Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Fourth Quarter and Full Year Fiscal 2020 Earnings Call. [Operator Instructions] As a reminder this conference is being recorded. I will now turn the conference over to our host, Ms. Corinna Van der Ghinst. Please go ahead.

Good morning, and thank you for joining Ralph Lauren's fourth quarter fiscal 2020 conference call. With me today are Patrice Louvet, the Company's President and Chief Executive Officer; and Jane Nielsen, Chief Operating Officer and Chief Financial Officer. After prepared remarks, we will open up the call for your questions, which we ask that you limit to one per caller. During today's call, we will be making some forward-looking statements within the meaning of the Federal Securities Laws, including our financial outlook. Forward-looking statements are not guarantees. And our actual results may differ materially from those expressed or implied in the forward-looking statements. 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. To find disclosures and reconciliations of non-GAAP measures that we use when discussing our financial results, you should refer to this morning's earnings release and to our SEC filings that can be found on our Investor Relations website. And now, I will turn the call over to Patrice.

Thank you, Corinna. Good morning everyone and thank you for joining today's call. The spread of COVID-19 around the world has been devastating, and our thoughts are with the many impacted by the virus. The pandemic has not only affected our organization and recent financial performance, but it has had unprecedented consequences on the communities we operate in around the world. Under these extraordinary circumstances, our teams have responded to the call with agility and resilience working tirelessly from their living rooms and kitchen tables across time zones. Ralph and I want to recognize and thank them for their dedication and commitment. Our objective is to emerge from this period stronger than we came into it. And before we review our recent financial performance, I want to spend some time on the actions we are taking to ensure we not only endure through this crisis but are positioned to thrive long-term. From the start of the outbreak, we moved quickly to protect the safety and wellbeing of our employees, consumers, and communities. This included widespread store and office closures led by Asia in late January, followed by Europe and North America in March. Like many of you, we are working in new ways across the company, including working from home, and we've implemented new health and safety measures where that is not possible. We also took proactive steps to ensure the long-term financial health of our business, including expense reductions, further strengthening our balance sheet and liquidity, and pivoting our supply chain to adjust inventories to changing demand. Meanwhile, we accelerated efforts to drive sales to our digital ecosystem as consumers stayed home. On the expense side, we've been addressing our most significant fixed cost around the world. This includes ongoing work with our landlords to negotiate rent relief and…

Thank you, Patrice, and good morning, everyone. This quarter's performance was a study in contrast. We started the spring season with strong continued momentum on our brand elevation journey, with AUR and margins exceeding our expectations as we delivered improved merchandising, expanded digital capabilities and elevated marketing and continued the rollout of targeted pricing increases across channels. This was followed by a very sudden decline in sales as we closed stores across Asia, followed by Europe and North America in accordance with guidelines from government and local health authorities. While our teams remain committed to our long-term strategy centered around brand elevation and targeted expansion, we are focused on managing through the near term so that we can emerge from this crisis stronger than we came into it and pivot quickly back to growth. We started by leveraging some key strengths: a healthy balance sheet, strong liquidity, focused execution, all made possible by our passionate and agile teams. Now more than ever, our strong balance sheet is a source of competitive advantage, giving us resilience and flexibility to continue executing our plan and elevate our brand during challenging times. We ended fiscal 2020 with $2.1 billion in cash and investments and $1.2 billion in total debt, which compares to $2 billion in cash and investments and $689 million in debt at the end of last year. Given the uncertain environment created by COVID-19, we announced several measures to preserve cash and strengthen liquidity. Building on what Patrice shared, these include: First, flexing our costs where possible to align to our top line and carefully managing ongoing expenses and investments to a variable demand outlook. We are currently evaluating what the right operating cost structure and distribution footprint should be across retail and wholesale as we enter a new normal. Second,…

[Operator Instructions] Our first question comes from Dana Telsey with Telsey Advisory Group.

Good morning everyone. Hope everyone is safe and healthy.

Good morning Dana.

Thank you, Dana.

Good morning. One for Patrice and one for Jane. Patrice, as you think about, how are you adapting your Next Great Chapter strategy to the new global retail environment and the changing behavior coming out of COVID? And then one for Jane. Can you please help me put together the first quarter into context for us or provide any assistance with the cadence on the rest of the year? Thank you.

