랄프로렌(RL) 2027 회계연도 2분기 실적 발표 콘퍼런스콜: 매출 10% 증가, 가이던스 상향

랄프 로렌 코퍼레이션(NYSE: RL)은 2027 회계연도 2분기에 전 지역에서의 매출 성장과 정상가 판매 호조에 힘입어 광범위한 성장 모멘텀을 기록했다고 발표했다. 경영진은 유럽의 매장 방문객 수와 하반기 역기저 효과에 대해 신중한 입장을 유지하면서도 연간 매출 및 마진 가이던스를 상향 조정했다.

별도로 명시하지 않는 한, 재무 실적과 가이던스는 조정 및 고정환율 기준으로 제시된다.

핵심 내용

• 2027 회계연도 2분기 매출은 아시아 28%, 북미 6%, 유럽 3% 성장에 힘입어 10% 증가했다.
• 조정 매출총이익률은 평균 단가(AUR)의 9% 상승, 유리한 지역별 믹스, 제품 원가 절감에 힘입어 220bp 확대된 70.2%를 기록했다.
• 마케팅 투자 확대에도 불구하고 조정 영업이익률은 140bp 상승한 15.5%를 기록했으며, 영업이익은 21% 증가했다.
• 글로벌 소매 동일매장 매출은 10% 증가했다. 아시아 소매 동일매장 매출은 24% 늘었으며, 중국 매출은 35% 이상 증가했다.
• 경영진은 2027 회계연도 비교 가능 매출 성장률 가이던스를 기존 5%~6%에서 6%~7%로 상향하고, 영업이익률 확대 전망치를 80~100bp로 높였다.
• 유럽은 매장 방문객 감소, 소비자 신뢰도 약화, 생계비 부담 등으로 인해 여전히 가장 주의 깊게 지켜보는 지역으로 남아 있다. 이번에 수정된 전망치는 단기적인 역내 거시경제 회복을 가정한 것은 아니다.

핵심 재무 데이터

사업 및 운영 실적

아시아는 랄프 로렌의 가장 강력한 지역별 성장 동력이었다. 중국 매출이 35% 이상 증가했고, 일본과 한국도 두 자릿수 성장을 기록했다. 경영진은 이러한 실적의 배경으로 견조한 동일매장 매출, 신규 고객 유입, 현지화된 브랜드 마케팅 활동을 꼽았다. 회사는 또한 RL 모바일 앱을 일본으로 확대하고 아시아 전역에서 커넥티드 리테일과 고객 관리(클라이언트링) 역량을 강화했다.

북미는 소매와 도매 전반에서 균형 잡힌 성장을 달성했다. 디지털 채널의 5% 성장을 포함해 소매 동일매장 매출이 6% 증가했고, 도매 매출은 8% 증가했다. 도매 매출 성장률 중 약 4%포인트는 하반기로부터 계획된 출하 시점 조정에서 비롯됐다. 경영진은 오프프라이스 매출의 계획된 축소와 하위 정상가 매장 철수로 일부 상쇄되기는 했으나, 해당 지역의 기저 성장세는 여전히 한 자릿수 중반대 궤적을 유지하고 있다고 밝혔다.

유럽 매출은 3% 증가했으나, 전년 동기 10% 증가했던 소매 동일매장 매출은 1% 감소했다. 경영진은 여러 주요 시장에서의 매장 방문객 감소를 원인으로 들었다. 회사는 마케팅, 매장, 디지털 역량에 대한 투자를 지속하면서 구매 전환율, 객단가, 맞춤형 고객 참여 유도에 집중하고 있다.

사업의 70% 이상을 차지하는 핵심 제품군은 10%의 매출 성장을 기록했다. 여성 의류, 아우터, 핸드백을 포함한 고잠재력 카테고리는 회사 전체 성장률을 웃도는 10%대 초반의 성장률을 기록했다.

랄프 로렌은 이번 분기에 170만 명의 신규 D2C 고객을 유치했다. 소셜 미디어 팔로워 수는 한 자릿수 중반대 증가율을 기록하며 7,200만 명을 넘어섰다. 회사는 이 기간 동안 전 세계적으로 22개의 직영 및 파트너 매장을 열었다.

경영진 가이던스

2027 회계연도는 53번째 주가 포함되어 있어, 경영진은 이로 인해 매출 성장률이 약 1%포인트 추가되고 영업이익률에 소폭 긍정적인 효과가 나타날 것으로 예상한다. 환율은 연간 매출 성장률을 약 40~60bp 낮추는 요인으로 작용하겠지만, 영업이익률에 미치는 영향은 대체로 중립적일 것으로 예상된다.

경영진은 상반기 성장률이 하반기보다 강세를 유지할 것으로 예상한다. 이러한 성장 둔화 전망은 도매 출하 시점, 전략적 오프프라이스 축소, 아시아 시장의 높은 역기저 부담, 보다 완만한 평균 단가 성장세를 반영한 것이다.

매출총이익률 전망치는 12월까지 현행 미국 관세율 약 10%가 적용되고, 4분기에는 10%대 후반의 상호관세율로 복귀하는 것을 전제로 한다. 가이던스 상의 조정 실적에는 관세 환급금이 제외된다.

리스크 및 주시 요인

• 유럽 매장 방문객 수는 소비자 신뢰도 약화와 전반적인 생계비 부담 속에 지속적인 압박을 받고 있다. 경영진의 가이던스는 단기적인 회복을 전제로 하지 않는다.
• 하반기 성장은 특히 중국에서의 높은 전년 동기 대비 역기저 부담뿐 아니라 계획된 도매 출하 시점 조정 및 오프프라이스 축소에 직면해 있다.
• 특히 4분기 매출총이익률 전망에는 관세 불확실성이 여전히 반영되어 있다.
• 환율 영향은 보고 기준 매출 성장에 부담을 줄 것으로 예상된다.
• 유럽 시장은 전분기 대비 프로모션 비중이 확대되었다. 경영진은 전반적인 브랜드 고급화 전략을 바꾸지 않으면서도 프로모션의 빈도, 할인 폭, 기간 또는 적용 범위를 선별적으로 조정할 수 있다고 밝혔다.

