Cangnan County Qimeng Clothing Co.,Ltd

ralph lauren corp (rl) q4 2019 earnings call transcript

by:QiMeng     2019-09-01
Image source: Motley Fool
Ralph Lauren (NYSE: RL)
Q4209 revenue phone 2019 9: 00m.
Speech: Thank you, campers, for your support.
Welcome to Ralph Lauren\'s third quarter earnings call for fiscal 2019.
At this time, all the participants were listening. only mode.
We will ask questions later. and-answer session.
Instructions on how to ask questions will be given. (
Operator instructions)
As a reminder, the meeting is being recorded.
I want to give the meeting to our host now.
Corinna Van der genst
Please continue.
Corinna Van der Winst-
Good morning, head of investor relations, thank you for attending Ralph Lauren\'s conference call for fiscal 2019 in the fourth quarter.
I am with you today as President and CEO of Patrice Louvet;
Jane Nielsen, chief operating officer and chief financial officer.
After the prepared comments, we will open the phone for your question and we ask you to limit one per caller.
At today\'s conference call, we\'re going to make some outlook.
Forward-looking statements in the sense of federal securities law, including our financial outlook. Forward-
Forward-looking statements are not guarantees, and our actual results may differ materially from those expressed or implied in forward-looking
Look at the report.
Our expectations contain many risks and uncertainties.
The main risks and uncertainties that may lead to significant differences between our results and our current expectations are detailed in our SEC document.
Disclosure and reconciliation of non-companies found
When discussing our financial results, you should refer to the earnings release this morning and the SEC documents we submitted on our investor networking site.
Now, I\'m transferring the phone to Patrice. Patrice Louvet--
Corey, thank you, president and chief executive.
Good Morning, everyone. thank you for attending today\'s conference call.
We are pleased to report on fiscal 2019 performance for the fourth quarter and full year, revenue, operating margin and double
The digital growth in earnings per share is ahead of our outlook for the quarter and year.
Our performance in the fourth quarter is by double
Revenue growth in Asia and Europe remained on a stable monetary basis, better than expected global growth.
North America has also made continuous progress on the basis of restoring more health, our brand is constantly improving, our off-
Price channel penetration.
Although we recognize that we still have more work to do in this areayear journey.
Overall, our company has performed well on core metrics this year, several of our business areas have exceeded expectations, and some need more work.
Looking ahead, we focus on leveraging success while also applying lessons learned from our first year of our next great strategic plan.
At the end of fiscal 2019, Ralph and I are proud of the work our team has done this year.
We are encouraged by the great progress we have made in our strategic plan to achieve our long-term goals
Sustainable growth and value creation.
In a moment, Jane will take you through the outlook for the fourth and 20 fiscal years.
But first, let me review the 19 financial priorities of the five strategic priorities in our plan.
It should be reminded that we must first strive for a new generation of consumers;
Second, stimulate the vitality of core products and accelerate high potential
Developed categories;
The third is to expand areas and channels in a targeted manner;
Fourth, lead digitization in all activities;
Fifth, drive growth with discipline.
Start by winning a new generation of consumers.
As we outlined on investor day last June, our goal is to recruit millions of new consumers each year for our brand.
In order to achieve this goal, we have been promoting our brand.
Increase our investment in marketing.
Focus on the most important channels for consumers today, mainly digital and social channels.
In fiscal 19, we increased our marketing spending by 13% on the basis of a 10% increase in the previous year.
Highlights of the Year-
Including two unique fashion shows, creating a record global engagement for Ralph Lauren.
We are creating different experiences through our programs, where we can attract consumers in new ways and expand our messaging across the globe
Store events and numbers.
Our exciting cooperation with the UK
Headquartered in the Street brand Palace and limited additions throughout the year, the brand was introduced to new and young consumers.
As part of this, we activate our new POLO mobile app and work with influential professional retailers around the world to reach the fashion consumers they shop.
We continue to use the power of cultural events and influencers, especially Ralph\'s wedding for Priyanka Chopra and Nick Jonas in India and our presence (ph)
Intercept one of China\'s most innovative creative platforms from the world of art, food, fashion and music.
Finally, our partnership and high visibility with Wimbledon, the US Open and the Ryder Cup USA strengthened Ralph Lauren\'s real connection with the sports community.
So we saw a healthy increase in the number of Instagram fans, up 45% from last year, to 15 million fans on our brand handle.
Especially in the fourth quarter, the marketing highlights include our spring 2019 runway demo, which turns part of our Madison Avenue flagship into an immersive offering-
Inspired by Ralph\'s Coffee experience.
We also use key categories such as perfume to recruit new generations of consumers.
In the fourth quarter, we launched a new campaign around the iconic Ralph Lauren romantic perfume, including our new global ambassador, Tyler Hill.
Just a few weeks ago, you may have seen that our family is the global movement that you like, and it embodies a modern view of the family no matter how you define it.
This is a positive and powerful message about inclusion that resonates with consumers and the global media.
When we engage young consumers in new, relevant and exciting ways, we are attracting them.
We are in the early stages of this journey, working to build momentum among millennials and Generation Z consumers around the world.
Continue to advance our second key initiative to energize core products and accelerate high potential
Development category.
