Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Fourth Quarter and Full Year Fiscal 2020 Earnings Call. [Operator Instructions] As a reminder this conference is being recorded. I will now turn the conference over to our host, Ms. Corinna Van der Ghinst. Please go ahead..

Good morning, and thank you for joining Ralph Lauren's fourth quarter fiscal 2020 conference call. With me today are Patrice Louvet, the Company's President and Chief Executive Officer; and Jane Nielsen, Chief Operating Officer and Chief Financial Officer.

After prepared remarks, we will open up the call for your questions, which we ask that you limit to one per caller. During today's call, we will be making some forward-looking statements within the meaning of the Federal Securities Laws, including our financial outlook. Forward-looking statements are not guarantees.

And our actual results may differ materially from those expressed or implied in the forward-looking statements. Our expectations contain many risks and uncertainties. Principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings.

To find disclosures and reconciliations of non-GAAP measures that we use when discussing our financial results, you should refer to this morning's earnings release and to our SEC filings that can be found on our Investor Relations website. And now, I will turn the call over to Patrice..

family, togetherness, the outdoors. Within our assortments, this has translated to stronger sales of comfort categories such as loungewear, athleisure and home. In addition, the competitive advantage of our well-established core is becoming even more evident.

Over the course of this year, we had rebalanced our assortments towards core products, which have faster lead times and less markdown risks versus seasonal fashion items that only live for one season.

As the industry grapples with excess spring inventory due to COVID, our increased penetration of core gives us more strategic flexibility to work through our inventories and drive AUR growth.

With regards to our third key initiative, targeted expansion, we continue to build out our ecosystem approach of a cohesive, brand-elevating Ralph Lauren experience across retail, wholesale and digital commerce around the world in fiscal 2020. Prior to COVID, we opened 25 net new stores and concessions globally.

This included 18 net openings in China, our fastest-growing market. While we are carefully evaluating our footprint across direct-to-consumer and wholesale channels in this rapidly evolving environment, we continue to see significant long-term opportunities for our brands in underpenetrated markets, led by China and parts of Europe.

Our fourth key initiative is lead with digital. Earlier, I talked about how we accelerated digital and omnichannel initiatives in China this quarter, which are now being implemented in other parts of the world.

In addition, we continue to expand our global digital commerce presence across new platforms and partnerships, including our April launch on Instagram Checkout, our first social commerce platform in North America, and we are launching our digital commerce site soon in Japan.

We're also making meaningful strides in digitizing how we work, which is an important part of our journey to drive faster lead times, minimize physical waste and reduce costs. In fiscal 2020, we launched our digital library and 3D design studio.

This represents a major milestone for our company as it will eventually enable us to digitize our entire end-to-end process from product development all the way to how we communicate with our consumers. We started this process by digitizing all of our Polo core styles, raw materials and trims onto a digital library.

Starting in fiscal 2021, we will create 3D prototypes for all of our core Polo products, replacing traditional physical samples. We've already created thousands of 3D prototypes in fiscal 2020, and it's only the beginning, especially as our teams learn to work in new ways from home.

And lastly, touching on our initiatives of operating with discipline to fuel growth. A key element of our long-term plan has been to balance growth with productivity, which includes driving a culture of cost discipline across our organization.

This has come into even greater focus in the context of COVID as we drive deeper near-term expense reductions and align our cost structure and inventories through a shifting retail landscape. The pandemic has also highlighted the importance of continuing our journey to integrate citizenship and sustainability into our business.

We started this fiscal year by launching our Design the Change strategy, outlining our commitments to create more sustainable products, reduce our overall environmental footprint across our operations, and support and empower our teams and partners around the world.

Some key achievements this year included reaching our gender parity goal of equal representation in our leadership positions at the VP level and above more than three years ahead of our target; the launch of our Earth Polo shirt made entirely from recycled plastic bottles; a new commitment to power all of our globally-owned and operated offices, distribution centers and stores with 100% renewable electricity by 2025.

And building upon that, we are now in the process of setting science-based greenhouse gas reduction targets, which we will detail in this June's annual Design the Change report.

