Earnings Call Transcript - RL Q1 2023

Operator, Operator

Thank you all for being here. Welcome to the Ralph Lauren First Quarter Fiscal Year 2023 Earnings Call. This call is being recorded. I will now hand it over to our host, Ms. Corinna Van Ghinst. Please proceed.

Corinna Van Ghinst, Host

Good morning, and thank you for joining Ralph Lauren's First Quarter Fiscal 2023 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 with that, I'll turn the call over to Patrice.

Patrice Louvet, CEO

Thank you, Cory. Good morning, everyone, and thank you for joining today's call. Our strong first quarter performance underscores the resilience and momentum of our business around the world. This follows our significant multiyear reset to transform our consumer base, product portfolio and distribution. These results also validate the strong confidence that Ralph and I have in our teams who are consistently executing with incredible dedication and agility through what continues to be uncertain times. We exceeded our expectations again on both the top and bottom line with broad-based strength across all three regions despite macro headwinds from COVID and inflationary pressures in the quarter. Our teams are driving increasing desirability for our brands and products enabling high-quality consumer recruitment as well as retention. Our proven ability to drive a strong value proposition for our consumer, which has strengthened over the last four years of our strategic plan is an important advantage for Ralph Lauren, especially through times of macro uncertainty. We are obviously highly attentive to the volatility highlighted recently by our retail peers across the price spectrum. And while we are not immune to broader macro headwinds, we remain focused on what we can control. We have many areas of strength that include a powerful, differentiated brand that we continue to invest in, a strong core business that is resilient through challenging cycles, a more flexible expense structure, a diversified global supply chain with proven agility and discipline in our inventory management and a robust balance sheet, which enables us to make the right decisions for the long-term health of our business. And while we continue to adapt to shifting macro developments, this strong foundation gives us confidence as we drive our business across multiple engines of long-term growth. These include: first, continuing to drive brand heat and desirability; second, leveraging our luxury halo and unique multi-category lifestyle proposition, where we can dial certain product categories up or down as consumer needs evolve; and third, rolling out our ecosystem strategy led by digital. We are balancing these priorities with our ongoing focus on productivity, an important driver to fuel our top and bottom line growth and spanning everything we do is our commitment to deliver positive impact in the world across citizenship and sustainability. Our first quarter performance was a strong example of our progress across each of these areas. Let me take you through a few of our first quarter highlights across the strategic pillars of our Next Great Chapter plan. First, on our efforts to win over a new generation. In the current operating environment, we remain focused on investing in our brand to deliver a clear, differentiated message to our target consumers. Our multifaceted marketing strategy is focused on leveraging our core brand values to connect authentically with consumers, strengthening existing relationships and recruiting new and younger high-value consumers around the world. This was particularly evident in the first quarter where we continue to focus our investments on driving brand desirability across a diverse range of activities. First, we kicked off the 50th anniversary celebration of our iconic Polo shirt this spring with a 360-degree campaign and book launch across our stores, social media and celebrity moments, which we amplified globally. While our business is so much more than a Polo shirt, this icon is a testament to the unique emotional connection consumers have with our brand across ages, genders and geographies. You may have seen our dynamic billboards in the heart of Seoul, Paris, London and Los Angeles. We also launched a limited edition vintage Polo collection in stores and our latest sustainable Earth Polo. We invited our fans throughout the world to share touching personal stories about their memories with the Polo shirt on social media. As consumers increasingly value brands that are timeless and authentic, we continue to weave Ralph Lauren into the fabric of modern culture around the world. Similarly, we celebrated the optimism and perseverance of sport through our 17th annual sponsorship of the Wimbledon Championships. Inspired by our timeless spectator style, this year's new uniforms combine the heritage of our brand with modern silhouettes and fabrications, including the use of recycled materials. And we continue to capture key brand moments that resonate with fashion lovers around the world, including our Gilded Glamour dressing at this year's Met Gala. Friends of the brand like Alicia Keys and her showstopping to the New York City skyline with Ryan Reynolds and Jay Balvin channeling old Hollywood and the always daring were all featured in our brand. These activations attracted younger full-price consumers to our business driving another quarter of strong top line growth. New consumers on our digital sites grew nearly 70% to pre-pandemic levels. And our online search trends grew high teens to last year in Q1, led by our Polo shirt and spring luxury campaigns, significantly outperforming our peers globally. Touching on our second key initiative, energize core products and accelerate high potential underdeveloped categories. Ralph and our design teams continue to deliver the products consumers are craving in this moment, with broad-based strength across our range of luxury lifestyle categories. People are coming together again with a renewed appetite for style from a fresh approach to wear-to-work, to weddings and other social gatherings, our brand is uniquely positioned to capture this mix of sophisticated and casual dressing. Product highlights this quarter included our global Polo shirt campaign, which drove strong performance across a range of styles from