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Corinna Van der Ghinst; Vice President of International Relations; Ralph Lauren Society
Jane Hamilton Nielsen; CFO & COO; Ralph Lauren Corporation
Patrice Jean-Louis Louvet; President, CEO and Director; Ralph Lauren Society
Brooke Siler Roach; Research Analyst; Goldman Sachs Group, Inc., Research Division
Christopher Michael Nardone; Research analyst; BofA Securities, Research Division
Dana Lauren Telsey; CEO & Chief Research Officer; Telsey Advisory Group LLC
Jay Daniel Sole; Executive Director and Equity Research Analyst of Softlines & Luxury; UBS Investment Bank, Research Division
John David Kernan; MD & Research Analyst; TD Cowen, Research Division
Laurent André Vasilescu; Research Analyst; BNP Paribas Exane, Research Department
Matthew Robert Boss; MD & Senior Analyst; JPMorgan Chase & Co, Research Division
Michael Charles Binetti; Senior Physician; Evercore Inc.
Rakesh Babarbhai Patel; MD and Research Analyst; Raymond James
Operator
Ladies and gentlemen, thank you for being here. Welcome to Ralph Lauren’s fiscal year 2024 third quarter earnings call. (Operator Instructions) As a reminder, this convention is being taped lately. I would now like to relay the convention to our hostess, Mrs. Corinna Van der Ghinst. Please come in.
Corinna Van der Ghinst
Good morning, and thank you for joining Ralph Lauren’s Q3 FY2024 conference call. Today I am joined by Patrice Louvet, president and CEO of the company; and Jane Nielsen, chief financial officer and chief financial officer. After prepared remarks, we will open the call for your questions, and we ask that you limit yourself to one that applies to the caller. On today’s call, our monetary functionality will be discussed on a consistent monetary basis. Our published effects, adding foreign currencies, will be published in this morning’s press release. We will also ensure that forward-looking statements conform to the meaning of the federal securities laws, adding our financial perspective. Forward-looking statements are not promises and our actual effects could differ materially from those expressed or implied by the forward-looking statements. Our expectations involve many dangers and insecurities. The principal dangers and uncertainties that may also cause our results to differ materially from our existing expectations are detailed in our filings with the SEC. To locate disclosures and reconciliations of the non-GAAP measures we use when analyzing our monetary effects, please see this morning’s earnings release and our SEC filings, which may be viewed on our Investor Relations website. With that, I turn the field over to Patrice.
Patrice Jean Louis Louvet
Thank you, Corey. Good morning, everyone, and thank you for joining today’s call. This holiday quarter, our campaigns around the world celebrated a season of giving, marked by warmth, reflection and comfort that inspires people to dream of the best things in life and share them with those they love. Immersing people in our world of easy elegance and sophistication has epitomized Ralph Lauren over 57 years. And we continue to deliver this quarter after quarter to an ever-expanding audience to our next great chapter accelerate plan. This combination of magic and logic translated to strong financial performance in the third quarter, our biggest quarter of the year. With top and bottom line results that exceeded our expectations, along with significant EPS growth. As we continue to navigate a dynamic global operating environment, our teams remain keenly focused on what we can control. This starts with our timeless and highly desirable brand, which is resonating with consumers all around the world and enabling continued pricing power in the market. Our ability to leverage a broad powerful portfolio of core products that we can flex with evolving consumer needs. Our continued deliberate shift toward our direct-to-consumer channels where we can best deliver our elevated and connected consumer experiences and which once again led growth in the quarter. And all of this is underpinned by the agility and operational discipline we have built into our business so that we can continue fueling our strategic growth initiatives for the long term. As we outlined at our last Investor Day, we are strongly encouraged that we have built a sustainable and resilient model with multiple diversified drivers for long-term growth and value creation. Our third quarter performance was a clear example of how we’re driving progress across our three strategic pillars. As a reminder, these include: first, elevate and energize our lifestyle brand; second, drive the core and expand for more; and third, win in key cities with our consumer ecosystem. Let me take you through a few highlights across each of these areas. First, on our efforts to elevate and energize our lifestyle brand. We continue to harness the power of our iconic brand as we expand across geographies and demographics, cutting through culture across fashion, celebrity, sports, gaming and music moments. During the third quarter, key campaigns included: first, our holiday season for dreaming activations in every region generating nearly 8 billion global impressions. These included immersive holiday gifting content, unique key city takeovers across New York, Shanghai, London and Berlin. And our Singles Day stream in China. Second, our Polo Ralph Lauren Artist in Residence campaign featuring Navajo designer, Naiomi Glasses, which is the first in a series of groundbreaking partnerships focused on empowering and celebrating artisans within the communities that have historically inspired our designs. This campaign was not just a galvanizing cultural moment for our organization, but also resonated strongly with consumers, driving more than 3 billion impressions