Q2 2025 Earnings Summary
- 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.
- 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.
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Operating Margin | Q2 2025 | Expand by ~80 to 120 bps year-over-year | 10.36% vs. 10.07% in Q2 2024 ⇒ +29 bps (Operating Income: 178.9, Revenue: 1,726.0Vs. 164.5, 1,633.0) | Missed |
Gross Margin | Q2 2025 | Expand by ~110 to 130 bps year-over-year | 67.0% vs. 65.5% in Q2 2024 ⇒ +146 bps (Revenue: 1,726.0, COGS: 570.3Vs. 1,633.0, 562.9) | Beat |
Tax Rate | Q2 2025 | 21% to 22% | ~11.7% effective rate (derived from Net Income: 147.9, Operating Income: 178.9, Interest: 11.4) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
North American Wholesale | Consistent negative trend in Q1 (-13% ), Q4 (-2% ), Q3 (-15% ); recent quarters show marginal easing. | Declined 3%, in line with expectations; sell-in aligned with sellout; slight optimism in key distribution. | Slight improvement but still negative |
Strong International Growth in Europe & China | Q1 saw comps up +8% in Europe, low double digits in China ; Q4 had strong Europe retail (up 12%), China +30% FY growth ; Q3 saw Europe +6%, China +30%. | Europe: mid-single-digit wholesale and +15% retail comps; China: low teens revenue growth driven by new customer acquisition. | Continues to be a major source of top-line expansion |
DTC Channels | Consistently cited as a key driver in Q1, Q4, Q3 with higher margins and strong brand expression. | DTC led overall revenue growth; 25 new stores opened globally, emphasis on full-price sales and digital ecosystem. | Ongoing priority for driving margin and brand control |
Brand Elevation, Higher AUR, Margin | Q1: AUR +6% , Q4: 28 consecutive quarters of AUR gains , Q3: AUR +9%. | AUR up 10%, gross margin +170bps to 67.1%, reflecting premium positioning and reduced discounting. | Continued focus on premium offering and margin improvement |
Macroeconomic & Geopolitical Headwinds | Q1, Q4, Q3 all note volatile FX, supply chain constraints, and global uncertainties. | Emphasized inflation and consumer pressures; monitoring supply chain and FX volatility; cautious view on China’s macro environment. | Sustained caution amid ongoing market volatility |
Engagement with Younger Consumers | Q1: 1.3 million new buyers under 35 ; Q4: strong traction among younger demographics ; Q3: 1.7 million new mostly younger customers. | Added 1.5 million new DTC customers, skews younger, high-value cohorts. | Remains a key focus; consistently positive indicators |
High-Potential Categories | Q1: Continued growth in women’s, outerwear, handbags, home goods ; Q4: women’s + outerwear + home, handbags minimally mentioned ; Q3: all four cited as growth drivers. | Women’s, outerwear, handbags highlighted; home goods not mentioned in Q2 2025. | Home goods less emphasized; others remain growth drivers |
Marketing Partnerships (Olympics, Wimbledon) | Introduced in Q1 2025 (Olympics and Wimbledon campaigns ); not discussed in Q4 or Q3. | Paris Olympics (Team USA outfitter) and Wimbledon sponsorship showcased global visibility and brand elevation. | A newer marketing highlight, enhancing global brand perception |
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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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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.