Ralph Lauren Reports Fourth Quarter and Full Year Fiscal 2020 Results

• Strengthened Balance Sheet and Near-Term Liquidity with over $2 Billion in Cash & Investments and Key Expense Reduction Actions
• Solid Underlying Progress on the Company’s Next Great Chapter Plan in the Fourth Quarter and Fiscal 2020, Excluding COVID-19 and Hong Kong-Related Business Disruptions
• Fourth Quarter Average Unit Retail Increased 8% Driven by Ongoing Brand Elevation and Quality of Sales Initiatives

NEW YORK–(BUSINESS WIRE)–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 ($3.38) on a reported basis and ($0.68) on an adjusted basis, excluding restructuring-related and other charges, for the fourth quarter of Fiscal 2020. This compared to earnings per diluted share of $0.39 on a reported basis and $1.07 on an adjusted basis, excluding restructuring-related and other charges, for the fourth quarter of Fiscal 2019.

For Fiscal 2020, earnings per diluted share was $4.98 on a reported basis and $6.56 on an adjusted basis, excluding restructuring-related and other charges. This compared to earnings per diluted share of $5.27 on a reported basis and $7.19 on an adjusted basis, excluding restructuring-related and other charges, for the full year of Fiscal 2019.

“For more than 50 years, we have embraced the idea of timelessness – it defines not only our products but our business and our culture. It has guided us through the best and the worst of times and will carry us through this unprecedented challenge too,” said Ralph Lauren, Executive Chairman & Chief Creative Officer. “Together our leaders and teams worldwide remain focused on not only enduring through this global pandemic but thriving for decades to come, and supporting the communities where we operate around the world.”

“From the onset of COVID-19, our teams moved quickly around the world to protect the safety and well-being of our employees, consumers, and communities, while also taking steps to ensure our long-term financial health and bring relevant digital commerce and experiences to our consumers,” said Patrice Louvet, President & Chief Executive Officer. “As we manage for the near- and long-term, we remain committed to consistently delivering sustainable growth and value creation for all of our stakeholders. We are confident in our ability to do this thanks to the strength of our business, our balance sheet and our brands, and especially the resilience and commitment of our diverse global teams.”

Mr. Louvet continued, “Reflecting on our performance prior to the crisis, our underlying progress was strong, as our AUR and overall brand elevation journey continued across every region, exceeding our expectations for both the quarter and year.”

COVID-19-Related Business Actions

From the onset of the global COVID-19 pandemic, our priority has been to ensure the safety and well-being of our employees, consumers and the communities in which we operate around the world. Taking into account the guidance of local governments and global health organizations, we previously announced several actions in response to the pandemic, including:

• Employee Support. We took steps from the start of the crisis to protect our teams including freezing all travel, asking employees to work from home, deploying deep cleanings in all work locations and implementing staggered work schedules in our distribution centers. We continue to offer our teams, including those placed on furlough, access to our Employee Relief Fund, which provides grants to Ralph Lauren employees facing special circumstances and financial hardships during this time, including medical, eldercare or childcare needs.
• Giving Back. The Ralph Lauren Corporate Foundation committed $10 million toward emergency COVID-19 relief, with funds allocated to the World Health Organization, our longstanding partners in cancer care, Employee Relief Fund for Ralph Lauren employees, and the Council of Fashion Designers of America (CFDA) / Vogue Fashion Fund for COVID-19 relief. In addition, the Company announced the production of 250,000 masks and 25,000 isolation gowns for donation to workers on the front lines, in partnership with our U.S. manufacturing partners. The Company is also donating 1.5 million clothing products to support hundreds of thousands of frontline workers and families in need around the world through charity networks as well as many of the Company’s long-standing Pink Pony partners focused on cancer care.
• Executive Compensation. Our Executive Chairman and Chief Creative Officer, Ralph Lauren, will forego his entire salary for Fiscal Year 2021 in addition to his full Fiscal Year 2020 bonus. Our President & Chief Executive Officer, Patrice Louvet, will reduce his salary by 50% during the crisis. Every other member of the Executive and Global Leadership Team, a group of 140 business leaders across the Company, will reduce their salaries by 20% for the first quarter of Fiscal 2021. Lastly, our Board of Directors will forego their quarterly cash compensation for the first quarter of Fiscal 2021.
• Employee Furloughs and Compensation. The majority of our store employees in North America, Europe, and other parts of the world were paid at their normal compensation from the time store closures went into effect in mid-March through April 11, 2020. Subsequent to that date, a substantial portion of our store employees and a portion of our corporate employees were placed on unpaid temporary furlough, with benefits including healthcare. International store employees in regions where retail operations remain closed will receive compensation as guided by local governments and authorities.
• Temporary Store Closures. Since the start of the pandemic, we closed a substantial number of stores across each of our reportable regions. We are assessing reopenings on a location-by-location basis, as guided by local governments and health authorities. We have also reopened approximately two thirds of our stores in Europe and nearly half of our stores in North America through the last half of May. As we reopen stores, we are implementing new health and safety protocols and required training for all store employees before returning to work, along with new ways of engaging with consumers.
• Online Operations. Our digital flagship businesses and fulfillment operations resumed following a brief closure period in late March to enhance health and safety protocols in our distribution centers. We continue to adhere to health protocols in our distribution centers including extensive deep cleanings, social distancing and staggered work shifts and break schedules. As consumers increasingly embrace omni-channel retailing, we are bolstering our connected retailing capabilities including digital clienteling, Buy Online Ship From Store, Buy Online Pick Up From Store, curbside pickup, and other initiatives.
• Balance Sheet and Liquidity Considerations. In addition to a robust balance sheet going into the pandemic, the Company has taken further preemptive actions to preserve cash and strengthen its liquidity while navigating the evolving global pandemic, including: careful management of expenses; reduced or delayed capital expenditures and inventory commitments; drawing down $475 million from the Company’s Global Credit Facility to bolster cash balances; halting any incremental share repurchases during the COVID-19 crisis; and temporary suspension of the Company’s quarterly cash dividend.
• Supplier Payments. Our suppliers around the world are another critical stakeholder for our Company. In accordance with our responsible purchasing practices, we committed to settling payment for all finished goods and goods already in production.

Key Achievements in Fiscal 2020

We delivered across the following strategic initiatives in the fourth quarter and full year Fiscal 2020:

• Win Over a New Generation of Consumers
  • Marketing investments increased 3% to last year in Fiscal 2020 in constant currency, driven by unique and engaging brand building campaigns and social media activations including Ralph’s Club Fashion Show, Wimbledon and US Open Partnerships, Earth Polo launch, and our Holiday campaigns
  • As consumer priorities and behavior shifted in the fourth quarter due to the spread of COVID-19 across each of our key regions, we focused our communication on more socially-relevant topics including our philanthropic investments; we also pivoted to highlight relevant categories like loungewear and home, which successfully drove increased consumer engagement
• Energize Core Products and Accelerate Under-Developed Categories
  • Average unit retail across our direct-to-consumer network grew 8% in the fourth quarter and 3% for full year Fiscal 2020 driven by our ongoing initiatives to elevate our product assortment, improve quality of sales, and drive targeted price increases
  • Continued to build our high-potential under-developed categories, with ongoing momentum led by outerwear and denim
• Drive Targeted Expansion in Our Regions and Channels
  • Expanded our global distribution with 25 net new stores and concessions globally and partnered with over 40 new digital pure players as part of our ecosystem approach of high productivity, small-format stores and digital commerce
  • Strong continued momentum in Chinese mainland, with Fiscal 2020 sales up double-digits to last year in constant currency, despite declines in the fourth quarter due to COVID-19
  • Encouraging recent path to recovery in Chinese mainland and Korea, with strong digital growth in the fourth quarter and a return to positive sales growth in mainland China in early May
• Lead with Digital
  • Global digital revenue grew high-single digits to last year in constant currency in Fiscal 2020, led by strong double-digit growth in Asia and Europe
  • Continued to invest in digital partnerships and capabilities, including: launch of localized digital sites in Europe, innovative new omni-channel functionality, and expansion into new digital distribution platforms including rental, subscription, resale, and social commerce, with the recent launch of Instagram Checkout
• Operate with Discipline to Fuel Growth
  • Maintained balance sheet strength with $2.1 billion in cash and investments, providing ample near-term liquidity
  • Inventories declined 10% at the end of Fiscal 2020, reflecting a higher level of inventory reserves to keep inventories current and healthy across our distribution channels
  • Successfully completed the consolidation of our corporate real estate footprint in New York and New Jersey, driving cost savings and enhanced collaboration among our teams

