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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.
Our third quarter performance reflected strong underlying progress on our path to quality, sustainable long-term growth.
Overall revenues improved sequentially and were in-line with our expectations.
Stronger than expected recovery in Asia was offset by the impact of continued COVID-19 resurgences across Europe.
While North America was roughly in line with our expectations, even with additional COVID pressures.
Meanwhile, our focus on brand elevation, improved quality of sales and cost discipline drove better than expected gross and operating margin expansion in the quarter.
With double-digit AUR growth and digital profitability exceeding our expectations.
And while COVID, is likely to remain a near-term headwind, there is reason to be hopeful as we start the new year and vaccines begin to rollout.
Ralph and I are incredibly proud of the dedication, resilience and agility; our teams have shown in not only managing through the pandemic; but also positioning the company to emerge stronger than we came into it.
As part of this, we balanced reset activities with an acceleration of our core strategies, including strengthening our brand and bolstering our marketing and new customer acquisition, expanding key categories and international markets, scaling our Connected retail offerings globally, continuing to prune non-elevating distribution and further realigning our cost structure.
These actions are consistent with the five strategic priorities that we laid out as part of our long-term plan prior to COVID.
These include first, win over a new generation of consumers, second, energize core products and accelerate high potential under-developed categories, third, drive targeted expansion in our regions and channels, fourth, lead with digital across all activities and fifth, operate with discipline to fuel growth.
I will touch on a few of these in a moment.
But first let me provide, some updates specific to this quarter's performance.
As we anticipated at the start of the holiday season, the global retail environment remain volatile, due to the pandemic and other macro factors.
Led notably by Asia and our digital channels globally.
Asia, which we view in many ways as a blueprint for our progress in other markets grew 14% to last year.
This was driven by continued momentum in the Chinese Mainland, with more than 40% reported growth.
Japan, we turned to positive growth in the quarte, while Korea was up double-digits.
In North America, performance continue to improve sequentially and was in-line with our expectations, despite rising COVID cases in many of our key markets.
Our strategy of elevating our brand across digital, department stores and off-price is well under way.
And we're still on track to complete the significant portion of this work in fiscal '21.
Europe was the most challenging segment this quarter, with the majority of our stores closed for a full month of the key holiday period.
In addition to the government-mandated shutdowns, there were also significant operating and travel restrictions throughout the quarter, which have continued into our forth quarter to-date.
In many ways, this second and third wave restrictions, have been more disruptive than the first wave of shutdowns we experienced last spring.
As they vary greatly by market and by day.
Third quarter traffic headwinds were partly mitigated by a strong acceleration across our owned and wholesale digital channels in Europe.
This was driven by our expanded Connected retail programs, exclusive capsules with partners like Mytheresa and ASOS, holiday campaigns and influencer activations.
We also leveraged this period of disruption to continue our long-term brand elevation in the region.
Acquiring new high value consumers and driving increased AUR despite a highly promotional competitive environment.
These actions should help position our brands for healthier recovery and ecosystem expansion once we emerge from COVID.
By channel, digital continues to be a key driver of our performance with digital sales accelerating in all three regions this quarter.
We continue to scale up our Connected Retail offerings and emphasize gifting in key product categories for holiday.
These included our iconic sweaters, holiday bear programs, Home and loungewear that are resonating with consumers today.
In our brick-and-mortar stores, as I mentioned, traffic was challenged due to COVID, particularly in Europe and North America.
But we were strongly encouraged that our teams were able to deliver higher conversion in these channels with double-digit AUR growth and reduced discounting while also starting to leverage our new Connected Retail offerings this holiday.
We also continue to invest in targeted new store expansion in key growth markets with 23 new stores this quarter, primarily in Asia.
Within our wholesale business, we were encouraged by continued sequential progress across regions, particularly on wholesale.com.
We still expect pressure on our reported selling trends in the near term, as we deliberately exited department store doors early in the pandemic and prioritize inventory management in this environment.
As a reminder this near-term discipline is integral to building price harmonization across our ecosystem and to protecting the elevation in long-term equity of our brands.
Turning to our efforts to win over a new generation.
In the third quarter, we continue to ramp up our personalization initiatives, shift our brand building efforts increasingly toward digital and leverage the authentic values that have been central to our brand since Ralph started this company more than 50 years ago.