and our highest engagements ever on TikTok. We also outfitted an incredible roster of inspiring women including America Ferrera, Jody Foster, Greta Lee and J. Lo at the Elle Women In Hollywood event. Janelle Monáe and Kate Bock at Art Basel in Miami. And Gauravi Kumari, Princess of Jaipur for a high-profile fundraiser at the dazzling city palace in Jaipur, India. And who could forget Taylor Swift, who chose an all-American Ralph Lauren look for the cover of Time magazine as their 2023 Person of the Year. These activations helped to fuel our strongest quarter of new consumer acquisition and brand affinity since the pandemic. We added 1.7 million new consumers to our DTC businesses, up high single digits to last year, driven by all regions. Our Net Promoter Scores accelerated along with positive momentum in brand consideration and purchase intent. And we grew our followers on social media by low double digits to last year, led by TikTok, Instagram, WeChat and Douyin. Moving next to our second key initiative, drive the core and expand for more. Consumers continue to turn to brands they know and trust and styles that live on beyond one season. And this holiday was no exception. As Ralph and our design teams seamlessly married sophisticated casual with styles exuding the luxury and glamor of the season. Our iconic core products, representing about 70% of our business, grew low double digits in the quarter, ahead of total company growth. From our Mesh Polos and Oxford Shirts, to our luxuriously soft Cashmere Sweaters and versatile blazers, we have established a broad and highly recognizable portfolio of icons that drive our business through both choppy and more stable times alike. And we are incredibly proud of the work Ralph and our creative teams are doing to drive newness and excitement behind these styles, so they appeal to our most loyal and new consumers alike. Performance in core was led by our cable knit sweaters in cotton woolen cashmere, quilted and down jackets and sports coats in the range of tweed, tartan Platt, stretch corduroy and party-ready velvets. As we continue to build on the long-term foundation of our core, we also delivered strong growth in our high-potential categories, including women’s, outerwear and home. Together, these high potential categories increased low double digits to last year. This was led again by women’s, our most significant long-term growth opportunity. Driven by an elevated assortment with AUR up mid-teens. Performance was supported by our cashmere, flag and polo bear sweaters, sophisticated wool and cashmere coats, blazers and heritage tweed and modern knit tools and cocktail and evening dresses. Other special releases this quarter included our Polo Country and Element Skateboards Capsule, a limited edition collection of unisex Polo Country styles and Element Skateboards celebrating the great outdoors. We sold over 2,000 skateboards, highlighting the lifestyle reach of our brand, and appeal to younger consumers. Our limited edition Polo ID handbag collaboration with Mr. Bags in China, which sold out within one minute on WeChat. Our innovative love of the land collaboration with Navajo Designer, Naiomi Glasses; Ralph Lauren’s first artist in residents. And the annual and much loved Ralph Lauren Pink Pony collection supporting Ralph’s 30-year commitment to cancer care and research. Looking ahead, we will continue to drive our core icons while leveraging the breadth of our brand and assortments to fuel excitement, and desirability. Turning to our third key initiative, win in key cities with our consumer ecosystem. Our key city ecosystems around the world drive elevation and deliver consistency through all of our consumer channels and touchpoints. Each of these ecosystems is anchored by direct-to-consumer channels, including our stores and digital commerce sites, which combined already represent about 2/3 of company sales. During the quarter, we drove accelerated comp growth while also expanding our connected ecosystems across key markets. Globally, we opened a total of 17 new stores and concessions focused on our top cities with the majority again in Asia. While comps in our Ralph Lauren stores and own digital sites were strong around the world, we were particularly encouraged by the continued improvement in our outlet trends. The key outlet actions we implemented in the first half of the year from our optimized staffing to assortment enhancements and emphasis on quality and value, served us well through holiday and will continue to be drivers as we look ahead. In addition to our existing fleet, we opened a select number of iconic Ralph Lauren stores in the quarter, including our new emblematic store at Singapore’s Marina Bay Sands, the first door to offer our luxury collections in Southeast Asia. Our first Ralph Lauren store in the Czech Republic, in Prague’s historic old town as well as in Charlotte, North Carolina; and our first Ralph’s coffee shops in Paris and the UAE. We also launched our Ralph Lauren digital flagship site in Canada, following our Toronto store opening last quarter. Combined with our elevated wholesale presence, these are helping us introduce a cohesive connected retail experience to our consumers across the Canadian market. By region, growth was again led by Asia with particularly strong performance in China, where sales increased more than 30% this quarter on both comp and new store growth. This was ahead of our expectations, even with last year’s easier compares due to the surge in COVID cases. We are still in the earlier stages of brand building in China with meaningful outperformance versus peers in the quarter on consumer KPIs, including brand awareness, consideration and Net Promoter Scores. Our team delivered another successful Singles Day focused on brand building