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Text: Our expectations contain many risks and uncertainties.
Principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings.
We are delivering strong progress on our fiscal '22 plan, with second quarter performance exceeding our expectations across all key financial and consumer engagement metrics.
Our brand elevation strategy, which cuts across our product, marketing and distribution channels, is resonating with consumers in every region.
We're driving these results despite greater-than-expected disruptions in the global supply chain and extended COVID restrictions in key markets like Japan.
And while we continue to face a volatile environment, the work we have done to build a resilient supply chain over the last several years as well as our significant AUR elevation will continue to be competitive advantages as we navigate emerging challenges and mitigate risk.
To give you some context and color, our supply chain is intentionally diversified across multiple markets, a key initiative we started over four years ago.
This allows us to quickly shift production when certain markets are affected by COVID or other issues.
We've created a strategic supplier program whereby we prioritize our partners with a presence across multiple markets, enabling these shifts to happen even more seamlessly.
And we have proven pricing power, elevating our AUR across every channel and geography over the last 4.5 years so that we have room to absorb near-term pressures we've seen in our business, such as tariffs or current inflationary headwinds.
This built-in agility gives us confidence as we continue to navigate a volatile global operating environment ahead.
But I want to be clear that this is not just about our ability to play defense.
Even as macro challenges arise or subside, Ralph Lauren is firmly driving offense to position the company for long-term sustainable growth.
We are leveraging our strong momentum to further accelerate investments across brand building, personalization and new customer recruiting, digital and key markets and categories in the months ahead.
Reflecting on the last quarter, a few key highlights.
First, our overall recovery is outpacing our expectations.
This was led by outperformance in Europe and North America, with Asia in line with our plan and positive to fiscal '20 or LLY despite extended COVID measures as our product assortments resonated strongly with consumers globally.
Second, our digital momentum continues, following our reset work across product, pricing and promotions last year, and our digital operating margins continue to be strongly accretive to our overall company margin rate.
And third, our elevation strategy is translating across all channels, including positive trends in wholesale across regions.
On top of all of this, we made further progress toward our long-term target of mid-teens operating margins, with second quarter margins of 17%, representing the highest Q2 rate since fiscal '13.
And we achieved this even as we continue to reinvest for future growth and plan to increase returns to shareholders over the next several quarters.
Our performance demonstrates our team's strong execution against the five strategic pillars that we outlined at the start of our Next Great Chapter plan.
Let me share a few highlights from the quarter across each one.
First, on our efforts to win over a new generation.
We continue to invest in our brand building initiatives to drive both new customer acquisition and retention in order to fuel long-term growth.
In the second quarter, we further strengthened our brand consideration, purchase intent and Net Promoter Scores globally, while Ralph Lauren brand sentiment also improved across every region.
Some of our key campaigns underpinning these results included: the continuation of our summer sports program with the U.S. Open Tennis Championships here in New York as well as Team USA's victory at the 2021 Ryder Cup in golf.
These came on the heels of our sponsorship of the U.S. Olympic Team in Tokyo earlier in the quarter.
Together, these campaigns generated over 71 billion media impressions in the second quarter as we continue to inspire new generations of athletes and dreamers.
In September, we celebrated the return of fashion's biggest line, the Met Gala.
And what better opportunity to showcase this year's theme of American fashion than with one of the most iconic American brands, Ralph Lauren.
Celebrities and influencers from Jennifer Lopez and Ben Affleck to Chance the Rapper and Lily Aldridge were featured in our designs, driving strong engagement and traffic to our channels.
Ralph's designed of Lilly Collins' wedding dress, some of you will know her as Emily in Paris, garnered worldwide media attention.
And we were excited to announce a new collaboration this quarter with Zepeto, a metaverse or virtual world, where user's avatars can socialize and create content.
This partnership represents the latest frontier in digital engagement in which users can purchase exclusive digital and apparel for their 3D avatars for the first time ever.
Early engagement has outpaced our expectations with 100,000 items already sold in just a few weeks.
