Release Date: May 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ralph Lauren Corp (RL, Financial) delivered 3% top line growth and 40 basis points of operating margin expansion for the full year, driving more than 20% adjusted EPS growth.
- The company added over 5 million new consumers to its direct-to-consumer (DTC) businesses, with significant growth in brand consideration, purchase intent, and Net Promoter Scores.
- Ralph Lauren Corp (RL) saw strong performance in its core products, which now represent more than 70% of its business, growing high single digits for the full year.
- The company achieved significant social media engagement, growing its followers by low double digits to over 58 million, led by platforms like Instagram, LINE, Douyin, and TikTok.
- Ralph Lauren Corp (RL) reported strong DTC comp growth, with mid-single digits increases in both brick-and-mortar stores and digital channels, and opened 78 new stores and concessions globally.
Negative Points
- The global environment remains challenging, with competitors calling out difficulties in Europe and China, which could impact Ralph Lauren Corp (RL)'s future performance.
- North America wholesale revenues declined 2%, and the company expects continued declines in this channel, albeit at a more moderate pace.
- The company faces potential headwinds from inflationary pressures, consumer spending-related challenges, supply chain disruptions, and foreign currency volatility.
- Ralph Lauren Corp (RL) anticipates a modest headwind from the Red Sea disruption on top of an otherwise neutral freight environment, which could impact gross margins.
- The company expects higher operating expenses in the first quarter due to the timing of marketing activations, which may lead to some SG&A deleverage.
Q & A Highlights
Q: You delivered on your fiscal '24 targets and your guidance is calling for continued top line growth and operating margin expansion for fiscal '25, which will land you at your 3-year targets. Can you talk about what you are seeing in the business that will enable this continued momentum?
A: Patrice Jean Louis Louvet, President, CEO & Director: Fiscal '24 was a strong proof point that our strategy continues to deliver even with the continued macro and channel headwinds. Key areas of strength include driving continued momentum in our brand elevation, pivoting to direct-to-consumer (DTC) channels, and leveraging multiple drivers of growth from a regional standpoint. We expect DTC to lead growth again in fiscal '25 with healthy increases across both brick-and-mortar and digital channels.
Q: How are you thinking about direct-to-consumer (DTC) channel growth for fiscal '25 versus wholesale channel growth?
A: Jane Hamilton Nielsen, CFO & COO: We are optimistic about our DTC growth, expecting mid-single-digit growth. For North America wholesale, we expect declines to moderate from fiscal '24 levels, aligning more closely to sellout trends. In Europe, we anticipate low single-digit growth in wholesale, despite some quarterly volatility due to shipment timing.
Q: Can you dig a little deeper into your outlook for North America this year, especially outside of wholesale?
A: Jane Hamilton Nielsen, CFO & COO: We expect DTC to continue to lead North America growth with healthy comps across stores and digital, plus a handful of new store openings. On the wholesale side, while we still expect declines, we anticipate a meaningful improvement from fiscal '24 levels. We are also expecting benefits from lower cotton costs and less channel mix pressure from wholesale to drive North America operating margin.
Q: How are you thinking about Average Unit Retail (AUR) growth going forward?
A: Jane Hamilton Nielsen, CFO & COO: We expect AUR growth to continue in the mid-single-digit range, driven by brand mix, channel mix, and geographic mix. We will have some pressure release from not having to take as much like-for-like pricing due to the cotton benefit and productivity benefits.
Q: Given your multiyear elevation effort, where do you see the brand positioned today versus your ultimate goal in both the U.S. and Europe?
A: Patrice Jean Louis Louvet, President, CEO & Director: We feel really good about the progress on brand positioning and elevation. Our core strategy of brand elevation has significant runway ahead. We are seeing strong brand consideration, purchase intent, and Net Promoter Scores. Our new consumer recruiting machine is working well, especially among younger consumers.
Q: How best to think about SG&A relative to revenue growth moving forward?
A: Jane Hamilton Nielsen, CFO & COO: Our fiscal '25 guidance implies about 30 basis points of SG&A leverage on approximately 3% constant currency top line growth. We expect SG&A growth to be behind revenue growth following Q1, with some deleverage in Q1 due to the timing of marketing activations.
Q: How do we think about AUR versus units in the North America wholesale channel?
A: Jane Hamilton Nielsen, CFO & COO: We expect wholesale AUR growth to continue, which will have some pressure on units. However, we feel good about the product mix and our focus on top 100 doors. We expect a meaningful uptick in North America wholesale, although not positive.
Q: How do we think about gross margins with the first quarter up 140 to 180 bps and the rest of the year 50 to 100 bps?
A: Jane Hamilton Nielsen, CFO & COO: Gross margin expansion will be driven by lower cotton costs, favorable channel and geographic mix, and continued AUR growth. We expect some headwinds from incremental Red Sea pressures, FX, and higher labor costs.
Q: What traction are you seeing with younger consumers?
A: Patrice Jean Louis Louvet, President, CEO & Director: Younger consumers are leading our new consumer recruiting. Our targeted marketing activations, including gaming and celebrity endorsements, are resonating well. Our Net Promoter Scores are growing the fastest among younger consumers.
Q: How do we think about DTC and wholesale in Europe given the tough macro environment?
A: Patrice Jean Louis Louvet, President, CEO & Director: We expect the share of DTC to continue to expand in Europe. Our flagship stores are hitting record highs, and we have plans for footprint expansion. On the wholesale side, we have seen recent strength with pure players and have done some resets in Spain and the U.K. We remain cautiously optimistic about the region.
Q: How do we think about marketing as a percentage of sales for the year?
A: Jane Hamilton Nielsen, CFO & COO: For fiscal '25, marketing expense will be up double digits in Q1 due to the fashion show. For the rest of the year, marketing as a percentage of sales will be similar to fiscal '24, with a bit more growth in Q2 due to the Olympics.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