with ralphlauren.cn sales up 25% on lower discounting and higher AURs to last year. Our early performance to date on Douyin has also been very encouraging following our limited launch last fall with an expanded rollout this spring. And finally, touching on our enablers. In addition to our strategic priorities, our business continued to be supported by our five key enablers. I’ll share a few highlights from the quarter. As we drive towards best-in-class digital technology and analytics, we tested our sophisticated predictive buying model in our European and Asian stores this quarter. With our initial rollout limited to select sweaters, knit tops and caps, this artificial intelligence-driven model enables better in-stock availability on sizing and best-selling products to drive incremental sales and improve conversion. Based on this early success, we plan to continue scaling its use to an expanded range of categories and markets over time. As we continue to integrate citizenship and sustainability to future-proof our business, we are also proud to be named once again one of Forbes World’s Best Employers in 2023. In closing, Ralph and I are energized by our team’s excellent execution through this important holiday season. This quarter’s performance reinforces how the power of our iconic brand, together with our multi-lever strategy delivers. We are firing on multiple cylinders while not dependent on a single geography channel or category for growth. And this model, combined with our unique agility and the remarkable dedication of our teams is what will continue to differentiate Ralph Lauren through these dynamic times. With that, I’ll hand it over to Jane to discuss our financial results, and I’ll join her at the end to answer your questions.
Jane Hamilton Nielsen
Thank you, Patrice, and good morning, everyone. We entered this holiday season with a clear game plan. We invested in brand momentum around the world, expanded giftable core and seasonal products to delight our consumers and drove key operational improvements and flexibility to mitigate near-term macro headwinds. This quarter’s strong performance was a testament to the agility of our teams and the resilience of our next great chapter accelerate plan, coupled with the power and global reach of our iconic brand. We reported third quarter revenue, adjusted operating profit and double-digit EPS growth above our outlook. And we achieved this while continuing to strengthen our brand proposition around the world and investing in our key strategic priorities to enable sustainable growth into the future. Top line exceeded our guidance, driven by comp acceleration in DTC with momentum in all retail channels globally. Operating margin expansion was also ahead of our outlook despite our strategic investments and ongoing cotton headwinds as we focus on operating with discipline in an evolving global environment. And we returned approximately $425 million to shareholders in the form of dividends and share repurchases this fiscal year-to-date, in line with our long-term guidance. Let me take you through our third quarter financial highlights, which, as a reminder, are provided on a constant currency basis. Our accelerating brand momentum and investments in key holiday campaigns resulted in 5% total revenue growth. This was above our outlook led by strong double-digit growth in Asia and holiday outperformance in Europe. Revenue in North America was approximately flat to last year, in line with our expectations. Each of our DTC channels contributed to top line growth in the period, with total DTC penetration expanding approximately 400 basis points to last year, adding stability and resiliency to our business, consistent with our NGC strategy. Total company comp increased 9%, accelerating sequentially across all three regions. Ralph Lauren stores continued to lead our global performance. Our positive outlet comps continued to improve following investments in service and expanded core product assortments, driving solid traffic AUR and basket size growth in every region. Comps in our owned Ralph Lauren digital sites increased 8% on top of 11% growth last year as we prioritize ongoing investments to expand our footprint and improve the customer experience online. Total digital ecosystem sales were also up high single digits, including a strong recovery in Europe as our largest pure-play account returned to growth. Total company adjusted gross margin expanded 130 basis points to 66.5%, reflecting our long-term elevation work. This was consistent with our outlook, driven by lower freight expense, favorable channel and geographic mix and 9% AUR growth. These more than offset ongoing cotton cost headwinds and targeted promotions to drive conversion during key holiday sale periods. Cotton costs will start to abate at the end of our Q4, beginning with our spring 24 collections. As previously indicated, we are planning a moderation in AUR growth based on a reduced need to pass like-for-like cost inflation onto the consumer. Nevertheless, we plan to continue driving positive AUR increases, as a result of our growing brand desirability, ongoing product mix elevation and favorable geographic and channel mix. Adjusted operating expenses increased 7% to 50.2% of sales a 100 basis point increase to last year. The increase as a percent of sales was driven largely by channel and geographic mix shifts in the quarter. With our DTC and international businesses contributing a significantly higher share of sales in the period versus last year. This quarter’s strategic investments focused on our key city ecosystems, marketing investments and enhancing the consumer experience and service levels across our DTC channels. Variable selling expenses also rose as a result of stronger retail sales growth. Marketing was 