애널리스트 질의응답(Q&A) 주요 내용

경영진은 젊은 고객층으로의 이동, 객단가 확대, 낮아진 가격 민감도, 고품질 판매에 힘입어 주요 시장 전반에서 랄프 로렌의 핵심 소비자가 여전히 견조한 소비력을 보이고 있다고 밝혔다.

북미 시장과 관련해 회사는 DTC 및 정상가 도매 채널에서 지속적인 모멘텀을 기대하고 있다. 계획된 하위 매장 철수와 오프프라이스 축소가 보고 기준 매출 성장에 부담을 주겠지만, 기저 성장세는 한 자릿수 중반대 수준을 유지하고 있다.

유럽의 경우 매장 방문객 수가 경영진이 주시하는 핵심 지표다. 회사는 거시경제 환경의 개선을 전제하지 않고도 연간 기준 역내 플러스 성장과 3분기 소폭 성장을 예상하고 있다.

경영진은 매출의 8.6%가 마케팅 투자의 상한선은 아니라고 설명했다. 추가 지출은 투자 수익률에 따라 결정될 것이며, 영업이익률 확대를 유지하면서 고객 유치, 유지 및 생애 가치(LTV)를 뒷받침하기 위한 목적이다.

아시아의 경우 경영진은 3분기 매출이 한 자릿수 후반에서 10%대 초반의 성장률을 기록할 것으로 예상하고 있다. 중국의 하반기 성장세 둔화는 기저 수요에 대한 경영진의 시각 변화라기보다는 높아진 역기저 효과와 의도적인 투자 속도 조절을 반영한 것으로 보인다.

실적 발표 콘퍼런스 콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Corinna Van Ghinst

With me today are Patrice Louvet, the company's President and Chief Executive Officer; and Justin Picicci, Chief Financial Officer. [Operator Instructions]

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.

Patrice Louvet

Thank you, Corey. Good morning, everyone, and thank you for joining today's call. We delivered another strong quarter of progress on our Next Great Chapter: Drive plan. In the consumer landscape often shaped by ever-changing trends the clarity of Ralph Lauren's values and purpose of inspiring the dream of a better life through authenticity and timeless style continues to set us apart. We stay true to who we are, and we have a proven ability to evolve with today's consumer. This is a powerful competitive advantage, and it is translating into sustained broad-based momentum and a resilient core consumer with significant opportunities ahead.

In the second quarter, our top and bottom line results exceeded our expectations, enabling us to take up our full year guidance once again. This performance reflects our momentum across markets, channels and categories. Revenues increased 10%, led by double-digit growth in Asia. Our retail channels also grew low double digits with similar comp growth across stores and digital, while wholesale increased at a solid mid-single-digit rate. Our ongoing investments behind our brand, products and lifestyle experiences, enabled us to stay on offense and continue our long-term elevation journey with further improvement in quality of sales and full price selling. At the same time, we continue to invest in our long-term capabilities such as talent and technology while accelerating cash returns to shareholders through our durable dividend and repurchases.

This balance of investment and shareholder returns reflects the power of the Ralph Lauren model. Our strong balance sheet, cash flows and culture of operating discipline give us the flexibility to navigate a complex global backdrop while fueling future growth opportunities. Underpinning this model is the combination only Ralph Lauren can bring together, authentic lifestyle authority, cultural relevance and timeless brand codes at global scale.

We are building on this distinctive advantage through the 3 strategic pillars of our plan, which, as a reminder, 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. Through our rolling thunder of activations, we are engaging with consumers across the many facets of their lives, from the inspiration of the runway to the biggest stages in sports, entertainment and more. This enables us to deepen our connection with existing consumers around the world as we build lifetime value, while also inspiring a new generation with our cinematic storytelling and core values of optimism, quality and authenticity.

Key highlights from the quarter included: first, we continue to strengthen our position as one of the world's leading luxury lifestyle brands in sports, elevating traditionally local events into globally relevant, exciting brand moments. At Wimbledon, we combine the heritage and elegance of the tournament with Ralph Lauren's spectator style. We activated across our top cities around the world from our Sloane Square takeover in London to our Tokyo live viewing party and Douyin live shopping event in Hong Kong. And our Legends tennis exhibition match in New York Central Park with Andre Agassi, Caroline Wozniacki, Genie Bouchard and James Blake.

At the U.S. Open, we built on our long-standing partnership with an expanded 360-degree campaign, including our vintage-inspired collection, specialty pop-ups and influencer activations. And at the Goodwood Revival in the U.K., we brought our sophistication to the classic Motor sports event for the fourth year, including a preview of our Polo Bar experience, ahead of our London restaurant opening slated for 2028.

Together, these sports lifestyle campaigns allow us to showcase the breadth of the Ralph Lauren lifestyle while bringing consumers closer to the brand. They have generated a combined 70 billion global impressions and more than 350 million in media value.

Next, we immerse consumers in our vision of timeless style through our Spring '27 Women's Collection Fashion Show in New York City, along with key celebrity dressing moments, including BTS at their Arirang World Tour at MetLife Stadium and at our -- Very Ralph documentary premiere in Seoul. And beyond the quarter, we recently hosted our first-ever PoloFest in Tokyo, bringing Polo collectors, brand enthusiasts and cultural voices together for a 3-day experience as part of our year-long celebration of 50 years in Japan. These activations are driving strong sustainable growth in new customer acquisition and retention.

In the second quarter, we added 1.7 million new customers to our DTC businesses, led by Ralph Lauren stores. We continue to drive progress across brand equity metrics, including increased awareness, purchase intent and Net Promoter Score. We're also driving higher lifetime value and recruiting key consumer cohorts led once again by women, luxury and younger customers. And we increased our social media followers by mid-single digits to more than 72 million led by Instagram, LINE and Douyin, with a focus on our Summer of Sports and Fashion Show.

This diversity of activations enables us to keep the brand fresh and relevant across each of our key markets. Staying true to Ralph's vision while finding new ways to bring each generation into our world. And this brand momentum is translating directly into increasing desirability and demand for our products.