In addition, as suppliers around the world struggle with large-scale order cancellations in response to COVID, we reaffirmed our commitment to pay for all finished goods and goods already in production this spring.

We are working with our partners to develop new sources of support and long-term job security for factory workers as we look to strengthen our supply chain partnerships not just for the upcoming season, but for years to come.

In closing, over the course of more than 50 years, our company has endured many challenging times, and the current crisis will certainly not be the last. Our purpose of inspiring the dream of a better life through authenticity and timeless style rings as true today as it did when Ralph started this business.

And it will continue to guide us in these moments as we make tough decisions in the short term to protect the integrity and health of our brands, so that we emerge from this challenging period in a position of strength.

The foundational work that we have done to put the consumer at the center of everything we do, elevate our brands and balance growth and productivity all while maintaining a strong balance sheet, has positioned us well to manage through the current environment.

And we are privileged to have one of the greatest assets of all, the strength of our timeless global brand. With that, I'll turn it over to Jane, and I'll join her at the end to answer your questions..

First, flexing our costs where possible to align to our top line and carefully managing ongoing expenses and investments to a variable demand outlook. We are currently evaluating what the right operating cost structure and distribution footprint should be across retail and wholesale as we enter a new normal.

Second, a reduction in planned capital expenditures to approximately $175 million to $200 million in fiscal 2021. Third, in order to maximize our liquidity, we have temporarily suspended share buybacks. We will also temporarily suspend our dividend following the April payment that was declared in early March.

This is a proactive measure to preserve cash, and our Board will revisit this quarterly as we move through the pandemic. And lastly, we drew down $475 million from our revolver in the quarter and are considering additional capital measures to bolster our cash balance. Net inventory at the end of fiscal 2020 was down 10% to last year.

The decline largely reflected a significant increase in inventory reserves of about $160 million to keep our inventories aligned with demand and continue our brand elevation as we move forward.

Our teams are managing an unprecedented situation, but we are confident that we are taking the right strategic approach to work down excess spring 2020 product while also positioning the company for future growth. Similar to our previous practices, we will also take a targeted approach to clearing excess merchandise.

First, with the majority of the traditional spring 2020 selling season lost to COVID closures, our merchants are taking the opportunity to better align our assortments to consumer behavior.

As stores reopen, we will extend the season to focus on Wear-Now Styles from June through August in order to maximize full price selling and mitigate markdown risk. This includes shifting some of this season's product to warmer weathers markets.

Second, we plan to reassort a portion of our finished products into upcoming seasonal collections, including full price and factory channels. A key benefit of our classic timeless aesthetic is that many of our iconic styles resonate with consumers season-after-season.

This merchandise is in pristine condition in our warehouses and has not yet been seen by consumers. While requiring us to hold some inventories longer than usual, this should drive strong AURs and margins once these products are brought to market and enable us to drive our AUR growth trajectory as quickly as possible.

Third, we will utilize the full range of our channels to clear product, including targeted markdowns where product is already on selling floors, our factory stores and off-price wholesale. We have also committed to 1.5 million units of product donations to support medical workers across our three regions.

We anticipate this process will take longer than a broad strokes end-of-season liquidation. However, our inventory reserve process aligns our inventories to expected demand. This was evident in our reserve actions in the fourth quarter. This process allows our teams to move strategically through inventories while protecting the health of our brands.

And lastly, as we look forward, our work to reduce lead times has been a benefit under the current circumstances, enabling our teams to cancel a substantial portion of our shipments for the fall season, about 2/3 of our seasonal buys.

Our shorter lead times on core product and fast-track capability launched last holiday will enable us to get quickly back into inventories as demand returns, while limiting our exposure to additional excess inventory risks. Moving on to our fourth quarter performance.

Fourth quarter revenues declined 15% on a reported basis and 14% in constant currency. Prior to COVID, our business was on track to deliver positive revenue and comp growth for both the quarter and the full year.

Our digital ecosystem, including our directly-operated flagship sites, department store dot-com, digital pure plays and social commerce, increased mid-single digits in the fourth quarter and high single digits for the full year in constant currency. This was driven by strong double-digit growth in Asia and Europe for both periods.