Great. Dana, thank you for your question. So let me start by saying that, fortunately, we actually entered this crisis in a position of strength and with momentum, right? We have a solid balance sheet and cash position. We've been expanding our direct-to-consumer and digital presence. We've created a more flexible and diversified global supply chain. And we have a brand that credibly flexes across categories, underpinned by values that are really resonating in this moment. Think timelessness, optimism, togetherness, trust. We've also done a lot prior to the crisis to build agility and resilience in our teams, and this is obviously now more relevant than ever. So given the solid foundation, we believe we ultimately have an opportunity to gain market share as we emerge from this crisis. With respect to our Next Great Chapter strategy, the strategic pillars of our plan completely hold true today in the current environment, but there's a clear opportunity to accelerate some of the priorities. Let me give you three examples. There are many more, but the three I would highlight are: first, continuing to accelerate digital, right? We transformed our digital selling platforms over the last three years, new e-commerce platform, new OMS system, mobile personalization and connected retail streams. So we have a strong infrastructure in place when it comes to digital commerce and connected retail. We're fast tracking and scaling new digital capabilities like digital clienteling and other forms of virtual selling. And we're encouraged by our progress and early reads so far, including understanding what we've done in China recently. The second thing I'd call out is assessing our store footprint. So we still believe in the role of the store, and we're encouraged by the early connected retail interventions like curbside pickup, for example, but we're going to continue to review our store portfolio in the context of our omnichannel strategy. And especially within North America wholesale, this means continuing to concentrate on our most productive brick-and-mortar doors, which are generally the top doors of our wholesale partners anyhow, as we also grow select wholesale.com opportunities. And the third example I would call out, Dana, is around scaling new ways of working for us. And we've been able to do things in weeks and days that typically would have taken us months or years to do. This includes our ability to work remotely around the world, continuing to digitize our end-to-end value chain and also driving a culture of cost discipline, which is obviously critical in the current environment that we're in. So the strategic pillars of our Next Great Chapter plan still hold true in this environment. We are feeling actually quite good about that, but there's a clear opportunity to accelerate some of the priorities, some of which I just called out for you. And then I think, Jane, you will cover the Q1 question.

Yes. Dana, we're not giving guidance for Q1, but let me just give you some color and shape about how we're thinking about it. We expect right now that Q1 will be the quarter with the most significant impact from COVID as we see it now. On an order-of-magnitude basis, consider Q1 in contrast to Q4. In Q4, we had two weeks of closures approximately versus about eight to ten weeks of closures in Q1. And even after opening stores, we've seen a gradual and elongated recovery period. As you look across every region, we expect the impact of COVID to be most pronounced in Q1. I think that's probably very clear for North America and Europe, where we were closed almost the entirety of April and May, with stores just starting to come back online. Today, a little less than 50% of North America stores are now open. And in Europe, which is a bit further ahead, about two thirds of the stores are now open, but all with – operating with reduced hours, reduced traffic and with new social distancing requirements. Compared to our experience in Mainland China and Korea, we do expect a more prolonged recovery with improvement over time. And obviously, this is going to vary by market. In Asia, which was ahead of the curve and where we're 90% open, we still will see the biggest impact in Q1 where markets like Japan, Southeast Asia and Australia and even parts of China saw large COVID impacts in the first quarter. We are encouraged by the way that the digital sales are leading as infrastructure opens, and our teams are very clear that opening stores is the first step to getting back to comp growth. So we're all focused on that and prioritizing that. And just as you think about expenses in FY2021 from a cadence standpoint, from a cost perspective, as you saw in our 8-K, we took substantial actions as we closed out the fourth quarter. We furloughed about 80% of our workforce in April, and this will continue through June. And as we begin to ramp back up, employees and infrastructure to support sales in late June, and we'll stage – we'll stage that with – as demand stabilizes. But our largest SG&A reductions will be in Q1 and a little bit over 25%, and then it will moderate for – the reductions will moderate there as demand stabilizes. So a little bit of color on the quarter and our expectations in what we're seeing in the market for the year.

Thank you.

Thank you. The next question comes from Matthew Boss with JPMorgan.

Hi Matt.

May be we’ll go to the next question.

Thank you. The next question comes from Heather Balsky with Bank of America.

Hi, thank you for taking my questions.

Good morning Heather.

Good morning. In terms of my question, there's a lot now regarding the wholesale channel and how you're partnering and responding both right now. And as you look to the back half of this year and into 2021, calendar 2021, can you just talk about how you see that channel potentially ramping in terms of the recovery and what you can do to manage through the additional uncertainty in terms of them closing stores and tightly managing inventory? Thanks.

