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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.
As we close out this fiscal year, Ralph and I are proud and inspired by the way our teams have navigated through the pandemic.
They have demonstrated their resilience, agility and ongoing passion for our brand and our consumers in a year unlike any other.
Their commitment and execution shined through in our better-than-expected fourth quarter results.
Against the volatile backdrop of the past year, we took action that has enabled us to emerge from this period a fundamentally stronger company than when we came into it.
This includes: first, across all three regions, we accelerated our work to elevate our brands while also strengthening and simplifying our brand portfolio.
We're also engaging more meaningfully with consumers and driving increased marketing to deliver higher brand awareness and purchase intent coupled with higher AURs.
Second, we repositioned each of our channels and reduced our exposure to secularly challenged areas of distribution, particularly in North America.
Within wholesale, we focused our brick-and-mortar presence on our healthier stores and significantly reduced our off-price penetration.
Within direct-to-consumer, we accelerated our shift to digital, step-changing profitability by over 1,000 basis points as we added new connected retail capabilities and drove quality of sales.
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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.
Hey, if there's one thing we've learned over the past 18 months, it's agility and the importance of agility.
So apologies for the false start.
Our teams delivered exceptional first quarter performance on both our top and bottom line results and across every geography.
Our brand is resonating with consumers around the world as we lean into the breadth of our offering to deliver the products they are craving in this new normal.
And all of our regions are in a healthier, more profitable growth trajectory.
Even as we continue to execute through COVID-related challenges, it is clear that Ralph Lauren is back on offense.
A few highlights to note.
First, building on our consistent brand elevation work in direct-to-consumer business, we are now seeing accelerated demand and increased AUR in our wholesale channel.
Second, our digital growth is accelerating, following our pricing and promotional reset work last year, and our digital margins continue to be accretive across every region.
And third, we continue to make strong progress toward our long-term target of mid-teens operating margins.
We delivered the highest Q1 company operating margin since fiscal '14, even as we more than doubled our marketing investment and continued to reinvest in key areas of growth like digital, key city ecosystem expansion and our consumer targeting and personalization.
Our performance demonstrates consistent 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.
First, on our efforts to win over a new generation.
As we continue to invest in marketing, we are focused on new consumer acquisition and retention and both global and localized campaigns that capture consumers' optimism and desire to come together as we progressively emerge from the challenges of the past year.
Some of our key campaigns in the first quarter included our Summer of Sports, which we kicked off with our Olympics campaign in North America as the official outfitter of Team USA.
In June, we amplified our Wimbledon campaign with the diverse group of athletes, celebrities and influencers, such as South Korean superstar and Tottenham forward, Son Heung-Min; British pro surfer, Lucy Campbell; and G2 Esports League of Legends superstar, Rekkles.
In the world of golf, we celebrated our brand ambassador, Yuka Saso's first major win at the U.S. Women's Open Championship.
Combined, these Summer of Sports campaigns generated more than eight billion total impressions globally in the quarter.
And there's still more to come in August and September with the 2021 Ryder Cup and the U.S. Open Tennis Championships right here in New York.
We also announced our launch this quarter as the official outfitter of G2 Esports, one of the world's premier professional esports organizations.
We are proud of this first-of-its-kind partnership in fashion and gaming as we continue to drive new ways of reaching next-generation consumers in key channels where they engage.
In all, we added more than one million new consumers to our direct-to-consumer channels alone this quarter.
And our total social media followers continue to grow, exceeding 46 million globally led by Instagram.
This takes me to our second key initiative, energize core products and accelerate high-potential underdeveloped categories.
As markets reopen around the world, consumers are shifting back to many of the key categories that drove our business prior to the pandemic while we also continue to develop new and high-potential categories.
While casual styles are still resonating, we're also seeing a progressive return to sophisticated casual.
Given the breadth of our assortment, we have the unique ability to respond to consumer shifting appetite, reintegrating more elevated styles into our assortments as we scale back on stay-at-home categories.
On the men's side, we're seeing a resurgence in polo shirts, sports coats and trousers, denim, footwear and accessories for our core brands.
In women's, we're seeing improvements across dresses, elevated sweaters, novelty fleece, jackets and handbags.