7.5% of sales, up slightly from last year to support our high-impact holiday activations, delivering improvement across our consumer metrics, including brand consideration, Net Promoter Scores and purchase intent. We still expect full year marketing at around 7% of sales. Moving on to segment performance, starting with North America. Third quarter revenue was approximately flat to last year, in line with our expectations as stronger growth in retail was offset by our reduced sell-in to the wholesale channel. In North America Retail, third quarter comps increased 5%, led by a double-digit increase in our Ralph Lauren stores. Our outlet performance continued to improve with positive comps driven by our product elevation and our recent interventions to improve the selling experience and retail environments. Despite taking targeted promotions during the key holiday periods, our outlet AUR increased strongly and discount rates declined versus last year. Comps in our owned ralphlauren.com site were up 4% on top of 9% growth last year. In addition to a strong response to our Black Friday event, recent site enhancements such as upgraded search and navigation drove higher conversion in the quarter. We also launched our Canadian digital site in the quarter. In North America Wholesale, revenues decreased 15%, in line with our expectations as we proactively focus on aligning inventory with softer demand trends. We continue to evaluate our brand presence in each store and exited approximately 20 department store doors this year. While we plan to manage this channel carefully into calendar ’24, we were encouraged by our improving sellout trends, which meaningfully outperformed our sell-in this quarter. Our AUR in the channel was also up on a year-over-year basis. Moving on to Europe. Revenue increased 6%, with performance led by our DTC channels. This was above our expectations as strong growth across the continent more than offset continued consumer and macro headwinds in the U.K. Results included roughly 5 points of negative impact from the earlier timing of wholesale deliveries and lapping last year’s favorable post-COVID wholesale allowances. Retail comps increased 11% on top of a strong 11% compare last year with similar performance in our brick-and-mortar and digital sites. We drove strong momentum across brands and categories in Europe, with growth led by gifting, seasonal sweaters and outerwear, which are AUR accretive. Europe wholesale was approximately flat to last year, but included about 11 points of net headwinds from unusual impacts of wholesale allowances and earlier receipts. Strong underlying growth was supported by wholesale reorders, which returned to more normalized trends in the quarter, following recent destocking at digital wholesale accounts. While our Europe business has performed better than expected through the first three quarters of the year, we remain cautious on the fourth quarter and into fiscal ’25, given highly dynamic geopolitical and macro conditions in the region. Turning to Asia. Revenue increased 17%, with double-digit growth across our largest markets of Japan, China and Korea. Asia retail comps were up 14% with strong growth in both digital commerce and brick-and-mortar stores. China sales increased more than 30% on continued brand momentum, including successful Singles Day events as we lapped last year’s COVID impact. Third quarter sales in Japan were up low double digits. Overall inbound tourism recovered to prepandemic levels. Although Chinese travelers to Japan are still down 70%. Sales in Korea also rebounded to low double-digit growth, benefiting from our recent marketing activations and a shift in the timing of the Chuseok holiday from Q2 last year. Moving on to the balance sheet. Our strong balance sheet and cash flows are key enablers of our Fortress foundation and allow us to make strategic growth investments in our business while returning cash to shareholders. We ended the third quarter with $1.9 billion in cash and short-term investments and $1.1 billion in total debt. Net inventory decreased 15%, below our revenue growth trend with units also down double digits. The decline was driven by stronger-than-expected Q3 sales and our continued efforts to ensure healthy wholesale inventories. As we transition into spring, we believe overall inventory levels are well positioned relative to our outlook for each region. We still expect to end fiscal ’24 with healthy inventories below prior year levels with an improved ability to chase into potential demand as a result of our predictive buying model. Looking ahead, our outlook remains based on our best assessment of the current geopolitical backdrop as well as the macroeconomic environment. This includes inflationary pressures and other consumer spending-related headwinds, potential supply chain disruption and foreign currency volatility among others. For fiscal ’24, we still expect constant currency revenues to increase low single digits, now centering on about 2% compared to our previous outlook of 1% to 2%. Our outlook continues to embed caution around the wholesale channel where year-to-date demand has been softer than prior year. Foreign currency is now expected to benefit revenue growth by about 10 basis points. We continue to anticipate operating margin expansion of approximately 30 to 50 basis points in constant currency to 12.3% to 12.5%. Foreign currency is now expected to have a roughly neutral impact on full year operating margin. We now expect gross margin expansion in the range of 140 to 180 basis points in constant currency, up slightly from 120 to 170 basis points previously. This is driven by favorable freight costs, further mix shift toward international and DTC and continued growth in AUR, more than offsetting full year cotton