within the current market and I think we're seeing both across Lauren, particularly on polo and collection. Our positioning is really resonating from a pricing and positioning and the AUR standpoint with consumers and then listen we're still in early stages in terms of building capability for this category.

on these platforms, as we build these strong long-term pillars

The third thing I would say is I think what's resonating with consumers with these? Propositions is 1. They complement the overall lifestyle for the women that we are engaging with. And uh, at the end of the day, we are at Lifestyle brand.

Second is the value proposition.

We have a great design team we have a.

Newest strengthen merchandising team on this business, we're continuing to build muscle and how to engage consumers how to tell stories, how to integrate bags across everything that we do those early innings strong momentum and very promising future for this category great. Thank you next question. Please.

is really well positioned within the current market. And I think we're seeing both across Lauren.

Thank you. The next question comes from Michael Binetti with Evercore ISI.

Hey, guys, let me add my congrats on a nice quarter.

I guess jump ball, but second quarter guidance in a lot better than we had expected.

Particularly on polo and collection, a positioning that's really resonating from a pricing, positioning, and overall standpoint with consumers. And then, listen, we're still in the early stages in terms of building capability for this category. We have a great design team and a new strength in the merchandising team for this business. We're continuing to build muscle in how to engage consumers, how to tell stories, and how to integrate bags across everything that we do.

I know, there's you know, there's a little bit of FX, helping out, but if we just zero in on.

Where we're seeing some of the better momentum in the brand by by Geos or categories and what you were thinking 90 days ago I think it would help and then.

So, as early innings, there's strong momentum and a very promising future for this category. Great. Thank you. Next question, please.

Thank you. The next question comes from Michael Benetti with Evercore ISI.

Just curious how youre looking at Europe. It has been such a nice contributor to the upside over the last year, I guess, a little bit slower here and it sounds like.

Just as you said the guidance. This year is heavily weighted to the first half can you just talk us through kind of the go forward thinking on the growth rates in Europe, and why the expectation is to slow down.

Sure. Thanks for the question Michael when it comes to guidance so.

Solid Q1 results and and I think the momentum that we saw in Q4 really carried in to Q1. When you think about that that sort of what we've seen play out it's really been leading the charge acceleration in digital wholesale growth continuing and the growth has been pretty broad based.

Hey guys, let me add my congrats on a nice quarter. Um I guess jump ball but second quarter guidance, you know, a lot better than we'd expected. Um, glad to see it. I know there's, you know, there's a little bit of FX helping out but if we just zero in on where we're seeing some of the better momentum in the brand by by G's or categories. And what you were thinking, 90 days ago, I think it would help. And then, um, I'm just curious how you're looking at Europe. It's been such a nice contributor to the upside over the last year. I guess a little bit slower here and it sounds like, you know Justin you said the guidance this year is heavily weighted to the first half. Can you just talk us through? Kind of the go forward uh thinking on the on the growth rates in Europe and and and why the expectation is to slow down.

Sure. And thanks for the question Michael. You know, when it comes to guidance, so

Think about that Q2 guide of up high single digits really expect.

DTC to continue to lead the growth in our international momentum to continue from a wholesale perspective continue to expect sell in to roughly aligned to sell out. Although we are cautious on that channel in North America, given the broader macros, but I would say.

From International perspective continued momentum into Q2 from a North America perspective, I think as we move through the quarter one of the things that we're going to see is that broader pricing environment play out in the U S and we'll get a read on that consumer elasticity to the to the price increases.

Solid, q1 results. And, and I think the momentum that we saw on Q4, really carried in, to q1. When you think about that, that sort of what we've seen play out. It's really been BTC. Leading the charge acceleration, digital wholesale growth continuing and the growth has been pretty broad base, think about that Q2 guide of up high single digits.

It does include some increased pressure from cost inflation and pricing as we move through the quarter and against the fall selling or North America, specifically, but we do still expect North America to grow in Q2.

I would say on the EMEA.

So we're really seeing some pretty broad base balanced strength in EMEA. So our Q1 results double digit growth in constant dollar and that really above our expectations across retail and wholesale from a market perspective.

We had growth in Italy, and France, and Spain, and Germany, all of our all of our key markets.

Actually we're growing strong double digit retail comps and balanced so brick and mortar and digital both contributing really strong quality of sales as well so the big discount rate pullback solid AUR growth and wholesale continues to be strong now we did see a bit of a benefit due to the prior year <unk> timing shift.

