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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Various statements in this Form 10-K or incorporated by reference into this Form 10-K, in future filings by us with the Securities and Exchange Commission (the "SEC"), in our press releases, and in oral statements made from time to time by us or on our behalf constituterepresentatives of the Company, may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements regarding our current expectations about the Company's future operating results and financial condition, the implementation and results of our strategic plans and initiatives, store openings and closings, capital expenses, our plans regarding our quarterly cash dividend and Class A common stock repurchase programs, and our ability to meet environmental, social, and governance goals. Forward-looking statements are based on current expectations and are indicated by words or phrases such as "aim," "anticipate," "outlook," "estimate," "ensure," "commit," "expect," "project," "we believe,"believe," "is or remains optimistic,"envision," "currently envisions,"goal," "target," "can," "will," and similar words or phrases andphrases. These forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed in or implied by such forward-looking statements. These risks, uncertainties, and other factors include, among others:
•the loss of key personnel, including Mr. Ralph Lauren, or other changes in our executive and senior management team or to our operating structure, including any potential changes resulting from the execution of our long-term growth strategy, and our ability to effectively transfer knowledge and maintain adequate controls and procedures during periods of transition;
•the potential impact to our business resulting from inflationary pressures, including increases in the costs of raw materials, transportation, wages, healthcare, and other benefit-related costs;
•the impact of economic, political, and other conditions on us, our customers, suppliers, vendors, and lenders, including potential business disruptions related to the war between Russia and Ukraine, civil and political unrest, diplomatic tensions between the U.S. and other countries, rising interest rates, and recent bank failures, among other factors described herein;
•the potential impact to our business resulting from supply chain disruptions, including those caused by capacity constraints, closed factories and/or labor shortages (stemming from pandemic diseases, labor disputes, strikes, or otherwise), scarcity of raw materials, port congestion, and scrutiny or detention of goods produced in certain territories resulting from laws, regulations, or trade restrictions, such as those imposed by the Uyghur Forced Labor Prevention Act ("UFLPA") or the Countering America's Adversaries Through Sanctions Act ("CAATSA"), which could result in shipment approval delays leading to inventory shortages and lost sales;
•the impact to our business resulting from the COVID-19 pandemic, including periods of reduced operating hours and capacity limits and/or temporary closure of our stores, distribution centers, and corporate facilities, as well as those of our customers, suppliers, and vendors, and potential changes to consumer behavior, spending levels, and/or shopping preferences, such as willingness to congregate in shopping centers or other populated locations;
•our ability to achieve anticipated operating enhancements and/or cost reductions from our restructuring plans, which could includeeffectively manage inventory levels and the potential sale, discontinuance, or consolidation of certain of our brands;
•our exposure to currency exchange rate fluctuations from both a transactional and translational perspective,perspective;
•our ability to recruit and risks associatedretain employees to operate our retail stores, distribution centers, and various corporate functions;
•the impact to our business resulting from a recession or changes in consumers' ability, willingness, or preferences to purchase discretionary items and luxury retail products, which tends to decline during recessionary periods, and our ability to accurately forecast consumer demand, the failure of which could result in either a build-up or shortage of inventory;
•our ability to successfully implement our long-term growth strategy;
•our ability to continue to expand and grow our business internationally and the impact of related changes in our customer, channel, and geographic sales mix as a result, as well as our ability to accelerate growth in certain product categories;
•our ability to open new retail stores and concession shops, as well as enhance and expand our digital footprint and capabilities, all in an effort to expand our direct-to-consumer presence;
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•our ability to respond to constantly changing fashion and retail trends and consumer demands in a timely manner, develop products that resonate with increases in the costs of raw materials, transportation,our existing customers and labor;attract new customers, and execute marketing and advertising programs that appeal to consumers;
•our ability to competitively price our products and create an acceptable value proposition for consumers;
•our ability to continue to maintain our brand image and reputation and protect our trademarks;
•our ability to achieve our goals regarding environmental, social, and governance practices, including those related to climate change and our human capital;
•our ability and the ability of our third-party service providers to secure our respective facilities and systems from, among other things, cybersecurity breaches, acts of vandalism, computer viruses, ransomware, or similar Internet or email events;
•our efforts to successfully enhance, upgrade, and/or transition our global information technology systems and digital commerce platforms;
•the potential impact to our business if any of our distribution centers were to become inoperable or inaccessible;
•the volatile state of the global economy, stock markets,potential impact on our operations and other global economic conditions on us, our customers, our suppliers and our vendorscustomers resulting from man-made or natural disasters, including pandemic diseases such as COVID-19, severe weather, geological events, and on other catastrophic events;
•our ability to achieve anticipated operating enhancements and their ability to access sources of liquidity;
cost reductions from our restructuring plans, as well as the impact to our business resulting from changesrestructuring-related charges, which may be dilutive to our earnings in consumers' abilitythe short term;
•the impact to our business resulting from potential costs and obligations related to the early or preferences to purchase premium lifestyle products that we offer for sale and temporary closure of our stores or termination of our long-term, non-cancellable leases;
•our ability to forecast consumer demand,maintain adequate levels of liquidity to provide for our cash needs, including our debt obligations, tax obligations, capital expenditures, and potential payment of dividends and repurchases of our Class A common stock, as well as the ability of our customers, suppliers, vendors, and lenders to access sources of liquidity to provide for their own cash needs;
•the potential impact to our business resulting from the financial difficulties of certain of our large wholesale customers, which couldmay result in either a build-up or shortage of inventory;
consolidations, liquidations, restructurings, and other ownership changes in the retail industry, as well as other changes in the competitive marketplace, including the introduction of new products or pricing changes by our competitors,competitors;
•our ability to access capital markets and consolidations, liquidations, restructurings, and other ownership changes in the retail industry;maintain compliance with covenants associated with our existing debt instruments;
•a variety of legal, regulatory, tax, political, and economic risks, including risks related to the importation and exportation of products tariffs, and other trade barriers which our international operations are currently subject to, or may become subject to as a result of potential changes in legislation, and other risks associated with our international operations, such as compliance with the Foreign Corrupt Practices Act or violations of other anti-bribery and corruption laws prohibiting improper payments, and the burdens of complying with a variety of foreign laws and regulations, including tax laws, trade and labor restrictions, and related laws that may reduce the flexibility of our business;
•the impact to our business resulting from the potential imposition of additional duties, tariffs, taxes, and other charges or barriers to trade, including those resulting from trade developments between the U.S. and China or other countries, and any related impact to global stock markets, as well as our ability to implement mitigating sourcing strategies;
•changes in our tax obligations and effective tax rate due to a variety of factors, including potential changes in U.S. or foreign tax laws and regulations, accounting rules, or the mix and level of earnings by jurisdiction in future periods that are not currently known or anticipated;
•the impact to our business of events of unrest and instability that are currently taking place in certain parts of the world, as well as from any terrorist action, retaliation, and the threat of further action or retaliation;
•the potential impact to the trading prices of our securities if our operating results, Class A common stock share repurchase activity, and/or cash dividend rate differspayments differ from investors' expectations;
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•our ability to maintain our credit profile and ratings within the financial community;
•our intention to introduce new products or brands, or enter into or renew alliances;
•changes in the business of, and our relationships with, major wholesale customers and licensing partners; and
•our ability to make strategic acquisitions and successfully integrate the potential impact onacquired businesses into our operations and on our suppliers and customers resulting from natural or man-made disasters.existing operations.
These forward-looking statements are based largely on our expectations and judgments and are subject to a number of risks and uncertainties, many of which are unforeseeable and beyond our control. A detailed discussion of significant risk factors that have the potential to cause our actual results to differ materially from our expectations is described in Part I of this Form 10-K under the heading of "Risk Factors." We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
WEBSITE ACCESS TO COMPANY REPORTS AND OTHER INFORMATION
Our investor website is http://investor.ralphlauren.com. We were incorporated in June 1997 under the laws of the State of Delaware. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed with or furnished to the SEC pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, are available free of charge at our investor website under the caption "SEC Filings" promptly after we electronically file such materials with or furnish such materials to the SEC. All such filings are also available on the SEC's website at https://www.sec.gov. Information relating to corporate governance at Ralph Lauren Corporation, including our Corporate Governance Policies, our Code of Business Conduct and Ethics for all directors, officers, and employees, our Code of Ethics for Principal Executive Officers and Senior Financial Officers, and information concerning our directors, Committees of the Board of Directors, including Committee charters, and transactions involving Ralph Lauren Corporation securities by directors and executive officers, are available at our website under the captions "Corporate Governance" and "SEC Filings." Paper copies of these filings and corporate governance documents are available to stockholders without charge by written request to Investor Relations, Ralph Lauren Corporation, 625650 Madison Avenue, New York, New York 10022.
In this Form 10-K, references to "Ralph Lauren," "ourselves," "we," "our," "us," and the "Company" refer to Ralph Lauren Corporation and its subsidiaries, unless the context indicates otherwise. Due to the collaborative and ongoing nature of our relationships with our licensees, such licensees are sometimes referred to in this Form 10-K as "licensing alliances." Our fiscal year ends on the Saturday closest toimmediately before or after March 31. All references to "Fiscal 2017"2024" represent the 52-week fiscal year ending April 1, 2017.March 30, 2024. All references to "Fiscal 2016"2023" represent the 52-week fiscal year ended April 1, 2023. All references to "Fiscal 2022" represent the 53-week fiscal year ended April 2, 2016.2022. All references to "Fiscal 2015"2021" represent the 52-week fiscal year ended March 28, 2015. All references to "Fiscal 2014" represent the 52-week fiscal year ended March 29, 2014.27, 2021.
PART I
General
Founded in 1967 by Mr. Ralph Lauren, we are a global leader in the design, marketing, and distribution of premiumluxury lifestyle products, including apparel, footwear & accessories, home, furnishings,fragrances, and other licensed product categories.hospitality. For more than 50 years, Ralph Lauren has sought to inspire the dream of a better life through authenticity and timeless style. Our long-standing reputation and distinctive image have been consistently developed across an expanding numbera wide range of products, brands, salesdistribution channels, and international markets. We believe that our global reach, breadth of lifestyle product offerings, and multi-channel distribution network are unique among luxury and apparel companies.
We operate in three distinct but integrated segments: Wholesale, Retail,diversify our business by geography (North America, Europe, and Licensing. Our Wholesale business, representing approximately 45%Asia, among other regions) and channel of distribution (retail, wholesale, and licensing). This allows us to maintain a dynamic balance as our Fiscal 2016 net revenues, consistsoperating results do not depend solely on the performance of sales made principally to major department stores and specialty stores around the world. Our Retail business, representing approximately 53%any single geographic area or channel of our Fiscal 2016 net revenues, consists of sales madedistribution. We sell directly to consumers through our integrated retail channel, which includes our retail stores, concession-based shop-within-shops, and e-commercedigital commerce operations around the world. Our Licensing business, representing approximately 2% of our Fiscal 2016 net revenues, consists of royalty-based arrangements underwholesale sales are made principally to major department stores, specialty stores, and third-party digital partners around the world, as well as to certain third-party-owned stores to which we have licensed the right to operate in defined geographic territories using our trademarks. In addition, we license to unrelated third parties for specified periods the right to operate retail stores and/or to useaccess our various trademarks in connection with the licensees' manufacture and sale of designated products, such as certain apparel, eyewear, fragrances, and home furnishings. Approximately 37%home.
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We organize our business into the following three reportable segments: North America, Europe, and Asia. In addition to these reportable segments, we also have other non-reportable segments. See "Our Segments" for further discussion of our Fiscal 2016 net revenues were earned outside of the U.S. See Note 21 to the accompanying audited consolidated financial statements for a summary of net revenues, operating income, and total assets by reportable segment as well as net revenues and long-lived assets by geographic location.reporting structure.
We have been controlled by the Lauren family since the founding of our Company. As of April 2, 2016,1, 2023, Mr. R. Lauren, or entities controlled by the Lauren family, held approximately 82%86% of the voting power of the Company's outstanding common stock.
Objectives and Opportunities
Our purpose is to inspire the dream of a better life through authenticity and timeless style. We believe that our size and the global scope of our operations provide us with design, sourcing, and distribution synergies across our business. Our core strengths include a portfolio of luxury lifestyle products spanning five categories: apparel, footwear & accessories, home, fragrances, and hospitality; a well-diversified global premium lifestyle brands, a proven ability to develop and extend themulti-channel distribution of our brands through multiple channels in global markets, a disciplinednetwork; an investment philosophy supported by a strong balance sheet,sheet; and an experienced management team. Despite the various risks and uncertainties associated with the current global economic environment, as discussed further in Item 7 — "Management's Discussion and Analysis of Financial Condition and Results of Operations — CurrentGlobal Economic Conditions and Industry Trends, and Outlook," we believe our core strengths will allow us the opportunity to effectively execute our initiatives for long-term sustainable growth strategy.
An overview of our long-term growth strategy is presented below:
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Global Citizenship and Sustainability
Since our founding, we have believed in revenue, net income,creating things that are timeless — that last and operating cash flow.
1.Create with Intent
•Integrated Circularity — We are committed to designing products with circularity in mind, connecting consumers to opportunities for rental, repair and recirculation in select top cities and investing in scalable innovation.
•Sustainable Materials — We are committed to using materials in ways that reduce environmental impact, protect biodiversity and animal welfare, support livelihoods, and improve the traceability of raw materials.
•Responsible Design — We commit to embedding environmental and cultural sustainability, inclusivity, and celebration into the products we design and stories we tell.
•Responsible Sourcing — We seek to work with partners who share our values and our commitment to conduct business with social and environmental integrity at heart.
2.Protect the Environment
•Climate — We commit to playing our part to address the climate crisis by reducing greenhouse gas emissions across our supply chain to a broad arraylevel consistent with reaching global net zero emissions.
•Water Stewardship — We commit to reducing water consumption across our value chain and to safeguarding and preserving water resources in our communities.
•Waste Management — We commit to integrating zero-waste principles across our business, focusing on reducing waste at its source and diverting waste from landfill through increased recycling, reuse, and other methods.
•Chemical Management — As we monitor and reduce hazardous chemical use and discharge, our ultimate goal is to eliminate all hazardous chemicals from our product manufacturing.
•Biodiversity — We are committed to leveraging science to build an in-depth understanding of productour current impacts on biodiversity; identifying ways to avoid new negative impacts and geographic licensesreduce existing ones where possible; developing strategies to thatrestore and regenerate ecosystems; and identifying opportunities to engage in transformative, systems-level efforts to address drivers of nature loss.
3.Champion Better Lives
•Diversity, Equity, and Inclusion — Our purpose to inspire the dream of a portfoliobetter life drives us to create a culture of lifestyle brands with a "direct control" model over mostdiversity, equity, inclusion, and belonging inside our Company and throughout our communities.
•Employee Well-being — We are dedicated to supporting the physical, emotional, social, and financial needs of our brands, products,employees and international territories.their families to help them thrive. We believefocus on employee wellness, engagement, learning and development, and compensation and benefits.
•Community Engagement and Philanthropy — We seek to make the dream of a better life a reality in communities across the globe through contributions and actions that this broadercreate positive social and better-diversified portfolio mix positions usenvironmental impact.
•Rights and Empowerment in the Supply Chain — We are committed to conducting our global operations ethically with respect for ongoing growth, allowing usthe dignity of all people who make our products. Our approach aims to offercreate a positive impact in the lives of factory workers and their families.
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Additional information relating to Timeless by Design can be found in our customers a range of products, price points, and channels of distribution. We operateannual sustainability report, which is available at our retail business using an omni-channel retailing strategy that seekswebsite at http://investor.ralphlauren.com under the caption "Global Citizenship & Sustainability Report." Our 2023 Global Citizenship & Sustainability Report is expected to deliver an integrated shopping experience to our customers. We believe that our size and the global scopebe published in June 2023. The content of our operations favorably position ussustainability reports is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC. See Item 1A — "Risk Factors — Risks Related to take advantage of synergies in design, sourcing,Environmental, Social, and distribution across our different businesses.Governance Issues."
Recent Developments
Beginning in the fourth quarter of our fiscal year ended March 28, 2020 ("Fiscal 2020"), a novel strain of coronavirus commonly referred to as COVID-19 emerged and spread rapidly across the globe, including throughout all major geographies in which we operate, resulting in widespread adverse economic conditions and business disruptions. Since then, governments worldwide have periodically imposed preventative and protective actions, such as temporary travel bans, forced business closures, and stay-at-home orders, all in an effort to reduce the spread of the virus. Such actions have negatively impacted retail traffic, tourism, and consumer spending on discretionary items to varying degrees over the course of the pandemic.
As a result of the COVID-19 pandemic, we have experienced varying degrees of business disruptions and periods of closure of our stores, distribution centers, and corporate facilities, as have our wholesale customers, licensing partners, suppliers, and vendors. During the first quarter of Fiscal 2021 at the peak of the pandemic, the majority of our stores in key markets were closed for an average of 8 to 10 weeks due to government-mandated lockdowns and other restrictions, resulting in significant adverse impacts to our operating results. Resurgences and outbreaks in certain parts of the world resulted in further business disruptions periodically throughout Fiscal 2021, most notably in Europe where a significant number of our stores were closed for approximately 2 to 3 months during the second half of Fiscal 2021, including during the holiday period, due to government-mandated lockdowns and other restrictions. Such disruptions continued throughout Fiscal 2022 and Fiscal 2023 in certain regions, although to a lesser extent than Fiscal 2021. Further, throughout the course of the pandemic, the majority of our stores that were able to remain open have periodically been subject to limited operating hours and/or customer capacity levels in accordance with local health guidelines, with traffic remaining challenged. However, our digital commerce operations have grown significantly from pre-pandemic levels, due in part to our investments and enhanced capabilities, as well as changes in consumer shopping preferences.
The COVID-19 pandemic also adversely impacted our distribution, logistic, and sourcing partners, including temporary factory closures, labor shortages, vessel, container and other transportation shortages, and port congestion. Such disruptions resulted in periods of reduced availability of inventory, delayed timing of inventory receipts, and increased costs for both the purchase and transportation of such inventory, most notably during Fiscal 2022 and the first half of Fiscal 2023.
The pandemic continues to evolve, with resurgences and outbreaks occurring in certain parts of the world during Fiscal 2023, including those resulting from variants of the virus. While the impact of these disruptions has generally been less significant than those experienced in Fiscal 2021 and Fiscal 2022, we cannot predict for how long and to what extent the pandemic may continue to impact our business operations, the global supply chain, or the overall global economy.
See Item 1A — "Risk Factors — Risks Related to Macroeconomic Conditions — Infectious disease outbreaks, such as the COVID-19 pandemic, could have a material adverse effect on our business"for additional discussion regarding risks to our business associated with the COVID-19 pandemic.
Fiscal 2021 Strategic Realignment Plan
In connection with the first initiative, on September 17, 2020, our Board of Directors approved a reorganization and restructuring plan comprised(the "Fiscal 2021 Strategic Realignment Plan") to reduce our global workforce. Additionally, during a preliminary review of our store portfolio during the second quarter of Fiscal 2021, we decided to close our Polo store on Regent Street in London.
Shortly thereafter, on October 29, 2020, we announced the planned transition of our Chaps brand to a fully licensed business model, consistent with our long-term brand elevation strategy and in connection with our third initiative. Specifically, we entered into a multi-year licensing partnership, which took effect on August 1, 2021 following a transition period, with an
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affiliate of 5 Star Apparel LLC, a division of the following major actions: (i) the reorganizationOVED Group, to manufacture, market, and distribute Chaps menswear and womenswear. The products are being sold at existing channels of distribution with opportunities for expansion into additional channels and markets globally. This agreement created incremental value for the Company from its historicalby enabling an even greater focus on elevating our core brands in the marketplace, reducing our direct exposure to the North America department store channel, and regional structuresetting up Chaps to deliver on its potential with an integratedexperienced partner that is focused on nurturing the brand.
Later, on February 3, 2021, our Board of Directors approved additional actions related to our real estate initiative. Specifically, we further rightsized and consolidated our global brand-based operating structure, which will streamline our business processescorporate offices to better align our cost structure with our long-term growth strategy; (ii) a strategic storeorganizational profile and shop-within-shop performance review conducted by region and brand; (iii) a targeted corporate functional area review; and (iv) the consolidationnew ways of working. We also closed certain of our luxury lines (collectively,stores to improve overall profitability. Additionally, we further consolidated our North America distribution centers in order to drive greater efficiencies, improve sustainability, and deliver a better consumer experience.
Finally, on June 26, 2021, in connection with our brand portfolio initiative, we sold our former Club Monaco business to Regent, L.P. ("Regent"), a global private equity firm, with no resulting gain or loss on sale realized during the "Global Reorganization Plan"). The Global Reorganizationfirst quarter of Fiscal 2022. Regent acquired Club Monaco's assets and liabilities in exchange for potential future cash consideration payable to us, including earn-out payments based on Club Monaco meeting certain defined revenue thresholds over a five-year period. Accordingly, we have realized amounts related to the receipt of such contingent consideration and additional amounts may be realized in the future. Additionally, in connection with this divestiture, we provided Regent with certain operational support for a transitional period of approximately one year, varying by functional area.
In connection with the Fiscal 2021 Strategic Realignment Plan, has resulted in a reduction in workforcewe have recorded cumulative pre-tax charges of $281.8 million since its inception, of which $19.7 million, $25.3 million, and the closure of certain stores$236.8 million were recorded during Fiscal 2023, Fiscal 2022, and shop-within-shops.Fiscal 2021, respectively. Actions associated with the Global ReorganizationFiscal 2021 Strategic Realignment Plan were substantially completed during Fiscal 2016are now complete and are expected to result in improved operational efficiencies by reducing annual operating expenses bygross annualized pre-tax expense savings of approximately $125 million.$200 million, a portion of which is being reinvested into the business.
Our Brands and Products
We combine consumer insight with our design, marketing, and imaging skills to offer, along with our licensing alliances, broad lifestyle product collections with a unified vision:
•Apparel — Our apparel products include extensive collections of men's, women's, and children's clothing, which are sold under various brand names, including Ralph Lauren Collection, Ralph Lauren Purple Label, Polo Ralph Lauren, Polo Sport, Double RL, Lauren Ralph Lauren, Ralph byPolo Golf Ralph Lauren, Polo andRalph Lauren Golf, RLX Golf,Ralph Lauren, Polo Ralph Lauren Children, Denimand Chaps, among others.
•Footwear & Supply Ralph Lauren, Chaps, Club Monaco, and American Living, among others;
Accessories — Our range of footwear & accessories products encompass a broad range for both menencompasses men's, women's, and women,children's, including footwear,casual shoes, dress shoes, boots, sneakers, sandals, eyewear, watches, fashion and fine jewelry, scarves, hats, belts,gloves, umbrellas, and leather goods, including handbags, luggage, small leather goods, and luggage,belts, which are sold under various brand names, includingour Ralph Lauren Collection, Ralph Lauren Purple Label, Double RL, Polo Ralph Lauren, Lauren Ralph Lauren, Polo Ralph Lauren Children, and Club Monaco, among others;
Chaps brands.•Fragrance — Our fragrance productsofferings capture the essence of Ralph Lauren's men's and women's brands with numerous labels, designed to appeal to a variety of audiences. Women's fragrance products are sold under our Safari, Ralph Lauren Blue,Collection, Woman by Ralph Lauren, Romance collection, RALPH collection,Collection, and Big Pony collection brands.Ralph Collection. Men's fragrance products are sold under our Polo Blue, Ralph's Club, Purple Label, Polo Red, Polo Green, Polo Black, Safari, Polo Sport, Polo Green, Polo Blue, Polo Blue Sport, Purple Label, Polo Black, Double Black,and Big Pony collection,Men's brands. During Fiscal 2023, we introduced Polo Red collection, and Polo Supreme Oud brands; andEarth, a gender-neutral fragrance designed with sustainability in mind, made of 97% natural-origin ingredients.
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•Home — Our home collections, which are sold under our Ralph Lauren, Polo, Lauren by Ralph Lauren, and Chaps brands, reflect the spirit of the Ralph Lauren lifestyle. Our range of home products includes bed and bath lines, furniture, fabric and wallcoverings, lighting, tabletop, kitchen linens, floor coverings, and giftware.
•Hospitality — Continuing to engage our consumers with experiential and unique expressions of the brand, our hospitality portfolio is a natural extension of the World of Ralph Lauren as expressed through the culinary arts. Ralph Lauren's global hospitality collection is comprised of our restaurants translate Mr. R. Lauren's distinctive vision into places to gather with family and friends to enjoy fine food. Our restaurants include including The Polo Bar and Ralph’s Coffee located in New York City, RL Restaurant located in Chicago, and Ralph’sRalph's located in Paris.
Paris, The Bar at Ralph Lauren located in Milan, and our Ralph's Coffee concept in various cities around the world. During Fiscal 2023, we opened our first restaurant in the Asia Pacific region, Ralph's Bar in Chengdu, China.Our lifestyle brand image is reinforced by our distribution through our stores and concession-based shop-within-shops, our wholesale channels of distribution, our global e-commercedigital commerce sites, and our Ralph Lauren restaurants.restaurants and cafés. We organizesell our brands intoproducts under the following six distinct globalkey brand groups:platforms:
1.Ralph Lauren Luxury — Our Luxury group includes:
Ralph Lauren Collection and Ralph Lauren Purple Label. The runway sets the stage for each season's Ralph Lauren Collection designs, which includes handmade evening gownsembodies the highest expression of chic, feminine glamour. Each piece is inspired by a vision of timeless luxury and modern elegance and is crafted with exquisite detailunparalleled passion and refined, hand-tailored suitings.artistry. For men, Ralph Lauren Purple Label offers refinedis the ultimate expression of luxury for the modern gentleman. Refined suitings are hand-tailored, including custom tailored made-to-measure suits andcrafted in the time-honored traditions of Savile Row. Purple Label's sophisticated sportswear as well as benchmade footwearis designed with a meticulous attention to detail, capturing the elegance and made-to-order dress furnishings, accessories, and luggage.ease of Ralph Lauren's signature, timeless style. Ralph Lauren Collection and Ralph Lauren Purple Label are made in Italy with the utmost attention to detail and quality and are available in select Ralph Lauren stores around the world, an exclusive selection of the finest specialty stores, and online at our Ralph Lauren e-commercedigital commerce sites, including RalphLauren.com.
Double RL. Founded in 1993 and namedNamed after Ralph Lauren and his wife Ricky's "RRL"Lauren's working cattle ranch in Colorado, Double RL is a tribute to America's pioneering spirit and tradition of rugged independence. The foundation of Double RL lies in timeless wardrobe staples for men and women, offers a mix ofincluding authentic American made selvedge denim, vintage apparel, sportswear,military-grade chinos, tube-knit t-shirts, thermals, and flannels. Beyond these iconic styles are added seasonal vintage-inspired collections, along with a full collection of footwear & accessories, with roots in workwearincluding quality belts, bags, and military gear.leather goods. Double RL is available at Double RL stores, at select Ralph Lauren stores, and an exclusive selection of the finest specialty stores around the world, as well as online at our Ralph Lauren e-commercedigital commerce sites, including RalphLauren.com.
Ralph Lauren Home.Ralph Lauren Home represents a full expression of modern luxury — style is a life well-lived. Based on an immersive design ethos, the collection includes furniture, lighting, bed and bath linens, tabletop, decorative accessories and gifts, as well as fabric, wallcoverings, and floorcoverings. Each piece is crafted with the greatest attention to detail. Ralph Lauren Home offers exclusive luxury goods at select Ralph Lauren stores and select wholesale partners, home specialty stores, trade showrooms, and online at our Ralph Lauren digital commerce site, RalphLauren.com.
Ralph Lauren Watches and Fine Jewelry. In 2008, Ralph Lauren, together with internationally renowned luxury group Compagnie Financière Richemont SA, launchedWe offer a premier collection of Swiss-made timepieces, through the Ralph Lauren Watch & Jewelry Co. The four pillar collections – the iconic Ralph Lauren Stirrup, the refined Ralph Lauren Slim Classique, the Ralph Lauren Sporting, and the 867 Collection –which embody Mr. Ralph Lauren's passion for impeccable quality and exquisite design. The Ralph Lauren Watch & Jewelry Co.We also offers premieroffer premium collections of fine jewelry, including the Ralph Lauren Diamond Link Collection, Ralph Lauren Equestrian Collection, and Ralph Lauren Chunky Chains Collection, all capturingwhich capture the glamour and craftsmanship of Ralph Lauren's most luxurious designs.designs, from everyday collections to the most refined and precious materials. Ralph Lauren watches and fine jewelry are available online at RalphLauren.com, at select Ralph Lauren stores, and flagship locationsa few of the finest watch and jewelry retailers around the world. A selection of watches is also available online at RalphLauren.com and the finest watch retailers.