This takes me to our second key initiative, Drive the Core and Expand for More. Ralph's vision has always been about a way of living. This quarter, our talented creative teams brought that vision to life to our enduring icons combined with seasonal newness across men's, women's and children's. By reinforcing the core while expanding our lifestyle proposition, we are creating multiple avenues for durable growth. and bringing our products to life through increasingly connected consumer ecosystems.

Starting with our core, which represents more than 70% of our business. Core product sales grew 10% in the second quarter. Recent highlights include our cotton cable and merino blend sweaters, linen poplin Oxford dye shirts, icon chino caps, sport coats and fleeces. For the fall '26 season, our Litchfield and Red Rock collections from men's Polo resonated particularly well with consumers. In Children's, we delivered a successful back-to-school with our collegiate inspired NextGen and New England-themed middlebury collections with strength across our sweaters, core mesh polos, sweater dresses and expanded outerwear proposition. Our high-potential categories, including women's apparel, outerwear and handbags, grew low double digits for the quarter, ahead of total company growth.

In women's, we drove excitement through our new micro cable collared cardigan and wool rugby sweaters, [indiscernible] shirts and Polo shirt dresses. Our strong outerwear performance was driven by our lightweight Bi-Swing and Bayport cotton windbreakers for men and Icon windbreakers and barn jackets for women.

And in handbags, we officially launched Polo Blaze, our most elevated foundational collection for Polo to date, marrying equestrian-inspired details with the downtown edge. Special releases this quarter included our U.S. Open collection inspired by the heritage of tennis and the spirit of New York, delivering our stronger sell-throughs around the event to date, and our collaborations with Gee's Bend and second capsule drop with TÓPA, both part of our groundbreaking Artist in Residence focused on empowering and celebrating artisans within the communities that have historically inspired our designs.

As we turn to Holiday, we will continue to invite consumers to step into the cinematic worlds that Ralph created, with timeless, high-quality products, a compelling value proposition and styling that only we can deliver.

Turning to our third key initiative. Win in Key Cities, with our consumer ecosystem. We are creating unique lifestyle experiences to emerge consumers in the world of Ralph Lauren, bringing together product, hospitality and storytelling 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, global comps increased 10%, led once again by our Ralph Lauren stores and digital commerce.

By region, Asia increased 28% and driven by 24% comps and growth across all key markets. China sales remained strong, increasing more than 35%, while Japan and Korea were also up double digits as we continue to invest behind localized brand activations and experiences. Europe delivered low single-digit growth this quarter, in line with our plan despite industry traffic headwinds and on top of last year's strong compares. And we drove another quarter of strong results ahead of expectations in our largest region, North America, with healthy demand in both our retail and wholesale channels.

With regards to our store base, we opened 22 new owned and partner stores globally this quarter as we deepened our presence in our top cities. Highlights included: Seaport in Boston, including our first Ralph's Coffee location in Massachusetts, new men's and women's stand-alone stores in London's Sloane Square; St. Tropez, France; Beijing Hopson One; and Galaxy Promenade in Macau. On the digital front, we expanded our RL Mobile App to Japan following our successful launch in Korea earlier this year with early performance and downloads exceeding our expectations. We also grew our connected retail and clienteling capabilities across several markets in Asia this quarter. enabling our teams to serve consumers with greater personalization and consistency.

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 are investing in new capabilities that help our teams move faster, create more personalized consumer experiences and operate with greater precision. In addition to expanding our mobile app and clienteling in Asia this quarter, we continued our journey to enhance visibility on key LLMs.

We also launched a test on WhatsApp Concierge, a digital assistant that allows customers to interact directly with our brand on the WhatsApp platform. And following our initial test with OpenAI earlier this year, we are further scaling advertising on the platform for holiday gifting and cultural moments.

In addition, we are advancing our commitment to the communities we serve. We recently announced a new partnership with the Korea National Cancer Center Foundation to establish a new Ralph Lauren Cancer Center in Goyang, our first in Asia and fifth globally, part of our broader long-standing commitment to more equitable access to cancer care.

And we were proud to be recently named one of the world's best employers by Forbes, reflecting the power of the people and culture that make Ralph Lauren so special.

In closing, Ralph and I are encouraged by our team's progress in the second year of our Next Great Chapter: Drive plan, in the midst of an ever-evolving global operating landscape. As we head into the important holiday season, our consumer remains at the center of everything we do. With that in mind, we will continue to lean into our long-term elevation journey, investing in our strategic priorities to deliver sustainable growth and value creation into the future, including developing innovative campaigns that build desirability and engagement and grow lifetime value, creating timeless, high-quality products that offer compelling value and earn consumers' trust and winning in our top cities through unique brand experiences that immerse consumers in the world of Ralph Lauren.

These diversified engines of growth and our increasingly elevated consumer base, all underpinned by our iconic brand continue to drive resilience in our business model and consistency in our performance.

With that, I'll hand it over to Justin, and I'll join him at the end to answer your questions.

Justin Picicci

Thanks, Patrice, and good morning, everyone. Our second quarter performance underscores our growing brand desirability around the world, with results exceeding our expectations across both revenue and profitability. This reflects broad-based consumer demand and the strength of our diversified growth model against the dynamic operating backdrop.

Revenues increased 10%, ahead of our mid-single-digit outlook for the quarter. with growth across every region. Our branded products continue to resonate with consumers globally, and full price momentum supported gross and operating margin expansion above expectations. Notably, we delivered this performance while continuing to invest in the strategic initiatives that will fuel sustainable long-term growth and value creation. This combination of second quarter outperformance and sustained brand momentum gives us confidence to raise our full year outlook once again.

But first, let me walk you through our financial highlights from the second quarter, which, as a reminder, are provided on a constant currency adjusted basis. Total company second quarter revenue grew 10%, driven by better-than-expected performance in both our direct-to-consumer and wholesale channels. By region, Asia led our performance, increasing 28%, followed by North America, up 6%; and Europe, up 3%. Total company retail comps also increased 10%, with growth across both our own digital and brick-and-mortar channels.