It's still a really strong underlying trend there in that wholesale business and we're seeing strong both spring seasonal shipments and also reorders. So were elevated in our brand positioning in Europe, we're seeing strong performance really across markets and channels and as we think about the outlook as we move forward.

A word that we expect that momentum to continue into the second quarter and as we get more forcefully into the year. We do expect some pressure in a deceleration based on those timing shifts that I had mentioned in my prepared remarks.

North America specifically, though. We do still expect North America to grow in Q2, I would say on the AMA front. So we're really seeing some pretty broad-based balanced strength in in Amia, so our q1, uh, results, you know, double digit growth in constant dollar and that really above our expectations across retail and wholesale, you know, from a market perspective. You know, we had growth in in Italy, and France, and Spain, and Germany. All of our all of our key markets substantially were growing, strong double digit, retail comps and balance. So brick, and mortar and digital both contributing really strong quality of sales as well. So this big discount rate, pullback, solid Aur growth, and wholesale continues to be strong. Now we did see a bit of a, a benefit due to the prior year. Um Red Sea timing shift but still a really strong underlying Trend there in that wholesale business. And we're seeing strong both Spring Seasonal, shipments and all

Next question please.

Thank you. The next question comes from Dana Telsey with Telsey Advisory group.

Good morning, everyone. So nice to see the progress.

You think about the maintenance a little bit just expanding further in North America. What did you see for price in the outlet channel trends was there a difference in performance and how is the AUR at wholesale and then the acceleration in China is notable anything to call out there and just lastly, as you mentioned second half how.

Also reorders, so where elevated in our brand positioning in in Europe, we're seeing strong performance, really across markets and channels. And as we think about the Outlook, as we move forward, you know, we expect that momentum to continue into the second quarter. And as we get more falsely into the year, we do expect some pressure in a deceleration based on those timing shifts that I mentioned in my prepared remarks.

Next question, please.

Thank you. The next question comes from Dana, tesli with tsy Advisory Group.

Are you thinking about pricing actions and supply chain diversification. Thank you.

Great. Thanks, very much for the question so.

In the first quarter for North America, we saw strength really across both our full price stores and our outlet stores. So strong conflict across both really the momentum we saw in in Q4 that continued into Q1, our full price stores continue to lead our performance.

Good morning, everyone. It's so nice to see the progress when you think about the regions a little bit, just expanding further in North America. What did you see from full price and the outlook channel trends? Was there a difference in performance? And how is the AUR at wholesale? The acceleration in China is notable; anything to call out there? And just lastly, as you mentioned, second half, how are you thinking about pricing actions and supply chain diversification? Thank you.

Again, a couple of things to call out there we saw really strong quality of sales AUR, leading the growth story promotional discounts declining meaningfully to last year and so you see that our elevation strategy really really cutting through in that channel I think from a.

Think about traffic.

And in other retail Kpis higher basket size, I mentioned higher AUR I would say stable traffic trends on the pulp price side I think we saw some traffic pickups and we're seeing both we're seeing our core consumer which was really a full price consumer in both of those channels continue to be <unk>.

Selling and enter choose Ralph Lauren.

And then I think when you think about just the other piece to the North America story is digital which we did see a nice acceleration into into the in the quarter and that's due to some of the interventions. We've made on Ralph Lauren Dotcom, Our U S site, which has picked up traction.

Great. Thanks very much for the question. So, you know, in in the first quarter for North America, we we saw strength really across both our, our full price stores, and our outlet stores. So strong Concepts across both really the momentum. We saw in, in Q4 really continued in to q1 our full price stores, continue to lead our performance. Um, and again, a couple of things to call out there, we saw really strong quality of sales, Aur leading the growth story, promotional discounts declining meaningfully till last year. And so you see that our elevation strategy, you really, really cutting through in that channel. I think from uh, you know, when you think about, uh, traffic uh and and other retail kpis, you know, higher basket size. I mentioned higher Aur. You know, I would say, stable traffic.

So a really strong comp sales growth.

Good morning, Dana on the China front as you know China is one of our key white space expansion.

Priorities moving forward this past quarter, China represented greater China represented 9% of the total company. So we're encouraged by how we're making progress a few years back you will recall, we were closer to 3% to 4%. So good momentum there continue to have major opportunities moving forward. When you look at what drove the plus 30% this past.