Meanwhile, North America improved from flat performance in the first half to mid-single-digit growth in the second half of the year, as planned, all despite COVID-related disruptions. Adjusted gross margin was 59.1% in the fourth quarter compared to 60.1% last year.

Continued improvement in pricing and promotions was more than offset by foreign currency headwinds and unfavorable geographic mix due to lower sales in Asia and Europe. AUR growth of 8% continued to exceed our expectations.

SG&A declined 2% to last year on lower selling expenses and marketing and a modest amount of rent relief achieved in the quarter, primarily from Asia. Adjusted operating loss for the fourth quarter was $43 million compared to operating income of $96 million last year.

Marketing declined 8% in constant currency as we shifted the timing of investments back into the Q3 holiday period and reduced performance marketing while stores were closed. For the full year, marketing growth of 3% continued to outpace our top line growth as we work to win over a new generation of consumers.

Moving on to segment performance, starting with North America. Revenue decreased 11% to last year. Retail comps declined 13%, driven by a 15% decline in bricks-and-mortar comps and a 7% decline in our own digital comps.

Brick-and-mortar comps were impacted by significant traffic declines as foreign tourist traffic slowed and we closed all stores in March. Prior to the outbreak, however, the full price and factory comps were trending up mid- to high single digits in January and February, driven by AUR growth and improved product assortments.

AUR for the quarter was up low double digits across our brick-and-mortar fleet, driven by our continued rollout of targeted ticket price increases, reduced promotional cadence and stronger product mix. Comps in our North America directly-operated digital commerce business were down 7%.

Traffic and conversion were negatively impacted by two proactive decisions on our part. First, with the onset of COVID in March, we suspended all promotional activity and performance-driven marketing to our site as our employees and consumers focused on their safety and well-being. Second, we temporarily closed our U.S.

distribution center in late March for deep cleaning and new safety protocols. While our site was still technically operational, delayed order fulfillment negatively impacted our conversion rates. As we resumed our marketing activities and limited DC operations in April, we saw a meaningful improvement in both digital traffic and comps.

In North America wholesale, fourth quarter revenue declined 12%. Prior to store closures in mid-March, our sell-out performance was improving slightly on a year-over-year basis to down mid-single digits, driven by rebalanced assortments and improved product offering.

The additional declines were driven by order cancellations in the last few weeks of March as our customers closed stores due to COVID. Moving on to Europe. Fourth quarter revenue declined 19% on a reported basis and 16% in constant currency.

Europe retail comps declined 16%, driven by an 18% decrease in our brick-and-mortar stores and a 2% decrease in our owned digital commerce sites. Across our Europe direct-to-consumer channels, our ongoing effort to elevate the brand and improve product mix continued in the fourth quarter, with AUR up 10%.

This is consistent with our long-term strategy to drive higher quality of sales and price harmonization in the marketplace. Digital commerce comps on our own site were pressured by a temporary closure of our distribution center and a pause on product-driven marketing due to COVID, similar to North America.

Total digital ecosystem sales grew double digits in constant currency, driven by performance in both wholesale.com and digital pure plays. Europe wholesale revenue declined 18% in constant currency, driven by COVID-related pressures at bricks-and-mortar stores.

These declines were partially offset by strong double-digit growth in our digital pure play and wholesale.com businesses. Turning to Asia. Revenue declined 22% on a reported basis and 21% in constant currency in the fourth quarter. AUR increased high single digits as our product and marketing initiatives continue to resonate well in the region.

While performance varied by market, we saw the biggest percentage declines in Mainland China, the epicenter of the pandemic, where the majority of our stores were closed for about five weeks. Brick-and-mortar sales trends improved sequentially from trough levels in February turning positive in early May.

Despite significant challenges from store closures across Asia, we were encouraged by continued momentum in our digital businesses in the quarter, with our digital ecosystem up high teens driven by strong momentum in China and Korea.

Looking ahead, as we navigate the current environment, we remain, first and foremost, committed to the safety of our employees, partners and consumers. Due to the high level of uncertainty and the evolving situation surrounding COVID-19, we are suspending future guidance.