Total company adjusted gross margin expanded 220 basis points to 70.2%, ahead of our outlook. The increase was driven by AUR growth, favorable geographic mix, and lower product costs, which more than offset modest pressure from higher labor and non-cotton material costs in the quarter. AUR increased 9%, ahead of our plan and on top of 12% growth last year. The increase was broad-based and reflected balanced contributions from product elevation, favorable channel and geographic mix and selective pricing actions and lower promotional activity.

For the third quarter, we are currently planning for mid-single-digit AUR growth on top of last Holiday's exceptionally strong 18% increase. Our outlook continues to be supported by our ongoing brand elevation strategy, with the flexibility to further reduce discounting based on consumer demand and selling trends. Adjusted operating expenses increased 11% or 70 basis points as a percentage of sales compared to last year, as higher marketing more than offset leverage in non-marketing expenses.

Marketing increased to 8.6% of sales, up from 7.8% last year, reflecting increased investments to amplify key campaigns, including our New York Fashion Show and sponsorships of Wimbledon and the U.S. Open. Our multiyear progress in sustaining new customer acquisition, healthy consumer metrics and attractive returns, reinforces our confidence to continue expanding our marketing programs across our top cities. We now expect marketing investment to represent approximately 8% to 8.5% of sales in fiscal '27 compared to approximately 8% previously.

Even with this higher investment, second quarter adjusted operating margin expanded 140 basis points to 15.5% ahead of our plan, while operating income grew 21%. This underscores our ability to expand profitability while continuing to make investments in our brand and capabilities that support durable growth.

Turning to segment performance and starting with North America, second quarter revenue grew 6% at the high end of our expectations. In North America retail, Second quarter comps increased 6% on top of a double-digit compare last year with balanced growth across our digital and brick-and-mortar channels. Digital comps increased 5%, supported by solid traffic, full funnel marketing activations and continued merchandising optimization. North America wholesale revenue grew 8%, driven by healthy replenishment and seasonal orders. Results included approximately 4 points of benefit from planned timing shifts from the second half of the year. We continue to expect North America wholesale performance to moderate in the second half as we lap these timing benefits, and accelerate our strategic reduction of off-price sales and lower-tier full-price stores. Our underlying growth in the channel remains healthy with strong full-price sellout trends and continued market share gains.

Turning to Europe. Second quarter revenue increased 3%, modestly ahead of our expectations. Europe wholesale increased 4% on top of double-digit growth last year. Underlying sellout trends remain in line with our full year outlook, and we continue to proactively manage our sell-in to align with consumer demand and maintain healthy inventories in the channel. Europe retail comps declined 1% as we lapped an exceptionally strong 10% compare last year amid a challenging macro environment. While the region continues to face pressure from weaker store traffic across several of our key markets, we are taking targeted strategic actions to drive stronger consumer engagement, increased conversion and higher basket size in our stores. Looking ahead to the second half of the year, we continue to invest behind our strongest brand and consumer opportunities in the region, including marketing activations and targeted consumer engagement, building on our growing brand desirability to support both near- and long-term growth.

Moving to Asia. Second quarter revenue increased 28%, reflecting broad-based growth across all key markets. Retail comps grew 24% with double-digit growth across every channel. Our Asia digital ecosystem also delivered double-digit growth with strong contributions from our own digital commerce sites. By market, China continued to lead our performance with sales up more than 35% in the quarter, driven by healthy comps and high-quality new customer recruitment. Japan and Korea also delivered strong double-digit growth, supported by localized brand activations and sustained consumer engagement. Our full funnel marketing activations throughout the region are building deeper connections with consumers, and we continue to see substantial opportunity to build awareness, deepen engagement, and expand our presence across key markets where our luxury lifestyle positioning continues to resonate.

Moving to the balance sheet. Our fortress balance sheet and strong cash flow generation continue to provide meaningful strategic flexibility, enabling us to invest through periods of volatility, pursue compelling growth opportunities and return capital to our shareholders, all while maintaining prudent financial discipline. During the second quarter, we repurchased approximately $250 million in shares, bringing our year-to-date repurchases to $500 million and completing our buyback plans for fiscal '27. And we remain on track to return over $2 billion to shareholders, including through dividends and repurchases over our 3-year Drive plan. We ended the period with $1.8 billion in cash and short-term investments and $1.2 billion in total debt.

We continue to manage inventories closely against demand in each of our regions. Second quarter net inventory decreased 8% in constant currency, reflecting last year's elevated tariff-related inventory base. Excluding the impact of tariffs, net inventory declined approximately 2%. As we enter the Holiday season, our inventories remain healthy, current and well positioned to support demand across geographies and channels while preserving flexibility.

Looking ahead, our outlook for fiscal '27 remains based on our best current assessment of the operating environment, including the geopolitical backdrop, foreign currency dynamics and broader macroeconomic conditions. For fiscal '27, we now expect constant currency revenue growth of mid- to high single digits on a 52-week comparable basis, centered around 6% to 7%, up from our prior outlook of 5% to 6%. This increase largely reflects our better-than-expected second quarter results, along with a modestly stronger outlook for the second half, supported by our continued brand momentum.

As previously discussed, we continue to expect first half growth to be stronger than second half growth, reflecting the timing of this year's marketing activations and other investments, the timing of planned wholesale shipment shifts and strategic off-price reductions, and more challenging year-over-year comparisons in certain of our key markets.

Importantly, our outlook continues to assume healthy underlying growth in the second half, in line with our long-term plan. Foreign currency is now expected to negatively impact revenue growth by approximately 40 to 60 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 of revenue growth and slightly benefit operating margin.

By region for fiscal '27, we now expect North America revenue to grow approximately low to mid-single digits, up from low single digits previously. We are encouraged by our strong first half performance in the region and the continued momentum across our direct-to-consumer and full-price wholesale channels. We still expect this solid underlying growth to be partly offset by accelerated strategic actions to improve quality of sales and exit lower-tier doors, notably in the back half of the year, as we further elevate and strengthen our long-term position in the marketplace. We now expect Europe revenue to grow approximately low single digits compared to low to mid-single digits previously.

This outlook reflects positive underlying growth, partly offset by increased pressure on consumer traffic and broader macroeconomic volatility in the second half of the year. We remain focused on driving high-quality near-term results, while continuing to invest behind long-term brand elevation and margin expansion. And we now expect Asia revenue to increase low teens, up from our prior outlook of high single to low double digits, driven by our stronger-than-expected first half results, along with ongoing brand momentum across our key markets in the region.

