Ralph Lauren Corp - Class A (RL) — Q2 2026 Earnings Call Transcript

Good morning, and thank you for joining Ralph Lauren's Second Quarter Fiscal 2026 Conference Call. With me today are Patrice Louvet, the company's President and Chief Executive Officer; and Justin Picicci, Chief Financial Officer. After prepared remarks, we will open up the call for your questions, which we ask that you limit to 1 per caller. During today's call, our financial performance will be discussed on a constant currency adjusted basis. Our reported results, including foreign currency, can be found in this morning's press release. We will also 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. With that, I will turn the call over to Patrice.

Thank you, Corinna. Good morning, everyone, and thank you for joining today's call. More than 8 years ago, we embarked on an ambitious journey of elevation across our brand, our products and our go-to-market strategy around the world, led by Ralph's vision of inspiring the dream of a better life. We put our consumers at the center and placed this company on the path of healthier, more consistent, more sustainable, long-term growth and value creation. In September, we were proud to introduce the latest iteration of this journey, which we are calling our Next Great Chapter: Drive plan. We outlined the vast opportunities still ahead for Ralph Lauren. We currently play in a total addressable premium and luxury market worth $400 billion. And we are just over $7 billion today, with less than a 2% market share. Our strategy to grow our share and deliver long-term sustainable growth over the next 2 years and well beyond continues to be supported by multiple diversified engines. As a reminder, these include: First, elevate and energize our lifestyle brand; second, drive the core and expand for more; and third, win in key cities with our consumer ecosystem. We are off to a strong start in the execution of this plan, with second quarter performance outpacing our expectations across the top and bottom line. These results underscore our diversity of growth opportunities and the broad-based momentum of our iconic brand, which is resonating across generations, cultures and geographies. All 3 regions contributed to growth this quarter, including double-digit increases in retail comps and global wholesale sales. And we achieved this while continuing to elevate our brand and drive higher quality of sales. Our strong performance through the first half of this fiscal year also gives us confidence to take up our full year guidance once again, even as we remain relatively cautious on the second half of the year due to potential consumer headwinds and general volatility. While we are watching the macro environment closely, we remain well positioned to capture market share opportunities across categories and geographies. And we are firmly on offense with a focus on investing behind our brands, products and key city ecosystems to deliver growth for the long term. Let me walk you through a few highlights from the quarter, where we drove progress across our 3 long-term strategic pillars. Starting with our efforts to elevate and energize our lifestyle brand. As many of you heard in September, Ralph Lauren has the most loyal customers in our defined premium and luxury market. Sitting at the heart of culture, we build relationships for life, independent of any single fashion trend or cycle. And by leaning into our inclusive luxury lifestyle positioning, we are engaging with consumers across the many facets of their lives, from the runway, to the biggest stages in sports, music, gaming and more. And all in a way that is authentic to the core values we've embraced for 58 years: Optimism, quality, authenticity, timelessness and the easy elegance of a life well lived. Our teams delivered a powerful range of brand activations this quarter, as we successfully lapped last year's outstanding Paris Summer Olympics. Key highlights included: first, we continue to reinforce our position as one of the leading luxury apparel brands in the world of sports. We celebrated our 20th year as the official sponsor of both Wimbledon and the U.S. Open tennis championships this summer. Our Wimbledon storytelling combined the elegance and cherished traditions of British heritage with Ralph Lauren's refined spectator style. Our U.S. Open campaign paid homage to the most electric main stage in tennis to our colorful retro-inspired collection, delivering record-breaking sales around the event. And as sponsor of the U.S. team, we welcomed the Ryder Cup to Bethpage for the first time this fall. Among our many activations, we took over part of Rockefeller Center Plaza and drove storytelling on social media with Nick Jonas and brand ambassador, Billy Horschel. Together, these sports lifestyle campaigns embodied both the proud tradition of sport and the progressive spirit that propels it forward. They drove a combined 67 billion global impressions and more than $350 million in media value. Next, we hosted our Spring '26 Women's Collection fashion show here in New York City, showcasing a balance of strength and sensuality in a modern palette of black, white and crimson. And beyond the runway, we delivered some of the most iconic celebrity moments of the season, from Taylor Swift and Travis Kelce choosing Ralph Lauren for their viral engagement, to the old Hollywood glamour of Selena Gomez's wedding to Benny Blanco. Our activations are also driving strong sustainable growth in new customer acquisition and retention. In the second quarter, we added 1.5 million new consumers to our DTC businesses, a mid-single-digit increase to last year, driven by digital and full-price store customers. The ongoing momentum this quarter was led by luxury buyers and with balanced growth across men, women and younger cohorts. And we increased our social media followers by high single digits to 67 million, led by Instagram, TikTok, Douyin and LINE. This rolling thunder approach to activations enabled by our strong data and analytics capabilities gives us confidence to continue our brand