2.Polo Ralph Lauren — The Polo Ralph Lauren group includes:
Polo Ralph Lauren. Men's Polo combines Ivy League classics and time-honored English haberdashery with downtown styles and all-American sporting looks in sportswear and tailored clothing. Women's Polo is targeted towardsrepresents the young, modern girlepitome of classic and mixes romantic bohemianiconic American style with a modern and cool sportiness.twist. Polo's signature aesthetic includes our renowned polo player logo. Polo Sport reflects the active lifestyle and youthful energy of Polo’s sporting roots through Men's and Women's activewear. Men's and Women's Polo apparel and footwear & accessories are available in Polo and Ralph Lauren stores around the world, better department and specialty stores, and online at our Ralph Lauren e-commercedigital commerce sites, including RalphLauren.com.
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Polo Ralph Lauren Children. Polo Ralph Lauren Children is designed to reflect the timeless heritage and modern spirit of Ralph Lauren’sLauren's collections for men and women. Signature classics include iconic polo knit shirts and luxurious cashmere cable-knit sweaters. Polo Ralph Lauren Children is available in a full range of sizes, from baby to girls 2-16 and boys 2-20. Polo Ralph Lauren Children can be found in select Polo and Ralph Lauren stores around the world, better department stores, and online at our Ralph Lauren e-commercedigital commerce sites, including RalphLauren.com, as well as certain of our retailer partner e-commercedigital commerce sites.
RLX Ralph Lauren. RLX is the leading edge of Ralph Lauren's performance and activewear. Comprised of functional apparel that address the performance needs of a modern active lifestyle, RLX includes men's and women's apparel and accessories that represent Ralph Lauren's belief that things that are purposefully designed and made of the highest quality achieve a timeless elegance.
Polo Golf Ralph Lauren, Ralph Lauren Golf, and RLX Ralph Lauren Golf. Tested and worn by top-ranked professional golfers, Polo Golf Ralph Lauren, Ralph Lauren Golf, and RLX Ralph Lauren Golf for men and women define excellence in the world of golf. With a sharpened focus on the needs of the modern player but rooted in the rich design tradition of Ralph Lauren, the Golf collections combine state-of-the-art performance wear with luxurious finishing touches. Our Golf collections are available in select Polo stores, exclusive private clubs and resorts, and online at RalphLauren.com.
Pink Pony. Established in 2000, theThe Pink Pony campaign is our worldwide initiative in the fight against cancer. In the United States,U.S., a percentage of sales from Pink Pony products benefit the Pink Pony Fund of The Polo Ralph Lauren Corporate Foundation, which supports cancer-related programs for early diagnosis, education, treatment, and research, and is dedicated to bringing patient navigation and quality cancer care to medically underserved communities. Internationally, a network of local cancer charities around the world benefit from the sale of Pink Pony products. Pink Pony primarily consists of slim-fitting women'sdual gender sportswear and accessories crafted in luxurious fabrics. Allaccessories. Pink Pony items feature our iconic pink polo player –— a symbol of our commitment to the fight against cancer. Pink Pony is available at select Polo and Ralph Lauren stores and online at our Ralph Lauren e-commercedigital commerce sites, including RalphLauren.com. Pink Pony is also available at select Macy's stores and online at Macys.com.
3.Lauren Ralph Lauren — Our Lauren group includes:
Lauren Ralph Lauren. Lauren for women offers sophisticatedcombines aspirational timeless style with modern femininity in a lifestyle collection of sportswear, denim, and dresses, activewear, and a wide array of accessories andas well as footwear at a more accessible price point.& accessories. Lauren for women is available in select department stores around the world and online at our Ralph Lauren e-commerceselect digital commerce sites, including RalphLauren.com. Lauren for men offers a complete collection of men's tailored clothing, including suits, sport coats, dress shirts, dress pants, tuxedos, topcoats, and ties at a more accessible price point. Lauren for men is available at select department stores in North America and Europe.
4.Chaps —Chaps celebrates real American style, delivering classic collections updated for modern lifestyles for men, women, children and home. The modern lifestyle collection offers suit separates, sport coats, vests,versatile sportswear, workday essentials, tailored clothing, and topcoats with refined luxury at an excellent value. Ralph by Ralph Laurenoccasion dresses that are wearable from season to season. Chaps is available exclusively at Dillard'sin select department stores and online at Dillards.com.
retail partner digital commerce sites across the U.S., Canada, and Mexico. Refer to "Recent Developments" for discussion regarding the recent transition of our Chaps brand to a fully licensed business model.
Our Segments
•North America — Our North America segment, representing approximately 47% of our Fiscal 2023 net revenues, primarily consists of sales of our Ralph Lauren branded apparel, footwear & accessories, home, and home, with casual sportswear, workday essentials,related products made through our retail and fashionable dresses. The Chaps men's, women's, and children's collections are available at select storeswholesale businesses primarily in the U.S., Canada, Mexico, Europe, and the United Arab Emirates. Chaps HomeCanada. In North America, our retail business is available exclusively at Kohl's and online at Kohl's.com.
our digital commerce site, www.RalphLauren.com. Our Wholesale Segment
•Europe — Our Europe segment, representing approximately 29% of our Fiscal 2023 net revenues, primarily consists of sales of our Ralph Lauren branded apparel, footwear & accessories, home, and related products made through our retail and wholesale businesses in Europe and emerging markets. In Europe, our retail business is primarily comprised of our Ralph Lauren stores, our outlet stores, our concession-based shop-within-shops, and our various digital commerce sites. Our wholesale sales arebusiness in Europe is comprised primarily of a varying mix of sales to both department stores and specialty stores, depending on the country.country, as well as to various third-party digital partners.
•Asia — Our Asia segment, representing approximately 22% of our Fiscal 2023 net revenues, primarily consists of sales of our Ralph Lauren branded apparel, footwear & accessories, home, and related products made through our retail and wholesale businesses in Asia, Australia, and New Zealand. Our retail business in Asia is primarily comprised of our Ralph Lauren stores, our outlet stores, our concession-based shop-within-shops, and our various digital commerce sites. In addition, we sell our products online through various third-party digital partner commerce sites. Our wholesale business in Asia is comprised primarily of sales to department stores, with related products distributed through shop-within-shops.
No operating segments were aggregated to form our reportable segments. In addition to these reportable segments, we also have other non-reportable segments, representing approximately 2% of our Fiscal 2023 net revenues, which primarily consist of Ralph Lauren and Chaps branded royalty revenues earned through our global licensing alliances. In addition, prior to its disposition at the end of our first quarter of Fiscal 2022, our other non-reportable segments also included sales of Club Monaco branded products made through our retail and wholesale products are distributed primarily through shop-within-shops at department stores. We also distribute our wholesale products to certain licensed stores operated by our partnersbusinesses in Latin America, Asia,the U.S., Canada, and Europe, and our licensing alliances in Asia. Refer to "Recent Developments" for additional discussion regarding the Middle East.
This segment structure is consistent with how we establish our overall business strategy, allocate resources, and assess performance of our Company.
Approximately 53% of our Fiscal 2023 net revenues were earned outside of the U.S. See Note 20 to the accompanying consolidated financial statements for a summary of net revenues and total Wholesale net revenues, respectively. Further, during Fiscal 2016, sales to our three largest wholesale customers, including Macy's, accounted for approximately 24% and 53% of our totaloperating income by segment, as well as net revenues and total Wholesale net revenues, respectively.long-lived assets by geographic location.
Our Retail SegmentBusiness
Our Retail segmentretail business sells directly to customers throughout the world via our 493553 retail stores and 722 concession-based shop-within-shops, totaling approximately 3.84.1 million and 0.7 million square feet, and 583 concession-based shop-within-shops,respectively, as well as through our own digital commerce sites and those of various e-commerce sites. The extension of our direct-to-consumer reach is one of our primary long-term strategic goals.third-party digital partners. We operate our retail business using ana global omni-channel retailing strategy that seeks to deliver an integrated shopping experience with a consistent message of our brands and products to our customers, regardless of whether they are shopping for our products in one of our physical stores or online. We also continue to scale and expand our Connected Retail capabilities to enhance the consumer experience, which now include virtual selling appointments, Buy Online-Ship from Store, Buy Online-Pick Up in Store, and mobile checkout and contactless payments, among other capabilities.
Ralph Lauren Stores
Our Ralph Lauren stores feature a broad range of apparel, footwear & accessories, watch and jewelry, fragrance, and home product assortments in an atmosphere reflecting the distinctive attitude and image of the Ralph Lauren, Polo, and Double RL and Denim & Supply brands, including exclusive merchandise that is not sold in department stores. During Fiscal 2016,2023, we opened 2244 new Ralph
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Lauren stores and closed 2110 stores. Our Ralph Lauren stores are primarily situated in major upscale street locations and upscale regional malls, generally in large urban markets.
The following table presents the number of Ralph Lauren stores by segment as of April 1, 2023:
| Ralph Lauren Stores | ||||||||
| 48 | |||||
| 43 | ||||||||
| 118 | ||||||||
| Total | 209 | |||||||
Our nine9 flagship Ralph Lauren regional store locations showcase our iconic styles and products and demonstrate our most refined merchandising techniques. In addition to generating sales of our products, our worldwide Ralph Lauren stores establish, reinforce, and capitalize on the image of our brands. Our Ralph Lauren stores range in size from approximately 700500 to 39,000 square feet.
We extend our reach to additional consumer groups through our 272 factoryoutlet stores worldwide, which are principally located in major outlet centers. During Fiscal 2016, we added 32 new factory stores and closed 19 factory stores.
Our worldwide factoryoutlet stores offer selections of our apparel, footwear & accessories, and fragrances. In addition to these product offerings, certain of our factoryworldwide outlet stores inoffer watches and home product assortments. During Fiscal 2023, we opened 28 new outlet stores and closed 13 stores.
The following table presents the Americas offer home furnishings. number of outlet stores by segment as of April 1, 2023:
| Outlet Stores | ||||||||
| North America | 189 | |||||||
| Europe | 61 | |||||||
| Asia | 94 | |||||||
| Total | 344 | |||||||
Our factoryoutlet stores range in size from approximately 1,4001,000 to 26,70028,300 square feet.
Concession-based Shop-within-Shops
The terms of trade for shop-within-shops are largely conducted on a concession basis, whereby inventory continues to be owned by us (not the department store) until ultimate sale to the end consumer. The salespeople involved in the sales transactions are generally our employees and not those of the department store.
| Concession-based Shop-within-Shops | ||||||||
| North America | 1 | |||||||
| Europe | 29 | |||||||
| Asia | 692 | |||||||
Total(a) | 722 | |||||||
(a) Our concession-based shop-within-shops were located in Asia, Australia, and Europe. at approximately 315 retail locations.
The size of our concession-based shop-within-shops ranges from approximately 200100 to 3,3004,700 square feet. We may share in the cost of building out certain of these shop-within-shops with our department store partners.
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Directly-Operated Digital Commerce Websites
In addition to our stores, our Retail segmentretail business sells products online in North America, Europe, and Asia through our e-commerce channel,various directly-operated digital commerce sites, which includes:
Our Ralph Lauren e-commercedigital commerce sites offer our customers access to a broad array of Ralph Lauren, Polo, Lauren, and Double RL Polo, and Denimapparel, footwear & Supply apparel, accessories, watch and jewelry, fragrance, and home product assortments, and reinforce the luxury image of our brands. While investing in e-commercedigital commerce operations remains a primary focus, it is an extension of our investment in the integrated omni-channel strategy used to operate our overall retail business, in which our e-commercedigital commerce operations are interdependent with our physical stores.
Our Club Monaco e-commerce sites offerWholesale Business
Our wholesale business sells our domesticproducts globally primarily to major department stores, specialty stores, and Canadian customers access to our global assortment of Club Monaco apparelgolf and accessories product lines,pro shops, as well as to various third-party digital partners. We have continued to focus on elevating our brand by improving in-store product assortment and presentation, as well as full-price sell-throughs to consumers. As of the end of Fiscal 2023, our wholesale products were sold through over 9,000 doors worldwide, with the majority in specialty stores. Our products are also increasingly being sold through the digital commerce sites of many of our traditional wholesale customers and our third-party digital partners.
The primary product offerings sold through our wholesale channels of distribution include apparel, footwear & accessories, and home product assortments. Our luxury brands, including Ralph Lauren Collection and Ralph Lauren Purple Label, are distributed worldwide through a limited number of premier fashion retailers. In North America, our wholesale business is comprised primarily of sales to department stores, and to a lesser extent, specialty stores. In Europe, our wholesale business is comprised primarily of a varying mix of sales to both department stores and specialty stores, depending on the country, as well as to various third-party digital partners. In Asia, our wholesale business is comprised primarily of sales to department stores, with related products distributed through shop-within-shops. We also distribute our wholesale products to certain licensed stores operated by our partners in Latin America, Asia, Europe, and the Middle East.
We sell most of our excess and out-of-season products through secondary distribution channels worldwide, including our retail outlet stores.
Worldwide Wholesale Distribution Channels
The following table presents by segment the number of wholesale doors in our primary channels of distribution as of April 1, 2023:
| Doors | ||||||||
| North America | 3,324 | |||||||
| Europe | 5,339 | |||||||
| Asia | 612 | |||||||
| Total | 9,275 | |||||||
In addition to our conventional wholesale doors, our products are increasingly being sold through the websites of many of our traditional wholesale customers, as well as those of our third-party digital partners. As of April 1, 2023, our wholesale business served approximately 100 third-party digital partners, primarily in Europe.
We have three key wholesale customers that generate significant sales volume. During Fiscal 2023, sales to our three largest wholesale customers accounted for approximately 16% of our total net revenues. Substantially all sales to our three largest wholesale customers related to our North America segment.
Our products are sold primarily by our own sales forces. Our wholesale business maintains its primary showrooms in New York City, as well as regional showrooms in London, Madrid, Milan, Munich, Paris, and Stockholm. In addition, we utilize virtual showrooms, allowing our customers to experience and discover our product assortments in a retail setting remotely.
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Shop-within-Shops. As a critical element of our distribution to department stores, we and our licensing partners utilize shop-within-shops to enhance brand recognition, to permit more complete merchandising of our lines by the department stores, and to differentiate the presentation of our products.
The following table presents by segment the number of shop-within-shops in our primary channels of distribution as of April 1, 2023:
| Shop-within-Shops | ||||||||
| North America | 7,060 | |||||||
| Europe | 6,739 | |||||||
| Asia | 893 | |||||||
| Total | 14,692 | |||||||
The size of our shop-within-shops ranges from approximately 80 to 9,200 square feet. Shop-within-shop fixed assets primarily include items such as customized freestanding fixtures, wall cases and components, decorative items, and flooring. We normally share in the cost of building out these shop-within-shops with our wholesale customers.
Replenishment Program. Core products such as knit shirts, chino pants, oxford cloth shirts, select online exclusives.footwear & accessories, and home products can be ordered by our wholesale customers at any time through our replenishment program. We generally ship these products within two to five days of order receipt.
Backlog. We generally receive wholesale orders approximately three to five months prior to the time the products are delivered to customers, except for orders received through our replenishment program which ship within two to five days of order receipt. Our wholesale orders are generally subject to broad cancellation rights. Further, the size of our order backlog depends on several factors, including the timing of the market weeks for our particular lines during which a significant percentage of our orders are received and the timing of shipments, which varies from year-to-year with consideration for holidays, consumer trends, concept plans, and the replenishment program's usage. Consequently, the dollar amount of our backlog as of any date may not be indicative of actual future shipments and therefore is not meaningful in understanding our business as a whole.
Our Licensing SegmentBusiness
Through licensing alliances, we combine our consumer insight, design, and marketing skills with the specific product or geographic competencies of our licensing partners to create and build new businesses. We generally seek out licensing partners who are leaders in their respective markets, contribute the majority of the product development costs, provide the operational infrastructure required to support the business, and own the inventory. Our licensing business has been aggregated with other non-reportable segments.
Product Licensing
We grant our product licensees the right to access our various trademarks in connection with the licensees' manufacture and sell at wholesale specified categoriessale of designated products, under one or more of our trademarks.such as certain apparel, eyewear, fragrances, and home furnishings. Each product licensing partner pays us royalties based upon its sales of our products, generally subject to a minimum royalty requirement for the right to use our trademarks and design services. In addition, our licensing partners may be required to allocate a portion of their revenues to advertising our products and sharing in the creative costs associated with these products. Larger allocations typically are required in connection with launches of new products or in new territories. Our license agreements generally have onethree to five-year terms and may grant the licensees conditional renewal options.
We work closely with all of our licensing partners to ensure that their products are developed, marketed, and distributed to reach the intended consumer and are presented consistently across product categories to convey the distinctive identity and lifestyle associated with our brands. Virtually all aspects of the design, production quality, packaging, merchandising, distribution, advertising, and promotion of Ralph Lauren products are subject to our prior approval and continuing oversight. We perform a broader range of services for most of our Ralph Lauren Home licensing partners than we do for our other licensing partners, including design, operating showrooms, marketing, and advertising.
| Category | Licensed Products | Licensing Partners | ||||||||||||||
| Men's Apparel | Underwear and Sleepwear | Hanesbrands, Inc. (includes Japan) | ||||||||||||||
| Lauren, Ralph, and Chaps Tailored Clothing | Peerless Clothing International, Inc. | |||||||||||||||
| Chaps | 5 Star Apparel LLC (includes South America and South Korea) | |||||||||||||||
| Charles Komar and Sons, Inc. (includes Europe and the Middle East) | ||||||||||||||||
| Intimates and Sleepwear | ||||||||||||||||
| Chaps | 5 Star Apparel LLC (includes South America and | |||||||||||||||
| Beauty Products | Fragrances, Cosmetics, | L'Oreal S.A. (global) | ||||||||||||||
| BBC International LLC (global) | ||||||||||||||||
| Accessories | Eyewear | Luxottica Group S.p.A. (global) | ||||||||||||||
| Socks and Hosiery | Renfro Corporation | |||||||||||||
| Utility and | Hollander Sleep & Decor | |||||||||||||
| Lighting | Visual Comfort of |
International Licensing
Digital Ecosystem
Investing in our digital ecosystem remains a primary focus and is a key component of our integrated global omni-channel strategy that spans across owned and partnered channels, both physical and digital. Our digital ecosystem is comprised of directly-operated platforms, wholesale partner websites, third-party digital pure players, social commerce, and virtual economy platforms.
Our directly-operated digital commerce sites represent our digital flagships, featuring the most elevated expression of our brands. The strategy for our digital flagships is to deliver distinct and immersive brand experiences, continuously enhance consumer experience, and develop digital content that drives deeper consumer engagement and conversion. We have launched RalphLauren.com flagships across many new markets and introduced additional languages and payment methods globally. We continue to enhance consumer experiences and engagement with greater personalization, enhanced content, and augmented and virtual reality on our digital flagships and Ralph Lauren app. In connection with our long-term growth strategy, we also continue to scale and expand our Connected Retail capabilities to enhance the consumer experience and leverage inventory across direct-to-consumer channels with abilities such as same-day delivery which was launched in Fiscal 2023.
Our products are also sold through the digital commerce sites of many of our wholesale customers across the globe. With all partners in our ecosystem, we seek to showcase the brand consistently with our values. We collaborate with our key wholesale customers to deliver the right content to the right audience, and leverage consumer insights to develop a holistic, channel-agnostic view of our consumer.
We also sell our products online through various third-party digital pure-play sites to reach a broader audience of consumers, including younger consumers, and amplify our brand messages. On many of these sites, we have created digital shop-in-shop environments with a consistent brand experience, tailored product stories, and an assortment that is carefully curated by our merchants. We also partner closely with our pure-play customers on marketing content and events, as well as optimizing search and other data analyses to drive higher traffic and conversion for our brands.
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In connection with our digital commerce operations, we engage consumers through various digital and social media platforms, which are supported through our collaboration with influencers who have an authentic connection to our brand. Ralph Lauren brands are also represented in several virtual economy platforms, providing digital apparel offerings and virtual brand experiences in the metaverse that attract younger consumers.
Seasonality of Business
Our business is typically affected by seasonal trends, with higher levels of retail sales in our second and third fiscal quarters and higher wholesale sales in our second and fourth fiscal quarters. These trends result primarily from the timing of key vacation travel, back-to-school, and holiday shopping periods impacting our retail business and timing of seasonal wholesale shipments. As a result of changes in our business, consumer spending patterns, and the macroeconomic environment, including those resulting from pandemic diseases and other catastrophic events, historical quarterly operating trends and working capital requirements may not be indicative of our future performance. In addition, fluctuations in sales, operating income (loss), and cash flows in any fiscal quarter may be affected by other events affecting retail sales, such as changes in weather patterns.
Working capital requirements vary throughout the year. Working capital requirements typically increase during the first half of the fiscal year as inventory builds to support peak shipping/selling periods and, accordingly, typically decrease during the second half of the fiscal year as inventory is shipped/sold. Cash provided by operating activities is typically higher in the second half of the fiscal year due to reduced working capital requirements during that period.
Product Design
Our products reflect a timeless and innovative interpretation of American style with a strong international appeal. Our consistent emphasis on new and distinctive design has been an important contributor to the prominence, strength, and reputation of the Ralph Lauren brands.
Our Ralph Lauren products are designed by, and under the direction of, Mr. Ralph Lauren and our design staff.teams. We form design teams around our brands and product categories to develop concepts, themes, and products for each brand and category. Through close collaboration with merchandising, sales, and productionproduct management staff, these teams support all three segments of our business — Wholesale, Retail, and Licensing —businesses in order to gain market information and other valuable input.
Marketing and Advertising
Our marketing and advertising programs communicate the themes and images of our brands and are integral to the success of our product offerings. The majority of our advertising program isprograms are created and executed on a centralized basis throughby our in-house creative and advertising organizationagency to ensure consistency of presentation, which isare complemented by our marketing experts in each region who help to execute our international strategies.
We create distinctive image advertising for our brands, conveying the particular message of each one within the context of the overall Ralph Lauren aesthetic. Advertisements generally portray a lifestyle rather than a specific item and include a variety of products offered by ourselvesus and, in some cases, our licensing partners. Our communication campaigns are primarilyincreasingly being executed through a combination of print, outdoor, digital and social media platforms to drive further engagement with the younger consumer. With regard to influencers, we believe in fostering long-term relationships with those who have an authentic connection to our brand and influence the areas of culture that matter most to our audiences. We also continue to advertise through print and outdoor media, and, to a lesser extent, through television and cinema.
Our digital advertising programs focus on high impact and innovative digital media outlets, which allow us to convey our key brand messages and lifestyle positioning. We also develop digital editorial initiatives that allow for deeper education and engagement around the Ralph Lauren lifestyle, including the Ralph Lauren magazine, style guides, and videos.lifestyle. We deploy these
marketing and advertising initiatives through online, mobile, video, email, and social media. Our e-commercedigital commerce sites present the Ralph Lauren lifestyle online, while offering a broad array of our apparel, footwear & accessories, home, fragrances, and homehospitality product lines.
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behalf. We believe our investments in shop-within-shop environments and retail stores, including our global flagship locations, contribute to and enhance the themes of our brands to consumers. We expensed approximately $280 million related to the advertising and marketing of our products in Fiscal 2016.
We also conduct a variety of public relations activities. Each spring and fall, our Ralph Lauren Women's Collection is presented during New York Fashion Week. We alsoFor example, we typically introduce each of theour spring and fall menswear and womenswear collections at press presentations in major cities such as New York City and Milan. TheseAdditionally, in October 2022, we held our first-ever West Coast fashion show, featuring our multi-brand, multi-gender ode to California Dreaming. Such fashion events, in addition to celebrity dressing occasions, including those related to red carpet dressing moments, model appearances, as well asevents, weddings, and major sporting events, and events hosted in-store and in our restaurantstores and restaurants, including The Polo Bar in New York The Polo Bar,City, generate extensive domestic and international media and social coverage.
We continue to beare the official outfitter for all on-court officials at both the Wimbledon, U.S. Open, and the U.S.Australian Open tennis tournaments. BothThese tournaments provide worldwide exposure for our brand in a relevant lifestyle environment. We also continue to be the exclusive Official Parade Outfitter for the U.S. Olympic and Paralympic Teams, with the right to manufacture, distribute, advertise, promote, and sell products in the U.S. which replicate the Parade Outfits and associated leisure wear. Most recently, we dressed Team U.S.A. for the 2014 Winter Olympic Games in SochiBeijing, China in 2022, and we will be dressing the team for the 2016upcoming Summer Olympic Games in Rio.Paris, France in 2024, Winter Olympic Games in Milan, Italy in 2026, and Summer Olympic Games in Los Angeles, U.S. in 2028. As part of our involvement with Team U.S.A., we have established a partnership with athletes serving as brand ambassadors and as the faces of our advertising, marketing, and public relations campaigns.
We believe our partnerships with such prestigious global athletic events reinforce our brand's sporting heritage in a truly authentic way and serve to connect our Company and brands to our consumers through their individual areas of passion.
Sourcing, Production and Quality
We contract for the manufacture of our products and do not own or operate any production facilities. Over 600300 different manufacturers worldwide produce our apparel, footwear & accessories, and home products, with no one manufacturer providing more than 5%4% of our total production during Fiscal 2016.2023. We source both finished products and raw materials. Raw materials include fabric, buttons, and other trim. Finished products consist of manufactured and fully assembled products ready for shipment to our customers. In Fiscal 2016, over 97%2023, approximately 96% of our products (by dollar value) were produced outside of the U.S., primarily in Asia, Europe, and Latin America.America, with approximately 19% of our products sourced from China and 18% from Vietnam. See "Import"Import Restrictions and Other Government Regulations" Regulations," Item 1A — "Risk Factors — Risks Related to Macroeconomic Conditions — Economic conditions could have a negative impact on our major customers, suppliers, vendors, and lenders, which in turn could materially adversely affect our business," and Item 1A — "Risk Factors— Risks Related to our Business and Operations — Our business is subject to risks associated with importing products and could suffer as a resultthe ability of increases in the price of raw materials, freight, or labor; or a manufacturer's inabilityour manufacturers to produce our goods on time and to our specifications."
Most of our businesses must commit to the manufacturing of our garments before we sell finished goods, whether to wholly-owned retail stores or to wholesale customers. We also must commit to the purchase of fabric from mills well in advance of our sales. If we overestimate our primary customers' demand for a particular product or the need for a particular fabric or yarn, we primarily sell the excess products or garments made from such fabric or yarn in our factoryoutlet stores or through other secondary distribution channels.
Suppliers operate under the close supervision of our global manufacturing division and buying agents headquartered in Asia, the Americas, the Middle East, and Europe.division. All products are produced according to our specifications.specifications and standards. Production and quality control staff in Asia, the Americas, the Middle East, and Europe monitor manufacturing at supplier facilities in order to correct problems prior to shipment of the final product. Procedures have been implemented under our vendor certification and compliance programs so that quality assurance is reviewed early in the production process, allowing merchandise to be received at the distribution facilities and shipped to customers with minimal interruption.
Competition
Competition is very strong in the segments of the fashion and consumer product industries in which we operate. We compete with numerous designers and manufacturers of apparel, andfootwear, accessories, fragrances, and home furnishing products, both domestic and international. We also face increasing competition from companies selling our product categories through the Internet. Some of our competitors may be significantly larger and have substantially greater resources than us. We compete primarily on the basis of fashion, quality, value, and service, which depend on our ability to:
•anticipate and respond in a timely fashion to changing consumer demands in a timely manner;and shopping preferences, including the ever-increasing shift to digital brand engagement, social media communications, and online and cross-channel shopping;
•create and maintain favorable brand recognition, loyalty, and a reputation for quality;quality, including through digital brand engagement and online and social media presence;
•develop and produce high qualityinnovative, high-quality products in sizes, colors, and styles that appeal to consumers;consumers of varying age groups;
•provide strong and effective marketing support;support in several diverse demographic markets, including through digital and social media platforms in order to stay better connected to consumers;
•adapt to changes in technology, including the successful utilization of distributiondata analytics, artificial intelligence, and machine learning;
•obtain sufficient retail floor space and effectively present our products to consumers.consumers;
•attract consumer traffic to stores, shop-within-shops, and digital commerce sites;
•source sustainable and traceable raw materials at cost-effective prices;
•anticipate and maintain proper inventory levels;
•ensure product availability and optimize supply chain and distribution efficiencies;
•maintain and grow market share;
•recruit and retain employees to operate our retail stores, distribution centers, and various corporate functions;
•protect our intellectual property; and
•withstand prolonged periods of adverse economic conditions or business disruptions.