In the fourth quarter and fiscal year, we
Long-term plans to drive about half of our revenue targets through growth in core products, and the other half through growth of less than five
Development category.
Our signature and updated core style remains a key driver of our top performance.
Ralph and the design team were excited in the market.
We continue to animate these core styles by using print, embroidery, color blocking, graphic polo signs, our Polo Bears and custom products.
Move under us.
Developed category with significant growth potential in our brand.
Jeans, coats, clothingto-
Work, footwear and accessories.
Our performance in denim jackets is encouraging, a further development of the five categories of clothing, thanks to improvements in product, sales and distribution priorities.
Positive sales trends in these categories in the fourth quarter and fiscal 2019 indicate a strong consumer response to our new initiatives.
It is worth noting that as we develop throughout the year, the growth of outerwear has accelerated, thanks to our attention to key projects such as core nylon, down jackets, bombers and leather jackets.
When we launched an expanded coat product and coordinated marketing campaign for fall 2019, we were able to gain early experience from last winter\'s performance.
While these accessories are expected to play a more meaningful leadership role in our long-term development
Semester plan, we are happy to bring our RL50 series back to the market this spring.
Our latest combination of classic Ralph Lauren style with modern exquisite and handmade leather craftsmanship.
These developments represent strong progress, but we still have work to do, especially in the areas of products that have not yet reached their potential.
For example, in the Lauren wholesale business in North America, we need to pay more attention to core categories and better balance core products with fashion.
While our core POLO products drive our performance, we have the opportunity to enhance the appeal of our fashion philosophy.
We have taken decisive action to address these two areas and have developed new design directions and category strategies for Lauren, which should start to affect the development of spring\'s 20 and beyond, or the early adjustment of Polo design concept.
Continue our third key initiative;
Promote the expansion of our regional and channel goals.
We are committed to building a cohesive brand.
Enhance Ralph Lauren\'s retail, wholesale and digital business experience in major cities around the world.
In fiscal 19, we opened 135 new and franchise stores around the world and closed 85 stores.
Including 94 in Asia and 39 in China, our fastest growing market.
Throughout the year, fixed-currency income in greater China increased by 20%, or about 3, compared with last year.
5% of our company\'s total revenue
This includes more than 30% growth in mainland China in addition to the 25% growth we reported last year, driven by comp growth and new stores.
We have four new ones in Europe.
There are price stores and two new factory stores online.
We are still significantly behind in physical retail, only 23-
With full price stores in Europe, we continue to see meaningful long term
Our long-term opportunity to build an ecosystem strategy in the region.
Overall, in fiscal 19, we were slightly behind our annual opening target as we were highly selective about real estate locations to ensure they promoted the brand and achieved our profit targets.
Our fourth key move is digital leadership.
Our global digital business includes the website we operate directly, department stores.
In fiscal 11%, pure play and social commerce grew by 2019 in fixed currency, with strong performance in all regions, leading by International.
Our direct-operating North American digital flagship resumed positive growth as planned during the year.
Comps grew by 10%, compared to a 22% drop in fiscal 18 as we transitioned to the cloud last yearbased platform.
After turning to our new platform this fiscal year, the European digital commerce website we directly operated also showed a strong improvement.
Although to boost the brand, Comps grew by 6% in the fourth quarter and throughout the fiscal year.
This year we also continue to drive strong performance with digital pure gaming partners across all regions.
In the United States, in the fourth quarter, we increased the distribution of men\'s polo, a leading international fashion platform known for its selection of luxury and street clothing brands.
We also expanded with RRL and (inaudible)with Chaps.
In the world, we added 11 new wholesale digital partners in Europe this quarter.
Including professional players who resonate with young consumers like slamjamsocialism.
Play in Italy. com in Germany.
We also continue to expand our digital presence in Asia, including enhancing our WeChat in China, in-store shopping and exclusive online collaboration with high-tech companies
Well-known partners in Japan, South Korea and Hong Kong.
Inspired by the momentum of digital commerce, we see opportunities to accelerate growth and gain share across the digital ecosystem.
For example, by making better use of our experience and assets in brand building and presentation, we can apply our best practices with our partners to improve the performance and productivity of wholesale. com.
Let me talk about our fifth key initiative, discipline and growth.
In fiscal 19, as we move towards the medium term, we continue to challenge every cost and improve efficiency.
Young people who achieved profit margin targets in fiscal 23.
Adjusted operating expenses excluding marketing increased by 1.
It\'s 4% lower than our highest growth rate this year.
This discipline enables us to increase our marketing investment, expand our global retail business, and increase our operating profit and profit margin.
Jim will provide more details on how we can continue to improve productivity.
I would also like to give you an update on citizenship and sustainability, which is a topic of great concern to us.
Over the past six months, we have worked to develop our strategy and to further embed sustainability across the organization.
In the coming months, we will share more about our approach;
Create two products;
Manage our environmental impact and three;
How do we support and support our employees, employees and communities on the supply chain.
A recent example of how we can achieve this in our products is the Earth Polo launched in April.
The Earth Polo is made entirely of recycled plastic bottles and is made of a waterless dyeing process.
The early response from consumers has always been strong and we look forward to sharing more as we progress on this journey.
Finally, we recently announced two key organizational changes to support our strategic initiatives in the future.