We expect our financial results for the first quarter and full year fiscal 2021 to be significantly negatively impacted by the pandemic. In the near term, we are focused on positioning the company to get back to sustainable growth and value creation as quickly as possible.

This includes preserving balance sheet strength, aligning our cost base in inventories to the new normal and optimizing our distribution, all while protecting the health of our brands.

Though the timing and path of recovery in each market presents many uncertainties, we have developed scenarios through which we plan to safely return our businesses to growth.

As Patrice outlined, China was our first market to emerge from business closures, laying out a path to normalization, and we will leverage many of these key learnings as we reopen around the world. In closing, we are proud of the focus, agility and passion our teams have demonstrated through personally and professionally challenging times.

We believe the Ralph Lauren brand has momentum. We have the right strategic priorities and the discipline to manage through this period and emerge in a position of strength. Now as ever, we are proud to have an iconic brand and to be led by Ralph's creative vision. This has endured the test of time. With that, let's open up the call for your questions..

[Operator Instructions] Our first question comes from Dana Telsey with Telsey Advisory Group..

Good morning everyone. Hope everyone is safe and healthy..

Good morning Dana..

Thank you, Dana..

Good morning. One for Patrice and one for Jane. Patrice, as you think about, how are you adapting your Next Great Chapter strategy to the new global retail environment and the changing behavior coming out of COVID? And then one for Jane.

Can you please help me put together the first quarter into context for us or provide any assistance with the cadence on the rest of the year? Thank you..

first, continuing to accelerate digital, right? We transformed our digital selling platforms over the last three years, new e-commerce platform, new OMS system, mobile personalization and connected retail streams. So we have a strong infrastructure in place when it comes to digital commerce and connected retail.

We're fast tracking and scaling new digital capabilities like digital clienteling and other forms of virtual selling. And we're encouraged by our progress and early reads so far, including understanding what we've done in China recently. The second thing I'd call out is assessing our store footprint.

So we still believe in the role of the store, and we're encouraged by the early connected retail interventions like curbside pickup, for example, but we're going to continue to review our store portfolio in the context of our omnichannel strategy.

And especially within North America wholesale, this means continuing to concentrate on our most productive brick-and-mortar doors, which are generally the top doors of our wholesale partners anyhow, as we also grow select wholesale.com opportunities. And the third example I would call out, Dana, is around scaling new ways of working for us.

And we've been able to do things in weeks and days that typically would have taken us months or years to do. This includes our ability to work remotely around the world, continuing to digitize our end-to-end value chain and also driving a culture of cost discipline, which is obviously critical in the current environment that we're in.

So the strategic pillars of our Next Great Chapter plan still hold true in this environment. We are feeling actually quite good about that, but there's a clear opportunity to accelerate some of the priorities, some of which I just called out for you. And then I think, Jane, you will cover the Q1 question..

Yes. Dana, we're not giving guidance for Q1, but let me just give you some color and shape about how we're thinking about it. We expect right now that Q1 will be the quarter with the most significant impact from COVID as we see it now. On an order-of-magnitude basis, consider Q1 in contrast to Q4.

In Q4, we had two weeks of closures approximately versus about eight to ten weeks of closures in Q1. And even after opening stores, we've seen a gradual and elongated recovery period. As you look across every region, we expect the impact of COVID to be most pronounced in Q1.

I think that's probably very clear for North America and Europe, where we were closed almost the entirety of April and May, with stores just starting to come back online. Today, a little less than 50% of North America stores are now open.

And in Europe, which is a bit further ahead, about two thirds of the stores are now open, but all with – operating with reduced hours, reduced traffic and with new social distancing requirements. Compared to our experience in Mainland China and Korea, we do expect a more prolonged recovery with improvement over time.

And obviously, this is going to vary by market. In Asia, which was ahead of the curve and where we're 90% open, we still will see the biggest impact in Q1 where markets like Japan, Southeast Asia and Australia and even parts of China saw large COVID impacts in the first quarter.