See Item 1A — "Risk Factors— Risks Related to our Business and Operations — We face intense competition worldwide in the markets in which we operate."
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Distribution
To facilitate global distribution, our products are shipped from manufacturers to a network of distribution centers around the world for inspection, sorting, packing, and delivery to our retail locations and digital commerce and wholesale customers. This network includes the following primary distribution facilities:
| Facility Location | Geographic Region Serviced | Facility | Ownership | |||||||||||||||
| N. Pendleton Street, High Point, North Carolina | Owned | |||||||||||||||||
| NC Highway 66, High Point, North Carolina | U.S. | Leased | ||||||||||||||||
| Leased | ||||||||||||||||||
| Whitsett, North Carolina | ||||||||||||||||||
| Toronto, Ontario | Third-party | |||||||||||||||||
| Third-party | ||||||||||||||||||
| Third-party | ||||||||||||||||||
Bugok, South Korea | South Korea | Leased | ||||||||||||||||
| Tuen Mun, Hong Kong | Third-party | |||||||||||||||||
(a)Includes Australia, China, Hong Kong, India, Macau, Malaysia, New Zealand, the Philippines, Singapore, Taiwan, Thailand, and Vietnam.
All facilities are designed to allow for high-density cube storage and value-added services and utilize unit and carton tracking technology to facilitate process control and inventory management. The distribution network is managed through globally integrated information technology systems.
Our management information systems makefacilitate business processes, consumer experiences, and decision-making support across the Company and our extended ecosystem of manufacturers, vendors, business partners, and customers. Our system applications are connected to support the flow of information across functions, including:
•product design, marketing, manufacturing, importing,sourcing, and distribution of our products more efficient by providing, among other things:production;
•comprehensive order processing;processing, fulfillment, and distribution;
•marketing and advertising;
•financial accounting information; and management reporting; and
We are incontinually improving and upgrading our computer systems, services, and software. For example, during Fiscal 2023, we expanded our integration of the process of implementing a global operatingsupply network with demand management processes, created new business-to-business capabilities for wholesale sales management, and financial reporting information technology system, SAP, as part of a multi-year plan to integrate and upgrade our systems and processes. The implementation of this global system is scheduled to occur in phases over the next several years. We substantially completed the migrationupgrade of our North America operations to SAP during Fiscal 2015, and we are currently in the process of executing the migration of our European operations to SAP, which is expected to be completed during Fiscal 2017.global human resource systems. In addition, we continued to implementing SAP, we also completedenhance our solutions for advanced analytics, furthering use of artificial intelligence ("AI") and machine learning ("ML") for areas such as forecasting, inventory management, marketing, and consumer-facing capabilities such as personalization. We implemented an internal AI/ML platform that enables use of data and machine learning for insights and operations broadly across the migration of our North America operationsorganization. Generative AI is being introduced to a new procure-to-pay platform during Fiscal 2016,augment creative and we expect to execute the migration of our European operations to this new platform during Fiscal 2017.content creation processes. We are also continually enhancing consumer experiences including the continued expansion of new Connected Retail Capabilities such as the digitization in our retail stores and optimization of inventory across direct-to-consumer channels.
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We have a longstanding information security risk program structured according to the processNational Institute of building an in-houseStandards and Technology Cybersecurity Framework, industry best practices, privacy legislation, and other global e-commerce platformand local standards and regulations. This program includes a defense-in-depth approach with multiple layers of security controls, including network segmentation, security monitoring, endpoint protection, and identity and access management, as partwell as data protection best practices and data loss prevention controls. Our Audit Committee is updated on the overall performance of our planinformation security risk program on a quarterly basis by our Chief Information Security Officer.
Our cybersecurity awareness program includes regular phishing simulations, annual general cybersecurity awareness, and data protection modules, as well as more contextual and personalized modules for targeted users and roles. We incorporate external expertise and guidance in all aspects of our cybersecurity program. We complete annual internal security audits and vulnerability assessments of the Company's information systems and related controls, including systems affecting personal data. In addition, we leverage cybersecurity specialists to furthercomplete annual external audits and objective assessments of our cybersecurity program and practices, including our data protection practices, as well as to conduct targeted attack simulations. We continually enhance our omni-channel capabilities. Rolloutinformation security capabilities in order to protect against emerging threats, while also increasing our ability to detect and respond to cyber incidents and maximize our resilience to recover from potential cyber-attacks. We have a robust incident response plan in place that provides a documented runbook for handling high severity cybersecurity incidents and facilitates coordination across multiple parts of the new global e-commerce platform is expectedour Company. We also perform simulations and drills at both a technical and leadership level at least annually. Additionally, we have purchased network security and cyber liability insurance in order to be completed in 2018.provide a level of financial protection, should a data breach occur.
See Item 1A — "Risk Factors — RiskRisks Related to Information Systems and uncertainties associated with the implementation of information systems may negatively impact our business," "Risk Factors Data Security — A data security or privacy breach could damage our reputation and our relationships with our customers or employees, expose us to litigation risk, and adversely affect our business" and "Risk Factors — Risks Related to Information Systems and Data Security — Our business could suffer if our computer systems and websites are disrupted or cease to operate effectively."
Wholesale Credit Control
We manage our own credit function. We sell our merchandise principally to major department stores, specialty stores, and third-party digital partners, and extend credit based on an evaluation of the wholesale customer's financial capacity and condition, usually without requiring collateral. We monitor credit levels and the financial condition of our wholesale customers on a continuing basis to minimize credit risk. We do not factor or underwrite our accounts receivables, ornor do we maintain credit insurance to manage the risk of bad debts. In North America, collection and deduction transactional activities are provided through a third-party service provider. See Item 1A — "Risk
Factors — Risks Related to our Business and Operations — A substantial portion of our revenue is derived from a limited number of large wholesale customers. Our business could sufferbe adversely affected as a result of consolidations, liquidations, restructurings, other ownership changes in the retail industry, and/or any financial instability of our large wholesale customers."
Trademarks
We own the RALPH LAUREN, POLO, POLO BY RALPH LAUREN, DESIGN, and the famous polo player astride a horsePolo Player Design trademarks in the U.S. and approximatelyover 120 countries worldwide. Other trademarks that we own include:
•PURPLE LABEL;
•DOUBLE RL;
•RLX;
•RL;
•LAUREN RALPH LAUREN;
•PINK PONY;
•LAUREN;
•RALPH;
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•CHAPS; and
•Various other trademarks, including those pertaining to fragrances and cosmetics.trademarks.
Mr. Ralph Lauren has the royalty-free right to use as trademarks RALPH LAUREN, DOUBLE RL, and RRL in perpetuity in connection with, among other things, beef and living animals. The trademarks DOUBLE RL and RRL are currently used by the Double RL Company, an entity wholly-ownedwholly owned by Mr. R. Lauren. In addition, Mr. R. Lauren has the right to engage in personal projects involving film or theatrical productions (not including or relating to our business) through RRL Productions, Inc., a company wholly-ownedwholly owned by Mr. R. Lauren. Any activity by these companies has no direct impact on us.
Our trademarks are the subject of registrations and pending applications throughout the world for use on a variety of items of apparel, apparel-related products and accessories, home furnishings, restaurant and café services, online services and online publications, and beauty products, as well as in connection with retail services, and we continue to expand our worldwide usage and registration of related trademarks. In general, trademarks remain valid and enforceable as long as the marks are used in connection with the related products and services and the required registration renewals are filed. We regard the license to use the trademarks and our other proprietary rights in and to the trademarks as extremely valuable assets in marketing our products and, on a worldwide basis, vigorously seek to protect them against infringement. As a result of the appeal of our trademarks, our products have been the object of counterfeiting. While we have a broad enforcement program which has been generally effective in protecting our intellectual property rights and limiting the sale of counterfeit products in the U.S. and in most major markets abroad, we face greater challenges with respect to enforcing our rights against trademark infringement in certain parts of Asia.
In markets outside of the U.S., our rights to some or all of our trademarks may not be clearly established. InOver the course of our international expansion, we have experienced conflicts with various third parties who have acquired ownership rights in certain trademarks, including POLO and/or a representation of a Polo Player Design, which impede our use and registration of our principal trademarks. While such conflicts are common and may arise again from time to time as we continue our international expansion, we have, in general, successfully resolved such conflicts in the past through both legal action and negotiated settlements with third-party owners of the conflicting marks (see Item 1A — "Risk Factors — Risks Related to our Business and Operations — Our trademarks and other intellectual property rights may not be adequately protected outside the U.S." and Item 3 — "Legal Proceedings" for further discussion). Although we have not suffered any material restraints or restrictions on doing business in desirable markets in the past, we cannot assure that significant impediments will not arise in the future as we expand product offerings and introduce trademarks to new markets.
Import Restrictions and Other Government Regulations
Virtually all of our merchandise imported into the Americas, Europe, Asia, Australia, and New Zealand is subject to duties. In addition, most of the countries to which we ship could impose safeguard quotas and duties to protect their local industries from import surges that threaten to create market disruption. The U.S. and other countries may also unilaterally impose additional duties in response to a particular product being imported (from China or other countries) at unfairly traded prices in such increased quantities that would cause (or threaten) injury to the relevant domestic industry (generally known as "anti-dumping" actions). If dumping is suspected in the U.S., the U.S. government may self-initiate a dumping case on behalf of the U.S. textile industry which could significantly affect our costs. Furthermore, additional duties, generally known as countervailing duties, can also be imposed by the U.S. government to offset subsidies provided by a foreign government to foreign manufacturers if the importation of such subsidized merchandise injures or threatens to injure a U.S. industry. Legislative proposals have been introduced which, if adopted, would treat a manipulation by China of the value of its currency as actionable under the anti-dumping or countervailing duty laws.
As almost all of our products are manufactured by foreign suppliers, the enactment of new legislation or the administration of current international trade regulations or executive action affecting textile agreements, or changes in sourcing patterns resulting from the elimination of quotas, could adversely affect our operations. See Item 1A — "Risk Factors —Risks Related to Regulatory, Legal, and Tax Matters — Our ability to conduct business in international marketsglobally may be affected by a variety of legal, regulatory, political, and economic risks"and"Risk Factors —Risks Related to our Business and Operations — Our business is subject to risks associated with importing products and could suffer as a resultthe ability of increases in the price of raw materials, freight, or labor; or a manufacturer's inabilityour manufacturers to produce our goods on time and to our specifications."
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We are also subject to other international trade agreements, such as the U.S.-Mexico-Canada Agreement, the Central American Free Trade Agreement, the U.S.-Peru Free Trade Agreement, the U.S.-Jordan Free Trade Agreement, the U.S.-Korea Free Trade Agreement and other special trade preference programs. A portion of our imported products are eligible for certain of these duty-advantaged programs.
Apparel and other products sold by us are under the jurisdiction of multiple governmental agencies, including, in the U.S., the Federal Trade Commission, U.S. Customs & Border Protection, the U.S. Fish and Wildlife Service, the Environmental Protection Agency, and the Consumer Products Safety Commission. Our products are also subject to regulation in the U.S. and other countries, including the U.S. Consumer Product Safety Improvement Act, which imposes limitations on the permissible amounts of lead and phthalates allowed in children's products. These regulations relate principally to product labeling, licensing requirements, and consumer product safety requirements and regulatory testing,
particularly with respect to products used by children. Any failure to comply with such requirements could result in significant penalties and require us to recall products, which could have a material adverse effect on our business or operating results. We believe that we are in substantial compliance with these regulations, as well as applicable federal, state, local, and foreign rules and regulations governing the discharge of materials hazardous to the environment. We do not estimate any significant capital expenditures for environmental control matters either in the next fiscal year or in the near future. Our licensed products, licensing partners, buying/sourcing agents, and the vendors and factories with which we contract for the manufacture and distribution of our products are also subject to regulation. Our agreements require our licensing partners, buying/sourcing agents, vendors, and factories to operate in compliance with all applicable laws and regulations, and we are not aware of any violations which could reasonably be expected to have a material adverse effect on our business or operating results.
We are also subject to disclosure and reporting requirements, established under existing or new federal or state laws, such as the requirements to identify the origin and existence of certain "conflict minerals" under the Dodd-Frank Wall Street Reform and Consumer Protection Act, and disclosures of specific actions to eradicate abusive labor practices in our supply chain under the California Transparency in Supply Chains Act. While we require our suppliers to operate in compliance with all applicable laws and our operating guidelines which promote ethical and socially responsible business practices, any violation of labor, environmental, health, and safety or other laws, or any divergence by an independent supplier's labor practices from generally accepted industry standards, could damage our reputation, disrupt our sourcing capabilities, and increase the cost of doing business, adversely affecting our results of operations. See Item 1A — "Risk Factors — Risks Related to our Business and Operations — Our business could suffer if we fail to comply with labor laws or if one of our manufacturers fails to use acceptable labor or environmental practices."
Although we have not suffered any material restriction from doing business in desirable markets in the past, we cannot assure that significant impediments will not arise in the future as we expand product offerings and introduce additional trademarks to new markets.
Human Capital
Our purpose is to inspire the dream of a better life through authenticity and timeless style. This purpose extends to how we provide resources to support our employees' health, well-being, work-life harmony, and quality of life. We believe that attracting, developing, and retaining a diverse work force that is both skilled and motivated is critical to the successful execution of our long-term growth strategy. To this end, we are committed to creating a culture and work environment in which all employees feel welcome and can thrive, both as individuals and as part of our team.
Our Board of Directors regularly reviews our people and development strategy, including our employee diversity, equity, and inclusion initiatives.
Our Employees
As of April 2, 2016,1, 2023, we had approximately 26,00023,300 employees, comprised of approximately 15,00014,900 full-time and approximately 11,0008,400 part-time employees. Approximately 14,00010,400 of our employees are located in the U.S. and approximately 12,00012,900 are located in foreign countries. Approximately 25Three of our U.S. production employees in the womenswear business are members of Workers United (which was previously known as UNITE HERE) under an industry association collective bargaining agreement, which our womenswear subsidiary has adopted. We consider our relations with both our union and non-union employees to be good.
As of April 1, 2023, approximately 64% and 35% of our global workforce self-identified as female and male, respectively, with the remaining 1% electing not to disclose such information. In the U.S., approximately 61% of our workforce self-identified as an underrepresented race and ethnic group and 33% self-identified as White, with the remaining 6% electing not to disclose such information.
Diversity, Equity, and Inclusion
We believe the diversity of our employees and our culture of inclusivity drive innovation and creativity, and we are committed to further strengthening such diversity and inclusion across race, ethnicity, gender, sexual orientation, disability, and mental health and wellness, among other demographics, ensuring fairness for all. Our diversity, equity, and inclusion ("DE&I") strategy is guided by the following five pillars:
1.Talent — Ensure that fostering a culture of inclusion and belonging is a priority company-wide, resulting in the cultivation of diverse teams and elevation of underrepresented talent to leadership ranks. Throughout Fiscal 2023, we continued to achieve our goal of maintaining gender parity in our leadership ranks for Vice President and above. Additionally, we reached our goal of having at least 20% of our global leadership team being comprised of leaders from diverse racial and ethnic groups by the end of Fiscal 2023. We plan to continue driving progress toward other key representation targets, including ensuring that at least 10% of our global leadership team is Black, African, or African American.
2.Collaboration and Belonging — Enable open dialogue and create safe spaces for the amplification of diverse voices and perspectives. During Fiscal 2023, we launched a new framework, shifting to a more customized approach to ensure accessibility for employees worldwide. Formerly called Employee Resource Groups, our newly renamed Employee Impact Groups ("EIGs") harness the talent and passion of our employees from around the world to help create an inclusive and diverse company culture, as well as learning and engagement opportunities. Our mission is to create EIGs that enable the organization to (i) deliver results that tie directly to our Next Great Chapter: Accelerate growth strategy by fostering a culture where all employees can thrive; (ii) advance a trustful and engaged work environment; (iii) boost inclusive leadership capabilities to promote a sense of belonging for all employees; and (iv) empower our employees to positively impact our workplace and the communities in which we live and serve.
3.Learning — We remain dedicated to the growth and advancement of our talent and offer a wide range of development programs for all levels, including on-the-job training and coaching and skill-building through our various customized learning and training programs. All of our employee learning and development programs aim to promote our Ralph Lauren Success Drivers — the key attributes, skills, ways of thinking, and behaviors that ultimately create conditions that better enable individuals and teams to succeed. Specific to DE&I education, we continued to focus on inclusive leadership by rolling out a new "includership" program globally during Fiscal 2023. We are also continuing to evolve our cultural awareness training.
4.Communication and Messaging — Maximize our inclusive message and increase the transparency of our DE&I initiatives. We gather direct feedback from our employees and measure their engagement to better understand how we can improve.
5.Celebration and Recognition — Appreciate our unique differences and increase educational events for all employees with a focus on diverse experiences. During Fiscal 2023, we increased educational and celebratory events focused on diverse experiences with over 70 virtual and in-person DE&I events with 7,000 participants globally. Our DE&I efforts have been recognized in recent years, including being named a Best Place to Work for LGTBQIA+, receiving 100% on the Human Rights Campaign's Corporate Equality Index for three consecutive years, as well as being named Best Place to Advance for Women by Parity.org, also for three consecutive years.
Additional information relating to our DE&I initiatives and goals can be found in our annual sustainability report, which is available at our website at http://investor.ralphlauren.com under the caption "Global Citizenship & Sustainability Report." Our 2023 Global Citizenship & Sustainability Report is expected to be published in June 2023. The content of our sustainability reports is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC.
Talent Development
We continue our commitment to the growth and development of our employees and offer a wide range of development programs for all levels. In addition to receiving ongoing on-the-job training and coaching, our employees can build skills and prepare for the future through our learning platform, Ralph Lauren Learning. During Fiscal 2023, we amplified the education for our RL Success Drivers by creating development guides for all of our employees on how to unlock and apply the RL Success Drivers to their role.
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Our RL Learning Academy, representing a collection of customized collaborative and experiential learning programs rooted in the RL Success Drivers, continues to grow. During Fiscal 2023, all managers were trained on situational leadership and "includership" to support and foster our inclusive culture. Employee career progression at our distribution centers and stores was also a focus area this year, with programs launched to support career growth and management development. We also added new courses this year focused on responsive flexibility, inclusivity, and a range of learning on demand. In addition, we upgraded our Product Knowledge Learning, offering a range of in depth virtual and self-directed learning with a focus on high potential categories. These collective learning and development programs help foster career mobility for our employees, while simultaneously allowing us to fill a portion of our open positions with existing employees who know our company best.
Employee Safety and Well-Being
We are committed to the safety, health, and overall well-being of each of our employees and their families, providing a wide array of physical, emotional, social, and financial support to meet this objective. THRIVE, our global wellness program and related application tool, provides access to volunteer events and physical and mental wellness support. The THRIVE application also provides a daily pulse question through Microsoft Teams, which links to additional wellness articles based on an employee's response. In addition, these pulse responses are tracked so that employees can view their well-being progress. Further, our Europe business hosted workshops to educate all managers on mental health and how to support employees dealing with personal difficulties, with additional trainings planned in Fiscal 2024 for all of our employees worldwide.
Our priority continues to be to ensure the safety and well-being of all of our employees, customers, and the communities in which we operate in around the world. In this regard, for North America, in situations that make one feel unsafe, but do not warrant a call to 911, we launched a new program — Bond — making available the services of a security professional by an employee's side through an application, monitoring them and standing by to respond within seconds using voice, video, and chat.
During Fiscal 2023, we also expanded employee well-being services in the U.S. to include Gympass, a platform that offers resources to support one's body, mind, and mood, providing access to 12,000 fitness facilities nationwide at discounted prices, livestreamed group fitness classes, virtual personal training, and on-demand wellness partners providing fitness, meditations and mindfulness, mental health, and nutrition. In Asia, we launched Wellspace, a mobile app that helps employees improve mental and physical well-being. In Europe, we piloted mental health pop-ups for a period of two months in partnership with an Employee Assistance Program provider, enabling employees to participate in free 30-minute sessions with a trained therapist. In addition to these regional programs, we continue to host monthly wellness webinars globally and provide weekly meditation classes.
Compensation and Benefits
We are committed to providing competitive compensation and benefits to attract and retain a diverse and talented workforce. We are also committed to achieving pay equity throughout our organization, conducting annual assessments in partnership with an independent firm who is a leader in workplace equity and creators of a comprehensive analytics software platform used to analyze our employee compensation based on gender, race, and ethnicity.
We offer a wide array of both employer-paid and employee-paid benefits to support our employees' overall financial, physical, and mental well-being, including, but not limited to, healthcare and welfare benefits, retirement savings, paid time off, temporary leave, sabbaticals, and flexible work arrangements. During Fiscal 2023, we further expanded our medical benefits in the U.S. to include a new lower-cost medical option, previously only available to our part-time employees. We also provide our employees with a merchandise discount on most of our products.
As we continue to ensure employees can access benefits information easily and in real-time, as well as finding new ways to communicate with our retail population, we have recently launched a flexible benefits platform in the United Kingdom, Benify, and plan to extend the program to more countries in the future. This platform enables employees to select relevant benefits that fit their needs and lifestyle, access benefits information directly from their mobile or laptop, and submit their benefits selections on the platform. The platform also offers a communications module to send push notifications via the mobile app when an action is required from an employee.
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Information About Our Executive Officers
Ralph Lauren | Age | Mr. | ||||||||||||
Patrice Louvet | Age | Mr. | ||||||||||||
Jane Hamilton Nielsen | Age 59 | Ms. Nielsen has been our Chief Financial Officer since September 2016 and our Chief Operating Officer since March 2019. She served as Chief Financial Officer of Coach, Inc. from | ||||||||||||
David Lauren | Age 51 | Mr. David Lauren has been our Chief Branding and Innovation Officer, Strategic Advisor to | ||||||||||||
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Halide Alagöz | Age 51 | Ms. Alagöz joined the Company as the Corporate Senior Vice President of Global Manufacturing and Sourcing in 2016. She has been our Chief Product Officer since March 2021. Ms. Alagöz is responsible for our end-to-end product life cycle, bringing the magic of our design and product vision to life for our consumers around the world. She leads our Polo, RRL, and Lauren brand teams and additionally drives innovation and the seamless execution – from development through sourcing – of all products across the Ralph Lauren portfolio. Prior to joining the Company, Ms. Alagöz was with H&M Corporation for 18 years, most recently in Hong Kong as the Head of Purchasing. During her tenure with H&M, Ms. Alagöz was responsible for various regional and global supply chain operations in Hong Kong, China, Bangladesh, and Turkey. She also serves on the board of directors of the American Apparel & Footwear Association since April 2018 and was confirmed as its Secretary for its 2023-2024 term in March 2023. Ms. Alagöz earned both her bachelor's degree in Industrial Engineering and her master's degree in Engineering Management from Istanbul Technical University. | ||||||||||||
Item 1A. Risk Factors
There are risks associated with an investment in our securities. The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained in this Annual Report on Form 10-K. Any of the following risk factors could materially adversely affect our business, including our prospects, our results of operations, our financial condition, our liquidity, the trading price of our securities, and/or the actual outcome of matters as to which forward-looking statements are made in this report. Additional risks and uncertainties not currently known to us or that we currently view as immaterial may also materially adversely affect our business results of operations, and financial condition in future periods or if circumstances change.
Economic, political, and other conditions may adversely affect the level of consumer purchases of discretionary items and luxury retail products, including our products.
The industries in which we operate are cyclical. Many economic and other factors outside of our control affect the level of consumer spending in the apparel, footwear & accessories, home, fragrances, and hospitality industries, including, among others, man-made or natural disasters, including pandemic diseases; consumer perceptions of personal well-being and safety; consumer perceptions of current and future economic conditions; employment levels and wage rates; stock market performance; inflation; interest rates; foreign currency exchange rates; the housing market; consumer debt levels; the availability of consumer credit; the health and stability of the banking sector; the availability and price of commodities, including fuel and energy costs; global food supplies; taxation; general domestic and international political conditions; the threat, outbreak, or escalation of terrorism, military conflicts, or other hostilities; and weather conditions.
Consumer purchases of discretionary items and luxury retail products, including our products, tend to decline during periods of recession, high inflation, or rising interest rates, and at other times when disposable income is lower. Unfavorable economic conditions and other factors, such as pandemic diseases and other health-related concerns, political unrest, military conflicts, and acts of terrorism, may also reduce consumers' willingness and ability to travel to major cities and vacation destinations in which our stores and shop-within-shops are located. Further, consumers may prefer to spend more of their discretionary income on "experiences," such as dining and entertainment, over consumer goods. Stay-at-home orders, social gathering restrictions, and work-from-home arrangements, such as those resulting from pandemic diseases, may also diminish consumers' demand for luxury apparel products. Accordingly, a downturn or an uncertain outlook in the economies in which we, or our wholesale customers and licensing partners, sell our products, or other changes in consumer preferences, may materially adversely affect our executivebusiness.
See Item 7 — "Management's Discussion and senior management team mayAnalysis of Financial Condition and Results of Operations — Global Economic Conditions and Industry Trends" for additional discussion.
Economic conditions could have a negative impact on our major customers, suppliers, vendors, and lenders, which in turn could materially adversely affect our business.
Although we believe that our existing cash and investments, cash provided by operations, and available borrowing capacity under our credit and overdraft facilities and commercial paper borrowing program will provide us with sufficient liquidity, the impact of economic conditions on our major third-party customers, suppliers, vendors, and lenders and their ability to access global capital markets cannot be disruptivepredicted. The inability of third parties to manufacture and/or ship our products due to insufficient liquidity or otherwise could impair our ability to meet the delivery date requirements of our
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customers. A disruption in the ability of our significant customers to access liquidity could cause serious disruptions or an overall deterioration of their businesses which could lead to a significant reduction in their future orders of our products and the inability or failure on their part to meet their payment obligations to us, any of which could have a material adverse effect on our business.
Any deterioration in global financial or capital markets could affect our ability to access sources of liquidity to provide for our future cash needs, increase the cost of any future financing, or cause uncertaintyour lenders to be unable to meet their funding commitments under our credit and overdraft facilities. We also regularly maintain domestic cash deposits in Federal Deposit Insurance Corporation ("FDIC") insured banks, which exceed the FDIC insurance limits. In addition, we maintain cash deposits in foreign banks where we operate, some of which are not insured or are only partially insured by the FDIC or other similar agencies. Bank failures, events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, or concerns or rumors about such events, may lead to liquidity constraints. The failure of a bank, or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, could adversely impact our liquidity and financial performance. There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S. or applicable foreign government, or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions, or by acquisition in the event of a failure or liquidity crisis. Our major customers, suppliers, and vendors may also be subject to similar risks, which in turn could have a resulting material adverse impact on our business resultsif they were to lose access to sufficient liquidity.
Infectious disease outbreaks, such as the COVID-19 pandemic, could have a material adverse effect on our business.
Our business could be adversely affected by infectious disease outbreaks, such as the novel strain of operations, financial condition,coronavirus commonly referred to as COVID-19. COVID-19 emerged during the fourth quarter of Fiscal 2020 and spread rapidly across the market priceglobe, including throughout all major geographies in which we operate, resulting in adverse economic conditions and widespread business disruptions. Since then, governments worldwide have periodically imposed varying degrees of preventative and protective actions, such as temporary travel bans, stay-at-home orders, and forced business closures or other operational restrictions, including reduced capacity limits and operating hours, all in an effort to reduce the spread of the virus.
As a result of the COVID-19 pandemic, we have experienced varying degrees of business disruptions since its beginning, including periods of closure of our common stock.
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attention and resources from ongoing business activities and/or a decrease in employee morale; and (xv) our ability to maintain an effective system of internal controls and compliance with the requirements under the Sarbanes-Oxley Act of 2002.
Additional discussion related to the various risks and uncertainties described above is included elsewhere within this "Risk Factors" section of this Form 10-K.
Our business is exposed to domestic and foreign currency fluctuations.
Our business is exposed to foreign currency exchange risk. Specifically, changes in exchange rates between the U.S. Dollar and other currencies impact our financial results from a transactional perspective, as our foreign operations generally purchase inventory in U.S. Dollars. Given that we source most of our products overseas, the cost of these products may be affected by changes in the value of the relevant currencies. Changes in currency exchange rates may also impact consumers' willingness or ability to travel abroad and/or purchase our products while traveling, as well as affect the U.S. Dollar value of the foreign currency denominated prices at which our international businesses sell products. Additionally, the operating results and financial position of our international subsidiaries are exposed to foreign exchange rate fluctuations as their financial results are translated from the respective local currency into U.S. Dollars during the financial statement consolidation process. The foreign currencies to which we are exposed to from a transactional and translational perspective primarily include the Euro, the Japanese Yen, the South Korean Won, the Australian Dollar, the Canadian Dollar, the British Pound Sterling, the Swiss Franc, and the Chinese Renminbi. The expansion of our international business increases our exposure to foreign currency exchange risk.