inflation. Gross margin expansion is anticipated to more than offset expense deleverage due to mix shift and key strategic investments. For the fourth quarter, we expect revenues to increase in a range centered around 2% in constant currency, with stronger trends in retail versus continued caution in wholesale in both North America and Europe. Foreign currency is expected to negatively impact revenues by roughly 160 basis points. While we remain cautious on North America, we expect modest sequential improvement in Q4 with stronger trends in DTC offsetting continued softness in wholesale. In Europe, fourth quarter sales are still expected to be negatively impacted by the earlier timing of wholesale shipments. Excluding this impact, we expect underlying trends in Europe to increase slightly in Q4. And in Asia, we anticipate growth will be closer to our full year guide for the region of up, low double digits. As we lap a more normalized compare following the easy COVID compares in Q1 and Q3. We expect fourth quarter operating margin to expand approximately 350 to 400 basis points in constant currency. Largely driven by gross margin expansion with about 40 and 50 basis points of negative foreign currency impact on our operating and gross margin, respectively. We now expect our tax rate to be in the range of 19% to 20% for the full year due to discrete tax benefits recognized in Q3 and roughly 22% to 23% for the fourth quarter. And capital expenditures are now expected in the range of $200 million to $225 million. In closing, Ralph’s vision has always been about inspiring people to step into the dream of a better life. And this holiday quarter was no exception. We are proud of our team’s strong execution on our next great chapter accelerate plan through what continues to be a highly dynamic operating environment. We are focused on what we can control, shifting to DTC, harnessing big data and AI and of course, operating and balance sheet discipline. This puts us in a position of strength as we continue to deliver our commitments and drive long-term value creation. And with that, let’s open up the call for your questions.
Operator
(Operator Instructions) The first comes from JPMorgan’s Matt Boss.
Matthew Robert Boss
Congratulations on a fourth.
Patrice Jean Louis Louvet
Thank you, Matt.
Corinna Van der Ghinst
Thanks, Matt.
Matthew Robert Boss
So Patrice, relative to mixed results across retail, Ralph Lauren clearly stands out as a winner over the holiday period here. What gives you confidence that you can maintain this momentum in a volatile backdrop? And then, Jane, any constraints to achieving the mid-teens constant currency operating margin target as we think about next year? And maybe as we think multiyear, is — do you see this as a ceiling for the business? Or how best to think about longer-term operating margin opportunity?
Patrice Jean-Louis Louvet
Thank you for your question. What I would say is resilience is built into every facet of our approach so we can stay on offense as we pursue sustainable long-term growth. So what gives us confidence? A few things to call out. First, we continue to invest in our brand and our way of living so that we can continue to deliver cut-through cultural moments and drive desirability across regions and demographics. Listen, our focus on high-impact Q2 and Q3 marketing really enabled us to hit the ground running coming into this holiday season. And it helped accelerate consumer metrics, top line outperformance and the continued elevation in what I think we can all say was a pretty promotional environment. The second point is really around our products, right? And our broad portfolio of iconic core products, transcend trends, really focused on style and elegance, not on trends and allow us to flex as consumer needs evolve. The third area regard to our go-to-market model and our DTC channels. In DTC, I think as you know well, now represents about 2/3 of the company. So a majority of the business is DTC for Ralph Lauren. And the DTC channels are really where the world of Ralph Lauren comes to life most powerfully, where we engage most directly with the consumer and have the most ability to impact the consumer experience. And that’s where we’ve invested most. And we delivered healthy comp growth across all of our direct-to-consumer channels this quarter, including our Ralph Lauren stores, our own digital sites and outlets in Asia, in Europe and in North America. So as you’ve seen, our plan is supported by multiple drivers of growth. It’s not based on a single area, but diverse opportunities across categories, across channels, across key cities in every single region. And I think this is really evident from Q3 with double-digit growth, not just in China, up 30% in China. We’re really proud of the team doing that. But also proud of the work our teams are doing in Japan, Korea, Germany, where we grew double digits in this quarter as well. And North America, which saw positive comp results across our DTC channels this quarter as well. Our core product is working. That’s about 70% of the company. Women’s and high potential categories more broadly are also working. So this is underpinned by our agility and operational discipline muscles, which have been built over time. And I think you see them in action during this last quarter. You can see the way we’re managing our inventories. You can see the way our diversified global supply chain is helping us navigate volatility all around the world. And we expect this to continue to serve us really nicely moving forward, knowing that volatility is really our new normal. So, Matt, our model is resilient. It’s differentiated. We’ve created a sustainable approach for long-term growth and value creation in these dynamic times. And I’ll let Jane provide perspective on margin.