And we're also driving better performance in bottoms, including new fashion silhouettes like wide leg as well as new fabrications like silk and linen.
We are rebuilding the penetration of these categories into fall '21 and beyond as consumers make the transition back to the office and social activities.
Our Spring performance gives us increased confidence that we will have the right assortments to meet consumers' needs moving forward.
Other product highlights from the quarter included our first of several special collections with Major League Baseball.
These limited capsules celebrate the heritage of America's favorite past time and evoke Ralph's lifelong love of the sport.
Launched in May, across all of our channels, including social, digital, our stores and wholesale, the initial capsule generated over five billion media impressions along with significantly higher spend compared to our average total consumer.
Our Spring Polo shirt campaign included the launch of our Polo Color Shop, fully made-to-order customized Polos and our updated Earth Polo in expanded colors.
And we launched Polo Cologne Intense, an updated fragrance for a new generation and our new stir of eyewear collection as we continue to elevate and innovate across our licensed categories as well.
Moving on to our third key initiative, drive targeted expansion in our regions and channels.
With most of our key markets now fully reopened, we are back on offense this year with the build-out of our brand-elevating key city ecosystems around the world.
This ecosystem approach ensures a consistently elevated experience across our digital, social and physical channels both in our direct-to-consumer and wholesale networks.
As part of this, in the first quarter, we opened 18 new stores and concessions in priority locations globally, mostly in Asia, and closed 11 locations.
China continues to be a significant long-term growth opportunity, and our ecosystem approach delivered strong growth again this quarter with Mainland sales up more than 50%.
We are opening two new emblematic store experiences this year in Beijing and Shanghai.
With a smaller footprint than our existing flagships around the world, this new format offers consumers an elevated, immersive brand experience at a significantly lower investment than our traditional flagships.
Our Beijing store opened at the end of April in Sanlitun Mall, one of the top shopping locations in the country.
In addition to featuring our Ralph's Coffee, Sanlitun integrates innovative, smart retail and digital activations throughout the store in partnership with Tencent.
This includes endless aisle technology, virtual try ons and in-store treasure hunt using QR codes and customization stations where consumers use our WeChat Mini Program to order customized products from their mobile phones.
Though still early, the store has significantly outperformed our initial expectations, and we're excited to build on our presence in China with the opening of our emblematic Shanghai location in just a few weeks.
Both stores will immerse consumers in the world of Ralph Lauren and will help further develop our ecosystems in these key markets, which already include our smaller format Polo boutiques, concessions and digital presence across our own site and key partners such as Tmall.
And as foreign tourism continues to be a headwind compared to fiscal '20 levels, we have shifted more of our marketing, clienteling and merchandising to capture local shoppers and regional tourists along with driving digital commerce.
This takes me to our priority of leading with digital.
Our global digital ecosystem, including our directly operated sites, department store dot-com, pure players and social commerce, accelerated to more than 80% growth in the first quarter in constant currency, up from about 60% in Q4.
While traffic is returning -- is starting to return to physical stores, the strength in digital is exceeding our expectations, driving a benefit to our overall operating margin mix.
North America drove the biggest improvement this quarter, increasing more than 50% across both owned and wholesale digital channels.
Meanwhile, Europe and Asia momentum continued with growth of more than 100% in each region in Q1, led by our wholesale digital and pure-play channels.
Our investments in digital continue to focus on content creation for all of our platforms, enhanced digital capabilities to improve the user experience and continuing to leverage AI and data to serve our consumers even more effectively.
Touching on our work to operate with discipline to fuel growth.
We continue to drive expense discipline in the first quarter in order to fund our long-term strategic investments in global expansion, digital and brand building while also working toward our target of mid-teens operating margins.
We also successfully completed the sale of Club Monaco at the end of the first quarter as planned.
And as previously announced, Chaps will transition from our North America wholesale business to a licensed model in Q2.
These actions will enable us to further focus our resources 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.
In June, we published our Annual Design the Change report, outlining our updated commitments and actions to drive our impact and champion the lives touched by our business.
We committed to comprising our global leadership team of at least 20% underrepresented race and ethnic groups by 2023.