Traffic Trends on the full price side. I think we saw some, some traffic pickups. And you know, we're seeing both, we're seeing our our core consumer which is really a full price consumer in both of those channels continue to, uh, to to be resilient and to choose Ralph Lauren. Um, and then I think, when you think about just the other piece to the North American stories digital, which we did see a nice acceleration into into in the quarter and that's due to some of the interventions. We've made on Ralph, lauren.com, our Us site, which has have picked up traction and drove a really strong comp sales growth.

Uh good morning. Dana on the China front. Uh as you know, China is 1 of our key wage space expansion.

Quarter.

It's really the implementation of our strategy across the key pillars and the team on the ground is doing an outstanding job, bringing these choices to life first I would call out on the brand building side.

<unk> heard or saw earlier about the re see ads in fashion show, which generated a lot of energy and momentum in China. We had a really strong 618 activation that was really focused on brand building customer engagement not on sales and volume.

Priorities moving forward uh this past quarter of China, represent the greatest China represented 9% of the total company. So we're encouraged by how we're making progress a few years back. You recall we were closer to the 3 to 4 percent so good. Momentum there. Continue to have major opportunities. Moving forward. When you look at what, drove the plus 30%, this past quarter.

And then the team is also leveraging very nicely the <unk>.

Direct selling life life shopping capabilities. So we're continuing to recruit a large number of new customers younger customers diverse from a gender standpoint on the product front listen our higher value items continue to resonate both the core and our fashion items, but particularly the core.

Uh it's really the implementation of our strategy across the 3 pillars and the team on the ground is doing an outstanding job bringing these choices to life. First I would call out on the brand building side. You heard us talk earlier about the REI hands and fashion show which generated a lot of energy and momentum in China. We had a really strong 618 activation that was really, uh, focused on brand building, customer engagement.

Not on sales and volume.

Uh, and then the team is also leveraging very nicely the douyin.

And then to Jay's earlier question on handbags.

We are seeing very strong response on our polo women's handbags, and particularly public place with the recent launch and very encouraged by that so our product strategy, which is a global strategy is really resonating well in China and then as you know we got the six key city clusters in China that we focus on we stay very deliberate on that.

Direct selling live live shopping capabilities so we're continuing to recruit large number of new customers younger customers, diverse from a gender standpoint on the product front.

We've got continued store expansion there we have very strong Ralph Lauren that CN activation and we're working very well with our pure players. So the combination of these three factors is delivering this continued strong performance in an environment that continues to be challenged for consumers right in general in China, and give us confidence moving forward that there's still a lot of <unk>.

Growth and value creation to be had from this important market and on the pricing features around that your last question I would just say.

Q1, we saw strong AUR growth really driven by product elevation and discount rate reductions. So there wasn't there wasn't a meaningful tower flash pricing impact and there are Q2 AUR guide of up high single does reflect the start of our targeted pricing for fall that we announced proactively before the recent tariff announcements in North America.

2 J's earlier question on the handbags. Um, we are seeing very strong response on, on our polo women's handbags and particularly Polo plate with the recent launch and very encouraged by that. So our product strategy, which is a global strategy is really resonating well in China. And then as you know, we got these 6 key City clusters in China that we focus on. We stay very deliberate on that. We've got continued storage expansion. There, we have very strong rough. Learn about CN activation and we're working very well with our Pure players. So the combination of these 3 factors is delivering this continued strong performance in an environment that continues to be challenged for consumers right in general in China uh and give us confidence moving forward that there's still a lot of growth and value creation to be had from this important market and on the pricing features around that your last question.

Um, I would just

Asia, So you'll start to see that come through but the majority of that Q2 high single digit growth is expected to continue to come from product elevation and promotional pullback discount rate reductions as well as favorable Geo and channel mix and as we think about.

Going going forward heading into the fall season, we are walking away the cost inflation landscape is shaping out.

And we'll continue to refine our pricing and promotional plans as we move forward, but we're continue to be laser focused on is.

Really providing a compelling value proposition to our consumers our AUR growth over the last eight plus years of 100%. It came along with growth in value perception and growth in luxury perception. So we're not going to take our eye off the ball and make sure that consumers feel like they're getting more for more in our total value proposition.

So strong Aur growth, really driven by product elevation and discount rate reduction. So there wasn't a, there wasn't a meaningful tariff, slash pricing impact in their, our Q2 Aur guide of up high, single does reflect the start of our targeted pricing for a fall that we announced proactively, uh, before the recent Tower announcements in North America, and in Asia. So, you'll start to see that come through, but the majority of that Q2 High single digit growth is expected to continue to come from product elevation and promotional callback discount rate reductions as well as capable Geo and channel mix. And as we think about, you know,

Next question. Please thank.