We are encouraged by the way that the digital sales are leading as infrastructure opens, and our teams are very clear that opening stores is the first step to getting back to comp growth. So we're all focused on that and prioritizing that.

And just as you think about expenses in FY2021 from a cadence standpoint, from a cost perspective, as you saw in our 8-K, we took substantial actions as we closed out the fourth quarter. We furloughed about 80% of our workforce in April, and this will continue through June.

And as we begin to ramp back up, employees and infrastructure to support sales in late June, and we'll stage – we'll stage that with – as demand stabilizes. But our largest SG&A reductions will be in Q1 and a little bit over 25%, and then it will moderate for – the reductions will moderate there as demand stabilizes.

So a little bit of color on the quarter and our expectations in what we're seeing in the market for the year..

Thank you..

Thank you. The next question comes from Matthew Boss with JPMorgan..

Hi Matt..

May be we’ll go to the next question..

Thank you. The next question comes from Heather Balsky with Bank of America..

Hi, thank you for taking my questions..

Good morning Heather..

Good morning. In terms of my question, there's a lot now regarding the wholesale channel and how you're partnering and responding both right now.

And as you look to the back half of this year and into 2021, calendar 2021, can you just talk about how you see that channel potentially ramping in terms of the recovery and what you can do to manage through the additional uncertainty in terms of them closing stores and tightly managing inventory? Thanks..

Sure. So as I step back and we look at kind of our long-term plan and strategy, we expect the bulk of our growth to come from direct-to-consumer and wholesale.com.

As far as brick-and-mortar wholesale is concerned, our focus is really on making sure, as it has been over the past couple of years actually, that we are in the right locations in a way that is brand-enhancing and financially attractive, right? So this will likely mean that as we work through the year with our partners, we will be calling some of the smaller doors, working with them.

Importantly, for all of you on the call, these recent bankruptcies from JCPenney's and Neiman Marcus actually don't impact us. Our business is nonexistent at JCPenney's and relatively small at Neiman Marcus.

But I'd say, Heather, our emphasis is really, when it comes to the wholesale space, wholesale.com, which has got nice momentum, and we're building capabilities with our partners and then making sure that we have the right footprint going forward in that space..

And what we've seen is that as we closed out in March together in partnership with our wholesale partners, we stopped a number of shipments to make sure that our inventory levels remained in good balance, knowing that they would face closures as we did. So we feel good about where our inventories are.

We are planning conservatively as we move into the hot fall season.

But the good news is as demand develops, because of our case capabilities and our ability to refill from core, we feel we have the flexibility to meet demand with our wholesale partners as it evolves without needing – without – while managing inventories tightly and maintaining a good full price selling environment..

Great, thank you very much..

Thank you. The next question comes from Matthew Boss with JPMorgan..

Great, thanks. Will try this again..

It works. Good morning, Matt..

Patrice, maybe as we think about and measure the strength of the Ralph brand as you see it today, what are you seeing in April and May e-commerce trends as we think about the U.S. and Europe? Jane, I think you talked about a meaningful improvement.

Have you seen trends return to positive territory? And then with more than half of your stores now reopened, what kind of initial productivity are you seeing at brick-and-mortar so far to start back in the reopening process?.

Good. So I guess starting at high level on brand perception. We've actually been really encouraged by how our performance on consideration has increased during this crisis. So quantitative measures, both in Asia, Europe and North America, where across all three regions we've seen brand consideration scores go up over the past few weeks.

We attribute that to all the work that we've done on values communication and also all the philanthropic work that we've done across the region. So feeling that we've got good tailwinds there. As far as e-commerce is concerned, we – let me start east first. I guess, we're feeling very good about the performance in China.

I think you heard us say February, March, up 76% while the overall sector was down, so we were gaining share in that environment. We can give you some color on the specific weeks for March and April, which Jane will give you.

But I think overall, with all the new capabilities that we've put in place, whether that's digital clienteling, whether that's all the connected retail capabilities, we are encouraged by the progress we're making on dot-com.

And I was joking with the team last week that actually, at this point, given the stores are not fully opened yet, we are, to some extent, a digital pure player because that's our biggest business today..