our core mesh to our seasonal prints and novelty offerings. This strong trend was reinforced by the introduction of our Upcycled Polo Shirts, celebrating the timeless quality and consumers' emotional connection to this iconic style. Our Cobble Hill collection for Polo mens, which celebrates our sophisticated sportswear in the modern wardrobe. And our Athletic Club collection, bringing classic tennis and golf inspired styling to the next-generation was a standout for the season. With strong sales in lightweight sporting windbreakers, rugby shirts and fleece in classic combinations of white and dark green. From our clean summer whites to our colorful Classics, Ralph Lauren embodied the exuberance of a return to head-to-toe dressing at its best. Shifting gears to our third key initiative, drive targeted expansion in our regions and channels. We continued our long-term strategy of investing in our key city ecosystems around the world in the first quarter, with a focus on elevating our touch points with the consumer across every channel. During the quarter, we opened more than 60 new stores and concessions in top cities globally. Nearly all of our store openings were in Asia and notably the Chinese mainland, where our brand momentum and opportunities remain strong despite transitory COVID lockdowns. Following our first two emblematic store openings last year in Beijing and Shanghai, we opened a third emblematic concept in Chengdu, another key city cluster, which also included our first restaurant and bar in China, reinforcing our lifestyle offering in the market. And while roughly 50% of our China stores were negatively impacted by COVID closures in the quarter, driving Mainland sales down 10% to last year in constant currency, we continue to reinforce our elevated brand positioning in the market. Our festival performance outpaced our closest peers by double digits, while we also increased our penetration of full-price sales. We remain confident in our long-term growth trajectory in China with strong brand momentum and an encouraging recovery in performance as COVID-related store restrictions were lifted in late June as expected. We continue to watch our key markets carefully, including the ongoing impact of COVID variants. Moving to our priority of leading with digital. We have made significant progress over the last four years in repositioning our digital business, putting it on the path of strong margin-accretive growth that is outpacing total company growth. This progress is underscored by our recent ranking in the for 2022, where we were proud to rank number two among 75 global luxury retailers, up from number five last year. First quarter sales for our total Ralph Lauren digital ecosystem, including our directly operated sites, departmentstore.com, pure players and social commerce, grew mid-single digits in constant currency. This was on top of an exceptionally strong compare of more than 80% last year and about 85% growth in first quarter of fiscal '21. Within our own Ralph Lauren digital sites, sales grew high single digits in the first quarter. We continue to drive strong full price selling as we deliver the right mix of products and invest in AI-powered targeting and high-quality new consumer acquisition. We also launched new localized digital commerce sites to support our ecosystem expansion globally. This includes the 21 sites launched in Europe in fiscal '22 and new sites added in the first quarter in India and Israel. Our Asia digital ecosystem once again drove the fastest growth globally, over a smaller base, up more than 60% in constant currency to last year. This was led by triple-digit growth in Korea and 40% growth in China, where our digital businesses outperformed peers and the broader market despite disrupted supply chains in Shanghai and shipment restrictions on non-essential goods. We were also encouraged by early performance in our Australia digital flagship, which we launched at the end of Q4. Moving to our work to operate with discipline to fuel growth. Our teams have operated with incredible agility to mitigate emerging macro challenges, delivering operating margins ahead of our expectations in the first quarter despite increased cost headwinds. In June, we published our timeless by design, global citizenship and sustainability report, outlining our commitments to address our impact. I encourage you all to download the report from our website, let me highlight a couple of exciting initiatives. First, we officially announced our first cradle-to-cradle certified product with our iconic luxury cashmere sweater launching later this fiscal year with more C2C products to come. And we're kicking off our Live On Promise to enable our past and future products to live on responsibly by 2030. In addition, we were proud to recently be named one of the Best Companies for Women to advance for the third year in a row as we further our diversity, equity and inclusion efforts. In closing, our company has weathered a variety of macro environments over the last 55 years, not to mention the last three, with our organization emerging stronger and more agile than ever before. Ralph and I are incredibly proud of the passion and execution our teams have demonstrated throughout all while staying true to the values that have made this brand revered and emotionally connected since its inception. And I am confident that the healthy foundations we've put into place along with our multiple engines of growth will enable us to continue driving toward our commitments of long-term value creation. As always, we remain keenly focused on what we can control and are executing on our long-term strategic initiatives while continuing to navigate an uncertain global environment. We look forward to sharing more with you at our Investor Day next month. And before I turn it over to Jane, I'd like to welcome Deb Cupp, who joined our Board of Directors last week, currently the President of Microsoft North America, she will bring important perspective to our digital acceleration and more. Ralph and I would also like to thank Parting Director, who has served on our Board since 2001, and for many years of leadership and dedication to the company. With that, I'll hand it to Jane to discuss our financial results, and I'll join her at the end to answer your questions.