In all, we added 1.4 million new consumers to our direct-to-consumer channels alone this quarter, a 19% increase to last year.
And our total social media followers continue to grow, reaching 46.9 million globally led by Instagram.
Moving to our second key initiative, energize core products and accelerate high potential underdeveloped categories.
Ralph and our design teams continue to inspire consumers around the world as they begin to incorporate sophisticated casual styles back into their closets, while still seeking elevated comfort with categories like loungewear.
We are uniquely positioned to capture this evolving hybrid way of dressing given the breadth of our portfolio.
And we're also making strong progress on our high potential categories like outerwear and denim.
During the second quarter, we drove our core sportswear categories along with seasonal styles such as transitional sweaters and fleece as we headed into early fall selling.
On the men's side, we saw strength across bottoms, including denim, active styles and shorts, as well as sweaters and performance fleece.
Though a small part of our business prior to COVID, tailored clothing and dress shirts continued to show sequential improvement.
In women's, we drove outsized performance in sweaters, sweatshirts, mid-layer knits and bottoms.
Outerwear, including transitional quilted jackets, updated blazers and denim jackets, also grew double digits to LLY.
This should bode well for the key outerwear selling period of fall and holiday.
We also launched our new Ralph's Club fragrance globally with a digital-first campaign featuring Luka Sabbat and Gigi Hadid.
This marked our first major fragrance launch in China.
And in its first month, it ranked among the top three men's fragrances in key markets around the globe, including in the U.S. and more than 75% of purchases on ralphlauren.com were made by consumers who are new to the brand.
This takes me to our third key initiative, drive targeted expansion in our regions and channels.
We continued the build-out of our brand-elevating key city ecosystems around the world in the second quarter, with 35 new stores and concessions opening in top cities globally and 13 locations closed.
The majority of these store openings were in Asia and particularly the Chinese Mainland, which continues to represent a significant long-term growth opportunity for our brand.
Despite COVID-related shutdowns in July and August, our Mainland sales were still up more than 25% to last year and more than 70% to LLY in constant currency.
And comp trends rebounded quickly in September once restrictions were lifted.
We opened our second emblematic store experience in China at Shanghai's Kerry Centre this quarter, following our first opening in Beijing this spring.
The emblematic concept provides an example of how we are transforming the retail experience, with digital integration throughout, exciting in-store activations and hospitality features like Ralph's Coffee that are fueling new consumers acquisition.
Early performance is well ahead of our expectations, and these stores are also lifting overall growth trends in their respective omnichannel ecosystems.
Moving to our priority of leading with digital.
Our global digital ecosystem, including our directly operated sites, departmentstore.com, pure players and social commerce, grew approximately 45% in the quarter in constant currency and 50% to LLY.
Our digital momentum continues even as traffic returns to physical stores, driving a benefit to our overall operating margin mix.
This is the result of our continued digital investments focused on content creation, data analytics and AI to serve our consumers through an elevated connected retail experience.
Now touching on our work to operate with discipline to fuel growth.
As I mentioned, our teams continue to operate with agility and focus to mitigate supply chain headwinds, delivering better-than-expected gross and operating margins in the second quarter.
At the same time, we continue to drive expense discipline as we accelerate both near-term and multiyear investments in the back half of the year to fuel long-term growth.
And lastly, on our brand portfolio, we successfully transitioned Chaps from our North America wholesale business to a license model in the second quarter, as previously announced.
This completes our exit from moderate-priced U.S. department stores, enabling our teams to focus on our core namesake brands and elevated positioning in the marketplace.
I also want to take a moment to highlight our ongoing work to integrate citizenship and sustainability into everything we do.
We recently announced the launch of the U.S. Regenerative Cotton Fund in partnership with the Soil Health Institute.
Funded by the Ralph Lauren Corporate Foundation, this program works directly with farmers to transition one million acres of American cotton crop land to regenerative production.
In all, it is set to eliminate one million metric tons of carbon dioxide equivalent from the atmosphere by 2026, both increasing sustainable cotton supply and making important progress in the urgent call to action on climate.