Let me touch on some of the highlights from this quarter.
First we launched, a fully integrated and diverse Family is Who You Love Holiday campaign across social media, our own stores and digital sites and wholesale environments.
We also focus more than ever on creating innovative digital experiences that emerge the consumer in the world of Ralph Lauren.
These included our groundbreaking virtual flagship store experiences in Beverly Hills, New York and Paris, where consumers around the world can experience our brands and the full breadth of our assortment, in a way that was previously only possible by walking into one of our beautiful stores, amplifying and reach of our flagships to a global audience, digital traffic in these virtual stores was 8 times greater than the foot traffic in these physical stores over the same period.
We were also the first apparel brand to launch Snapchat's logos scan this holiday.
This allows consumers to scan our iconic Polo Pony logo from any surface, including clothing items, adds, shopping bags and more, to trigger an Augmented Reality experience that brings them into the world of Ralph Lauren and ultimately transact on our own site.
And in Asia, we were excited to launch our live stream selling event with 360 degree activation for Singles' Day.
Delivering more than 120 million impressions.
We are investing in these new forms of selling, including social commerce, which we expect to become a greater part of the digital shopping experience long term.
Looking ahead, we will continue to partner with celebrities and influencers who embody our core values, along with being a part of key moments around the world.
More recently, Ralph and I were particularly proud of our brands participation in the U.S. Presidential inauguration.
Overall we are encouraged by the momentum we are seeing in consumer engagement across generations.
Notably, our brand awareness and purchase intent has accelerated since the start of the pandemic and we are seeing particularly strong growth from consumers under 35 and women.
We added more than one million new consumers through our direct to consumer platforms alone in Q3.
In our total social media followers, reached 45 million in the quarter.
This was led by continued momentum across key platforms like Instagram, Tik-Tok, YouTube and Snapshot, where our Ralph Lauren x Bitmoji Collection is connecting strongly with Gen Z consumers.
Since the launch last August, over 20 million users has addressed our Bitmoji and Ralph Lauren and tried on the collection over 550 million times.
This takes me to our long-term priorities of leading with digital.
Fiscal' 21 continues to be a transformational year, as we digitize our consumer platform and experiences and how we work as a company.
On the consumer-facing side, the continued acceleration of Connected Retail is essential to creating the best possible experience for our consumers and to our long-term growth.
Building on our accelerated Connected retail launches in the first half of the year, in the third quarter we added mobile point of sales across our North American, retail fleet, appointment scheduling and curated personal collections online, all while continuing to expand our digital clienteling programs globally.
We also launched our Hong Kong digital flagship in time for holiday, which is an important part of our broader ecosystem strategy as consumer shop and travel in new ways.
In addition to strengthening our digital commerce capabilities, we continue to build our social commerce presence and expand our partnerships with influential digital retailers around the world.
Our teams executed a successful global launch campaign this holiday with Farfetch.
We delivered lifestyle content tailored to next generation consumers, reaching over 15 million impressions globally, including the first ever editorial experience, within the Farfetch app.
We were encouraged by engagement rates that were three times higher than our competitive benchmarking on this platform.
And as we continue to digitize how we work as a Company, we launched our integrated vendor management system in the third quarter with the majority of our suppliers.
This new digitally centralized portal enables us to communicate seamlessly with our suppliers, on everything from digital product creation to real-time tracking on our production status and factory capacity.
It also enables us to track and support areas like gender diversity at the supplier level.
This is all part of our broader goal of elevating our product, streamlining how we bring them to market and making it easier for our teams to stay connected and agile.
All while driving our sustainability and citizenship initiatives across everything we do.
Touching on our work to operate with discipline to fuel growth.
Our ongoing focus on balancing growth with productivity continues to be an important element of our long-term plan.
And this discipline is even more critical, as we make hard choices to realign our cost structure, so we can position the company to emerge from COVID stronger than we came into it and pivot back to growth.
In the second quarter, we announced the first major actions related to our fiscal 2021 Strategic Realignment Plan.
These included, first, the simplification of our organization, enabling our teams to move with greater agility, and second, an assessment of our brand portfolio resulting in the decision to move Chaps to a fully license business.
Today, we announced the next stage of our plan, which is focused on realigning and driving increased efficiencies across our global real estate footprint.