momentum as we look ahead. Moving to our second key initiative, Drive the Core and Expand for More. Ralph's vision has always been about more than a tie or a polo shirt or a sweater. The heart of what we do is storytelling through our clothes and experiences through the cinematic worlds that Ralph has created. And our unique approach to styling enables customers to step into these worlds to build the wardrobes that tell the story of their lives, from that first red polo shirt in a school picture, to the striped silk polo dress in an engagement photo. This philosophy is embedded in how we drive our core products, as much as it is in our high potential and complementary lifestyle categories. Starting with our core, which represents more than 70% of our business. Core product sales grew mid-teens this quarter, driven by strength in cotton, cable-knit, wool, cashmere and cotton shaker sweaters, linen and seasonal Oxford shirts, our lightweight jackets and our Icon Polo Chino caps. An exciting back-to-school season also drove growth and share gains in our core children's programs, led by cable-knit sweaters, quilted jackets and Oxford shirts. Our high-potential categories, including women's apparel, outerwear and handbags, continue to be accelerators for our business. Together, these categories increased strong double digits, outpacing total company growth in the quarter. Women's apparel continued to be driven by our foundational core, along with a strong response to our seasonal styles. Highlights included our cable-knit jersey and featherweight cashmere sweaters, linen shirts, our transitional city and utility barn jackets and dresses. Momentum in our handbag business continued this quarter, driven by each of our women's labels and led by our foundational Polo ID collection; Polo Play, which launched this past spring and included exciting pop-up shops in Korea this quarter; our women's collection Ralph bags in seasonal region green leather and mocha suede; and an encouraging launch for our Tasha Collection, an elevated new offering in the Lauren family of handbags. Special releases this quarter included our limited edition Polo Ralph Lauren for Oak Bluffs Collection in partnership with Morehouse and Spelman Colleges, a powerful celebration honoring the legacy of Oak Bluffs as a cultural haven for black communities in Martha's Vineyard. Our capsules for Wimbledon, the U.S. Open and Ryder Cup, with strong double-digit comp growth in each collection, led by our Polo Bear and Free Styles. And our newest Ralph's Club New York fragrance launch featuring Usher. We will continue to leverage the unparalleled breadth of our lifestyle product offering and the power of our icons as consumer lifestyles evolve. Turning to our third key initiative, Win in Key Cities with our Consumer Ecosystem. We continue to thoughtfully expand our consumer ecosystems to deepen Ralph Lauren's presence in our top 30 cities around the world, delivering a cohesive, elevated brand experience across each of our channels. At the same time, we've started investing in our next 20 cities, laying the groundwork for long-term sustainable growth. Within DTC, which comprises the majority of our business, we delivered another strong quarter of comp growth across regions. Global comps increased 13%, above our expectations, with double-digit growth in both our digital sites and physical stores. All 3 regions outperformed our expectations again in the second quarter, with double-digit growth in every geography, including North America. Asia once again led our growth, with sales up mid-teens, driven by all key markets. China grew more than 30% in the quarter, ahead of our outlook with a strong consumer response to our brand building activities, including our Summer of Sports campaigns and amplification of our New York Fashion Show. As we continue to reinforce our presence in our top cities, we opened 38 new owned and partner stores globally. We recently announced that we are opening our sixth restaurant, bringing our iconic Polo Bar experience to London. The opening is slated for 2028. And yes, we're already getting requests for tables. And finally, touching on our enablers. Our business continues to be supported by our 5 key enablers. Recent highlights include: first, as part of our focus on delivering advanced technology, AI and analytics. In September, we launched our new AI styling tool, Ask Ralph, that we developed with Microsoft, bringing Ralph's iconic styling right to your pocket. Ask Ralph builds on our history of innovating the consumer shopping experience and immersing our consumers in the world of Ralph Lauren with cutting-edge technology. While still early, customer engagement and feedback have been encouraging. This is an exciting step forward in our journey to test and learn new tools to better serve our consumers, drive conversion and ultimately build lifetime value. Second, our teams and our culture drive our performance. We were proud to be named one of America's Best Employers for Company Culture by Forbes. Finally, Ralph Lauren was honored in Fast Company's 2025 Innovation by Design Awards for our unforgettable brand presence at the 2024 Summer Olympics in Paris. We look forward to building on this legacy, bringing our heritage of sport and style to life at the Milano Cortina Winter Olympics in February. In closing, Ralph and I are incredibly proud and grateful for the hard work, care and dedication that our teams are delivering around the world. Together, we are building on Ralph's legacy and vision with this next great chapter of growth. We remain focused on creating value through a distinct brand position that's clear, consistent, relevant and emotionally resonant. A legacy of leadership in fashion, in culture and in innovation and a proven ability to execute with creativity, agility and operating discipline, all underpinned by our fortress balance sheet and ongoing commitment to embrace new technology and support our teams, partners and communities. With that, I'll hand it over to Justin, and I'll join him at the end to answer your questions.

