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Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren First Quarter Fiscal Year 2027 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Ms. Corinna Van der Ghinst. Please go ahead.

Good morning. Thank you for joining Ralph Lauren's First Quarter Fiscal 2027 Conference Call. Joining 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 one 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.

And with that, I'll turn the call over to Patrice.

Thank you, Corey. Good morning, everyone, and thank you for joining today's call. We are off to a strong start in the second year of our Next Great Chapter: Drive plan. Around the world, the core brand values that Ralph envisioned when he started this company nearly 60 years ago, authenticity, quality, timeless style, are resonating powerfully across generations and geographies. And we are connecting with and engaging consumers as only Ralph Lauren can, inspiring people to step into their dream of a better life. This strengthening brand desirability across lifestyle categories, channels and regions is translating into healthy, consistent, sustainable growth and value creation for our business.

In the first quarter, our top and bottom line results exceeded our expectations, supported by our diversified drivers of growth. Revenues increased 13%, including double-digit growth in both Asia and North America and mid-single-digit growth in Europe. Performance was balanced across global DTC comps and wholesale up 12% and 13%, respectively, in constant currency. And we achieved this all while continuing to improve our quality of sales with increased full price selling and investing back into our key strategic priorities.

Notably, a rolling thunder of brand activations, new AI capabilities and expanding our key city ecosystems, along with returning cash to shareholders. With first quarter revenues and gross and operating margins ahead of the expectations we outlined in May, we have confidence in raising our full year outlook to reflect our first quarter over delivery even as we continue to take a measured approach to the macro backdrop in Europe, in particular.

Despite dynamic global operating conditions, we remain on offense based on our continued commitment to invest behind our brands, driving high-quality new customer recruitment and retention. Our strong and growing geographical presence anchored in our key cities in each region, and our strategic investments in advanced analytics, technology and AI to better serve our consumers and drive greater efficiencies in our business, all underpinned by our strong balance sheet and operating discipline.

Let me take you through a few recent highlights across the 3 strategic pillars of our plan. 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.

Starting with our efforts to elevate and energize our lifestyle brand. At the intersection of culture, style and luxury, the Ralph Lauren brand continues to captivate new generations while deepening its connection with existing consumers around the world. Through our fashion shows, key city campaigns, celebrations of important historical moments and heritage sporting events, we are bringing the world of Ralph Lauren to life in distinct and immersive ways. We are leveraging our unique lifestyle authority to create bold innovative experiences that engage, inspire, and strengthen brand desirability.

Key highlights from the first quarter included: first, in celebration of America's 250th anniversary, we unveiled our American Icons collection of commemorative stamps with the U.S. Postal Service, making Ralph, the first designer ever invited to have this honor. The curated collection aligns with our brand's enduring creative vision, which is deeply rooted in the tapestry of American heritage, landscapes, cultures and artistry.

We also invited consumers to step into our vision of timeless style through our Spring '26 global campaign, A Sporting Life, a tribute to sophistication and sport with events in the Hamptons, Pebble Beach and beyond. Our men's Purple Label and Polo Fashion Show at our Palazzo in Milan, capturing the spirit of adventurous travel through reimagined icons, where we welcome guests, including Lewis Hamilton, Maluma, Henry Golding, Tom Hiddleston and more. Our home presentation during Salone del Mobile, also in Milan transformed Palazzo Ralph Lauren into an immersive celebration of design and craftsmanship.

And the launch of our newest book, Ralph Lauren Catwalk, which chronicles more than 50 years of our iconic womenswear shows and marking the first time an American designer has been featured in this prestigious series.

In Asia, we kicked off a year-long celebration of 50 years in Japan with the launch of our Very Ralph documentary at the Landmark Akasaka Palace, and we hosted activations around the 20th anniversary of our Omotesando flagship in Tokyo. And finally, reinforcing our leadership in the world of sports, we hosted our first ever Ralph Lauren Polo Cup in Beijing and Sydney, an elegant live Polo match seamlessly blending equestrian heritage with high fashion and the world of celebrity.

And beyond the quarter, we were proud to once again serve as the official sponsor of Wimbledon, marrying the traditions of the storied tournament with sophisticated spectator style. These activations are driving strong sustainable growth in new customer acquisition and retention.

In the first quarter, we added 1.5 million new customers to our DTC businesses, led by Ralph Lauren stores and our digital commerce sites. We continue to drive progress across brand equity metrics, including increased NPS and luxury perception scores as well as our ongoing recruitment of key consumer cohorts, including women, luxury and younger customers. And we increased our social media followers by high single digits to more than 70 million led by Instagram, LINE, Douyin and TikTok. We look forward to sharing more of our rolling thunder of activations ahead as we continue to build brand desirability across generations around the world.

Moving to our second key initiative, drive the core and expand for more. Our design teams continue to honor the heritage and enduring codes of our brand while thoughtfully evolving them for the way consumers live today, starting with our core, which represents more than 70% of our business. Core product sales grew mid-teens in the first quarter. Recent highlights include a broad range of foundational sweaters, our Linen Oxford and seersucker shirts and our iconic Chino caps. We also introduced our By the Lake children's collection, featuring versatile pieces that provide an easy transition into back-to-school, led by mini cable sweaters, windbreakers and full-zip hoodies. Our high-potential categories, including women's apparel, outerwear and handbags continued to be accelerators for our business. Together, these categories increased more than 20% for the quarter, outpacing total company growth.

In women's, we drove strong performance across cable-knit and jersey sweaters, linen shirts, shirt dresses and cotton chino pants. Our lightweight outerwear, led by our city jacket and oversized windbreaker, along with our fleece programs in both Polo graphics, are driving seasonal newness and consumer engagement. And our spring handbag campaigns continue to focus on our foundational Polo Plaque and Polo ID collections in a colorful array of pebbled leather, denim, beading and seasonal raffia, all ahead of our next foundational launch, the Polo Blaze for Fall '26.

Special releases this quarter included our Wimbledon collection, honoring our heritage of sport, sophistication and timelessness, our latest home collections, Sterling Square and Saddlebrook, inspired by Ralph's homes in New York City and Bedford and the launch of our partnership with Pebble Beach resorts, marking the destination's first and only branded retail concept. As we transition into fall, we will continue to lean into the breadth of our lifestyle product offering, both connecting with consumers around the world while driving resilience in our business.

Turning to our third key initiative, win in key cities with our consumer ecosystem. Our teams continue to set the standard for innovative consumer lifestyle experiences, bringing Ralph Lauren to life in our top 30 cities around the world while also laying the groundwork for long-term growth in our next 20 cities. Within DTC, which comprises the majority of our business, we delivered another quarter of healthy comp growth across regions. Global comps increased 12%, led by our Ralph Lauren stores and digital commerce.

By region, Asia again led our growth with sales up 25%, driven by all key markets. China sales remained strong, increasing more than 40% as we continue to build our brand. Our China performance was supported by local activations such as our Polo Cup, along with further expansion across our top 6 city clusters and on digital. Europe delivered mid-single-digit growth this quarter on top of last year's strong compares, and we continue to drive results ahead of expectations in our largest region, North America, with retail and wholesale both contributing to this quarter's 13% growth.

As we deepen our presence in our top cities, we opened 22 new owned and partner stores globally this quarter. New stores included the Grove in Los Angeles; Stanford Shopping Center in Palo Alto, our second store in the Bay Area ecosystem and first in Silicon Valley, including Ralph's Coffee, Istanbul, new Polo stores in Sydney and Perth and we renovated our highly elevated Bicester outlet outside of London, which also now includes a Ralph's Coffee.

In addition, we expanded our RL mobile app to Korea, our first market to have the app outside of North America, with strong early performance that exceeded our expectations. 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 advanced technology, AI and analytics, we continue to drive progress in enhancing our creativity, productivity and customer engagement. This quarter, we improved user experiences on our digital commerce sites and expanded brand discoverability across key LLMs. We are also participating in select AI tests to understand evolving consumer behavior on these newer platforms. In addition, we were proud to be named one of Time Magazine's World's 100 most influential businesses of 2026, recognizing our company's legacy of style, impactful storytelling and the unique way we transcend generations.

We were also named one of the Wall Street Journal's Best Companies for the future for 2026, highlighting S&P 500 companies that are best positioned to thrive in a rapidly evolving global landscape.

In closing, Ralph and I are encouraged by our brand's continued momentum through the start of fiscal '27. With our diversified drivers of growth and increasingly elevated consumer base, our business model is resilient and delivering consistent performance. We want to thank our teams who are navigating the ever-evolving operating landscape with care and agility and to our customers, thank you for your loyalty and trust.

Looking ahead, we will continue to invest in our key strategic priorities to deliver the sustainable growth, including harnessing the power of our iconic brand, to drive desirability and lifetime value, creating timeless products with a strong value proposition that consumers love and trust and investing in brand experiences that inspire our consumers and immerse them in the world of Ralph Lauren.

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 first quarter performance exceeded our expectations on both the top and bottom line, reinforcing the strength of the Ralph Lauren brand, and the resilience of our diversified global growth drivers. In the midst of a dynamic operating environment, these results underscore our disciplined operating approach and the quality of execution by our teams around the world.

Revenues were up double digits, ahead of our mid- to high single-digit outlook for the quarter, driven by broad-based performance across regions and channels and supported by healthy consumer demand. We continued on our brand elevation journey, with stronger full price selling and reduced promotional activity, driving gross and operating margins above our expectations. At the same time, we reinvested behind our key strategic priorities to support sustainable growth and long-term value creation. As Patrice mentioned, our strong first quarter results and underlying brand momentum give us confidence to raise our full year outlook even as we maintain an appropriately prudent view on Europe due to the macroeconomic uncertainty.

But first, let me walk you through our financial highlights from the first quarter, which, as a reminder, are provided on a constant currency basis. Total company first quarter revenue grew 13% on reflecting better-than-expected performance in both our direct-to-consumer and wholesale channels. By region, Asia led our performance, increasing 25% and followed by North America, up 13% and Europe, up 5%.

Total company retail comps were strong, increasing 12% with balanced contributions from our own digital and brick-and-mortar channels. Total digital ecosystem sales, including our own sites and wholesale digital accounts, grew mid-teens, driven by all regions. Total company adjusted gross margin expanded 130 basis points to 73.6%, underscoring the continued elevation of our business and investments in quality of sales. This resulted in strong AUR growth and favorable mix shift towards our full-price businesses, which more than offset incremental tariff costs and higher labor and noncotton material costs in the quarter.

AUR increased 15%, supported by healthy new customer acquisition and disciplined inventory management, enabling strong full price selling, reduced discounting and selective pricing actions, along with favorable product, channel and geographic mix. We currently expect mid- to high single-digit AUR growth in the second quarter of fiscal '27, reflecting our ongoing brand elevation strategy. Additionally, we now anticipate mid- to high single-digit AUR growth for the full year, with contributions from all regions. We expect this continued AUR growth to more than offset modest pressure from higher freight and tariff costs.

Adjusted operating expenses increased 13%, but declined 10 basis points as a percentage of sales to last year. driven by 90 basis points of leverage in nonmarketing expenses. Marketing increased to 8.2% of sales compared to 7.5% last year, supported by our investments in key brand building activations around the world this quarter, including our Spring Global Campaign and Men's Fashion Show.

We continue to view these marketing investments as critical drivers of long-term brand desirability, customer acquisition and lifetime value. And with compelling ROI behind these activities, we still expect marketing as a percentage of sales to step up to approximately 8% in fiscal '27. First quarter adjusted operating margin expanded 150 basis points to 18.5%, ahead of our plan, while operating income grew 23%.

Turning to segment performance and starting with North America. First quarter revenue grew 13%, above our expectations. In North America Retail, first quarter comps increased 9%, led by our full-price channels. Digital comps increased 8%, reflecting solid traffic trends and benefiting from merchandising optimization and our investments in full funnel marketing activations. North America wholesale revenue grew 22% and driven by strong spring sellout trends in replenishment orders, resumed shipments to a luxury wholesale account and a shift in timing of shipments from the fourth quarter of fiscal '26.

Together, the timing shifts and resumed shipments contributed approximately 15 points of growth in the quarter, demonstrating healthy underlying growth. With stronger-than-expected trends in our full-price wholesale business, we plan to accelerate our strategic reduction of off-price sales and exit of lower tier full-price stores in the back half of the year. As a result, we continue to expect stronger North America wholesale performance in the first half, followed by a more pronounced impact from the strategic reductions in the second half, which we expect to more than offset underlying full price growth and result in modest growth for full year fiscal '27.

Turning to Europe. First quarter revenue increased 5%. By market, Germany, Italy and Spain led our performance in the region. Europe retail comps were up 1% on top of a double-digit compare last year, with stronger growth in our own digital business. While store traffic was impacted by the broader macro environment, we continue to outperform market trends with increased conversion rates and basket sizes, through our ongoing brand elevation and targeted consumer engagement initiatives. Europe wholesale increased 8%, also on top of a double-digit compare last year. Results included a roughly 5-point benefit from earlier timing of shipments from the second quarter. While underlying wholesale sellout trends remain in line with our full year outlook, we are proactively managing our selling to maintain healthy inventories in the channel as we continue to take a prudent view of the broader consumer environment.

Moving to Asia. First quarter revenue increased 25% and driven by growth across all key markets. Retail comps grew 23%, with double-digit growth in every channel. Asia digital ecosystem sales also increased double digits with strong contributions from both our own digital commerce sites as well as pure plays. Our full funnel marketing activations continue to strengthen brand affinity across the region with consumers increasingly drawn to our core values, notably, authenticity, quality and timeless style.

By market, China continues to lead our growth with sales up over 40% in the quarter, driven by healthy comps and high-quality new customer recruitment. Japan and Korea also delivered double-digit growth. supported by localized brand activations and strong consumer engagement.

Moving to the balance sheet. Our fortress balance sheet and strong cash flow generation remain important competitive advantages, providing us with the flexibility to make strategic investments, pursue growth opportunities and continue delivering value to shareholders in a dynamic operating environment. During the first quarter, we returned more than $300 million to shareholders through our dividend and repurchases, ending the period with $1.9 billion in cash and short-term investments and $1.2 billion in total debt.

First quarter net inventory decreased 3% in constant currency, driven by disciplined inventory management, the timing shift of receipts in Europe, and lapping higher inventory levels in the prior year as we mitigated the impact of tariffs in North America. Inventory remains healthy across regions and channels and well positioned relative to demand.

Looking ahead, our outlook for fiscal '27 remains based on our best assessment of the current operating environment, including the geopolitical backdrop, foreign currency dynamics and broader macroeconomic trends. For fiscal '27, we expect constant currency revenue to increase mid-single digits to last year on a 52-week comparable basis, now centered around 5% to 6%, up from 4% to 5% previously, reflecting our better-than-expected first quarter results and continued brand momentum despite a volatile global operating environment.

Foreign currency is now expected to negatively impact revenue growth by approximately 50 to 100 basis points this year based on current exchange rates. As a reminder, fiscal '27 includes a 53rd week, which is expected to add approximately 1 point to revenue growth and slightly benefit operating margin.

While our core consumer base has remained resilient through the start of the year, our outlook maintains a prudent view of consumer demand in EMEA as well as modest cost headwinds from energy pricing volatility and U.S. tariffs. By region for fiscal '27, we still expect North America revenue to grow approximately low single digits. We are encouraged by our strong first quarter performance with continued momentum in our direct-to-consumer channel and healthy wholesale sellout.

We still expect this solid growth to be partly offset by accelerated strategic investments in quality of sales and lower tier door exits, notably in the back half of the year as we further elevate our long-term position in the marketplace. We continue to expect Europe revenue to increase approximately low to mid-single digits, with underlying growth tempered by ongoing uncertainty in the consumer environment from elevated energy costs and disruption to Middle East partner sales in tourism as well as lapping strong fiscal '26 compares. And we now expect Asia revenue to increase approximately high single to low double digits, up from our prior outlook of high single-digit growth, driven by our stronger-than-expected Q1 results and ongoing brand momentum and expansion opportunities across key markets in the region.

We now expect full year operating margin to expand approximately 60 to 80 basis points in constant currency, up from our prior guidance of 40 to 60 basis points, driven by our better-than-expected Q1 results. Despite the recent U.S. announcements on Section 301 tariffs, we are maintaining our assumption of approximately 10% tariff rates through the first half of this year, followed by a return to reciprocal rates in the high teens during the second half, in anticipation of additional tariffs.

At the same time, we are raising our full year gross margin outlook to roughly 50 to 70 basis points of expansion, up from our prior expectation of modest expansion, reflecting our stronger-than-expected Q1 performance. We continue to expect both gross and operating margin expansion to be weighted toward the first half of the fiscal year. supported by the timing of key marketing activations relative to the prior year as well as our current tariff assumptions, which remain subject to change.