While Jane will discuss these actions in more detail in a moment.
I am pleased that we are making good progress on this multi-pronged plan.
This gives us increased confidence in our ability to start fiscal '22 strong and with the right foundations in place.
Importantly, I also want to take a moment to touch on our ongoing work to integrate citizenship and sustainability into everything we do.
In the third quarter, we were proud to score 100% on the Human Rights Campaign foundations Corporate Equality Index and earn the designation as a best place to work for LGBTQ Equality.
On the supply chain and sustainability front, we have leverage this period of change to continue diversifying across geographies and strengthening our relationships with suppliers.
From improved capacity planning to implementing diversity and inclusion training and driving best practices in sustainability.
In the third quarter, we reaffirmed our commitment to achieving our science based greenhouse gas emissions targets and joined hundreds of other organizations in calling on the U.S. federal government to reenter the Paris climate agreement, which the new administration recommitted to just a few weeks ago.
We look forward to sharing further progress including our greenhouse gas reduction roadmap in our 2021 report update this June.
In closing, Ralph and I are optimistic about the future of our business and encouraged by the work our teams are doing to emerge from COVID stronger than we came into it.
We are spending this time doing the important work of elevating our brand, investing in key strategic areas, streamlining our business and realigning our cost structure.
We have made meaningful progress in delivering digital experiences for all of our consumers around the world and driving our direct-to-consumer channels all while pursuing our goal of becoming a more equitable, diverse and sustainable company.
Our third quarter results demonstrate solid execution of our strategy through this holiday season in the midst of a still challenging operating environment.
We continue to focus on what we can control in this dynamic context and on positioning the Company to accelerate value creation as we emerge from the pandemic.
This includes investing in our powerful lifestyle brands, our digital transformation and maintaining a strong balance sheet, while also realigning and streamlining our operational and expense structure.
As Patrice mentioned today, we announced the second round of actions related to our fiscal '21 Strategic Realignment Plan.
This stage focuses on realigning our real-estate footprint to our future strategic priorities.
This includes first reducing our North America corporate office footprint up to 30%, along with selected reductions in Europe and Asia.
As our teams embrace new ways of working and we pivot resources to our key strategic priorities.
Second closing up to 10 retail locations globally.
Pending ongoing landlord negotiations, combined with the successful lease renegotiations completed year-to-date.
We expect these savings to drive improved profitability in our existing fleet, while we continue to expand our brand elevating ecosystems, and third, completing the consolidation of our North American distribution center operations to drive greater efficiencies, improve sustainability and deliver a better consumer experience, with faster average delivery times and an increased focus on Connected Retail.
Combined, these actions are expected to result in growth annualized pre-tax expense savings of approximately $200 million to $240 million.
Inclusive of our previously announced organization savings.
While we still expect the majority of the original $180 million to $200 million in organizational savings to flow through to the bottom line, we expect to reinvest the majority of our savings related to today's actions in our future growth.
We will provide any additional updates to the plan as the actions are finalized.
Moving on to the third quarter performance.
Third quarter revenues declined18% following a 30% decline in the second quarter, Asia and North America both improved sequentially, while Europe was more significantly impacted by COVID and mandated closures and restrictions in the quarter.
Global Wholesale revenue declined 19% and direct to consumer revenues were down 16%.
Our digital business outperformed with sales up more than 20% to last year, including double-digit growth in all regions and even more importantly, our digital operating margins continued to expand, with Q3 digital margins up 900 basis points to last year and accretive to our total company rates to a combination of higher quality of sales and operating expense leverage.
Driving profitability in this business remains key, not only to our long-term margin accretion and shift to D2C, but also to our strategy of repositioning Ralph Lauren.com as our digital flagship or the best expression of our brand online.
Total company adjusted gross margin was 65.4% in the third quarter, up 320 basis points to last year.
Gross margin expansion was primarily driven by strong AUR growth along with favorable geographic and channel mix shifts.
Around 60 basis points of this quarter's gross margin expansion was driven by unusual mix shifts due to COVID.
With the remainder driven primarily by our continued global improvement in pricing and promotions.
Third quarter AUR growth of 19% was above our expectations with North America and Europe up double-digits and Asia up high-single digits.
We continued to elevate our brands across every touch point, significantly reduce promotions and take targeted pricing increases.