Jane Nielsen, CFO

Thank you, Patrice, and good morning, everyone. Our first quarter results demonstrate the broad-based strength of our strategic plan, the durability of our business model and the execution excellence of our teams in the face of challenges and disruptions around the world. Our pivot to offense showed in our top line growth with Q1 revenues up 8% on a reported basis and 13% in constant currency, above pre-pandemic levels and more than 500 basis points above our outlook. This was supported by positive growth across all three regions, despite lapping our final quarter of major distribution resets and COVID-related shutdowns in China. Operating profit dollars also grew versus pre-pandemic levels with continued operating expense discipline helping to mitigate transitory cost pressures. And we achieved all of this while continuing to drive important investments in marketing, digital, new stores and people. We believe our elevated brand, focused strategy and targeted investments when combined with our culture of operating discipline and fortress balance sheet gives us a position of strength to continue to drive long-term value creation through uncertain times. Let me take you through our first quarter financial highlights. Total company revenues, up 13% in constant currency, significantly outperformed our outlook. Results included roughly 4 points of negative impact from our divestiture of Club Monaco and licensing of our North American Chaps brand last year, implying even stronger underlying growth. Ralph Lauren digital ecosystem sales grew mid-single digits in constant currency on top of more than 80% growth last year. Our owned Ralph Lauren digital sites grew high single digits on top of last year's 49% compare, reflecting our compelling product assortments, new consumer acquisition and user-friendly connected retail capabilities. Digital margins remain strongly accretive to our profitability in the quarter. Total company adjusted gross margin was 68%, down 180 basis points to last year on a reported basis and 80 basis points in constant currency. First quarter AUR was up 8% on top of 18% growth last year. Solid AUR momentum was more than offset by higher-than-anticipated freight spend, which helps support our strong spring on-time delivery rates and full-price selling to deliver revenue outperformance in the quarter. Compared to fiscal '20 pre-pandemic levels, gross margin was 350 basis points higher in the first quarter. We continue to expect freight raw materials and labor costs to pressure gross margins this year, particularly through Q2 until we start to lap higher cost increases in the second half of the year. We plan to leverage our multipronged elevation strategy to continue driving AUR in order to mitigate mid- to high single-digit product cost inflation this year. Adjusted operating margin was 12.7%, down 410 basis points on a reported basis and 270 basis points in constant currency as we normalize spending versus unusually low levels last year due to COVID. This was ahead of our outlook driven by strong operating expense discipline and productivity initiatives. Adjusted operating expenses increased 13% to 55.2% of sales, including marketing expense growth of about 40% over last year's lower spend. Marketing was 7% of sales at the high end of our guidance of 6% to 7% for the full year. While we have built increased flexibility across our operating expense structure, we remain committed to investing in our brand, which is driving both near-term top line momentum and share gains as well as longer-term brand equity. Moving to segment performance, starting with North America. The region's improved trajectory continues with first quarter revenues up 6%. These results included about 3 points of headwind from our licensing of Chaps, implying even stronger underlying growth. Q1 represents the final quarter of meaningful headwinds from our North America strategic resets. In North America Retail, comps increased 5% to last year, led by double-digit growth in our full-price stores. Performance was driven by improved traffic, larger basket sizes and 12% AUR growth on top of 39% last year, reflecting our ongoing elevation around product mix, marketing and more targeted pricing and promotions. Foreign tourist sales continued to show sequential improvement, but we're still below pre-pandemic levels. Our premium position helped our outlet channel deliver positive comp growth in the quarter. However, growth was more modest than in our full-price business. We attribute this