Foreign currency is still expected to have a roughly neutral impact on gross and operating margins in fiscal '27. Our guidance continues to exclude the impact of tariff refunds, which we are not planning to include in our adjusted non-GAAP results. Consistent with our long-term capital allocation approach, we expect to reinvest any related proceeds back into our business as well as an initiative that advance our values and purpose.

For the second quarter, we expect constant currency revenue to increase approximately mid-single digits, centered around 5% to 6%. Foreign currency is expected to negatively impact revenues by approximately 100 to 150 basis points. We expect operating margin to expand approximately 80 to 100 basis points in constant currency, led by gross margin expansion. Gross margin is expected to benefit from AUR growth as well as favorable product, geographic and channel mix, all reflecting the output of our long-term brand elevation strategy. Foreign currency is expected to have a roughly neutral impact on gross and operating margins in the quarter. We expect our second quarter tax rate to be in the range of 19% to 20%, while the full year tax rate is still expected to be approximately 21% to 22%.

In closing, our teams continue to execute with focus and discipline across both our near- and long-term strategic priorities. The enduring strength of our brand rooted in Ralph's timeless vision continues to resonate with consumers around the world. deepening engagement across geographies and cultures. As we navigate a highly dynamic macro environment, we remain focused on managing industry-wide pressures through our operating discipline, strong balance sheet and organizational agility. At the same time, we are staying on offense and remain committed to investing in our brand our products, our experiences and our capabilities to better serve and create lasting connections with our customers while driving durable growth and long-term value creation.

With that, let's open up the call for your questions.

[Operator Instructions] The first question comes from Matt Boss with JPMorgan.

Congrats on another nice quarter. So Patrice, what's your confidence in sustaining brand momentum through the fiscal year and beyond despite lapping some big moments, including Olympics and Ralph Lauren Christmas. And with more luxury this year, does improvement in the broader luxury market, does that help or hurt your business? And do you need to keep expanding your marketing budget in order to compete? And then just to switch gears, Justin, could you help break down the drivers of more than 100 basis points of gross margin expansion in the first quarter? And just any structural change in the drivers of your gross margin build as we think about the second quarter or the back half of the year?

Matt, thanks for your question. So as you know, we've been on a clear brand elevation journey for nearly a decade now. and our brand equity is stronger than ever across markets and across generations. Sustaining that momentum goes well beyond marketing. It's a multipronged effort across our 3 drive pillars. And if you step back, and I know you care deeply about total addressable markets, as an $8 billion business in a more than $400 billion market, we still see significant opportunity to invest behind our brand and for long-term growth.

Our 3 pillars remain central to that strategy to seize this opportunity, right? First is building brand desirability through our distinctive cinematic storytelling. We continue to amplify evergreen platforms like Wimbledon. You may have seen the grass court that we built in Central Park recently, and we continue to launch immersive campaigns that engage women, luxury and next-gen consumers. We continue to see strong ROI from this rolling thunder of activation, and we remain comfortable with the 8% marketing investment guided for this year, knowing that as we've talked, as we continue to expand margin in the future, we do expect to continue to further invest in marketing.

Second is the unique breadth of our product portfolio. We're leveraging our lifestyle offering across core iconic products, which importantly are resonating across generations, including with the younger generations. And then we're continuing to lean into our high potential categories like women's apparel, outerwear and handbags. We're just at the beginning of this journey across these 3 businesses, right? If you look at the market shares that we've achieved across all 3, it's just the start of an exciting journey. And there, we're delivering timeless value that transcends fashion cycles.

And then third is our immersive channel experiences. We continue to build key CD ecosystems with innovative shopping experiences that deepen consumer connection, and we see that both in consumer recruiting and retention scores and support strong performance across the broad range of regions that we operate in. So all this requires disciplined execution and agility. And while the macro environment remains dynamic, we've shown that we can advance this strategy, our 3 pillars across many different operating environments successfully.

Regarding your point on the luxury market, we've built strong luxury credentials across geographies. And I think that's reflected both in our consumer base and our performance and the type of consumers that we're bringing into the Ralph Lauren family. We also occupy a very distinct space within luxury, what we call inclusive luxury spanning categories and price points across our lifestyle portfolio. And consumers continue to tell us that they see unique value in our offerings from handbags to outerwear and beyond.

I will add that a healthier luxury market would be a tailwind for us, supporting stronger traffic consideration and alignment with our elevated positioning. So looking ahead, our brand is strong. We have multiple growth drivers. We continue to invest as we perform and we remain confident in delivering growth and value creation this year and beyond.

And I'll turn it over to Justin to cover your other questions.

Thanks, Patrice. So Matt, on the drivers of the gross margin. So Q1 gross margin was ahead of expectations driven by better-than-expected AUR growth and some favorable geo and channel mix and that more than offset incremental tariffs and some nonmaterial cost pressure. Our gross margin expansion is really underpinned by structural durable drivers, and that really gives us confidence in the continued progression from here. From a quarterly cadence perspective, we still are expecting gross margin expansion to be stronger first half, and that's largely due both to our Q1 outperformance and to that tariff assumption that we're making, which is the lower prevailing tariff rate of about 10% through that relief period end of July. And then back to the reciprocal rate assumptions for the balance of year.

For Q2 specifically, we guided gross margin 80 to 100 basis points of expansion. That's really driven by AUR growth as well as favorable product geo and channel mix. On the full year, we did kick up our gross margin expansion guide up from expedition of modest expansion to 50 to 70 bps of expansion, and that's really based on that strong performance. So we feel really good about the trajectory that we're on and the durability behind the drivers.

The next question comes from Jay Sole with UBS.

Justin AUR continues to exceed your expectations. How much further do you think the Ralph Lauren brand has to go on the elevation journey from here, especially if the pricing environment becomes more challenging? And can you give us any color around recent performance or quarter-to-date trends, given mixed industry reads over the past few months? And then Patrice, I also want to just ask you if you can expand on China. You talked a lot about brand momentum, but 40% growth in China is really impressive. How should we think about the possibility of that kind of demand and that kind of growth continuing as we go through the rest of the year and into next year?

Thanks for the question, Jay. I'll kick us off. So for us, brand elevation is not a destination, it's an ongoing journey. And we're still in the early innings of unlocking the full potential of our lifestyle brand. An important context to remember here with AUR is that AUR is an outcome of our strategy. It's not an objective in and of itself, right? We're elevating across product, storytelling, the consumer experience to deliver more value to customers and their response together with our consistently strong brand metrics really reinforces the strength and success of that approach we're taking, and that includes more than 9 years of AUR growth.

But a few points are worth reinforcing here. First, we continue to demonstrate that growth and elevation. They can go hand in hand, right? It's not an either/or proposition. And we saw this in the first quarter where we again delivered strong growth in revenue, including both AUR and unit growth while at the same time, improving our quality of sales. And second, we have multiple durable drivers of AUR growth, right? These include higher full-price sell-through and lower promotions, structural favorability from consumer channel, geo and product category mix and targeted pricing always with a clear focus on value perception.

Now on the potentially more challenging pricing environment, we're certainly mindful of the backdrop. At the same time, we built flexibility into our pricing architecture. So we can make targeted market-specific adjustments when and where appropriate without compromising our brand elevation strategy or our margin objectives.

And to the question on recent performance, we typically don't comment on quarter-to-date trends. What I would say is that our second quarter guidance reflects the continued brand momentum we're seeing across channels in key markets with positive contributions from all 3 regions in the quarter, right, led by -- so for Q2, [indiscernible] is going to lead growing mid-teens, followed by North America, where we're expecting another solid quarter of mid-single-digit growth and with modest growth coming from EMEA despite a more pressured consumer environment and the strong compares in the prior year.

Now as we have reflected in our initial outlook back in May, we do continue to expect revenue and profit growth to be more weighted to the first half of the year, and that reflects wholesale shipment timing, the compares were lapping and our decision to accelerate strategic reductions in off-price sales and lower distribution in the back half of the year. So just taking a step back. We remain focused on executing our strategy, investing in our brand, strengthening our quality of sales, expanding in our top city ecosystems, deepening our connections with customers around the world. But at the same time, you'll see us remain agile, and we'll remain disciplined as we navigate this external environment just as we have over time throughout the elevation journey.

Over to Patrice.

So we're always excited to talk about China. And indeed, up 40% this last quarter. So a few things I would call out. First of all, our teams are doing an outstanding job across the market, engaging consumers, both new consumers and existing consumers. So across our 3 drive strategies, First, on the marketing and storytelling front. We're leveraging our global campaigns very effectively and they're resonating in the market.

And then we're complementing that with local activations. You heard us talk about the first ever Polo match organized in Beijing that we did recently, 74 million people live streamed that Polo match, just to give you a sense of the scale that's possible when our teams really hit a nerve with consumers. And we're seeing our brand equity ratings go from strength to strength. We're very excited about the momentum that the teams are building there from a brand standpoint. From a product standpoint, our strategy is also playing out very well there. Our core is strong and we're seeing disproportionate performance from our women's business, our handbag business, continuing to lean into that. And as I mentioned earlier, there's so much potential globally on these categories, and that applies also to the Chinese market.

And then finally, as you know, we have a very focused, disciplined key city approach for China focused on the 6 key cities that we activate, and we have a disciplined rollout plan for retail. So those strategies are evergreen for that market. As we look ahead for this fiscal year, we expect China to be around mid-teens, right? Remember, in the back half, we're going to be anniversarying some pretty high levels of performance. So I don't know that we can count on 40% every quarter. but I think mid-teens is a very -- still a very exciting number for us for this fiscal year. And then in the context of our drive strategy for the 3-year period, we guided China should be low double digits and have confidence in our ability to deliver against that.

The next question comes from Brooke Roach with Goldman Sachs.

Patrice, can you provide a bit more detail on the engagement that you're seeing with the brand in Europe and dimensionalize the impacts of the macro pressures you're seeing? How would transfers throughout the summer months and what actions do you have in place to drive resilient growth amidst the uncertainty? And then perhaps for Justin, a similar question. Is there any cadencing regarding revenues or margin delivery that we should be mindful of in this region for the rest of the year given the comparisons and the macro?

So similar to what we're seeing around the world, and we continue to see strengthening of our brand equity in the European market across the key drivers of consideration, awareness, Net Promoter Score, luxury perception. So we feel good as a group that the campaigns that we're putting in the market, the activations we're doing locally across Europe are resonating with the consumer. Now we do know that this consumer is more pressured because of what's happening in the Middle East because of consumer sentiment generally being depressed and because of inflationary pressures.

Within that context, our brand is continuing to resonate very nicely across the key markets. The markets I would call out in terms of disproportionate strength are Germany, which is actually our #1 market in Europe and Southern Europe, Italy and Spain. As you know, Brooke, we don't comment on the current quarter so I can't give you any perspective yet on what's happening during the summer, but you've heard Justin talk earlier about the trends and the momentum that we expect continuing there.

So we are continuing to invest. We are gaining market share in Europe. We see that very broadly and excited to see how the brand is just continuing to perform in line with what we expected and how we see strong returns from the different investments we have, whether that is marketing activations, Wimbledon being the latest highlight of that or a men's fashion show in Milan or Salone del Mobile activation also in Milan. We're opening stores, right? We just recently opened a beautiful store in Saint-Tropez, which is a great brand statement that will continue to drive brand elevation in that market and brand energy, so continuing to run the play, but obviously keeping an eye on and being prudent on the general consumer context.

And on the cadence point, so as just mentioned, underlying business continues to show positive high-quality growth, and we continue to expect to deliver that high-quality, low to mid-single-digit growth for the full year, and that includes the mid-single growth we delivered in Q1 and expected growth in Q2. And again, there is a bit of a first half, second half dynamic there because we know we're up against some really strong comps in the first half of this year. So we do expect improvement there as we move through the second half.

And on an operating margin perspective, we expect expansion from all 3 of our regions for the full fiscal '27, driven by higher gross margin and quality of sales in EMEA. And I think the important thing to call out there is for Q1, you did see operating margin pressure, and that was really due to the timing and the increase behind marketing, where we continue to -- to Patrice's point to invest behind our brand and our business, and we had some onetime activations that were not there in the prior year like our men showing in Milan.

The next question comes from Laurent Vasilescu with BNP Paribas.

If I heard correctly, Patrice, I think you're still expecting China to grow mid-teens for the year. I'm curious to understand a little bit more what you're seeing in terms of Q2 trends or -- I know you don't talk about quarter days, but how do you think about the evolution of China overall as the year progresses? And then I know there's a lot of focus on China, but it looks like overall, Asia is doing really well. So I'd love to get your perspective on what you're seeing in the key markets, Japan and Korea.

Auto as I mentioned earlier, our strategies in China, I think are not just for this year, but they're pretty evergreen. And clearly, our teams are doing an excellent job executing across both marketing, product offering and go to market. And it's a big market, all right. And similar to our high-potential categories, I think we're only at the very beginning of this journey. Now China before COVID was 3%. Greater China is 2% of the company today, it's 10% of the company. So really nice consistent progress, right?

If you look at the prior year performance, we've been on a strong performance run for many, many years now in China. This isn't just a 1-quarter story or a 2-quarter story. But again, I think only at the beginning of it, many of our luxury competitors have much greater China penetration than our current 10%. So we have a game plan that we're running that is working across the different sectors of our strategy.

You are right that APAC as a whole is doing quite well for us of 25% this last quarter -- and you heard, I'm sure, from Justin's remark that we actually took our guidance up on APAC specifically for the year based on the strong momentum that we're seeing across the board. Korea, has seen significant acceleration of our performance. Again, the same strategy is at play here, elevation of our brand, driving our core products in the high potential categories and also selective expansion of our footprint for those of you who are tracking, BTS who had a concert last week, I'm sure many of you were at their concert last week at MetLife actually asked to be dressed in Polo. So the whole group was dressed in Polo. We're excited about that opportunity to partner with them as they reached out to us. So that's Korea.

Japan, performing quite strongly. We're seeing good sustained momentum in Japan. We're seeing particularly strength in full price sales and a better-than-expected inbound tourist spending from China and other markets. Now we've got some exciting activations going on in Japan this year because we're celebrating our 50th anniversary in this market this fiscal year. We're celebrating the 20th anniversary of our Omotesando flagship store. So good continued momentum there.

And in general, we look at the energy that the brand has across China, because I didn't quote Southeast Asia, I didn't quote Australia, but the same dynamic is true across the board and strong confidence in the future.

The next question comes from Michael Binetti with Evercore.

Congrats on the great quarter. A couple for me real quick. On the near term, maybe just on the second quarter North America revenue guide composition, I think Justin, you said mid-singles. Can you just talk about how we get there a little -- it sounds like there's -- it sounded like maybe there's still a wholesale benefit in 2Q and then we get into some quality of sales in the back half. So it seems like you're baking in a fairly conservative DTC comp in North America. Maybe just a comment on the composition there.

And then a bit of a longer-term question. As we think back to the Analyst Day with the updated guidance today, you're now tracking to probably to the high end of your fiscal 2028 revenue guidance this year, a year ahead of time. So congrats on that, first of all. But I wonder with some of those wins under your belt and a lot of leverage coming through this quarter on the operating expense line, the nonmarketing line. Is it right -- is it smart to think maybe marketing towards the mid to high point of the 2028 guide. Do you think it makes sense to start targeting the high end of that range to continue this level of revenue performance? Any thoughts would be helpful.

Thanks, Michael. So on North America, listen, we're really encouraged by our growth in North America. So our largest region is on a really solid, high-quality growth projects. We saw strong Q1 results across channels, and we saw that broad-based brand momentum carried forward into Q2, where again, we're expecting another solid and other high-quality balanced mid-single-digit growth quarter, and we continue to have confidence in delivering that full year sort of growth expectation of low single digits. With potential opportunity against this expectation, as we continue to lean into strategic elevation investments and the brand continues to perform well, really across the entire North America ecosystem.

So we're seeing strong results in DTC, strong demand across channels, digital and in the stores. We're seeing strong results in wholesale, really solid sell-out trends, enabling us to your point, to be able to lean in and accelerate on some of our elevation initiatives. And as you've seen us do in the past, we're going to continue to leverage our ability and our agility to take advantage of incremental demand opportunities when and if they arise, right? We know we have the ability to chase into incremental demand. So Q2, I would say, is more of a continuation story, a really balanced high-quality growth story for North America.

On the sort of longer-term outlook and the marketing, I mean, you've seen us steadily increase our marketing as we move through the course of our brand elevation. Here, I think we started, it was 3.5% roughly 8% up to this year. And we feel really good about the impact that our market investors have been having as we scale them and as we diversify them. And that's been part of the ROI and the impact has been the driving force behind us continuing to take this spend up.