Yes. Matt, let me give you some color on what we've seen on a quarter-to-date basis across the regions. APAC, as we said, we closed out Q4 very strong across Asia on our e-commerce business, and that has only built.

So April and into May, we've seen very strong and positive e-commerce trends closing out in the – sometimes, we've seen rates of triple-digit growth in APAC, so very strong. In Europe, while we did see some – we reported down 3% on our own platform in Q4.

As we've come out and especially as we closed out April, and I think people saw the end of the crisis, we've been seeing very strong trends across Europe. So we've had double – solid double-digit growth in Europe on a very high quality of sales number where we're seeing double-digit growth in AUR on our e-commerce site in Europe.

So strong quality of sales and strong momentum. North America, which is probably the furthest behind in regions in terms of store openings terms of store openings and recovery, we reported down 7% in the fourth quarter.

And it's really been in May that we've started to see e-commerce back to solid and double-digit growth, but it's been building on a week-over-week basis, so encouraging there. So we do see, as our stores open, digital leads and it starts to build over time.

As we've gotten – we're sort of in the early days, if you will, in terms of store opening productivity, 50% open in North America and really very early on that journey, two-thirds open in Europe. Still early days on that journey which makes our experience anecdotal.

I can tell you, in China, as stores reopened, traffic remained weak in the initial weeks but with strong conversion. So buyers who are coming to the store were motivated and ADTs, average daily transactions, average value transactions were up strongly. Conversion was up strongly and AUR has continued to be up strongly.

I can give you some – we're not – it's early days, but I can tell you, as we think about our trajectory in – overall in Asia, that it will be different in North America. But coming out of January, we saw – if I think about the Asia, we were up strongly in January, up 40%. February saw the biggest declines, down well over 80%.

March, we started to recover, digital sales started to come back. In April, sales were down high single digits. And so far in May, we're really encouraged by the improvements.

Everything was turning positive in early May as Beijing and other larger cities' restrictions lifted, and we expect to be strongly back to growth in Q2 of this year in Mainland China. So encouraged by that trajectory. Don't expect to be a cookie-cutter approach across the regions, but that's what we've seen so far..

That’s great. Thank you. Best of luck..

Thank you, Matt..

Thank you..

Thank you. Our next question comes from Michael Binetti with Credit Sussie..

Hey, guys Thanks for all the details. I want to ask you two things. I guess, first on the inventory and the write-off and the decision to exclude some of that from the gross margin line in the quarter. I think that's a little different than how we've seen some others in the sector treating it.

So maybe a little bit on how you got to the $160 million number. How did that inventory get treated on the P&L as you sell-through it? And maybe just a little bit of help on how to think about what we're going to see as you move through that in the first quarter.

And then separately, on the AUR, I guess, a longer-term question, but this has been the real engine behind your revenue and gross profit dollar growth for several years. You've mentioned it a lot of times today. Now the apparel world is about to go on a huge sale, given what we've heard around the space.

I have no doubt you'll tell me the AUR story continues to be critical to the long term.

But maybe you could just help us think about what adjustments you need to think about in the near term given the state of inventory in the channel, the level of markdowns that seem like they're coming across the space, the store closures we know about in the brick-and-mortar world, et cetera. Thanks..

Sure. That's a power-packed question, so let me take it one layer at a time. Let me step back and tell you why we decided to report both our NRV reserve and our bad debt as a non-GAAP item. We believe that it is entirely related to the experience of COVID, where we lost a selling season. So it's not a business as usual NRV reserve. It was significant.

The process that we went through as a team was we took stock of all of our inventory flows, our commitments at suppliers on a fabric basis, and then went back to our strategy and said, what can we reasonably move through to continue our quality of sales journey with our own liquidation channels, with stretching the seasons while moving into warmer-weather channels and reassorting the line in coming seasons? And then what do we remain with? And how do we reserve appropriately to protect the AUR and gross margin progress that we've done to date.

So we really looked at it, a complete life cycle view. That's not a different process. We've been doing that process for well over two years. The magnitude and the onetime impact was greater. So we – that's why we reflected it.