Thank you. The next question comes from Paul Kearney with Barclays Capital.

Hi, good morning, Thanks for taking my question.

Inventory can you comment on how much of the increase in inventory was driven in response to tariffs and is there any color you can provide on inventory by region and what are your expectations through the remainder of the year for those levels to align with sales. Thank you.

Going going forward and heading into the fall season. You know, we're watching the way the cost inflation landscape is shaking out. Um, and we'll continue to refine our pricing and promotional plans, uh, as we move forward, but what we're continue to be laser focused on is, you know, really providing that compelling value. Proposition to our consumers, our Aur growth. You know over the last 8 plus years of 100 plus percent. It came along with growth and value perception and growth in luxury perception. So we're not going to take our eye off the ball and make sure that consumers feel like they're getting more for more in our total value proposition.

Next question, please.

Thank you. The next question comes from Paul Kearney. With barklay capital.

Thanks very much for the question. So we feel good about our inventory levels as we head into the fall season. So we ended Q1 as you know with inventories up 18% versus Q1 of last year. So just to kind of dimensionalize that foreign currency was a five point headwind. So you see the benefit of the weaker dollar on our top line growth and reported but it's also a prep.

Hi, good morning. Thanks for taking my question. Um, on inventory. Can you comment on how much of the increase in inventory was driven in response to tariffs? And is there any color you can provide on inventory by region and what are your expectations through the remainder of the year for those levels to align with sales? Thank you.

<unk> on inventory so that takes us from.

Plus 18 plus 13.

The remainder of the Delta between that 13% and if you think about sort of our Q2 revenue guide of up high single digits relates to the strategic acceleration of largely core inventory receipts into the U S. In Q1 during the tariff <unk>. These are no regrets pull ups of product that extends beyond <unk>.

Ah, thanks very much for the question. So we feel good about our inventory levels as we head into the fall season. So we ended q1 as, you know, with inventory is up 18% versus 21 of last year. So just to kind of dimensional that foreign currency was a 5-point headwind. So we, you know, you see the benefit of the of the weaker Dollar on our Topline growth and reported, but it's also a pressure on inventory. So that takes us from plus 18 to plus 13

And that we're comfortable managing through so if you back out that tariff related strategic pull up our inventory growth is actually a little behind our double digit topline growth for Q1 and right in line with our expected high single digit top line growth for next quarter Q2 and to your point on expectations for the year ago. We.

The remainder of the Delta between that 13%. And if you think about sort of our Q2 Revenue guide of up high single digits,

Expect inventories to moderate as we move throughout the fiscal year and we plan an ending fiscal 2006 with levels generally in line with demand. So yes, we feel our inventories continue to be well positioned we're right, where we want to be as we look to Q2 and the balance of the year.

Next question please.

Thank you. The next question comes from John Kernan with TD Cowen.

Hey, good morning, Thanks for taking my question Congrats on another outstanding quarter.

Thanks, Justin.

Can you quantify the tariff impact on gross margin this year net of the pricing and how we should think about North American segment profitability as we get into the back half of the year.

Relates to the Strategic acceleration of largely core inventory, receipts into the US in q1. During the Tariff, pause period. These are no regrets pull-ups of products that extends Beyond season that were comfortable managing through. So, if you back out that tariff related, strategic pull-up or inventory growth is actually a little behind, our double digit Topline growth for q1 and right in line with our expected high single digit Topline growth for next quarter Q2, and to your point on expectations for the year to go, we expect inventories to moderate as we move throughout the fiscal year and we plan on ending fiscal 26 with levels, generally in line with demand. So yes, we feel our inventory is continuing to be well, positioned where, right where we want to be as we look to Q2 and the balance of the year.

Next question, please.

Thank you. The next question comes from, John Kernan with TD Cowen.

Sure. Thanks, Thanks, Sean So when I think about the gross margin equation for this fiscal year and you think about sort of the the biggest headwinds our AUR growth your promo call back in your targeted pricing.

Hey, good morning. Thanks for taking my question. Congrats on another outstanding quarter.

Thank you, Justin.

Elevation, Chadel NGL favorable mix cost reduction both on the tailwind side and I would say on the on the headwinds side.

Can you quantify the tariff impact on gross margin this year, net of the pricing? And how should we think about North American segment profitability as we get into the back half of the year?

The biggest headwind is in need of tariffs and we our initial guide had gross margin at flat year over year.