As part of our comprehensive circularity strategy, we set a target to use 100% recycled cotton in our products by 2025 and to launch additional resale and recycle opportunities for our consumers by 2022.
We also announced a goal to achieve net-zero greenhouse gas emissions across our operations and supply chain by 2040 as we continue to work on reducing our carbon footprint throughout our value chain.
And beginning this fiscal year, we will incorporate key ESG metrics into our executive compensation plans.
In closing, Ralph and I are very encouraged by the strong start to the fiscal year.
Our teams are executing with passion and continue to embrace the agility they demonstrated throughout the challenging and unpredictable last 18 months.
While we will continue to monitor key macro challenges closely for the balance of the year, notably around inflation, supply chain disruptions, COVID resurgences and the pace of traffic recovery, the actions we took to strengthen the foundations of our brand and our business last year are enabling us to deliver results even earlier than we expected.
Looking beyond this period of unusual COVID compares, we are increasingly confident in our ability to drive sustainable growth.
More than ever, led by Ralph's iconic vision, our teams are intensely focused on executing on our strategic plan to continue to protect and elevate our brand while realizing the significant growth opportunities that exist for our business in every market.
With their passion, talent and careful execution, Ralph and I are confident in our ability to deliver attractive, long-term growth and value creation for all of our stakeholders.
Our first quarter performance exceeded our expectations as our teams navigated challenges with agility, our brands connected with consumers and our strategy drove high-quality growth.
Upside performance this quarter was driven by faster recovery in both North America and Europe led by our wholesale channel.
Strong performance across Asia despite extended COVID headwinds in Japan accelerated digital growth with further digital margin expansion and continued brand elevation with high-teens AUR growth.
And we continue to drive expense discipline across our business while investing in high-ROI initiatives to drive operating margins significantly above our expectations.
First quarter revenues increased 182% to last year on a reported basis and 176% in constant currency.
Growth was positive in every region led by North America.
Compared to first quarter fiscal '20 or LLY, revenues declined 4%.
However, this includes approximately seven points of negative impact from last year's strategic reset to our distribution and to our Chaps business, which transitions to a licensed model this month.
Total digital ecosystem sales accelerated to more than 80% growth in constant currency both to last year and LLY, including 50% growth in our own digital business.
Our performance improved sequentially in every region, reflecting our strong assortments, expanded connected retail capabilities and high-impact marketing.
North America delivered the strongest sequential improvement with digital ecosystem sales increasing more than 50%, up from low double digits last year.
Digital margins also continue to strengthen and were strongly accretive to every region's profitability.
Total company adjusted gross margin was 69.8% in the first quarter, down 200 basis points to last year on a reported basis and down 260 basis points in constant currency.
This was significantly better than expected as we lapped last year's unusual COVID mix benefits driven by better pricing and promotion, along with favorable product mix and the benefit of supply chain organization streamlining.
Adjusted gross margins increased 30 basis points to LLY.
First quarter AUR growth grew 17%, marking our 17th consecutive quarter of AUR gains as we continue on our brand elevation journey.
This came on top of 25% growth last year while stores were closed.
Adjusted operating expenses increased 39% driven by higher compensation and rent as we lapped last year's furloughs and store closures during COVID shutdowns.
Adjusted expenses declined 2% compared to LLY.
We more than doubled our first quarter marketing investments over the last year's substantially reduced levels at the start of the pandemic.
Compared to first quarter fiscal '20, marketing increased 39% as we focused on digital initiatives and reactivating key brand moments as markets reopened around the world.
We expect to maintain an elevated level of marketing this year at around 6% of sales to support consumer engagement, acquisition and our long-term brand-building initiatives.
Adjusted operating margin for the first quarter was 16.8% compared to a margin loss of negative 35.7% last year and 460 basis points ahead of LLY operating margin.
This was well above our guidance of 7% to 7.5% due to stronger-than-expected replenishment in our wholesale and digital channels, which generate highly accretive margins versus our total company rate.
Moving on to segment performance, starting with North America.
First quarter revenue increased 300% to last year driven by strong Spring assortments, improving consumer sentiment and expanded store reopenings as we lapped the peak of store lockdowns last spring.
