Ralph Lauren Reports Second Quarter Fiscal 2021 Results

• Maintained Balance Sheet Strength and Liquidity with $2.4 Billion in Cash and Investments and Continued Expense Reductions and Inventory Discipline
• Second Quarter Revenues Were $1.2 Billion Reflecting Continued Recovery from COVID-19-Related Impacts, Led by Chinese Mainland Returning to Pre-COVID Growth Rates
• Second Quarter Average Unit Retail Increased 26% Driven by Ongoing Brand Elevation and Favorable Geographic and Channel Mix Shifts
• Announced Restructuring Actions to Position the Company for Future Growth, Beginning with Organizational Realignment and Transition of Chaps Brand to a Fully Licensed Business

NEW YORK–(BUSINESS WIRE)–Oct. 29, 2020– Ralph Lauren Corporation (NYSE:RL), a global leader in the design, marketing, and distribution of premium lifestyle products, today reported earnings per diluted share of ($0.53) on a reported basis and $1.44 on an adjusted basis, excluding restructuring-related and other net charges, for the second quarter of Fiscal 2021. This compared to earnings per diluted share of $2.34 on a reported basis and $2.55 on an adjusted basis, excluding restructuring-related and other net charges, for the second quarter of Fiscal 2020.

“The strength of our timeless brand and the values that have always been our touchstone continue to anchor us through this period of change and uncertainty,” said Ralph Lauren, Executive Chairman and Chief Creative Officer. “While this is a very trying time for the world, I am eternally optimistic about our ability to take the great learnings and creativity that have emerged from this time to become even stronger.”

“Looking across the first half of the fiscal year, we continued our elevation journey while fast-tracking Connected Retail and our company-wide digital transformation,” said Patrice Louvet, President and Chief Executive Officer. “We also began the hard but necessary work of simplifying our organizational and cost structures to position the company for future growth. Looking ahead, we will continue to work proactively to deliver an elevated experience that inspires consumers around the world and creates value for all of our stakeholders.”

Key Achievements in Second Quarter Fiscal 2021

As we continued to navigate the evolving global retail environment, we delivered the following highlights across our strategic priorities in the second quarter of Fiscal 2021:

• Win Over a New Generation of Consumers
  • Engaged with new and existing consumers through a continued focus on digital activations and key brand moments across social media, sports, and music. Second quarter highlights included our Ralph Lauren x Bitmoji Collection, the first-ever customizable branded wardrobe for Snapchat, our sponsorship of the US Open Tennis Championship, outfitting BTS’ official music video for “Dynamite,” our partnership with popular Netflix show Elite and an exclusive virtual concert experience featuring Chance the Rapper at our Chicago flagship
  • Continued to drive authentic campaigns that empower our communities and embody our core Ralph Lauren values, including our Design for Good competition benefiting COVID-19 relief and our 20^th Anniversary Pink Pony Collection in the fight against cancer
  • Early consumer segmentation efforts in our digital commerce and factory channels are contributing to revenues and gross margins through the expanded use of personalized communications and promotional offers
• Energize Core Products and Accelerate Under-Developed Categories
  • Continued to evolve our product mix to align with changing consumer preferences by region, including a return to pre-COVID categories in Asia and Europe and more casual assortments in North America. Second quarter AUR increased 26% with strong double-digit growth in North America and Europe
  • Moved effectively through core product and wear-now summer categories during the quarter while prudently building into key seasonal categories such as sweaters, fleece and outerwear in order to position our brands well for the upcoming fall/holiday period
  • Partnered with key digital pure play retailers including Zalando, Asos and Urban Outfitters to deliver exclusive capsule collections in the quarter, driving strong engagement with Gen Z consumers
• Drive Targeted Expansion in Our Regions and Channels
  • Performance improved sequentially across all regions in the quarter led by our digital channels, despite further disruptions from COVID-19 and cautious consumer behavior
  • Chinese mainland performance continued to improve, with second quarter sales increasing more than 30% to last year in constant currency, recovering to pre-COVID trends
• Lead With Digital
  • Global owned digital sales increased mid-teens to last year, with double-digit growth in all regions. North America digital sales accelerated, with sales to domestic customers up high-teens
  • Continued to expand our offering of Connected Retailing capabilities to enhance the consumer experience, which now include: virtual clienteling, Buy Online-Ship to Store, Buy Online-Pick Up in Store, curbside pickup, appointment scheduling, and mobile checkout and contactless payments
• Operate With Discipline to Fuel Growth
  • Adjusted operating expenses decreased 19% to last year, primarily driven by savings from employee furloughs, lower rent and reductions in corporate expenses
  • Inventories declined 12% at the end of the quarter, reflecting continued efforts to ensure healthy inventory positions across geographies and channels
  • Continued improving our speed-to-market despite a challenging global supply chain environment, with 25% of our orders completed in lead times of three months or less, compared to a single-digit penetration last year

