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    Ralph Lauren Corp (RL)

    Business Description

    Ralph Lauren Corporation (RLC) is a global leader in the design, marketing, and distribution of luxury lifestyle products, including apparel, footwear & accessories, home, fragrances, and hospitality . The company operates through three primary geographic segments: North America, Europe, and Asia, with additional non-reportable segments primarily consisting of royalty revenues from global licensing alliances . RLC's diversified business model spans retail, wholesale, and licensing channels, enabling a dynamic balance across different areas and channels .

    1. Apparel - Offers a wide range of luxury clothing for men, women, and children, emphasizing timeless style and quality.
    2. Footwear & Accessories - Provides a variety of high-end shoes, bags, belts, and other fashion accessories that complement the apparel line.
    3. Home - Designs and markets luxury home products, including bedding, bath items, and home décor, reflecting the brand's signature style.
    4. Fragrances - Develops and sells a collection of premium perfumes and colognes under the Ralph Lauren brand.
    5. Hospitality - Engages in the hospitality sector, offering experiences that embody the brand's luxury lifestyle ethos.

    Q2 2025 Summary

    Initial Price$181.85June 26, 2024
    Final Price$197.61September 26, 2024
    Price Change$15.76
    % Change+8.67%

    What went well

    • Ralph Lauren is experiencing strong international growth, particularly in key markets like China and Europe, driven by its unique, timeless brand and strategic marketing activations such as the Olympics, Wimbledon, and an incredible fashion show in the Hamptons. This has led to momentum across all regions, with double-digit growth in core products and a 6% comp increase in North America.
    • The company demonstrates robust pricing power and margin expansion, supported by consumers gravitating towards higher-end assortments and strategic changes in geographic and channel mix. Ralph Lauren has increased its operating margin expansion guidance to 110 to 130 basis points, is on track for a 15% operating margin by fiscal '25, and believes 15% is not a ceiling.
    • There is consistent, strong performance in both core products, which represent over 70% of the business and were up low double digits, and high-potential categories like women's apparel, outerwear, and handbags, which increased mid-teens, significantly outpacing total company growth, indicating broad-based momentum globally.

    What went wrong

    • North America wholesale revenue declined by low single digits, and this trend is expected to continue in the back half of the year. The company anticipates stabilization at this level, indicating potential ongoing weakness in this segment.
    • Maintaining pricing power may become challenging in a less favorable pricing environment. The company acknowledges relying less on like-for-like pricing increases in the near term and may need to adjust pricing strategies in a more competitive market.
    • The company's growth depends significantly on international markets, particularly China, where there are geopolitical and macroeconomic uncertainties. This reliance could pose risks to sustained growth.

    Q&A Summary

    1. Margin Outlook
      Q: What are your multiyear margin drivers?
      A: We raised our operating margin guidance to 110 to 130 basis points up this year, firmly on track for our fiscal '25 target of 15%, which is not a ceiling. We'll continue driving margin expansion through modest gross margin growth and expense leverage while strategically investing for long-term growth. We may reinvest upside into marketing and will focus on our brand elevation strategy beyond fiscal '25.

    2. International Growth Sustainability
      Q: What sustains your strong growth in Europe and China?
      A: Our performance in key international markets is strong due to our unique, timeless brand, resonating products, and proven elevated go-to-market strategy. Our core products, which are 70% of our business, were up double digits this quarter. We're investing in brand activations globally and are confident in maintaining our momentum across all key cities and regions.

    3. Pricing Power
      Q: Can you maintain pricing power ahead?
      A: Our brand investments over the last 7+ years have strengthened our pricing power. We planned mid-single-digit AUR growth this year and expect durable drivers like product elevation, strategic geo and channel mix, and high-value customer acquisition to support gross margin expansion, even in a potentially less favorable pricing environment.

    4. China Outlook
      Q: What's your outlook and expansion plans for China?
      A: We feel very good about our momentum in China, achieving growth for 17 consecutive quarters, including 13% this past quarter. China represents about 8% of our total company. We're opening about 70 stores in Asia this year, including several in China, being highly selective to build the brand for the next 5 to 15 years amid a volatile environment.

    5. Europe Store Expansion
      Q: How are you expanding stores in Europe?
      A: With Europe comps up 15%, we see significant opportunities for expansion. We've opened 44 new stores since fiscal '22, planning about 20 stores this fiscal year, and are on track to open 40 to 50 full-price stores per our Investor Day targets. We're selective in locations, focusing on key cities and enhancing consumer engagement.