partially to higher cost pressures and weaker consumer sentiment among value-oriented shoppers across the marketplace. We are rolling out a number of interventions. These include leveraging our AI-driven targeted communications, accelerating new ways of selling to support conversion, expediting shipments of core products that are selling well and more. We will continue to watch this channel carefully given ongoing macro headwinds and have embedded increased caution in our current fiscal '23 outlook. Comps in our owned RalphLauren.com site grew 2% on top of a strong 51% compared last year, supported by solid demand for our products and ability to retain newly acquired consumers. In North America Wholesale, revenues increased 5% to last year, significantly above our expectations. Results included about 8 points of negative impact from licensing Chaps. This outperformance was driven by our full-price wholesale business, reflecting our improved brand positioning in the channel. Sellout grew mid-teens to last year on better-than-expected spring fill rates and enhanced marketing. Our AUR at wholesale also grew double digits to last year as we further elevated product, pull back promotions and increased targeted communications. We are winning with the consumer with continued market share gains in men's, women's and kids in our key partners. Inventory growth was also broadly aligned with sellout. While we are watching macro developments carefully, we continue to be strongly encouraged by our healthy foundation and broad-based momentum across North America, setting the path for long-term growth. Moving on to Europe. First quarter revenues increased 17% on a reported basis and 28% in constant currency. Retail comps increased 34%, brick-and-mortar store comps grew 45% to last year when approximately 15% of our stores were closed, along with further heavy restrictions from the Delta variant. Digital commerce comps grew 7% on top of a 98% compare last year, when widespread COVID closures shifted a disproportionate share of business online. Europe wholesale exceeded our expectations again this quarter, up 8% on a reported basis and 20% in constant currency, driven by stronger fall bookings and fill rates, reorder trends and sustained growth with our digital pure plays. Turning to Asia. Revenues increased 16% on a reported basis and 26% in constant currency. Asia retail comps grew 19% on top of a 43% compare last year, with digital commerce increasing 37% and brick-and-mortar stores up 17%. We maintained strong momentum across our total digital ecosystem in the region with more than 60% growth this quarter. This was supported by double-digit increases across our owned sites and wholesale digital businesses. By market, first quarter sales in Japan improved sequentially to 32% in constant currency following last quarter's Omicron restrictions. This represents a double-digit increase to pre-pandemic levels in fiscal '20. Strong momentum also continued in Korea, where sales grew 30% in the quarter. And both Australia, New Zealand and Southeast Asia grew double and triple digits in the period, respectively. Our broad-based performance helped to offset strict COVID lockdowns in the Chinese Mainland this quarter, where total sales declined 10% in constant currency due to store closures. Based on our strong return to positive sales growth from late June onward, we remain optimistic about the resilience of the Chinese consumer and our continued brand momentum in the market. And while we continue to manage through COVID disruptions, including recent lockdowns in Macau and Hong Kong, our teams are driving offense across our other key markets to deliver strong double-digit growth. Moving on to the balance sheet. Our balance sheet continues to be a source of strength, enabling us to balance strategic investments in our brand and business with returning cash to shareholders even through dynamic times. During the first quarter, we returned approximately $260 million to shareholders in the form of our dividend and share repurchases. We also paid down $500 million in debt that matured in June to end the quarter with $1.8 billion in cash and short-term investments and $1.1 billion in total debt. This compared to $3 billion in cash and short-term investments and $1.6 billion in total debt last year. Net inventory increased 47%. Similar to the previous quarter, this growth is to support strong demand for our brand and products, a deliberate increase in goods in transit as we take inventory earlier to help mitigate supply