We are proud to share today that this program is being recognized at the COP26 International Meeting on Climate as an innovation spread partner by the Agriculture Innovation Mission for Climate.
In addition, this quarter, we joined the Global Fashion Agenda's Strategic Partner Group to prioritize sustainability and fashion as well as the Ellen MacArthur Foundation as a partner in its mission to create a circular economy for apparel.
And we were also honored to be recognized as one of the 2021 Best Places to Work for People with Disabilities by the Disability Equality Index and as one of the world's best employers of 2021 by Forbes.
In closing, Ralph and I are strongly encouraged by the company's progress through the first half of the fiscal year.
All channels and geographies are showing strong momentum as we build on the healthier foundation we set over the past 18 months.
Our performance, along with the resilience of our supply chain and pricing power in the market give us confidence as we accelerate our investments in the back half to support long-term growth.
Our second quarter results outperformed our expectations with progress across each of our key strategic initiatives, even in the midst of continued COVID and supply chain headwinds around the world.
Performance this quarter was driven by strong top line growth led by our full-price wholesale channels globally and broad-based outperformance in Europe, continued digital momentum across owned and third-party channels, further gross margin expansion on top of last year's COVID mix benefits with double-digit AUR growth and elevated product mix more than offsetting higher freight.
And higher-than-expected operating margins, including cost-savings benefits, improved wholesale margins and favorable channel mix shifts from wholesale and digital.
Second quarter revenues increased 26% to last year with positive growth in every region, led by Europe and North America.
Compared to second quarter fiscal '20 or LLY, revenues declined 12%.
However, this included approximately eight points of negative impact from last year's strategic reset of our distribution and our Chaps business, which moved to a licensed model.
Total digital ecosystem sales grew approximately 45% in constant currency to last year and 50% to LLY, including 35% growth in our own digital business.
Momentum continued across every region, reflecting our strong assortments, expanded connected retail capabilities and high-impact marketing.
Digital margins were also strongly accretive to our second quarter profitability, consistent with last year and about 1,300 basis points higher than LLY.
Total company adjusted gross margin was 67.3% in the second quarter, up 80 basis points to last year on a reported basis and 50 basis points in constant currency despite increased freight headwinds of approximately 150 basis points.
Gross margins were better than expected despite lapping last year's unusual COVID mix benefits, driven by better pricing and promotion, along with favorable product mix and last year's supply chain organization streamlining.
Adjusted gross margins increased 580 basis points to LLY.
Second quarter AUR grew 14% on top of 26% growth last year, with increases across every region.
This represents our 18th consecutive quarter of AUR gains as we continue on our brand elevation journey, and it gives us strong confidence in our sustained pricing power as we mitigate mid to high single-digit product cost inflation starting in the second half of the year.
Adjusted operating expenses increased 17% to last year to $755 million and declined 5% compared to LLY, reflecting our restructuring savings.
The increase to last year was driven by higher marketing and compensation as we lapped last year's furloughs and store closures due to COVID.
Marketing increased 83% to 6.1% of sales in the quarter with a focus on new customer acquisition and long-term brand-building initiatives.
Operating expenses were below our initial plan as we shifted about $25 million of investment into the second half of the year based on COVID disruptions.
In the second half, we will increase marketing and talent investments to support growth this holiday and in customer acquisition to drive longer-term growth.
Adjusted operating margin for the second quarter was 17.1%, up 450 basis points to last year and 220 basis points to LLY.
This was above our guidance of 13% to 14% margin, largely driven by improvements in Europe and North America wholesale.
Excluding the timing shift, operating margin was still well ahead of our plan, above 15%.
Moving to segment performance, starting with North America.
Second quarter revenue increased 30% to last year, supported by strong product assortments, new customer acquisition and market share gains.
Compared to LLY, North America revenues declined 20%, but included a 15-point headwind from our strategic distribution reset and Chaps similar to Q1.
In North America retail, revenues grew 34% to last year.
Comps increased on improved traffic and 23% AUR growth, reflecting our continued elevation around product, marketing and more targeted pricing and promotions.