    6. U.S. Wholesale Outlook
      Q: Can U.S. wholesale turn positive this year?
      A: We're encouraged as sell-out and sell-in aligned at down low single digits in Q2. We see positive signs with upper-tier distribution and digital channels outperforming. We expect stabilization at down low single digits in the back half and are cautiously optimistic about wholesale performance.

    7. SG&A Leverage Timing
      Q: When will SG&A start to leverage?
      A: Our guidance implies SG&A leverage this fiscal year. Excluding marketing, SG&A was flat on 6% revenue growth in Q2. We're strategically investing behind our brand but expect to deliver SG&A leverage for the full year by controlling expenses while reinvesting in growth opportunities.

    8. Promotional Strategy
      Q: What's your plan for pricing and promotions?
      A: Globally, we've reduced promotional activity, contributing to a 10% increase in AUR this quarter. In North America, we're pulling back on promotions, focusing on driving consumer engagement and demonstrating the value of our products. We'll remain nimble but plan to continue this elevation strategy.

    9. Tariffs and Sourcing
      Q: What's your exposure to China tariffs and sourcing?
      A: China accounts for about high single-digit percentage of our globally sourced units, similar to our China sales penetration. Over the past 7+ years, we've significantly diversified our sourcing footprint, developing alternative production and near-shoring capabilities to mitigate potential risks from tariffs.

    10. Comp Sales Performance
      Q: How did comps perform in North America and Europe?
      A: In North America, brick-and-mortar comps were up high single digits, with full-price stores leading and outlets accelerating due to strong traffic. In Europe, we saw healthy growth across key markets, with DTC at the higher end and wholesale at the lower end of our guidance. We remain cautiously optimistic about continued strength despite a dynamic environment.

    Key Metrics

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    Executive Team

    NamePositionStart DateShort Bio
    Ralph LaurenExecutive Chairman and Chief Creative Officer1967Ralph Lauren is the founder of Ralph Lauren Corporation, having established the business in 1967. He has been a director since before its IPO in 1997. He served as Chairman and CEO until November 2015, transitioning to his current roles. His leadership has been key in defining the company's image and direction .
    Patrice LouvetPresident and Chief Executive OfficerJuly 2017Patrice Louvet has served as the President and CEO since July 2017. Previously, he was Group President, Global Beauty, at Procter & Gamble Co. He has held various senior leadership positions at P&G and has a background as a Naval Officer in the French Navy .
    Jane Hamilton NielsenChief Operating Officer (until March 29, 2025)March 2019Jane Hamilton Nielsen has been the COO since March 2019. She was also the CFO from September 2016 until May 23, 2024. Her tenure at Ralph Lauren will conclude on March 29, 2025 . Prior to Ralph Lauren, she was the CFO of Coach, Inc. and held senior financial roles at PepsiCo .
    Justin PicicciChief Financial OfficerMay 23, 2024Justin Picicci was appointed CFO effective May 23, 2024. He has nearly 20 years of experience at Ralph Lauren, serving in various senior finance roles globally. His transition into the CFO role was part of a leadership change announced on the same date .
    David LaurenChief Branding and Innovation Officer, Strategic Advisor to the CEOApril 2022David Lauren has been in his current role since April 2022. He was previously the Chief Innovation Officer and has been a director since August 2013. He joined Ralph Lauren in 2000 and has held numerous leadership roles, focusing on advertising, marketing, and technology initiatives .
    Halide AlagözChief Product OfficerMarch 2021Halide Alagöz has been the Chief Product Officer since March 2021. She joined Ralph Lauren as the Corporate Senior Vice President of Global Manufacturing and Sourcing in 2016. Before Ralph Lauren, she worked at H&M Corporation for 18 years, most recently as the Head of Purchasing in Hong Kong .

    Questions to Ask Management

    1. Given the recent growth in AUR (Average Unit Retail) and your comments on pricing power, how confident are you in maintaining this pricing strategy amid a potentially less favorable pricing environment, and what risks do you foresee if consumer demand weakens?

    2. Could you elaborate on the specific steps you're taking to navigate the ongoing volatility in the China market, including geopolitical and macroeconomic uncertainties, and how these factors might affect your long-term growth ambitions in the region?

    3. With North America returning to growth and plans to open new full-price stores, how are you balancing expansion with the risks of over-saturation or changing consumer behavior in the U.S., and what metrics are you monitoring to ensure prudent store growth?

    4. Despite strong international performance, particularly in Europe, how sustainable is this growth given the dynamic operating environment and potential headwinds in wholesale channels, and what strategies are in place to mitigate risks from shifting consumer trends or economic conditions?