In addition to the chief financial officer, Jane Nielsen has expanded her position as chief operating officer.
Howard Smith, who successfully led our International Group, was promoted to chief business officer at the end of the march, adding North America to his mandate.
We hope that these changes will re-apply the proven success more quickly.
These two promotions are well-deserved and further demonstrate our leadership.
Finally, this year\'s results show that we have made progress in putting consumers at the center of everything we do.
Enhance the brand, balance growth and productivity, achieve long-term
Sustainable growth and value creation.
Our recent global employee survey by Korn
Ferry showed faster engagement compared to the previous year and now exceeds the high performance standard.
It is our team\'s excellent execution that drives us forward, and Ralph, the leadership team and I are inspired and motivated by them every day.
With this I will hand it over to Jane and finally answer your question with her. Jane Nielsen --
Thank you, Patrice and good morning.
Our team\'s performance this quarter and throughout the year has restored our company to top growth while continuing to drive higher profits, expand operating margins and return more cash to shareholders.
This is a good start to our journey, and we have a clear path in our future work.
Fourth quarter revenue growth 1.
Calculated as 2% in the same currency, down 1.
The report is based on 5%.
Our international business has achieved double
The most recent digital growth calculated in constant currency not only offset the negative impact of the Easter transfer to Q1, but also offset our deliberate reduction in North America. price sale.
The adjusted gross profit margin expanded by 30 basis points in the fourth quarter and 50 basis points in the case of currency unchanged.
Benefit from reduced promotions and good mix of products, geography and channels.
After the fourth quarter adjusted operating profit margin of 6.
4%, 80 basis points were added on the basis of the report, and 110 basis points were added in the case of currency unchanged.
Adjusted operating profit increased by 12% over last year.
SG & A costs fell to 53.
Sales of 8%, less than 54.
2% last year, as our market investment accelerated in the second half of fy18.
Marketing spending in the fourth quarter fell 8% from last year, but rose 13% throughout the year
We focus on the year to win a new generation of consumers.
In the last three quarters of fiscal 19, we spent roughly the same amount of dollars in the fourth quarter.
We continue to move towards our long-term goals.
Increase Marketing to a sales target of around 5% while focusing on productivity to achieve our operating profit margin expansion target.
We ended the year with 4 points of marketing. 3% of sale.
Our team is focused on improving operational efficiency across the business.
This year\'s initiatives include integrating our distribution footprint from four buildings to two, while rolling out North America\'s shared inventory directly to consumers in the fourth quarter.
This will enable us to reduce overall inventory, maximize full-price sales and reduce future fulfillment and overhead costs.
We renegotiate more than 80 supplier contracts to reduce the addressable costs by 14% without compromising quality, resulting in cost savings.
We continue to simplify our organization to increase flexibility and enhance our leadership.
Starting from North America, focus on the performance of market segments.
Revenue fell 7% in the fourth quarter, with adjusted operating margins of 15.
9%, down 150 basis points from last year, as modest gross profit margin expansion was offset by deleveraging by SG & negative retail.
In the North American retail channel, comps fell 4% in fixed currency, including the negative impact of the transition from Easter to about 300 basis points in the first quarter of fiscal 20.
The digital commerce business we operate directly grew by 6%.
The increase in the number AUR was partially offset by the shift in Easter.
Entity companies fell by 7%, slightly below the trend earlier in the fiscal year, mainly due to a 5% drop in foreign visitor traffic, compared with a 7% increase in the previous year.
In our stores, our growth was positive this quarter, but it was slower than in the previous quarters.
We still expect three.
Points in comp are transferred to Q1 due to Easter.
Continue wholesale to North America.
Revenue fell 10% in the fourth quarter, more than half of the decline was due to a planned decreaseprice sales.
As we pointed out earlier, we are strategically repositioning ourselves.
As an excess inventory clearance fee, the price returned to its original purpose.
We will continue to manage our business pragmatically.
Prices are down in our wider wholesale channels, excluding off-
Price, our wholesale business in North America
Single digits in the fourth quarter.
We are encouraged by the strength of our core products and adjust the size of our purchases in selected fashion products.
We will continue to keep a close eye on sales trends and expect some ongoing fluctuations in the quarter. to-quarter.
The North American digital ecosystem, including ralphlauren. Wholesale company.
Com, the digital pure drama rose slightly in the fourth quarter, was negatively affected by the Easter shift, and rose very high --
As we resume growth on our own digital commerce site, there are only single digits throughout the year.
Our team is working with our digital wholesale partners to strengthen our brand image, storytelling and classification to better achieve the growth of this digital channel.
Travel to Europe.
Fourth-quarter revenue rose 4% on a report basis, up 11% in constant currency terms.
The adjusted operating profit margin increased by 360 basis points on the basis of the report and by 340 basis points in a constant currency.
Strong gross margin and SG & leverage on top-tier business growth drives growth in operating margins.
Retail channels in Europe, due to the 5% increase in digital commerce sites we have, the 6% increase in physical stores, and the 5% increase in comps in fixed currency.
Similar to the previous quarter, the continuous improvement of our physical comp trend was driven primarily by our export investment, increasing the breadth and depth of our product range and driving strong growth of AUR.