Now you can see that as we as we deliver on our commitments and in the case of recent quarters, over deliver are sort of 1 area to put the over delivery that we don't flow through is really behind our brand and building our brand and strengthening our brand. And that's what you see happening in marketing expense. I think we feel good about the 7.5 to 8.5 3-year guide that we laid out back in September. But as Patrice always talked about, it's not a ceiling. So we know that as we continue to see the traction impact behind our spend, this is an area that we're going to continue to focus on moving forward.

Yes. Our marketing teams are really doing a fantastic job around the world, building brand desirability, recruiting new customers. You saw the number this quarter, again, 1.5 million new customers, driving clientele and so we're strengthening value per customer. So we're getting really good returns on the increased marketing investments that we've been doing over the years. I think Justin, as you mentioned, we're comfortable with the 8% guide for this year, the range we had provided for the 3 year was 3.5% to 8.5%. Michael, I don't think there is a ceiling, right? So as we come up with new smart ideas to activate the brand to engage with consumers, we'll look at it through the lens of ROI and if there's a smart opportunity to lean in, then we will do that in parallel with continued expansion of our operating margins. .

The next question comes from Dana Telsey with Telsey Group.

Congratulations. Two things. As you think about -- I think, [ Jason ], you mentioned you had 90 basis points of leverage in nonmarketing expense -- how should we think about that going forward? Is there more opportunity? And then the other question on the strength in wholesale, with North America resuming some shipments, how do you think about that going forward? And given the more pronounced strategic reduction where should wholesale be as a percentage of the business? How do you see the growth of DTC relative to wholesale, especially given the opportunity categories have so much room?

So I'll kick it off and then Patrice and I will tag team on the wholesale sort of strategy. On expenses, our long-term philosophy remains unchanged, right? And that's to balance reinvestment in growth for the longer term, we're delivering on or exceeding as we did in Q1, our operating margin commitment. So you saw us deliver little bit of leverage in Q1. You also saw us invest in marketing up pretty meaningfully, year-over-year. So we're going to continue that balance, and we built out that muscle of operating expense leverage with our cost optimization discipline that we've created as a culture here at Ralph Lauren.

And just on the trending on the wholesale before the strategy, I'll just say that for North America wholesale, we feel really good about the health of the business. We're driving high-quality growth while at the same time, continuing to elevate our positioning in the chat. Underlying demand for healthy sell-through remains strong, and we continue to gain share across our family of brands and key accounts. So for us, driving growth while elevating in this channel is really the play here.

And then from the general strategy standpoint, go-to-market, Dana, as you know, we've got this key city approach that we're leveraging around the world, top 30 cities and then the next tranche of 20 cities that we're starting to activate. Wholesale is an important role to play, and I would qualify that as saying quality wholesale has an important role to play in that strategy because we're finding that quality wholesale is a wonderful way for brand discovery and new consumer recruiting. So we rely on it in large part for that in the context of our key city ecosystems.

Today, the split is 70-30. If you look at just geographical composition and mix, right, APAC is mostly DTC. So as APAC disproportionately grows, obviously that percentage is going to continue to increase towards DTC. But we're not obsessed with the split frankly, each part of that business has a role to play. What we're obsessed with is already engaging the consumer in the right place and are engaging with them in an elevated way, in a way that we are proud and that is financially attractive.

I have to say, having had a recent launch with one of our key wholesale partners. It's so exciting to see the strategic alignment we now have with our key department store partners, both here in the U.S. and in Europe. And it's exciting to see the breadth of our performance as we look at market share gains, men's, women's, kids, core high-potential categories. So to Justin's point, we feel we have very strong momentum there. Most of the reset is complete, although we will continue to clear the bottom because there's always a bottom, but feel good about where we are from a wholesale standpoint, both in North America and Europe now. And I think back to the percentage question, probably a little more than 70% DTC moving forward.

We will go with one more question please, Julie.

Our final question will come from Blake Anderson with Jefferies.

So I wanted to ask about Europe. I know you've discussed it on the call already. I was wondering if you could unpack a little bit more what you're seeing in terms of local demand versus tourism and anything on units or AUR in that market or traffic to your stores? And then bigger picture, I wanted to ask, has your perspective or strategy changed at all for this market in terms of your outlook, given the recent environment, I know that you've had some quality of sales initiatives you implemented more in the last few quarters to maintain that high AUR. How are you thinking about kind of the strategy there and outlook going forward in bigger picture as well?

Thanks for the question. I'll start off. So traffic, as you know, has been broadly pressured across EMEA, right? And that's really driven by the challenging macro backdrop trends varying by markets, and that includes that slowdown in tourism from the Middle East. On the plus side, our brand positioning and our brand strength remains very strong. And we've been able to offset the soft traffic with higher conversion rates, increased basket sizes as we continue to appeal to our core consumers. Our core consumer in the region remains resilient, and that's really what's driving our growth in the region.

At the same time, we put together our kind of established action plan to engage and convert those consumers that are more pressured by the macro, but for us is a smaller subset of our consumer base, but this is with targeted personalized marketing with very specific tactical product value propositions, clienteling, WeChat, et cetera. And we've seen that that circumstance before that environment before, and we ran that play before and we know that we can successfully talk to and engage these consumers during this time. We've reflected the macro challenges in our outlook for the year. And at the same time, we continue to deliver growth, we continue to invest and we continue to see the high-quality full-price growth come through in our quality of sales and in our gross margin. So when we think about the outlook for the region, we're really confident in that low to mid-single-digit growth algo that we guided because our underlying European business continues to show that positive high-quality growth.

For the longer-term strategy, Blake, Europe is around 30% of the company. We've had a really nice run in Europe now for several years with strong growth across all the markets and reset of our wholesale business there, so strong foundations. So our ambition and expectations from Europe are unchanged. We still expect to deliver mid-single digit for the full 3-year period, to Justin's point. This year, we're being a little more prudent given the consumer contact. But our longer-term ambition relative to that market and our longer-term excitement about the opportunities that we have across EMEA are unchanged.

All right. Well, listen, thank you all for joining us today. We look forward to reconnecting with all of you in early November to share our second quarter results and until then take care, and have a great day.

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

Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Fourth Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Ms. Corey Van der Ghinst. Please go ahead.

Good morning. Thank you for joining Ralph Lauren's Fourth Quarter and Year-End 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 one 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, Corey. Good morning, everyone, and thank you for joining today's call. As we reflect on this past year, our teams around the world executed with excellence and agility to deliver a strong first year of our Next Great Chapter drive strategic plan. We drove broad-based performance across our lifestyle categories, geographies and channels. all while continuing our long-term journey of elevating our positioning in the marketplace.

And to our customers around the world who are engaging with Ralph Lauren like never before, we want to thank you for stepping into our world and for your enduring loyalty. From your TikTok posts that feature your interpretation of a Ralph Lauren Christmas, a classic quarter-zip or Team USA gear to all of you who have waited patiently for a cup of Ralph's Coffee. We're inspired by the ways in which you're interpreting Ralph's vision and have made us a part of your everyday lives.

Our consumers' passion and unique loyalty are a testament to the power of our iconic brand and our ability to connect authentically across generations and cultures. And these deep connections are translating into healthy, consistent, sustainable growth and value creation across our business. In the first year of our Drive plan, both our top and bottom line results exceeded expectations, supported by our diversified drivers of growth and our strongest quality of sales to date.

Our reported full year revenues surpassed $8 billion for the first time, driven by growth across our retail and wholesale channels in every region. Operating margins exceeded our expectations reflecting gross margin expansion, more than offsetting the meaningful impact of tariffs and disciplined expense leverage with our cost savings used to fuel investments in our long-term strategic priorities, from our Rolling Thunder of brand activations to new AI capabilities and expanding our key city ecosystems.

This established model of balancing operating discipline and agility with investments in long-term growth, gives us the confidence to continue expanding margins, including over the remainder of our plan and longer term. And we achieved all of this while accelerating returns to shareholders, including taking up our dividend once again this year. Let me take you through a few recent highlights across the three strategic pillars of our plan.

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. Starting with our efforts to elevate and energize our lifestyle brand. We are engaging with consumers in more powerful ways than ever before, cutting through cultural moments via sports, entertainment and style.

Our advanced data and analytics are delivering brand activation insights that give us the confidence to further increase our marketing investments to support long-term sustainable growth. Key highlights from the fourth quarter included: First, we reinforced our leadership in the world of sports. As the official outfitter of Team USA since 2008, we were proud to once again participate in the world's biggest stage in sports at the 2026 Milan, Cortina Olympics and Parallel Olympics.

The spirit of the games and the athletes passion and pursuit of greatness is authentically connected to our brand values. We activated around the world and across the games with celebrities and friends of the brand, including Usher, Shaun White, Maggie Rogers, Snoop Dogg and Taylor Swift, who kicked off the opening ceremony broadcast wearing our Team USA Polo Bear Tee.

Our Olympics activations supported our new customer acquisition and elevation strategies as we achieved the #1 share of voice across social media and drove further increases in luxury perception, brand relevance and consideration. We also invited consumers to step into Ralph's vision of timeless style through our women's collection runway show in New York City, our women's Polo presentation in Paris and our first menswear show in Milan in more than 20 years.

Each of these events showcase the effortless elegance of our brand, seamlessly blending heritage with modern sensibilities. And in Asia and around the world, we welcome the year of the horse with a series of exciting Lunar New Year activations designed to deepen our connection with consumers, from our digital red envelopes on WeChat to our spectacular drone show in Shenzhen, a stunning dynamic constellation that combined our brand's heritage and spirit of optimism with a rich cultural symbolism.

Around the world, these activations are driving strong, sustainable growth in new customer acquisition and retention. In the fourth quarter, we added 1.4 million new customers to our DTC businesses, a low double-digit increase to last year, led by digital and Ralph Lauren stores. We were encouraged by our continued momentum in building brand equity this year. including increased luxury and value perception scores and our ongoing recruitment of women, luxury and younger customers.

And we increased our social media followers by high single digits to approximately 70 million led by Instagram, LINE and Douyin. Looking ahead, we remain focused on building brand desirability as we inspire people to step into their dream of a better life.

Moving to our second key initiative, Drive the Core and Expand for More. Ralph and our creative teams continue to bring his cinematic vision to life with our commitment to quality and timeless signature styling, capturing the easy elegance of a life well lived. It's not about chasing fashion cycles or trends. This philosophy shapes how we drive our core products as well as our high potential and complementary lifestyle categories, enabling us to deliver our unique form of inclusive luxury.

Starting with our core, which represents more than 70% of our business. Core product sales grew mid-teens, both fourth quarter and full year. Recent highlights include a diverse range of sweaters, linen and rugby shirts. While our seasonal Bayport cotton windbreakers, Chino and RL67 tweed jackets led the transition into spring. We also introduced our coastal Main Inspire Children's collection, delivering double-digit performance led by our core cable knit, Flag and Polo Bear sweaters and Down Jackets in Q4.

Our high-potential categories, including women's apparel, outerwear and handbags, continue to be accelerators for our business. Together, these categories increased more than 20% for both the quarter and full year, outpacing total company growth. In women's, we drove outsized performance across multiple categories from our core Cable knit and Jersey sweaters to lightweight outerwear and colorful linen shorts.

Meanwhile, playful iterations of fleece, sweatshirts and hoodies are appealing to next-generation consumers. And our oversized windbreaker was a highlight of our Polo Fashion Presentation in Paris. Our spring handbag campaigns focused on our foundational Polo Play collection, featuring bright pops of colors, stripes and seasonal new textures.

We also unveiled our newest foundational handbag family at Paris Fashion Week. The saddle inspired Polo Blaze which we are excited to launch this fall. Special releases this quarter included our Major League Baseball capsule featuring an exclusive release in Japan, ahead of the World Baseball Classic, and our Team USA collection for the Winter Olympics, reflecting the sophisticated style and bold energy of the games.

Moving into fiscal '27, we will continue to leverage the unparalleled breadth of our lifestyle product offering, both connecting with consumers around the world while driving resilience in our business. Turning to our third key initiative, win in key cities with our consumer ecosystem. From the rich backdrop of our Palazzo in Milan during Salone del Mobile to our holiday [indiscernible] Square and the cozy elegance of a dinner at the Polo Bar in New York, our teams continue to raise the bar for innovative consumer lifestyle experiences.

Through our timeless storytelling, we are bringing Ralph Lauren to life in our top 30 cities around the world while also laying the groundwork for long-term growth in our next 20 cities. Within DTC, we comprise the majority of our business, we delivered another quarter of healthy comp growth across regions. Global comps increased high teens on top of 13% growth last year, led by our Ralph Lauren stores and digital commerce.

By region, Asia once again led our growth with sales up nearly 30%, driven by all key markets. China sales accelerated to more than 50% growth as we continue to drive our brand desirability and engagement. Our China performance was supported by an exceptionally strong Lunar New Year along with further expansion across our top 6 city clusters and Andean. Europe also delivered high-quality results this quarter on top of last year's strong compares. And we're encouraged by the momentum in our largest region, North America, led by mid-teens retail comps.

As we continue to deepen our presence in our top cities, we opened 108 new owned and partner stores globally this year. New store highlights included our new emblematic store at Chengdu IFS Mall in China. Along with new stores in Vancouver, London, Munich, New Delhi, Sydney and more. We also purchased our iconic store locations in New York City, Soho, and on Boston's Newbury Street this year to reinforce our long-term presence in these key U.S. markets.

And finally, touching on our enablers. Our business continues to be supported by our five key enablers. Recent highlights include: first, as part of our focus on advanced technology, AI and analytics, we made significant progress in enhancing our creativity, productivity and customer engagement. We accelerated the iteration of [indiscernible] icons in the design process, successfully integrated automation to support teams in our global distribution centers, enabled brand discovery across Agentic search and commerce.

In addition, we were proud to be named one of Fast Company's most innovative companies of 2026, recognizing the exciting innovations across our business. From the design and storytelling efforts behind our Polo Ralph Lauren for Oak Globe's collection to how we are leveraging AI to bring our iconic styling to our consumers' fingertips with as Ralph and more. And as we focus on enabling resilient partners and communities, this quarter, we announced our expanded partnership with the Council of Fashion Designers of America, CFDA, and to provide financial support for American manufacturers who play a critical role in our global sourcing approach.

And finally, we are proud to have endowed the Ralph Lauren Corporate Foundation with a $26 million contribution to support the Foundation mission, including its work across cancer care in communities around the U.S. In housing, Ralph and I are exceptionally proud of our team's progress. And on behalf of Ralph and our leaders, I want to thank your team for your excellent execution through this first year of our Next Great Chapter drive plan.

We met or surpassed each of our financial commitments and key consumer metrics, while also continuing to invest back into our strategic growth priorities. Laying the groundwork for healthy, sustainable long-term growth and value creation well into the future. While we are in touch with dynamic global operating environment, we remain on offense. Focused on what differentiates Ralph Lauren and our ability to create value through our diverse growth drivers, including our powerful brand, our iconic core with acceleration in our high potential categories and significant geographic expansion opportunities with a focused approach on our top cities, all enabled by our talented teams proven ability to execute.

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. We delivered strong financial performance and made meaningful progress on our Next Great Chapter Drive strategy in fiscal '26. We exceeded the expectations we laid out last May with healthy revenue growth across every region and channel. Underscoring the strength of our diversified growth drivers and further elevation of our brand, products, experiences and environments.

Gross margin also outperformed our outlook supported by our compelling value proposition and pricing power, which enabled further improvements in quality of sales, more than offsetting meaningful headwinds from tariffs as we progress through the year. And each region contributed to operating margin expansion this year as disciplined expense management enabled reinvestment in our key strategic priorities, supporting sustainable growth and long-term value creation.

This strong performance is underpinned by our key enablers, including our talented teams around the world, our advanced analytics and technology capabilities and our fortress balance sheet. Let me walk you through our financial highlights from the fourth quarter, which, as a reminder, are provided on a constant currency basis. Total company fourth quarter revenue grew 12%, ahead of our mid-single-digit outlook, driven by better-than-expected performance in both our direct-to-consumer and wholesale channels.

By region, Asia once again led our performance, increasing 28%, followed by North America, up 8% and Europe, up 6%. Total company retail comps increased 17%, accelerating from the prior quarter with double-digit growth in both our own digital and brick-and-mortar channels. Total digital ecosystem sales, including our own sites and wholesale digital accounts grew at a mid-teens rate, reflecting broad-based growth across all regions.