Thanks, Patrice, and good morning, everyone. Our second quarter results demonstrate strong progress as we embark on our Next Great Chapter: Drive plan, showcasing our team's agility and unwavering focus on execution. Top line performance exceeded our expectations, reaching our highest Q2 revenues since we began our elevation journey more than 8 years ago. Results were driven by broad-based performance across every region and channel, highlighting our brand strength and authentic connection with consumers around the world. Gross and operating margins once again outperformed our outlook as we continue to elevate across all markets. Each of our 3 regions contributed to operating margin expansion despite the volatile global operating environment. We achieved all of this while continuing to invest behind our strategic drivers of long-term growth. As Patrice mentioned, our strong year-to-date results and brand momentum give us confidence to raise our full year outlook, even as we maintain a relatively cautious stance into the second half, given the macroeconomic uncertainty and exceptionally strong prior year comparisons. But first, let me walk you through our financial highlights from the second quarter, which, as a reminder, are provided on a constant currency basis. Total company second quarter revenue growth of 14% was above our high single-digit outlook. By region, Asia and Europe led our performance, with sales increasing 16% and 15%, respectively, followed closely by North America, up 13%. Total company retail comps increased 13%, with ongoing momentum in both our own digital business and stores. Total digital ecosystem sales, including our own sites and wholesale digital accounts, grew double digits, reflecting balanced growth across regions. Total company adjusted gross margin expanded 70 basis points to 67.7%. The increase was driven by AUR growth, favorable mix shift toward our full-price businesses and lower cotton costs, which more than offset tariffs, labor and non-cotton material costs. AUR increased 12% in the second quarter, supported by strong full-price selling trends, reduced discounting, modest targeted pricing growth and favorable product mix. We currently expect high single-digit AUR growth for the second half of fiscal '26 based on similar drivers. Adjusted operating expenses increased 11%, reflecting a 130 basis point decline as a percentage of sales to last year. We delivered leverage across key expense categories, including rent, marketing and selling on better-than-expected sales. Second quarter marketing investments grew 2% to last year. As a percentage of sales, marketing normalized at 7.8% compared to last year's 8.7%, which included our Paris Olympic activations. We now expect marketing as a percentage of sales to be approximately 7.5% in fiscal '26, in line with our long-range plan. Second quarter adjusted operating margin expanded 210 basis points to 13.5%, with adjusted operating income increasing 34%. Moving to segment performance and starting with North America. Second quarter revenue increased 13%, above our expectations with balanced growth across our direct-to-consumer and wholesale businesses. In North America Retail, second quarter comps were up 13%, led once again by our Ralph Lauren stores. Digital comps grew 15%, supported by our strategy of full funnel activations, which drove higher quality of sales. In North America wholesale, revenue also increased 13%, driven by strong performance in digital wholesale and our top premium and luxury doors as well as stronger-than-expected replenishment. We are encouraged by our recent sellout trends but maintain a more measured outlook for the second half of fiscal '26 based on further strategic reductions in off-price sales in the fourth quarter and potential near-term macro pressures across the broader channel. We still plan to exit 90 to 100 wholesale doors in fiscal '26, with approximately half of these related to Hudson's Bay. Moving to Europe. Second quarter revenue increased 15%, exceeding our expectations. Growth was driven by continued momentum across both our retail and wholesale channels. All key markets delivered growth in the quarter, reflecting our ongoing brand strength and elevation. Europe retail comps increased 10% to last year, with strong performance across stores and digital channels. Our Europe digital ecosystem increased double digits, driven by both our wholesale and owned digital businesses. Europe wholesale increased 18%, driven by higher-than-expected reorders and a planned shift in shipments into the first half of the fiscal year, as we previously discussed. The timing shift represented approximately 11 points of the wholesale increase in Q2, with the channel still reflecting healthy underlying growth. Turning to Asia. Second quarter revenue and retail comps each grew 16%, with every key market contributing to growth. China once again led our performance, with sales increasing more than 30% to last year, driven by robust comps and new customer recruitment, enabling our continued outperformance versus peers in the market. Sales in Japan increased high single digits, driven by strong full-price selling and reduced discounting. Building out our digital presence remains a significant long-term opportunity across Asia. We are encouraged by our early progress, including double-digit revenue growth this quarter. We drove meaningful acceleration on our Japan digital site, supported by the recent transition to our global e-commerce operating system. In China, we continue to expand our presence on Douyin since launching our Women's Shop earlier in 2025, including our first Wimbledon live stream digital event this quarter. Moving to the balance sheet. Our strong balance sheet and cash flow generation