Jane HamiltonNielsen
Yes, Matt. Therefore, we remain firmly committed to our operating margin at a constant exchange rate of 15%. We believe this is the right purpose for our businesses. And particularly in response to your question, do I see any limitations? Clearly, we operate in a volatile and dynamic operating environment. We are not immune to this. But what gives me confidence is the agility of our organization to face these changes, manage them well and depend on our multiple drivers of expansion, whether in other geographies, other products or other channels that we manage. As you saw, we handled DTC very well this quarter. And I don’t see 15% as a maximum limit. That is why we know those high-potential categories in women’s bags and plant seeds in homes so that these companies can grow in the long term and provide new engines of expansion and profitability.
Operator
Next question comes from Michael Binetti with Evercore ISI.
Michael Charles Binetti
I guess some tactics. North America, with a drop of more or less 15% in the quarter. I’m glad to see you’re reining it in where you can in the D2C sector. However, when it comes to that number, I think you said that wholesale outlets were way ahead of wholesalers. But it turns out that AURs are expanding in the channel and you still maintain a cautious stance there. Is there a point on the horizon where you see those two numbers starting to converge a little bit, Jane? And also, I suppose, Europe stands out here. I want to make sure I understand that the 11% growth rate would have been five points higher in the quarter following the fourth quarter. But even with that, it looks like a slowdown is being forecast in Europe in the fourth quarter. I know you have been planning this market thoroughly for a long time. It’s great to see you go beyond your advice. But is this maybe a little bit more context on what you think about the underlying rate of expansion in Europe in the fourth quarter and how we deserve to think about this market over 24? Are you seeing relief in wholesale pricing? Maybe a little color please?
Jane Hamilton Nielsen
Of course. Let me start with the first one: your first question about wholesale. Then we saw our sales drop 15% in North America. What is encouraging is that our sales saw a decline of approximately 10% during the quarter. And we had low single-digit increases in AUR. Now Michael, what this highlights is that we were looking to be competitive, we were not aiming to pull back on this channel over the holiday period. We were on target with our sales as we emerged from a milder spring and fall, we were looking to ensure our receipts reflected a more conservative view of seasonal stock, and we were able to refresh them with pieces from a stronger base and replenishment. So when I look ahead, especially in the fourth quarter, I see a greater balance between sales and sales. And I think sales expectations this quarter are a smart indicator of what we’ll see in the fourth quarter. And then in Europe, we were very pleased with what we saw in Europe this quarter. Overall, our activities exceeded our expectations. We achieved strong expansion in all markets, with some weakness in the UK due to inflation and some customer uncertainties. But in reality, we’ve seen continued strong pure-virtual sector strength, as well as smart wholesale strength with DTC trends accelerating. So some of the investments that we talked about particularly in North America also paid off in Europe as we reinvested in in-store service and really saw a marketing boost with our new customers. Regarding the fourth quarter, we remain cautious. It is an environment of inflationary pressure. Obviously, the scenario in the Middle East and the scenario in Ukraine are closer to those in Europe. I see precerts in Europe and Spain with inflation. But I see that over the course of the quarter, what I see in wholesale is that the underlying expansion will be fairly flat. And then we’re going to get, as we mentioned in Europe, with ups and downs and calendar changes, and we expect Europe to perform in the low single digits for the year. Again, I know there is some volatility from quarter to quarter due to calendar changes.
Patrice Jean-Louis Louvet
And maybe I’ll just add one data point on your first perspective, which is on North America wholesale where indeed need to be cautious moving forward. We are encouraged by our digital wholesale performance this past quarter, which was up mid-single digits. So the challenge really is stores, driving traffic in the stores, running conversion in the stores working closely with our wholesale partners to activate this.
Operator
The following is from Jay Sole of UBS.
Jay Daniel Sole
Excellent. SoArray Patrice, just to keep those last comments. Can you just let us know how excited you are about your direct-to-consumer business, especially with store openings, given the comments you made in your opening speech?Can you compare how you feel now to, say, 90 days ago?
Patrice Jean Louis Louvet
Those who are excited, Jay. So if I take a step back, just think about our marketing style, targeting the 30 largest cities in the world, building a DTC-led ecosystem, but integrating quality wholesale. And we know, thanks to our presence, specifically in North America, Europe or China, that we have opportunities to expand our presence in our full-price points of sale. And you may have noticed that we do so at a relatively healthy pace, probably most actively in China, but more recently in Europe and North America. As we think about style going forward, Jay, we’re still going to focus on the 30 most sensible cities, build that ecosystem, and take advantage of DTC. As I mentioned earlier, DTC represents about 2/3 of the business. We expect this percentage to increase over time. Because that’s where we have the opportunity to better interact with the customer and give them a complete and raw foreign experience. That said, quality wholesale will continue to play an important role in the future. We committed to opening several retail outlets on Investor Day and remain committed to that goal. But this year there are around 80 points of sale.