Based upon our Q1.

Performance in our latest view on Q2, we felt confident taking up that guide to slightly up year over year. So while tariff remains our biggest pressure point for the fiscal year.

We're confident that we can more than offset that headwind and deliver year over year gross profit expansion. It is first half second half story, because the tariff pressure does ramp up in the in the second half in terms of pressuring profitability. I mean, one thing last fiscal year, you saw us expand profitability across each of our regions.

Certainly that is our general expectation of if you think about this year, we know that the cost inflation crusher will disproportionately impact North America, that's something that obviously, we're managing through but I think the dynamics of our by region.

Profitability contribution.

Will shift a bit towards international when you think about the 40 to 60 bps of expansion that we're calling for this fiscal year.

Thank you and I understood. Thank you.

Thank you. The next question comes from Mike Anderson on behalf of Ashley Hogan with Jefferies.

Based upon our Q1 outperformance in our latest U1 Q2, we felt confident taking up that guidance to a slightly up year-over-year. So, whilst power remains our biggest pressure point for the fiscal year, we're confident that we can more than offset that headwind and deliver year-over-year growth and profit expansion. It is a first half, second half story because the top pressure does ramp up in the second half, you know, in terms of pressuring profitability. I mean, one thing in last fiscal year, you saw us expand profitability across each of our regions. Certainly, that is our general expectation. If you think about this year, we know that the cost inflation pressure will disproportionately impact North America, so that's something that obviously we're managing through. But I think the dynamics of our by region.

Alright, Thanks for taking my question wanted to ask about SG&A. If you could talk about your key investment areas for the rest of the year and as we get into the second half I think perhaps does the guidance imply we should see deleverage in the second half as it stands and if we were to.

Profitability contribution will shift the bit towards international. When you think about the 40 to 60 dips of expansion that we're calling for this fiscal year.

Thank you. Very good. Thank you.

Thank you. The next question comes from

Blake Anderson on the B behalf of Ashley Hawkins with Jeffries.

The upside in revenue.

In the context of what is variable in the SG&A side.

Revenue growth level could we see some SG&A leverage as <unk> seen so far this year. Thank you.

Great. Thank you for the question. So our long term philosophy remains unchanged as it relates to SG&A. So the balance reinvestment in long term growth with delivering on or exceeding our operating margin commitments. So you saw in the first quarter, we delivered SG&A leverage and it really reflects better than expected.

Hi, thanks for taking a question. I wanted to ask about sgna, so if you could talk about your key investment areas for the rest of the year, and as we get into the second half, I think, uh, perhaps does the guidance imply? We should see the leverage in the second half as it stands. And if we were to see upside in Revenue, um, in the context of, you know, what is variable in the sgna side, uh, and what Revenue growth level, uh, could we see some sgna leverage as you've seen so far this year? Thank you.

Sales and that drove some fixed expense leverage in some of our larger cost areas like compensation like rent, we've been we've been making investments in our key city ecosystems in stores in talent for a number of in digital for a number of years and youre starting to see those <unk>.

<unk> scale and even as we drove that leverage in Q1, we invested behind our brand and our business that we invested in market. We saw our Q1 marketing right up 80 bps at seven 5% of sales. It's a little ahead of our long term target supporting our always on cadence of Activations across our region. So.

Great, thank you for the question. So, you know, our long-term philosophy remains unchanged as it relates to sgna, so the balance reinvestment in long-term growth with delivering on or exceeding, our operating margin commitment. So, you saw in the first quarter, we delivered sgna leverage and it really reflects, you know, better than expected sales and and to that drove some fixed expense leverage in some of our larger cost areas like compensation like rent. You know, we've been, we've been making investments in, in our key City ecosystems in new stores in Talent, you know, for a number of in digital for a number of years and, and you're starting to see those Investments.

We continue to balance flowing through profitability with investing behind our brand and our business for longer term sustainable growth we've built up.

The cost optimization expense leverage muscle as we were moving through the course of the last few specifically last year, where while we didn't show a big leverage number at the end of the year. It was really a choice because we over delivered in our gross profit did increase quality of sales and we made a choice to balance that out with purpose.