Sure. So as I step back and we look at kind of our long-term plan and strategy, we expect the bulk of our growth to come from direct-to-consumer and wholesale.com. As far as brick-and-mortar wholesale is concerned, our focus is really on making sure, as it has been over the past couple of years actually, that we are in the right locations in a way that is brand-enhancing and financially attractive, right? So this will likely mean that as we work through the year with our partners, we will be calling some of the smaller doors, working with them. Importantly, for all of you on the call, these recent bankruptcies from JCPenney's and Neiman Marcus actually don't impact us. Our business is nonexistent at JCPenney's and relatively small at Neiman Marcus. But I'd say, Heather, our emphasis is really, when it comes to the wholesale space, wholesale.com, which has got nice momentum, and we're building capabilities with our partners and then making sure that we have the right footprint going forward in that space.

And what we've seen is that as we closed out in March together in partnership with our wholesale partners, we stopped a number of shipments to make sure that our inventory levels remained in good balance, knowing that they would face closures as we did. So we feel good about where our inventories are. We are planning conservatively as we move into the hot fall season. But the good news is as demand develops, because of our case capabilities and our ability to refill from core, we feel we have the flexibility to meet demand with our wholesale partners as it evolves without needing – without – while managing inventories tightly and maintaining a good full price selling environment.

Great, thank you very much.

Thank you. The next question comes from Matthew Boss with JPMorgan.

Great, thanks. Will try this again.

It works. Good morning, Matt.

Patrice, maybe as we think about and measure the strength of the Ralph brand as you see it today, what are you seeing in April and May e-commerce trends as we think about the U.S. and Europe? Jane, I think you talked about a meaningful improvement. Have you seen trends return to positive territory? And then with more than half of your stores now reopened, what kind of initial productivity are you seeing at brick-and-mortar so far to start back in the reopening process?

Good. So I guess starting at high level on brand perception. We've actually been really encouraged by how our performance on consideration has increased during this crisis. So quantitative measures, both in Asia, Europe and North America, where across all three regions we've seen brand consideration scores go up over the past few weeks. We attribute that to all the work that we've done on values communication and also all the philanthropic work that we've done across the region. So feeling that we've got good tailwinds there. As far as e-commerce is concerned, we – let me start east first. I guess, we're feeling very good about the performance in China. I think you heard us say February, March, up 76% while the overall sector was down, so we were gaining share in that environment. We can give you some color on the specific weeks for March and April, which Jane will give you. But I think overall, with all the new capabilities that we've put in place, whether that's digital clienteling, whether that's all the connected retail capabilities, we are encouraged by the progress we're making on dot-com. And I was joking with the team last week that actually, at this point, given the stores are not fully opened yet, we are, to some extent, a digital pure player because that's our biggest business today.

Yes. Matt, let me give you some color on what we've seen on a quarter-to-date basis across the regions. APAC, as we said, we closed out Q4 very strong across Asia on our e-commerce business, and that has only built. So April and into May, we've seen very strong and positive e-commerce trends closing out in the – sometimes, we've seen rates of triple-digit growth in APAC, so very strong. In Europe, while we did see some – we reported down 3% on our own platform in Q4. As we've come out and especially as we closed out April, and I think people saw the end of the crisis, we've been seeing very strong trends across Europe. So we've had double – solid double-digit growth in Europe on a very high quality of sales number where we're seeing double-digit growth in AUR on our e-commerce site in Europe. So strong quality of sales and strong momentum. North America, which is probably the furthest behind in regions in terms of store openings terms of store openings and recovery, we reported down 7% in the fourth quarter. And it's really been in May that we've started to see e-commerce back to solid and double-digit growth, but it's been building on a week-over-week basis, so encouraging there. So we do see, as our stores open, digital leads and it starts to build over time. As we've gotten – we're sort of in the early days, if you will, in terms of store opening productivity, 50% open in North America and really very early on that journey, two-thirds open in Europe. Still early days on that journey which makes our experience anecdotal. I can tell you, in China, as stores reopened, traffic remained weak in the initial weeks but with strong conversion. So buyers who are coming to the store were motivated and ADTs, average daily transactions, average value transactions were up strongly. Conversion was up strongly and AUR has continued to be up strongly. I can give you some – we're not – it's early days, but I can tell you, as we think about our trajectory in – overall in Asia, that it will be different in North America. But coming out of January, we saw – if I think about the Asia, we were up strongly in January, up 40%. February saw the biggest declines, down well over 80%. March, we started to recover, digital sales started to come back. In April, sales were down high single digits. And so far in May, we're really encouraged by the improvements. Everything was turning positive in early May as Beijing and other larger cities' restrictions lifted, and we expect to be strongly back to growth in Q2 of this year in Mainland China. So encouraged by that trajectory. Don't expect to be a cookie-cutter approach across the regions, but that's what we've seen so far.