Total company adjusted gross margin expanded 40 basis points to 69% compared to our expectation of roughly 100 basis points of contraction this quarter. The expansion was primarily driven by stronger-than-expected AUR growth and favorable channel mix, which more than offset the planned step-up in U.S. tariff to peak levels. as well as modest headwinds from higher labor and noncotton material costs. AUR increased 16% in the fourth quarter, with approximately half of the growth driven by stronger full price selling, reduced discounting and modest targeted pricing and the remaining half attributable to favorable product, channel and geographic mix.

Looking ahead, AUR growth remains durable, and we expect continued, albeit more normalized mid-single-digit growth in fiscal '27 on top of last year's 15% increase. And in the first quarter, we expect high single-digit AUR growth with contributions from all regions. We expect this continued AUR growth to more than offset modest pressure from higher freight due to the recent increase in energy costs. Adjusted operating expenses increased 14% or 90 basis points as a percentage of sales compared to last year as higher marketing investments more than offset 60 basis points of leverage in nonmarketing expenses.

Marketing was 8.1% of fourth quarter sales compared to 6.6% last year, reflecting increased investment to support key campaigns including the Winter Olympics and our fashion presentations in Milan, New York City and Paris and to drive brand momentum into fiscal '27. For the full year, Marketing spend increased 21%, reaching 7.9% of sales aligned with our outlook of 7.5% to 8% this year.

With strong multiyear progress in new customer acquisition and healthy consumer metrics, we plan to continue growing our marketing investments above the rate of revenue growth to around 8% of sales in fiscal '27. Fourth quarter adjusted operating margin contracted 60 basis points to 9.7%, while full year operating margin expanded 140 basis points to 15.4% in constant currency, ahead of our plan.

Turning to segment performance and starting with North America, our largest region, which is firmly on a growth trajectory. Fourth quarter revenue grew 8% and exceeding both our outlook and our Next Great Chapter Drive plan targets, driven by 14% growth in our direct-to-consumer business. In North America Retail, fourth quarter comps were up 16% and led by our full-price channels. Digital comps increased 21%, supported by merchandising enhancements and full funnel marketing activations, notably around Teen USA. North America wholesale revenue was flat and ahead of plan as stronger replenishment orders and full price selling offset a strategic reduction in off-price sales and further rationalization of lower-tier wholesale doors.

While sellout trends across the broader North America wholesale channel remain healthy, we continue to plan for modest growth in fiscal '27 in the context of a dynamic macro environment and given the potential for further industry consolidation. We also expect performance to be weighted towards the first half of the fiscal year, reflecting the timing of shipments.

Turning to Europe. Fourth quarter revenue increased 6% and with balanced growth across both our direct-to-consumer and wholesale businesses. By market, Germany, the U.K., Italy and Spain led our regional performance. Europe retail comps were up 5% on top of an extremely strong 18% compared last year, led by our own digital business. Europe wholesale increased 7% and driven by better-than-expected reorders and healthy sellout trends exceeding our long-term outlook.

Looking ahead, we expect a more normalized level of wholesale growth in fiscal '27, notably as we lap strong double-digit compares in the prior year, with the strong growth expected in the first quarter. We also anticipate modest headwinds to our EMEA business more broadly due to disruptions in the Middle East, which represents a low single-digit percentage of our EMEA revenue as well as softer inbound tourism into Europe.

Moving to Asia. Fourth quarter revenue increased 28% ahead of plan with all markets contributing to growth, both the quarter and the full year. Retail comps grew 25%, with strong double-digit growth in each channel. We continue to build top-of-funnel brand awareness and purchase intent across the region through high-impact marketing activations with more to come in fiscal '27 as we celebrate our 50th anniversary in Japan.

China once again led our regional growth, with sales up more than 50% in the quarter, supported by exceptionally strong Lunar New Year performance, along with healthy comps and high-quality new customer acquisition. Asia digital ecosystem sales increased double digits in the fourth quarter. We continue to expand our elevated presence across Chinese social platforms while scaling our own digital sites in China, Japan and Korea, moving to the balance sheet. Our strong balance sheet and cash flow generation remain key enablers as we execute our strategic plan and deliver value to shareholders in a dynamic operating environment.

We ended the period with $2.1 billion in cash and short-term investments and $1.2 billion in total debt. During fiscal '26, we generated approximately $750 million in free cash flow and returned more than $700 million to shareholders through dividends and repurchases. Our Board of Directors recently approved a 10% increase in our annual dividend, reflecting our continued commitment to strong shareholder returns, while reinvesting in our business to drive high-quality growth and compelling returns on invested capital.

Fourth quarter net inventory increased 5% in constant currency with a healthy composition of current product in each region aligned with our future revenue growth outlook. Looking ahead, our initial outlook for fiscal '27 is based on our best assessment of the current operating environment, including the geopolitical backdrop, foreign currency dynamics and broader macroeconomic trends. Our guidance does not currently assume any potential impact from tariff refunds.

Based on ongoing volatility in the environment, this outlook is subject to change as macro conditions evolve. Our fiscal '27 outlook is aligned with our next great chop to drive targets. We expect full year constant currency revenue to increase mid-single digits to last year on a 52-week comparable basis, centered around 4% to 5%. Fiscal '27 includes a 53rd week, which is expected to add approximately 1 point to revenue growth. While our core consumer has remained resilient, exiting fiscal '26 and into the start of fiscal '27, our outlook reflects prudence around consumer demand as well as modest cost pressure related to recent energy price volatility.

Similar to last year, however, if the consumer is stronger than anticipated, we have built the capabilities to capture additional demand, supported by our proven supply chain agility as well as the strength and high penetration of our core and replenishment products, which continue to resonate with consumers across our markets. By region for fiscal '27, we expect North America revenue to grow approximately low single digits, aligned with our long-term targets, with continued momentum in our direct-to-consumer business and healthy wholesale sell-through, partly offset by ongoing strategic investments in quality of sales and lower tier door exits.

We expect Europe revenue to increase approximately low to mid-single digits, reflecting solid underlying growth, balanced with a measured approach to the consumer backdrop and near-term macro pressures, including elevated energy costs and disruption to Middle East partner sales in tourism as well as lapping strong fiscal '26 compares. And we expect Asia revenue to increase approximately high single digits, driven by our strong brand momentum and expansion opportunities across key markets.

We expect China to grow approximately mid-teens this year, steady ahead of our Next Great Chapter Drive targets and as we lap outsized growth of 40% in the prior year. We currently expect full year operating margin to expand in the range of 40 to 60 basis points in constant currency. With modest gross margin expansion and operating expense leverage, more than offsetting our continued brand investments, including ongoing quality of sales initiatives, strategic door exits and further distribution optimization.

The 53rd week is expected to have a slight benefit on operating margin for the full fiscal year. Foreign currency, is expected to have a relatively neutral impact on both revenue and gross and operating margins in fiscal '27. Gross and operating margin expansion are expected to be relatively stronger in the first half of the fiscal year, largely due to the benefit of a lower prevailing tariff rate of 10% for most of the period following the U.S. Supreme Court's ruling earlier this year.

Our outlook currently includes a sequential increase in tariff headwinds in the second half of fiscal '27, which assumes that rates rise above the current 10% level following the expiration of the tariff relief window. Nevertheless, we expect second half gross margins to be in line with our Drive target of modest expansion year-over-year. For the first quarter, we expect constant currency revenue to increase approximately mid- to high single digits. We expect operating margin to expand approximately 80 to 120 basis points in constant currency, led by gross margin expansion.

Gross margin is expected to benefit from AUR growth as well as product, geographic and channel mix, more than offsetting the modest impact of increased tariff costs versus the prior year. Higher marketing in the quarter is expected to be fully offset by leverage of nonmarketing operating expenses. Foreign currency is anticipated to have a relatively neutral impact on revenue and gross and operating margins in the quarter.

We expect our first quarter tax rate to be in the range of 22% to 23% and a full year fiscal 2017 tax rate of approximately 21% to 22%. Capital expenditures are expected to be in the range of approximately 4% to 5% of sales, in line with our long-term outlook. This includes traditional capital investments such as new stores, renovations and digital counters capabilities, as well as our ongoing multiyear next-generation transformation initiative. In addition, we will continue to invest in priority areas to advance our AI capabilities and scale cloud-enabled technologies that support our long-term growth and operating model.

In closing, our Next Great Chapter Drive plan is progressing well, supported by our diversified growth drivers globally and the excellent execution and agility of our teams. With top line and AUR growth as well as gross and operating margin expansion, all exceeding our expectations and more than offsetting the impact of tariffs and higher energy costs we are delivering strong returns.

At the same time, we are advancing our elevation journey, improving the quality of our sales and optimizing our distribution to enhance our product and brand experience for consumers. Together, these actions further strengthen our foundation and position us well to drive healthy, consistent and sustainable growth, reinforcing our confidence to continue investing behind our business, both now and over the long term.

With that, let's open up the call for your questions.

[Operator Instructions]. The first question comes from Matt Boss with JPMorgan.

Congrats on another nice quarter.

Thank you, Matt.

So Patrice, you exceeded expectations in the first year of this plan, what were the largest drivers? And are they sustainable in years 2 and 3 of the plan? By region, North America and Asia for next year, you've outlined in line with your 3-year targets, Europe's at the lower end. Are you seeing anything that worries you about the health of the consumer or your brand momentum in Europe?

And then for Justin, 13% global comps this year on top of 10% the year before. What's your confidence in mid-single-digit same-store sales off this higher base? Or just any areas of giveback that you would flag at all?

Sounds good. Well, thank you for your question, Matt. Look, we continue to be on offense. Our performance is the result of delivering across our multiple drivers of growth. There's no single or onetime elements that drove the outperformance. That's really the power of our diversified model. If I take the pillars one by one.

First, our brand momentum remains strong around the world, right, in every region, in every key city that we operate in. And we're very encouraged, by the way, that our teams have been able to connect authentically with consumers, whether they are completely new to the brand or whether they've been with us for decades. This depth of connection across generation, I really insist on the point that cross generation is such a differentiator for this company has enabled us to continue our shift towards a more elevated, younger, less price-sensitive consumers, including through this year as evidenced by our increased full price selling that you saw in our results, and our stronger retention.

On the second pillar, we continue to successfully tap into the breadth of our products across our lifestyle offering. That's another differentiator for us, which is the multiplicity of consumer options and solutions that we provide, allowing us to drive newness and to drive excitement through our distinct styling, while staying true to who we are, being very clear on who we are and making sure that we show up consistently around the world. This is a competitive advantage in a world of ever-changing designers and trends.

And third, we're bringing innovative lifestyle experiences to consumers through our warm and inviting retail and digital experiences that showcase unique worlds and concepts like coffee, that consumers want to step into and become a part of, and this helped drive our performance above target in every region, led by our most elevated channels. We are not to your question specifically on consumer changes. Our core consumer continues to be resilient, that is true across all 3 regions, and we're very encouraged by the underlying growth rates that we're seeing across EMEA and North America and APAC.

Now to answer the second part of your question, our company outlook is right on track with our 3-year targets. As you saw in our approach last year, when we began the year and set the plan, we always consider a number of macro drivers as we define our plan. We're feeling good, as I mentioned, about the underlying growth rates that we're seeing broadly about the resilience and breadth of our consumer recruiting, resilience of consumers around the world.

As we noted and you highlighted, we are taking a more prudent view of the Europe operating environment looking ahead given some of the energy and consumer sentiment pressures that we're seeing there. Now this being said, I'll reinforce that our brand is strong, that we have multiple diversified drivers of growth. And all of this gives us confidence in delivering on our plan as we come into this year. And as the operating environment evolves, I'm sure it will. We have a proven agility as you saw this past year to lean into opportunities.

And that on the comp question. So after a strong year 1 of revenue growth, moving into year 2, as we guided, expecting on Algo total company revenue growth, mid-single-digit growth across regions. And we feel good about that. Fiscal '27, still DTC full price-led growth. No shifts, but wanting to be mindful of is we do have some strong compares, specifically as we get into the second half of the year. But both pull forward of pumps.

And we still feel good about the longer-term sort of year-over-year expectations on revenue growth and comps that we shared at our Investor Day back in September.

The next question comes from Jay Sole with UBS.

Justin, year 1 of the Next Great Chapter Drive Plan was clearly ahead of your 3-year targets. While this year, fiscal '27 looks like it's more back to [ on auto ]. Can you just walk us through how you're thinking about investment priorities to continue driving strong momentum into the future and balancing growth investments with margin durability? And also if you can tell us how you're thinking about marketing as a percent of sales for this year, that would be helpful as well.

Absolutely. Thanks for the question. So we've successfully step changed our top line growth trajectory over the last few years of of our next great chapter journey. And importantly, our core investment priorities, they remain consistent, right? We continue to be focused on 3 key areas: First, reinforcing our iconic brand and creating authentic lasting connections with both new and with existing consumers; second, reinvesting back into our product. elevated quality, driving innovation, ensuring we're presenting a compelling value proposition to customers; and third, building out our key city ecosystems globally, including with digital and AI-enabled capabilities, to deliver that differentiated full lifestyle experience that's really unique to Ralph Lauren.

At the same time, a critical enabler of our sustainable growth is continued brand elevation. This underpins all three of the priorities I just talked about. It includes investing behind the quality of our sales. So think things like strategically reducing discounting off price, increasing full price selling, further optimizing our distribution.

Even as we lean into meaningful quality of sales enhancements this past year, if you take a look at the most significant pressures throughout the course of our elevation journey, in fiscal '26, we were able to inflect back the positive unit growth for the total company, drives healthy quality growth in our global wholesale businesses and returned North America, our largest region, to a sustainable growth trajectory, all while continuing to drive reinsured momentum across APAC and EMEA.

So taken together, this puts us at our most elevated position to date across product, brand, distribution and enables us to continue to drive that healthy sustainable growth going forward. On margins, we've demonstrated over the past several years, we can testify do that balance of reinvesting with expanding. And that remains a core focus of ours going forward. And as we guided, we expect both gross and operating margin expansion in fiscal '27 and more than offsetting modest increased pressure from freight and from potential tariffs. And we remain confident in our year-over-year margin progression that we laid out in our 3-year plan at Investor Day in September.

On the marketing investments. So if you step back, okay, you call a few years back, we were around 3.5% of revenue in marketing when we started on this journey. Now we're just a tad below 8%, I think we finished the year at 7.9%. We expect to get to 8% this fiscal year. That's what we're guiding for this fiscal year, there is no ceiling to our marketing investment as a percentage of revenue. The key driving factor here is the return on investment that we get, and I have to say our marketing teams around the world have done an excellent job expanding the portfolio of activation so that we won, continue the strong new consumer recruiting that we're doing across the board, disproportionately higher value, less price-sensitive, younger consumers; and two, continue to build retention and lifetime value it's what's so exciting about our business model is we can bring you in on a specific product, but then we have the ability to take you either by trading your across or trading you up across the very broad range of products that we have to offer.

So think 8% for this coming year. Again, we experiment around the world. We're constantly trying new things. You saw some fund activations recently with American Icon stamp collection that was designed and launched with Ralph Lauren. We have a catwalk book that summarized all the amazing the collections that Ralph and our teams have developed over the past decades. So we're going to continue to have a range of foundational elements to our plan around passion presentations.

We have 3 this last quarter, Paris, New York, Milan, sports activations. We obviously had the Olympics. Now we're coming on to Wimbledon and then the U.S. open and then cultural moments and cultural engagement. Those are the foundational elements combined with innovation, and I expect that we'll continue to expand marketing as a percentage of revenue over the years to come. But as Justin rightfully said, we will do that in concert with expansion of operating margin for the company.

The next question comes from Laurent Vasilescu with BNP Paribas.

I wanted to follow up on Europe. Justin, I think as you mentioned, the guide for low to mid-single digits. But if I heard correctly, you expect the strongest growth in the first quarter. Maybe can you unpack that a little bit more what you're seeing in that market?

And then I think you also anticipate modest headwinds for EMEA, particularly it sounds like more of inbound tourism. So I'd love to hear maybe can you quantify what your expectation is in terms of that headwind. That would be very helpful.

Thanks, Laurent. So we continue to see healthy underlying demand across our EMEA business is certainly supported by a resilient core consumer and that fiscal '27 outlook that you referenced, it reflects a more prudent view of the broader operating environment, right? But if you think about a step back, our core consumer remains resilient in all three of our regions, right, especially as we shift our customer base to be more full price and less price-sensitive quarter-over-quarter, year-over-year.

And that's including in EMEA, where we continue to drive help the underlying growth. And we expect that growth to continue in fiscal '27. So we're guiding for growth both in Q1 in that low single-digit range and on the lower end of our algo for the full year. That said, we are mindful of the macro pressures, right, the high energy prices and sediment pressures.

And we've taken these factors into account with our initial fiscal 2017 outlook, which reflects that more prudent view of the operating environment. We're also, to your point, monitoring tourism trends closely given the Middle East conflict and which we've seen soften a bit, but they do represent a very small portion of our business, Laurent.

