Ralph Lauren Corporation Q1 2024 Earnings Conference Call Insights

Key highlights from Ralph Lauren Corporation (RL) Q1 2024 Earnings Concall

Management Update:

• [00:23:50] RL said China is one of its fastest-growing markets, and the company is seeing strong growth in the 618 shopping festival.

• [00:28:43] RL’s Revenue growth is expected to be stronger in the second half of the year, driven by merchandising actions, marketing activations for fall holiday, and investments in the company’s key strategic initiative.

Q&A Highlights:

• [00:31:26] Matt Boss with J.P. Morgan asked if RL still believes it can achieve its long-term top-line growth and mid-teens operating margins next year, despite the recent underperformance in North America. Patrice Louvet CEO replied that RL is confident that the company’s strategy will help it overcome the near-term challenges in North America and deliver long-term growth.

• [00:35:23] Jay Sole at UBS enquired what changes over the last 90 days have given confidence that high-potential categories can be meaningful revenue growth drivers for RL over the next year or so. Patrice Louvet CEO replied that RL has seen continued strength in high-potential categories, including outerwear, women’s clothing with handbags, and home, with women’s clothing being the standout category due to good  momentum across all brands within the portfolio, positioning the company well for significant growth opportunities in the years to come.

• [00:38:49] Laurent Vasilescu with BNP Paribas enquired about the marketing spend for 1Q and how RL thinks about the two key marketing spends, given a shift with the fashion show. Jane Nielsen CFO said RL will increase its marketing spend to 8% of sales in 2Q, representing its peak marketing dollar growth, but its highest dollar spend in marketing will still be in 3Q, aligned with the holiday quarter.

• [00:38:57] Laurent Vasilescu of BNP Paribas also enquired what’s driving the increase in RL’s gross margin guidance for the full year, given that commodity and freight costs are still expected to be high? Jane Nielsen CFO replied that RL is confident in its GM guidance, with freight benefits offsetting the impact of cotton and AUR growth expected to continue, although it will moderate as the need for like-for-like pricing due to inflation also moderates.

• [00:43:47] Dana Telsey from Telsey asked about the differences between the value consumer and the higher-end consumer in driving AUR growth globally, across North America, Europe, and Asia. Patrice Louvet CEO answered that RL is pleased with how its core consumer is responding to its product offering and AUR expansion. RL is seeing pressure on basic categories due to price sensitivity, but overall, the company is confident in its ability to continue driving AUR and enhancing its value.

• [00:47:51] Chris Nardone with Bank of America enquired how the level of promotional activity in the North America retail business for the upcoming holiday season compares to last year, and whether there will be sequential improvement in top-line starting in 2Q. Jane Nielsen CFO answered that RL is planning to be more strategic with its promotional activity in North America, in order to appeal to value-oriented consumers. The company expects North America revenues to increase in 2H, driven by key interventions such as outlet interventions, digital ecosystem investments, and brand moments.

• [00:50:47] Bob Drbul at Guggenheim asked about new customer acquisitions domestically and internationally and how it will unfold in next few quarters. Jane Nielsen CFO said that the company is pleased with the engagement of 1.2 million new consumers in 1Q, attributing it to investments in the brand and personalized communication using AI and elasticity models. RL considers this an important part of its AUR and revenue growth journey.

• [00:54:16] Tracy Kogan from Citigroup asked about the drivers of growth in the women’s business and the growth of the Lauren brand versus the Polo product. Patrice Louvet CEO replied that women’s portfolio is performing well due to its product offering, which resonates with consumers, and its elevation work, which is moving the product line upmarket. Polo women’s significantly outpaced both RL’s total growth and led the company’s women’s growth with high-single-digits.

• [00:54:29] Tracy Kogan with Citigroup also enquired about the expected wholesale AUR for the year and whether there has been any push-back from wholesale partners on price increases in the U.S., given that the U.S. wholesale AUR was up 11%.

• [00:58:10] John Kernan of TD Cowen asked how one should think about inventory levels and when meaningful declines will be seen from elevated levels last year. Jane Nielsen CFO said that the company expects inventory levels to decline as the year progresses, and the company is confident that it will be agile with demand variability.