Fourth Quarter Fiscal 2020 Income Statement Review

Net Revenue. In the fourth quarter of Fiscal 2020, revenue declined 15% to $1.3 billion on a reported basis and was down 14% in constant currency. The decline in revenue reflects adverse impacts related to COVID-19 and Hong Kong protest business disruptions.

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

• North America Revenue. North America revenue in the fourth quarter decreased 11% to $629 million, including adverse impacts related to COVID-19 business disruptions across distribution channels. North America wholesale revenue was down 12% to last year. In retail, comparable store sales in North America were down 13%, including a 15% decline in brick and mortar stores and a 7% decrease in digital commerce.
• Europe Revenue. Europe revenue in the fourth quarter decreased 19% to $353 million on a reported basis and decreased 16% to last year in constant currency, reflecting adverse impacts related to COVID-19 business disruptions across channels. In retail, comparable store sales in Europe were down 16% on a constant currency basis, driven by an 18% decrease in brick and mortar stores and a 2% decrease in digital commerce. Europe wholesale revenue decreased 21% on a reported basis and decreased 18% in constant currency.
• Asia Revenue. Asia revenue in the fourth quarter decreased 22% to $214 million on a reported basis and decreased 21% in constant currency, including adverse impacts related to COVID-19 and Hong Kong protest business disruptions. Comparable store sales in Asia decreased 23% in constant currency, with a 15% increase in digital commerce operations more than offset by brick and mortar declines during the period due to COVID-19-related store closures.

Gross Profit. Gross profit for the fourth quarter of Fiscal 2020 was $594 million and gross margin was 46.7%. On an adjusted basis, gross margin was 59.1% compared to 60.1% in the prior year period. Foreign currency negatively impacted gross margin by 20 basis points in the fourth quarter.

Operating Expenses. Operating expenses in the fourth quarter of Fiscal 2020 were $878 million on a reported basis, including $82 million in restructuring-related and other charges. On an adjusted basis, excluding such charges, operating expenses were $796 million, down 2% to prior year.

Adjusted operating expense rate was 62.5%, compared to 53.8% in the prior year period, excluding restructuring-related and other charges, primarily due to fixed expense deleverage.

Operating Income. Operating loss for the fourth quarter of Fiscal 2020 was $284 million on a reported basis, including restructuring-related and other charges of $241 million, and operating margin was (22.3%). Adjusted operating loss was $43 million, compared to adjusted operating income of $96 million for the fourth quarter of Fiscal 2019, excluding restructuring-related and other charges from both periods. Foreign currency negatively impacted operating margin by 40 basis points in the fourth quarter.

• North America Operating Income. North America operating loss in the fourth quarter was $74 million on a reported basis and $69 million on an adjusted basis. Adjusted North America operating margin was 10.9%, compared to adjusted operating margin of 15.9% for the fourth quarter of Fiscal 2019.
• Europe Operating Income. Europe operating income in the fourth quarter was $4 million on a reported basis and $49 million on an adjusted basis. Adjusted Europe operating margin was 13.8%, compared to 23.6% for the fourth quarter of Fiscal 2019. Foreign currency negatively impacted adjusted operating margin rate by 90 basis points in the fourth quarter.
• Asia Operating Income. Asia operating loss in the fourth quarter was $11 million on a reported basis. On an adjusted basis, Asia operating income was $8 million. Adjusted Asia operating margin was 3.5%, compared to 14.3% for the fourth quarter of Fiscal 2019. Foreign currency negatively impacted adjusted operating margin rate by 10 basis points in the fourth quarter.