I mean, our total Middle East business is low single digits of Europe and tourism is when you add on tourism, you're still in low single digits of Europe, even a smaller percentage of the total company. So monitoring closely, we'll continue to stay in touch with the environment that we're operating in, as always, as it evolves, and we know we have a proven agility as we saw this past year to respond if the consumer is stronger than we anticipate.

The next question comes from Michael Binetti with Evercore.

Congrats on a great quarter. Let me ask two. Patrice, category expansion. You mentioned the focus categories grew 20% in the quarter and in the year. Can you just tell us a little bit about how those contribute to the mid-single-digit growth this year? Or just bigger picture how they contributed to AUR in '26? And maybe talk a little bit about the opportunities for those categories to continue to outpace growth longer term.

And then Justin, in the fourth quarter, AUR was up 16%, D2C comps up 17%. So it implies very low unit growth. As you think about the 4% to 5% total growth this year, D2C faster than wholesale AUR, you set up mid-singles again. I'm going to ask probably for the ninth year in a row here. It seems like you're expecting units to decline in B2C, again, despite all the new customer additions, new store growth, new markets, new categories, how does the algorithm for unit growth work in your head this year, Justin?

All right. Well, you're consistent, Michael, so that's good. So regarding accelerator categories, so we coin them accelerated categories because we expect them to be accelerators to our performance. So you can -- you saw that indeed, they were accelerators for this fiscal year, fiscal year '26. We expect that to continue next fiscal year. So as we guide mid-single digits, we expect these three categories to over-deliver versus apps was super exciting is while we're building scale across the three of them, the size of price continues to be massive, right?

If you think about our women's apparel business in particular, the cost collection to Polo Women and Laurent, we have about a 1% market share. And so while we're already meaningful in terms of size, that's close to a $2 billion business. There are actually very few women's apparel brand in these price tiers of that size, we're only a 1% market share. So still significant runway and the same applies to cost and we're even earlier on the journey on handbags.

So I feel very good about the fact that these will continue to be accelerators for us. Of course, we need to execute with excellence, but that's what the teams are focused on. We have -- if you look at this coming fiscal year on handbags, we have an exciting launch with the Blaze addition to the Women's Polo collection. So in addition to Polo ID, which is now an established pillar and Polo Play, which is also becoming a foundational element of our Women's Polo Handbag presentation.

We'll be adding a third pillar with Blaze. So energized by how that will contribute to continued performance for our handbag business. On the AUR front, these categories are all AUR accretive, right? If you look at the kind of price points that we play out across both women's apparel, outerwear and handbags. So we expect -- you've seen continued strong AUR growth, I think we're on our 36th quarter of AUR growth. And obviously, mix is a key factor here, and product mix is an important element here. And so these accelerated categories will certainly contribute to that moving forward. Justin, over to you.

And on the units versus the AUR question, Michael, so our top line outlook for fiscal '27 of that mid-single-digit growth, it continues to be supported by our three diversified revenue drivers, right, high-value new consumer acquisition, durable UR growth and targeted unit growth. So there are both durable drivers and meaningful runway ahead of us for all three of these top line growth engines. On units, we did inflect, as I mentioned, the total unit growth in fiscal '26, as our elevation journey continues to progress.

And the growth in units is where you want, right, full price, high potential categories that the treat just talk, digital, China, et cetera. And it's now more than offsetting the step change elevation in those channels but still have kind of more discounted opportunities for elevation like outlets. That all said, we're on a continued elevation one. So we do expect AUR to continue to meet our growth and outpace units. We also expect units to continue to be slightly up as we think about our fiscal '27 outlook. Now we do assume some elasticity around units, largely in EMEA given the macro pressures there. But overall, we feel really good about our three diversified durable top line growth drivers, and you see it reflected in our on-algo guide.

The next question comes from Kendall Toscano with Bank of America.

So on wholesale, both North America and Europe outperformed in the fourth quarter, as you plan for more normalized growth in fiscal Curious what you're seeing today from your wholesale partners? And how much of the normalization is conservatism as opposed to a change in the underlying demand environment?

Sure. We'll probably tag team on this all. So just to step back, strategy on wholesale and wholesale is now about 30% of the company, right? So 70% DTC, 30% wholesale, primarily, as you noted, EMEA and North America. We have a 3-pronged strategy on wholesale, which is win with the luxury players. So I think the Nordstroms, Paris, La Rinascente, Blooming Dales of this world. We're seeing very strong interest from these players now in our brand. I wouldn't have said that a few years back. So we've got very good momentum and share gain there.

Second is within digital wholesale I think the big players of Orlandos of this world, the macys.com of this world where we're seeing very strong disproportionate momentum. And I think our scale and the breadth of our portfolio is certainly supporting that performance. And then third is key doors within premium wholesale, and we're really encouraged by the share progress that we're seeing across every single category which really indicates that the partnership that we have with these different department stores is working very well for us.

And what was particularly feels really good is we're aligned on the elevation strategy, which wasn't necessarily the case a few years back. So we're all rowing in the same direction, and we're seeing strong momentum across the board. I'll let Justin provide additional color.

Yes. And we are to that point, Patrice, really healthy quality growth across our wholesale businesses. So in terms of the normalized growth rate for North America, we expect that normalized rate to be in that up low single-digit range with some prudence in the near term, given the context of the dynamic macro environment and given the potential for further industry consolidations.

And I would say that our underlying kind of organic growth rate is going to continue to be partly mitigated by ongoing Brent elevation reinvestments, right, as we pull back on off-price. And as we continue to sort of call that lower level distribution. But we are guiding for North America, up low single digits on [indiscernible] fiscal '27 with both growth in DTC and wholesale, DTC on the higher side and wholesale on the lower side of that up low single-digit growth.

And then on EMEA, our outlook for fiscal '27 is really in line with that regional guide for the full year of up low to mid-single digits, reflecting a little bit of prudence on the macros and some unit elasticity for full '27 orders underlying normalized growth rate there is consistent with what we've been seeing out of that now, which is that mid-single-digit growth. And that's what we saw in fiscal '21 and for a number of consecutive quarters now.

The next question comes from Blake Anderson with Jefferies.

I wanted to ask on AURs. That continues to be really strong at double digits despite all the macro dynamics. I know your guidance is closer to mid-single digits and we've talked about AUR today. I just wanted to drill down on a bit more in the outlet channel and the opportunity there, especially at U.S. and Europe. How much opportunity is there really from continued promo optimization and you talked a bit Patrice about the product mix. So I'd be curious about that as well.

So on the -- thanks for the question. So on the sort of the AUR outlook. So yes, we expect AUR growth to remain healthy and durable as we did about fiscal '27, albeit at a more normalized level following sort of the outperformance we delivered over the past year plus, we're guiding in that sort of in that mid-single-digit sort of range.

And that does reflect growth across all of our regions and really across all other channels. And outlets has always been the channel that probably had the most runway when we started the elevation journey. It's where we've made the most progress on AUR growth and we probably still have the most opportunity as we look ahead. If you think about discount rate as an example, so many levers to assess and activate frequency, depth duration, breadth of our product is included within promotion.

So as we get sharper with product performance analytics, customer segmentation, leveraging AI, we're going to be able to get more price -- more per site and more targeted with our offers telling specifically to customers by stores, by channels. So I would say that across all of our regions, still a lot of opportunity there, and it's not just around the targeted marketing communications and product offering, but it's also about as we elevate the mix in those outlet channels that is a pretty meaningful driver of our AUR growth.

Blake, on the product mix, you're absolutely right. I think what we're doing actually in outlets is very consistent with what we're doing actually across all the channels, which is elevating the mix. So in outlook, what you'll see is more emphasis on sweaters, more emphasis on outerwear, more dedicated space on handbags, right? Better presentation of our shirts and you're going to see less of our additional big T-shirt rounders that might have historically been right smack in the middle of the section where, of course, they're still available because consumers are looking for them and interested in them, but they're no longer front and center as we focus the energy and the activation on these higher AUR categories, and we're seeing a very nice response from consumers across the world on this shift.

And if anything, Blake, I would tell you, we're surprised on the upside on the type of price points that we can actually implement within outlets. We're seeing, particularly on our women's products some of the leather outerwear, which are relatively elevated pricing, getting very, very strong response. So we are encouraged by the momentum we're seeing there. And I think that journey of mix elevation within outlets, as we change and evolve the overall experience from the consumers, we lean into clienteling as we enhance the environment is designed to be productive and effective for many years to come.

The next question comes from Bob Drbul with BTIG.

Congratulations. Great results. I guess the question I'd like to focus on is China. When you look at the trends in China, the cultural teens, can you just unpack it a bit in terms of how you see this year playing out with these strong results?

We love talking about China as part of our diversified growth driver. So first zooming out a little bit because obviously, the numbers are particularly strong this past fiscal year, up 40% total fiscal year of 51% this last quarter. If you look back past 4 years now, we've been growing at above the 20% rate in China. So this is not a one-off. This is a result of sustained implementation of our strategy and excellent execution by our teams on the ground.

The China opportunity remains a major opportunity for this company, mid and long term. If you look at the penetration of our business there and the runway that we still have ahead A few things to call out. One is consumers are really gravitating towards the core values that Ralph Lauren represents the values of authenticity of timelessness, of quality of entrepreneurship of optimism. So not only are they attracted by our products, but they want to be parts of that world.

Two is we're actually recruiting broadly across generations. So we're obviously excited about the momentum that we have within the Gen Z population, but we're seeing appeal very broadly as we had seen historically in other core markets. Three is the teams have done really nice stop balancing the global campaigns and programs that we implement and then local activation and local activation ranges from marketing to digital commerce.

You've heard us talk about our activations on Douyin. Our Women's Polo Douyin, our shop is doing incredibly well. We just opened -- reopened our Men's Polo Shop and encouraged by the initial results that we're seeing there. So I think that, combined with the focus on these 6 key cities, resisting the temptation to go too broad to go too fast. We're working really hard to pace. I know the numbers don't necessarily show that, but working really hard to pace our growth because we're in China, not just to win this year.

We were in China to win for the next 10 and 20 years and really make sure we're building the right foundations for the long term and staying close to that consumer and making sure that E&C sees both the luxury perception, the way we intended and also sees the value in what we have to offer. Looking to next fiscal year, we have guided to mid-teens for China performance and feel that that's the right number based on what we're seeing in the market and based on the plans that we have today.

We'll take one last question, please, Julie.

Our final question comes from Paul Lejuez with Citigroup.

The sponsorship of the Winter Olympics, it seems to provide nice platform for the brand. I'm curious what kind of activation you're most spoke about for this upcoming year, how that differs by region. Can you do anything tied to the World Cup? That's my first question.

And then I was just curious on the margin expansion guidance. How much of that is simply regional mix versus region versus itself margin expansion? If you could talk about the dynamics of margins within each region.

Sounds good. So yes, we were really pleased with the response we saw from consumers actually around the world on the Winter Cortina Olympic activation, and our teams did a great job, both in terms of overall campaign and also activations online. And in our stores, we were proud that in a world that's pretty crowded with a lot of brands activating the Olympics.

We have the #1 share of voice during that time. Our philosophy, Paul, on our marketing approach is diversification, right? So we have a broad range of marketing activations every year, and we have this notion of always on rolling funder of marketing activity. So as I look ahead, it's going to be really challenging, Paul, to point to one specific one because we really don't build the plan that way. But we have this coming quarter.

Well, we just had the launch of the American Icon Stan collection, which were, I think, officially launching in 2 weeks. We have a Men Show coming up in Milan pretty soon. We just had a presentation in Salone. We have Wimbledon, we have the U.S. Open. We have a women's collection show in the fall. We're celebrating our 60th next year, we are celebrating 50 years in Japan this year. We're celebrating the 40th year of our Madison Avenue store and with the Honda store in Tokyo this year.

So you're going to see continued rolling drumbeat of marketing activation. They won't mirror one for one what we've done in the prior year because that's not how we think. But we will have a program that will bring energy excitement and interest to bring in new consumers as we've been consistently quarter-on-quarter and also to continue to energize and engage our loyal customers.

And Paul, on your operating margin, all 3 regions are expected to contribute to op margin expansion in fiscal '17 including North America. And we've got opportunity on gross margin expansion with our durable AUR growth drivers as well as on our SG&A expense leverage as we start to scale some of the fixed target investments that you've seen us make over the past couple of years.

And Paul, I didn't answer your World Cup question. We're not sponsors of the World Cup. Just trying to be choiceful in terms of where we engage, but we will activate in different ways across our stores to take advantage of the energy around the World Cup.

Co-friends.

So on that, I want to thank everyone for joining today's call. We look forward to reconnecting with you in the middle of the summer early August to share our first quarter results. And until then, take care, and have a great day.

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

Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Third Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Ms. Corinna Van Ghinst. Please go ahead.

Good morning, and thank you for joining Ralph Lauren's Third 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 the 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, Corri. Good morning, everyone, and thank you for joining today's call. We delivered strong third quarter results and progress on our Next Great Chapter: Drive plan this holiday. In a season defined by warm joy in the spirit of giving, Ralph Lauren's core values, a dream of a better life, time well met with family, quality and authenticity enabled us to connect deeply with consumers around the world, across generations, cultures and markets, people are stepping into our lifestyle and the iconic way of dressing. This powerful engagement with consumers is also translating to strong financial results.

In our most important quarter of the year, we exceeded our commitments on both the top and bottom line with broad-based performance across geographies, channels and product categories. Full price sell-throughs were meaningfully better than we expected this holiday as our brand experiences and products resonated around the world. This strong demand enabled us to continue driving our long-term elevation journey with improved quality of sales and gross margin expansion in each region, more than offsetting the impact of higher U.S. tariffs as we began to flow through more product under the new rates.

Our performance was also balanced across our retail and wholesale channels this holiday, reflecting our growing brand desirability and pricing power globally. This drove healthy high single-digit core along with double-digit growth in wholesale. And underpinning this momentum are our enablers that continue to support our performance. Our talented and passionate teams working tirelessly to execute on Ralph's vision. Our commitment to operational agility and a powerful balance sheet as we continue to navigate an uncertain global environment. And our focus on harnessing advanced technology, AI and analytics to better serve our consumers and drive greater efficiencies in our business.

In short, the 3-year next great cap to drive strategic plan we presented in September is off to a strong start. And are multiple drivers of growth across regions, channels, consumer cohorts and the breadth of our lifestyle product offering are delivering.

Let me take you through a few highlights from the quarter across the 3 strategic pillars of the plan. As a reminder, these include: first, Elevate & Energize Our Lifestyle brand; second, Drive The Core & Expand for More; and third, Win in Key Cities with our consumer ecosystem. Starting with our efforts to Elevate & Energize our Lifestyle brand. For nearly 60 years, Ralph has inspired people to step into their own dream of a better life. From the cozy elegance of a Ralph Lauren Christmas to optimism and adrenaline of the Olympics, we sit at the heart of culture. And over the holiday season, our teams continue to reinforce our place in culture, bringing our unique form of cinematic storytelling to a cross markets and platforms, transporting both new and existing consumers into our world.

Key highlights from the third quarter included: first, our Holiday 25 Mountain Living and Timeless Gifting campaigns translating the magic and easy elegance of Ralph Lauren around the world. We brought this to life this season through our immersive pop-up experiences in London, Los Angeles, Tokyo, Munich and Seoul, creating winter wonderlands as only Ralph can, featuring Ralph's coffee, special guest performances family photos, hand-painted denim jackets and candles and even our own Christmas tree farm. Along with a range of other activations, including our AI-powered store windows, featuring our Polo Bear and digital campaigns, our holiday campaigns drove a combined 2.9 billion global impressions.

Next, we continue to reinforce our position as 1 of the leading luxury apparel brands in the world of sports. During the quarter, we unveiled our Team USA uniforms for the Milan Cortina Winter Olympics, with special celebrations in New York City and in Milan with Vogue and EQ Italia, we are excited to feature inspiring stories that highlight the athletes dedication and perseverance to reach 1 of the greatest events on the world stage. I encourage you to check out all the looks starting with tomorrow's opening ceremony.

In the world of car racing, Lando Norris, our Polo Red fragrance Ambassador won the 2025 Formula One World Driver's Championship. And we renewed our long-standing partnership as an official sponsor of U.S. Open Tennis championships 1 of the most electric events of the year in Tennis. In Asia, we continue to build our elevated brand awareness and affinity through our very rough documentary events in Hong Kong and Singapor featuring celebrities and friends of the brand. Our Polo Originals campaign in Tokyo showcased Ralph Lauren's leadership in everyday luxury styling, uniquely blending Japanese refinement with American heritage dressing.