Although we hedge certain exposures to changes in foreign currency exchange rates arising in the ordinary course of business, we cannot fully anticipate all of our currency exposures and therefore foreign currency fluctuations may have a material adverse impact on our business. In addition, factors that could impact the effectiveness of our hedging activities include the volatility of currency markets, the accuracy of forecasted transactions, and the availability of hedging instruments. As such, our hedging activities may not completely mitigate the impact of foreign currency fluctuations on our results of operations. See Item 7 — "Management's Discussion and Analysis of Financial Condition and Results of Operations — Market Risk Management."
Risks Related to our Strategic Initiatives and Restructuring Activities
We cannot assure the successful implementation of our growth strategy.
We have developed a long-term growth strategy with the objective of delivering sustainable, profitable growth and long-term value creation for shareholders, as outlined in Item 1 — "Business — Objectives and Opportunities." Our ability to successfully execute our growth strategy is subject to various risks and uncertainties, as described herein.
Although we believe that our growth strategy will lead to long-term growth in revenue and profitability, there can be no assurance regarding the timing of or extent to which we will realize the anticipated benefits, if at all. Our failure to realize the anticipated benefits, which may be due to our inability to execute the various elements of our growth strategy, changes in consumer preferences, competition, economic conditions (including recent inflationary and foreign currency pressures), and other risks described herein, such as those related to pandemic diseases and supply chain challenges, could have a material adverse effect on our business. Such a failure could also result in the implementation of new restructuring-related activities, which may be dilutive to our earnings in the short term.
Achievement of our growth strategy may require investment in new capabilities, distribution channels, and technologies. These investments may result in short-term costs without accompanying current revenues and, therefore, may be dilutive to our earnings in the short term. There can be no assurance regarding the timing of or extent to which we will realize the anticipated benefits of these investments and other costs, if at all.
We may not be successful in the expansion of our multi-channel distribution network or accelerating growth in certain product categories.
Implementation of our growth strategy involves the continuation and expansion of our multi-channel distribution network, including within international markets such as China, which is subject to many factors, including, but not limited to, our ability to (i) identify new or underpenetrated markets where our products and brand will be accepted by consumers; (ii) attract customers, particularly in new markets; (iii) identify desirable freestanding and department store locations, the availability of which may be out of our control; (iv) negotiate acceptable lease terms, including desired tenant improvement allowances; (v) efficiently and cost effectively build-out stores and shop-within-shops; (vi) source sufficient inventory levels timely to meet the needs of the new stores and shop-within-shops; (vii) hire, train, and retain competent store personnel; and (viii) integrate new stores and shop-within-shops into our existing systems and operations.
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Any of these challenges could delay or otherwise prevent us from successfully executing our distribution expansion strategy. There can be no assurance that our new stores and shop-within-shops will be successful and profitable or if the capital costs associated with the build-out of such new locations will be recovered. Further, entry into new markets may bring us into competition with new or existing competitors that have a more established market presence than us or other competitive advantages. Other risks related to our international expansion plans include (i) changes in general economic conditions in specific countries and markets, including those resulting from pandemic diseases, civil or political instability, or military conflicts; (ii) changes in diplomatic and trade relationships and any resulting anti-American sentiment; (iii) foreign government regulation; and (iv) restrictions on the repatriation of funds held internationally, among other risks described herein. If our expansion plans are unsuccessful or do not deliver an appropriate return on our investments, our business, results of operations, and financial condition could be adversely affected.
The success of our business also depends largely on our ability to continue to maintain, enhance, and expand our digital footprint and capabilities. In recent years, consumers have been increasingly shopping online using computers, smartphones, tablets, and other devices, and using such devices to perform comparison shopping on a real-time basis. The COVID-19 pandemic has further amplified this trend due in part to travel bans, stay-at-home orders, forced business closures, and other operational restrictions, which impede upon the ease at which consumers can shop at brick and mortar locations. Many consumers may also prefer to avoid populated locations, such as indoor shopping centers, in fear of exposing themselves to the virus or other infectious diseases. Any failure on our part, or on the part of our third-party digital partners, to provide attractive, reliable, secure, and user-friendly digital commerce platforms, including mobile apps, could negatively impact our customers' shopping experience resulting in reduced website traffic, diminished loyalty to our brands, and lost sales. In addition, as we continue to expand and increase the global presence of our digital commerce business, sales from our brick and mortar stores and wholesale channels of distribution in areas where digital commerce sites are introduced may decline due to changes in consumer shopping habits and cannibalization.
Our growth strategy also includes accelerating growth in certain high-potential, underdeveloped product categories, comprised of outerwear, home, and womenswear. We compete with other retailers in these product categories, some of which may be significantly larger than us and more established in these product categories, and competition is intense, as described within other risk factors herein. There can be no assurance that our targeted expansion in these product categories will be successful.
The success of our business depends on our ability to respond to constantly changing fashion and retail trends and consumer preferences in a timely manner, develop products that resonate with our existing customers and attract new customers, and provide a seamless shopping experience to our customers.
The industries in which we operate have historically been subject to rapidly changing fashion trends and consumer preferences. Our success depends in large part on our ability to originate and define fashion product and home product trends, as well as to anticipate, gauge, and react to changing consumer preferences in a timely manner. Our products must appeal to a broad range of consumers worldwide across various price points whose preferences cannot be predicted with certainty and are subject to rapid change, influenced by fashion trends, economic conditions, and weather conditions, among other factors. This issue is further compounded by the increasing use of digital and social media by consumers and the speed by which information and opinions are shared across the globe. We cannot assure that we will be able to continue to develop appealing styles or successfully meet constantly changing consumer preferences in the future. In addition, we cannot assure that any new products or brands that we introduce will be successfully received by consumers. Any failure on our part to anticipate, identify, and respond effectively to changing consumer preferences and fashion trends could adversely affect consumer acceptance of our products and leave us with a substantial amount of unsold inventory or missed opportunities. Conversely, if we underestimate consumer demand for our products or if manufacturers fail to supply quality products in a timely manner, we may experience inventory shortages. Any of these outcomes could have a material adverse effect on our business. For a discussion of risks related to our inventory management, see "Risks Related to our Strategic Initiatives and Restructuring Activities — Our profitability may decline if we are unable to effectively manage inventory or as a result of increasing pressure on margins."
Our marketing and advertising programs are integral to the success of our product offerings and on our ability to attract new customers and retain existing customers. Our communication campaigns are increasingly being executed through digital and social media platforms to drive further engagement with the younger consumer, with a focus on influencers. However, we cannot assure that our marketing and advertising programs will be successful or appeal to consumers.
The success of our business also depends on our ability to continue to develop and maintain a reliable omni-channel experience for our customers, as well as our ability to introduce new Connected Retail capabilities, such as virtual selling appointments, Buy Online-Ship from Store, Buy Online-Pick Up in Store, and mobile checkout and contactless payments, among other capabilities. Our business has evolved from an in-store experience to a shopping experience through multiple technologies, including computers, smartphones, tablets, and other devices, as our customers have become increasingly technologically savvy and expect a seamless omni-channel experience regardless of whether they are shopping in stores or online. We are increasingly using digital and social media platforms to interact with customers and enhance their shopping
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experience. If we are unable to develop and continuously improve our customer-facing technologies, the efforts of which typically require significant capital investments, we may not be able to provide a convenient and consistent experience to our customers regardless of the sales channel. This could negatively affect our ability to compete with other retailers and result in diminished loyalty to our brands, which could adversely impact our business.
Our retail stores are generally located in shopping malls or other shopping centers. Our sales at such stores, as well as our flagship locations, are largely dependent upon the volume of retail traffic in those shopping centers and the surrounding area. Retail traffic to our stores has been, and may continue to be, negatively impacted by disruptions caused by adverse economic conditions, pandemic diseases, severe weather conditions, and other various factors beyond our control. Any significant declines in retail traffic in the future could have a material adverse effect on our business.
We have also implemented, and expect to continue to implement, new store design concepts and other renovations to our existing store portfolio as part of our growth strategy. There can be no assurance that any of our store designs will resonate with customers or otherwise achieve the desired sales and profitability measures necessary to recover our initial capital investments, and such risks may be further compounded during periods of adverse economic conditions. If customers are not receptive to the design layout or visual merchandising of our stores, our business could be adversely affected. In addition, the failure of our store designs to achieve acceptable results could lead to asset impairment charges and/or our decision to close a store prior to the lease expiration date resulting in other store closure-related charges, including early lease termination fees. For additional discussion of risks related to the early termination of our leases, see "Risks Related to our Business and Operations — Our business is subject to risks associated with leasing real estate and other assets under long-term, non-cancellable leases."
Our profitability may decline if we are unable to effectively manage inventory or as a result of increasing pressure on margins.
We have implemented key strategic initiatives designed to optimize our inventory levels and improve the efficiency and responsiveness of our supply chain. Although we have shortened lead times for the design, sourcing, and production of certain of our product lines, we expect to continue to place orders with our vendors for the majority of products in advance of the related selling season. As a result, we are vulnerable to changes in consumer preferences and demand and pricing shifts. Our failure to continue to shorten lead times or to correctly anticipate consumer preferences and demand could result in the build-up of excess inventory. Other factors beyond our control could also result in the build-up of excess inventory, including unforeseen adverse economic conditions or business disruptions, such as those caused by the COVID-19 pandemic. Excess inventory levels could result in the utilization of less-preferred distribution channels, markdowns, promotional sales, donations, or destruction to dispose of such excess or slow-moving inventory, which may negatively impact our overall profitability and/or impair the image of our brands. Conversely, if we underestimate consumer demand for our products or if manufacturers fail to supply quality products in a timely manner, we may experience inventory shortages, which may negatively impact customer relationships, diminish brand loyalty, and result in lost sales. Any of these outcomes could have a material adverse effect on our business.
Additionally, our industry is subject to significant pricing pressure caused by many factors, including intense competition and a highly promotional retail environment, consolidation in the retail industry, pressure from retailers to reduce the costs of products, and changes in consumer spending patterns. Although we continue to limit our promotional activity in connection with our quality of sales initiatives, these factors may cause us to reduce our sales prices to retailers and consumers, which could cause our gross margin to decline if we are unable to appropriately manage inventory levels and/or otherwise offset price reductions with comparable reductions in our costs. If our sales prices decline and we fail to sufficiently reduce our product costs or operating expenses, our profitability will decline. In addition, changes in our customer, channel, and geographic sales mix could have a negative impact on our profitability. Any of these outcomes could have a material adverse effect on our business.
We may not fully realize the expected cost savings and/or operating efficiencies from our restructuring plans.
We have implemented restructuring plans to support key strategic initiatives, such as the Fiscal 2021 Strategic Realignment Plan, as described in Item 1 — "Business — Recent Developments." Although designed to deliver long-term sustainable growth, restructuring plans present significant potential risks that may impair our ability to achieve anticipated operating enhancements and/or cost reductions, or otherwise harm our business, including (i) higher than anticipated costs in implementing planned workforce reductions, particularly in highly regulated locations outside the U.S.; (ii) higher than anticipated lease termination and store or facility closure costs (see "Risks Related to our Business and Operations — Our business is subject to risks associated with leasing real estate and other assets under long-term, non-cancellable leases"); (iii) failure to meet operational targets or customer requirements due to the loss of employees or inadequate transfer of knowledge; (iv) failure to maintain adequate controls and procedures while executing, and subsequent to completing, our restructuring plans; (v) diversion of management attention and resources from ongoing business activities and/or a decrease in employee
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morale; (vii) attrition beyond any planned reduction in workforce; and (viii) damage to our reputation and brand image due to our restructuring-related activities.
If we are not successful in implementing and managing our restructuring plans, we may not be able to achieve targeted operating enhancements, sales growth, and/or cost reductions, which could adversely impact our business. Our failure to achieve targeted results for any reason, including business disruptions resulting from adverse economic conditions or catastrophic events such as pandemic diseases, could also lead to the implementation of additional restructuring-related activities, which may be dilutive to our earnings in the short term.
Risks Related to our Business and Operations
The loss of the services of Mr. Ralph Lauren members ofor any other changes to our executive and senior management team may be disruptive to, or other key personnel could have a material adverse effect oncause uncertainty in, our business.
Mr. Ralph Lauren's leadership in the design and marketing areas of our business has been a critical element of our success since the inception of our Company. Mr. R. Lauren is instrumental to, and closely identified with, our brand that bears his name. Our ability to maintain our brand image and leverage the goodwill associated with Mr. R. Lauren's name may be damaged if we were to lose his services. The death or disability of Mr. R. Lauren or other extended or permanent loss of his services, or any negative market or industry perception with respect to him or arising from his loss, could have a material adverse effect on our business, results of operations, and financial condition.business.
We also depend on the service and management experience of other key executive officers including Mr. Stefan Larsson, our President and Chief Executive Officer, and other members of senior management who have substantial experience and expertise in our industry and our business and have made significant contributions to our growth and success. Competition in our industry to attract and retain these employees is intense and is influenced by our reputation, our ability to offer competitive compensation and benefits, and economic conditions, among other factors. Any changes in our executive and senior management team, including those resulting from our restructuring actions, may be disruptive to, or cause uncertainty in, our business and future strategic direction. The lossdeparture of any key individual and the failure to ensure a smooth transition and effective transfer of knowledge involving senior employees could hinder or delay our strategic planning and execution, as well as adversely affect our ability to attract and retain other experienced and talented employees. Furthermore, the retail industry (among others) has been adversely affected by overall labor shortages resulting from a combination of the servicesCOVID-19 pandemic, labor disputes, strikes, and other factors. The introduction of anynew work arrangements and company-specific requirements regarding when and how often employees are required to work on-site versus remotely may also impact companies' ability to attract and retain employees. The departure of our key executive officers or other members of senior management, or one or more of our other key personnel, or the concurrent loss of several of these individuals or any negative public perception with respectour failure to these individuals,maintain sufficient employee staffing levels could also have a material adverse effectimpact on our business, resultsas well as impede our ability to maintain an effective system of operations,internal controls and financial condition.compliance with the requirements under the Sarbanes-Oxley Act of 2002.
We are not protected by a material amount of key-man or similar life insurance covering our executive officers, including Mr. R. Lauren, or other members of senior management. We have entered into employment agreements with certain of our executive officers, but competition for experienced executives in our industry is intense and the non-compete period with respect to certain of our executive officers could, in some circumstances in the event of their termination of employment with our Company, end prior to the employment term set forth in their employment agreements.
We may not fully realizeface intense competition worldwide in the expected cost savings and/or operating efficienciesmarkets in which we operate.
We face increasing competition from our restructuring plans, which could include the potential sale, discontinuance, or consolidation of certaincompanies selling apparel, footwear, accessories, home, and other of our brands.
product categories through the Internet. Although we sell our products through the Internet, increased competition and promotional activity in the worldwide apparel, footwear, accessory, and home product industries from Internet-based competitors could reduce our sales, prices, and margins. We have implemented,also face intense competition from other domestic and planforeign fashion-oriented apparel, footwear, accessory, and casual apparel producers that sell products through brick and mortar stores and wholesale and licensing channels. We compete with these companies primarily on the basis of: (i) anticipating and responding in a timely fashion to continuechanging consumer demands and shopping preferences, including the ever-increasing shift to implement, restructuring plansdigital brand engagement, social media communications, and online and cross-channel shopping; (ii) creating and maintaining favorable brand recognition, loyalty, and a reputation for quality, including through digital brand engagement and online and social media presence; (iii) developing and producing innovative, high-quality products in sizes, colors, and styles that appeal to consumers of varying age groups; (iv) competitively pricing our products and creating an acceptable value proposition for consumers, including price increases to mitigate inflationary pressures while simultaneously balancing the risk of lower consumer demand in response to any such price increases; (v) providing strong and effective marketing support key strategic initiatives, such asin several diverse demographic markets, including through digital and social media platforms in order to stay better connected to consumers; (vi) establishing relationships with athletes, musicians, influencers, and other celebrities to promote our brands and products; (vii) providing attractive, reliable, secure, and user-friendly digital commerce sites; (viii) adapting to changes in technology, including the Global Reorganization Plan, as described in Item 1 — "Business — Recent Developments." These restructuring plans are designed to maintain long-term sustainable growth by enhancing our operating effectivenesssuccessful utilization of data analytics, artificial intelligence, and efficiency, right-sizing and increasing the quality of our distribution channels, and reducing our operating costs. Restructuring plans present significant potential risks that may impair our ability to achieve anticipated operating enhancements and/or cost reductions, or otherwise harm our business, including:
machine learning; (ix) obtaining sufficient retail floor space
and effective presentation of our products at stores and shop-within-shops; (x) attracting consumer traffic to stores, shop-within-shops, and digital commerce sites; (xi) sourcing sustainable and traceable raw materials at cost-effective prices; (xii) anticipating and maintaining proper inventory levels; (xiii) ensuring product availability and optimizing supply chain and distribution efficiencies with third-party manufacturers and retailers; (xiv) maintaining and growing market share; (xv) recruiting and retaining employees to operate our retail stores, distribution centers, and various corporate functions; (xvi) protecting our intellectual property; and (xvii) ability to withstand prolonged periods of adverse economic conditions or business disruptions.
consumer preferences than us. In addition, technological advances and the retail industry's low barriers to entry allow for the introduction of new competitors and products at a rapid pace, which has been further compounded by the increasing shift to digital shopping channels. Any increased competition, or our failure to meet operational targetsadequately address any of these competitive factors, could result in reduced market share or customer requirements due to the loss of employees or inadequate transfer of knowledge;
The success of our business depends on our ability to retain the value and reputation of our brands, to continue to develop products that resonate with our existing customers and attract new customers, and to provide a seamless shopping experience to our customers.brands.
Our success depends on the value and reputation of our brands and our ability to consistently anticipate, identify, and respond to customers' demands, preferences, and fashion trends in the design, pricing, and production of our products, including the preference for certain products to be manufactured in the U.S., and deliver high-quality and sustainable products supported by engaging marketing campaigns. Any failure on our part to anticipate, identify, and respond effectively to these consumer demands, preferences, and trends could adversely affect acceptancenegative publicity regarding Mr. R. Lauren, or other members of our products. The Ralph Lauren name is integral toexecutive and senior management team, or our business and our business could be adversely affected if Mr. Ralph Lauren's public image or reputation were to be tarnished. Merchandise missteps or unfavorable publicity,Company as a whole, especially through social media which accelerates and increases the potential scope of negative publicity, could negativelyadversely impact the image of our brands with our customers and could result in diminished loyalty to our brands which could adversely impactand potentially lead to adverse consumer actions, including boycotts, even if the subject of such publicity is unverified or inaccurate and we seek to correct it. Consumer sentiment can also be influenced by our business, results of operations,partnership with athletes and financial condition.
Our trademarks and consumer acceptanceother intellectual property rights may not be adequately protected outside the U.S.
Our trademarks, intellectual property, and other proprietary rights are extremely important to our success and our competitive position. We devote substantial resources to the establishment and protection of our trademarks and anti-counterfeiting activities worldwide. However, significant counterfeiting and imitation of our products continue to exist. In addition, the laws of certain foreign countries may not protect trademarks or other proprietary rights to the same extent as do the laws of the U.S. and, leave us withas a substantial amount of unsold inventory or missed opportunities. If that occurs, weresult, our intellectual property may be forcedmore vulnerable and difficult to rely on markdowns or promotional sales to dispose of excess, slow-moving inventory, which may harm our business and impairprotect in such countries. Over the imagecourse of our brands. Conversely, ifinternational expansion, we underestimate consumer demand forhave experienced conflicts with various third parties that have acquired or claimed ownership rights to some of our products key trademarks that include Polo and/or if manufacturers faila representation of a polo player astride a horse, or otherwise have contested our rights to supply quality products in a timely manner, we may experience inventory shortages, which may result in unfilled orders, negatively impact customer relationships, diminish brand loyalty, and result in lost revenues. Anyour trademarks. We have resolved certain of these outcomes couldconflicts through both legal action and negotiated settlements. We cannot guarantee that the actions we have a material adverse effect ontaken to establish and protect our business, results of operations, and financial condition.
at all. See Item 1 — "Business — Trademarks," and Item 3 — "Legal Proceedings."
Our business is subject to risks associated with importing products and could suffer as a resultthe ability of increases in the price of raw materials, freight, or labor; or a manufacturer's inabilityour manufacturers to produce our goods on time and to our specifications.
We do not own or operate any manufacturing facilities and depend exclusively on independent third parties for the manufacture of our products. Our products are manufactured to our specifications through arrangements with over 600300 foreign manufacturers in various countries. In Fiscal 2016, over 97%2023, approximately 96% of our products (by dollar value) were produced outside of the U.S., primarily in Asia, Europe, and Latin America.America, with approximately 19% of our products sourced from China and 18% from Vietnam. Risks inherent in importing our products include:
include (i) changes in social, political, and economic conditions, including those which may resultresulting from the outcome of the 2016 U.S. presidential election,military conflicts, terrorist acts, or terrorist actsother hostilities, that could result in the disruption of trade from the countries in which our manufacturers or suppliers are located;
(ii) pandemic and epidemic diseases, such as COVID-19, which could result in closed factories, reduced workforces, scarcity of raw materials, port congestion, and scrutiny or embargoing of goods
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produced in infected areas;
(iii) changes in diplomatic and trade relationships, including the imposition of anti-dumpingany sanctions, restrictions, and other responses, including those issued by the U.S. and other countries against Russia, or countervailing duty proceedings resultingany other countries, in the potential assessment of special anti-dumping or countervailing duties; and
response to Russia's war with Ukraine; (iv) the imposition of additional regulations, quotas, trade sanctions, or safeguards relating to imports or exports, and costs of complying with such regulations and other laws relating to the identification and reporting of the sources of raw materials used in our products, which could lead to the formdetention, exclusion, or seizure of goods and imposition of monetary penalties and fines; (v) the imposition of additional duties, eithertariffs, taxes, and other charges on imports or exports; (vi) unfavorable changes in the availability, cost, or quality of raw materials and commodities; (vii) increases in the cost of labor, travel, and transportation; (viii) disruptions of shipping and international trade caused by natural and man-made disasters, labor shortages (stemming from labor disputes, strikes, or otherwise), or other unforeseen events, including any resulting impact to shipping prices; (ix) heightened terrorism-related cargo and supply chain security concerns, which could subject imported or exported goods to additional, more frequent, or more thorough inspections, leading to delays in the U.S. or its trading partnersdelivery of cargo; and (x) decreased scrutiny by customs officials for counterfeit goods, leading to remedy perceived illegal actions by national governments.lost sales, increased costs for our anti-counterfeiting measures, and damage to the reputation of our brands.
Our business could suffer if we need to replace manufacturers or distribution centers.
We do not own or operate any manufacturing facilities and depend exclusively on independent third parties for the manufacture of our products, the majority of which are located in foreign countries. Accordingly, the success of our business depends on our ability to identify reputable manufacturers who can fulfill our orders timely and to our specifications, as well as the timely importation, customs clearance, and receipt of products to and from our various distribution centers.
We compete with other companies for the production capacity of our manufacturers. Some of these competitors may place larger orders than we do, and thus may have an advantage in securing production capacity. If we experience a significant increase in demand, or if an existing manufacturer of ours must be replaced, we may have to expand our third-party manufacturing capacity. We cannot guarantee that this additional capacity will be available when required on terms that are acceptable to us. See Item 1 — "Business — Sourcing, Production and Quality." We enter into purchase order commitments each season specifying a time for delivery, method of payment, design and quality specifications, and other standard industry provisions, but do not have long-term contracts with any manufacturer. None of the manufacturers we use produce our products exclusively.
In addition, we rely on a number of owned, leased, and independently-operated distribution facilities around the world to warehouse and ship products to our customers and perform other related logistic services. Our ability to meet the needs of our customers depends on the proper operation of these distribution centers. Our distributions centers generally utilize computer-controlled and automated equipment, which are subject to various risks, including software viruses, security breaches, power interruptions, or other system failures. If any of our distribution centers were to close or become inoperable or inaccessible for any reason, including, but not limited to, pandemic diseases such as COVID-19, natural disasters, severe weather, labor shortages, fires, and system failures, or if we fail to successfully consolidate existing facilities or transition to new facilities, we could experience a substantial loss of inventory, disruption of deliveries to our customers and our stores, increased costs, and longer lead times associated with the distribution of products during the period that would be required to reopen or replace the facility. Any such disruptions could have a material adverse effect on our business.
We also rely upon third-party transportation providers for substantially all of our product shipments, including shipments to and from our distribution centers, to our stores and shop-within-shops, and to our digital commerce and wholesale customers. Our utilization of these shipping services is subject to various risks, including, but not limited to, potential labor shortages (stemming from labor disputes, strikes, or otherwise), severe weather, and pandemic diseases, which could delay the timing of shipments, and increases in wages and fuel prices, which could result in higher transportation costs. The rapid increase of online
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shopping driven by changes in consumer shopping preferences has amplified certain of these risks resulting in capacity constraints. As previously noted, we have incurred, and may continue to incur, higher freight and other logistic costs as a result of certain of the beforementioned factors. Any delays in the timing of our product shipments or increases in transportation costs could have a material adverse effect on our business.
Our business is subject to risks associated with leasing real estate and other assets under long-term, non-cancellable leases.
We generally operate most of our stores and corporate facilities under long-term, non-cancellable leasing arrangements. Our retail store leases typically require us to make minimum rental payments, and often contingent rental payments based upon sales. In addition, our leases generally require us to pay our proportionate share of the cost of insurance, taxes, maintenance, and utilities. We generally cannot cancel our leases at our option. If we decide to close a store, or if we decide to downsize, consolidate, or relocate any of our corporate facilities, we may incur an impairment charge and/or exit costs associated with the disposal of the store or corporate facility. In addition, we may remain obligated under the applicable lease for, among other things, payment of the base rent for the remaining lease term, even after the space is exited or otherwise closed and even if such closures are beyond our control (such as forced store closures resulting from pandemic diseases). Such costs and obligations related to the early or temporary closure of our stores or termination of our leases could have a material adverse effect on our business. In addition, certain of our leases include renewal options or terms that require rental payments to be adjusted to reflect current fair market rental rates, which could be significantly higher than the prior term's rental payments. Further, as each of our leases naturally expires, we may be unable to negotiate renewals, either on commercially acceptable terms or at all, which could lead to store closures resulting in lost sales.
A substantial portion of our revenue is derived from a limited number of large wholesale customers. Our business could be adversely affected as a result of consolidations, liquidations, restructurings, other ownership changes in the retail industry, and/or any financial instability of our large wholesale customers.
Several of our department store customers, including some under common ownership, account for a significant portion of our wholesale net sales. A substantial portion of sales of our licensed products by our domestic licensing partners are also made to our largest department store customers. Sales to our three largest wholesale customers accounted for approximately 16% of total net revenues for Fiscal 2023, and these customers accounted for approximately 34% of our total gross trade accounts receivable outstanding as of April 1, 2023. Substantially all sales to our three largest wholesale customers related to our North America segment.
While we have long-standing relationships with the majority of our wholesale customers, we typically do not enter into long-term agreements with them. Instead, we enter into a number of purchase order commitments with our customers for each of our product lines every season. A decision by the controlling owner of a group of stores or any other significant customer, whether motivated by economic conditions, financial difficulties, competitive conditions, or otherwise, to decrease or eliminate the amount of merchandise purchased from us or our licensing partners or to change their manner of doing business with us or our licensing partners or a change based on their new strategic and operational initiatives, including their continued focus on further development of "private labels" and exclusive product offerings in an effort to differentiate themselves from competitors, could have a material adverse effect on our business.
The department store sector has experienced numerous consolidations, restructurings, reorganizations, and other ownership changes in recent years, which could potentially increase in frequency as a result of prolonged periods of adverse economic conditions or changes in consumer shopping preferences, such as the increasing shift away from traditional brick and mortar wholesale retailers to larger online retailers. Our wholesale customers have also experienced significant business disruptions as a result of the COVID-19 pandemic, including declines in retail traffic, temporary store closures, and other operational restrictions. There can be no assurance that our wholesale customers have adequate financial resources and/or access to additional capital to withstand prolonged periods of such adverse economic conditions. The loss of one or more significant wholesale customers, or the loss of a large number of smaller wholesale customers, could have a material adverse effect on our business.