Compared to LLY, North America revenues declined 8%, but included an 18% headwind from our strategic distribution resets and Chaps.
In North America retail, revenues grew 189% to last year.
Comps increased 176% on improved traffic and nearly 40% AUR growth, reflecting our continued elevation around product marketing and more targeted pricing and promotions.
Brick-and-mortar comps increased 278% driven by stronger AUR, basket sizes and traffic as most stores reopened.
Although foreign tourist sales improved significantly to last year, they were still nearly 70% below LLY due to continued softness in international traffic and travel.
Comps in our own digital commerce business grew 51% this quarter, accelerating from 25% in Q4 as we continued to focus on new consumer acquisition, product elevation and enhancing the user experience.
While we expect continued momentum in this channel, we note the prior year compares build sequentially after Q1.
In North America wholesale, revenues increased to $250 million compared to $23 million last year as we carefully restocked into the channel and lapped last year's minimal shipment to customers during the shutdown.
Sales meaningfully outperformed our expectations, driving the biggest upside to our guidance this quarter.
The foundational work we completed through COVID to reset and elevate our inventories, exit lower-tier wholesale doors and significantly reduce our off-price penetration is starting to deliver strong early results across every key metric.
In North America wholesale, full-price sellout is exceeding our sell-in.
Total sellout was up high teens to LLY in Q1, led by market share gains in men's, kids, home and women's footwear.
And we are also encouraged by early sequential improvements in women's ready-to-wear.
Wholesale AUR growth continues to accelerate, up more than 20% to LLY.
This represents our strongest wholesale pricing gains in the last six years.
And our focus on Wholesale Dot Com is working with digital sellout up more than 50% in Q1 and more than 75% to LLY.
Coming out of the pandemic, our wholesale partnerships are stronger, healthier and more collaborative with a focus on marketing, improved digital capabilities and the right product assortment and an appropriate level of inventories as we build back into demand.
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.
First quarter revenue increased 194% on a reported basis and 179% in constant currency, above our expectations.
First quarter comps increased at 98% with a 154% increase in brick-and-mortar as stores reopened and a 23% increase in digital commerce.
The strong early pent-up demand that started in the U.K. this April was followed by better-than-expected reopening trends across France, Germany and Italy despite extended lockdowns in the quarter.
Approximately 20% of our stores were fully closed in Q1 with additional stores operating under partial closures or other restrictions.
All of our major markets reopened by the end of June.
Digital commerce outperformed despite a challenging 44% comparison last year when COVID-related closures shifted more business online.
While our digital comps partially benefited from extended lockdowns across Europe this quarter, the results also reflected stronger Spring assortments, growth in connected retail and our targeted marketing efforts.
Europe wholesale exceeded our expectations again this quarter driven by stronger sellout and reorders in both digital wholesale as well as traditional wholesale accounts.
Revenues increased 68% on a reported basis and 61% in constant currency.
Our Asia retail comps increased 43% driven by similar performance across our brick-and-mortar stores and digital commerce.
Our digital ecosystem continued to accelerate in Asia.
In Q1, this was supported by our successful 5/20 gift day campaign, 6/18 shopping event live streamed from our newly opened Sanlitun store and momentum in our newest digital flagships in China, Japan and Hong Kong.
Japan, our largest market in Asia, was negatively impacted by an extended state of emergency for the majority of the quarter.
These restrictions drove a roughly six-point headwind to the region's overall growth in Q1.
Despite this, our teams were able to successfully mitigate these headwinds with stronger performance across the rest of the region.
This was led by the Chinese Mainland, which was up more than 50% to last year and 70% to LLY in constant currency driven by a strong product assortment, localized marketing initiatives and new store openings.
Korea was also up more than 30% to last year and 40% to LLY.
Japan returned to normal operations in late June and started to ramp up vaccinations.
However, the government declared another state of emergency in July ahead of the Olympic Games, and we expect a slower recovery in Japan this year.
Moving on to the balance sheet.
We ended the year with $3 billion in cash and investments and $1.6 billion in total debt, which compares to $2.7 billion in cash and investments and $1.9 billion in total debt last year.