The 6% comp growth in our direct-operating European digital commerce business is also in line with our expectations, benefiting from platform-enhanced and more targeted performance marketing.
On our website, we see the improvement of sales quality, double
Digital growth of traffic, and high single
Driven by a positive response from consumers to our new platform, digital AUR is growing.
In our consumer channel in Europe, we are constantly striving to improve the quality of our sales, with AUR growing by 8% in the fourth quarter.
Wholesale revenue in Europe grew by 11% in fixed currency in the fourth quarter.
Although it is planned to change the shipping time to the third quarter, which has a negative impact on European wholesale revenue in the fourth quarter, this is beyond our guidance and reflects the benefits of moderate distribution growth with existing wholesale partners
When it comes to Asia, revenue grew 7% on the basis of the report and 10% in the fourth quarter in a constant currency.
We have seen strong performance in every market, including a sustained 30% increase in monetary revenue in mainland China.
Our product and marketing programs resonate well in the region, and we continue to work harder on numbers, expand and increase the number of our stores, and engage with local influencers and celebrities.
Driven by 4% growth and positive traffic, Comps in Asia grew by 10% in fixed currencies.
As we invest in the distribution network, we expect the comp in Asia to continue to grow and increase our marketing plan to expand and enhance the brand.
Adjusted operating margins were down 90 basis points from last year, as SG & A leverage was offset by Gross profit margin contraction, as inventory reserves increased, mainly on specific fashion concepts for the quarter
Transfer to balance sheet.
Our balance sheet is strong and we return capital to our shareholders, which reflects our continued operational progress.
At the end of this year, our total cash and investment was about $2 billion, and our total debt was 0. 689 billion.
By contrast, $2.
1 billion in cash and investment, and $0. 596 billion in debt at the end of the 18 th fiscal year.
Based on our commitment to return cash to shareholders, we bought back $0. 47 billion in stock in a year.
Including dividends and share buybacks, we returned $0. 66 billion to shareholders in fiscal 19, up from $0. 162 billion last year.
We will continue to buy back shares with a repurchase plan of about $0. 6 billion in fiscal 20.
We also raised our annual dividend by 10% to $2.
75 in fiscal 20.
Growth was 25% last year.
Continue the inventory.
At the end of fiscal 19, inventory rose 7% from last year, down from 11% in the third quarter.
Similar to the last two quarters, our inventory growth reflects strategic actions that support the following.
First, receive goods in advance to maximize full-price sales;
Second, comp growth;
Third, new retail distribution;
Fourth, to restore the normal inventory of our European factory stores, we continue to reduce air freight to reduce the cost of transportation.
Looking ahead, we expect inventory in the first quarter of fiscal 20 to be similar to the high growth trend in the fourth quartersingle digits.
When we commemorate our inventory plan in the first half of the year, we will leverage shared inventory and a more unified purchase process to better align inventory with demand.
We have also taken a more cautious approach to inventory, especially given the dynamic trading environment.
The tariffs set so far have limited impact on our business, but our team has prepared for multiple scenarios and has accelerated the diversity of the supply chain to mitigate the long term
Long-term impact of any potential tariff results.
Now, I would like to talk about the guidance for the full year and first quarter of fiscal 20.
As a reminder, this guide does not include restructuring and associated costs and reflects our best assessment of the global retail landscape in the context of increased volatility in macroeconomic and geopolitical events.
For the full year of fiscal 20, we expect revenue to grow by 2% to 3%, which is related to our long-termterm plan.
According to the current spot exchange rate, it is expected that foreign exchange will have a negative impact on revenue growth of about 90 basis points to 100 basis points in fiscal 20.
We expect our international operations to continue to grow and stability in North America.
We expect that, driven by modest gross profit margin expansion and SG & a leverage, operating margins will rise by 40 basis points to 60 basis points in fiscal 20.
It is estimated that in fiscal 20, the negative impact of foreign currency on operating margins is about 10 basis points to 20 basis points.
We expect that due to increased investment costs, transactional foreign exchange pressures, and more normalized gains from changes in channels and geographic portfolios, gross margin expansion will be moderate than last year.
We expect SG & A to leverage moderately to strike A balance between our productivity plans and growth investments.
In the first quarter of fiscal 20, we expect revenue in fixed currencies to grow by 3% to 5%.
Foreign exchange is expected to have a negative impact on revenue growth of about 190 basis points to 200 basis points in the current quarter.
The Easter transition time, which began in the fourth quarter of fiscal 19, is expected to benefit North American retail companies by about three percentage points in the first quarter.
Operating margin in the first quarter is expected to increase by 30 basis points to 50 basis points over the same period last year.
Foreign currency is expected to have a negative impact on operating margins of about 10 basis points this quarter.
We expect capital expenditures in fiscal 20 to be around $0. 3 billion, with a focus on consumer-oriented initiatives that demonstrate conceptual and healthy returns, including stores and figures, and our corporate office integration program.
We expect the effective tax rate for fiscal 20 to be about 22% higher than the adjusted tax rate for fiscal 19 21%, mainly due to the fact that we expect international revenue to be transferred to some higher tax jurisdictions.
The tax rate for the first quarter of fiscal 20 is estimated at around 19%.
Finally, as we continue our next great chapter journey, we have a clear sense of purpose and are guided by Ralph\'s eternal vision.
