Q1 2025 Earnings Summary
- Ralph Lauren maintained its full-year guidance on both the top and bottom line, demonstrating confidence in delivering on its plan even in a tougher consumer environment, supported by a durable strategy, a strong timeless brand, diversified growth drivers, and a fortress balance sheet.
- The company expects continued strong gross margin expansion, driven by durable factors such as favorable product mix, expansion of direct-to-consumer channels, and mid-single-digit AUR growth, reinforcing the durability of their brand elevation strategy.
- Strong consumer engagement is evident with Net Promoter Scores up 400 basis points globally and online search growing 25% last quarter, driven by impactful marketing activations, which are increasing brand desirability and supporting sustained growth.
- Continued softness in the North America wholesale channel, with demand down modestly versus last year, and a cautious outlook due to consumer spending headwinds.
- Planned closure of approximately 45 department store doors in North America this fiscal year, and up to 150 door exits in the future, indicating challenges in the wholesale segment and consolidation of physical presence.
- Expectations of incremental pressures from product costs in the second half of fiscal 2025, along with foreign exchange headwinds due to a stronger dollar, which could negatively impact margins and profitability.
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Maintaining Guidance Amid Macro Headwinds
Q: Why maintain full-year guidance despite macro challenges?
A: Despite volatility, RL maintained its full-year guidance, aligning with their 3-year commitments. They remain cautious due to global macro pressures, North America wholesale softness, and product cost pressures in the second half. RL relies on its durable strategy, focusing on its strong brand, diversified growth drivers, clean inventories, and a "fortress balance sheet" to deliver on plans even if the environment worsens. -
Gross Margin Expansion Drivers
Q: What are the remaining opportunities for product margin?
A: RL continues to see strong gross margin expansion, driven by favorable product mix and shifts towards DTC and Asia. They anticipate mid-single-digit AUR growth from product and marketing elevation. RL is recapturing product costs, expecting about 175 basis points of benefit over the next two years, with half this year, weighted to the second half. Potential headwinds include freight costs and FX, but RL feels well-positioned with durable gross margin drivers. -
North America Wholesale Trends
Q: How is North America wholesale expected to perform?
A: RL anticipates North America wholesale to stabilize, with sell-in aligning more closely with sell-out trends of down low single digits as the year progresses. Q1 wholesale revenue was pressured by shipment timing shifts and reduced off-price sales. RL is focusing on top doors, digital channels, and clean inventories while continuing to prune lower-tier doors, expecting to close 45 this fiscal year and about 40 per year thereafter. -
Consumer Price Sensitivity
Q: Is there increased price sensitivity among customers?
A: RL's full-price business is performing well, with resilient core customers and strong growth in full-price stores. While the value-oriented consumer segment remains pressured, RL employs targeted strategies to engage them without sacrificing quality of sales. AUR increased across all regions, indicating customers continue to perceive value in RL's offerings. -
Performance and Sustainability in Europe
Q: How sustainable are European trends amid macro caution?
A: RL is encouraged by strong consumer demand in Europe, with sales growth in all markets except the UK and a strong DTC comp. Despite a promotional environment, RL reduced promotions, improving quality of sales. Domestic demand drives the business, with tourism as a tailwind. While cautious about the macro environment, RL continues to forecast growth in Europe. -
SG&A Leverage Expectations
Q: What drives SG&A leverage in the back half?
A: RL's fiscal 2025 guidance implies about 20 basis points of SG&A leverage, weighted to the second half due to the timing of marketing activations and scaling of key investments. Marketing rates are higher in the first half due to major events but are expected to decrease later. RL plans to balance profitability contributions between gross margin expansion and SG&A leverage, continuing beyond fiscal 2025. -
Digital Growth and DTC Strategies
Q: Outlook for DTC, digital vs. brick-and-mortar?
A: Growing the digital business is a key priority. RL expects balanced DTC growth between stores and digital. In Q1, global digital sales grew, led by international markets. North America owned digital comps were down 4% due to softer traffic, but RL is investing in digital commerce and technology to improve performance, expecting improvement notably in the second half. -
Growth in High Potential Categories
Q: Progress and outlook in women's apparel, outerwear, handbags?
A: RL is excited about these categories, which outpaced total company growth. Women's apparel saw double-digit growth and market share gains, driven by core products. Outerwear continues strong performance, expanding beyond fall and winter. Handbags show momentum, especially with the Polo ID collection recognized by celebrities like Jennifer Lawrence. RL expects these categories to consistently outperform the company's overall trend. -
Retail Channel Performance
Q: How did outlet stores perform vs. full-price?
A: RL's full-price stores were standouts globally, driven by traffic and strong growth. Outlet comps were stable with AUR growth and consistent conversion trends. In North America, outlet growth was consistent after adjusting for Easter timing shifts. RL expects continuation of these trends but anticipates some pressure in Q3 due to a shorter holiday selling window.
Research analysts covering RALPH LAUREN.