Net Income and EPS. On a reported basis, net loss in the fourth quarter of Fiscal 2020 was $249 million or ($3.38) per diluted share. On an adjusted basis, net loss was $50 million, or ($0.68) per diluted share, excluding restructuring-related and other charges. This compared to a net income of $32 million, or $0.39 per diluted share on a reported basis, and net income of $85 million, or $1.07 per diluted share on an adjusted basis, for the fourth quarter of Fiscal 2019.

In the fourth quarter of Fiscal 2020, the Company had an effective tax rate of approximately 13% on a reported basis and (28%) on an adjusted basis, excluding restructuring-related and other charges. This compared to a reported and adjusted effective tax rate of approximately 11% and 18%, respectively, in the prior year period.

Full Year Fiscal 2020 Income Statement Review

Net Revenues. For Fiscal 2020, revenue decreased 2% to $6.2 billion on a reported basis and decreased 1% in constant currency. Full year revenue includes adverse impacts related to COVID-19 and Hong Kong protest business disruptions.

• North America Revenue. For Fiscal 2020, North America revenue decreased 2% on a reported basis to $3.1 billion.
• Europe Revenue. For Fiscal 2020, Europe revenue decreased 3% to $1.6 billion on a reported basis. In constant currency, revenue increased 1%.
• Asia Revenue. For Fiscal 2020, Asia revenue decreased 2% to $1.0 billion on a reported basis. In constant currency, revenue decreased 1%.

Gross Profit. Gross profit for Fiscal 2020 was $3.7 billion on a reported basis, including $160 million in inventory-related charges, and gross margin was 59.3%. On an adjusted basis, gross margin was 61.9%, 20 basis points higher than the prior year, excluding non-routine inventory-related charges from both periods. Foreign currency negatively impacted gross margin by 10 basis points in Fiscal 2020.

Operating Expenses. For Fiscal 2020, operating expenses were $3.3 billion on a reported basis, including $155 million in restructuring-related and other charges. On an adjusted basis, operating expenses were $3.2 billion, flat to the prior year. Adjusted operating expense rate was 51.6%, 140 basis points above Fiscal 2019, excluding restructuring-related and other charges from both periods.

Operating Income. Operating income for Fiscal 2020 was $317 million, including restructuring-related and other charges of $315 million. On an adjusted basis, operating income was $632 million compared operating income of $725 million for the prior year period, excluding restructuring-related and other charges from both periods.

• North America Operating Income. North America operating income in Fiscal 2020 was $487 million and operating margin was 15.5% on a reported basis, including restructuring-related and other charges. On an adjusted basis, North America operating income in Fiscal 2020 was $630 million and operating margin was 20.1% compared to adjusted operating margin of 21.5% in Fiscal 2019.
• Europe Operating Income. Europe operating income in Fiscal 2020 was $336 million and operating margin was 20.6% on a reported basis, including restructuring-related and other charges. On an adjusted basis, Europe operating income in Fiscal 2020 was $381 million and operating margin was 23.3%, compared to adjusted operating margin of 23.9% in Fiscal 2019.
• Asia Operating Income. Asia operating income in Fiscal 2020 was $125 million and operating margin was 12.3% on a reported basis, including restructuring-related and other charges. On an adjusted basis, Asia operating income in Fiscal 2020 was $147 million and operating margin was 14.4%, compared to adjusted operating margin of 16.0% in Fiscal 2019.

Net Income and EPS. In Fiscal 2020, on a reported basis, net income was $384 million or $4.98 per diluted share. On an adjusted basis, net income was $506 million, or $6.56 per diluted share, excluding restructuring-related and other charges. This compared to a net income of $431 million, or $5.27 per diluted share on a reported basis, and net income of $588 million, or $7.19 per diluted share, excluding restructuring-related and other charges, for Fiscal 2019.