continue to be powerful enablers of our long-term strategy, supporting both our strategic growth investments and our commitment to shareholder returns. In the second quarter, we finalized the purchase of our Newbury Street store in Boston and also retired our $400 million in senior notes, which matured in September. In addition to our regular dividend, we have repurchased $313 million in shares this fiscal year-to-date, returning a combined total of approximately $420 million to shareholders. We ended the period with $1.6 billion in cash and short-term investments and $1.2 billion in total debt. Net inventory moderated from Q1 levels as planned, increasing 12% to last year, roughly in line with revenue growth. Our inventories are well positioned to meet consumer demand in each of our regions for the holiday season. Looking ahead, our outlook remains based on our best assessment of the current operating environment, geopolitical backdrop and macroeconomic trends. This includes tariffs and other inflationary pressures, supply chain disruptions and foreign currency fluctuations, among other considerations. For fiscal '26, we now expect constant currency revenues to increase in a range of approximately 5% to 7%, up from low to mid-single digits previously. This is slightly ahead of the 3-year guidance we provided in September for year 1 of our long-range plan. Foreign currency is now expected to benefit revenue growth by about 200 to 250 basis points this year. The increased outlook reflects our better-than-expected performance in the first 2 quarters of the year, as well as our continued brand momentum into fall holiday despite the challenging comparisons. With our strong first half results, we now expect North America revenues to be up slightly for the full year versus our prior outlook of a low single-digit decline. We continue to expect Q4 to be the weakest quarter of the year for North America based on our caution around cost inflation related pressures on U.S. consumers, in addition to our planned strategic reductions in off-price wholesale. We expect Europe to grow at the high end of mid-single digits, unchanged from our previous guide, with the first half benefiting from planned wholesale timing shifts, followed by a sequential deceleration due to challenging second half comparisons. Despite the timing shifts, we still expect healthy underlying growth in Europe, in line with our long-term plan. We now expect Asia to be up high single to low double digits for both the second half and the full year, up from high single digits previously. Operating margin is now expected to expand approximately 60 to 80 basis points in constant currency, up from our prior guidance of 40 to 60 basis points, primarily driven by expense leverage. We now anticipate constant currency gross margin to expand about 10 to 30 basis points for the full year, with further growth in AUR, favorable cotton costs and geographic mix more than offsetting pressure from tariffs. Foreign currency is expected to benefit gross and operating margins by about 30 to 50 basis points in fiscal '26. Following our strategic pull forward of receipts, we continue to expect tariff headwinds to ramp up in our fiscal Q3 and become more pronounced into Q4. As a result, we still expect a notable year-over-year gross margin decline in Q4 due to the combination of reciprocal tariffs, unusually strong prior year comparisons and previously discussed timing shifts, all negatively impacting our smallest revenue quarter of the year. We remain confident in our long-term gross margin outlook of 50 to 100 basis points of expansion over the 3 years of our Drive plan, with expansion expected in each year. While we anticipate gross margin pressure over the next few quarters, Q4 of this fiscal year is still expected to be the most negatively impacted quarter, driven by the additional timing-related headwinds. As we move through next fiscal year, we expect to mitigate these pressures more meaningfully as we begin to lap the tariffs and our sourcing shifts and other mitigating actions take effect more broadly. For the third quarter, we expect constant currency revenues to increase approximately mid-single digits, reflecting a slightly improved outlook for the back half of the year versus our expectations in August and coming into the year. Foreign currency is expected to benefit revenues by approximately 150 to 200 basis points. We expect third quarter operating margin to expand approximately 60 to 80 basis points in constant currency. This is driven by 50 to 70 basis points of gross margin expansion, as well as slight operating expense leverage, more than offsetting tariffs and higher marketing investments to support our global holiday activations and Polo Women's fashion presentation in Paris. Foreign currency is expected to benefit gross and operating margins by about 10 and 20 basis points, respectively, in the third quarter. We expect our third quarter tax rate to be in the range of 21% to 23%, and a full year tax rate of approximately 19% to 21%. In closing, we are proud of our team's strong execution and early progress on our Next Great Chapter: Drive plan across the world through the first half of this fiscal year. Even in an operating environment that remains dynamic, our agility, fortress balance sheet, culture of operating discipline and multiple engines of growth give us confidence in our ability to continue delivering sustainable long-term value. As we shape the future of inclusive luxury lifestyle, we remain focused on investing in the key strategic priorities that will enable us to connect with consumers more broadly and deeply than ever before and to continue inspiring them to dream. With that, let's open up the call for your questions.

