0001628280-25-049927
SEC filingRalph Lauren delivered strong Q2 FY2026 results with 16.5% reported revenue growth and 180 bps operating margin expansion, driven by AUR growth and operating leverage across all segments.
Ralph Lauren Corporation reported net revenues of $2.011 billion for the second quarter of Fiscal 2026, a 16.5% increase compared to $1.726 billion in the prior year period. On a constant currency basis, revenue grew 14.0%, reflecting robust demand across all reportable segments. Gross profit increased 18.2% to $1.366 billion, with gross margin expanding 100 basis points to 68.0%. The margin improvement was primarily attributed to low-double digit average unit retail (AUR) growth, a favorable product mix, and lower cotton costs, which more than offset pressures from tariffs and non-cotton product costs.
Selling, general, and administrative (SG&A) expenses rose 13.0% to $1.083 billion but declined 160 basis points as a percentage of net revenues to 53.9%, demonstrating significant operating leverage. The increase in absolute SG&A dollars was driven by higher compensation-related expenses, marketing investments, and variable selling costs. Operating income grew 37.3% to $245.7 million, yielding an operating margin of 12.2%, up 180 basis points year-over-year. Results were impacted by $37.3 million in net restructuring and other charges, primarily related to the multi-year Next Generation Transformation project. Net income increased 40.3% to $207.5 million, and diluted earnings per share rose to $3.32 from $2.31, also benefiting from a lower share count due to ongoing repurchases.
All three reportable segments delivered double-digit constant currency revenue growth. North America net revenues increased 12.6% to $832.4 million, fueled by a 13% increase in comparable store sales (digital commerce up 15%, brick and mortar up 12%) and a $36.4 million improvement in wholesale. Segment operating margin improved 290 bps to 19.4%, driven by SG&A leverage.
Europe was the standout, with reported revenue growth of 21.6% to $688.3 million (14.6% constant currency). Wholesale benefited from stronger re-order trends and a timing shift of shipments, while retail comparable store sales grew 10%. Operating margin expanded 360 bps to 29.4%, including a favorable 110 bps impact from foreign currency.
Asia revenues rose 17.2% to $445.6 million (16.3% constant currency), with retail comparable store sales up 16%, reflecting high-teens AUR growth and higher traffic. Operating margin improved 230 bps to 25.0% on gross margin expansion and SG&A leverage.
Management is in the early stages of executing its Next Generation Transformation project, a large-scale, multi-year initiative to redesign end-to-end processes and implement global technology systems. The project is expected to create synergies across merchandising, inventory management, and financial planning. The company continues to monitor geopolitical and macroeconomic uncertainties, including tariff changes and inflationary pressures, and believes its diversified supply chain and pricing power can mitigate potential cost headwinds. For Fiscal 2026, capital expenditures are expected to be approximately 4% to 5% of net revenues, primarily directed toward real estate, store openings, IT systems, and corporate renovations. The Board also approved a $1.5 billion expansion of the share repurchase program and an increased quarterly dividend of $0.9125 per share.
As of September 27, 2025, Ralph Lauren Corporation maintained a robust liquidity position with $1,443.0M in cash and cash equivalents and $202.5M in short-term investments (time deposits), totaling $1,645.5M. This compares to $1,922.5M in cash and $160.5M in short-term investments at March 29, 2025. The decline in cash was primarily driven by significant capital returns to shareholders and capital expenditures. Total debt stood at $1,237.7M, up from $1,142.6M at fiscal year-end, reflecting the June 2025 issuance of $500M in 5.000% Senior Notes due 2032, partially offset by the September 2025 repayment of the $400M 3.750% Senior Notes at maturity. The Company had no borrowings outstanding under its $750M Global Credit Facility or $750M Commercial Paper Program. Inventory increased to $1,261.3M from $949.6M at year-end, consistent with seasonal build. Deferred income (primarily unredeemed gift cards and advance royalties) was $21.9M, the majority expected to be recognized within twelve months.
The Notes disclose $300.0M in contractually-guaranteed minimum royalty amounts from licensing arrangements, to be recognized as revenue over future periods: $49.8M in the remainder of Fiscal 2026, $102.8M in Fiscal 2027, $68.3M in Fiscal 2028, $44.9M in Fiscal 2029, and $34.2M in Fiscal 2030 and thereafter. These amounts exclude potential contract renewals and royalties earned above minimums. The Company's supplier finance program obligations outstanding grew to $243.7M from $181.0M at year-end, recorded within accounts payable. The aggregate interest obligation on the new 5.000% Senior Notes is approximately $175M, payable semi-annually. No material litigation or indemnification payments are anticipated.
Capital allocation was aggressive. The Board approved a $1.5B expansion of the common stock repurchase program on May 15, 2025; remaining authorization was $1.539B as of September 27, 2025. During the six-month period, $313.1M was spent repurchasing 1.4M shares (excluding $1.6M excise tax), plus $122.8M for 0.4M shares surrendered for tax withholdings on equity awards. Dividends declared totaled $110.6M, with the quarterly per-share dividend raised 10.6% to $0.9125. Capital expenditures surged to $281.1M (7.5% of net revenues), driven by North America ($176.1M) and corporate ($61.3M), reflecting investment in the Next Generation Transformation project and store-related investments.
Segment-level operating income is disclosed before restructuring and other charges. For the six months ended September 27, 2025, North America generated $297.1M operating income (20.0% margin) on $1,488.6M revenue; Europe delivered $348.5M (28.0% margin) on $1,242.8M; Asia contributed $256.6M (27.9% margin) on $919.6M; and Other non-reportable segments (licensing) produced $68.9M (87.4% margin) on $78.8M. Corporate unallocated expenses were $395.2M. Geographically, U.S. net revenues were $1,494M of the total $3,729.8M.
Ralph Lauren's cash flow statement for the six months ended September 27, 2025, reveals a significant divergence between strong accrual-based earnings and weaker cash generation. Net income rose 35% to $427.9M, yet operating cash flow declined 39% to $229.3M. The primary driver was a substantial $281.6M investment in inventories, reflecting strategic inventory build ahead of key selling seasons or supply chain adjustments. Additionally, income tax payments surged to $117.1M, more than double the prior-year period, likely due to timing of tax settlements. These working capital headwinds more than offset non-cash adjustments like $112.5M in depreciation and $61.8M in stock-based compensation.
Capital expenditures soared 274% to $281.1M, exceeding operating cash flow and resulting in negative free cash flow (CFO less capex) of approximately -$51.8M. This elevated capex level suggests significant investment in infrastructure, digital capabilities, or store openings. The company funded these investments and shareholder returns through a net debt increase, issuing $498.2M in long-term debt while repaying $400.0M.
Shareholder returns remained aggressive at $541.9M ($435.9M in buybacks and $106.0M in dividends), far exceeding operating cash flow. The shortfall was covered by the net debt proceeds and existing cash reserves, causing cash and equivalents to drop from $1.92B to $1.44B. While the balance sheet remains healthy, the current period's cash flow profile warrants monitoring if working capital investments and elevated capex persist without proportional operating cash flow recovery.