And finally, we outfitted an exciting group of actors and artists, including Jennifer Aniston, Rose Burn, Emily Blunt, Chase Infinity, Jesse Buckley and more for the Women in Hollywood celebration. Together, these global activations are driving strong sustainable growth in new customer acquisition and retention. In the third quarter, we added 2.1 million new consumers to our DTC businesses. on top of last year's 1.9 million record results, driven by digital and full-price store customers. We were encouraged by the strong momentum across generations led by younger next-generation consumers, women and VICs, and we increased our social media followers by high single digits to more than $68 million, led by Instagram, TikTok, Dogan 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 & Expand for More. Ralph and our creative teams continue to deliver on his vision through timeless, high-quality products and distinctive styling that tell a story of a life well lived. Independent of any single fashion trend or cycle, 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 low double digits this quarter driven by strength in our cotton cable nets, Jersey, Wall Cashmere and flag sweaters, all perfect for gifting. Oxford and linen shirts rugby and quarters at knit tops and our iconic Polo camps.

Our holiday campaigns also drove healthy full price demand in our core children's programs led by our elevated sweaters and midway down jackets and knit and fleece sets. Our high-potential categories, including women's apparel, outerwear and handbags, continue to be accelerators for our business. Together, these categories increased high teens, outpacing total company growth in the quarter. In women's sweaters were a standout, ranging from our hero cable net in cotton wool and cash mirror to our beloved Polo bars and newer haves and Polo cables.

Our outerwear offering showcased our expanded range of classifications from the sporty functionality of our Apollo puffers in Candy shop colors, to more sophisticated options like our tailored wool coats and cable knit bomber jackets. Momentum in our handbag business continued to be driven by our foundational collections, Polo ID and Polo Play in core leather, seasonal sways and western details, along with our women's collection, Ralph and Ricky bags.

Special releases this quarter included Polo Ralph Lauren and [indiscernible] the fourth collaboration in our groundbreaking artists and residence program focused on empowering and celebrating artisans within the communities that have historically inspired our designs. Our team USA collection, ahead of this month's Milan Cortina Olympic Games, honoring the city's creative spirit while staying true to the enduring style that defines Ralph Lauren. And our annual Pink Pony collection supporting Ralph Lauren's long-standing commitment to cancer care and research. We will continue to leverage the unparalleled breadth of our lifestyle product offering to connect with consumers.

Turning to our third key initiative. We're in key cities with our consumer ecosystem. We continue to expand our consumer ecosystems to deepen our presence in our top 30 cities around the world. We are also laying the groundwork for long-term sustainable growth in our next 20 cities. Across each of these ecosystems, we're establishing a cohesive consistently elevated experience to allow consumers to engage with and step into the Ralph Lauren lifestyle. Within DTC, which comprises the majority of our business, we delivered another quarter of healthy comp growth across regions. Global comps increased high single digits on top of more than 12% growth last year, led by our Ralph Lauren stores and digital commerce. We were also excited to launch our Ralph Lauren TikTok shop in the U.S. this quarter, becoming the first luxury fashion brand with an always-on presence on the platform. The shop features a curated assortment, including core polo bestsellers and seasonal refreshes tailored to this platform's next-gen audience, including younger male shoppers. By region, Asia once again led our growth with sales up more than 20%, driven by all key markets.

China grew more than 30% this quarter, ahead of our outlook as we continue to strengthen and grow our elevated brand across the market. Our China performance was supported by our holiday and very Ralph campaigns, continued expansion on [indiscernible] and another outstanding Singles Day with high-quality double-digit revenue growth and strong new customer acquisition around the event. Europe and North America also delivered high-quality growth this quarter, on top of last year's strong compares. As we continue to reinforce our presence in our top cities, we opened 32 new owned and partner stores globally.

New store highlights this quarter included Chengdu IFC Mall in China, Stratford and Bishopsgate in London, New Delhi, Abu Dhabi and Chatswood Chase in Sydney. 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, Ask Ralph, the AI-powered digital shopping assistant we launched in September is providing us with powerful insights as AI drives accelerated shifts in consumer behavior. Customers are moving beyond traditional search toward rich natural language product conversations with styling and outfit discovery accounting for more than 50% of our total engagement.

In addition to driving more personalized experiences for our customers, Ask Ralph is also becoming an important resource for high-quality first-party data. Second, our teams and our culture drives our performance. We were proud to be named one of America's best companies by Forbes. And finally, it was an honor for all of us when Ralph was named the CFDA's 2025 American Womenswear Designer of the Year. It is the second time Ralph has received this award and he is the only designer to win all of the CFDA's top honors. This is a testament to our exciting women's momentum and to our brands enduring relevance. Congrats to Ralph and our creative team.

In closing, Ralph and I are proud of our team's progress and execution through the first 3 quarters of this fiscal year, including through the important holiday season. Even as we continue to navigate an uncertain global macro and geopolitical environment, we remain focused on what we can control and what's ahead for Ralph Lauren. Creating value through our powerful brand that is as relevant today with Gen Z as it is with our silver spenders, a relentless focus on driving our core while also accelerating our high-potential category opportunities, meaningful geographic white space, which we are developing with a thoughtful approach to our top cities and a proven ability to execute with creativity, agility and operating discipline.

And before I hand it over to Justin, we'd like to extend a warm welcome to our newest Board member, Cesar Conde. Cesar brings rich experience from the world of modern media, particularly with international expansion and broadening brand reach to more diverse global audiences. We're excited to have him join us. 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. This holiday quarter reinforced our strong execution against our next rate cap drive strategy. Results were ahead of our expectations with a healthy balance of revenue growth and accelerated quality of sales to deliver margin expansion ahead of plan. We continued to advance meaningfully on our long-term elevation journey, with double-digit AUR growth on better-than-expected full-price sales and solid new customer acquisition across all regions. At the same time, we further invested in our key strategic priorities to enable sustainable longer-term growth and value creation. And we achieved all of this while continuing to strengthen our balance sheet and cash flows with approximately $650 million in free cash flows and $500 million in returns to shareholders this year-to-date.

Our performance gives us increased confidence in our trajectory. And as a result, we raised our expectations for fiscal 2016, reflecting our strong execution through the first 3 quarters and a modestly improved outlook for the balance of the year. Let me walk you through our financial highlights from the terranes which, as a reminder, are provided on a constant currency basis. Total company third quarter revenue growth of 10% was above our mid-single-digit outlook even as we lap an exceptionally strong holiday performance last year. Asia led our performance, increasing 22%, followed by North America, up 8% and Europe up 4%.

Total company retail comps increased 9% and with balanced growth across our own digital business and brick-and-mortar channels. Total digital ecosystem sales, including our own sites and wholesale digital accounts, grew mid-teens, reflecting growth across all regions, led by Asia. Total company adjusted gross margin expanded 140 basis points to 69.8%. The increase was driven by AUR growth, favorable mix shift toward our full-price businesses and lower cotton costs, which more than offset the anticipated increase in U.S. tariffs flowing through cost of goods sold along with higher labor and noncotton material costs.

AUR grew 18% in the third quarter, well ahead of our plan and supported by strong full price selling trends and reduced discounting, modest targeted pricing and favorable channel and product mix. Across all 3 regions, outsized full-price consumer demand early in the season enabled us to pull back even more on planned holiday promotions this quarter. We now expect high single to low double-digit AUR growth in fourth quarter with the flexibility to further reduce discounting based on selling trends.

Adjusted operating expenses grew 9%, a 50 basis point decline as a percentage of sales to last year, reflecting leverage even as we increased marketing investments to support our expanded holiday and localized keys activations. Marketing was 8% of third quarter sales compared to 7.1% last year. With revenue growth exceeding our initial expectations for this year and strong returns on our brand activations, we are taking up our full year marketing outlook to a range of 7.5% to 8%, in line with our long-term expectations.

Our adjusted operating margin expanded 200 basis points to 20.7%, and operating profit increased 21%, both ahead of plan.

Moving to segment performance and starting with North America. Third quarter revenue grew 8%, above our expectations, with strong performance across both our DTC and wholesale businesses. Our direct-to-consumer business increased 7% with significant quality of sales gains across all channels driven by greater full price selling and lower discounts. In North America Retail, third quarter comps were up 7%, led once again by our Ralph Lauren stores. Digital comps also grew 7%, supported by our full funnel marketing activations, better in-stock positions on key products, and improved site experience.

In North America wholesale, revenue increased 11%, driven by stronger-than-expected reorders, outperformance in digital wholesale and our top premium and luxury doors, and timing of off-price sales. While we remain encouraged by our sell-out trends, our outlook continues to assume a decline in fourth quarter North America wholesale revenues. This is primarily driven by a planned strategic reduction in off-price sales, the timing of certain spring tents out of Q4 and into Q1 of fiscal '27 and our ongoing wholesale door exits and broader consolidation in the channel.

Moving to Europe. Third quarter revenue increased 4%, in line with our expectations on a very strong prior year compares representing 20% growth on a 2-year stack. By market, our performance was led by Germany, the U.K., Italy and Spain. Strong and sustained brand momentum across the region enabled a further pullback in seasonal promotions versus our initial plans, driving higher quality of sales in the quarter. This was in contrast to a highly promotional competitive environment across marks. Underlying demand for Europe remained in line with our full year outlook at the high end of mid-single-digit growth.

Europe retail comps were up slightly on top of an outsized 17% increase last year. Healthy comps in our full-price Ralph Lauren stores and digital sites were largely offset by softer outlet trends as we pulled back promotions and lapped the strong double-digit compare from the second half of last fiscal year. Our Europe digital ecosystem increased low double digits led by wholesale digital performance. Europe wholesale increased 8%, above our plan, driven by higher-than-expected reorders.

We still expect Q4 to be the most negatively impacted quarter of the year as we strategically pulled forward wholesale receipts earlier in the fiscal year, as previously discussed.

Turning to Asia. Third quarter revenue increased 22% with retail comp growth up 20%. Our teams delivered growth across every market in the region, reflecting disciplined execution, strong full-price demand and high-impact brand engagement from our very Ralph premiers to our Polo originals and regional holiday activations. Once again, China led our growth. with sales up more than 30% to last year, driven by comps and new customer recruitment with strong performance during key events like Golden Week and Singles Day and continued growth on [indiscernible].

Sales in Japan increased double digits, driven by ongoing strength in full price sales, enabling further discount reductions throughout the quarter. Asia digital ecosystem sales increased strong double digits in the third quarter. We continue to expand our presence on Chinese social platforms as well as scale our own digital sites in China, Japan and Korea. Moving to the balance sheet. Our strong balance sheet and cash flow generation provide a solid foundation for executing our long-term strategy, providing flexibility and bit uncertainty, enabling continued investment in strategic growth and delivering value to our shareholders.

We ended the period with $2.3 billion in cash and short-term investments and $1.2 billion in total debt. Third quarter net inventory increased 10% in constant currency, in line with revenue growth. Our inventories remain well positioned to meet consumer demand as we close out the holiday season and begin transitioning to spring.

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 2016, we now expect constant currency revenues to increase high single to low double digits, up from 5% to 7% previously. Foreign currency is still expected to benefit revenue growth by about 200 to 250 basis points this year.

With our strong third quarter results, we now expect full year North America revenues to grow at the high end of mid-single digits versus our prior outlook of a slight year-over-year increase. We continue to expect Q4 revenue growth to moderate on a sequential basis, reflecting our planned strategic reductions in off-price wholesale and later timing of spring receipts. While the consumer has proven more resilient than we initially anticipated this year, we remain somewhat cautious on the North American operating environment. due, in part, the further consolidation across the broader wholesale channel, including recent developments at Saks.

At the same time, we continue to strategically shift our business toward full price DTC and grow in our top premium and luxury department store doors. Importantly, our net exposure to Saks this year is minimal, reflecting our disciplined and proactive management of the account. We continue to expect Europe to grow at the high end of mid-single digits with the first half of the year benefiting from planned wholesale timing shifts, followed by the negative impact of those shifts, along with more challenging compares in the second half.

Despite the timing shifts, we still expect healthy underlying growth in Europe in line with our long-term plan. And we now anticipate Asia to grow mid-teens up from our prior outlook of a high single to low double-digit increase. We now expect full year operating margin to expand approximately 100 to 140 basis points in constant currency compared to our prior guidance of 60 to 80 basis points, driven by a more balanced contribution of margin expansion and expense leverage. Gross margin is now expected to expand about 40 to 80 basis points for the full year.

With further growth in AUR and favorable cotton and full-price channel mix, more than offsetting the expected sequentially increasing pressure from U.S. tariffs. Foreign currency is anticipated to benefit gross and operating margins by about 20 and 50 basis points, respectively, in fiscal 2016. For the fourth quarter, we expect constant currency revenues to increase approximately mid-single digits. This growth reflects continued strong demand, more than offsetting a planned pull forward of receipts to earlier in the fiscal year. as well as a strategic reduction of off-price sales during the quarter, as previously discussed. Foreign currency is expected to benefit revenues by approximately 200 to 300 basis points in the quarter.

We continue to expect a decline in fourth quarter gross and operating margins this year due to a combination of higher tariffs, timing of marketing campaigns, including the Olympics and our Milan Fashion Show, and previously discussed timing shifts, all within 1 of our smaller revenue quarters, with Q4 primarily serving as a transitional period between seasons.

We continue to expect tariffs to be a meaningful gross margin headwind through the first half of next fiscal year until we begin to lap the higher cost base. Despite the increased near-term input costs, we still expect gross margin expansion in each year of our drive plan with more meaningful tariff mitigation over time. We expect fourth quarter operating margin to contract approximately 80 to 120 basis points in constant currency, largely driven by a similar level of gross margin contraction. Operating expenses are expected to be roughly flat to last year as a percentage of sales due to the timing of marketing investments as planned.

Foreign currency is expected to benefit gross and operating margins by about 50 and 100 basis points, respectively, in the fourth quarter. We expect both our fourth quarter and full year tax rate to be in the range of 19% to 21%. Our CapEx outlook of approximately 4% to 5% of sales continues to reflect our investments in sustainable long-term growth. and the infrastructure required to support it. This includes investments in digital and AI capabilities, brand-enhancing new stores and renovations and our multiyear next-generation transformation initiative encompassing integrated business planning, enhanced logistics capabilities and the move to a single globally unified ERP platform.

In closing, our strong third quarter performance underscores the enduring power of our brand and its deep authentic connection with consumers around the world. Ralph's vision of inspiring the dream of a better life is more relevant than ever resonating across generations and cultures and transcending fashion trends. As we continue to navigate a volatile broader operating environment with agility, we remain confident in our ability to deliver sustainable, long-term growth. supported by the strength of our iconic brand and our multiple diversified drivers of growth across geographies, categories and channels.

With that, let's open up the call for your questions.

[Operator Instructions]

The first question comes from Matthew Boss with JPMorgan.

Congrats on another nice quarter. So Patrice, you cited record levels of new customer acquisition this quarter and continued global brand strength. As you increase the marketing budget, how are you and the team thinking about sustaining longer-term brand momentum? And then Justin, could you elaborate on the drivers of your raised outlook for the fourth quarter? And specifically, trends that you're seeing today on the ground in North America and Europe, maybe post holiday?

All right. Good morning, Matt. Thank you for your question. So you heard us say it before. Ralph is really much more like a movie director, I think Martin Scorsese or Steven Spielberg, then he is a traditional designer. And he and his talented creative design team invite really people into a cinematic world, right? So it's not just through products like our cashmere sweaters or Polo shirt, but really through cultural moments and experiences that transcend trends. that we attract and retain consumers into our prem.

So yes, we had a great holiday. But we think beyond the moment in time. And listen, whether that's Quite Luxury or Ralph Lauren Christmas or quarter zip sweaters or anything else, we're not reliant on these trends. Now that said, they rarely happen by chance, right? They reflect the work our teams deliver to weave our brand into the fabric of culture around the world. Ultimately, we've transformed our approach to marketing over the past few years.

Now it's always on in our TCs with a rolling thunder of activations. So moving past this holiday, you can see it now, right? We just finished our Milan Fashion Show Men's Fashion Show with very strong feedback, I'd say, even well beyond our expectations. Tomorrow, we have our biggest fashion show, which is the opening ceremony of the Winter Olympic games expected to be viewed by more than 2 billion people. And then next Tuesday, we have our women's collection show here in New York, and that's just part of that drug beat of marketing activations.

And we have stronger confidence than ever in our marketing ROI, which has enabled us to take up our investments meaningfully over many years and even this quarter relative to last year, as you just here Justin mentioned. So listen, the results are clear. They're healthy, they're durable. And we're fundamentally shifting our consumer base towards a higher-value consumer over time, think more full price skewing younger and more women.