chain delays, particularly in wholesale. Increased product costs, including freight and cotton, which we will start to lap in the second half of fiscal '23 and continued elevation of our product mix. Based on these trends, we expect inventory to remain at similar levels through holiday, becoming more closely aligned to sales by the end of the fiscal year. We are managing inventory very carefully in this dynamic environment. In order to satisfy robust consumer demand, while maintaining our long-term quality of sales trajectory. This includes leveraging our strong core and replenishment business, which has greater supply chain visibility and shorter lead times to effectively flex up or down as needed with demand as we did most recently through the pandemic. Looking ahead, our outlook is based on the evolving macro environment, including inflationary pressures, disruptions in the global supply chain, COVID-19, foreign currency volatility and the war in Ukraine. We continue to plan across a range of scenarios, and this guidance represents our best assessment of market conditions and resulting consumer impact. For fiscal '23, we are maintaining our full year outlook in constant currency with revenues expected to increase high single digits, centering on 8% on a 52-week comparable basis. Based on unfavorable spot rates, however, foreign currency is expected to negatively impact revenue growth by approximately 600 basis points. As a reminder, we still expect fiscal '23 growth to also be negatively impacted by about 100 basis points due to the absence of last year's 53rd week. In addition to the factors we outlined last quarter, including FX, softer consumer sentiment in Europe and Q1 China COVID lockdowns, our updated full year outlook also incorporates increased caution around our value-oriented consumers in North America, notably the potential for softer traffic and conversion rates through the end of the year. That said, we are reiterating our full year revenue outlook based on our strong Q1 outperformance and diversified engines of growth. We still expect operating margin in the range of 14% to 14.5% in constant currency. Foreign currency is now expected to negatively impact operating margin by approximately 180 basis points. This compares to operating margin of 13.1% on a 52-week basis and 13.4% on a 53-week basis last year, both on a reported basis. Gross margin is still expected to increase 30 to 50 basis points on a constant currency 52-week basis. We plan to continue driving stronger AUR and favorable product mix more than offsetting increased freight and material costs. Foreign currency is expected to negatively impact gross margins by about 150 basis points in fiscal '23. We still expect gross margin contraction in the first half of the year due to increased freight pressures to meet demand. This is followed by gross margin expansion in the second half of the year as we start to lap the significant input cost increases. For the second quarter, we expect constant currency revenue growth in a range centering on 11%. Foreign currency is expected to negatively impact revenue growth by approximately 750 basis points. We expect second quarter operating margin in the range of 15.4% to 15.7% in constant currency, reflecting increased headwinds from higher freight and marketing expense, which are expected to normalize in the second half of the year. Foreign currency is expected to negatively impact operating margins by about 240 basis points in the quarter. Second quarter gross margin is expected to contract about 40 to 80 basis points in constant currency with further AUR growth more than offset by increased freight and product costs. Foreign currency is expected to negatively impact gross margins by about 190 basis points in the quarter. We still expect our tax rate in the range of 25% to 26% for the full year and also for the second quarter. We continue to expect CapEx of about $290 million to $310 million. In closing, we delivered another strong quarter inspired by Ralph's creative vision, coupled with the agility, dedication and relentless execution of our teams, all while continuing to navigate a volatile, global operating environment. While staying grounded in the macro developments, we remain confident in our multiple engines of growth. We are laser-focused on what we can control: strengthening our consumer base; enhancing the desirability of our timeless brand; and maintaining operating discipline across our business. And with that, let's open up the call for your questions.