Our confidence in the strategy is reinforced by our continued improvement in full price penetration, larger baskets and better than expected conversion even as AUR growth has exceeded our expectations.
Operating expenses declined 11% to last year, driven by reductions in compensation, rent and other expenses, as we continue to work in new ways.
Adjusted operating margin for the third quarter was 13.3%, down 70 basis points to last year.
Marketing in the third quarter decreased 3%.
We shifted some investments into the fourth quarter of this year as store closures and in-store shopping restrictions increased due to rising COVID cases.
However, we accelerated select strategic marketing investments this holiday, focusing on higher margin, new customer acquisition in North American digital and reactivation of in-person events in Asia.
We expect fourth quarter marketing to increase about 50% to support our long-term brand-building activities and key events like Lunar New Year and the Australian Open.
This elevated growth rate reflects both the timing shift from Q3 and lapping of last year's depressed marketing spend as COVID hit Asia followed by Europe and North America.
Moving on to segment performance, starting with North America.
Revenue decreased 21% to last year.
Retail comps declined 21% driven by a 30% decline in bricks-and-mortar comps.
While our own digital comps improve sequentially to 9%.
Brick-and-mortar comps continued to be impacted by COVID related traffic declines with third quarter traffic down 45% and foreign tourists sales down about 85%.
However, we continued to drive our strategy of improving quality of sales with our third quarter discount rate down nearly 400 basis points.
AUR mid-teens and conversion up more than 200 basis points in our brick-and-mortar channel.
Our digital commerce comps were up 9% with total digital sales up 10% in the quarter.
Underlying sales to domestic consumers grew high teens, while sales to international consumers declined double-digits to last year, as planned.
We reduced our site wide promotions by 52 days compared to the prior year as we continue to elevate our digital experience driving AURs up 22% and gross margins up more than 800 basis points to last year in the channel.
While these deliberate reductions in promotional activity are a headwind to our digital comps in fiscal 2001.
We continue to invest more aggressively on new consumer acquisition during this transition period.
Our accelerated investment in digital marketing generated a 27% increase in new customers during this competitive holiday quarter, exceeding our expectations.
Year-to-date, these new consumers are transacting at a higher gross margin rates and larger basket sizes and represent a higher penetration of consumers under 35.
Looking ahead, we are focused on retaining these new consumers and are encouraged thus far by repeat purchase rates.
Stronger sales to domestic consumers this quarter were driven by our ongoing investments in connected retailing like buy online pickup in-store, new functionality like online exchanges and Card payment instalments and expanded personalization and targeted marketing efforts.
All of these initiatives helped deliver a significant increase in our full price sales this quarter, which grew more than a 130% to last year.
In North America wholesale, third quarter revenue declined 22% as we continue to manage our shipments carefully and realigned inventories to demand.
Full price sales declined at a more moderate rate, driven by stronger trends in core replenishment, Polo men's, kids and home.
While Lauren Women's remain challenged consistent with the broader category.
Our inventories in the marketplace were clean and well positioned at the end of the third quarter, declining more than 30% at North America wholesale.
Our sales to off-price were down meaningfully as planned as we continue to significantly reduce our penetration in this channel.
Moving on to Europe.
Third quarter revenue declined 28% on a reported basis and 30% in constant currency.
Europe retail comps were down 38% with a 51% decline in our bricks-and-mortar store comps, partly offset by an acceleration in our own digital commerce up 68%.
Across Europe, our bricks-and-mortar businesses were significantly impacted by traffic headwinds with some form of store closures or restrictions across 16 of our 17 markets in the region, ranging from curfews and closures to full lockdown.
Despite these pressures our conversion improved and AUR increased 12% to last year, driven by our ongoing strategy to elevate our factory channel strong momentum in our own digital commerce comp was driven by our new consumer acquisition, up 112% along with its banded Connected Retail initiatives gifting programs and improved digital content.
Europe wholesale revenues declined 22% in constant currency as we continue to limit shipments to reset our inventories to demand.
COVID related challenges in bricks-and-mortar wholesale were partially offset by stronger performance at our wholesale digital accounts where sell-in and sell-out rates were both positive for the quarter.
Revenue increased 14% on a reported basis and 9% in constant currency, our Asian retail comps increased 3% with bricks-and-mortar stores up 1% and digital comps up 54%.