Congrats on a great quarter. Patrice, so the company continues to outperform expectations despite the caution that you've been calling out. What does your updated outlook for this year assume for health of the consumer, particularly macro assumptions that you embedded for the back half? Have you seen any change in consumer behavior in any key markets today? And then just larger picture, Patrice, if we extend the lens. Could you walk through global brand awareness for Ralph Lauren relative to only 2% market share for the brand today? And just how that supports your revenue targets longer term?

Thank you for your question, Matt. Regarding the first part, we are experiencing strong momentum across our business. Our new strategy, Next Great Chapter: Drive, is effective, and our brand is connecting well with consumers globally. So far, we haven't observed any significant changes in consumer behavior in our main segments or markets. Demand remains robust, and our core consumers are resilient. We are focusing our recruitment on attracting more full-price, less price-sensitive customers with higher basket sizes. From a macro perspective, as price increases occur across various sectors, we are closely monitoring consumer reactions and ensuring our teams remain adaptable. We emphasize our key strategic pillars and invest in areas that will help us sustain momentum and increase market share for the long term. Firstly, we've launched a series of brand-building initiatives to enhance desirability, retention, and engage consumers consistently. This includes impactful fashion shows, inspiring sporting events, and innovative tools like our AI-powered Ask Ralph styling assistant, which will continue to be a priority for our investments. Secondly, we maintain a balanced mix of authentic core products that perform well across economic cycles alongside high-potential categories such as women's apparel, outerwear, and handbags. Both areas are performing well. Lastly, there are numerous global distribution opportunities, including expanding our presence in key cities in China and Western Europe, as well as opening new stores in places like the Bay Area in the U.S. Overall, our consumers are committed to our brand. Even amidst macroeconomic challenges, our business model remains resilient with multiple growth drivers, and we will stay proactive in executing our long-term Drive plan. In terms of global awareness, it is highest in North America, closely followed by Europe. However, we see significant potential in Germany, a market we aim to capitalize on, and we are seeing positive momentum there. In Asia, the situation is mixed; we have a strong brand presence in Japan, opportunities in South Korea, and our greatest awareness potential lies in China, where slightly over half of the population is aware of Ralph Lauren. Awareness varies by market, and as we strive to attract younger consumers, we acknowledge there is work to be done on brand awareness and engagement. It's crucial that we craft stories that resonate with various consumer groups, ensuring our product offerings feature our core icons while also tapping into high-potential categories. We aim to provide a compelling shopping experience, whether online or in stores, in key cities that matter for these groups. We are excited about the opportunities before us in a large and growing market valued at around $400 billion, where we hold less than a 2% market share. Building awareness will help increase our market share, but we are also focused on conversion, basket size, and other revenue growth metrics that our marketing teams are concentrating on.