As we accelerate our victory and meet challenges, we are applying the insights we have gained.
While we recognize that progress is not always linear, our team is passionate, highly engaged, focused on achieving all our strategic priorities and creating value for the long term.
With this, let\'s open the phone for your question.
Question and Answer: Thank you, operator.
At this time, we want to start this problem. and-
Answer session of the meeting. (
Operator instructions)
The first question comes from Ike Boruchow of Wells Fargo.
You can ask your question. Ike Boruchow --
Good Morning, everyone, Wells FargoHi, happy new year. I guess, one --
Patrice\'s first question.
When you think about the first year of the next great chapter plan.
I guess my question is, how do you feel about this long game?
One-year term strategyend?
Maybe you can continue.
Let us know more about where you think you are performing better than previously expected, and where any information you give us on Analyst Day needs to be modified.
Then, a quick trackup for Jane. Just --
Wholesale companies in North America want to learn more about how to look at Q1 and the rest of the year
The price has dropped and you have highlighted the softness of the 4Q spring fashion.
Would it be great to have other colors on that channel? Patrice Louvet--
Good morning, Ike, president and chief executive.
So I want to be in the first part of your question.
Overall, we are satisfied with the work we have done in the first year of our next great chapter plan.
Of course, we have more work to do, but we believe our strategy is working and our plans are on track.
So, we have five
We set an annual target on investor day last June.
As far as victory and opportunity are concerned, let me talk about some of the situation on both sides.
So for our business-
One of the main highlights in terms of performance is that we have resumed growth one year ahead of schedule, and more importantly, we are actually achieving this by keeping an eye on profitable high quality growth, right?
You can see this through the progress we made in the halo in the high financial year.
Single digits, and continued growth in operating profits throughout the year.
The second thing I want to highlight is that we have significantly increased our brand --
Build investment, focus on society and numbers, truly enhance the brand, motivate the brand, and win a new generation for our first strategy.
I think the third area that needs to be highlighted is the excellent work that Ralph, the design team and the whole organization have done in strengthening our core products, and over the past year, this is a very important driving force for top line improvement.
The fourth and final highlight is digital space and extended space.
As a result, we have completed the digital platform upgrade of the flagship in North America and Europe, and we have launched the flagship in China.
After several years of challenges, companies in Europe and North America have resumed active competition this year.
We have also driven the expansion of digital business space for global digital pure players, and you have heard some examples in our prepared comments.
Of course, we will continue our international expansion, we will focus on China, and we are very happy with the acceleration we have seen in China, which has grown to 30% this year.
So these are the key highlights.
When we see what experience we have and what we need to redouble our efforts on the way forward, I will point out three key areas.
First, we want to speed up our momentum to win a new generation.
We have a strong 50 th anniversary, and I think millennials and Gen Z are attracting new young consumers.
We plan to continue to consolidate this momentum in fiscal 20 and beyond.
With the increase in investment in our projects, better targeting and stronger digital amplification.
The second point to emphasize is that we need to improve the flow of physical stores in the United States.
I think this is an ongoing challenge for the industry.
So in addition to the rich shops--
We need to make better use of our marketing plan and ecosystem approach, our omni-channel ecosystem approach, to drive physical transport.
The third point I want to emphasize is that we have a chance on the product.
As I mentioned, we have achieved remarkable success in core product updates this year.
We also have some very good sweet consumer response to our limited add-on version and we will continue to push this response forward.
However, there will also be some gaps in our prepared statements, and as you have heard, we are fully focused on positive action.
But overall, we are happy with the performance of the first year, and now we are moving on. Jane Nielsen --
Chief operating officer and chief financial officer.
Ike\'s here--
About wholesale in North America.
You see we wholesale business at low single digit prices all year round.
When I think about the coming year, our focus is to go back to stabilizing the business, focusing on wholesale, as Patrice said.
Growth of Com business.
When I think of full price and off-
The price is stable,
On a more normal flow basis, prices will continue to fall throughout the year, but you will see a mild drop, from mild to moderate
Price business for the whole year, but the foundation is relatively stable.
Please answer the next question.
Thank you.
The next question comes from Matthew Boss at JPMorgan Chase.
You can ask your question. Matthew Boss --
Thanks JP Morgan.
Maybe on the edge.
Can you please help outline the gross profit margin of this year relative to the 30 to 50 basis points outlined in five yearsyear plan?
Maybe just walk past some drivers behind this year\'s return to SG & A leverage? Jane Nielsen --
Chief operating officer and chief financial officer. So --we, --
From a gross margin perspective, we expect about half of our operating margin leverage to come from gross margin over the next year.
The driver and our downwind were stable.
The biggest driver is the reduction in our pricing campaigns and promotions.
This will continue.
What you will see is the moderation of the benefits we see from the channel mix as our wholesale business will ---
Our focus is on the benefits of stabilizing and easing the mix of geography, which will remain a disadvantage.
But because of North America, our expectations are stability and performance, these benefits will begin to moderate compared to what you have seen this year.
The downside we see in the future is that our gross margin will be under some trading pressure this year.
The cost of the product you see in the fourth quarter will continue significantly until the first half of the year.