We are encouraged that growth in the Chinese Mainland is not only back to pre-COVID levels of more than 40% on a reported basis, but growing versus double LY.
Japan also returned to positive growth in the third quarter, with sales increasing high single digits on a reported basis, following the second COVID wave in Q2.
However, we continue to watch Japan closely as key areas like Tokyo and Osaka entered a state of emergency in January.
Overall momentum in our Asian digital businesses continued through the quarter, driven by strong performance across all key markets and channels, including our own sites in digital pure plays, where we added four new partners in the quarter.
Moving on to the balance sheet.
We ended the third quarter with $2.8 billion in cash and investments and $1.6 billion total debt, which compares to $1.9 billion in cash and investments and $694 million in total debt at the end of last year's third quarter.
While we have managed our balance sheet carefully, since the start of the pandemic to preserve liquidity, `we are monitoring COVID conditions closely and based on our current outlook, we are planning to reinstate our dividend in the first half of fiscal ' 22 Net inventory declined 4% to last year, including a 2% decline in North America, 15% decline in Europe and a 7% increase in Asia, to support growth.
While we have taken a highly cautious approach to managing inventory through the pandemic.
Overall, we are encouraged by our team's ability to both move inventories across regions and to merchandise around our core and iconic styles as well as key COVID categories like home, loungewear and casualties.
Our increased agility is also enabling us to drive core product replenishment and shift back into pre-COVID categories, as consumers start returning to more normalized trends.
Looking ahead, our outlook is based on our best assessment of current COVID lockdowns and trends and is subject to change, given the dynamic nature of COVID developments around the world.
We currently expect fourth quarter revenues to decline approximately mid-to-high single-digits, representing a meaningful sequential improvement from the first three quarters of the year.
This includes the impact of third wave COVID lockdowns in the UK and Germany, from the start of the quarter to approximately mid-February as well as partial closures in France, Spain and Italy.
Third wave lockdowns in Japan through early March and a slow recovery in North America, where we have also seen increased cases and COVID related traffic headwinds.
If government mandated lockdowns or restrictions are extended from these periods or more severe restrictions are applied, this could negatively impact our current outlook.
These COVID related headwinds should be partially mitigated by continued momentum in China and our global digital businesses.
We expect gross margins to continue expanding, albeit at a more moderate rate than the first three quarters of the year.
As we strategically we purpose full price product from last year's COVID shutdowns to our factory channels.
Improved pricing and promotions, including targeted consumer messaging should continue to be the most durable driver followed by geographic and channel mix.
We expect operating expenses to increase low single digits as we reaccelerate our brand-building investments to support growth coming out of the pandemic, largely offset by our ongoing expense discipline.
Excluding marketing operating expenses are expected to decline low-single digits.
We expect inventories to increase in the fourth quarter as we start building back into demand and lap last year's double-digit decline in response to COVID.
In closing, we are encouraged by the progress our teams have made over the first three quarters of the year.
As we close out this fiscal year, we are focused on Offense as we leverage all of the critical work our teams have done prior to and through the pandemic to position the company for quality long-term growth.
Led by Ralph's enduring vision to guide us through a still highly dynamic global environment, we are accelerating our core strategies, including first and foremost, elevating our brand, driving our companywide digital transformation and targeting expansion in key geographies.
All while adopting new ways of working and executing with discipline around our cost structures.

user
qtrly global digital commerce sales increased more than 20%.
north america revenue in q3 decreased 21% to $715 million.
announcing additional realignment actions related to its real estate footprint.
q3 average unit retail increased 19% to last year.
plans to further right-size and consolidate its global corporate offices.
europe revenue in q3 decreased 28% to $316 million on a reported basis and decreased 32% in constant currency.
identified up to 10 stores subject to potential closure through fiscal 2022, pending ongoing negotiations.
plans to complete consolidation of its existing north america distribution centers.
asia revenue in q3 increased 14% to $330 million on a reported basis and 9% in constant currency.
combined actions are expected to result in gross annualized pre-tax expense savings of approximately $200 million to $240 million.
qtrly north america wholesale revenue decreased 22%.
ralph lauren - expect financial results for both q4 and full year 2021 to continue to be adversely impacted by pandemic and prolonged demand recovery.
for q4, we expect revenues to decline approximately mid-to-high single digits to last year.

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