Justin, the company has successfully driven 8 straight years of AUR growth. Patrice kind of touched on this a little bit, but how are you thinking about using pricing as a lever over the next few quarters before you start to lap tariffs? And how should we think about your ability to mitigate tariffs over time? And how much of your guidance of a second half deceleration is due to your general caution on a consumer slowdown versus true structural or timing shifts this year?

Thanks, Jay. Thanks for the question. Those are a few really important questions. So let me try to take them one by one and see if I can provide some helpful context here. First on pricing. We have a proven multiyear elevation strategy that's driven those sustained AUR gains you referenced in more than 8 years and counting. Our AUR growth has been and continues to be driven by multiple levers, right, investing in our brand, attracting more full-price customers, elevating our product mix, favorable geographic and channel mix and pulling back on discounts in addition to strategic pricing actions. As we talked at our September Investor Day, these drivers are durable into the future. It’s critical. For this fiscal year, we took normal course of business pricing actions for fall as we continue to elevate our brand around the world. With higher tariffs announced, we layered in some additional modest adjustments, both for fall and for spring '26. That's reflected in that high single-digit AUR growth guide we provided for the back half of the year. Your second question on gross margins—we still expect Q4 to be the most impacted quarter this fiscal year, consistent with our planned cadence. It’s a combination of the reciprocal tariffs and the timing shifts we made to accelerate receipts earlier in the year, and this is all happening in Q4, which is our smallest revenue quarter of the year. It’s a transitional quarter, between fall holiday and spring. Even with the year 1 tariff pressure, we're now expecting 10 to 30 basis points of gross margin expansion this fiscal year, better than our initial outlook. Beyond this year, we still expect to mitigate the cost inflation. You'll start to see our broader mitigating actions take shape—country of origin shifts, optimization, merchandising mix actions, and potentially some further targeted pricing. Lastly, on the second half guide—we made some strategic choices to front-load our performance this fiscal year, given the higher level of macro uncertainty as you move through the year and specifically into the back half. That said, we've been able to raise our outlooks for Q3 and Q4 modestly as we move through the first half of the year. We know there are a number of moving parts here. When you adjust for the timing shifts, the strong holiday compares, and the general caution we've called out on the U.S. consumer, our underlying trajectory remains in line with our long-term goal of mid-single-digit growth. Just to summarize—targeted pricing is one of our many durable levers of AUR growth that we're applying this fall and beyond with a focus on value. We continue to feel confident about our ability to expand gross margin and mitigate tariffs both this fiscal year and beyond.

Justin, Patrice, I was hoping you could dive a little bit deeper into the strategic actions that you're taking to engage the North America value-oriented consumer this holiday season. You continue to take a little bit of a conservative approach there, but it looks like you've been outperforming your expectations to date. Wondering what the plan is for this holiday and what you're looking to do if the consumer does look to get a little bit weaker?