Some of these pressures, then we take a more cautious approach to inventory, so the inventory action we are taking will put some slight pressure on our overall cost.
All in all, when we look forward to SG & A, we have--
We will continue our journey of cost discipline.
We have set up the cost leadership committee and we have achieved very good results and we will continue to pay the overhead.
You have seen that it has taken some important distribution actions, integrated our footprint, implemented some automation in our distribution sites, integrated inventory, these will help from SG & A\'s perspective.
We are also integrating our corporate headquarters, which will be a small stress point for this year, but will be a leverage point for the future.
We are also using more digital technology to learn digital design, digital sample making in our design team.
These initiatives have helped us achieve SG & top-level growth of 2% to 3% in fixed currency terms. Next question?
Thank you.
The next question comes from Laurent vassicu, Macquarie.
You can ask your question.
Lorang vasceku-
Good morning, thank you for answering my question.
Congrats Jane for taking the extra responsibility. Jane Nielsen --
Thank you, chief operating officer and chief financial officer, Laurent.
Lorang vasceku-
Ariariejane, I believe you talked about 80 vendors in the fourth quarter and renegotiated the contract, resulting in a 14% reduction in addressable costs.
Can we understand the US dollar earnings for the fourth quarter? Will these cost plans pass in the remaining quarter of fiscal 20? Jane Nielsen --
Chief operating officer and chief financial officer the part of the cost leadership committee that I just talked about, the costs of these renegotiations-
These contracts were reduced by 14% per cent.
But you will see the benefits of this, which is part of our SG & A lever story as we move forward.
Of course, we are not finished yet.
The 80 contracts are just beginning.
We intend to review all of our contracts and obviously give priority to the maximum contracts and those that are due in the first place.
But this is an ongoing effort for us.
Please answer the next question.
Lorang vasceku-
Thank you very much.
Thank you.
The next question comes from Michael Binetti of Credit Suisse.
You can ask your question.
Michael Benetti. -Credit Suisse --
Good morning, analysts. So --
Thank you for answering our questions.
Jane, let me--
Let me ask you about the guidance on operating profit margins for the US dollar this year and you will be close to 12% next year.
Obviously progress is very good.
But if we think back to the day you gave us a series of mid-term analyses
A teenager, if I interpret it as 15, as one of the scenarios that will take about 100 basis points a year to reach this range after this year, this is clearly a turning point in profit margins after this year.
At this point, what do you think businesses need to achieve this scenario and see operational profit margins accelerate in the coming years? Jane Nielsen --
There are several things about the chief operating officer and the chief financial officer.
First, continue our journey of gross margin expansion and you will see that we did gross margin expansion this year and we successfully did gross margin expansion last year.
A large part of this is to continue our ongoing tour of the AUR.
This is an AUR-led strategy and we have made good progress. -
Our AUR percentage has made great progress in this area in fiscal 19, so we have to continue.
We will also see SG & A accelerate leverage, which we are calling for on investor day as we will continue to move towards top growth and comp growth is an important start-
Part of the story
Another part of the story, and the new door that we are opening, has a higher productivity and a higher four
So it does go live and stabilize.
You will also see that these are good for our operating profit growth.
Please answer the next question.
Michael Benetti. -Credit Suisse --
If I could. -
Corinna Van der Winst-
Head of Investor Relations, go ahead. Patrice Louvet--
Michael, future president and chief executive.
Michael Benetti. -Credit Suisse --
Sorry, I don\'t know if I\'m still there.
So I can ask you some short-term questions about the outlook for gross margin, how should we look at the first quarter, and given the fourth quarter, I think it\'s a little lower than the previous quarters.
But, obviously, this is a big comparison a year ago.
Then you have some noise and I think an oversized one
I thought the price would rebound to gross margin in the fourth quarter, which was a downwind.
I just wanted to take our offer from the fourth quarter and roll it out to what you think about the first quarter? Jane Nielsen --
As we think about the first quarter, the chief operating officer and the chief financial officer.
First of all, we have achieved an amazing quarter in this quarter\'s growth.
As we consider our guidance moving forward, we believe that in this environment it is unwise to guide us to achieve an AUR growth of 8% this year and look forward to the future.
So our AUR growth is more moderate, in line with our--
Our investor day guidance from low to medium
Single digit growth.
So that\'s one factor, and the other is that in the first half of the year, we do have more product cost pressures that you see in the fourth quarter, in terms of gross margin expansion, into the first and second quarters.
Corinna Van der Winst-
Please answer the next question.
Thank you.
The next question comes from Kate Fitzsimons of RBC Capital Markets.
You can ask your question.
Kate Simmons. -
RBC Capital Market-AnalystYes.
Hi, good morning.
I think my question is going back to investor day and you guys talked about incremental digital sales of $0. 5 billion.
It seems that the company took a step back here in the fourth quarter, but that may sound partly due to the Easter shift.
Can you please talk about some of the drivers for the digital 20 fiscal year and how should we look at the trajectory of the business? Thank you. Patrice Louvet--
President and Chief Executive of course. Good morning. Kate.
Listen to me, the general direction has not changed, and our expectations for it are low.
Digital business growth in the yearon-
A year to reach the goal you mentioned.
For us, digital commerce is our own website, its wholesale.