Further, certain of our large wholesale customers, particularly those located in the U.S., have been highly promotional and have aggressively marked down their merchandise, including our products. The continuation of such promotional activity could negatively impact our brand image and/or lead to requests from those customers for increased markdown allowances at the end of the season. In response and in connection with our growth plan, we strategically reduce shipments to certain of our customers and close less productive doors when deemed appropriate.
We sell our wholesale merchandise primarily to major department stores, specialty stores, and third-party digital partners across North America, Europe, Asia, Australia, and New Zealand, and extend credit based on an evaluation of each wholesale customer's financial condition, usually without requiring collateral. However, the financial difficulties of a wholesale customer,
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including those resulting from the COVID-19 pandemic, could cause us to limit or eliminate our business with that customer. We may also assume more credit risk relating to that customer's receivables. Our inability to collect on our trade accounts receivable from any one of these customers could have a material adverse effect on our business. See Item 1 — "Business — Wholesale Credit Control."
We have a substantial amount of indebtedness which could restrict our ability to engage in additional capital-related transactions in the future.
As of April 1, 2023, our consolidated indebtedness was approximately $1.1 billion, comprised of our outstanding unsecured senior notes. We also maintain several credit and overdraft facilities, including our Global Credit Facility, which collectively had a remaining availability of approximately $577 million as of April 1, 2023. Accordingly, the amount of our indebtedness could further increase materially if we decide to draw upon our credit or overdraft facilities. This substantial level of indebtedness could have adverse consequences to our business, including (i) making it more difficult to satisfy our debt obligations as they become due; (ii) impairing our ability to obtain additional financing in the future; (iii) requiring a substantial portion of our cash flows from operations to be used for the payment of principal and interest on our indebtedness, thereby reducing the amount of cash available to fund working capital needs, capital expenditures, and other general corporate purposes; (iv) limiting our flexibility to plan for, or react to, changes in our business; and (v) increasing our vulnerability to adverse economic and industry conditions.
We rely on our operating cash flows to repay our outstanding borrowings, as well as to fund any working capital needs, capital expenditures, dividend payments, share repurchases, and other general corporate purposes. Prolonged periods of adverse economic conditions or business disruptions in any of our key regions, or a combination thereof, could impede our ability to pay our obligations as they become due or return value to our shareholders, as well as delay previously planned expenditures related to our operations. Credit rating agencies also periodically review our capital structure and our ability to generate earnings. A prolonged period of deteriorated financial performance or our inability to comply with debt covenants (as discussed below) could make future financing more difficult to secure and/or expensive. Further, factors beyond our control, such as adverse economic conditions, could disrupt capital markets and limit the availability or willingness of financial institutions to extend capital to us in the future.
Certain of our debt instruments contain a number of affirmative and negative covenants, including maintaining a leverage ratio at or below a specified level. Our failure to comply with such covenants or otherwise secure temporary waivers of non-compliance, could result in the termination of the related facilities and/or our lenders demanding any amounts outstanding to be immediately repaid, which could have a material adverse effect on our business. Further, even if we are able to obtain waivers of non-compliance, such waivers may result in incremental fees, higher interest rates, and/or additional restrictions and covenants.
Additionally, the Federal Reserve has raised interest rates multiple times over the last 12 months in an effort to mitigate inflationary pressures and further increases may occur in the near future. Higher interest rates may increase the cost of any borrowings under our various credit and overdraft facilities, as well as negatively impact consumer sentiment and the global economy as a whole, which could result in a material adverse effect on our business.
We rely on our licensing partners to preserve the value of our licenses. Failure to maintain licensing partners could harm our business.
The risks associated with our own products also apply to our licensed products in addition to any number of possible risks specific to a licensing partner's business, including risks associated with a particular licensing partner's ability to (i) obtain capital; (ii) execute its business plans; (iii) manage its labor relations; (iv) maintain relationships with its suppliers and customers; (v) generate sufficient cash flows to fund its operations and pay its obligations as they become due, including minimum royalties due to us; (vi) withstand prolonged periods of adverse economic conditions; and (vii) manage its credit and bankruptcy risks effectively.
Although a number of our license agreements prohibit our licensing partners from entering into licensing arrangements with our competitors, our licensing partners generally are not precluded from offering, under other non-competitor brands, the types of products covered by their license agreements with us. A substantial portion of sales of our products by our domestic licensing partners are also made to our largest customers. While we have significant control over our licensing partners' products and advertising, we rely on our licensing partners for, among other things, operational and financial control over their businesses. Changes in management, reduced sales of licensed products, poor execution, or financial difficulties with respect to any of our licensing partners could adversely affect our revenues, both directly from reduced licensing revenue received and indirectly from reduced sales of our other products. Although we believe that we could replace our existing licensing partners in most circumstances, if necessary, our inability to do so for any period of time could have a material adverse effect on our business. See Item 1 — "Business — Our Licensing Business."
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Our business could be adversely affected by man-made or natural disasters and other catastrophic events in the locations in which we or our customers or suppliers operate.
Our operations, including retail, distribution, warehousing, and corporate operations, are susceptible to man-made or natural disasters, including pandemic diseases such as COVID-19, severe weather, geological events, and other catastrophic events, such as terrorist attacks and military conflict, any of which could disrupt our operations. In addition, the operations of our customers and suppliers could experience similar disruptions. The occurrence of natural disasters or other catastrophic events may result in sudden disruptions in the business operations of the local and regional economies affected, as well as the global economy as a whole, including, but not limited to, shortages and/or rising costs of raw materials or energy, public health issues, system failures, and reduced retail traffic. The occurrence of such events could also adversely affect financial markets and the availability of capital. In addition, our business can be affected by unseasonable weather conditions, such as extended periods of unseasonably warm temperatures in the winter or unseasonably cold temperatures in the summer. There is growing concern that climate change may increase both the frequency and severity of extreme weather conditions and natural disasters. Any of these events could result in decreased demand for our products and disruptions in our sales channels and manufacturing and distribution networks, which could have a material adverse effect on our business.
Risks Related to Information Systems and Data Security
A data security or privacy breach could damage our reputation and our relationships with our customers or employees, expose us to litigation risk, and adversely affect our business.
We are dependent on information technology systems and networks, including the Internet, for a significant portion of our direct-to-consumer sales, including our digital commerce operations and retail business credit card transaction authorization and processing. We are also responsible for storing data relating to our customers and employees and rely on third parties for the operation of our digital commerce sites and for the various social media tools and websites we use as part of our marketing strategy. In our normal course of business, we often collect, transmit, and/or retain certain sensitive and confidential customer information, including credit card information. There is significant concern by consumers, employees, and lawmakers alike over the security of personal information transmitted over the Internet, consumer identity theft, and user privacy.
Cyber-criminals are constantly devising schemes to gain unauthorized access to computer systems and confidential or sensitive data. Despite the security measures we currently have in place (including those described in Item 1 — "Business — Information Systems"), our facilities and systems and those of our third-party service providers may be vulnerable to targeted or random attacks that could lead to security breaches, acts of vandalism, phishing attacks, denial-of-service attacks, computer viruses, malware, ransomware, misplaced or lost data, programming and/or human errors, or other Internet or email events. The increased use of smartphones, tablets, and other wireless devices, as well as ongoing work-from-home arrangements for a substantial portion of our corporate employees, may also heighten these and other operational risks. The retail industry in particular continues to be the target of many cyber-attacks, which are becoming increasingly more difficult to anticipate and prevent due to their rapidly evolving nature. Furthermore, economic sanctions issued by one country against another, such as those recently issued by the U.S. and other countries against Russia in response to its war with Ukraine, could increase the risk of retaliatory state-sponsored cyber-attacks. Given the rapidly evolving nature, sophistication, and complexity of cyber-attacks, despite our reasonable efforts to mitigate and prevent such attacks, it is possible that we may not be able to anticipate, prevent, detect, or implement effective preventive measures to protect against all cyber-attack incidents.
Although we have purchased network security and cyber liability insurance to provide a level of financial protection should a data breach occur, such insurance may not cover us against all claims or costs associated with such a breach, and we cannot be certain that such insurance will continue to be available to us on economically reasonable terms or at all, or that our insurers will not deny coverage as to any future claim. Additionally, the technology we use to protect our systems from being breached or compromised could become outdated as a result of advances in computer capabilities or other technological developments, thereby requiring us to make further investments in capital or other resources to protect us against cyber-attacks, the cost of which could be significant. Further, measures we implement to protect our computer systems against cyber-attacks may make them harder to use or reduce the speed at which they operate, which in turn could negatively impact our customers' shopping experience resulting in reduced website traffic, diminished loyalty to our brands, and lost sales.
If unauthorized parties gain access to our networks or databases, or those of our vendors, they may be able to steal, publish, delete, modify, or block our access to our private and sensitive internal and third-party information. Any perceived or actual electronic or physical security breach involving the misappropriation, loss, or other unauthorized disclosure of confidential or personally identifiable information, including penetration of our network security, whether by us or by a third party, could disrupt our business, severely damage our reputation and our relationships with our customers, employees, or vendors, expose us to risks of litigation, significant fines and penalties, liability, and higher costs for insurance or insurance not being available to us on economically feasible terms or at all, and result in deterioration in our customers', employees', or
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vendors' confidence in us, and adversely affect our business, results of operations, and financial condition. Since we do not control third-party service providers and cannot guarantee that no electronic or physical computer break-ins and security breaches will occur in the future, any perceived or actual unauthorized disclosure of personally identifiable information regarding our employees, customers, or website visitors could harm our reputation and credibility, result in lost sales, impair our ability to attract website visitors, and/or reduce our ability to attract and retain employees and customers. As these threats develop and grow, we may find it necessary to make significant further investments to protect data and our infrastructure, including the implementation of new computer systems or upgrades to existing systems, deployment of additional personnel and protection-related technologies, engagement of third-party consultants, and training of employees.
In addition, the regulatory environment relating to information security and privacy is becoming increasingly more demanding with frequent new requirements surrounding the handling, protection, and use of personal and sensitive information. We may incur significant costs in complying with the various applicable state, federal, and foreign laws regarding protection of, and unauthorized disclosure of, personal information. Additionally, failing to comply with such laws and regulations could damage the reputation of our brands and lead to adverse consumer actions, as well as expose us to government enforcement action and/or private litigation, any of which could adversely affect our business.
Our business could suffer if our computer systems and websites are disrupted or cease to operate effectively.
We are dependent on our computer systems to record and process transactions and manage and operate our business, including designing, marketing, manufacturing, importing, tracking, and distributing our products, processing payments, accounting for and reporting financial results, and managing our employees and employee benefit programs. In addition, we have digital commerce and other informational websites in North America, Europe, and Asia, including Australia and New Zealand, and have plans for additional digital commerce sites in the future. Our digital commerce operations are a critical element of our long-term growth strategy and are vital to the overall success of our business. We have also implemented a hybrid work policy, allowing a substantial portion of our corporate employees to work remotely for part of the work week. Given the complexity of our business and the significant number of transactions that we engage in on a daily basis, it is imperative that we maintain uninterrupted operation of our computer hardware and software systems.
Despite our preventative efforts, our systems are vulnerable to damage or interruption from, among other things, security breaches, computer viruses, technical malfunctions, inadequate system capacity, power outages, natural disasters, and usage errors by our employees or third-party consultants. If our information technology systems become damaged or otherwise cease to function properly, we may have to make significant investments to repair or replace them. Additionally, confidential or sensitive data related to our customers, employees, or vendors could be lost or compromised. We are continually improving and upgrading our computer systems and software, which also involves risks and uncertainties. Any disruptions, delays, or deficiencies in the design, implementation, or transition of such systems could result in increased costs, disruptions in the sourcing, sale, and shipment of our product, delays in the collection of cash from our customers, and/or adversely affect our ability to accurately report our financial results in a timely manner. Any material disruptions in our information technology systems could have a material adverse effect on our business.
Risks Related to Environmental, Social, and Governance Issues
Our business could suffer if we fail to meet our global citizenship and sustainability goals or if such goals do not meet the expectations of our stakeholders
There is an increased focus from consumers, employees, investors, advocacy groups, and other stakeholders concerning environmental, social, and governance ("ESG") matters, including climate change, and the related sustainability initiatives of companies. Furthermore, investors have placed increased importance on the social cost of their investments. Although we have established certain long-term initiatives and goals regarding our impact on the environment and society as a whole, including our diversity, equity, and inclusion initiatives, there can be no assurance that our various stakeholders will agree with our initiatives or if we will be successful in achieving our goals by our targeted dates or at all. Further, we could incur additional costs, face market and technological barriers, and require additional resources to monitor, report, and comply with various ESG practices. Our failure, or perceived failure, to achieve our sustainability goals could damage the reputation of our brands and lead to adverse consumer actions and/or investment decisions by investors, as well as our ability to attract and retain employees.
Climate change, or our ability to adhere to any legislation and regulatory requirements related to climate change, traceability and transparency, product labeling, or other sustainability matters may adversely affect our business.
Our business is susceptible to risks associated with climate change, including potential disruptions to our retail stores, distribution centers, and corporate facilities. Increased frequency and/or severity of adverse weather events due to climate change could adversely impact global supply chains, including the availability and cost of raw materials (such as cotton, a key raw material used in the production of our products that is highly susceptible to severe weather conditions), the ability of our
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manufacturers to fulfill our orders timely and to our specifications, and shipping disruptions and/or higher freight costs. An increase in extreme weather conditions could also result in more frequent damage and/or closures of our stores and distribution centers, adversely impact retail traffic, consumer's disposable income levels or spending habits on discretionary items, or otherwise disrupt business operations in the communities in which we operate, any of which could result in lost sales or higher costs.
In addition, many countries in which we and our suppliers operate have begun enacting new legislation and regulations in an attempt to reduce or mitigate the potential impacts of climate change, which could result in higher sourcing, operational, and compliance-related costs. Such proposed measures also include expanded disclosure requirements regarding greenhouse gas emissions and other climate-related information, including independent auditors providing some level of attestation to the accuracy of such disclosures. There has also been increased focus by governmental and non-governmental organizations, consumers, customers, and other stakeholders on products that are sustainably made and other sustainability matters, including traceability and transparency, sustainability claims and product labeling requirements, responsible sourcing and deforestation, the use of energy and water, and the recyclability or recoverability of packaging, product, and materials. Our ability to comply with any such new laws and regulations or otherwise meet our various stakeholders' expectations may lead to increased costs and operational complexity. Any failure on our part to comply with such regulations or meet such expectations could lead to adverse consumer actions and/or investment decisions by investors, as well as expose us to government enforcement action and/or private litigation.
Risks Related to Regulatory, Legal, and Tax Matters
Our ability to conduct business globally may be affected by a variety of legal, regulatory, political, and economic risks.
Our ability to capitalize on growth in new international markets and to maintain our current level of operations in our existing markets is subject to certain risks associated with operating in various locations around the globe. These include, but are not limited to (i) complying with a variety of U.S. and foreign laws and regulations, including, but not limited to, trade, product labeling, and product safety restrictions, as well as forced labor regulations such as the Uyghur Forced Labor Prevention Act ("UFLPA") and the Countering America's Adversaries Through Sanctions Act ("CAATSA"), both of which prohibit the importation of goods made in whole or in part in certain territories, or by certain identified entities, and grants U.S. Customs & Border Protection the authority to detain, exclude, or seize goods and assess monetary penalties and fines, the Foreign Corrupt Practices Act, which prohibits U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business, and similar foreign country laws, such as the U.K. Bribery Act, which prohibits U.K. and related companies from any form of bribery; (ii) adapting to local customs and culture; (iii) unexpected changes in laws, judicial processes, or regulatory requirements; (iv) the imposition of additional duties, tariffs, taxes, and other charges or other barriers to trade; (v) changes in diplomatic and trade relationships; (vi) civil and political instability, military conflicts, and terrorist attacks; (vii) pandemic diseases, such as COVID-19; and (viii) general economic fluctuations in specific countries or markets.
Changes in regulatory, geopolitical, social, economic, or monetary policies and other factors may have a material adverse effect on our business in the future or may require us to exit a particular market or significantly modify our current business practices. For example, the global economy has been negatively impacted by the Russia-Ukraine war. Several countries, including the U.S., have imposed significant economic sanctions against Russia, including export controls and other trade restrictions with Russian entities. We have also voluntarily elected to suspend operations in Russia in protest of the conflict. While the suspension of our operations in Russia have not resulted in a material impact to our consolidated financial statements, our business has been impacted by the broader macroeconomic implications resulting from the war, including unfavorable foreign currency exchange rates, increases in energy prices, food shortages, and volatility in financial markets, among other factors, which have adversely impacted consumer sentiment and confidence. It is not clear at this time how long the conflict will endure, or if it will escalate further with additional countries declaring war against each other, which could further compound the adverse impact to the global economy.
Further, in recent years both the U.S. and China have imposed new tariffs on each other related to the importation of certain product categories, including imports of apparel into the U.S. from China. As a result of actions to mitigate our exposure to the resulting tariffs, which have included diverting production to and sourcing from other countries, driving productivity within our existing supplier base, and taking pricing actions, the tariffs enacted to date have not had a material adverse impact on our business operations. However, if the U.S. decides to impose additional tariffs on apparel or other of our goods imported from China, there can be no assurance that we will be able to offset all related increased costs, which could be material to our business operations as approximately 19% of our products are currently sourced from China. We cannot predict if, and to what extent, other countries in which our products are currently manufactured or will be manufactured in the future, will be subject to additional tariffs, new trade restrictions, or other changes to existing international trade agreements, any of which could have a material adverse impact on our business. For a discussion of risks associated with the importation of products, see "Risks
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Related to our Business and Operations — Our business is subject to risks associated with importing products and the ability of our manufacturers to produce our goods on time and to our specifications."
Our business could also be impacted by changes to the tax laws and regulations in the countries where we operate. For example, in August 2022, President Biden signed the Inflation Reduction Act ("IRA") into law. The IRA enacted a 15% corporate minimum tax rate (subject to certain thresholds being met) that will be applicable to the Company beginning in its Fiscal 2024, a 1% excise tax on share repurchases made after December 31, 2022, and created and extended certain tax-related energy incentives. Additionally, the Organisation for Economic Co-operation and Development (the "OECD"), which represents a coalition of member countries, has proposed changes to numerous long-standing tax principles through its Base Erosion and Profit Shifting project, which is focused on a number of issues, including the creation of a global minimum tax commonly referred to as "Pillar Two." Currently, South Korea and Japan are the only countries to have enacted legislation consistent with the OECD's proposals under Pillar Two. However, in December 2022, the European Union member states agreed to implement the OECD's Pillar Two global minimum tax rate of 15%, which is expected to go into effect during calendar 2024, and other countries are expected to implement related legislation in the near future. We cannot be certain if or when other countries will enact new legislation or how closely any such new legislation will align with the OECD's Pillar Two framework. The Company is currently evaluating the potential impact of such newly enacted and proposed legislation on its future consolidated financial statements. Additionally, other taxing authorities of certain state, local, and other foreign jurisdictions may also decide to modify existing tax laws. We cannot predict which, if any, of these items or others will be enacted into law or the resulting impact any such enactment will have on our business operations, which could be material.
Fluctuations in our tax obligations and effective tax rate may result in volatility of our operating results.
We are subject to income and non-income taxes in many U.S. and certain foreign jurisdictions, with the applicable tax rates varying by jurisdiction. We record tax expense based on our estimates of future payments, which include reserves for uncertain tax positions in multiple tax jurisdictions. At any given time, multiple tax years are subject to audit by various taxing authorities. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as events occur and exposures are evaluated. Our effective tax rate in a given financial statement period may also be materially impacted by changes in the mix and level of earnings by jurisdiction or by changes to existing accounting rules. Additionally, our products are subject to import and excise duties, and/or sales, consumption, value-added taxes ("VAT"), and other non-income taxes in certain international jurisdictions. Failure to correctly calculate or submit the appropriate amount of income or non-income taxes could subject us to substantial fines and penalties and adversely affect our business.
In addition, the tax laws and regulations in the countries where we operate may change, or there may be changes in interpretation and enforcement of existing tax laws, which could materially affect our income tax expense in our consolidated financial statements. For a discussion of risks related to the potential imposition of additional regulations and laws, see "Risks Related to Regulatory, Legal, and Tax Matters — Our ability to conduct business globally may be affected by a variety of legal, regulatory, political, and economic risks."
Our business could suffer if we fail to comply with labor laws or if one of our manufacturers fails to use acceptable labor or environmental practices.
We are subject to labor laws governing relationships with employees, including minimum wage requirements, overtime, working conditions, and citizenship requirements. Compliance with these laws may lead to increased costs and operational complexity and may increase our exposure to governmental investigations or litigation.
In addition, we require our licensing partners and independent manufacturers to operate in compliance with applicable laws and regulations. While our internal and vendor operating guidelines promote ethical business practices and our employees periodically visit and monitor the operations of our independent manufacturers, we do not control these manufacturers or their labor practices. The violation of any ethical, social, product safety, labor, health, environmental, privacy, or other lawsstandards and regulations by an independent manufacturer used by us or one of our licensing partners, or the divergence of an independent manufacturer's or licensing partner's labor or environmental practices from those generally accepted as ethical or appropriate in the U.S., could interrupt or otherwise disrupt the shipment of finished products to us or damage our reputation. Any of these events, in turn, could have a material adverse effect on our business, results of operations, and financial condition.
Certain legal proceedings, regulatory matters, and accounting changes could adversely impactaffect our results of operations.business.
We are involved in certain legal proceedings and regulatory matters and are subject from time to time to various claims involving alleged breach of contract claims, intellectual property and other related claims, escheatment and unclaimed property, credit card fraud, security breaches in certain of our retail store information systems, employment issues, consumer matters, lease disputes, and other litigation. Certain of these lawsuits and claims, if decided adversely to us or settled by us, could result in material liability to our Company or have a negative impact on our reputation or relations with our employees, customers, licensees,licensing partners, or other third parties. Other potential claimants may also be encouraged to bring suits against us based on a
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settlement from us or adverse court decision against us for similar claims or allegations as their own. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings could result in substantial costs and may require our Company to devote substantial time and resources to defend itself. Further, changes in governmental regulations both in the U.S. and in other countries where we conduct business operations could have an adverse impact on our business, results of operations, and financial condition.business. See Item 3 — "Legal Proceedings"Proceedings" for further discussion of our Company's legal matters.
In addition, we are subject to changes in accounting rules and interpretations issued by the Financial Accounting Standards Board and other regulatory agencies. If and when effective, such changes to accounting standards could have a material impact on our consolidated financial statements. See Note 4 to the accompanying audited consolidated financial statements for furthera discussion of recent amendments to currentcertain recently issued accounting standards.
The trading prices of operations could be affected by natural events inour securities periodically may rise or fall based on the locations in which weaccuracy of predictions of our earnings or other financial performance, including our customers or suppliers operate.
Our business could suffer if we needplanning process is designed to replace manufacturers or distribution centers.
maximize our long-term strength, growth, and profitability, and not to achieve an earnings target in any particular fiscal quarter. We compete with other companies forbelieve that this longer-term focus is in the production capacitybest interests of our manufacturers. SomeCompany and our stockholders. However, we also recognize that, from time to time, it may be helpful to provide investors with guidance as to our quarterly and annual forecast of these competitors have greater financialnet sales and other resources thanearnings. While we have, and thus may have an advantage in securing production capacity. Ifgenerally expect to provide updates to our guidance when we experience a significant increase in demand, or if an existing manufacturer of ours must be replaced,report our results each fiscal quarter, we may have to expand our third-party manufacturing capacity. We cannot guarantee that this additional capacity will be available when required on terms that are acceptable to us. See Item 1 — "Business — Sourcing, Production and Quality." We enter into a number of purchase order commitments each season specifying a time for delivery, method of payment, design and quality specifications, and other standard industry provisions, but do not have long-term contractsany responsibility to update any of our guidance or other forward-looking statements at such times or otherwise. In addition, any longer-term guidance that we provide is based on goals that we believe, at the time guidance is given, are reasonably attainable. However, such long-range targets are more difficult to predict than our current quarter and full fiscal year expectations. Additionally, external analysts and investors may publish their own independent predictions of our future performance. We do not endorse such predictions or assume any responsibility to correct such predictions when they differ from our own expectations. If, or when, we announce actual results that differ from those that have been predicted by us, outside analysts, or others, the market price of our securities could be adversely affected. Investors who rely on these predictions when making investment decisions with respect to our securities do so at their own risk. We take no responsibility for any manufacturer. Nonelosses suffered as a result of such changes in the manufacturers we use produceprices of our products exclusively.securities.
The stock market in general has experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of listed companies. Accordingly, public perception and other factors outside of our control may impact our stock price, regardless of our actual operating performance.
In addition, we relyhave historically returned value to shareholders through our payment of quarterly cash dividends and common stock share repurchases. Investors may have an expectation that we will continue to pay quarterly cash dividends, further increase our cash dividend rate, and/or repurchase shares available under our Class A common stock repurchase program. Our ability to pay quarterly cash dividends and repurchase our Class A common stock will depend on a number of owned and independently-operated distribution facilities around the world to warehouse and ship products to our customers and perform other related logistic services. As such, our ability to meetgenerate sufficient cash flows from operations in the needs of our customers depends on the proper operation of these distribution centers. If any of our distribution centers were closed or were to become inoperable for any reason, we could experience a substantial loss of inventory, disruption of deliveries to our customers and our retail stores, increased costs, and longer lead times associated with the distribution of products during the period that wouldfuture. This ability may be required to reopen or replace the facility. These disruptions could have a material adverse effect on our business, results of operations, and financial condition.
The voting shares of our Company's stock are concentrated in one majority stockholder.
As of April 2, 2016,1, 2023, Mr. Ralph Lauren, or entities controlled by the Lauren family, held approximately 82%86% of the voting power of the outstanding common stock of our Company. In addition, Mr. R. Lauren also serves as our Executive Chairman and Chief Creative Officer, Mr. R. Lauren's son, Mr. David Lauren, is an executive officerserves as our Chief Branding and Innovation Officer, Strategic Advisor to the CEO, and Vice Chairman of the Company and a director on our Board of Directors, and we employ other members of the Lauren family. From time to time, we may have other business dealings with Mr. R. Lauren, members of the Lauren family, or entities affiliated with Mr. R. Lauren or the Lauren family. As a result of his stock ownership and position in our Company, Mr. R. Lauren has the ability to exercise significant control over our business, including, without limitation, (i) the election of our Class B common stock directors, voting separately as a class and (ii) any action requiring the approval of our stockholders, including the adoption of amendments to our certificate of incorporation and the approval of mergers or sales of all or substantially all of our assets.
Item 1B. Unresolved Staff Comments.
Item 1 — "Business — Our Licensing Segment."2. Properties.
We primarily lease space for our retail stores, showrooms, warehouses, and offices in various domestic and international locations. We do not own any real property except for our distribution facility and an adjacent parcel of land in Greensboro, North Carolina; our retail e-commercedigital commerce call center and distribution facility in High Point, North Carolina;Carolina, and our retail stores in Southampton and Easthampton, New York, and Nantucket, Massachusetts.Massachusetts, which we own.
We believe that our existing facilities are well maintained, in good operating condition, and are adequate for our present level of operations.
The following table sets forth information relating to our keyprincipal properties as of April 2, 2016:
1, 2023:
| Location | Use | Approximate Square Feet | ||||||||||||
| NC Highway 66, High Point, NC | Wholesale and retail distribution facility | 847,000 | ||||||||||||
| N. Pendleton Street, High Point, NC | Retail | 805,000 | ||||||||||||
| Wholesale and retail distribution facility | ||||||||||||||
| 650 Madison Avenue, NYC | Executive and corporate offices, design studio, and showrooms | |||||||||||||
| Corporate | ||||||||||||||
| Corporate offices, design | ||||||||||||||
| Nutley, NJ | Corporate offices | 109,300 | ||||||||||||
| Spinners Building, Hong Kong | Asia sourcing offices | 67,000 | ||||||||||||
| Gateway Office, Hong Kong | Asia corporate offices | |||||||||||||
| Watford, UK | Europe corporate offices | 28,000 | ||||||||||||
| London, UK | Europe corporate offices | 19,650 | ||||||||||||
| 888 Madison Avenue, NYC | Retail flagship store | 37,900 | ||||||||||||
| N. Michigan Avenue, Chicago | Retail flagship store | 37,500 | ||||||||||||
| New Bond Street, London, UK | Retail flagship store | 31,500 | ||||||||||||
| 867 Madison Avenue, NYC | Retail flagship store | 27,700 | ||||||||||||
| Paris, France | Retail flagship store | 25,700 | ||||||||||||
| Tokyo, Japan | Retail flagship store | 25,000 | ||||||||||||
| N. Rodeo Drive, Beverly Hills | Retail flagship store | |||||||||||||
| 22,200 | ||||||||||||||
| Retail flagship store | 14,900 | |||||||||||||
| Prince's Building, Hong Kong | Retail flagship store | 9,800 | ||||||||||||
As of April 2, 2016,1, 2023, we directly operated 493553 retail stores, totaling approximately 3.84.1 million square feet. We anticipateexpect that we will be able to extend our retail store leases, as well as those leases for our non-retail facilities, which expire in the near future on satisfactory terms or otherwise relocate to desirable alternate locations. We generally lease our freestanding retail stores for initial periods ranging from 53 to 1510 years, with renewal options. See Item 1A — "Risk Factors— Risks Related to our Business and Operations — Our business is subject to risks associated with leasing real estate and other assets under long-term, non-cancellable leases."