That’s great. Thank you. Best of luck.

Thank you, Matt.

Thank you.

Thank you. Our next question comes from Michael Binetti with Credit Sussie.

Hey, guys Thanks for all the details. I want to ask you two things. I guess, first on the inventory and the write-off and the decision to exclude some of that from the gross margin line in the quarter. I think that's a little different than how we've seen some others in the sector treating it. So maybe a little bit on how you got to the $160 million number. How did that inventory get treated on the P&L as you sell-through it? And maybe just a little bit of help on how to think about what we're going to see as you move through that in the first quarter. And then separately, on the AUR, I guess, a longer-term question, but this has been the real engine behind your revenue and gross profit dollar growth for several years. You've mentioned it a lot of times today. Now the apparel world is about to go on a huge sale, given what we've heard around the space. I have no doubt you'll tell me the AUR story continues to be critical to the long term. But maybe you could just help us think about what adjustments you need to think about in the near term given the state of inventory in the channel, the level of markdowns that seem like they're coming across the space, the store closures we know about in the brick-and-mortar world, et cetera. Thanks.

Sure. That's a power-packed question, so let me take it one layer at a time. Let me step back and tell you why we decided to report both our NRV reserve and our bad debt as a non-GAAP item. We believe that it is entirely related to the experience of COVID, where we lost a selling season. So it's not a business as usual NRV reserve. It was significant. The process that we went through as a team was we took stock of all of our inventory flows, our commitments at suppliers on a fabric basis, and then went back to our strategy and said, what can we reasonably move through to continue our quality of sales journey with our own liquidation channels, with stretching the seasons while moving into warmer-weather channels and reassorting the line in coming seasons? And then what do we remain with? And how do we reserve appropriately to protect the AUR and gross margin progress that we've done to date. So we really looked at it, a complete life cycle view. That's not a different process. We've been doing that process for well over two years. The magnitude and the onetime impact was greater. So we – that's why we reflected it. If our NRV reserve is too small or too great, we will take that on what we reserved, we will take that also on a non-GAAP basis below the line, so that you and our investors can track our true progress on gross margin as we move through this COVID environment. So that's our rationale. We'll take – if there is better selling, then you'll see an adjustment on a non-GAAP item in NRV. As a good vendor, I want to remind you that we know that we have made a commitment to…

Thank you. Our next question comes from Ike Boruchow with Wells Fargo.

Hey, good morning, Patrice, Jane, Cory. Glad, you're all doing well.

Thanks, Ike.

Hi.

I guess just two from me. So you gave a lot of helpful color, Jane, on the U.S. reopening – I think – just maybe more enclosed mall. I don't know if you have enough of a sample size, but I'm kind of curious if you have differing results on reopening volume there. And then you talked about off price exposure, kind of coming up a little bit. You guys have spoken about bringing that down for the past couple of years. Does the new world we're in right now kind of change your thought process on that? Do you kind of need to go back to the off-price channel in a bigger way because of what's going on in the wholesale channel in the U.S.? Would love your thoughts there as well.

Good. So let's start with your first question on open-air malls versus kind of closed malls. Yes, we have seen a difference between open-air malls and closed mall. Open-air malls, obviously, rebounding faster. And to – just to give you a sense of the split of our business with kind of open-air malls and open-air stores versus closed in North America and in Europe, the vast majority of our stores are actually an open-air environment, I think 85% to 90%. So I think from that standpoint, we're actually well positioned as consumers are more comfortable shopping in that space. And then over time, they'll become more comfortable with the closed space, but the vast majority of our business is in open-air. And then in off price, Jane, over to you.

Yes. So I got you. In this quarter, our off-price sales were down on a year-over-year basis. And so that's a combination of working with our partners and we had some excess liquidation. But as I move into next year, we see that that channel will continue to be an opportunity for excess liquidation and it will not be a part of our growth trajectory. I expect it to decline this year on a year-over-year basis. And we worked through – how we're going to work through the inventory by leaning into what we talked about in terms of reassorting the line, extending wear-now season, charitable donations and of course liquidating some excess through, off price, but I don't expect it to be a growth area of our business. Next question, please.