For Fiscal 2020, the Company had an effective tax rate of approximately (18%) on a reported basis and 22% on an adjusted basis, excluding restructuring-related and other charges. This compared to a reported and adjusted effective tax rate of approximately 26% and 21%, respectively, in the prior year.

Balance Sheet and Cash Flow Review

The Company ended Fiscal 2020 with $2.1 billion in cash and investments and $1.2 billion in total debt, compared to $2.0 billion and $689 million, respectively, at the end of Fiscal 2019. During the fourth quarter, the Company drew down $475 million from its Global Credit Facility as part of several pre-emptive actions to preserve cash and strengthen its liquidity while navigating the evolving global pandemic.

Inventory at the end of Fiscal 2020 was $736 million, down 10% compared to the prior year period. The decline in inventory primarily reflected a significant increase in inventory reserves related to COVID-19 business disruptions.

The Company had $270 million in capital expenditures in Fiscal 2020, compared to $198 million in the prior year period. The increase was primarily related to office consolidation in the New York/New Jersey area and continued enhancements to our global information technology systems, partly offset by lower expenditures in our North America business compared to the prior year period.

Prior to the COVID-19 crisis, the Company repurchased approximately $152 million of Class A Common Stock in the fourth quarter for a total of approximately $650 million in Fiscal 2020.

Full Year Fiscal 2021 and First Quarter Outlook

Due to the high level of uncertainty and evolving situation surrounding COVID-19, we are suspending all future guidance.

We expect our financial results for both periods to be significantly negatively impacted by the pandemic. Though the timing and path of recovery in each market presents many uncertainties, we have developed scenarios through which we plan to safely return our businesses to growth and value creation.

Conference Call

As previously announced, the Company will host a conference call and live online webcast today, Wednesday, May 27, 2020, at 9:00 A.M. Eastern. Listeners may access a live broadcast of the conference call on the Company’s investor relations website at http://investor.ralphlauren.com or by dialing 517-623-4963 or 800-857-5209. To access the conference call, listeners should dial in by 8:45 a.m. Eastern and request to be connected to the Ralph Lauren Fourth Quarter 2020 conference call.

An online archive of the broadcast will be available by accessing the Company’s investor relations website at http://investor.ralphlauren.com. A telephone replay of the call will be available from 12:00 P.M. Eastern, Wednesday, May 27, 2020 through 6:00 P.M. Eastern, Wednesday, June 3, 2020 by dialing 203-369-3154 or 888-437-4641 and entering passcode 5933.

ABOUT RALPH LAUREN

Ralph Lauren Corporation (NYSE:RL) is a global leader in the design, marketing and distribution of premium lifestyle products in five categories: apparel, footwear & accessories, home, fragrances, and hospitality. For more than 50 years, Ralph Lauren’s reputation and distinctive image have been consistently developed across an expanding number of products, brands and international markets. The Company’s brand names, which include Ralph Lauren, Ralph Lauren Collection, Ralph Lauren Purple Label, Polo Ralph Lauren, Double RL, Lauren Ralph Lauren, Polo Ralph Lauren Children, Chaps, and Club Monaco, among others, constitute one of the world’s most widely recognized families of consumer brands. For more information, go to http://investor.ralphlauren.com.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This press release, and oral statements made from time to time by representatives of the Company, may contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding, among other things, our current expectations about the Company’s future results and financial condition, revenues, store openings and closings, employee reductions, margins, expenses, earnings, and citizenship and sustainability goals and are indicated by words or phrases such as “anticipate,” “outlook,” “estimate,” “expect,” “project,” “believe,” “envision,” “can,” “will,” “goal,” “target,” and similar words or phrases. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from the future results, performance or achievements expressed in or implied by such forward-looking statements.

Contacts

Investor Relations:

Corinna Van der Ghinst

ir@ralphlauren.com
Or

Corporate Communications

rl-press@ralphlauren.com

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