If our NRV reserve is too small or too great, we will take that on what we reserved, we will take that also on a non-GAAP basis below the line, so that you and our investors can track our true progress on gross margin as we move through this COVID environment. So that's our rationale.

We'll take – if there is better selling, then you'll see an adjustment on a non-GAAP item in NRV. As a good vendor, I want to remind you that we know that we have made a commitment to pay for products that were perhaps cut but we did not have ownership of in Q1. There will be some reflection of that in Q1. The magnitude we'll disclose in Q1.

As I look at overall the – your question on the AUR story, you're exactly right. You know me well. We are continuing this AUR journey. And that is – and that was really behind some of the actions you saw us take in the fourth quarter. We're committed to it. And so we took an inventory reserve that protects that.

I think the good news is that the long-term drivers of AUR growth are still intact. We're elevating our product, we're elevating our marketing, and we're elevating our shopping experience. We have shown that we can take strategic price increases and have a positive consumer reaction. That – Q3, we posted 8% AUR. Q4, we were able to maintain 8% AUR.

I'm not guiding, but I expect that our AUR journey that's consistent with our long-term guidance in FY 2021, low-single-digit to mid-single-digit will continue through this year. Will it be more variable? Perhaps, but we have a clear idea of what we need to do to move through our inventory positions.

Part of that will be that we are keeping inventory in our warehouses to reassort it into the line that our designers are working on right now. So that we have a cohesive line in spring and get full price sell through on some of that product. And we're really having success in targeting promotions more effectively and more efficiently.

We've been able to reduce promotion days. And this personalization is proving highly effective as a lever to drive AUR. North America in the fourth quarter had AURs up 10%, so really significant and positive growth there. So we have every intent to continue that journey.

So we are excited about that, know that there's some variability, but we feel our actions in the fourth quarter and our plans for this year are completely consistent with our continued AUR journey. Next question, please..

Thank you. Our next question comes from Ike Boruchow with Wells Fargo..

Hey, good morning, Patrice, Jane, Cory. Glad, you're all doing well..

Thanks, Ike..

Hi..

I guess just two from me. So you gave a lot of helpful color, Jane, on the U.S. reopening – I think – just maybe more enclosed mall. I don't know if you have enough of a sample size, but I'm kind of curious if you have differing results on reopening volume there. And then you talked about off price exposure, kind of coming up a little bit.

You guys have spoken about bringing that down for the past couple of years. Does the new world we're in right now kind of change your thought process on that? Do you kind of need to go back to the off-price channel in a bigger way because of what's going on in the wholesale channel in the U.S.? Would love your thoughts there as well..

Good. So let's start with your first question on open-air malls versus kind of closed malls. Yes, we have seen a difference between open-air malls and closed mall. Open-air malls, obviously, rebounding faster.

And to – just to give you a sense of the split of our business with kind of open-air malls and open-air stores versus closed in North America and in Europe, the vast majority of our stores are actually an open-air environment, I think 85% to 90%.

So I think from that standpoint, we're actually well positioned as consumers are more comfortable shopping in that space. And then over time, they'll become more comfortable with the closed space, but the vast majority of our business is in open-air. And then in off price, Jane, over to you..

Yes. So I got you. In this quarter, our off-price sales were down on a year-over-year basis. And so that's a combination of working with our partners and we had some excess liquidation. But as I move into next year, we see that that channel will continue to be an opportunity for excess liquidation and it will not be a part of our growth trajectory.

I expect it to decline this year on a year-over-year basis.

And we worked through – how we're going to work through the inventory by leaning into what we talked about in terms of reassorting the line, extending wear-now season, charitable donations and of course liquidating some excess through, off price, but I don't expect it to be a growth area of our business. Next question, please..

Thanks so much..

Thank you. Our next question comes from Jay Sole with UBS..

Great. Thanks so much. I have two questions. One, Patrice, you mentioned at the top of the call, you're focused on denim this year. A lot of people have been talking about categories like denim maybe – have been a little bit less popular with consumers focusing on, things to wear at home or things to exercise in.