We now expect full year operating margin to expand approximately 80 to 100 basis points in constant currency, up from our prior guidance of 60 to 80 basis points, largely driven by our better-than-expected second quarter results. We are also raising our full year gross margin outlook to approximately 80 to 100 basis points of expansion compared to our prior guidance of 50 to 70 basis points. This reflects our stronger-than-expected Q2 results, along with our updated view on U.S. tariffs, which assumes the prevailing rate of approximately 10% through December, followed by a return to reciprocal rates in the high teens in our fiscal fourth quarter.

We continue to expect both gross and operating margin expansion to be weighted towards the first half of the fiscal year, reflecting normalizing AUR growth and the timing of key marketing activations as well as our previously disclosed timing shifts in wholesale shipments. Our guidance continues to exclude the benefit of tariff refunds, which are not included in our adjusted non-GAAP results. As part of our long-term capital allocation strategy, related proceeds received will be primarily reinvested in the business as well as directed toward initiatives that strengthen and advance our purpose and values.

Foreign currency is now expected to benefit gross margin by approximately 20 to 30 basis points and have a roughly neutral impact on operating margin in fiscal '27. For the third quarter, we expect constant currency revenue to increase approximately low to mid-single digits, centered around 3% to 4%. This outlook includes approximately 1 point of negative impact from planned wholesale timing shifts and strategic off-price reductions in the quarter, with underlying growth of roughly mid-single digits.

Foreign currency is expected to negatively impact revenues by approximately 50 to 100 basis points. We expect operating margin to expand approximately 50 to 70 basis points in constant currency, with gross margin expansion more than offsetting higher marketing investments in the Holiday period. Foreign currency is expected to benefit gross margin by about 20 to 40 basis points, and have a roughly neutral to 20 basis point benefit to operating margin in the quarter. We expect our third quarter tax rate to be in the range of 23% to 24%, while the full year tax rate is still expected to be in the range of 21% to 22%.

In closing, our teams continue to deliver against both our near-term commitments and long-term strategic priorities. This quarter's results demonstrate the strength of our diversified growth model, the benefits of our elevation strategy and the discipline with which we are investing for the future. underscore the enduring relevance of Ralph's timeless vision around the world. While the external environment remains dynamic, we are focused on what we can control, continuing to drive brand and product desirability, enhancing quality of sales, operating with discipline and investing behind high-return growth opportunities. Together, these actions position us well to deliver on our fiscal '27 commitments while strengthening the foundation for durable long-term value creation for all of our stakeholders.

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

Operator

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

질의응답

Matthew Boss

And congrats on another nice quarter. So Patrice, what does your updated fiscal '27 outlook assume for the health of your consumer in each region? Is the global operating environment getting tougher in your view? Or just any puts and takes? And then Justin, could you elaborate on the progression of demand trends that you saw in North America during the second quarter. And just drivers underlying your full year raise for top line growth in that region.

Patrice Louvet

All right. Matt, thanks for your question. So I would call out a few points. First of all, looking collectively across regions, our brand is strong and is getting stronger. And we're investing for the long term, and we're well on track towards our 3-year targets. We're actually halfway through our Next Great Chapter: Drive phase and progressing really nicely.

Now we're certainly in an environment with a lot of macro noise, and I think macro noise is a new phenomenon for this industry. But there's a good amount right now, including our updated views on Europe, we have successfully as a company navigated through a variety of macro environments over the past many years, and we are well positioned looking ahead. And as you saw, we were able to take up this year's outlook once again.

Now specifically on the consumer, as you know, we're in an exciting elevation journey with our customer base around the world, right? We've shifted our customer base to focus on higher quality of sales, lower price sensitivity, larger basket size and younger cohorts. And today, our core consumer remains resilient across each of our key markets globally. Zooming out, our growth in value creation model is durable, in part because we have this diversity of drivers. Our brand is stronger than ever in every region with a record level of affinity scores. You heard us say earlier, we're seeing that across the regions. We have a culture of agility and operational discipline built over years. And we have a lot of opportunities yet to build the brand in large markets like China, Korea, Germany, even in North America, where I would argue we're actually in the very early innings of our elevated journey in North America with significant growth opportunities ahead around the region, particularly in the West Coast now that we've established healthy foundations across the entire business model.

So regardless of the macros, we're running our play. We've got an eye on the long term because we want to make sure we're continuing to build this brand in the right way for long-term success. Because we have both the diversity of growth drivers and the flexibility to pivot and take advantage of clear opportunities for Ralph Lauren in the marketplace, that's where our confidence comes moving forward. And I would call out that we're continuing to invest behind our iconic brand and reinforce our place in culture. You've heard us talk about the recent PoloFest event, which, I think is a beautiful illustration of how the Ralph Lauren brand has been weaved into the culture globally. We're creating timeless core products that resonate across generations, Gen Zs, but also the silver generation and across geographies. And we're offering lifestyle experiences that consumers want to be part of, and you see that every single day, including the lines at our Coffee shops.

So to summarize, I would say we remain on offense. We're taking market share. across markets. We're building our brand equities and healthy foundations for the long term. We have significant runway ahead for our unique lifestyle proposition.

Justin Picicci

And Matt, the question on North America. As you mentioned, we took up our full year outlook for North America from low single digits to low to mid-single digits. And we're really encouraged by the broad-based momentum we have in that region across the whole ecosystem. Our core consumers are performing really, really well. We're seeing that ongoing shift towards a more elevated positioning really, really drive our business across that, especially, I would say, full price channels. And Q2 saw another balanced, healthy growth delivery across DTC and wholesale.

As we think about sort of going forward into Q3, we're really expecting that continued momentum both in DTC and really in that healthy full price wholesale sellout to continue partly offset by those deliberate accelerated quality of sales investments in lower-tier door exits that we've talked about. So when you think about the underlying trend for the region, it's really continues to be on that mid-single-digit trajectory and we're really encouraged by that brand momentum continuing.

Operator

The next question comes from Jay Sole with UBS.