Operator, Operator

The first question comes from Jay Sole with UBS Securities.

Jay Sole, Analyst

Great. My question is the global operating environment appears to be getting more challenging from inflation and weak consumer sentiment, just to a more intense promotional stance of some of your peers. So what gives you confidence that you are better positioned versus your peers to continue driving offense and deliver growth in this kind of environment and particularly in Europe?

Patrice Louvet, CEO

Well, thank you for your question. Yes, it has been a more challenging operating environment. And as you heard us talk about in the prepared remarks, we do expect more choppiness ahead given the various macro signals. But we still have strong confidence in our game plan and our ability to navigate and execute successfully through this choppiness. As you know well, we've been repositioning this company for the past four years to establish a very strong, broad foundation with multiple engines of growth ahead. And I will highlight four clear sustainable advantages. The first one is an iconic lifestyle brand. With consumer metrics like desirability that are improving in every market, as you know, we track our brand perception in our top seven markets monthly and we continue to see strengthening across the board. And we have millions of consumers joining our brand every year. This past quarter, we had 1.3 million consumers join us on top of over 5 million last year. The second element is the unique breadth of our product offering. We're really the only brand that can credibly offer categories from sneakers to tuxedos, which means we have the ability to dial up and dial down specific elements based on consumer demand and desire. The third is a clear and regionally balanced go-to-market strategy so that even if one region is adversely affected, we're diversified across market and can offset in other parts of the world. And I think we've also proven our ability to rebound quickly as recently demonstrated again in China where you saw that we were able to deliver strong performance given half of our stores were closed for the majority of the quarter. And the fourth area I would call out is a diversified and agile supply chain. There's been work that's been going on for the five-plus years to really establish that. And that has proven to be both a huge asset and a major competitive advantage for us as we navigate this challenging world. And supporting all of this work, we have an organization that is engaged, that has fully embraced operational discipline, as you've seen with our continued margin expansion versus pre-pandemic levels. So net-net, I would say we're staying in touch, of course, with what's happening. And while we're not immune to macro pressures, we are staying focused on the medium and long-term direction for the company. If I had to sum up where our current position is in three words, I would say offense, agility and pragmatic. Offense, to maintain and fuel our momentum. Agility, as we face a continually volatile operating environment and pragmatic and choiceful about where we use our resources to ensure we continue to build our brand and our market position for the long term.

Corinna Van Ghinst, Host

Thank you. Next question, please.

Operator, Operator

The next question comes from Michael Binetti with Credit Suisse.

Michael Binetti, Analyst

I have a question about guidance for the year, focusing on both the top line and the bottom line in light of currency fluctuations. Can you explain how you have managed to maintain your guidance for both? Additionally, Jane, it seems you might be preparing for a more challenging trend in the North America outlets. Could you share what the outlook for August looks like in direct-to-consumer and what might be driving your concerns? Are you currently observing a slowdown, or is this something you are merely anticipating?

Jane Nielsen, CFO

Thank you, Michael. We were satisfied with our performance this quarter, which has helped us maintain our full-year constant currency guidance despite a lot of macroeconomic uncertainty. As expected, we are actively planning for various consumer scenarios. I'd like to share some insights on our fiscal '23 guidance. First, on the revenue front, our strong international performance provided us with flexibility for the full year, especially since both Europe and Asia performed better than we anticipated back in May. Although China was largely closed in Q1, this was balanced out by strong performances in countries like Korea, Japan, and Australia, which we were very pleased with. Europe also performed well despite known political and consumer challenges, and we approached the year with caution. While North America shows healthy mid-single-digit growth, we are being more cautious regarding value-oriented consumers due to inflationary pressures and weaker consumer sentiment. We are aware of the macro issues affecting consumers and wanted to incorporate that into our overall guidance. This reflects our diversified growth strategies and gives us confidence in maintaining our approach despite the uncertain environment. We are managing cost inflation, which we have discussed in previous quarters, but there are signs of relief on the horizon, though I don't expect them to impact fiscal '23. We have effective pricing strategies, have restructured many cost areas, and are focused on return on investment, which makes us feel balanced regarding our margin guidance. Regarding the value-oriented consumer, we are monitoring macro developments closely. Q1 was solid, and as you saw, our factory had positive comparisons, with outperformance in full-price stores where the consumer remained strong. This disparity has been observed over the last five quarters. Given this situation, we decided to take a more cautious stance for the second half, especially regarding that consumer segment. Overall, we feel confident about our position and maintaining our full-year guidance, and we believe we have mitigated risks for the latter half with some caution around value consumers.

Operator, Operator

The next question comes from Matthew Boss with JPMorgan.

Matthew Boss, Analyst

So Patrice, on the multiyear foundational initiatives that you walked through and that you've put in place, when do you believe you saw the inflection in the organization that for this year supports your reiterated 8% constant currency top line forecast, and that's despite the dynamic macro backdrop? But then also, how do you see these initiatives as accretive multiyear if we're thinking about your sustainable top line plan, which I think in the past was cemented in the low to mid-single digits?