It\'s pure players, then social commerce, and we see a marked acceleration in social commerce.
You look at our performance last quarter and it may be a slowdown in optics, but it is not actually a slowdown, which is exactly the same as our expectations.
The Easter shift in North America is really an explanation in the 6% comp and high we delivered
We want to provide single digits for the quarter-to-quarter.
Again, we estimate that the shift value for Easter is about 300 basis points.
Therefore, it is very consistent with our expectations and very consistent with our running speed.
There are very few things that we actually push this quarter, which should help to maintain this performance in the functional area of our website, perhaps worth mentioning here, relative to search advice, our checkout process, we are driving the personalized availability of a wider range of products, and we are implementing--
We have implemented Apple Pay and PayPal Express Payment Methods on the US website, and we will continue to raise the threshold for features, products and brand building.
So, I think you should look around high-
Single digits from North American websites.
Then in Europe.
Europe is also in line with expectations, and we are actually particularly pleased with the contribution of our Spanish language website, which we launched for the first time a few months ago.
So Europe is in the middle
One-digit trajectory, which we delivered in the fourth quarter, is what we expect to move forward.
Also here, we have made some improvements to our website, whether it is to increase the paymentper-
Click, optimize our search engines, and then localize our websites in Italy, Greece, the Netherlands, and Poland to make sure that anything we offer resonates with local consumers in real terms.
Then, complete the global tour, Asia is a very small business as far as our own website is concerned, so there is no material here, but we are satisfied with the result of passing.
All in all, looking ahead, we are still very much in line with our call for $0.
Digital commerce will develop 5 billion in the next few years.
The fourth quarter is in line with our expectations and we expect to push this forward in the fiscal year 2020 as well. Jane Nielsen --
Chief operating officer and chief financial officer, I would like to ask Kate to comment.
In the fourth quarter, we saw the highest growth in the digital industry as a whole ---
Our own digital electronics.
The business platform we see all year round.
Very consistent with what Patrice shared on Easter, but very positive in terms of AUR growth.
Corinna Van der Winst-
Next question in investor relations.
The next question is from eversaad and Evercore ISI.
You can ask your question. Omar Saad --Evercore ISI --
Thank you for answering my question.
Good work this quarter.
I would like to ask more questions about shared inventory and maybe give us more details on what is--
What is really online, how does it work, how will consumers experience the benefits of shared inventory, and what are the opportunities for you to have ideas?
Then, if you can go into more detail about your review, Patrice, what else do you need to do on Lauren and polo fashion? Thanks. Jane Nielsen --
The chief operating officer and the chief financial officer share the inventory, which is a benefit to the consumer from the consumer\'s point of view, because our inventory will be reduced.
We will have better inventory management and more liquidity to serve our e-commerce
From the large inventory of goods customers and flow to the store.
This is the net income of consumers.
The good thing for us is that we can prioritize our inventory to the highest price sales.
So we will achieve more full-price sales.
We will bring all our inventory into a distribution center served by an automatic sorter.
So we get some implementation benefits from the leverage of automation, which is a benefit for us.
This also reduces the selection time.
Because we have a shared selection pool, we can reduce the transit time when we enter the selection pool, which is also a Labor benefit for us.
So we\'re right--about it.
This is the biggest advantage for consumers, but we also believe that shared inventory has both operational savings and pricing advantages.
Our journey was very early and we started our life in the fourth quarter.
We are happy with the starting point, but we expect it to become more active over the course of the year. Patrice Louvet--
President and CEO, then Omar on the product side.
Let me start with Lauren.
So when we talk about what we\'re talking about in prepared reviews, Lauren is actually Lauren\'s female business, the male business, and doing a good job.
This is a combination of women\'s sportswear, clothing and accessories.
While we have seen good performance around the world, we have seen a particularly driven weakness in North America\'s wholesale business.
So, when we see the brand\'s status today, we\'re actually satisfied with Lauren\'s aesthetic positioning, right?
We believe this really resonates with consumers.
The key reason for the Lauren challenge we see is;
First of all, in terms of products, we need to pay more attention to the core categories of the Lauren brand, as well as the core categories that our consumers care about and expect.
So it means paying more attention to this and more attention to Cowboys, sports and clothing.
So here\'s a category selection that we need--
We need to move on.
Second, we need to strike a better balance between core and fashion.
Our assessment is that in recent seasons, we may be too biased towards fashion and need to rebalance.
Then in terms of distribution, as you know, Laurent is primarily a department store brand in the US, so we focus on doing less on this channel and we want to get a share.
Definition of success and sharing.
Part of the work we are doing is also upgrading the brand display and investing in our stores --in-
So that we can create a more attractive and dynamic environment, and then get the product balance again in these environments.
So what are we doing?
First of all, we actually have a new design team, which we have set up a few months ago.
We believe that this is a team that really understands the brand DNA and is the target consumer we are pursuing.
They really focus on rebuilding the key categories consumers are looking for from Lauren women, starting with clothing and Cowboys.
We are also looking for diversity in distribution.
So when we want to win wholesale and want to increase our share there, we also want to better balance our distribution of Lauren as we do elsewhere in the world.
So work is going on in this regard.
Finally, there is always more work to be done in understanding our target consumers, both to ensure that we provide good service to the current consumer group, also make engaging and inspiring plans for new consumers we want to target.