Sure. And thanks for the question. As we enter this fall holiday season, we saw some broad-based momentum behind our brand, across markets and channels, including in North America. Over the past 8-plus years, we've been through a number of different iterations of a tough environment, with cost inflation, price inflation, and pressures on the consumer. We've navigated that pretty successfully using a diversified toolkit of levers. The brand is positioned now better than ever during any of those periods. So we know we have confidence that we can navigate through macro pressures. We have real pricing power and we’ve seen our value perception grow progressively along with AUR throughout the elevation journey. When we think about fall holiday, a couple of words come to mind. One is flexibility—we’ve got flexibility in our price architecture to be able to target, in a very selective way, those more value-oriented customers in wholesale and the outlets when the macro pressures tighten, without walking back our broader brand guardrails. The other word that comes to mind is value. We'll remain laser-focused on providing a compelling price value proposition to our customers. By sharpening our marketing and analytics, we’re increasingly getting to know the customer better, allowing us to refine what that sweet spot is in terms of price value.

And Brooke, I might add to Justin's perspective two points: first on branding and the second on product offering. Our storytelling, as you noted, and the range of activations this past quarter were exceptional and have given us momentum going into this holiday season. Our storytelling aims to appeal broadly, including to the more value-sensitive consumers. We've found in the past few quarters that the broad range of marketing activations from sports to fashion presentations and serendipitous celebrity moments have effectively connected with the different consumer segments we target. Our teams in North America are now focusing on better segmentation to ensure that we’re delivering the right message to the right group at the right time. So we're gaining momentum in that regard. On the product side, it’s interesting that across consumer segments, the strategy of driving our core icons and our three high-potential categories is resonating. We're seeing this performance play out at both the upper end of our customer base and within more value-sensitive consumers, which certainly facilitates execution and gives us confidence in winning during this upcoming holiday season.

Congrats on a nice quarter. I want to ask just two. On the AUR, looking at a few metrics here, the global AUR growth rate has been very close to the DTC same-store sales growth rate for a while. You're implying flattish units in the first half, something near that. You consistently tell us it's really attractive new customer growth; so customers are growing, units are not. Is there an opportunity for the units to help you start to outpace the AUR growth as you look at the rest of the year? Then, Patrice, the Investor Day plan looks for EBIT margins in the 15%, 15.5% range by fiscal '28. There's a scenario where you get to that range this year. I guess, it's a jump ball between Patrice and Justin. But in the first year of the plan, I know you clarified that 16% is in the cap. Maybe you can help us frame the long-term opportunity with a nod to the update for the second quarter upside here.

On margin, there's no jump ball. It's always Justin.

In case it was unclear. On the AUR question—we’ve been pretty consistently growing AUR, and you see the AUR gains with the comp gains, showcasing the quality of the revenue we're putting up and the share gains that we’re getting. To your point on units, we’ve been growing units throughout this journey. While earlier in the elevation journey, we had slower unit growth, now, as we're moving through, unit growth is occurring in those areas we've specifically targeted, like our full-price businesses and our digital businesses, and in markets like China, where we know we have outsized growth opportunities. In our accelerator categories, like women's, handbags, and outerwear, we've been seeing unit growth there. When considering the macro environment that we expect in the second half, we are leaning more into AUR versus unit growth given cost inflation pressures. That said, to your point on opportunity, there is certainly a unit growth opportunity, specifically in those areas that are further along on the elevation journey. You will see us focus on and grow units in those areas opportunistically. As the other areas of our business progress, you will see the inflection point in those aspects as well. As for the OI margin question regarding opportunity—16% plus, when you think about longer term, we are committed to balancing delivering on our near-term commitments while reinvesting back into our brand for longer-term sustainable growth. You see us here take up the top and bottom line, and you also see us take up our marketing expectation as we continue to reinvest behind sustainable long-term growth. This philosophy will certainly endure. Moving forward, you'll see us continue to implement efficient SG&A leverage and cost optimization while balancing between profitability gains and reinvestment back into the business.