Jane Hamilton Nielsen
And we’re still on track for about 250 new doors over the 3-year time horizon.
Operator
The next one comes from Brooke Roach of Goldman Sachs.
Brooke Siler Roach
Healthy improvement in the outlet channel again this quarter. And I know a lot of ground has been covered on DTC, but I was hoping you could elaborate on the changes that are working best there and your plans for further actions to drive continued accelerated improvement from here in outlet in both North America and Europe.
Jane Hamilton Nielsen
Yes. Brooke, we were very pleased with what we saw on the outlet channel. And what we’re seeing is that the investments we’ve made in our logos are paying off across all of our channels. But it is precisely in the sales channels where we have noticed a strong and solid expansion of traffic in all three regions. In addition, some of the highly targeted promotional activities we carried out during the peak holiday sales season worked very effectively, specifically in the point-of-sale channel. And we can do this while expanding AUR in all 3 regions. We also see a role for the investments we’ve made in the service. Therefore, we have improved our service in our stores, and as a result, we are seeing a conversion. Clearly, investments in logos and services are sustainable equipment over time. And as we said, we’re going to be driven by our consumers in our elevation adventure and we’re going to be very specific in addressing some of our value-driven consumers over time.
Operator
Next question comes from Laurent Vasilescu with BNP Paribas.
Laurent André Vasilescu
Jane, I think you mentioned that for the fourth quarter, the operating margin on a constant monetary basis will increase from 350 to 400, largely driven by gross margins. If I don’t forget correctly, Jane, commodities, commodities The tipping point in our tailwind doesn’t come until the last month of the quarter. So I’m curious how: what are the drivers of this gross margin for the fourth quarter?And then, if I may, in total probability of quantifying to the public the extent to which cotton has been a barrier in recent years. Is it fair to assume that this is a cumulative figure of around three hundred basis points?And if that’s the case, what can we think about it?Does it become a tailwind?
Jane Hamilton Nielsen
Laurent, thank you for the question. Then you’re right. We target between 350 and 400 core issues largely based on our gross margin equivalent guidance, so it’s dependent on gross margin. SG
Operator
Next question comes from Chris Nardone with Bank of America.
Christophe Michael Nardone
I just wanted to know how to think about the impact on your operating margin next year in a situation where wholesale is starting to improve globally. And then I heard you reiterate loudly and transparently the 15% target at a consistent exchange rate for operating margins next year, but can you give us an update on where we are in your charge-saving program?prices you defined in your investor day and your ability to achieve them. Leverage if selling and macroeconomic volatility persist this year?
Jane Hamilton Nielsen
So, Chris, what we’re seeing in talking about a more balanced balance between sales and sales next year, we think it’s going to be a favorable boost in terms of OI margin expansion, and we can associate that with momentum. that we’re seeing in our DTC chain, so we see that as positive. While we generally remain cautious about the channel heading into FY25, we don’t expect to see the decline in point-of-sale that you’ve seen, i. e. , in North America this quarter. And then, with our $400 million gross savings plan, we’re well on our way to achieving that plan. We delivered about one-third of them in FY23. We will deliver one-third more in FY24. The difference between 23 and 24 is that our goods sold load line is a bit more balanced compared to the SG line
Operator
Next up comes from John Kernan of TD Cowen.
John David Kernan
Congrats on the results, the 9% comps and another strong quarter. Just, Patrice, you talked about women’s, home, accessories, handbags, in particular, as incremental growth categories. Can you remind us where we are as a percent of the mix with some of those categories and how those have trended since you put out the targets for the next great chapter plan in 2022?
Patrice Jean Louis Louvet
John, we haven’t guided specifically in terms of the relative percentages. We did say that the women’s opportunity was quite meaningful. 56% of our customers walking into our stores or shopping into — on our website are women and yet women’s has represented less than 25% of the company’s business. So you can expect that percentage to go up, but we haven’t guided specific breakouts. We do have a lot of confidence in the potential of these categories. We’re really pleased with the customer response across our women’s portfolio. Women’s really led the dance this quarter again and really resonating nicely. Outerwear is also a category that we’re leaning in. You’ve heard others say, the season was challenging and certainly, the temperatures were maybe a little milder than anyone would have liked. But outerwear outperformed for us again this quarter, teams doing a great job developing a line of products across different outerwear categories that’s really resonating. And as we look ahead, we still see a lot of runway, particularly on women’s outerwear. Moving forward, strong performance with our handbag business. We launched the RL 888, which was hard to miss in a number of our key cities around the world, very nice response to that with continued momentum on the Polo ID bag and the little partnership — or not little, but the partnership we had with Mr. Bags in China. And also good progress on home with new capability building as we bring in our new part — the licensing partner on furnishing. All in all, all these categories are AUR accretive. So if you think about the different categories I laid out, when you look ahead in terms of what’s going to be accelerators for the company, both in absolute top line and from an AUR and margin standpoint, we look forward to continuing to build on the momentum that we have in these spaces.