Item 3. Legal Proceedings.
We are involved, from time to time, in litigation, other legal claims, and proceedings involving matters associated with or incidental to our business, including, among other things, matters involving credit card fraud, trademark and other intellectual property, licensing, importation and exportation of products, taxation, unclaimed property, leases, and employee relations. We believe at present that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on our consolidated financial statements. However, our assessment of any current litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact which are not in accord with management's evaluation of the possible liability or outcome of such litigation or claims.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
As of May 19, 2023, there were 622 holders of record of our Class A common stock and 7 holders of record of our Class B common stock. Our Class A common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "RL." The following table sets forth the high and low sales prices per share of our Class A common stock, as reported on the NYSE Composite Tape, and the cash dividends per common share declared for each quarterly period in our two most recent fiscal years:
Market Price of Class A Common Stock | Dividends Declared per Common Share | |||||||||||
| High | Low | |||||||||||
| Fiscal 2016: | ||||||||||||
| First Quarter | $ | 141.08 | $ | 127.77 | $ | 0.50 | ||||||
| Second Quarter | 135.67 | 104.34 | 0.50 | |||||||||
| Third Quarter | 137.38 | 103.29 | 0.50 | |||||||||
| Fourth Quarter | 115.85 | 82.15 | 0.50 | |||||||||
| Fiscal 2015: | ||||||||||||
| First Quarter | $ | 164.75 | $ | 141.93 | $ | 0.45 | ||||||
| Second Quarter | 174.98 | 152.22 | 0.45 | |||||||||
| Third Quarter | 185.92 | 153.39 | 0.45 | |||||||||
| Fourth Quarter | 187.49 | 127.29 | 0.50 | |||||||||
The following table sets forth repurchases of shares of our Class A common stock during the fiscal quarter ended April 2, 2016:1, 2023:
| Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(a) | |||||||||||
| (millions) | ||||||||||||||
| December 27, 2015 to January 23, 2016 | 819 | (b) | $ | 113.40 | — | $ | 200 | |||||||
| January 24, 2016 to February 20, 2016 | 1,167,700 | 85.61 | 1,167,700 | 100 | ||||||||||
| February 21, 2016 to April 2, 2016 | 946 | (b) | 94.89 | — | 100 | |||||||||
| 1,169,465 | 1,167,700 | |||||||||||||
| Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(a) | |||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| January 1, 2023 to January 28, 2023 | — | $ | — | — | $ | 1,217 | ||||||||||||||||||||
| January 29, 2023 to February 25, 2023 | — | — | — | 1,217 | ||||||||||||||||||||||
| February 26, 2023 to April 1, 2023 | 379,328 | (b) | 112.75 | 376,474 | 1,175 | |||||||||||||||||||||
| 379,328 | 376,474 | |||||||||||||||||||||||||
(a) As of April 1, 2023, the remaining availability under our Class A common stock repurchase program was approximately $1.175 billion, reflecting the February 2, 2022 approval by our Board of Directors to expand the program by up to an additional $1.500 billion of Class A common stock repurchases. Repurchases of shares of Class A common stock are subject to overall business and market conditions.
(b) Includes 2,854 shares surrendered to or withheld by the Company in satisfaction of withholding taxes in connection with the vesting of awards issued under its long-term stock incentive plans.
The following graph compares the cumulative total stockholder return (stock price appreciation plus dividends) on our Class A common stock to the cumulative total return of the Standard & Poor's ("S&P") 500 Index, the S&P 1500 Apparel, Accessories & Luxury Goods Index, and a prior peer group index of companies that we believe are closest to ours (the "Peer"Prior Peer Group") for the period from April 2, 2011,March 31, 2018, the last day of our 20112018 fiscal year, through April 2, 2016,1, 2023, the last day of our 20162023 fiscal year. During Fiscal 2023, the Company determined that the S&P Composite 1500 Apparel, Accessories & Luxury Goods Index is a more appropriate comparison due to the composition of the included companies given their size, comparable products, and lines of business. Our Prior Peer Group consistsconsisted of Burberry Group PLC, Coach, Inc., Compagnie Financière Richemont SA, EssilorLuxottica SA, The Estée Lauder Companies Inc., Hermes International, Kering, Luxottica Group, LVMH, PVH Corp., Tiffany & Co.Tapestry, Inc., Tod's S.p.A., and V.F. Corporation. All calculations for foreign companies in our Prior Peer Group are performed using the local foreign issue of such companies. The returns are calculated by assuming ana $100 investment made on March 31, 2018 in the Class A common stock and each index, of $100 on April 2, 2011, with all dividends reinvested.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*RETURN
Among Ralph Lauren Corporation, the S&P 500 Index,
S&P 1500 Apparel, Accessories & Luxury Goods Index, and athe Prior Peer Group
Item 7 — "7.Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8 — "Financial Statements and Supplementary Data" included in this Annual Report on Form 10-K. Historical results may not be indicative of future results.Operations.
The following management's discussion and analysis of financial condition and results of operations ("MD&A") should be read together with our audited consolidated financial statements and footnotes,notes thereto, which are included in this Annual Report on Form 10-K. We utilize a 52-53 week fiscal year ending on the Saturday closest toimmediately before or after March 31. As such, Fiscal 20162023 ended on April 1, 2023 and was a 52-week period; Fiscal 2022 ended on April 2, 20162022 and was a 53-week period; Fiscal 20152021 ended on March 28, 201527, 2021 and was a 52-week period; and Fiscal 2014 ended on March 29, 2014 and was also a 52-week period. Fiscal 20172024 will end on April 1, 2017March 30, 2024 and will be a 52-week period.
INTRODUCTION
MD&A is provided as a supplement to the accompanying audited consolidated financial statements and footnotesnotes thereto to help provide an understanding of our results of operations, financial condition, and liquidity. MD&A is organized as follows:
•Overview. This section provides a general description of our business, currentglobal economic conditions and industry trends, and outlook, and a summary of our financial performance for Fiscal 2016.2023. In addition, this section includes a discussion of recent developments and transactions affecting comparability that we believe are important in understanding our results of operations and financial condition, and in anticipating future trends.
•Results of operations. This section provides an analysis of our results of operations for Fiscal 20162023 and Fiscal 2022 as compared to Fiscal 2015 and Fiscal 2015 as compared to Fiscal 2014.
the respective prior fiscal year.•Financial condition and liquidity. This section provides a discussion of our financial condition and liquidity as of April 2, 2016,1, 2023, which includes (i) an analysis of our financial condition as compared to the prior fiscal year-end; (ii) an analysis of changes in our cash flows for Fiscal 20162023 and Fiscal 20152022 as compared to the respective prior fiscal year; (iii) an analysis of our liquidity, including the availability under our commercial paper borrowing program and credit facilities, common stock repurchases, payments of dividends, and our outstanding debt and covenant compliance;compliance, common stock repurchases, and payments of dividends; and (iv) a summary of our contractual and other obligationsmaterial cash requirements as of April 2, 2016.
1, 2023.•Market risk management. This section discusses how we manage our risk exposures related to foreign currency exchange rates, interest rates, and our investments as of April 2, 2016.
1, 2023.•Critical accounting policies. This section discusses our critical accounting policies considered to be important to our results of operations and financial condition, which typically require significant judgment and estimation on the part of management in their application. In addition, all of our significant accounting policies, including our critical accounting policies, are summarized in Note 3 to the accompanying audited consolidated financial statements.
•Recently issued accounting standards. This section discusses the potential impact on our reported results of operations and financial condition of certain accounting standards that have been recently issued or proposed.
issued.OVERVIEW
Our Business
Our Company is a global leader in the design, marketing, and distribution of premiumluxury lifestyle products, including apparel, footwear & accessories, home, furnishings,fragrances, and other licensed product categories.hospitality. Our long-standing reputation and distinctive image have been consistently developed across an expanding numbera wide range of products, brands, salesdistribution channels, and international markets. Our brand names include Ralph Lauren, Ralph Lauren Collection, Ralph Lauren Purple Label, Polo Ralph Lauren, Double RL, Lauren Ralph Lauren, Polo Ralph Lauren Children, Denim & Supply Ralph Lauren,and Chaps, Club Monaco, and American Living, among others.
We classifydiversify our businesses into three segments: Wholesale, Retail,business by geography (North America, Europe, and Licensing. Our Wholesale business, which represented approximately 45%Asia, among other regions) and channel of distribution (retail, wholesale, and licensing). This allows us to maintain a dynamic balance as our Fiscal 2016 net revenues, consistsoperating results do not depend solely on the performance of sales made principally to major department stores and specialty stores around the world. Our Retail business, which represented approximately 53%any single geographic area or channel of our Fiscal 2016 net revenues, consists of sales madedistribution. We sell directly to consumers through our integrated retail channel, which includes our retail stores, concession-based shop-within-shops, and our e-commercedigital commerce operations around the world. Our Licensing business, which represented approximately 2% of our Fiscal 2016 net revenues, consists of royalty-based arrangements underwholesale sales are made principally to major department stores, specialty stores, and third-party digital partners around the world, as well as to certain third-party-owned stores to which we have licensed the right to operate in defined geographic territories using our trademarks. In addition, we license to unrelated third parties for specified periods the right to operate retail stores and/or to useaccess our various trademarks in connection with the licensees' manufacture and sale of designated products, such as certain apparel, eyewear, fragrances, and home furnishings. Approximately
home.
We organize our business into the following three reportable segments:
•Europe — Our Europe segment, representing approximately 29% of our Fiscal 2023 net revenues, primarily consists of sales of our Ralph Lauren branded products made through our retail and wholesale businesses in Europe and emerging markets. In Europe, our retail business is primarily comprised of our Ralph Lauren stores, our outlet stores, our concession-based shop-within-shops, and our various digital commerce sites. Our wholesale business in Europe is comprised primarily of a varying mix of sales to both department stores and specialty stores, depending on the country, as well as to various third-party digital partners.
•Asia — Our Asia segment, representing approximately 22% of our Fiscal 2023 net revenues, primarily consists of sales of our Ralph Lauren branded products made through our retail and wholesale businesses in Asia, Australia, and New Zealand. Our retail business in Asia is primarily comprised of our Ralph Lauren stores, our outlet stores, our concession-based shop-within-shops, and our various digital commerce sites. In addition, we sell our products online through various third-party digital partner commerce sites. Our wholesale business in Asia is comprised primarily of sales to department stores, with related products distributed through shop-within-shops.
No operating segments were aggregated to form our reportable segments. In addition to these reportable segments, we also have other non-reportable segments, representing approximately 2% of our Fiscal 2023 net revenues, which primarily consist of Ralph Lauren and Chaps branded royalty revenues earned through our global licensing alliances. In addition, prior to its disposition at the end of our first quarter of Fiscal 2022, our other non-reportable segments also included sales of Club Monaco branded products made through our retail and wholesale businesses in the U.S., Canada, and Europe, and our licensing alliances in Asia. Refer to "Recent Developments" for additional discussion regarding the disposition of our former Club Monaco business, as well as the transition of our Chaps business to a fully licensed business model.
Approximately 53% of our Fiscal 2023 net revenues were earned outside of the U.S. See Note 2120 to the accompanying audited consolidated financial statements for a summaryfurther discussion of net revenues, operating income, and total assets by reportableour segment as well as net revenues and long-lived assets by geographic location.reporting structure.
Our business is typically affected by seasonal trends, with higher levels of retail sales in our second and third fiscal quarters and higher wholesale sales in our second and fourth fiscal quarters and higher retail sales in our second and third fiscal quarters. These trends result primarily from the timing of seasonal wholesale shipments and key vacation travel, back-to-school, and holiday shopping periods impacting our Retail segment.retail business and timing of seasonal wholesale shipments. As a result of changes in our business, consumer spending patterns, and the macroeconomic environment, including those resulting from pandemic diseases and other catastrophic events, historical quarterly operating trends and working capital requirements may not be indicative of our future performance. In addition, fluctuations in sales, operating income (loss), and cash flows in any fiscal quarter may be affected by other events affecting retail sales, such as changes in weather patterns.
COVID-19 Pandemic
Beginning in the fourth quarter of our fiscal year ended March 28, 2020 ("Fiscal 2020"), a novel strain of coronavirus commonly referred to as COVID-19 emerged and spread rapidly across the globe, including throughout all major geographies in which we operate, resulting in widespread adverse economic conditions and business disruptions. Since then, governments worldwide have periodically imposed preventative and protective actions, such as temporary travel bans, forced business closures, and stay-at-home orders, all in an effort to reduce the spread of the virus. Such actions have negatively impacted retail traffic, tourism, and consumer spending on discretionary items to varying degrees over the course of the pandemic.
As a result of the COVID-19 pandemic, we have experienced varying degrees of business disruptions and periods of closure of our stores, distribution centers, and corporate facilities, as have our wholesale customers, licensing partners, suppliers, and vendors. During the first quarter of Fiscal 2021 at the peak of the pandemic, the majority of our stores in key markets were closed for an average of 8 to 10 weeks due to government-mandated lockdowns and other restrictions, resulting in significant adverse impacts to our operating results. Resurgences and outbreaks in certain parts of the world resulted in further
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business disruptions periodically throughout Fiscal 2021, most notably in Europe where a significant number of our stores were closed for approximately 2 to 3 months during the second half of Fiscal 2021, including during the holiday period, due to government-mandated lockdowns and other restrictions. Such disruptions continued throughout Fiscal 2022 and Fiscal 2023 in certain regions, although to a lesser extent than Fiscal 2021. Further, throughout the course of the pandemic, the majority of our stores that were able to remain open have periodically been subject to limited operating hours and/or customer capacity levels in accordance with local health guidelines, with traffic remaining challenged. However, our digital commerce operations have grown significantly from pre-pandemic levels, due in part to our investments and enhanced capabilities, as well as changes in consumer shopping preferences.
The COVID-19 pandemic also adversely impacted our distribution, logistic, and sourcing partners, including temporary factory closures, labor shortages, vessel, container and other transportation shortages, and port congestion. Such disruptions resulted in periods of reduced availability of inventory, delayed timing of inventory receipts, and increased costs for both the purchase and transportation of such inventory, most notably during Fiscal 2022 and the first half of Fiscal 2023.
The pandemic continues to evolve, with resurgences and outbreaks occurring in certain parts of the world during Fiscal 2023, including those resulting from variants of the virus. While the impact of these disruptions has generally been less significant than those experienced in Fiscal 2021 and Fiscal 2022, we cannot predict for how long and to what extent the pandemic may continue to impact our business operations, the global supply chain, or the overall global economy. See Item 1A — "Risk Factors — Risks Related to Macroeconomic Conditions — Infectious disease outbreaks, such as the COVID-19 pandemic, could have a material adverse effect on our business"for additional discussion regarding risks to our business associated with the COVID-19 pandemic.
Fiscal 2021 Strategic Realignment Plan
We have undertaken efforts to realign our resources to support future growth and profitability, and to create a sustainable, enhanced cost structure. The key initiatives underlying these efforts involved evaluation of our: (i) team organizational structures and ways of working; (ii) real estate footprint and related costs across our corporate offices, distribution centers, and direct-to-consumer retail and wholesale doors; and (iii) brand portfolio.
In connection with the first initiative, on September 17, 2020, our Board of Directors approved a restructuring plan (the "Fiscal 2021 Strategic Realignment Plan") to reduce our global workforce. Additionally, during a preliminary review of our store portfolio during the second quarter of Fiscal 2021, we decided to close our Polo store on Regent Street in London.
Shortly thereafter, on October 29, 2020, we announced the planned transition of our Chaps brand to a fully licensed business model, consistent with our long-term brand elevation strategy and in connection with our third initiative. Specifically, we entered into a multi-year licensing partnership, which took effect on August 1, 2021 following a transition period, with an affiliate of 5 Star Apparel LLC, a division of the OVED Group, to manufacture, market, and distribute Chaps menswear and womenswear. The products are being sold at existing channels of distribution with opportunities for expansion into additional channels and markets globally. This agreement created incremental value for the Company by enabling an even greater focus on elevating our core brands in the marketplace, reducing our direct exposure to the North America department store channel, and setting up Chaps to deliver on its potential with an experienced partner that is focused on nurturing the brand.
Later, on February 3, 2021, our Board of Directors approved additional actions related to our real estate initiative. Specifically, we further rightsized and consolidated our global corporate offices to better align with our organizational profile and new ways of working. We also closed certain of our stores to improve overall profitability. Additionally, we further consolidated our North America distribution centers in order to drive greater efficiencies, improve sustainability, and deliver a better consumer experience.
Finally, on June 26, 2021, in connection with our brand portfolio initiative, we sold our former Club Monaco business to Regent, L.P. ("Regent"), a global private equity firm, with no resulting gain or loss on sale realized during the first quarter of Fiscal 2022. Regent acquired Club Monaco's assets and liabilities in exchange for potential future cash consideration payable to us, including earn-out payments based on Club Monaco meeting certain defined revenue thresholds over a five-year period. Accordingly, we have realized amounts related to the receipt of such contingent consideration and additional amounts may be realized in the future. Additionally, in connection with this divestiture, we provided Regent with certain operational support for a transitional period of approximately one year, varying by functional area.
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In connection with the Fiscal 2021 Strategic Realignment Plan, we have recorded cumulative pre-tax charges of $281.8 million since its inception, of which $19.7 million, $25.3 million, and $236.8 million were recorded during Fiscal 2023, Fiscal 2022, and Fiscal 2021, respectively. Actions associated with the Fiscal 2021 Strategic Realignment Plan are now complete and are expected to result in gross annualized pre-tax expense savings of approximately $200 million, a portion of which is being reinvested into the business.
See Note 9 to our accompanying consolidated financial statements for additional discussion regarding charges recorded in connection with the Fiscal 2021 Strategic Restructuring Plan.
Global Economic Conditions and Industry Trends and Outlook
The global economy continues to beand retail industry are impacted by many different factors. For example, changes in economic conditions in the U.S., most notably inflationary pressures (including increases in the cost of raw materials, transportation, and salaries & benefits), rising interest rates, significant foreign currency volatility, recent bank failures, and concerns of a heightened state of uncertainty, as productivity growth in both advanced and emerging countries remains low. Certain worldwide events, including political unrest, disease epidemics, monetary policy changes, and currency and commodity price volatility, as well as China's recent economic slowdown,potential recession, continue to impact consumer confidencediscretionary income levels, spending, and sentiment in the global economy as a whole,U.S. and beyond. In response to such pressures, as well as the world's stock markets. While certain geographic regions are withstanding these pressures better than others, the level of consumer travel and spending on discretionary items remains constrained in certain markets, with trends likelyan effort to continuereduce elevated inventory levels, many U.S. retailers have become increasingly more promotional in 2016. Additionally, consumers are increasingly spending more of their discretionary income on “experiences,” such as dining and entertainment, over consumer goods. Consequently, consumer retail traffic remains relatively weak and inconsistent, which has led to increased competition and a desirean attempt to offset traffic declines with increased levels ofand increase conversion. Certain other worldwide events and factors, such as international trade relations, new legislation and regulations, taxation or monetary policy changes, political and civil unrest, and growing diplomatic tensions, among other factors, have also adversely impacted the global economy. The continuation of these trends could have a material adverse effect on our business or operating results.
The global economy has also been negatively impacted by the Russia-Ukraine war. Several countries including the U.S. have imposed significant economic sanctions against Russia, including export controls and other trade restrictions with Russian entities. We have also voluntarily elected to suspend operations in Russia. While the suspension of our operations have experienced, and havein Russia has not resulted in a material impact to our consolidated financial statements, our business has been impacted by these dynamics,the broader macroeconomic implications resulting from the war, including unfavorable foreign currency exchange rates, increases in energy prices, food shortages, and volatility in financial markets, among other factors, which have adversely impacted consumer sentiment and confidence. It is not clear at this time how long the conflict will endure, or if it will escalate further with variations acrossadditional countries declaring war against each other, which could further compound the adverse impact to the global economy.
The global economy also continues to be impacted by the COVID-19 pandemic, although to a much lesser extent than what was experienced during the first year of the pandemic. As discussed in "Recent Developments," during the last twelve months certain geographic regions continue to be impacted by temporary store closures, restricted operating hours, and/or reduced staffing due to elevated infection levels. Despite the development of COVID-19 vaccines and businesses in which we operate.
We have implemented various strategies globally to help address many of these current challenges and continue to build a negative effect onfoundation for long-term profitable growth centered around strengthening our sales,consumer-facing areas of product, stores, and marketing across channels and driving a more efficient operating model. Our strategy for mitigating inflationary pressures includes numerous levers, including our commitment to driving average unit retail growth, leveraging our diversified supply chain and strong supplier relationships, elevating our product sustainability efforts, and leveraging our in-house quality control to reduce time and cost from the manufacturing process, among other efforts. We have also taken earlier receipts of inventory levels, and operating margin in Fiscal 2017. Furthermore, our results have been,strategically utilize faster means of transportation when necessary to maximize full-price selling windows. While we remain agile and are expectedmindful of the increasing competitive promotional environment, we plan to continue driving our broader long-term strategy of brand elevation, which includes multiple levers to be, negatively impacted by unfavorable foreign exchange rate fluctuations. We have initiated various operating strategies to mitigate these challenges,continue driving average unit retail growth and remain optimistic about our future growth prospects. Accordingly, we continue to invest in our longer-term growth initiatives, including our restructuring activities, as described within "Recent Developments" below, while continually monitoring macroeconomic risks and remaining focused on disciplined expense management. Although we continue to expect that the dilutive effects of investments that we are making in our business will create operating margin pressure in the near-term, we expect that these initiatives will create longer-term shareholder value. brand equity.
We will continue to monitor these risksconditions and trends and will evaluate and adjust our operating strategies and foreign currency and cost management opportunities to help mitigate the related impactimpacts on our results of operations, while remaining focused on the long-term growth of our business and protecting and elevating the value of our brand.
For a detailed discussion of significant risk factors that have the potential to cause our actual results to differ materially from our expectations, see Part I, Item 1A — "Risk Factors" included in this Annual Report on Form 10-K.
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Summary of Financial Performance
Operating Results
In Fiscal 2016,2023, we reported net revenues of $7.405$6.444 billion,, net income of $396$522.7 million,, and net income per diluted share of $4.62,$7.58, as compared to net revenues of $7.620$6.219 billion,, net income of $702$600.1 million,, and net income per diluted share of $7.88$8.07 in Fiscal 2015.2022. The comparability of our operating results has been affected by net restructuring-related charges, incurred in connection withimpairment of assets, and certain other benefits (charges), as well as the Global Reorganization Plan (as defined within "Recent Developments"below), other charges primarily related to a pending customs audit and the settlementimpacts of certain litigation claims, unfavorable foreign currency effects, and the 53rd week in Fiscal 2016, all2022, the disposition of our former Club Monaco business at the end of the first quarter of Fiscal 2022, and the transition of our Chaps business to a fully licensed business model during the second quarter of Fiscal 2022, as discussed further below. We also continue to experience varying degrees of business disruptions resulting from the current macroeconomic environment, including ongoing inflationary pressures, foreign currency volatility, the war in Ukraine, and COVID-19-related disruptions.
Our gross marginprofit as a percentage declinedof net revenues decreased by 100210 basis points to 56.5%64.6% during Fiscal 2016,2023, primarily driven by inflationary cost pressures, unfavorable foreign currency effects, and certain non-cashhigher non-routine inventory charges recorded in connection withduring Fiscal 2023 as compared to the Global Reorganization Plan,prior fiscal year, partially offset by increased profitability largely attributable to favorable channel mix. higher pricing.
Selling, general, and administrative ("SG&A") expenses as a percentage of net revenues increasedduring Fiscal 2023 decreased by 25030 basis points to 45.8% during Fiscal 2016, primarily due to52.9%, driven by operating deleverageleverage on lowerhigher net revenues due in part to unfavorable foreign currency effects, and increased investments in our stores, facilities, and infrastructure consistent with our longer-term initiatives.
revenues.
Net income declineddecreased by $306$77.4 million to $522.7 million in Fiscal 20162023 as compared to Fiscal 2015,2022, primarily due to a $453$94.2 million decreasedecline in our operating income, partially offset by a $129$31.5 million decline in our provision for income taxes. The lower income tax provision for Fiscal 2016 was primarily driven by lower pretax income and a decline in our reported effective tax rate of 70 basis points.non-operating expense, net. Net income per diluted share declineddecreased by $3.26$0.49 to $4.62$7.58 per share induring Fiscal 2016 as compared to Fiscal 2015, primarily due to2023 driven by the lower level of net income, partially offset by lower weighted-average diluted shares outstanding duringoutstanding.
During Fiscal 2016. Our2023 and Fiscal 2022, our operating results during Fiscal 2016 included $142 millionwere negatively impacted by net restructuring-related charges, impairment of pretax charges recorded in connection with the Global Reorganization Plan, $48 million ofassets, and certain other charges primarily related to a pending customs audit(benefits) totaling $66.0 million and the settlement of certain litigation claims, and $22$32.6 million, of other non-cash impairment charges related to underperforming stores subject to potential future closure,respectively, which together had an after-tax effect of reducing net income by $150$52.9 million, or approximately $1.74$0.76 per diluted share. Partially offsetting these charges wasshare, and $23.2 million, or $0.31 per diluted share, respectively. Net income during Fiscal 2022 reflected the favorable impact of the inclusion of the 53rd week, in Fiscal 2016, which increased net income by $8$16.5 million, or approximately $0.10$0.22 per diluted share. Net income per diluted share also included unfavorable foreign currency impacts of approximately $1.10 per diluted share in Fiscal 2016.
Financial Condition and Liquidity
We ended Fiscal 20162023 in a net cash and short-term investments position (cash(calculated as cash and cash equivalents, plus short-term and non-current investments, less total debt) of $559$427.2 million, as compared to $620$962.1 million as of the end of Fiscal 2015.2022. The declinedecrease in our net cash and short-term investments position during Fiscal 2023 as compared to Fiscal 2022 was primarily due to our use of cash to support Class A common stock repurchases of $500$488.6 million, including withholdings in satisfaction of tax obligations for stock-based compensation awards, to invest in our business through $418$217.5 million ofin capital expenditures, and to make cash dividend payments of $170$198.3 million, as well as the unfavorable effect of exchange rate changes on our cash, cash equivalents, and restricted cash of $8.8 million partially offset by our operating cash flows of $1.007 billion during Fiscal 2016.$411.0 million.
Our equity declineddecreased to $3.744$2.431 billion as of April 1, 2023, compared to $2.536 billion as of April 2, 2016, compared to $3.891 billion as of March 28, 2015, primarily2022, due to our Class A common stock repurchasesshare repurchase activity and dividends declared during Fiscal 2023, partially offset by our comprehensive income and the net impact of stock-based compensation arrangements during Fiscal 2016.
arrangements.