I think this is for Justin. Wanted to dig more into North America wholesale. You've experienced positive growth for three quarters in a row now but went low double digits this quarter, with an 11-point shift. Some of your comments on the fourth quarter suggest you're pulling back from some unproductive sales. How should we think about the trajectory of North America wholesale? Assuming that shift hurts us in the third quarter, I would love some clarity on your strategy for that channel at this point.

Sure. When you reflect on the underlying quality growth we're observing in our wholesale business, including North America and EMEA, let’s focus on North America. Our brand momentum has been strong, and we’ve delivered better-than-expected performance recently. What’s encouraging is the healthy, high-quality growth we are realizing. Retail efforts are translating into stronger performance in wholesale. Women’s is a strong contributor to this as well. Our growth strategy is balanced with goals for the top-tier doors, digital channels and key cities in partnership with wholesale. There’s a goal of some off-price reduction which we anticipate may impact our business by a couple of points. We also know we must be cautious about the U.S. consumer. As we refine our strategy, we expect some expected pressure in the second half but maintain a positive outlook for the fundamental strength of the business. We plan to continue growing the top-tier while strategically pulling back from unproductive sales.

So nice to see the progress. As you think about your retail distribution, both full price and outlet, anything different you're seeing in outlet compared to full-price? With the AUR increases, what's the trajectory and outlook for outlets globally with the higher-priced product? Lastly, anything on the supply chain that could provide a margin benefit moving forward?

As far as performance is concerned across all our DTC channels, I might even expand that to ralphlauren.com—we're seeing nice, consistent growth in our full-price stores, outlet stores and actually disproportionate growth on digital, which we're excited about. Our marketing activations and product offerings resonate consistently across the three channels. As we gain more precise consumer understanding and segmentation, we're able to better target, particularly through our social media platforms, to maximize performance across all three. To put it simply, we're seeing broadly consistent performance across channels. Moving forward, our expectation is to continue expanding our full-price stores. We opened 38 this quarter. We do not expect to expand our outlet doors; if anything, we’re consolidating locations. We will focus on elevating our presence. Regarding supply chain, our global sourcing is well positioned with strong partnerships and innovative capabilities, allowing us to mitigate the costs of goods effectively, which is a key advantage for us. You'll see those mitigating actions increase as we move through the year into early next year, which will certainly be a lever in managing cost inflation.

On the supply chain piece, our global sourcing and supply chain are well positioned, with long-standing partnerships and a record of significant diversification. We've used this diversification to navigate through ongoing cost landscapes effectively. We maintain alternate sourcing for all key products in more than one center of origin. We’ll begin to ramp up our mitigating actions as the year progresses, which is a key element of our strategy in managing costs.

Patrice, I have to ask about China. I've seen China grew over 30% this quarter. I think that's in line with the prior quarter. Can you talk about what you're seeing there? Is there a rebound in the luxury space, or is it idiosyncratic to Ralph? I would think that's the case, to some degree. And I think—I know you don't guide explicitly for China, but I think you mentioned on a prior call that your expectations were for China to grow low double digits this year. How should we think about growth this year for China?

We always love to talk about China. thank you for your question. We're very pleased with the performance this quarter, up 30%. If you look at our run rates in China, we've been performing strongly for many years now. Why is this? Our strategy at play is that the teams on the ground are doing a brilliant job of executing, building the brand in a way that resonates with the Chinese consumer by leveraging our core items and focusing on our high-potential categories, particularly women's apparel and handbags that are performing well in China. We're actively expanding our footprint across the 6 key cities. This quarter's performance is a result of these actions over time. Although we monitor the economic environment in China, much of our performance is driven by elements that are specific to Ralph Lauren. Keep in mind, the market is significant, and we still have a relatively small share, leaving much room for growth even if the overall category isn’t growing. We guided for low double-digit growth in China, even over a 3-year period for our Next Great Chapter: Drive plan. This guidance was provided just six weeks ago, and it remains unchanged. We feel confident about the balance of growth drivers, such as consistent comp growth quarter-on-quarter, selective store expansion, and an aggressive focus on digital platforms, including social commerce momentum. Together, these strategies provide the groundwork for a robust growth trajectory and enhance our market and customer understanding. We remain optimistic: we're in China for decades.