Now this isn't just about marketing, right? Our consumers stay with us because we're consistently delivering what only Ralph Lauren can, the cinematic storytelling that we pair with AI-powered insights, a broad, timeless product portfolio offering superior value and our elevated go-to-market experiences across both digital and brick-and-mortar. And it's the consistent execution across all aspects of our business. That has led to -- 50% of our customers staying with us over 10 years and 25% for over 20 years.

So together, this is what's reinforcing our luxury equity and our value proposition, and it's reflected in the way our brand is resonating broadly across generations, across geographies, channels and cultures, not just today or for a trend cycle but for a lifetime. And then on the outlook for Q4, we saw continued broad-based global momentum across regions and channels beyond our brand and our business through and coming out of holiday. So we took up our Q4 outlook based on this continued momentum notably in North America, where despite a pretty volatile choppy operating environment, we continue to drive solid, high-quality, balanced growth across channels this past quarter.

Asia also really strong momentum behind our businesses across markets in that region. Now -- we do expect some moderation in Q4 growth versus the quarter we're coming off of that's driven by the timing of wholesaler sheets in North America and Europe and strategic reduction of sales in the off-price channel, as I mentioned in my prepared remarks. But underlying demand remains healthy, and our core consumer continues to be resilient and we expect a healthy solid underlying growth trend for as reflected in that mid-single-digit guide and as we head into the spring selling season in earnest.

Our next question comes from Jay Sole with UBS.

Justin, your 18% AUR growth this quarter was well ahead of your guidance of up high single digits. Could you just walk us through the drivers of your AUR increase? And are you starting to see any price resistance from consumers at these levels? And also, if you could describe where the company is in terms of full price selling today? And maybe what the ultimate opportunity is long term?

Sure. Thanks for the question. So look, we're really encouraged by the consistency of our execution and results we've been delivering over really an extended period of time under this next great chapter strategy. AUR growth is 1 important output of that long-term brand elevation strategy. So it's not the only driver of our revenue growth. And as we've talked before, our growth is and will continue to be driven by a combination of new customer acquisitions, Patrice just talked targeted unit growth and AUR expansion.

And specifically on AUR, this quarter, it builds on more than 8 years of consistent AUR growth, right? And our drivers remain durable. And we still have meaningful runway ahead of us in each of our regions. And these drivers include our investments in brand elevation and marketing to support full price customer acquisition and retention; favorable geo and channel mix with Asia and full price DTC continuing to lead our growth. an increasingly elevated product mix, and we enhance our offering, we scale our high-potential categories, reduced promotional activity as we leverage analytics to be more precise in our offers and targeted pricing focused on delivering really compelling customer value.

Now this fiscal year, [indiscernible] price demand enabled us to pull back on PMOs even more than we initially planned. across all regions, including in the third quarter. And that reduction in discounting, that was the primary driver of that AUR growth coming in at high teens for the quarter ahead of the original expectation of up by single digits. All of our other durable AUR drivers, they contributed about equally, I would say, to our growth. And importantly, we haven't experienced price resistance from our core customers. So we continue to monitor our value proposition very, very closely. And our value perception and MPS scores have both progressively increased over time in tandem with AUR.

And we're encouraged by the solid comp growth we're delivering and the share gains we're seeing across markets alongside this AUR expansion. Our focus remains on driving sustainable top line growth while continuing to shrink in our quality of sales. It's very much an end for us. It's not an either or an or. And it's all part of our longer-term plan to continue to elevate our brand and invest in our future, all while delivering healthy growth and margin expansion. And on the full price business point, full price continues to lead our business performance. And that's true really across markets, across channels, across categories.

When you think about the share of our customer base, as we add more and more new consumers to DTC, and you heard Patrice talk about the $2.1 million this quarter, they're more and more skewing towards full price. So that percentage of our total customer base continues to increase over time, and you see that not only in the customer info, but in our KPIs and our quality of sales metrics.

Our next question comes from Laurent Vasilescu with BNP Paribas.

I wanted to ask about Europe. Justin, I think you called out better performance from full-price stores versus outlets as the offset. Can you maybe quantify the spread for the audience to get to the comp and then bigger picture for the year, I think you called out Europe is guided to be up high end of mid-singles. Just want to confirm that for the audience that's on a CC basis and if so, that implies Europe could be flattish for 4Q? So I'm just curious if that's driven by conservatism or Patrice, are you -- is there anything that you want to call out for the audience on what you're seeing in Europe for this quarter?

Thanks. So our underlying growth in Europe used to be healthy and strong. And that's what we've been delivering from the region for the past several years in both Q3 and fiscal '26, I'll call for fiscal 2016. They're coming in where we expected them. right, with that full year outlook up at the high end of mid-single digits, in line with our plan and longer-term growth outlook for Europe. We're happy with the underlying growth that we're seeing in Europe.

And overall, if you look at it, from a long-term basis, we've been pretty consistent in delivering solid, high-quality growth, especially if you normalize out some of the onetime things like coveting timing shifts. Our strategy is working. And it's a great example of elevated execution and brand positioning across all channels throughout the region, strong high-quality partnerships, solid new customer acquisition.

To your point, Laurent, the full price business is leading our growth. That continues to be a trend, which in Q3, it provided us with really the strategic opportunity to lean a bit more into enhancing our quality of sales, pull back on discounts to bother comp growth, which you see come through those quality of sales in the AUR and the gross margins. and we still delivered comp growth despite being up versus a very strong baseline in the prior year, right? We're up mid- high teens in the prior year, right? This was really also an investment to drive durable growth beyond this quarter.

So there's been a little noise, timing shifts have made a bit more challenging to get a beat on the underlying trend from quarter-to-quarter. And that's why we specifically provided that full year trend in our latest guide, which continues to be steady, healthy high-quality top line growth in that mid-single-digit range, which we feel really good about. And we still feel like that's the right normalized level of growth looking ahead, and we're well on track to deliver that.

And for Q4, I would say our outlook for Europe is slightly up. But again, the underlying growth trend a bit more normalized in that mid-single-digit range because you do have some of those timing shifts that are pressuring that top line trend.

Yes. I would add, Laurent, I mean, Justin is right, there's noise in the numbers because of time and for Europe. But a few things to call out. First of all, our core consumers resilient continues to be healthy in resilient across the European market, and we saw particular strength this time in Germany and U.K., our largest markets, but also good strength in Southern Europe as well.

Second piece is the brand momentum continues to be , and we see that across the key metrics, whether that's NPS, whether that's how we're continuing to bring in new consumers into the company and into the brand over the quarter. And then third, just reiterating Justin's point, we were very choiceful in terms of interventions for Europe in Q3. We felt really good about the progress in our full-price stores. We have very strong digital performance that quarter. We have very healthy wholesale performance, and that allowed us to pull back on our promotional activities further than expected. And it's very deliberately because, listen, we're playing the long game, right?

And to Jay's earlier question on full price selling and others, that's where we're moving forward, right? And so when we see opportunities to pull back on promotional activity, we will take advantage of it in the context of a business that is quite healthy that we're very excited about, and it's got good momentum.

SP1 Our next question comes from Michael Binetti with Evercore ISI.

I wanted to maybe follow that a little bit, Justin, it sounds like in Europe, the decision was made in the Atlas to pull back a little bit. I think you said there was an investment to drive durable growth going forward after this quarter. Can we interpret that to mean that the interventions in the outlet in Europe was F3Q only? Or does that -- do you think that you want to keep doing that in fourth quarter? Is that -- do you think that starts to improve?

And then I guess, picking up a little bit, the total company operating margin is really strong here. and that was despite Europe dropping a little bit. I was surprised to see Europe segment margins down a bit given the explanation that we pulled back on promotions in the outlets. Can you just help us understand the Europe margin a little better? And if you expect that to remain a headwind for a few quarters? Or how will that roll forward?

Sure, Michael, thanks for the questions. On the last part first, the Europe, we increased our marketing investment in Europe in the quarter. So that's what's pressuring the bottom line. And again, that's been a focus of ours. We've seen really strong healthy returns out of our marketing. We've talked about having been taking up the rate at Investor Day, we talked about the 7.5% to 8.5% trend. We took up our marketing rate guide for this year to that 7.5% to range. And we're seeing really nice returns again, not just short term, but both short and longer term. return. So that's what you're seeing pressure on the margin.

In terms of sort of the way to think about the quality of sales investments in Europe and really this applies beyond Europe. This is sort of our brand elevation strategy philosophy, we're on a continuous elevation journey, right? Our focus remains on driving sustainable top line growth while continuing to strengthen our quality of sales. And when you think about sort of the strong full price selling that we saw in Q3, it gave us that strategic choice to lean in more, right, notably in the outlet channel and all over the world, right, not just in 1 region.

So when you think about going forward, we're going to continue to do the right things for the health of our long-term branded business while delivering or, in this case, over delivering on our results in the short term. We've got many quality of sales levers to lean into One of them is obviously refining our promotions and discounts. And as we get sharper with our customer information and segmentation, our analytics, and we could be more precise and targeted one-to-one with that communication, you're going to see us continue to refine our discounts and our promotions across all of our regions as we move forward. And there's runway for that refinement in all regions, not only North America but in all regions to some extent.

And if I could just provide a little more color, Michael, on Justin's comment relative to increased marketing in Europe, which we're very excited to do. Europe has a number of key cities that are not fully activated from a marketing standpoint. And the work we're doing with our teams on the ground is to expand our activation across cities. So that's where that incremental marketing is going. We're seeing really good returns. So we expect to continue to drive that as our team executes with excellence on the ground, but of course, in the context of the broader financial targets that we want to deliver.

Our next question comes from Adrienne Yih with Barclays.

Let me add my congratulations very nicely. Nice since the quarter -- the holiday quarter. My question is on the Ask Ralph, the implementation of Agentic AI. What have you learned kind of the early learnings? I mean this is the first holiday that we've really seen that really come to the forefront. What did you learn from this holiday? And how quickly can you deploy those changes? And then Justin, can you talk about whether the benefit to cotton and possibly freight perhaps in the quarter as input costs are contemplated obviously in the fourth quarter, but how should we think about that going into the early part of fiscal '27?

Thank you for your questions. Listen, we were pleased to be a leader in this space with the launch of Ask Ralph, the AI Ask Ralph. It's early days, but we are very encouraging early reads, and we're driving learnings how consumers interact with natural language search, right, that's a meaningful change. And also, this provides us with incredible access to high-quality first-party data, right, which is ultimately the goal when it comes to marketing moving forward.

So we're seeing consumers engage across many different fronts and questions as they're looking for advice on how to style themselves for different occasions for different weathers and so on. We're going to expand and add new features. So right now, you will have noticed we don't have our full brand portfolio on it yet. We're going to be adding that shortly. We're also looking to further integrated into our overall digital ecosystem. Right now, it's only available on the app in the U.S. You're going to see us expand that.

We're also going to integrate voice and filing based on images provided by users, which we don't have yet. So it's an incredible platform as a starting point with right now, I would say, a learning experimentation phase that's very promising. And this is a space where we want to continue to lead. And to some extent, if you fast forward, I think this is the precursor of our consumer agent.

Well, I mean today, it's primarily a style agent. But I think as you evolve and look ahead, you can see how as Ralph can become really the consumer agents for the customer base that we engage with. And then obviously, in parallel, right, there's also this whole development in the area of the Gentex shopping and we're tapped into that and learning about that as well to make sure that we are set up to meet the consumer where they want to engage with us and how they want to shop with us.

And on the margin question, so taking a step back for our biggest driver for gross margin was indeed a UR increase driven by that promo pullback. We did see favorable cotton tailwinds and favorable freight modestly in the quarter that benefited our gross margin. Now on the cotton side, we're still tracking to deliver that 175 bps benefit that we've called out over the 2-year period, fiscal '25 and '26. You are seeing that impact moderate as we move through fiscal '26 as we expected.

On the freight side, a little bit of favorability in the quarter, but for the fiscal expense would be roughly neutral. And I think as you think about those 2 input costs, I think looking forward, I think we're expecting a relatively neutral outlook.

Our next question comes from Blake Anderson with Jefferies LLC.

[indiscernible] Holiday wanted to ask on Q4 as well, just kind of on the margin outlook there. So I know you said the contraction on the operating margin side is mainly tariffs. I think gross margin, you just mentioned cost inflation. Just curious why you wouldn't be able to offset that with the continued AUR growth for Q4, any other conservatism or factors we should be considering? And then as we -- as you think about the ability to mitigate tariffs, next year, I think you said you're looking to be able to do that. How do we think about mitigating those tariffs in the first half of next year?

Thanks for the question. is we're feeling really good about what we've been able to deliver with our gross margin expansion. And we actually improved our Q4 outlook from our original implied guidance. And while tariffs have remained largely unchanged, we've been able to migrate the related cost inflation better than we expected. And we obviously exceeded our expectations in Q3 with that higher price selling an AUR outperformance, which drove our gross margin beat and more than offset the tower flow through the cost of goods sold, which ramped up in the third quarter as we anticipated.

We still expect to be the most impacted quarter this fiscal year in terms of year-over-year gross margin pressure, and that's consistent with our planned case, right? It's a combination of the reciprocal tariffs and the timing shifts we made to accelerate receipts earlier in the fiscal year during the pause period and this has been 1 of our smaller sort of revenue quarters of the year, the transitional quarter between seasons.

And as I mentioned, the benefit from cotton cost also moderates and it's worth noting we are up against a very, very strong gross margin baseline in Q4 of last year. But even with that year 1 tariff pressure, right, we're now expecting 40 to 80 bps of gross margin expansion this fiscal year. And we've also taken up our Q4 AUR guide to the high single to low double-digit range. Beyond this fiscal year, we still expect to expand gross margin and mitigate the cost inflation. And you'll start to see our broader beginning actions take shape, country of origin ships, optimization, merchandising actions. You'll start to see those all come into play as we move through fiscal '27.

Our next question is from Irwin Boruchow with Wells Fargo.

Justin, I just wanted to quickly clarify based on the margin guide for Q4. Are you essentially SG&A flat. So grosses are effectively flat, up 20% to down 20%. Just let me know if I'm looking at that right. And then you mentioned headwinds to start next year, but up for the annual, as you commented, relative to your algo. Are there any quarters where grosses should be negative? I'm just kind of curious the magnitude of the margin pressure from tariffs in the first half, if it's large enough to actually put to plan the gross margins down to start in the first half before inflecting?

Yes. So when you think about really, what you're seeing there is you're seeing from a gross margin perspective, you're seeing the pressure from what I just outlined sort of the peak tariffs in this transitional quarter and the timing of some of the receipt flow through. That's really the pressure there. And we always expect that to be the most pressured quarter for this fiscal year. I think as we move forward, you think about sort of the tariff sort of ramp up and ramp down period, we know we do start to lap that higher cost base once we get into sort of the mid fiscal '27.

That being said, it's fair to say that Q4 is really where we expect the peak pressure. And you can see sort of that pressure come through in the gross margin, which is pressuring the bottom line as well. still feel really good about the view we're delivering both on the top and bottom line, obviously, and we just raised both our outlooks.

Our final question comes from Brooke Roach with Goldman Sachs.

Patrice and Justin with your updated operating margin guidance for fiscal '26 of 100 to 140 basis points you're quickly achieving your fiscal '28 Investor Day targeted operating margin expansion. Do you see further operating margin expansion opportunity for the balance of the plan? And if so, can you outline the opportunity and the core drivers that we should be considering?

Listen, we feel really good about how we're tracking to deliver year 1 of the long-range plan that we shared back in September at our Investor Day. Our 3-year plan is off to a strong start. And we're not guiding beyond Q4 this fiscal year today, but we feel good about the broad-based momentum and the strength behind our brand and our business around the world. It's the healthy sustainable growth that we see across markets, categories, channels.

I think that we do expect to continue to balance margin expansion with making strategic investments to drive longer-term growth in each year of our 3-year long-term plan. beyond year 1, right? Our lens is long term, and we're building for the long term, and we want to deliver attractive, consistent performance on the top and the bottom line our approach outlined at our September Investor Day has not changed. And more to come again when we chat in May.

All right. Very good. Well, thank you all for your questions. Thank you for joining today and we look forward to reconnecting now late May to share our fourth quarter and fiscal year-end results. We're really pleased with where we are 3 quarters in. We look forward to engaging with you at the end of next quarter. And so then, take care, and have a great day.

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

Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Second Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I'd now like to turn over the conference to our host, Ms. Corinna Van der Ghinst. Please go ahead.

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, Corey. 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 we put 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, 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 combine the elegance and cherished traditions of British heritage with Ralph Lauren's refine 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 centrality 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 glamor 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 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. And 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. And 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. And 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. And 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 compares.

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. And 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 compares.

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 compares. Despite the timing shifts, we still expect healthy underlying growth in Europe, in line with our long-term plan. And 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 compares 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 the 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.