Transactions and Trends Affecting Comparability of Results of Operations and Financial Condition
The comparability of our operating results for the three fiscal years presented herein has been affected by certain events, including:
•pretax asset impairment andcharges incurred in connection with our restructuring andactivities, as well as certain other charges recorded during the periods presented. A summary of the effect of these items on pretax income for each fiscal year isbenefits (charges), as summarized below (references to "Notes" are to the notes to the accompanying audited consolidated financial statements):
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Restructuring and other charges, net (see Note 9) | $ | (43.0) | $ | (22.2) | $ | (170.5) | ||||||||||||||
Non-routine inventory benefits (charges)(a) | (15.4) | 13.3 | (29.3) | |||||||||||||||||
| Impairment of assets (see Note 8) | (9.7) | (21.3) | (96.0) | |||||||||||||||||
Non-routine bad debt reversals (expense), net(b) | 2.1 | (2.4) | 41.4 | |||||||||||||||||
| Total charges | $ | (66.0) | $ | (32.6) | $ | (254.4) | ||||||||||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Impairments of assets (see Note 10) | $ | (49 | ) | $ | (7 | ) | $ | (1 | ) | |||
| Restructuring and other charges (see Note 11) | (143 | ) | (10 | ) | (18 | ) | ||||||
(b)Non-routine bad debt reversals (expense), net are recorded within SG&A expenses in the consolidated statements of operations. Non-routine bad debt reversals, net recorded during Fiscal 2023 primarily related to the Russia-Ukraine war. Non-routine bad debt expense, net recorded during Fiscal 2022 related to the Russia-Ukraine war (approximately $3 million), partially offset by COVID-19-related bad debt reversals (approximately $1 million). Non-routine bad debt reversals, net recorded during Fiscal 2021 related to COVID-19-related reserves.
•the inclusion of the 53rd week in Fiscal 2016,2022, which resulted in incremental net revenues of $72$62.7 million and net income of $8$16.5 million, or approximately $0.10$0.22 per diluted share.share;
•the disposition of our acquisitionsformer Club Monaco business at the end of previously licensed businesses, including the transition of the Ralph Lauren-branded apparel and accessories business in Australia and New Zealand (the "Australia and New Zealand Business") from a licensed to a wholly-owned operation (the "Australia and New Zealand Licensed Operations Acquisition") in July 2013; and the transition of the North American Chaps-branded men's sportswear business (the "Chaps Menswear Business") from a licensed to a wholly-owned operation (the "Chaps Menswear License Acquisition") in April 2013, which resulted in a $16 million gain recorded during the first quarter of Fiscal 2014.2022. We did not recognize any net revenues during Fiscal 2023 in connection with our former Club Monaco business, whereas we recognized net revenues of approximately $34 million and $100 million during Fiscal 2022 and Fiscal 2021, respectively;
•incremental tax expense of $13.8 million recorded within our income tax provision during Fiscal 2021 related to new legislation enacted in connection with Swiss tax reform, which increased our effective tax rate by 1,840 basis points. During Fiscal 2022, we also recorded a charge of $6.4 million within restructuring and other charges, net in the consolidated statements of operations in connection with non-income-related capital taxes resulting from Swiss tax reform. See Note 10 to the accompanying consolidated financial statements for further discussion;
•incremental net tax expense of $46.6 million recorded within our income tax provision during Fiscal 2021 related to a valuation allowance provided against domestic losses attributable to COVID-19 business disruptions, international tax legislation enacted in connection with the European Union's anti-tax avoidance directive, and a net operating loss carryback under the CARES Act, which collectively negatively impacted our effective tax rate by 6,230 basis points; and
•other varying degrees of COVID-19 business disruptions during Fiscal 2023, Fiscal 2022, and Fiscal 2021, with the most prominent impacts occurring during Fiscal 2021.
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Because we are a global company, the comparability of our operating results reported in U.S. Dollars is also affected by foreign currency exchange rate fluctuations because the underlying currencies in which we transact change in value over time compared to the U.S. Dollar. These rateSuch fluctuations can have a significant effect on our reported results. As such, in addition to financial measures prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"), our discussions often contain references to constant currency measures, which are calculated by translating the current-year and prior-year reported amounts into comparable amounts using a single foreign exchange rate for each currency. We present constant currency financial information, which is a non-U.S. GAAP financial measure, as a supplement to our reported operating results. We use constant currency information to provide a framework to assessfor assessing how our businesses performed excluding the effects of foreign currency exchange rate fluctuations. We believe this information is useful to investors to facilitatefor facilitating comparisons of operating results and better identifyidentifying trends in our businesses. The constant currency performance measures should be viewed in addition to, and not in lieu of or superior to, our operating performance measures calculated in accordance with U.S. GAAP. Reconciliations between this non-U.S. GAAP financial measure and the most directly comparable U.S. GAAP measure are included in the "Results of Operations" section where applicable.
Our "Results of Operations" discussion that followsalso includes the significant changes in operating results arising from these items affecting comparability. However, unusual items or transactions may occur in any period. Accordingly, investors and other financial statement users should consider the types of events and transactions that have affected operating trends.
| Fiscal Years Ended | |||||||||||||||
| April 2, 2016 | March 28, 2015 | $ Change | % / bps Change | ||||||||||||
| (millions, except per share data) | |||||||||||||||
| Net revenues | $ | 7,405 | $ | 7,620 | $ | (215 | ) | (2.8 | %) | ||||||
Cost of goods sold(a) | (3,218 | ) | (3,242 | ) | 24 | (0.7 | %) | ||||||||
| Gross profit | 4,187 | 4,378 | (191 | ) | (4.4 | %) | |||||||||
| Gross profit as % of net revenues | 56.5 | % | 57.5 | % | (100 bps) | ||||||||||
Selling, general, and administrative expenses(a) | (3,389 | ) | (3,301 | ) | (88 | ) | 2.7 | % | |||||||
| SG&A expenses as % of net revenues | 45.8 | % | 43.3 | % | 250 bps | ||||||||||
| Amortization of intangible assets | (24 | ) | (25 | ) | 1 | (6.2 | %) | ||||||||
| Impairment of assets | (49 | ) | (7 | ) | (42 | ) | NM | ||||||||
| Restructuring and other charges | (143 | ) | (10 | ) | (133 | ) | NM | ||||||||
| Operating income | 582 | 1,035 | (453 | ) | (43.8 | %) | |||||||||
| Operating income as % of net revenues | 7.9 | % | 13.6 | % | (570 bps) | ||||||||||
| Foreign currency losses | (4 | ) | (26 | ) | 22 | (85.2 | %) | ||||||||
| Interest expense | (21 | ) | (17 | ) | (4 | ) | 25.7 | % | |||||||
| Interest and other income, net | 6 | 6 | — | (7.9 | %) | ||||||||||
| Equity in losses of equity-method investees | (11 | ) | (11 | ) | — | (5.3 | %) | ||||||||
| Income before provision for income taxes | 552 | 987 | (435 | ) | (44.1 | %) | |||||||||
| Provision for income taxes | (156 | ) | (285 | ) | 129 | (45.5 | %) | ||||||||
Effective tax rate(b) | 28.2 | % | 28.9 | % | (70 bps) | ||||||||||
| Net income | $ | 396 | $ | 702 | $ | (306 | ) | (43.6 | %) | ||||||
| Net income per common share: | |||||||||||||||
| Basic | $ | 4.65 | $ | 7.96 | $ | (3.31 | ) | (41.6 | %) | ||||||
| Diluted | $ | 4.62 | $ | 7.88 | $ | (3.26 | ) | (41.4 | %) | ||||||
| Fiscal Years Ended | $ Change | Foreign Exchange Impact | $ Change | % Change | ||||||||||||||||||||||
| April 2, 2016 | March 28, 2015 | As Reported | Constant Currency | As Reported | Constant Currency | |||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| Net Revenues: | ||||||||||||||||||||||||||
| Wholesale | $ | 3,297 | $ | 3,495 | $ | (198 | ) | $ | (105 | ) | $ | (93 | ) | (5.7 | %) | (2.7 | %) | |||||||||
| Retail | 3,933 | 3,956 | (23 | ) | (168 | ) | 145 | (0.6 | %) | 3.7 | % | |||||||||||||||
| Licensing | 175 | 169 | 6 | (2 | ) | 8 | 3.7 | % | 5.0 | % | ||||||||||||||||
| Total net revenues | $ | 7,405 | $ | 7,620 | $ | (215 | ) | $ | (275 | ) | $ | 60 | (2.8 | %) | 0.8 | % | ||||||||||
sales. Comparable store sales refer to the growthchange in sales of sales inour stores that arehave been open for at least one13 full fiscal year.months. Sales from our digital commerce sites are also included within comparable sales for those geographies that have been serviced by the related site for at least 13 full fiscal months. Sales for stores or digital commerce sites that are closed or shut down during a fiscalthe year are excluded from the calculation of comparable store sales. Sales for stores that are either relocated, enlarged (as defined by gross square footage expansion of 25% or greater), or generally closed for 30 or more consecutive days for renovation are also excluded from the calculation of comparable store sales until such stores have been operating in their new location or in their newly renovated state for at least one13 full fiscal year. Sales from our e-commerce sites are included withinmonths. All comparable store sales for those geographiesmetrics are calculated on a 52-week and constant currency basis.
Our "Results of Operations" discussion that follows includes the significant changes in operating results arising from these items affecting comparability. However, unusual items or transactions may occur in any period. Accordingly, investors and other financial statement users should consider the types of events and transactions that have been serviced by the related site for at least one full fiscal year. Consolidated comparable store sales information includes our Ralph Lauren stores (including concession-based shop-within-shops), factory stores, Club Monaco stores and e-commerce sites, and certain Ralph Lauren e-commerce sites. We use an integrated omni-channel strategy to operate our retail business, in which our e-commerce operations are interdependent with our physical stores.
affected operating trends.
| 49 | ||||||||
RESULTS OF OPERATIONS
Fiscal 2023 Compared to Fiscal 2022
The following table summarizes our results of operations and expresses the percentage relationship to net revenues of certain financial statement captions. All percentages shown in the below table and the discussion that follows have been calculated using unrounded numbers.
| Fiscal Years Ended | ||||||||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | $ Change | % / bps Change | |||||||||||||||||||||||
| (millions, except per share data) | ||||||||||||||||||||||||||
Net revenues | $ | 6,443.6 | $ | 6,218.5 | $ | 225.1 | 3.6 | % | ||||||||||||||||||
| Cost of goods sold | (2,277.8) | (2,071.0) | (206.8) | 10.0 | % | |||||||||||||||||||||
Gross profit | 4,165.8 | 4,147.5 | 18.3 | 0.4 | % | |||||||||||||||||||||
| Gross profit as % of net revenues | 64.6 | % | 66.7 | % | (210 | bps) | ||||||||||||||||||||
| Selling, general, and administrative expenses | (3,408.9) | (3,305.6) | (103.3) | 3.1 | % | |||||||||||||||||||||
| SG&A expenses as % of net revenues | 52.9 | % | 53.2 | % | (30 | bps) | ||||||||||||||||||||
| Impairment of assets | (9.7) | (21.3) | 11.6 | (54.6 | %) | |||||||||||||||||||||
| Restructuring and other charges, net | (43.0) | (22.2) | (20.8) | 93.3 | % | |||||||||||||||||||||
Operating income | 704.2 | 798.4 | (94.2) | (11.8 | %) | |||||||||||||||||||||
| Operating income as % of net revenues | 10.9 | % | 12.8 | % | (190 | bps) | ||||||||||||||||||||
| Interest expense | (40.4) | (54.0) | 13.6 | (25.3 | %) | |||||||||||||||||||||
| Interest income | 32.2 | 5.5 | 26.7 | 481.4 | % | |||||||||||||||||||||
| Other income (expense), net | (4.1) | 4.7 | (8.8) | NM | ||||||||||||||||||||||
Income before income taxes | 691.9 | 754.6 | (62.7) | (8.3 | %) | |||||||||||||||||||||
| Income tax provision | (169.2) | (154.5) | (14.7) | 9.5 | % | |||||||||||||||||||||
Effective tax rate(a) | 24.5 | % | 20.5 | % | 400 | bps | ||||||||||||||||||||
Net income | $ | 522.7 | $ | 600.1 | $ | (77.4) | (12.9 | %) | ||||||||||||||||||
| Net income per common share: | ||||||||||||||||||||||||||
Basic | $ | 7.72 | $ | 8.22 | $ | (0.50) | (6.1 | %) | ||||||||||||||||||
Diluted | $ | 7.58 | $ | 8.07 | $ | (0.49) | (6.1 | %) | ||||||||||||||||||
NM Not meaningful.
| April 2, 2016 | March 28, 2015 | |||||
| Stores: | ||||||
| Freestanding stores | 493 | 466 | ||||
| Concession shops | 583 | 536 | ||||
| Total stores | 1,076 | 1,002 | ||||
The following table summarizes the percentage change in our Fiscal 2023 consolidated comparable store sales as compared to the prior fiscal year:
| % Change | ||||||||
| Digital commerce | 7 | % | ||||||
| Brick and mortar | 8 | % | ||||||
| Total comparable store sales | 8 | % | ||||||
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Our global average store count increased by 90 stores and concession shops during Fiscal 2023 compared with the prior fiscal year, driven by new openings primarily in Asia. The following table details our retail store presence by segment as of the periods presented:
| April 1, 2023 | April 2, 2022 | |||||||||||||
| Freestanding Stores: | ||||||||||||||
| North America | 237 | 239 | ||||||||||||
| Europe | 104 | 95 | ||||||||||||
| Asia | 212 | 170 | ||||||||||||
| Total freestanding stores | 553 | 504 | ||||||||||||
| Concession Shops: | ||||||||||||||
| North America | 1 | 1 | ||||||||||||
| Europe | 29 | 29 | ||||||||||||
| Asia | 692 | 654 | ||||||||||||
| Total concession shops | 722 | 684 | ||||||||||||
| Total stores | 1,275 | 1,188 | ||||||||||||
In addition to our stores, we sell products online in North America, Europe, and Asia through our various digital commerce sites, as well as through our Polo mobile app in North America. We also sell products online through various third-party digital partner commerce sites, primarily in Asia.
Net revenues for our segments, as well as a discussion of the changes in each reportable segment's net revenues from the prior fiscal year, are provided below:
| Fiscal Years Ended | $ Change | Foreign Exchange Impact | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | As Reported | Constant Currency | As Reported | Constant Currency | |||||||||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Net Revenues: | ||||||||||||||||||||||||||||||||||||||||||||
| North America | $ | 3,020.5 | $ | 2,968.2 | $ | 52.3 | $ | (5.6) | $ | 57.9 | 1.8 | % | 2.0 | % | ||||||||||||||||||||||||||||||
| Europe | 1,839.2 | 1,780.7 | 58.5 | (196.3) | 254.8 | 3.3 | % | 14.3 | % | |||||||||||||||||||||||||||||||||||
| Asia | 1,426.7 | 1,286.8 | 139.9 | (157.9) | 297.8 | 10.9 | % | 23.1 | % | |||||||||||||||||||||||||||||||||||
Other non-reportable segments(a) | 157.2 | 182.8 | (25.6) | (0.2) | (25.4) | (14.0 | %) | (13.9 | %) | |||||||||||||||||||||||||||||||||||
| Total net revenues | $ | 6,443.6 | $ | 6,218.5 | $ | 225.1 | $ | (360.0) | $ | 585.1 | 3.6 | % | 9.4 | % | ||||||||||||||||||||||||||||||
(a)Reflects the disposition of our former Club Monaco business at the end of the first quarter of Fiscal 2022.
North America net revenues — Net revenues increased by $52.3 million, or 1.8%, during Fiscal 2023 as compared to Fiscal 2022. This increase reflected the absence of the 53rd week, which resulted in incremental net revenues of approximately $30 million during the prior fiscal year, primarily related to our retail business. On a constant currency basis, net revenues increased by $57.9 million, or 2.0%.
The $52.3 million increase in North America net revenues was driven by:
•a $58.3 million increase related to our North America wholesale business largely driven by stronger sell-in trends as compared to the prior fiscal year. This increase was realized despite the transition of our Chaps business to a fully licensed business model during the second quarter of Fiscal 2022.
| 51 | ||||||||
This increase was partially offset by:
•a $6.0 million decrease related to our North America retail business, reflecting the absence of the 53rd week, which resulted in incremental net revenues of approximately $28 million during the prior fiscal year. On a constant currency basis, net revenues decreased by $2.4 million, reflecting a decrease of $24.9 million in non-comparable store sales driven by the absence on the 53rd week, partially offset by an increase of $22.5 million in comparable store sales. The following table summarizes the percentage change in comparable store sales related to our North America retail business:
| % Change | ||||||||
| Digital commerce | 3 | % | ||||||
| Brick and mortar | 1 | % | ||||||
| Total comparable store sales | 1 | % | ||||||
Europe net revenues — Net revenues increased by $58.5 million, or 3.3%, during Fiscal 2023 as compared to Fiscal 2022. This increase reflected the absence of the 53rd week, which resulted in incremental net revenues of approximately $12 million during the prior fiscal year related to our retail business. On a constant currency basis, net revenues increased by $254.8 million, or 14.3%.
The $58.5 million increase in Europe net revenues was driven by:
•a $30.1 million increase related to our Europe retail business, inclusive of unfavorable foreign currency effects of $92.3 million and the absence of the 53rd week. On a constant currency basis, net revenues increased by $122.4 million reflecting increases of $88.8 million in comparable store sales and $33.6 million in non-comparable store sales. The following table summarizes the percentage change in comparable store sales related to our Europe retail business:
| % Change | ||||||||
| Digital commerce | 10 | % | ||||||
| Brick and mortar | 14 | % | ||||||
| Total comparable store sales | 13 | % | ||||||
•a $28.4 million increase related to our Europe wholesale business largely driven by stronger post-pandemic demand during the first half of Fiscal 2023, coupled with improved timing of inventory receipts and fulfillment of customer orders, partially offset by unfavorable foreign currency effects of $104.0 million.
Asia net revenues — Net revenues increased by $139.9 million, or 10.9%, during Fiscal 2023 as compared to Fiscal 2022, despite ongoing COVID-19-related disruptions continuing to sporadically occur throughout the fiscal year, as well as the absence of the 53rd week, which resulted in incremental net revenues of approximately $21 million during the prior fiscal year related to our retail business. On a constant currency basis, net revenues increased by $297.8 million, or 23.1%.
The $139.9 million increase in Asia net revenues was driven by:
•a $114.7 million increase related to our Asia retail business, inclusive of unfavorable foreign currency effects of $148.5 million and the absence of the 53rd week. On a constant currency basis, net revenues increased by $263.2 million reflecting increases of $164.8 million in comparable store sales and $98.4 million in non-comparable store sales. The following table summarizes the percentage change in comparable store sales related to our Asia retail business:
| % Change | ||||||||
| Digital commerce | 24 | % | ||||||
| Brick and mortar | 17 | % | ||||||
| Total comparable store sales | 17 | % | ||||||
•a $25.2 million increase related to our Asia wholesale business, reflecting increases most notably in Japan, South Korea, and Australia, partially offset by unfavorable foreign currency effects of $9.4 million.
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Gross Profit. Gross profit decreasedincreased by $191$18.3 million,, or 4.4%0.4%, to $4.187$4.166 billion in Fiscal 2016 from $4.378 billion in Fiscal 2015.2023, including unfavorable foreign currency effects of $330.3 million. Gross profit as a percentage of net revenues declined by 100decreased to 64.6% in Fiscal 2023 from 66.7% in Fiscal 2022. The 210 basis points to 56.5% in Fiscal 2016 from 57.5% in Fiscal 2015. Thispoint decline was primarily driven by inflationary cost pressures, unfavorable foreign currency effects, and certain non-cashhigher non-routine inventory charges recorded in connection withduring Fiscal 2023 as compared to the Global Reorganization Plan,prior fiscal year, partially offset by increased profitability largely attributable to favorable channel mix.higher pricing.
Gross profit as a percentage of net revenues is dependent upon a variety of factors, including changes in the relative sales mix among distribution channels, changes in the mix of products sold, pricing, the timing and level of promotional activities, foreign currency exchange rates, and fluctuations in material costs. These factors, among others, may cause gross profit as a percentage of net revenues to fluctuate from year to year.
Selling, General, and Administrative Expenses. SG&A expenses primarily include costs relating to compensation and benefits, advertising and marketing, rent and occupancy, distribution, information technology, legal, depreciation and amortization, bad debt, information technology, facilities, legal, and other costs associated with financeselling and administration.administrative costs. SG&A expenses increased by $88$103.3 million,, or 2.7%3.1%, to $3.389$3.409 billion in Fiscal 2016 from $3.301 billion in Fiscal 2015. This increase included a net2023, including favorable foreign currency effecteffects of $110 million, primarily related to the weakening of the Euro, the Japanese Yen, and the Korean Won against the U.S. Dollar.$165.8 million. SG&A expenses as a percentage of net revenues increaseddecreased to 45.8%52.9% in Fiscal 20162023 from 43.3%53.2% in Fiscal 2015.2022. The 25030 basis point decline was driven by operating leverage on higher net revenues.
The $103.3 million increase in SG&A expenses was driven by:
| Fiscal 2023 Compared to Fiscal 2022 | ||||||||
| (millions) | ||||||||
| SG&A expense category: | ||||||||
| Compensation-related expenses | $ | 44.1 | ||||||
| Shipping and handling costs | 24.8 | |||||||
| Staff-related expenses | 21.8 | |||||||
| Selling-related expenses | 17.3 | |||||||
| Consulting and professional fees | 15.3 | |||||||
| Non-income-related taxes | (19.7) | |||||||
| Marketing and advertising expenses | (18.2) | |||||||
| Other | 17.9 | |||||||
| Total increase in SG&A expenses | $ | 103.3 | ||||||
Impairment of Assets. During Fiscal 2023 and Fiscal 2022, we recorded impairment charges of $9.7 million and $21.3 million, respectively, to write-down certain long-lived assets. See Note 8 to the accompanying consolidated financial statements.
Restructuring and Other Charges, Net. During Fiscal 2023 and Fiscal 2022, we recorded net restructuring charges and benefits of $19.2 million and $4.0 million, respectively, primarily dueconsisting of severance and benefits costs (reversals) and restructuring-related other charges, as well as other charges of $23.8 million and $11.8 million, respectively, primarily related to operating deleverage on lowerrent and occupancy costs associated with certain previously exited real estate locations for which the related lease agreements have not yet expired. Additionally, during Fiscal 2023 and Fiscal 2022, we recognized income of $3.5 million and $4.0 million, respectively, related to consideration received from Regent in connection with the sale of Club Monaco. We donated this income to The Ralph Lauren Corporate Foundation, a non-profit, charitable foundation, which resulted in a related offsetting $3.5 million and $4.0 million donation expense recorded within restructuring and other charges, net revenues due in partthe consolidated statements of operations during Fiscal 2023 and Fiscal 2022, respectively. We also recorded charges of $6.4 million during Fiscal 2022 in connection with non-income-related capital taxes resulting from Swiss tax reform. See Note 9 to the accompanying consolidated financial statements.
Operating Income. Operating income decreased by $94.2 million, or 11.8%, to $704.2 million during Fiscal 2023, reflecting unfavorable foreign currency effects as previously discussed, and an increase inof $164.5 million. Our operating expenses in support of the continued investment in, and expansion of, our retail businesses (which typically carry higher operating expense margins) through new store and concession shop openings (as previously discussed); increased investments in our facilities and infrastructure; increased advertising and marketing costs; and investments in new business initiatives. These increases were partially offset by our operational discipline and savings associated with our restructuring activities.
Fiscal 2016 Compared to Fiscal 2015 | ||||
| (millions) | ||||
| SG&A expense category: | ||||
| Consulting fees | $ | 26 | ||
| Depreciation expense | 18 | |||
| Rent and occupancy expenses | 16 | |||
| Compensation-related expenses | 7 | |||
| Marketing and advertising expenses | 5 | |||
| Other | 16 | |||
| Total change in SG&A expenses | $ | 88 | ||
| 53 | ||||||||
certain other charges (benefits) recorded during Fiscal 2023 as compared to the increaseprior fiscal year, partially offset by the decline in SG&A expenses as a percentage of net revenues, both of which are inclusive of unfavorable foreign currency effects, as well as the increase in restructuring and other charges and impairment of assets, all as previously discussed.
Operating income and margin for our segments, as well as a discussion of the changes in each of our three reportable segmentssegment's operating margin from the prior fiscal year, are provided below:
| Fiscal Years Ended | ||||||||||||||||||||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | |||||||||||||||||||||||||||||||||||||
| Operating Income | Operating Margin | Operating Income | Operating Margin | $ Change | Margin Change | |||||||||||||||||||||||||||||||||
| (millions) | (millions) | (millions) | ||||||||||||||||||||||||||||||||||||
| Segment: | ||||||||||||||||||||||||||||||||||||||
| North America | $ | 543.2 | 18.0% | $ | 676.7 | 22.8% | $ | (133.5) | (480 bps) | |||||||||||||||||||||||||||||
| Europe | 406.5 | 22.1% | 444.0 | 24.9% | (37.5) | (280 bps) | ||||||||||||||||||||||||||||||||
| Asia | 289.6 | 20.3% | 228.8 | 17.8% | 60.8 | 250 bps | ||||||||||||||||||||||||||||||||
Other non-reportable segments(a) | 146.4 | 93.1% | 138.4 | 75.7% | 8.0 | 1,740 bps | ||||||||||||||||||||||||||||||||
| 1,385.7 | 1,487.9 | (102.2) | ||||||||||||||||||||||||||||||||||||
| Unallocated corporate expenses | (638.5) | (667.3) | 28.8 | |||||||||||||||||||||||||||||||||||
| Unallocated restructuring and other charges, net | (43.0) | (22.2) | (20.8) | |||||||||||||||||||||||||||||||||||
| Total operating income | $ | 704.2 | 10.9% | $ | 798.4 | 12.8% | $ | (94.2) | (190 bps) | |||||||||||||||||||||||||||||
| Fiscal Years Ended | ||||||||||||||||||
| April 2, 2016 | March 28, 2015 | |||||||||||||||||
Operating Income | Operating Margin | Operating Income | Operating Margin | $ Change | Margin Change | |||||||||||||
| (millions) | (millions) | (millions) | ||||||||||||||||
| Segment: | ||||||||||||||||||
| Wholesale | $ | 822 | 24.9% | $ | 943 | 27.0% | $ | (121 | ) | (210 bps) | ||||||||
| Retail | 359 | 9.1% | 527 | 13.3% | (168 | ) | (420 bps) | |||||||||||
| Licensing | 155 | 88.7% | 152 | 90.4% | 3 | (170 bps) | ||||||||||||
| 1,336 | 1,622 | (286 | ) | |||||||||||||||
| Unallocated corporate expenses | (611 | ) | (577 | ) | (34 | ) | ||||||||||||
| Unallocated restructuring and other charges | (143 | ) | (10 | ) | (133 | ) | ||||||||||||
| Total operating income | $ | 582 | 7.9% | $ | 1,035 | 13.6% | $ | (453 | ) | (570 bps) | ||||||||
Europe operating margin declined by 170280 basis points, primarily due to an increasethe unfavorable impacts of 310 basis points attributable to foreign currency effects and approximately 50 basis points related to our retail business driven by a decline in our gross margin, partially offset by a decline in SG&A expenses as a percentage of net revenues. These declines in operating margin were partially offset by the favorable impact of approximately 60 basis points related to our wholesale business, largely attributable to an increase in our gross margin. The overall decline in operating margin also reflected the favorable impact of 20 basis points attributable to lower non-routine bad debt expenses recorded during Fiscal 2023 as compared to the prior fiscal year.
Unallocated corporate expenses decreased by $28.8 million due in part to the introduction of new vesting provisions for certain stock-based compensation awards granted to retirement-eligible employees beginning$638.5 million in Fiscal 2016 (see Note 192023. The decline in unallocated corporate expenses was due to the accompanying audited consolidated financial statements),lower impairment charges of $17.3 million, lower non-income-related taxes of $16.9 million, lower compensation-related expenses of $11.5 million, and lower other expenses of $4.5 million, partially offset by higher consulting fees of $27 million. These increases were partially offset by a decline in other operating$10.7 million and higher staff-related expenses of $26 million due in part to operational discipline.$10.7 million.
Unallocated restructuring and other charges, net increased by $133$20.8 million to $143$43.0 million in Fiscal 2016 from $10 million in Fiscal 2015,2023, as previously described (seediscussed above and in Note 119 to the accompanying audited consolidated financial statements).statements.
| 54 | ||||||||
Non-operating Expense,Income (Expense), Net. Non-operating expense,income (expense), net is comprised of interest expense, interest income, and other income (expense), net, which includes foreign currency gains (losses), interest expense, interest and other income, net, and equity in lossesincome (losses) from our equity-method investees. Non-operatinginvestees, and other non-operating expenses. During Fiscal 2023 and Fiscal 2022, we reported non-operating expense, net, decreased by $18of $12.3 million to $30and $43.8 million, in Fiscal 2016 from $48respectively. The $31.5 million in Fiscal 2015. The declinedecrease in non-operating expense, net was driven by:
•a $26.7 million increase in interest income, primarily attributable todriven by higher interest rates in financial markets; and
•a $13.6 million decrease in interest expense, primarily driven by the lower foreign currency lossesaverage level of $22 million, largely related to the net favorable revaluation and settlement of foreign currency-denominated intercompany receivables and payables, inclusive of the impact of forward foreign currency exchange contracts,outstanding debt during Fiscal 2023 as compared to the prior fiscal year (foreign currency gains (losses) do not resultresulting from the translationour repayment of the operating results of our foreign subsidiaries to U.S. Dollars)1.700% Senior Notes that matured on June 15, 2022 (see "Financial Condition and Liquidity — Cash Flows"). This decrease was
These favorable variances were partially offset by an increase in other expense, net of $8.8 millionprimarily driven by higher interest expense of $4 million, primarily attributablenet foreign currency losses during Fiscal 2023 as compared to the 2.625% unsecured senior notes issued in August 2015.prior fiscal year.