Patrice Louvet, CEO

Thank you for your question. Let's break it down by region. Our business has experienced significant growth in the APAC region over the years, where many of our concepts have originated before expanding to other areas. We brought this strategy to Europe around 18 to 24 months ago, and it has proven beneficial, as highlighted by our strong performance in Europe last quarter despite a volatile market. In North America, we needed to reset our operations to establish a healthier foundation, which involved targeting a younger, more upscale consumer, enhancing our product offerings, and transforming our go-to-market approach, including our wholesale distribution and digital operations. Most of these changes are now in place. As we start this fiscal year, we are managing some legacy elements, but the organization is focused on executing our strategy across all regions. We expect these foundational elements to remain effective for many years. Our brand continues to strengthen every quarter, with positive feedback from consumers reflected in our monthly tracking. We're seeing improvements in brand awareness, consideration, and Net Promoter Score, particularly in North America due to our marketing efforts. Our product portfolio is robust, especially our core products, which are vital during unstable times, alongside high-growth categories showing strong momentum. I anticipate this trend to continue, particularly in women's wear and outerwear. Additionally, our top city ecosystem strategy focuses on the leading 30 cities, where we still see opportunities for growth and positive consumer responses. We've recently opened a new location in Chengdu, solidifying our brand's presence in an important area of China, and we aim to replicate this success in other cities and in North America. Given the continuing volatility, which seems to be the new normal, these strategies are sustainable competitive advantages. We will keep refining our operations to improve continually and expect these initiatives to drive momentum for us in the future.

Jane Nielsen, CFO

Yes. I believe we have identified several key moments as we started to establish multiple growth engines in the post-pandemic period. One significant moment was when China rebounded, and we shifted to extensive digital growth, which resulted in a substantial acceleration in comparable sales. This was a crucial moment for us in the Asia-Pacific region. In Europe, entering the pandemic, we witnessed strong e-commerce growth driven by new customer acquisitions at higher operating margins, which was also a pivotal point. In North America, starting in the fourth quarter of 2021, we saw positive sellout in wholesale, which has continued positively along with gains in market share and price increases. Meanwhile, we successfully reset our business in RLE, resulting in notable growth and margin improvements in North America. I believe that the fourth quarter of 2021 was another critical moment, and these factors give us confidence in our forecast for strong positive growth this year.

Operator, Operator

The next question comes from Dana Telsey with Telsey Advisory Group.

Dana Telsey, Analyst

Nice to see the progress. Jane, you just mentioned what I was thinking about is wholesale and the pickup in strength in wholesale that you've been seeing across the board. How do you think about that as different drivers in each region? Is there different reasons for each? Is it the refurbishment of the in-store shops in terms of what you've been seeing? And then to pick up on that, on your 30 key cities retail store network, where are you in that redevelopment?

Jane Nielsen, CFO

Sure. The situation varies across regions. In North America wholesale, this has been a long-term strategy. Initially, we focused on reducing our retail footprint by about two-thirds and shifted towards higher-end partnerships. The next stage involved collaborating with our partners more than a year before the pandemic to implement price increases collaboratively. We began this in fiscal year '21 and have seen improvements in our stores. This strategic approach has proven crucial. Our inventory levels were managed effectively, and we prepared for these changes, resulting in double-digit growth and solid sellout rates this quarter. The groundwork for this success was laid years ago, and our partnerships with wholesale partners are stronger than ever as we move forward together. We are also reinvesting in our wholesale doors in North America and Europe. In Europe, we've partnered with already established high-end brands and have seen significant gains in market share, especially with our digital partners. We are very pleased with our wholesale operations globally. In the Asia Pacific region, wholesale constitutes a smaller part of the business, focusing more on concessions. Our goal in key cities is to develop the right ecosystem, which includes multiple consumer touchpoints. As indicated in our guidance, we plan to open 200 new doors worldwide, mainly in Asia, but also in Europe and North America. This is a crucial part of our growth strategy. We have opened notable locations, like the one in Chengdu, which serve as hubs for our ecosystem. Our efforts in wholesale and the development of local sites are essential components of our strategy in these key cities. We have a tested model that we are actively implementing across all consumer touchpoints, and we are satisfied with our progress. As we near the end of this year, we expect to report further advancements.