[Operator Instructions] The first question comes from Matt Boss with JPMorgan.

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?

Sure. Well, thank you for your question, Matt. So on the first part of your question, we continue to see strong broad-based momentum in our business, right? Our new Next Great Chapter: Drive strategy is working, and our brand is resonating with consumers around the world. To date, we have not seen any meaningful changes in consumer behavior across our key consumer segments or markets. Demand remains healthy, and our core consumer is resilient. Especially as we continue, as you know this, to shift our recruiting towards more full price, less price sensitive, higher basket size new customers.

Now from a macro perspective, as price increases take root across different sectors, we are watching closely to see how consumers will respond, and our teams are staying as agile as ever in this context. And listen, we continue to focus on our key strategic pillars and invest in spaces that we expect to successfully fuel our momentum and grow share for the long term.

So first, we've implemented a rolling thunder of brand building activations to drive brand desirability and retention and more consistent engagement with consumers. I'll come back to that when we talk to your awareness question. Whether that's through our impactful fashion shows -- we had 2 this last quarter -- our inspiring sport activations or our more innovative interactions like our AI-powered Ask Ralph styling assistant. This will remain a key area of investment as we look ahead.

Second, we've continued to drive a healthy balance of authentic core products that perform across macro cycles along with our high potential categories. Think women's apparel, outerwear and handbags. And both are performing well, as you heard us talk about earlier. And third, just a reminder that we still have a lot of distribution opportunities globally. Whether that's deepening our presence in the existing top 30 key cities in China or Western Europe, to what we've just started doing, which is opening new stores in the Bay Area, for example, as we build the San Francisco ecosystem or in the Pacific Northwest, here in the U.S.

So all in, our consumer continues to show up for our brand. And even as we navigate the macros, our business model is resilient with our multiple drivers of growth, and we will continue to stay on offense to deliver on our long-term Drive plan.

As far as global awareness is concerned, let's go around the world together, Matt. So obviously, our awareness is highest here in North America. Then Europe is very closely behind that across all the markets. But I think the opportunity still in markets like Germany, which historically have not been a focus area, as you know, for this company, but certainly, we are -- as the current leadership team are very focused on taking advantage of the Germany opportunity, and we're seeing strong continued momentum across that region.

And then in Asia, it's really a mixed picture. We've been in Japan for -- it will be 50 years next year. We have strong brand awareness there. We have opportunities for growth of the brand awareness in Korea. And probably, our greatest awareness opportunity remains in China, where I think based on our latest numbers, slightly more than half of the population is aware of the Ralph Lauren brand. So depending on the markets, awareness is or is not a key opportunity. Obviously, as we look to recruit new younger consumers, we know there's work to do on brand awareness and brand engagement.

And then it's really about making sure that we're telling stories that resonate with these different consumer groups. It's really about making sure that we have a product offering that takes advantage of our core icons and also leverages our high potential categories in a way that resonates with those consumer groups we want to go after. And it's making sure that we can offer a compelling shopping experience, whether that's online or in stores, in the key cities that matter for these consumer groups.

So certainly, you touched on it, we're very energized by the opportunity ahead of us when you look at market shares, right? Less than a 2% market share in a large and growing market total addressable market of around $400 billion. So building awareness is a vector of growth that will help us expand our market share. But obviously, conversion, basket size, all the different dimensions of revenue growth areas that our marketing teams are focused on.

The next question comes from Jay Sole with UBS.

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.

So first on pricing. So 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 geo, channel mix and pulling back on discounts in addition to strategic pricing actions. And as we talked at our September Investor Day, these drivers are durable into the future.

And really importantly, we continue to see consumers recognize and respond to the value we're delivering. It's critical. Now for this fiscal year, we took normal course of business pricing actions for fall as we continue to elevate our brand around the world. And with the higher tariffs that were announced, we did layer in some additional modest adjustments, both for fall and for spring '26. And 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. And 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 and Q4 is our smallest revenue quarter of the year. It's a transitional quarter, right, between fall holiday and spring.

So even with the year 1 tariff pressure, we're now expecting 10 to 30 bps of gross margin expansion this fiscal year, better than our initial outlook. And talking beyond this year, we still expect to mitigate the cost inflation. And you'll start to see our broader mitigating actions take shape, country of origin shifts and optimization, merchandising mix actions and potentially some further targeted pricing.

And then lastly, on the second half guide. So clearly, we made some strategic intentional choices to front-load our performance this fiscal year given the higher level of macro uncertainty as you move through the year and specifically in the back half. But that all said, we've been able to raise our outlooks for Q3 and Q4 modestly as we move through the first half of the year.

Now we do realize there are a number of moving parts here. But when you adjust for the timing shifts, when you adjust for the strong holiday compares, the general caution we've called out on the U.S. consumer, our underlying trajectory remains in line with our longer-term algo of that mid-single-digit growth.

So I said a lot, just to summarize. Targeted pricing, one of our many durable levers of AUR growth that we're applying to this fall and beyond with a focus on value. We continue to feel good about our ability to expand gross margin and mitigate tariffs both this fiscal year and beyond. And while there's a combination of structural and timing shifts impacting the second half of this fiscal year, our underlying growth continues to track to our long-range algo of mid-single digits as we shared at Investor Day.

The next question comes from Brooke Roach with Goldman Sachs.

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. So just taking a step back as we enter -- or enter this fall holiday season, we saw some pretty broad-based momentum behind our brand, across markets and channels, including in North America. And we've been -- past 8-plus years, we've been through a number of different iterations of a tough environment before, right, of cost inflation, price inflation, cotton freight, pressures on the consumer. And we've navigated that pretty successfully using that diversified toolkit of levers that we talked.

And the brand is positioned now better than it ever was before during any of those periods. So we know -- we have confidence that we can navigate through the macro pressures. We've got real pricing power, and we also have seen our value perception grow progressively along with AUR throughout the elevation journey.

So when we think about fall holiday, a couple of words come to mind. One is flexibility, right? We've got the flexibility in our price architecture to be able to -- in a very targeted, selective way, still talk and convert those more value-oriented customers subsegments that exist in channels like wholesale and the outlets when the macro pressures sort of tighten. And we can do that without walking back our broader brand guardrails.

The other word that I think about it is value. We're going to stay laser focused on making sure we're providing a compelling price value proposition to our customers. And as we kind of sharpen our marketing, as we sharpen our analytics, as we get to know the customer better and we get our segmentation more precise, we're only getting better at being able to understand that -- what's that sweet spot in terms of price value to appeal to the consumer.

And Brooke, I might add to Justin's perspective, 2 points, first on branding and the second on product offering. So our storytelling -- and you saw the range of activations this past quarter, which was very special. And obviously, it's given us momentum going into this holiday season. Our storytelling is really designed to appeal broadly, including to the more value-sensitive consumers. And what we have certainly found the past few quarters is the broad range of marketing activations from sports; to fashion presentations, to the serendipitous celebrity moments have talked to the different consumer segments that we appeal to. And then our teams here in North America are putting disproportionate emphasis now on better segmentation to make sure we're getting the right message to the right group at the right time. So I think we're gaining momentum there. There's more to come on this front. That's on the marketing branding side.

On the product side, what's very interesting is across consumer segments, the strategy of both driving our core icons and our 3 high potential categories is resonating. So we're seeing that play out at the upper end echelon from a revenue standpoint of our customer base. We're also seeing that play out within our more value-sensitive consumers, which obviously makes it a lot easier to execute and gives us confidence in our ability to win during this upcoming holiday season.

The next question comes from Michael Binetti with Evercore.

Congrats on a nice quarter. Yes. I want to ask just 2. So on the AUR, look at a few metrics here. The global AUR growth rate has been very, 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?

And then Patrice, the Investor Day plan looks for EBIT margins, 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. So on the AUR question, so we've been pretty -- to your point, consistently growing AUR, and you see the AUR gains with the comp gains, which really shows the quality of the revenue they are putting up and the share gains that we're getting behind them. To your point on units, we've been growing units along the course of this journey. I think earlier in the elevation journey when we had the step changes in elevation, they were slower. But now as we move through, where we've been seeing unit growth is those areas that we've really been targeting, right? So our full-price businesses, right? Our digital businesses, our markets like China, where we know we have outsized growth opportunities. On our accelerator categories like women's, like handbags, like outerwear. We've been seeing unit growth there.

I think when you think about the environment from a macro perspective that we're going to go -- that we expect to go into in this sort of second half and maybe carrying into the first half of next year and we talked this a little at Investor Day. We are going to lean more into AUR versus unit growth overall as we navigate those cost inflation pressures. That all said, to your point on opportunity, there was certainly a unit growth opportunity, specifically in those areas that we've been focused on, like those areas that are further along on the elevation journey. So you'll continue to see us opportunistically focus on and grow units there. And then as the other areas of our business progress on that elevation journey, you'll see the inflection point in those facets as well.

On the OI margin question in terms of opportunity, 16% plus, when you think about longer term, I mean, we -- and we've talked this before -- we're committed to balancing -- delivering on or often exceeding our near-term commitments with reinvesting back behind our brand in our business for that longer-term sustainable growth. So you see us do things like this year, this guide, we took up both the top and bottom line. We also took up our marketing expectation, right, as we continue to reinvest behind that sustainable long-term growth.

I think in terms of -- that philosophy is not going to change. You'll see us continue to follow that as we move forward. So as we have potential upside, you're going to see us balance the flow-through between operating margin expansion and between reinvestment back into the business with marketing probably being the 1A area. You're also seeing this year as we move through the year based upon our guide, and you kind of saw it start last year, you see us work this sort of SG&A leverage muscle, right? This cost optimization muscle. And that's going to be another lever we have at our disposal, both to mitigate and manage the macros. And as we know, gross profit does have some choppiness associated with it, but also to balance between flowing through near-term profitability gains with reinvestment back into our business.

The next question comes from Ike Boruchow with Wells Fargo.

I think this is for Justin. Wanted to kind of dig more into North America wholesale. You've been -- you've inflected the positive, I think, 3 quarters in a row now, but you kind of went low double digits this quarter, but there's an 11-point shift. And then, Justin, some of your comments on the fourth quarter kind of suggests you're going to pull back from some unproductive sales.

So kind of just peeling the onion back, just how should we think about the trajectory of North America wholesale? And then I assume that shift is hurting us in the third quarter, but would love some clarity there. So kind of just looking for the trend line and how you kind of plan that channel at this point?

Sure. So listen, when you think about the underlying quality growth that we're seeing in our wholesale business, I would say, North America and in EMEA, but let's focus on North America as well as the strategic ongoing elevation work in these channels, that is quite purposefully meant to balance momentum at times, notably in North America. I mean, we're very encouraged. Our brand momentum has been strong and we've been able to deliver more outsized performance than we were expecting. I think it's fair to say through the first half of this year.

And the great thing about this growth is that it's healthy, high-quality growth on an underlying basis, right? And it's reflective of the diversity of our growth driver. So it's working in retail, is carrying over and cutting through in wholesale. Women's is a great example. Women's is working really well, both from a door perspective and a comp perspective in North America wholesale, specifically at that top tier -- at the top-tier channel. So it's great to see the execution of the strategy, and it's great to see the healthy underlying growth.

To your point on sort of a normalized growth expectation as we think about first half versus second half and beyond, we've always talked about sort of a stable to up type of algo for that North America wholesale business. And that's really balancing between growing in areas like top-tier doors, growing in areas like digital, growing in areas like key cities with our wholesale partners. Balancing that out with continuing to call off-price, continuing to call the lower tier distribution.

So when we think about the second half specifically versus the first half, we've got some off-price reduction pressure that we know is coming that is planned for Q4. That's going to impact that business by 2, 3 points. We've also got -- we're caution embedded in our outlook around the U.S. consumer, right? Because we know as the pricing environment begins to take shape, those sort of strong reorder rates that we've been seeing in that business, there's some elasticity pressure that we're layering on top of that as we head into the second half.

And then we've got the third step, which is really continued brand elevation reinvestments, which is going to partly offset some of our gross bookings. So when you think about the shape of things, there will be some expected pressure in the second half, but I think we feel good about the core of that business. And if you strip out some of the one-offs, we feel good about that sort of stable to up normalized growth organic trajectory.

The next question comes from Dana Telsey with Telsey Group.

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 from full-price? And with the AUR increases, how is trajectory and outlets basically globally of higher-priced product there? And just lastly, anything on the supply chain to make note of as a benefit for margin going forward?

As far as the performance is concerned across all our DTC channels, I might even expand that to ralphlauren.com, if you don't mind. We're actually seeing really nice, consistent growth. Both our full-price stores, our outlet stores and actually disproportionate growth on digital, which we're very excited about.

And as I mentioned earlier to Brooke's question, what we're seeing is on marketing activations and our product offering is resonating pretty consistently across these 3 different channels. And as we get more precise on consumer understanding and consumer segmentation, we're able to better target through particularly our social media platforms to get the full potential performance across all 3.

But the short answer to your question is broadly consistent performance across the 3 areas. And of course, moving forward, our expectation is to continue to expand our full-price stores, right? You saw this quarter, we opened 38 around the world. That will continue. We do not expect to expand our outlet doors. If anything, what our teams are doing around the world now is combining outlet presence, so we might have a center where we have 3 different locations. We're building that into one. And then we expect to have some closures of outlets moving forward as we look to continue to elevate our presence. And of course, we're leaning in aggressively in ralphlauren.com and our digital operations because we're seeing very strong response there.

On the supply chain piece, Dana. So our global sourcing supply chain, well positioned, strong long-standing partnerships. It's really been, as you know, a key differentiator for us over the past 8-plus years, significantly diversified. So we have been taking advantage of that diversification in terms of being nimble and agile as we navigate the ongoing cost inflation landscape. And we do also maintain alternate sourcing capabilities for all of our key products in more than 1 country of origin, right? So we've been certainly leaning into that as well as working with our supply partners to drive efficiencies in our cost of goods and broader sort of end-to-end relationships.

That supply chain is also very innovative. They also continue to focus on developing and scaling new opportunities in each of our regions to mitigate what we know is a very dynamic global macroeconomic environment. So you'll see some of those mitigating actions start to ramp up as we move sort of through this year into early next year and into next year more fulsomely, and that is obviously a key lever in our mitigation toolkit when we think about cost inflation.

The next question comes from Laurent Vasilescu with BNP Paribas.

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. So thank you for your question. So very pleased with the performance, again this quarter, up 30%. If you look at our run rates in China, we've been performing strongly for many years now. Why is that? While it's our strategy at play that the teams on the ground are doing a brilliant job executing, building the brand in a way that resonates with the Chinese consumer, leveraging our core items and also leading into our high-potential categories, particularly our women's apparel and handbag businesses, disproportionately performing in China. And then expanding our footprint in a very selective way across the 6 key cities, building these unique ecosystem.

So the performance you saw this quarter is really the result of these actions over many years. While we are, like you, reading the headlines on the economic environment in China, I think, to use your terminology, a lot of our performance is driven by idiosyncratic elements from the Ralph Lauren mix. Now keep in mind, Laurent, market is significant, right? And we still have relatively small share. So there's a lot of business to be had even if the overall category, we're not growing.

As we did guide, I think, low double digits for China, even longer term, right? So not just for this year, but over the 3-year period of our Next Great Chapter: Drive. We don't typically do that for individual markets, but we thought it was helpful for all of you just to get a sense of how we think about that market in particular. We stand by that. Listen, we gave that guidance 6 weeks ago, so it's unlikely that changed in the span of 6 weeks, but we feel very good about the balance of growth drivers and the diversity of growth drivers across that market, healthy comp growth quarter-on-quarter with new store expansion in a very selective, disciplined way, really leaning into digital and digital -- significant growth potential, including with -- and we touched on this in prior calls -- social commerce, which is really gaining momentum in China in particular.

So we talked about our activations on Douyin. We have a women's total activation that's performing very well, actually ahead of our expectations. We'll be expanding that across our portfolio. So the combination of new consumer recruiting, which drive a strong comp growth, select store expansion and acceleration of our digital platform and footprint along with clienteling, this is probably one of the markets where we have the best understanding of the customer and the best connected understanding of the customer across the ecosystem gives us confidence that we can continue to build strong, steady performance in China. We're in China for the next few decades, right? So we're also being very disciplined in terms of how we grow quarter-on-quarter to make sure it's done in a quality way, a sustainable way. And we're encouraged by the momentum we've got.

All right. Well, Laurent, you had the last question. So thank you, everyone, for joining us today. We look forward to reconnecting in February. We will have just -- we'll be in the middle of the Cortina Olympic Games, where we sponsor the U.S. team. And we'll be looking forward to sharing our third quarter fiscal '26 results. And until then, take care, and have a great day.

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