Scale and even as we drove that leverage in q1, we invested behind our brand and our business, right? We invested in marketing, we saw our, our q1 marketing rate up, 80 dips at 7 and a half percent of sales. It's a little ahead of our long-term Target supporting are always on Cadence of activations across our region. So we continue to balance, you know, flowing through profitability with investing behind our brand and our business for longer term. Sustainable growth. We built up

Paul Reinvestments back into our branded business. So the areas that we're going to be focusing on a pretty consistent with what we've been focusing on and I mentioned a few of them already it's marketing. It's our key city goes it's new stores, we opened up over 20, new stores in the first quarter focused on key cities right. It's our digital capabilities, our next generation transformation.

<unk> project and in those focus areas. When we think about a first half second half cadence certainly the caution we're calling for in the second half specifically, but it's in North America as a pressure point on leverage but we've shown that we can flex expenses thats one of the muscles that we've been.

The cost optimization expense, leverage muscle, as we were moving through the course of of the last few years, specifically, last year where while we didn't show, uh, a big leverage number at the end of the year, it was really a choice because we over-delivered in our gross profit due to increased quality of sales. And we made a choice to balance that out with purposeful reinvestments back into our, our brand and our business. So the areas that we're going to be focusing on are pretty consistent with what we've been focusing on. And I mentioned a few of them already. It's it's it's Market.

This productivity muscle and culture of cost optimization to be able to when things get tough lean on the variability we have in our cost structure. A. Good example is our retail stores as we're opening up retail stores, mostly in international markets, they've got more variable cost structures in general are thinking are.

Concessions, which are pretty prevalent in Asia, and historically, we've shown the ability to flex expenses in challenging times.

It's our key city ecosystem; it's new stores. We opened up over 20 new stores in the first quarter, focusing on key cities, right? It's our digital capabilities, our next generation transformation project, and those focus areas. When we think about a first half, second half cadence, certainly there is caution where we're calling for in the second half, specifically related to North America, which is a pressure point on leverage. But we've shown that we can flex expenses; it's one of the muscles that we've built.

And we'll continue to have that philosophy and pull that lever as we need to as we move through the fiscal year.

Thank you, let's go to the last question. Please Angela.

Thank you our final question comes from Rick Patel with Raymond James.

Does that line unit Angela.

This productivity muscle and culture of cost optimization to be able to, when things get tough, lean on the variability. We have in our course, structure, a good example is our retail stores. You know? As we're opening up retail stores mostly in international markets, they've got more variable cost structures in general thinking like, you know, our concessions, which are are pretty prevalent in Asia. And historically, we've shown the ability to flex expenses and challenging times, um, and we'll continue to have that philosophy and, and, and pull that lever as we need to, as we move through the fiscal year.

Your line is open.

Thank you. Let's go to the last question, please, Angela.

Thank you good morning, and congrats on the progress here I think a big picture question on on the key Idiot protein can you update us on where you are.

Thank you. Our final question comes from Rick Patel with Raymond James.

Really great progress in the city that you've focused on already so just curious about the runway you have to be better there than it and how do we think about the opportunity to move on to a new case key cities over the next few years.

Is that line muted Angela?

Well youre going to have to come at the Lids September two investor day to hear the full story rig, but just to give you. Some perspective today. So we've called out top 30 cities and.

We continue to see opportunities across these very meaningful opportunities London being our most recent example, whereas we kind of mapped out the different segments of the London core in neighborhoods.

Oh, thank you, good morning. Um, thank you guys for all your work in progress here, just a big picture question on, on the key City approach. Can you all see us on where you are? You know, you've made some really great progress in the city that you focused on already. So just curious about the runway, you have to do better there and then then how do we think about the opportunity to to move on to new case key cities over the next few years?

Ah, well, you're going to have to come at this. Mid- sector to investigate.

We identified further opportunities to extend our footprint. So I think you can expect that we will continue to lean in to these top 30 ecosystems.

For many years to come and then we'll talk about when we get together in September how do we think about the next strong and.

And how we want to approach that.

So we'll see in mid September.

Yeah.

Alright with that thank you everyone for joining us today.

Look forward to seeing you at our Investor Day in New York City, and until then take care and have a great day.

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

But, just to give you some perspective today, so we've called out top 30 cities and, you know, we continue to see opportunities across these and very meaningful opportunities. London being our most recent example, where we kind of mapped out the different segments of, of the London, uh, core and, and neighborhoods, uh, we identified further opportunities to expand our footprint. So I think you can expect that we will continue to lean in to these top 30 EC for many years to come. And then we'll talk about when we get together in September, how we think about the next trial and how we want to approach that. Um, so we'll see in mid September.

All right with that. Thank you, everyone, for joining us today. We look forward to seeing you at our investor event in New York City, and until then, take care and have a great day.

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