Thanks so much.

Thank you. Our next question comes from Jay Sole with UBS.

Great. Thanks so much. I have two questions. One, Patrice, you mentioned at the top of the call, you're focused on denim this year. A lot of people have been talking about categories like denim maybe – have been a little bit less popular with consumers focusing on, things to wear at home or things to exercise in. And so can you maybe just tell us a little bit more about how you think this pandemic will change consumers’ outlook on denim? And then secondly, given that a lot of talk about the wholesale channel and maybe some store closures out there, how do you feel about your full-price store model in the U.S.? I think instead of rolling out more full-price stores, do you feel comfortable that you have a plan to do that if you need to at this point? Thank you.

Sure. Good morning, Jay. So let's start with the product categories. We are tracking very closely kind of consumer interest across different categories. And you're right that we've seen an acceleration in loungewear, an acceleration in athleisure, we've also seen an acceleration in the home business. The good news with our brand is we're a lifestyle brand, right? So we're not focused only on one category. We actually have a broad range of offerings. And I think we're credible across a broad range of categories. So we will – we have actually started to pivot. If you go on our website, you will see that we've pivoted to a more emphasis on loungewear and athleisure. I don't think we're going to move away from the focus on denim because we expect over the mid to long-term that that continues to be a growth category. But I talked a lot about agility earlier and that's critical for us as we think about consumer behavior. And that's both true in how we engage with consumers in terms of messaging, but also where we put the emphasis from a category standpoint.

Yeah, Jay, we continue to believe that we have a significant opportunity to build stores for FY 2021. We're expecting to open approximately 90 to a 100 stores. We are very happy with our model in Asia and we've been working on penetration in Europe and we're still working on the North America model. We do believe that there's an opportunity but we know that the role of the store is changing. And so we're evaluating our footprint with – to reflect these consumer changes. But we do think that there's an opportunity for us to pivot to DTC, and it remains an important part of our strategy. Next question please?

Got it.

Thank you. Our next question comes from John Kernan with Cowen.

Good morning, Patrice and Jane. Thanks for taking my question.

Good morning. John.

Good morning. John.

Nice job, managing through a difficult environment.

Thank you.

Thank you.

I wanted to take your thoughts on how we should think about the wholesale channel in North America with some of your full-price partners and how they're planning the back half of the calendar year. We've heard orders down in excess of 30%, 40%. Just wondering if the environment ends up being better than what some people have planned to date. Can people chase into that and can you see better trends than maybe some of the numbers we're hearing from the wholesale community to-date?

So with our wholesale partners, we are planning conservatively with them and aligned to what they've indicated in terms of their fall holiday demand. So I think that we are focused on our AUR journey, focus on keeping our inventories well controlled and healthy. So we're planning conservatively, but consistent with our wholesale partners planning. As they move forward, we still see digital as an opportunity for growth there. And we're pursuing that. We were able to cancel about two-thirds of our fall holiday orders, take stock of where we were on an inventory level and then fill in to make sure that we have fulsome assortments for fall holidays that are better aligned to demand. So we've been working on this as we saw the crisis emerge, but we're fully aligned with where our wholesale partners are indicating and conservatively plan.

And I think on your question, John, relative to our ability to chase, which we spent a lot of time on. So we feel that we're in a good place. We've done a lot of work to increase the responsiveness of our supply chain. We have the digitization that I referred to earlier, has obviously been a key enabler to that. The other thing that I think really separates us from many of our peers is core is such an important part of our business, right? And we are known for the number of core iconic SKUs. Now the good news is the core SKUs are the easier and faster SKUs to chase into, right? And we've also platformed fabrics. The team has done a wonderful job platforming the fabrics and various trims and others. So we have the ability on core to go fast. And then finally, and I don't know if you remember when I referred to this, I think it was like two or three quarters ago. We've developed a fast, what we've called the fast track capability internally. I think I gave you the example of this sweatshirt that we had developed with one of our wholesale partners from idea to shipment, 16 days, right, coming from Asia. And I think at Ralph Lauren, sometimes we're known for more longer lead times and days. Sometimes we've been talked about months rather than days. This capability we've scaled up since we developed it. So this fast track capability is – will be a fantastic platform for us to react to what we see in the market as we work with our wholesale partners.

That’s helpful.

All right. Well listen, thanks to all of you for joining our call today. On behalf of all of us here at Ralph Lauren, we wish you and your families, the best of health and safety, take good care. And we'll talk to you in a few months, have a great day. Thank you.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.