Brick-and-mortar comps increased 31%, driven by double-digit growth in AUR, basket sizes and traffic.
Although foreign tourist sales improved significantly to last year, they were still down more than 80% to LLY due to continued softness in international travel.
Comps in our owned digital commerce business grew 32% this quarter.
This was driven by a strong product offering, along with high-quality new consumer acquisition and retention of last year's new consumers, resulting in higher full-priced sales.
New consumers increased 12% to last year and more than 50% to LLY.
And retention of the new consumers acquired last year improved meaningfully as we become increasingly effective at targeting and personalization.
In North America wholesale, revenues increased to 23% to last year.
This was ahead of our expectations as the foundational work we completed through COVID to reset our inventories, elevate our product mix, exit lower-tier wholesale doors and significantly reduced off-price penetration is delivering improved top line growth and quality of sales.
Total sellout was up low double digits in the second quarter to LLY led by continued market share gains in men's, kids and home.
Lauren women's continued to stabilize sequentially, including share gains in women's ready-to-wear.
Overall, wholesale AUR growth continues to accelerate, up 30% to LLY as we elevated our assortments and pulled back on seasonal promotions in the channel.
And our momentum on Wholesale Dot Com drove digital sellout growth of more than 45% to both last year and LLY.
All of this is enabled by our healthier brand positioning in wholesale, and we see more to come as we are still in the early stages of driving our brand elevation strategy in this channel.
Moving on to Europe.
Second quarter revenue increased 38% on a reported basis and 36% in constant currency, above our expectations.
Revenue inflected to positive growth on a LLY basis this quarter, with all key markets performing better than planned, led by Germany and France.
The U.K., our largest market in the region and earliest to reopen this spring, also continued to perform better than planned on strong demand.
Europe comps increased 27% in the quarter.
Bricks-and-mortar comps were up 28%, driven by improved traffic, AUR and basket sizes.
Digital commerce comps increased 24% on top of a 26% comp last year when COVID-related closures shifted more business online.
Europe wholesale exceeded our expectations again this quarter, driven by stronger sellout and reorders at both digital wholesale as well as traditional wholesale accounts.
Revenue increased 14% on a reported basis and 13% in constant currency.
Our Asia retail comps increased 7% with 69% growth in digital commerce and 4% growth in bricks-and-mortar stores.
Continued strong momentum in China and Korea this quarter more than offset extended COVID restrictions in Japan, our largest market in the region as well as Australia, Malaysia and Singapore.
In total, COVID-related closures and operating restrictions negatively impacted Asia sales by about 3.5% in the quarter.
And while the Chinese Mainland still grew more than 25% this quarter, our performance was also tempered by COVID lockdowns from late July through August.
On a positive note, Mainland comps rebounded quickly in September once stores reopened.
Japan comps also started to improve toward the end of the quarter with the government lifting all states of emergency following the end of our fiscal Q2.
Our digital ecosystem continued to accelerate in Asia.
Moving on to the balance sheet.
We ended the quarter with $3.1 billion in cash and investments and $1.6 billion in total debt, which compares to $2.4 billion in cash and investments and $1.6 billion in total debt last year.
Net inventory increased 5%, modestly below our plan due to global supply chain delays.
While we expect continued variability of inventory flows, from quarter-to-quarter, we believe our inventories are well positioned across key categories and channels to meet demand for the upcoming holiday and spring '22 seasons.
Overall, we expect to improve our inventory positions as supply chain headwinds subside and plan to end the year with inventories better aligned to sales growth.
As we move into the second half of this fiscal year, we are recommitting to our long-term capital allocation priorities outlined prior to COVID.
This includes, first, reinvesting in our strategic growth priorities, including brand marketing and elevation, digital and expansion of our key city ecosystems to drive long-term sustainable growth.
Second, with peak pandemic closures likely behind us, we are focused on returning 100% of our free cash flow to shareholders in the form of dividends and share repurchases.
We reinstated our dividend in the first quarter, and we expect this to grow in line with durable net income growth.