Jay Sole

Justin, what catalysts or metrics are you looking at to get more constructive on Europe? And for the overall business, can you also provide any color around recent performance in quarter-to-date trends? And how should we think about the implied deceleration in your second half guide? And if you can also add some color on a little bit more specificity on how you see gross margin playing out in Q3 and Q4, that would be great.

And then, Patrice, I just ask you one. Justin mentioned that it's great to be able to meet and exceed expectations is still reinvest in the business. I think as marketing gets higher and higher as a percent of sales, I think it was 8.6% this quarter. Do you see -- are you interested in actually taking that -- keeping that number where it is and maybe even driving it higher? And can you do that while still maintaining the ROI associated with that spend?

Justin Picicci

Jay, thanks for the question. Listen, we remain focused on driving high-quality sustainable growth for all 3 of our regions, and that includes Europe. I would say, importantly, for Europe, we continue to track ahead of that 3-year growth algo that we laid out and we're delivering growth in the second year of our plan. And you heard Patrice talk about we continue to see meaningful long-term growth opportunities across key markets, categories, channels in that region.

Now based on what we've seen so far this fiscal year, the trends have generally, I would say, played out as we expected, right, with broader industry traffic pressure remaining the primary headwind. So when we think about in terms of what would make us more constructive on Europe traffic, and I would say, particularly in stores, that remains a key metric that we're watching closely.

That all said, our updated guidance doesn't assume a meaningful improvement in traffic or in the macro environment. And against that challenged backdrop, we continue to expect our brands to gain share and for Europe to deliver positive growth this year, and that includes slight growth in Q3. And while the external environment in Europe certainly remains pressured, what we're doing is we're proactively managing our business and focus on the things we can control. Our consumer brand metrics remain strong, including record NPS scores. Our teams are focused on driving conversion, basket size to help offset that near-term traffic pressure. And this is all that we continue to invest behind and advance our long-term elevation strategy in the region.

To your second part of your question, what I do is I'd separate the underlying health of the business from the quarterly cadence. Our outlook remains consistent with the quarterly growth trajectory we planned as we came into the year. I would say with slightly stronger expectations for the second half than we previously anticipated based upon our strong brand momentum. Now this puts our updated full year outlook for both revenue and profitability ahead of our long-term plans, similar to what we delivered last year in year 1. Now the first half of this year reflected stronger top line growth, including favorable timing shifts in the second half as well as higher growth in marketing. As we move through the back half, we'll also begin to lap some exceptionally strong compares in Asia, notably for China, while also executing on those planned strategic pullback that I just mentioned in North America off-price wholesale.

Now those factors affect the quarterly cadence, but they don't change our view of the consistent underlying momentum in the business, which remains strong. And as you know, we don't typically comment on monthly or quarter-to-date trends. I would say our third quarter guidance incorporates the recent trends we're seeing in the business as well as our expectations for the key Holiday selling periods ahead. So just stepping back, when you adjust for timing, planned strategic actions or difficult compares, we continue to expect healthy underlying growth in the second half, firmly in line with our long-term growth plan.

On the second half gross margin outlook, I would say, it continues to be supported by structural, durable drivers. You'll see AUR, of course, durable drivers behind that. our geo channel product mix durable drivers behind that. We do have a tariff assumption in there that has prevailing rate going back to reciprocal kind of the reciprocal rates, the high teens in the fourth quarter, sellout that's in there, we think that's prudent, and we'll see what happens there. But we expect our gross margin to remain healthy, albeit with a little bit of normalization on the AUR front off of the strong double-digit first half performance.

Patrice Louvet

And on marketing, I would say a few things, Jay. First of all, as a company, we're in the dreams business, we're in the storytelling business. So marketing is a core element of our business model. And I'm actually really excited to see how over the past few years, we've gone from 3% to 4% of our revenue invested in marketing to now north of 8%. There's really no ceiling, right? What's important is that as we want to continue to invest in marketing as long as we get an exciting return, which we had, while expanding operating margins. So it's not one at the expense of the other. We're always going to do them in tandem.

As we look at the types of activations that we have, right? We have a multifaceted marketing strategy that really focuses on our key consumer targets. We want to talk across generations. We want to talk across genders. We want to talk across communities. And I think our teams have done a fantastic job building a portfolio of marketing activations, ranging from sports to fashion presentations to Polo fest to social media activities that has really helped bring the brand to life in different ways across different courts, and that's been driving our momentum over the past many years.

The strategy is really focused on one new consumer acquisition, right? And particularly younger, higher value -- higher basket size, more diverse consumers. You saw this quarter, we added another 1.7 million new consumers with fantastic profiles. Our social media followers are up to 72 million now on our way to 100 million. Second is retention rate, which is obviously very important. We have, I believe, we can say the most loyal customer in the industry. So for us, it's about lifetime value, not just one purchase. And we're driving that to increase personalization, increased clienteling, and of course, trading across and trading -- with leveraging our full lifestyle portfolio.

And then finally, to the ROI point, our teams are doing a fantastic job consistently looking for ways to be more efficient in the way we target to be more efficient in the way we activate to focus on the bigger opportunities so that through this journey, 3.5% of revenue to now this last quarter, 8.6% of revenue, we all feel very good about the type of return and effectiveness that we see. That's driven by increased digital focus overall. That's driven by increased targeting. That's driven by increased personalization. And you see that across the metrics this last quarter, right? Our awareness is up, our consideration is up, our purchase incentives is up, our advocacy is up. Therefore, the investments that we are making are delivering and are driving the strong momentum and the strong comp performance that we have been talking about.

As you look at Holiday, which is obviously a key important moment for us as a company. Very excited about the momentum we have going into the Holiday. You heard all the activations we had in Q2. We have a number of great things going on in Q3. We have the Women's Polo presentation in Paris that have got great reviews, we have the PoloFest activation in Tokyo. We have a very strong Holiday campaign situated in the [indiscernible] that we're very energized by. We are starting our investments earlier from a media standpoint. So we expect higher impact. We launched, I think, ahead of most of our competitive set to really capture the full gifting season with the media investment up 23% versus last year, focused on our top 30 city ecosystem. That's the first point.