Patrice Louvet, CEO

And Dana, I would add to Jane's perspective on the top 30 cities. It's interesting to note the current luxury landscape, especially with several luxury brands shifting their investments from China to the U.S. When we examine our top 30 cities, we find a solid balance across the three primary regions in which we operate. The U.S. still presents significant opportunities for growth. Therefore, we plan to focus on that potential while also continuing our investments in the APAC and Europe regions. We recently opened a few stores in the Berlin area, which is an important cultural center for our brand. You can expect our efforts to remain broad-based across all three key regions.

Operator, Operator

The next question comes from Omar Saad with Evercore ISI.

Omar Saad, Analyst

Congrats on your continued success. I wanted to do a quick clarification, Jane. Did you say the spread between full price and outlets was widening? Or that was just maintaining the same level? And then I wanted to ask for a little bit more detailed response around China. It seems like you guys are putting up really strong numbers there at a time when others are struggling, given the lockdowns. Is it fair to say that the brand is at an inflection point in China? And if so, why now?

Jane Nielsen, CFO

Sure. For the last five quarters, we have noticed a difference between our full price comparisons and our outlet comparisons. As we look to the future, we are aware of potential changes for the value consumer due to macroeconomic factors, and we want to be cautious in our guidance for the remainder of the year.

Patrice Louvet, CEO

And when it comes to China, yes, we are very pleased with the work that our teams are doing in that market and the performance we are delivering. I don't know, Omar, that I would talk about an inflection point. We are seeing a general pace of growth that is quite healthy and strong, right? Digital was up 40% this past quarter in China, despite all the delivery challenges because of the lockdowns. I think if you boil it down to the three key drivers for us, the team is doing a very nice job on the brand front, balancing global storytelling like our recent publisher's initiative, along with working with local influencers and local content and messaging. And I think that's really weaving the brand into the local culture in a way that is bringing in more consumers, younger consumers, more elevated consumers. On the product front, I think the gang is doing a great job curating our global lineup to really make sure that we're delivering along the more elevated expectations of that customer. And we're seeing a really nice balance between our men's and women's business. It's actually the more balanced split that we have across the world. And actually, the Chinese market is a great source of inspiration for us as we continue to elevate our product. And then we touched on it a couple of times earlier in this call, but the power of the ecosystem, right? And I actually think there's a virtual cycle there, as we build capabilities on the digital front as we establish iconic store presence that just consistently builds on itself and gets stronger and stronger as time goes by. So listen, we're not out of touch with the realities of lockdowns and things like that. But we feel like the brand is really nicely positioned in China at this point. It's something we're going to continue to invest in. And the key for us is to really stay in touch with that local consumer.

Corinna Van Ghinst, Host

Last question, please, Angela?

Operator, Operator

Our final question comes from Chris Nardone with Bank of America.

Christopher Nardone, Analyst

So you talked about your ability to pivot categories depending on the demand environment. Can you just talk a little bit more about which categories have shown the strongest demand in the most recent months and then maybe some categories that are either dragging or may have a little bit too much inventory?

Patrice Louvet, CEO

Sure, Chris. So it's actually really interesting to see what's happening with the consumer right now. And we're actually really uniquely positioned to capture the consumers evolving wardrobe choice. Because what we're seeing is a combination of reinvesting in core wardrobes. So specifically, that's products like sweaters or denim and then a pivot towards newness and elevation and sophistication, right? So the pivot towards newness for us will translate into more elevated cashmere sweaters, for example, or a novelty and matching. And then you have consumers not going out during the day, right? And it's still early days on that journey, and therefore, a need for greater outerwear and need for greater dresses and need for greater sports coats. And then we're also seeing more evening activities more going out. So obviously, that's supporting and impacting our overall evening wear more dressier parts of the portfolio. So general direction of travel is elevation for your sophistication. Chris, when I look at categories, there are no categories where we feel we are heavy, if I could use that terminology. I think the team has done a nice job managing inventory across all of these, and that's the result of shorter lead times, greater agility, greater diversification in our supply chain. But very clearly, we are seeing the consumer pivot towards more sophisticated, more elevated products versus what we saw during COVID, that was much more athleisure reliant. All right. Thank you for that question, Chris. Well, thank you for joining us today, and we look forward to sharing our updated strategic plan with all of you mid-September, September 19. Until then, stay safe, and have a great day.

Operator, Operator

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