And we expect to resume our share repurchase program starting in the second half of this fiscal year, with about $580 million remaining under our current share authorization.
Looking ahead, our outlook is based on our best assessment of the current macro environment, including global supply chain challenges and COVID-related disruptions.
We expect the quarterly cadence this year to remain volatile given dynamic conditions across our markets.
For fiscal '22, we are raising our revenue growth to 34% to 36% growth to last year in constant currency on a 53-week basis, excluding approximately $700 million in annualized revenue we reset during the pandemic.
This includes department store exits, off-price and daigou reductions and the licensing and sale of Chaps and Club Monaco.
This implies revenues up high single digits to fiscal '20.
Foreign currency is expected to negatively impact full year revenues by about 20 basis points.
We expect gross margins to expand at the high end of our prior range of 50 to 70 basis points or roughly 450 basis point increase to LLY.
Our outlook improved on more favorable pricing and product mix this year despite increased freight costs, which we now expect to be in the range of 130 to 150 basis points due to our plans to use more air freight to fulfill strong demand in the back half.
As a reminder, we renegotiated our ocean freight rates for the year in Q1.
Raw materials, notably cotton, were purchased roughly a year in advance, resulting in slightly favorable product costs through the first half of fiscal '22.
This is followed by mid to high single-digit estimated cost increases in our second half ending March and through calendar 2022, which we expect to more than offset with continued AUR growth and productivity improvements.
We raised our AUR outlook to high single-digit growth this year, above our long-term annual guidance of low to mid-single digits as we continue our elevation work.
We still expect operating margins of 12% to 12.5%, which compares to 4.8% operating margin last year and 10.3% in fiscal '20.
We continue to expect operating margin rates for the back half of the year to moderate from first half levels based on increased second half marketing investments of approximately 7% to 8% of sales reaching our full year target of at least 6% of sales this year, increased air freight expense in the back half of the year and our assumption of more normalized channel mix compared to last year's COVID disruptions.
For the full year, our increased revenue outlook implies high-teens operating profit dollar growth compared to LLY pre-COVID levels.
For the third quarter, we expect constant currency revenues to increase approximately 14% to 16%.
Foreign currency is expected to negatively impact revenues by about 140 basis points.
While our teams are still actively focused on managing through global supply chain disruptions, we remain confident in our ability to deliver the right product at appropriate levels to meet consumer demand over the holiday selling period.
We expect operating margins of about 13% to 13.5% in the third quarter, roughly in line with last year.
This has seen modest gross margin expansion, largely offset by the timing shift in strategic investments, input cost inflation and mixed headwinds I noted a moment ago.
We now expect the full year tax rate to be about 21% to 22% with a third quarter tax rate of around 22% to 23%.
In closing, our strong first half performance underscores the timelessness of Ralph's creative vision, the power of our brand and our strengthening consumer base.
With these as our foundation, we will leverage our momentum and invest in the key strategic initiatives that will support our long-term growth.
And within a highly dynamic global environment, our teams around the world are executing with agility and playing offense to deliver long-term value creation for all our stakeholders.

user
qtrly global digital ecosystem revenue increased approximately 45% including owned digital commerce growth of 35%.
q2 average unit retail increased 14%.
for fiscal 2022, company now expects constant currency revenues to increase approximately 34% to 36%.
north america revenue in q2 increased 30% to $703 million.
europe revenue in q2 increased 38% to $496 million on a reported basis and increased 36% in constant currency.
asia revenue in q2 increased 14% to $270 million on a reported basis and 13% in constant currency.
2022 gross margin is now expected to increase at high end of previous guidance of 50 to 70 basis points to last year.
inventory at end of q2 of fiscal 2022 was $928 million, up 5% compared to prior year period.
company expects to resume its share repurchase program starting in second half of fiscal 2022.
for q3 fiscal 2022, revenues are expected to increase approximately 14% to 16% in constant currency to last year.
operating margin for q3 is expected in range of 13.0% to 13.5%.
expects to resume its share repurchase program starting in second half of fiscal 2022.

assistant