Second point is, really making gifting an acquisition engine, deploying it fully integrated 360-degree gifting strategies because we are one of the premier brands from a gifting standpoint, we know we have the opportunity to lean into that even more effectively across generations. Third is, we're doubling our global holiday experiences. I don't know, Jay, you've got a chance to experience ours in L.A. last year, but we're going from 4 cities, last year to 8 cities this year, L.A., London, Paris, Hong Kong, Singapore, Tokyo, Sydney, Seoul. And I suspect when we talk next year, that this will even expand because we've seen very strong response to the experiences. We are at a time with AI and digital and agents where consumers more and more they want live in-person experiences, and these events really deliver that.

The fourth element -- sorry, this is long-winded, but I think it's important for all of you and to understand how we're thinking about moving forward. Fourth element is really amplifying our portal and social reach, right? We have an incredible network globally of creators, influencers, editorial partners that help us reach new audiences and help us -- will help us drive demand for key Holiday categories like outerwear, like cable-knit sweaters, like our handbags, across many of the different social media platforms as well as taking advantage of the LLM capabilities and platforms that are coming up and make sure that consumers can discover us on those.

And then the final point is really capitalizing on organic holiday momentum. So you remember last year that Ralph Lauren Christmas was trending, but here's the business. Ralph Lauren Christmas is trending again this year. Emerging organically as consumers celebrate and share their love for Ralph Lauren's iconic products, particularly [indiscernible] product and our home collection.

So this gives you a sense of the activations we have going into holiday just for this quarter, right? And as you know, our strategy is to have a rolling thunder of activations that talk to our different cohorts. And so no 8.6% is not a ceiling. As long as we get exciting returns, we will continue to lean in our diversified portfolio of activation, while, of course, delivering attractive value and also expanding our operating margin. Sorry for the long answer, but hopefully, that gives you a good sense for where we are.

Operator

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

Kendall Toscano

I just wanted to see if we could zoom in on Europe a bit more. And so as we think about that region having been challenged for a few quarters now, it does seem like the store traffic for you guys was incrementally more challenging in the second quarter compared to what you saw in the first quarter. And I know you called out a particularly tough comparison in Europe during the second quarter. But how should we think about as you move into the third quarter, you're lapping a flat comp last year versus a plus 10%. So how should we think about that versus, I think you mentioned you're expecting slight growth for the region in the third quarter. And how do you expect that consumer to behave during Holiday?

Justin Picicci

Sure. Maybe we can tag team this one. Thanks for the question. So as you pointed out, the change in our EMEA outlook is really the external environment is a bit more challenged than we expected, particularly around retail traffic, consumer confidence, and I would say, broader cost of living pressures. So there's been a sort of prolonged, I would say, traffic softening that was started into ramp up in Q1, really continued into Q2, and that's reflected in our updated fiscal '27, the outlook of low single-digit growth. And so yes, we have assumed some, I would say, unit elasticity in the second half given that backdrop. But we're not assuming sort of a broad deterioration across all of the underlying drivers of the business. In fact, our teams are very focused on what they can control, right? So think driving product desirability, conversion, basket size, targeted consumer engagement, which is going to help mitigate some of that external pressure. We have a proven playbook of strategies there.

But importantly, our updated outlook doesn't contemplate or depend on, I would say, in near-term macro recovery in EMEA. And I also think the broader context here is important because our Q3 outlook for company, right, is still for that sort of low to mid-single-digit growth, which includes about 1 point of pressure from our wholesale timing and strategic off-price pullbacks. So that incorporates actually bit more cautious assumptions for EMEA, while if you think of taking a step back, we're still on that underlying mid-single-digit algo for total company. So we believe we've appropriately reflected the softer year consumer and traffic environment in the guide. And at the same time, we're continuing to see opportunities to mitigate those pressures through those strategic actions that I talked about without assuming the environment gets better.

The last thing I'll say, we also continue to invest in the region. So in marketing, in new stores, in digital, really to drive long-term growth and continue to strengthen our already strong brand equity. So we're going to protect quality of sales and long-term brand equity. Flexibility doesn't mean walking back our elevation strategy.

Patrice Louvet

Yes. I would add a couple of things, Kendall. First of all, I mean, we've built a strong business over the past few years in Europe. That's really fundamentally well positioned and much more elevated than it was a few years back. So strong base, strong foundation. Second is our brand continues to strengthen. We saw that in our recent equity scores across the region. It's true across generation, particularly true across for the younger generation. So that's actually very promising. As Justin mentioned, we're on offense, right? We're investing more in marketing. You heard some of the comments I made earlier relative to media for Q3. We're continuing to invest in store openings in London, in the South of France and others.

So clearly, on offense, share data isn't great in this industry from my old -- compared to my old world, but from the share data that we have, we also know that we're growing market share across the business. So this is an important time for us to take advantage of the broader challenges to expand our market share. And I think, I mentioned earlier on the consumer that our general consumer is -- our core consumer is resilient, and this is true across the world, and it's true in Europe. I think where we're seeing the pressure is traffic, particularly in outlets, right, which typically will be the consumers that will be more pressured by inflationary considerations. They've got to drive all the way to the center, et cetera.

But as Justin mentioned, we want to be cautious in terms of just recognizing the macro traffic headwind reality. But certainly from a mindset and strategy and investment, we remain clearly on offense in Europe.

Operator

The next question comes from Michael Binetti with Evercore ISI.

Michael Binetti

I guess just a quick one, Justin. Do the initiatives you mentioned to engage with consumers in Europe drive conversion and basket. Does that include promotions? Is that a lever you expect to pull in the Holiday to while the traffic is tough there. And then I guess on gross margins, if you wouldn't mind breaking down the drivers a little more quantitatively for us, the expansion. I know you mentioned the drivers are AUR growth, geo-mix product costs. AUR slowed a little bit from the first quarter, not much. I don't think the geo-mix was vastly different from first quarter. So I'm just maybe a little bit of help on the breakdown of the [ 250 ] would be great.

And then I guess just a longer-term question, [indiscernible], you're tracking to a 17% operating margin for the year. And I think at the Analyst Day last year, you contemplated the building to something closer to like maybe 16% by fiscal '28. So obviously running nicely ahead there. Would you mind just orienting us around what's driven the upside so far what's unexpected or exogenous that can just kind of understand how much you still see from here in the buckets that you laid out in the operating plan.