And so can you maybe just tell us a little bit more about how you think this pandemic will change consumers’ outlook on denim? And then secondly, given that a lot of talk about the wholesale channel and maybe some store closures out there, how do you feel about your full-price store model in the U.S.? I think instead of rolling out more full-price stores, do you feel comfortable that you have a plan to do that if you need to at this point? Thank you..

Sure. Good morning, Jay. So let's start with the product categories. We are tracking very closely kind of consumer interest across different categories. And you're right that we've seen an acceleration in loungewear, an acceleration in athleisure, we've also seen an acceleration in the home business.

The good news with our brand is we're a lifestyle brand, right? So we're not focused only on one category. We actually have a broad range of offerings. And I think we're credible across a broad range of categories. So we will – we have actually started to pivot.

If you go on our website, you will see that we've pivoted to a more emphasis on loungewear and athleisure. I don't think we're going to move away from the focus on denim because we expect over the mid to long-term that that continues to be a growth category.

But I talked a lot about agility earlier and that's critical for us as we think about consumer behavior. And that's both true in how we engage with consumers in terms of messaging, but also where we put the emphasis from a category standpoint..

Yeah, Jay, we continue to believe that we have a significant opportunity to build stores for FY 2021. We're expecting to open approximately 90 to a 100 stores. We are very happy with our model in Asia and we've been working on penetration in Europe and we're still working on the North America model.

We do believe that there's an opportunity but we know that the role of the store is changing. And so we're evaluating our footprint with – to reflect these consumer changes. But we do think that there's an opportunity for us to pivot to DTC, and it remains an important part of our strategy.

Next question please?.

Got it..

Thank you. Our next question comes from John Kernan with Cowen..

Good morning, Patrice and Jane. Thanks for taking my question..

Good morning. John..

Good morning. John..

Nice job, managing through a difficult environment..

Thank you..

Thank you..

I wanted to take your thoughts on how we should think about the wholesale channel in North America with some of your full-price partners and how they're planning the back half of the calendar year. We've heard orders down in excess of 30%, 40%. Just wondering if the environment ends up being better than what some people have planned to date.

Can people chase into that and can you see better trends than maybe some of the numbers we're hearing from the wholesale community to-date?.

So with our wholesale partners, we are planning conservatively with them and aligned to what they've indicated in terms of their fall holiday demand. So I think that we are focused on our AUR journey, focus on keeping our inventories well controlled and healthy. So we're planning conservatively, but consistent with our wholesale partners planning.

As they move forward, we still see digital as an opportunity for growth there. And we're pursuing that. We were able to cancel about two-thirds of our fall holiday orders, take stock of where we were on an inventory level and then fill in to make sure that we have fulsome assortments for fall holidays that are better aligned to demand.

So we've been working on this as we saw the crisis emerge, but we're fully aligned with where our wholesale partners are indicating and conservatively plan..

And I think on your question, John, relative to our ability to chase, which we spent a lot of time on. So we feel that we're in a good place. We've done a lot of work to increase the responsiveness of our supply chain. We have the digitization that I referred to earlier, has obviously been a key enabler to that.

The other thing that I think really separates us from many of our peers is core is such an important part of our business, right? And we are known for the number of core iconic SKUs. Now the good news is the core SKUs are the easier and faster SKUs to chase into, right? And we've also platformed fabrics.

The team has done a wonderful job platforming the fabrics and various trims and others. So we have the ability on core to go fast. And then finally, and I don't know if you remember when I referred to this, I think it was like two or three quarters ago. We've developed a fast, what we've called the fast track capability internally.

I think I gave you the example of this sweatshirt that we had developed with one of our wholesale partners from idea to shipment, 16 days, right, coming from Asia. And I think at Ralph Lauren, sometimes we're known for more longer lead times and days. Sometimes we've been talked about months rather than days.

This capability we've scaled up since we developed it. So this fast track capability is – will be a fantastic platform for us to react to what we see in the market as we work with our wholesale partners..

That’s helpful..

All right. Well listen, thanks to all of you for joining our call today. On behalf of all of us here at Ralph Lauren, we wish you and your families, the best of health and safety, take good care. And we'll talk to you in a few months, have a great day. Thank you..

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