Second Quarter Fiscal 2021 Income Statement Review

Net Revenue. In the second quarter of Fiscal 2021, revenue decreased by 30% to $1.2 billion on a reported basis and was down 31% in constant currency, with declines across all regions due to COVID-19 related impacts. Foreign currency favorably impacted revenue growth by approximately 100 basis points in the second quarter.

Revenue performance for the Company’s reportable segments in the second quarter compared to the prior year period was as follows:

• North America Revenue. North America revenue in the second quarter decreased 38% to $543 million. In retail, comparable store sales in North America were down 32%, with a 40% decrease in brick and mortar stores partly offset by a 10% increase in digital commerce. North America wholesale revenue decreased 46%.

• Europe Revenue. Europe revenue in the second quarter decreased 25% to $359 million on a reported basis and decreased 28% in constant currency. In retail, comparable store sales in Europe were down 29%, with a 35% decrease in brick and mortar stores partly offset by a 26% increase in digital commerce. Europe wholesale revenue decreased 23% on a reported basis and decreased 27% in constant currency.

• Asia Revenue. Asia revenue in the second quarter decreased 7% to $237 million on a reported basis and decreased 8% in constant currency basis. Comparable store sales in Asia decreased 11%, with a 12% decline in our brick and mortar stores partly offset by a 32% increase in digital commerce.

Gross Profit. Gross profit for the second quarter of Fiscal 2021 was $799 million and gross margin was 67.0%. Adjusted gross margin was 66.5%, 500 basis points above the prior year on a reported basis and up 480 basis points in constant currency. Gross margin expansion was primarily driven by AUR growth across all regions as well as favorable geographic and channel mix shifts partly due to COVID-19.

Operating Expenses. Operating expenses in the second quarter of Fiscal 2021 were $820 million on a reported basis. On an adjusted basis, operating expenses were $643 million, down 19% to last year, primarily driven by savings from employee furloughs as well as reduced corporate and selling expenses. Adjusted operating expense rate was 53.9%, compared to 46.6% in the prior year period.

Operating Income (Loss). Operating loss for the second quarter of Fiscal 2021 was $20 million and operating margin was (1.7%) on a reported basis. Adjusted operating income was $151 million and operating margin was 12.6%, 230 basis points below the prior year. Operating income (loss) for the Company’s reportable segments in the second quarter compared to the prior year period was as follows:

• North America Operating Income. North America operating income in the second quarter was $123 million on a reported basis and $118 million on an adjusted basis. Adjusted North America operating margin was 21.7%, down 10 basis points to last year.

• Europe Operating Income. Europe operating income in the second quarter was $84 million on a reported basis and $100 million on an adjusted basis. Adjusted Europe operating margin was 27.8%, down 150 basis points to last year. Foreign currency favorably impacted adjusted operating margin rate by 30 basis points in the second quarter.

• Asia Operating Income. Asia operating income in the second quarter was $41 million on both a reported and adjusted basis. Adjusted Asia operating margin was 17.4%, up 120 basis points to last year. Foreign currency favorably impacted adjusted operating margin rate by 10 basis points in the second quarter.

Net Income (Loss) and EPS. Net loss in the second quarter of Fiscal 2021 was $39 million, or ($0.53) per diluted share on a reported basis. On an adjusted basis, net income was $107 million, or $1.44 per diluted share. This compared to net income of $182 million, or $2.34 per diluted share on a reported basis, and net income of $198 million, or $2.55 per diluted share on an adjusted basis, for the second quarter of Fiscal 2020.

In the second quarter of Fiscal 2021, the Company had an effective tax rate of approximately (34%) on a reported basis and 25% on an adjusted basis. This compared to an effective tax rate of approximately 23% on both a reported and adjusted basis in the prior year period.