    5. Operating margins have been expanding, but considering the ongoing investments in brand elevation and increased marketing spend, what is your outlook on margin expansion in the coming years, and how might rising costs impact this trajectory?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateFebruary 2, 2022
    End Date/DurationN/A
    Total additional amount$1.500 billion
    Remaining authorization amount$502 million as of September 28, 2024
    DetailsThe program allows the repurchase of up to an additional $1.500 billion of Class A common stock, excluding related excise taxes. The purpose is to return value to shareholders, manage capital structure, and potentially improve financial metrics.

    Past Guidance

    Q2 2025 Earnings Call

    • Issued Period: Q2 2025
    • Guided Period: FY 2025, Q3 2025, Q4 2025
    • Guidance:
      1. Revenue Growth: FY 2025 constant currency revenues expected to increase by 3% to 4%; Q3 2025 revenues expected to increase by 3% to 4% in constant currency .
      2. Operating Margin: Expected to expand by 110 to 130 basis points, reaching 13.6% to 13.8% .
      3. Gross Margin: Expected to expand by 80 to 120 basis points .
      4. Foreign Currency Impact: Negative impact on FY 2025 revenue growth by 40 to 60 basis points; Q3 2025 benefit by 10 to 50 basis points .
      5. Tax Rate: FY 2025 tax rate expected to be 22% to 23%; Q3 2025 rate around 22% .
      6. Capital Expenditures (CapEx): Expected to be $250 million to $300 million for FY 2025 .
      7. Marketing Expenses: Expected to be about 7% of sales for FY 2025 .
      8. Adjusted Operating Expenses: Grew 7% to 55.5% of sales .
      9. Average Unit Retail (AUR) Growth: Expected to grow mid-single digits in the second half of FY 2025 .
      10. Inventory: Expected to align with revenue growth by the end of FY 2025 .

    Q1 2025 Earnings Call

    • Issued Period: Q1 2025
    • Guided Period: FY 2025
    • Guidance:
      1. Revenue Growth: FY 2025 constant currency revenues expected to increase 2% to 3%; Q2 2025 revenues expected to increase 3% to 4% .
      2. Operating Margin: FY 2025 expected to expand 100 to 120 basis points to 13.5% to 13.7%; Q2 2025 expected to expand 80 to 120 basis points .
      3. Gross Margin: FY 2025 expected to expand 50 to 100 basis points; Q2 2025 expected to expand 110 to 130 basis points .
      4. Tax Rate: FY 2025 expected to be 22% to 23%; Q2 2025 expected to be 21% to 22% .
      5. Foreign Currency Impact: FY 2025 negative impact on revenue by 150 basis points; margins by 40 basis points .
      6. Marketing Investments: Expected to grow faster in the first half of FY 2025 .
      7. North America Wholesale: Declines expected to moderate through FY 2025 .
      8. Cotton Costs: Expected to recapture half of the 175 basis points benefit in FY 2025 .

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: FY 2025
    • Guidance:
      1. Revenue Growth: FY 2025 constant currency revenues expected to increase 2% to 3% .
      2. Operating Margin: Expected to expand 100 to 120 basis points to 13.5% to 13.7% .
      3. Gross Margin: Expected to expand 50 to 100 basis points .
      4. Foreign Currency Impact: Negative impact on revenue by 90 basis points; margins by 30 basis points .
      5. Tax Rate: Expected to be 23% to 24% .
      6. Capital Expenditures: Expected to be $300 million to $325 million .
      7. DTC Growth: Expected to lead growth .
      8. Wholesale Channel: Declines expected to moderate .
      9. SG&A Leverage: Implies 30 basis points of leverage on 3% growth .
      10. First Quarter Specifics: Revenues up slightly; operating margin expands 60 to 80 basis points; gross margin expands 140 to 180 basis points; foreign currency negative impact 40 basis points .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024, Q4 2024
    • Guidance:
      1. Operating Margin: Q4 2024 expected to expand 350 to 400 basis points; full-year neutral impact from foreign currency .
      2. Tax Rate: FY 2024 expected to be 19% to 20%; Q4 2024 22% to 23% .
      3. Capital Expenditures: Expected to be $200 million to $225 million .
      4. Revenue Growth: FY 2024 expected to increase 2%; Q4 2024 expected to increase 2% .
      5. Foreign Currency Impact: Q4 2024 negative impact 160 basis points; full-year benefit 10 basis points .
      6. Gross Margin Expansion: Expected 140 to 180 basis points for FY 2024 .
      7. Marketing Expenses: Expected to be 7% of sales .
      8. Inventory Levels: Expected to end FY 2024 below prior year levels .
      9. Fourth Quarter Regional Expectations: North America improvement; Europe impacted by timing; Asia growth expected .