So that\'s what we think of Lauren.
The plans are being launched, and as I mentioned in our prepared comments, we expect to see the impact of those plans as early as 20 spring.
In terms of the concept of seasonal fashion, let me quickly define them to ensure that we all have a common understanding of what we are talking about here.
So we have introduced new concepts that, together with our core products, are a bit thin each season in order to inject new vitality and excitement into our overall presentation.
We believe this is an important part of attracting new consumers to the brand.
Now, with this thin concept, it\'s clearly an integral part of a high fashion risk because it\'s about fashion. Right?
Sometimes you do it right and sometimes they don\'t necessarily work as expected.
What we \'ve learned in some of the recent seasonal fashion concepts is that they actually resonate well with our more trend-cutting consumers, but they\'re not that much for our wider population.
So our insight here is that we actually need a better balance.
You hear what we say about the focus on the core, which is doing a good job for us, clearly at the heart of this company, with a greater emphasis on the core, downplaying our focus on the concept of seasonal fashion.
We still need them, we still want them.
Instead of emphasizing them, we will strike a balance between the two.
So activation is already happening and you\'re starting to see the effect of this activation in our 19 products in the fall, obviously moving forward.
Corinna Van der Winst-
Please answer the last question.
Thank you.
The last question came from Paul Lejuez of Citigroup.
You can ask your question. Paul Lejuez --
Thank you all.
I just want to follow up quickly.
Comments about you.
I\'m curious if, from an AUR\'s point of view, can you provide any expectations you have for the region?
Second, as you mentioned, I think the drop in visitor traffic may have an impact on your retail business.
I am just curious, if you are satisfied with the business trends of local customers, how do you feel about the overall direct sales business? Thank you. Jane Nielsen --
Chief operating officer and chief financial officer.
Why don\'t I arrange these three components in order.
As far as AUR is concerned, we are not necessarily guided by region.
So we don\'t guide AURs by region.
But I can tell you that we have seen delivery in both expectations in Asia and Europe.
In terms of AUR growth, this is part of our overdelivery this year.
We expect that they will be more in line with our mid-term goals in the course of this year
The single digit AUR growth guidance we provide over the long term.
This is indeed one of the biggest changes since we entered fiscal 20 from fiscal 19.
We think this is prudent.
We are very confident in our ability to drive the AUR.
We will certainly tend to this, but given the current circumstances, we do not think it would be wise to guide our long-term growth now much higherterm guidance.
In terms of foreign trusts, we see that in North America and Europe, foreign tourism is very different from what you think.
In North America, we saw a five-year decline in foreign tourists.
This time last year, it rose 7 points.
It has been choppy for a year and has been hovering in a flat place.
Last quarter we saw it go up two and down about one.
The biggest driver we see is foreign exchange.
Therefore, as the dollar strengthens, the result is not surprising.
In Europe, our foreign traffic has increased by 8%.
We believe this is good for our sales company.
In addition to the investments we have made to restore inventory in the current supply, we are very pleased with what we have seen there and the results we have presented today.
But in terms of foreign terrorism, Europe is indeed a continuous story.
It\'s double.
Figures for the first half and mid-term = single digits, and as we finish this year\'s work, we end the high single digit work, but down 6% this year.
Overall, when I saw our export business-
Especially in North America because I think you see some callbacks there, which is a bit lower than we expected.
Of course, the flow of foreign tourists we have just announced is one of the factors.
We have also introduced some product softness that Lauren has come up with, and we think we have some price balance opportunities to make sure our more prices have some good open price and gap balance sensitive consumers
We are working on it, we are strengthening our marketing plan, including Windows, signage and targeted emails to ensure that we are able to address traffic, the biggest indicator of our focus, as we move forward
Of course, from the product point of view, when we know that some of our former
The concept of the spring competition needs to be addressed, and as we speak from the open price of clearance balance to our more value-conscious consumers, we are balancing the classification.
So we saw that we were happy with the business.
It\'s a lucrative business and we think we know what we need to do to make sure we\'re back on track as we move forward. Patrice Louvet--
President and Chief Executive Officer.
Okay, listen, thank you for joining us today.
As I think you may have heard, as we continue to upgrade the iconic business Ralph and our team have been established for more than 50 years, we are encouraged by the progress of our results, we will continue to strengthen our ties with consumers around the world.
We have clear strength and motivation, and we hope to build on that.
We also have opportunities that need to be addressed, and we are all looking forward to sharing with you the results of our fiscal 20 in the first quarter at the end of July.
Thank you. I wish you a wonderful day.
This concludes today\'s meeting, ladies and gentlemen.
Thank you for your participation and you can disconnect now.
Duration: 61 minutesCall participants: kelina van der Ghinst--
Head of Investor Relations-
President and Chief Executive Officer Nelson-
Boruchow, chief operating officer and chief financial officer--
Boss Wells FargoMatthew-
JP Morgan Laurent vasceku-
Allie Mitchell Binetti-Credit Suisse --
Kate Simmons analysis-
RBC Capital Market-
Analyst Saad--Evercore ISI --
Paul Leius--
Citigroup more RL analysis all revenue phone records more from messy fools. This article is a conference call record made for a disorganized fool.
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