Justin Picicci

Okay. Thank you, Michael. Let's see if my member is still working like a charm. So I would say, your second question on the gross margin. I would say for the -- we think about Q3 and our expectation on our gross margin expansion and AUR specifically, because that's really the big driver of our gross margin. I would expect sort of equal contribution, like we saw pretty much in Q2 for AUR. We saw equal part contributions from product mix from geo channel mix and from pricing and promotional pullback. I would expect that to continue as we think about heading into Q3 from an AUR perspective, which, again, is going to be our biggest gross margin driver. I would expect AUR to normalize a bit as we talked about, getting closer in line with that longer-term sort of mid-single-digit algo as we continue to close the gap between our AUR growth and targeted unit growth as revenue drivers.

From a promotional perspective, we're going to stay disciplined this Holiday. And we've got the flexibility we know to be targeted where the consumer environment warrants it without compromising our long-term strategy. From a promotional standpoint, North America remains relatively stable. Europe with a challenged consumer backdrop has become more promotional quarter-over-quarter. And we're on a continuous elevation journey, as you know, that remains the priority. We'll recognize the environment, particularly in Europe. We have the flexibility to respond selectively where appropriate, but our strategy is not to broadly chase the macros.

So we will lean in and be targeted with how we use promotions and present that compelling price value proposition, where that consumer is feeling that the macro is tightening up and that can include adjusting frequency depth duration of breadth of promos without changing our overall strategic direction, and we've demonstrated that playbook over many years in our continued AUR progress and strong price architecture we've built up has given us that targeted flexibility within those brand guardrails to respond to the consumer and the competitive environment this Holiday.

On your last point on margins. So yes, so we've made really strong progress over our NCG: Drive 3-year plan with margins, really driven by the increased full price on the gross margin expansion outpacing our expectations. And what you've seen us do is we've taken some of that gross margin outperformance and reinvested it back behind the brand marketing, digital cases, et cetera, to really fuel durable longer-term growth. Our operating margin that we delivered this year is not a ceiling, right? We contemplate and expect year-over-year margin expansion every year of our long-term plan, and we've got durability behind both our gross margin drivers, right, which including AUR, which is a big piece of that, but also when you think about the favorable structural mix benefits that we have from geo channel, et cetera, product, et cetera.

And then on the SG&A expense line, we built at the muscle. We have a culture of operating discipline. We built out the muscle of leveraging expenses. Now you don't always see that because we -- opportunistic, we reinvest, but we've built out the muscle of leverage, and we do expect more balanced contributions from gross margin expansion and SG&A leverage as we move forward. But we certainly feel really good about our continued ability to leverage some of the big investments that we've made, whether that's in new stores, digital infrastructure, et cetera. So going forward, I would say fiscal '27 operating margin, not a ceiling, year-over-year progress expected, and we've got durability behind the drivers of both gross margin and of SG&A expense to contribute to that expansion.

Operator

The next question comes from Laurent Vasilescu with BNP Paribas.

Laurent Vasilescu

I wanted to ask about Asia. Justin, last quarter, I think you explicitly guided for Asia to grow mid-teens for the second quarter. I'm just curious how we should think about Asia growth for the third quarter. And then within the full year raise for Asia to grow low teens, how do we think about China? I think you called out last quarter it was going to grow mid-teens. Is that number going up? And then within that, I'd love to hear what you're hearing -- what you're seeing on the ground in China specifically as we've heard some other luxury players call out weakness in that marketplace.

Justin Picicci

Thanks for the question, Laurent. So Asia remains our strongest growth engine. We did take up that full year outlook to low teens. And for Q3, we expect a high single to low double-digit. So again, another strong quarter. We are -- the comps do get tougher for us as we get into the second half. Q4 is our toughest compare of the year, specifically for China, but we feel really good about the momentum that we have in Asia, it's really broad. It's across market led by China, but you've got markets like Japan and Korea, growing quite nicely. We've got that ongoing brand momentum and we've got expansion opportunities across all of our key markets in that region.

On the China front, specifically, our latest call on -- in this updated outlook is mid- to high teens growth. for the full year. So that's come up a bit. And again, what we see in China is, again, underlying momentum, exceptional. I would say the fact that the outlook is moderating when you get to the second half of it is really tougher compares and deliberate strategic pacing of our growth and investments in that region. It's not a change in underlying momentum or a change in confidence.

I don't know, Patrice, do you want to add in on China specifically.

Patrice Louvet

Sure. In Asia, in general, and China in particular. Just reiterating Justin's point around the breadth of our momentum across the region. So obviously, China from an absolute number, growth rate standpoint is the highlight, but we're seeing great performance in Korea. We see great performance in Japan. We've seen really strong performance in Southeast Asia. We're going through some interesting transformation in Australia that I think will yield very promising and exciting results for that market as well. We have an outstanding leadership group running that region. We actually just spent some time with our Board in Japan and Korea a few weeks ago. So we're in very good hands there.

Asia is really playing an innovation incubator role for us as a company. In China, in particular here, whether it comes -- where it's about clienteling, personalization, social media engagement, the new platforms like Douyin, for example, and so much more. And I think as Justin mentioned, we're pacing our growth. The underlying growth rate is strong and very healthy, but we're pacing our growth to make sure that we're strong 3 years from now, 5 years from now, 10 years from now, we're building the right foundations for the company across these key markets. We've certainly been very excited about the response that we're getting from consumers in China across generation. And remember, we're only in top 6 cities, right? So as you think about opportunities, just like I mentioned earlier, in North America, while we've been in this market for a while, there's still significant runway for us. Obviously, that's also true for the Chinese market. So it goes back to our diversified growth model, which is many geographic expansion opportunities for the company.

Thank you for your question, Laurent. Given the time we're going to stop here. So thank you, everyone, for joining us today. We wish you and your families a wonderful Ralph Lauren Christmas and Holiday season, and we look forward to reconnecting in early February to share our third quarter results. Until then, take care and have a great day.

Operator

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