Operator
Your next question comes from Dana Telsey with Telsey Advisory Group.
Dana Lauren Telsey
And it’s great to see the clever effects. Just when you think about your expansion channels and, evidently, DTC is much bigger than wholesale, or the allure of wholesale trade, the most powerful effects you saw in Europe this quarter with the replenishment of trends. Is there anything we’re thinking about wholesale and replenishment trends in Europe and what that could mean for North America?Is there anything to look at in North America? And finally, on the virtual side of the business, what do you see in terms of combination, whether it’s the expansion of AUR?Is this a new visitor activation? Is it more about existing consumers and how do you see that expansion as a percentage of sales?
Jane HamiltonNielsen
So in terms of what we’ve noticed in Europe in the wholesale sector, we’re very pleased with what we’ve noticed across the wholesale sector, specifically if we take a look at the underlying expansion in Europe, where it’s been even stronger. I think as we go back, the differentiator in Europe is that the wholesale channel itself is higher. And our client Ralph Lauren is taller too. And that doesn’t mean we don’t have learnings that can be implemented in North America. I think when we look at the mix of collecting and marketing opportunities with our wholesale partners, Europe has demonstrated smart practices and there is an opportunity for cross-interaction. pollination of those themes. But those are the main differences in what we’re seeing in terms of performance.
Patrice Jean-Louis Louvet
And then, Dana, on the digital front, let’s start with North America. So North America comps were up 4% digital. It was really driven by traffic, all right? That was the key traffic. We saw improvements on conversion basket size. What’s really exciting in the new consumers that we are recruiting, and I mentioned in my prepared remarks, we’re up 1.7 million new consumers this last quarter is the momentum we have on brand is attracting higher value younger consumers, and we’re seeing that play out very clearly in digital. If I look at the other regions, we were super pleased with the performance in Europe with digital at 12%. This was also driven by very strong traffic during the holiday events and new capabilities that the teams have put in place there. And then finally, Asia, which is a smaller base and newer flagships also a very strong momentum, up 25% versus plus 21% last compare. And I think same thing new consumers, higher-value consumers, younger consumers, progress on conversion. And listen, as we look at this channel for the future, we still see significant runway, right? This business is a little less than 30% of our total company. We had guided to continued acceleration within this channel. As we build new capabilities, we just launched a new search engine in the U.S. also we mapped our product presentations, we expect to see continued progress in this space. So we feel good about the results that the teams are achieving across all three regions with more to come.
Operator
Our latest comes from Rick Patel with Raymond James.
Rakesh Babarbhai Patel
I would also like to upload my congratulations. How can we see the effect of outperformance as we move forward? Over the course of the year, it turns out that it has increased its gross margin forecasts, but less so its operating margin forecasts. So, are you curious about which spaces could simply benefit from the extra spending here? And secondly, zooming out, where will you look to distort investments as we ponder whether to continue this strong momentum?
Jane HamiltonNielsen
So, Rick, I think when we look at the implications of outperformance, it’s really going to be about the cadence of our investments and proceeding to stay focused on our productivity metrics. When you look at the flows, especially on the gross margin line, DTC, while we’ve been able to, as far as wholesale smoothness goes, lean on DTC, which is a smart thing, it’s our strategy. The gross margin will have to cover some of this higher G&A point. We were able, I think, with genuine agility, to balance that. And of course, as we look forward, we will see the balance between outperformance and investment in our business. As we consider where to invest in our business, we are very encouraged by the investments we have made in digital. You know this is a vital component of our future and we will continue to make those investments, while developing our ecosystem. As I said before, we are on track to deliver 250 new retail outlets over a 3-year horizon. We believe that points of sale play a vital role in the presentation of our logo and the visitor service experience. So you will see us continue down this path. And finally, our logo. One of the things we are most proud of this quarter is the momentum of our logo and the underlying fit with our consumers. Our NPS score was higher, our purchase intent score was higher, our price belief score was higher. That’s why we believe in our logo, we will invest in it and we believe it will pay dividends not only in the short term but also in the long term.
Patrice Jean-Louis Louvet
All right. Well, this is the end of our call. So thank you, everyone, for joining us today. We look forward to sharing our fourth quarter and year-end results with you in May. And until then, take care, and have a great day.
Operator
Ladies and gentlemen, that concludes your lecture today. Thank you for your participation. You can now log out.