We are confident in our ability to meet our debt leverage requirements, ratio requirements in Q2 and eliminate capital allocation restrictions in our bank waiver.
Net inventory increased 4% to support increasing demand.
This compared to a 22% decline last year when we limited shipments to brick-and-mortar channels at the height of COVID shutdowns last spring.
Supply chain challenges are increasing the variability of inventory flows quarter-to-quarter.
Looking ahead, our outlook is based on our best assessment of the current macro environment, which includes ongoing COVID-related disruptions, the global supply chain challenge -- and the global supply chain challenges.
We expect the quarter cadence this year to be volatile given dynamic conditions across our markets.
This includes potentially uneven pace of recovery by region and channel as well as the timing of investments as markets reopen.
For fiscal '22, we now expect constant currency revenues to increase approximately 25% to 30% to last year on a 53-week basis.
Excluding approximately $700 million in annualized revenues, we deliberately reduced during the pandemic, including department store exits, off-price and daigou reductions, Chaps and Club Monaco, this implies revenues up slightly to fiscal '20.
Foreign currency is expected to contribute about 30 basis points to full year revenue growth.
We now expect gross margin to expand 50 to 70 basis points even as we lap meaningful geographic and channel mix benefits due to last year's COVID closures.
This implies roughly 440 basis point increase to fiscal '20.
Our outlook includes slightly higher freight headwinds of approximately 100 to 120 basis points versus our previous expectation of about 100 basis points.
However, this is more than offset by our expectation of stronger AUR growth of mid to high single digits above our long-term guidance of low to mid-single digits annually as we continue our long-term elevation work.
We now expect operating margin of 12% to 12.5%, up from our 11% outlook previously.
This compares to a 4.8% operating margin last year and 10.3% in fiscal '20.
We expect operating margin for the remaining three quarters to moderate from Q1 levels based on increased marketing investments as planned to get to our target of 6% of sales this year, increased freight pressure in the back half of the year and our assumption that the higher-margin wholesale replenishments that we saw in the first quarter does not continue as demand start to normalize.
For the full year, we expect operating profit dollars to increase meaningfully compared to fiscal '20 pre-COVID levels.
For the second quarter, which no longer includes Club Monaco, we expect constant currency revenues to increase approximately 20% to 22%.
Foreign currency is expected to contribute about 50 basis points to revenue growth.
We expect operating margin of about 13% to 14% in the second quarter.
This includes gross margin of flat to up 20 basis points as we continue to drive AUR and product mix, largely offset by higher freight as we lap last year's COVID mix benefits.
We also expect modest operating expense leverage and restructuring savings, partially offset by higher marketing and new stores.
We expect full year tax rate to be about 24% with the second quarter tax rate about 24% to 25%.
In closing, we are proud of our team's agility and execution around the world this quarter.
As Patrice mentioned, we are still managing through a highly dynamic environment.
We are firmly back on offense with this strong start to the year, and this is only the beginning.
Guided by Ralph's original vision and our purpose of inspiring the dream of a better life through authenticity and timeless style, we are connecting with consumers in more exciting and innovative ways than ever before.
Over the coming quarters and beyond, you'll continue to see us driving our targeted strategic investments in key growth opportunities in order to deliver value for all our stakeholders.

user
global digital ecosystem revenues accelerated to more than 80% growth in q1.
ralph lauren - full year fiscal 2022 outlook raised with constant currency revenues now expected to grow 25% to 30% on a 53-week basis.
full year fiscal 2022 adjusted operating margin expected in range of 12.0% to 12.5%.
continued momentum in chinese mainland, with q1 sales increasing more than 50% to last year.
q2 fiscal 2022 revenues are expected to increase approximately 20% to 22% in constant currency to last year.
inventory at end of q1 of fiscal 2022 was $803 million, up 4% compared to prior year period.
foreign currency is expected to positively impact q2 2022 revenue growth by approximately 50 basis points.
europe revenue in q1 increased 194% to $355 million on a reported basis and increased 179% in constant currency.
asia revenue in q1 increased 68% to $288 million on a reported basis and 61% in constant currency.
q2 gross margin is expected to be flat to up 20 basis points to last year.

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