The income tax provision and effective tax rate in Fiscal 2023 were $169.2 million and 24.5%, respectively, compared to $154.5 million and 20.5%, respectively, in Fiscal 2022. The $14.7 million increase in our income tax provision was primarily driven by a 400 basis point increase in our effective tax rate, partially offset by the decline in our pretax income. The increase in our effective tax rate was primarily due to the absence of prior year deferred tax adjustments for certain deferred tax liabilities and the absence of certain favorable permanent adjustments. See Note 10 to the accompanying consolidated financial statements.
Net Income. Net income declined by $306 million, or 43.6%,decreased to $396 million in Fiscal 2016 from $702$522.7 million in Fiscal 2015.2023, from $600.1 million in Fiscal 2022. The decline$77.4 million decrease in net income was primarily due to the $453 million decline in our operating income, partially offset by the $129 million reductiona decline in our provision for income taxes,non-operating expense, net, both as previously discussed. Our operating results during Fiscal 20162023 and Fiscal 2022 were negatively impacted by $142 millionnet restructuring-related charges, impairment of pretax charges recorded in connection with the Global Reorganization Plan, $48 million ofassets, and certain other charges primarily related to a pending customs audit(benefits) totaling $66.0 million and the settlement of certain litigation claims, and $22$32.6 million, of other non-cash impairment charges related to underperforming stores subject to potential future closure,respectively, which together had an after-tax effect of reducing net income by $150 million. Partially offsetting these charges was$52.9 million and $23.2 million, respectively. Our net income during Fiscal 2022 reflected the favorable impact of the inclusion of the 53rd week, in Fiscal 2016, which increased net income by $8$16.5 million. Net income also included unfavorable foreign currency impacts of $94 million during Fiscal 2016.
Net Income per Diluted Share. Net income per diluted share declined by $3.26, or 41.4%,decreased to $4.62$7.58 in Fiscal 2023, from $8.07 in Fiscal 2022. The $0.49 per share in Fiscal 2016 from $7.88 per share in Fiscal 2015. The declinedecrease was due todriven by the lower level of net income, as previously discussed, partially offset by lower weighted-average diluted shares outstanding during Fiscal 2016,2023 driven by our share repurchases overduring the last twelve months. Net income per diluted share for Fiscal 2016 was2023 and Fiscal 2022 were also negatively impacted by approximately $1.74$0.76 per share as a resultand $0.31 per share respectively, attributable to net restructuring-related charges, impairment of charges recorded in connection with the Global Reorganization Plan,assets, and certain other charges primarily related to a pending customs audit and the settlement of certain litigation claims, and other non-cash impairment charges related to underperforming stores subject to potential future closure, and favorably impacted by approximately $0.10 per share as a result of the 53rd week in Fiscal 2016, all(benefits), as previously discussed. Net income per diluted share also included unfavorable foreign currency impacts of approximately $1.10 per share during Fiscal 2016.
2022 reflected the favorable impact of the inclusion of the 53rd week, which increased net income per diluted share by $0.22 per share.
Fiscal 20152022 Compared to Fiscal 20142021
The following table summarizes our results of operations and expresses the percentage relationship to net revenues of certain financial statement captions. All percentages shown in the below table and the discussion that follows have been calculated using unrounded numbers.
| Fiscal Years Ended | |||||||||||||||
| March 28, 2015 | March 29, 2014 | $ Change | % / bps Change | ||||||||||||
| (millions, except per share data) | |||||||||||||||
| Net revenues | $ | 7,620 | $ | 7,450 | $ | 170 | 2.3 | % | |||||||
Cost of goods sold(a) | (3,242 | ) | (3,140 | ) | (102 | ) | 3.3 | % | |||||||
| Gross profit | 4,378 | 4,310 | 68 | 1.6 | % | ||||||||||
| Gross profit as % of net revenues | 57.5 | % | 57.9 | % | (40 bps) | ||||||||||
Selling, general, and administrative expenses(a) | (3,301 | ) | (3,142 | ) | (159 | ) | 5.0 | % | |||||||
| SG&A expenses as % of net revenues | 43.3 | % | 42.2 | % | 110 bps | ||||||||||
| Amortization of intangible assets | (25 | ) | (35 | ) | 10 | (27.9 | %) | ||||||||
| Gain on acquisition of Chaps | — | 16 | (16 | ) | NM | ||||||||||
| Impairment of assets | (7 | ) | (1 | ) | (6 | ) | NM | ||||||||
| Restructuring and other charges | (10 | ) | (18 | ) | 8 | (43.5 | %) | ||||||||
| Operating income | 1,035 | 1,130 | (95 | ) | (8.4 | %) | |||||||||
| Operating income as % of net revenues | 13.6 | % | 15.2 | % | (160 bps) | ||||||||||
| Foreign currency losses | (26 | ) | (8 | ) | (18 | ) | NM | ||||||||
| Interest expense | (17 | ) | (20 | ) | 3 | (17.3 | %) | ||||||||
| Interest and other income, net | 6 | 3 | 3 | 73.3 | % | ||||||||||
| Equity in losses of equity-method investees | (11 | ) | (9 | ) | (2 | ) | 22.8 | % | |||||||
| Income before provision for income taxes | 987 | 1,096 | (109 | ) | (9.9 | %) | |||||||||
| Provision for income taxes | (285 | ) | (320 | ) | 35 | (11.0 | %) | ||||||||
Effective tax rate(b) | 28.9 | % | 29.2 | % | (30 bps) | ||||||||||
| Net income | $ | 702 | $ | 776 | $ | (74 | ) | (9.5 | %) | ||||||
| Net income per common share: | |||||||||||||||
| Basic | $ | 7.96 | $ | 8.55 | $ | (0.59 | ) | (6.9 | %) | ||||||
| Diluted | $ | 7.88 | $ | 8.43 | $ | (0.55 | ) | (6.5 | %) | ||||||
| Fiscal Years Ended | ||||||||||||||||||||||||||
| April 2, 2022 | March 27, 2021 | $ Change | % / bps Change | |||||||||||||||||||||||
| (millions, except per share data) | ||||||||||||||||||||||||||
Net revenues | $ | 6,218.5 | $ | 4,400.8 | $ | 1,817.7 | 41.3 | % | ||||||||||||||||||
| Cost of goods sold | (2,071.0) | (1,539.4) | (531.6) | 34.5 | % | |||||||||||||||||||||
Gross profit | 4,147.5 | 2,861.4 | 1,286.1 | 44.9 | % | |||||||||||||||||||||
| Gross profit as % of net revenues | 66.7 | % | 65.0 | % | 170 bps | |||||||||||||||||||||
| Selling, general, and administrative expenses | (3,305.6) | (2,638.5) | (667.1) | 25.3 | % | |||||||||||||||||||||
| SG&A expenses as % of net revenues | 53.2 | % | 60.0 | % | (680 | bps) | ||||||||||||||||||||
| Impairment of assets | (21.3) | (96.0) | 74.7 | (77.9 | %) | |||||||||||||||||||||
| Restructuring and other charges, net | (22.2) | (170.5) | 148.3 | (86.9 | %) | |||||||||||||||||||||
Operating income (loss) | 798.4 | (43.6) | 842.0 | NM | ||||||||||||||||||||||
| Operating income (loss) as % of net revenues | 12.8 | % | (1.0 | %) | 1,380 | bps | ||||||||||||||||||||
| Interest expense | (54.0) | (48.5) | (5.5) | 11.4 | % | |||||||||||||||||||||
| Interest income | 5.5 | 9.7 | (4.2) | (42.9 | %) | |||||||||||||||||||||
| Other income, net | 4.7 | 7.6 | (2.9) | (37.9 | %) | |||||||||||||||||||||
Income (loss) before income taxes | 754.6 | (74.8) | 829.4 | NM | ||||||||||||||||||||||
| Income tax provision | (154.5) | (46.3) | (108.2) | 233.6 | % | |||||||||||||||||||||
Effective tax rate(a) | 20.5 | % | (61.9 | %) | 8,240 | bps | ||||||||||||||||||||
Net income (loss) | $ | 600.1 | $ | (121.1) | $ | 721.2 | NM | |||||||||||||||||||
| Net income (loss) per common share: | ||||||||||||||||||||||||||
Basic | $ | 8.22 | $ | (1.65) | $ | 9.87 | NM | |||||||||||||||||||
Diluted | $ | 8.07 | $ | (1.65) | $ | 9.72 | NM | |||||||||||||||||||
(a)Effective tax rate is calculated by dividing the income tax provision by income (loss) before income taxes.
NM Not meaningful.
Net Revenues. Net revenues increased by $170 million,$1.818 billion, or 2.3%41.3%, to $7.620$6.219 billion in Fiscal 2015 from $7.450 billion2022 as compared to Fiscal 2021, including unfavorable foreign currency effects of $24.5 million. This increase also reflected the favorable impact of the 53rd week in Fiscal 2014.2022, which resulted in incremental net revenues of $62.7 million. On a constant currency basis, net revenues increased by $301 million,$1.842 billion, or 4.0%41.9%. The increase in net revenues reflected growth across all regions largely driven by a reduction in store closures and other COVID-19-related disruptions experienced during Fiscal 2022 as compared to Fiscal 2021, coupled with continued growth in our digital commerce operations and overall stronger consumer demand, as well as the benefit of the incremental 53rd week, as previously discussed. This growth was partially offset by the disposition of our former Club Monaco business at the end of the first quarter of Fiscal 2022 and the transition of our Chaps business to a fully licensed business model during the second quarter of Fiscal 2022.
The following table summarizes the percentage change in our Fiscal 2022 consolidated comparable store sales as compared to the prior fiscal year:
| % Change | ||||||||
| Digital commerce | 32 | % | ||||||
| Brick and mortar | 43 | % | ||||||
| Total comparable store sales | 40 | % | ||||||
Our global average store count decreased by 25 stores and concession shops during Fiscal 2022 compared with the prior fiscal year, largely driven by the sale of our former Club Monaco business on June 26, 2021, partially offset by new openings primarily in Asia. The following table details our retail store presence by segment as of the periods presented:
| April 2, 2022 | March 27, 2021 | |||||||||||||
| Freestanding Stores: | ||||||||||||||
| North America | 239 | 233 | ||||||||||||
| Europe | 95 | 92 | ||||||||||||
| Asia | 170 | 151 | ||||||||||||
| Other non-reportable segments | — | 72 | ||||||||||||
| Total freestanding stores | 504 | 548 | ||||||||||||
| Concession Shops: | ||||||||||||||
| North America | 1 | 1 | ||||||||||||
| Europe | 29 | 29 | ||||||||||||
| Asia | 654 | 616 | ||||||||||||
| Other non-reportable segments | — | 4 | ||||||||||||
| Total concession shops | 684 | 650 | ||||||||||||
| Total stores | 1,188 | 1,198 | ||||||||||||
In addition to our stores, we sold products online in North America, Europe, and Asia through our various digital commerce sites, as well as through our mobile apps in North America and the United Kingdom. We also sold products online through various third-party digital partner commerce sites, primarily in Asia.
Net revenues for our three business segments, as well as a discussion of the changes in each reportable segment's net revenues from the prior fiscal year, are provided below:
| Fiscal Years Ended | $ Change | Foreign Exchange Impact | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| April 2, 2022 | March 27, 2021 | As Reported | Constant Currency | As Reported | Constant Currency | |||||||||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Net Revenues: | ||||||||||||||||||||||||||||||||||||||||||||
| North America | $ | 2,968.2 | $ | 1,992.4 | $ | 975.8 | $ | 4.4 | $ | 971.4 | 49.0 | % | 48.8 | % | ||||||||||||||||||||||||||||||
| Europe | 1,780.7 | 1,165.9 | 614.8 | (12.9) | 627.7 | 52.7 | % | 53.8 | % | |||||||||||||||||||||||||||||||||||
| Asia | 1,286.8 | 1,027.5 | 259.3 | (16.0) | 275.3 | 25.2 | % | 26.8 | % | |||||||||||||||||||||||||||||||||||
Other non-reportable segments(a) | 182.8 | 215.0 | (32.2) | — | (32.2) | (15.0 | %) | (15.0 | %) | |||||||||||||||||||||||||||||||||||
| Total net revenues | $ | 6,218.5 | $ | 4,400.8 | $ | 1,817.7 | $ | (24.5) | $ | 1,842.2 | 41.3 | % | 41.9 | % | ||||||||||||||||||||||||||||||
| Fiscal Years Ended | $ Change | Foreign Exchange Impact | $ Change | % Change | ||||||||||||||||||||||
| March 28, 2015 | March 29, 2014 | As Reported | Constant Currency | As Reported | Constant Currency | |||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| Net Revenues: | ||||||||||||||||||||||||||
| Wholesale | $ | 3,495 | $ | 3,486 | $ | 9 | $ | (63 | ) | $ | 72 | 0.3 | % | 2.1 | % | |||||||||||
| Retail | 3,956 | 3,798 | 158 | (65 | ) | 223 | 4.2 | % | 5.9 | % | ||||||||||||||||
| Licensing | 169 | 166 | 3 | (3 | ) | 6 | 1.8 | % | 3.3 | % | ||||||||||||||||
| Total net revenues | $ | 7,620 | $ | 7,450 | $ | 170 | $ | (131 | ) | $ | 301 | 2.3 | % | 4.0 | % | |||||||||||
The $9$975.8 million net increase in WholesaleNorth America net revenues was driven by:
•a $28$664.5 million net increase related to our North America retail business, reflecting a reduction in store closures and other COVID-19-related disruptions and the Americas, reflecting increased revenues fromcontinued growth in our womenswear and accessories businesses, partially offset by decreased revenues from our menswear business, due in part to higher prior period sales associated with the initial transition of the Chaps Menswear Business to a wholly-owned operation. The net increase related to our business in the Americas also reflected net unfavorable foreign currency effects of $9 million due to the weakening of the Canadian Dollar against the U.S. Dollar.
North America retail business:
| % Change | ||||||||
| Digital commerce | 35 | % | ||||||
| Brick and mortar | 55 | % | ||||||
| Total comparable store sales | 49 | % | ||||||
| March 28, 2015 | March 29, 2014 | |||||
| Stores: | ||||||
| Freestanding stores | 466 | 433 | ||||
| Concession shops | 536 | 503 | ||||
| Total stores | 1,002 | 936 | ||||
| E-commerce Sites: | ||||||
North American sites(a) | 3 | 3 | ||||
European sites(b) | 3 | 3 | ||||
Asian sites(c) | 4 | 2 | ||||
| Total e-commerce sites | 10 | 8 | ||||
The $3$614.8 million increase in Europe net revenues was primarily attributabledriven by:
•a $311.2 million increase related to our Europe retail business, reflecting a reduction in store closures and other COVID-19-related disruptions and the continued growth in our digital commerce operations, as well as the favorable impact of the 53rd week in Fiscal 2022. On a constant currency basis, net revenues increased apparelby $311.8 million, reflecting increases of $269.8 million in comparable store sales and accessories-related revenues$42.0 million in non-comparable store sales. The following table summarizes the percentage change in comparable store sales related to our Europe retail business:
| % Change | ||||||||
| Digital commerce | 18 | % | ||||||
| Brick and mortar | 75 | % | ||||||
| Total comparable store sales | 57 | % | ||||||
•a $303.6 million increase related to our Europe wholesale business largely driven by reduced shipments during the comparable prior fiscal year period due to significant COVID-19-related business disruptions and home licensing revenues,overall stronger consumer demand, partially offset by unfavorable foreign currency effects of $12.3 million.
Asia net revenues — Net revenues increased by $259.3 million, or 25.2%, during Fiscal 2022 as compared to Fiscal 2021, inclusive of the favorable impact of the transition53rd week in Fiscal 2022, which resulted in incremental net revenues of approximately $21 million related to our retail business. On a constant currency basis, net revenues increased by $275.3 million, or 26.8%.
The $259.3 million increase in Asia net revenues was driven by:
•a $239.0 million increase related to our Asia retail business, reflecting a reduction in store closures and other COVID-19-related disruptions and the continued growth in our digital commerce operations, as well as the favorable impact of the previously licensed53rd week in Fiscal 2022, partially offset by unfavorable foreign currency effects of $14.7 million. On a constant currency basis, net revenues increased by $253.7 million, reflecting increases of $145.2 million in comparable store sales and $108.5 million in non-comparable store sales. The following table summarizes the percentage change in comparable store sales related to our Asia retail business:
| % Change | ||||||||
| Digital commerce | 54 | % | ||||||
| Brick and mortar | 15 | % | ||||||
| Total comparable store sales | 17 | % | ||||||
•a $20.3 million increase related to our Asia wholesale business, reflecting increases most notably in Australia, South Korea, Southeast Asia, and New Zealand Business to a wholly-owned operation.Japan.
| 58 | ||||||||
Gross Profit. Gross profit increased by $68 million,$1.286 billion, or 1.6%44.9%, to $4.378$4.148 billion in Fiscal 2015 from $4.310 billion2022, including unfavorable foreign currency effects of $18.9 million. Gross profit during Fiscal 2022 reflects non-routine inventory benefits of $13.3 million related to reversals of amounts previously recorded in connection with COVID-19 business disruptions. In comparison, gross profit during Fiscal 2014.2021 reflects non-routine inventory charges of $21.0 million related to COVID-19 business disruptions and $8.3 million recorded in connection with our restructuring plans. Gross profit as a percentage of net revenues decreased by 40 basis pointsincreased to 57.5%66.7% in Fiscal 20152022 from 57.9%65.0% in Fiscal 2014. This decline2021. The 170 basis point improvement was primarily attributabledriven by lower non-routine inventory charges recorded during Fiscal 2022 as compared to a morethe prior fiscal year, as well as higher pricing, lower levels of promotional retail environmentactivity, and less favorable product mix, partially offset by a more favorablehigher product and freight costs and the absence of unusual geographic and channel mix.mix benefits experienced during the prior fiscal year in connection with COVID-19-related business disruptions in North America and Europe.
Selling, General, and Administrative Expenses. SG&A expenses increased by $159$667.1 million, or 5.0%25.3%, to $3.301$3.306 billion in Fiscal 2015 from $3.142 billion in Fiscal 2014. This increase included a net2022, including favorable foreign currency effecteffects of $54 million, primarily$5.7 million. The increase in SG&A expenses reflects a reduction in the magnitude of COVID-19 business disruptions and our related mitigating actions, which during Fiscal 2021 included (i) lower compensation-related expenses driven by employee furloughs and terminations, reduced pay for our executives, senior management team, and Board of Directors, and COVID-19-related government subsidies, and (ii) lower rent and occupancy costs largely driven by reduced percentage-of-sales-based rent due to widespread store closures and a reduction in traffic, as well as rent abatements negotiated with certain of our landlords. The increase in SG&A expenses also reflects our investments to drive strategic growth, including our marketing and advertising initiatives, and higher non-routine bad debt expense recorded during Fiscal 2022 as compared to the weakeningprior fiscal year, partially offset by expense savings associated with the disposition of our former Club Monaco business at the end of the Euro and the Japanese Yen against the U.S. Dollar.first quarter of Fiscal 2022. SG&A expenses as a percentage of net revenues increaseddecreased to 43.3%53.2% in Fiscal 20152022 from 42.2%60.0% in Fiscal 2014.2021. The 110680 basis point increasedecline was primarily due to the increase in operating expenses in support of the growth of our retail businesses (which typically carry higher operating expense margins); increased investments in our facilities and infrastructure; increased advertising and marketing costs; incremental operating expenses attributable to our acquisition of the Australia and New Zealand Business; and investments in new business initiatives. These increases were partially offsetdriven by our operating leverage on higher net revenues, partially offset by higher expenses across various categories to drive strategic growth, coupled with the return to more normalized operations in comparison to the prior fiscal year.
The $667.1 million increase in SG&A expenses was driven by:
| Fiscal 2022 Compared to Fiscal 2021 | ||||||||
| (millions) | ||||||||
| SG&A expense category: | ||||||||
| Compensation-related expenses | $ | 227.2 | ||||||
| Marketing and advertising expenses | 191.3 | |||||||
| Selling-related expenses | 69.4 | |||||||
| Rent and occupancy costs | 64.4 | |||||||
| Shipping and handling costs | 31.7 | |||||||
| Staff-related expenses | 26.6 | |||||||
| Bad debt expense | 25.4 | |||||||
| Other | 31.1 | |||||||
| Total increase in SG&A expenses | $ | 667.1 | ||||||
Impairment of Assets. During Fiscal 2022 and operational discipline.Fiscal 2021, we recorded impairment charges of $21.3 million and $96.0 million, respectively, to write-down certain long-lived assets. See Note 8 to the accompanying consolidated financial statements.
Restructuring and Other Charges, Net. During Fiscal 2022 and Fiscal 2021, we recorded restructuring charges of $4.0 million and $159.1 million, respectively, primarily consisting of severance and benefits costs and other cash charges, as well as other charges of $11.8 million and $11.4 million, respectively, primarily related to rent and occupancy costs associated with certain previously exited real estate locations for which the related lease agreements have not yet expired. Additionally, during Fiscal 2022, we recognized $4.0 million of income primarily related to a certain revenue share clause in our agreement with Regent that entitled us to receive a portion of the sales generated by the Club Monaco business during a four-month business transition period. We donated this income to The Ralph Lauren Corporate Foundation, which resulted in a related offsetting $4.0 million donation expense recorded within restructuring and other charges, net in the consolidated statements of operations during Fiscal 2022. We also recorded a charge of $6.4 million during Fiscal 2022 in connection with non-income-related capital taxes resulting from Swiss tax reform. See Note 9 to the accompanying consolidated financial statements.
Operating Income (Loss). During Fiscal 2022, we reported operating income of $798.4 million, as compared to an operating loss of $43.6 million during Fiscal 2021. The $159$842.0 million net increase in SG&A expenses by functional category is as follows:
Fiscal 2015 Compared to Fiscal 2014 | ||||
| (millions) | ||||
| SG&A expense category: | ||||
Compensation-related expenses(a) | $ | 62 | ||
| Depreciation expense | 46 | |||
| Rent and occupancy expenses | 26 | |||
| Marketing and advertising expenses | 19 | |||
| Incremental operating expenses related to the Australia and New Zealand Business | 10 | |||
| Shipping and handling costs | 7 | |||
Acquisition-related costs(b) | (7 | ) | ||
| Other | (4 | ) | ||
| Total change in SG&A expenses | $ | 159 | ||
Operating income (loss) and margin for our segments, as well as a lower gross profitdiscussion of the changes in each reportable segment's operating margin as previously discussed.from the prior fiscal year, are provided below:
| Fiscal Years Ended | ||||||||||||||||||||||||||||||||||||||
| April 2, 2022 | March 27, 2021 | |||||||||||||||||||||||||||||||||||||
| Operating Income (Loss) | Operating Margin | Operating Income (Loss) | Operating Margin | $ Change | Margin Change | |||||||||||||||||||||||||||||||||
| (millions) | (millions) | (millions) | ||||||||||||||||||||||||||||||||||||
| Segment: | ||||||||||||||||||||||||||||||||||||||
| North America | $ | 676.7 | 22.8% | $ | 334.0 | 16.8% | $ | 342.7 | 600 bps | |||||||||||||||||||||||||||||
| Europe | 444.0 | 24.9% | 189.3 | 16.2% | 254.7 | 870 bps | ||||||||||||||||||||||||||||||||
| Asia | 228.8 | 17.8% | 148.2 | 14.4% | 80.6 | 340 bps | ||||||||||||||||||||||||||||||||
Other non-reportable segments(a) | 138.4 | 75.7% | 32.4 | 15.1% | 106.0 | 6,060 bps | ||||||||||||||||||||||||||||||||
| 1,487.9 | 703.9 | 784.0 | ||||||||||||||||||||||||||||||||||||
| Unallocated corporate expenses | (667.3) | (577.0) | (90.3) | |||||||||||||||||||||||||||||||||||
| Unallocated restructuring and other charges, net | (22.2) | (170.5) | 148.3 | |||||||||||||||||||||||||||||||||||
| Total operating income (loss) | $ | 798.4 | 12.8% | $ | (43.6) | (1.0%) | $ | 842.0 | 1,380 bps | |||||||||||||||||||||||||||||
| Fiscal Years Ended | ||||||||||||||||||
| March 28, 2015 | March 29, 2014 | |||||||||||||||||
Operating Income | Operating Margin | Operating Income | Operating Margin | $ Change | Margin Change | |||||||||||||
| (millions) | (millions) | (millions) | ||||||||||||||||
| Segment: | ||||||||||||||||||
| Wholesale | $ | 943 | 27.0% | $ | 963 | 27.6% | $ | (20 | ) | (60 bps) | ||||||||
| Retail | 527 | 13.3% | 572 | 15.1% | (45 | ) | (180 bps) | |||||||||||
| Licensing | 152 | 90.4% | 150 | 90.2% | 2 | 20 bps | ||||||||||||
| 1,622 | 1,685 | (63 | ) | |||||||||||||||
| Unallocated corporate expenses | (577 | ) | (553 | ) | (24 | ) | ||||||||||||
| Gain on acquisition of Chaps | — | 16 | (16 | ) | ||||||||||||||
| Unallocated restructuring and other charges | (10 | ) | (18 | ) | 8 | |||||||||||||
| Total operating income | $ | 1,035 | 13.6% | $ | 1,130 | 15.2% | $ | (95 | ) | (160 bps) | ||||||||
Asia operating margin improved by 340 basis points, primarily due to the non-recurrencefavorable impact of prior year acquisition-related costs of $7 million,approximately 260 basis points related to our retail business, largely driven by an increase in our gross margin and a decline in otherSG&A expenses as a percentage of net revenues. The overall improvement in operating margin also reflected 40 basis points related to our wholesale business, largely driven by a decline in SG&A expenses as a percentage of $3 million.
effects.
Unallocated corporate expenses increased by $90.3 million to $667.3 million in Fiscal 2022. The increase in unallocated corporate expenses was due to higher compensation-related expenses of $88.4 million, higher marketing and advertising expenses of $42.1 million, higher consulting fees of $13.8 million and higher other expenses of $11.7 million, partially offset by higher intercompany sourcing commission income of $43.3 million (which is offset at the segment level and eliminates in consolidation) and lower impairment charges of $22.4 million.
Non-operating Income (Expense), Net. During Fiscal 2022, we reported non-operating expense, net, of $43.8 million, as compared to $31.2 million in Fiscal 2021. The $12.6 million increase in non-operating expense, net was driven by:
•a $5.5 million increase in interest expense, primarily driven by our finance leases, as well as the higher average level of outstanding debt during Fiscal 2022 (see "Financial Condition and Liquidity — Cash Flows");
•a $4.2 million decline in interest income, primarily driven by lower interest rates in financial markets; and
•a $2.9 milliondecline in other income (expense), net, primarily driven by lower net foreign currency gains during Fiscal 2022 as compared to the prior fiscal year period.
Income Tax Provision. The income tax provision and effective tax rate in Fiscal 2022 were $154.5 million and 20.5%, respectively, as compared to $46.3 million and (61.9%), respectively, in Fiscal 2021. The $108.2 million increase in our income tax provision was driven by the increase in our pretax income, as well as an increase in our effective tax rate of 8,240 basis points. Our income tax provision in Fiscal 2021 reflected incremental tax expense of $33.7 million primarily related to a valuation allowance provided against domestic losses attributable to significant COVID-19 business disruptions and $13.8 million related to international tax legislation enacted in connection with the European Union's anti-tax avoidance directive, partially offset by an income tax benefit resulting fromof $0.9 million primarily due to a net operating loss carryback under the legal entity restructuringCARES Act. Collectively, this $46.6 million of certainnet incremental tax expense impacted our prior fiscal year effective tax rate by 6,230 basis points. The remaining 2,010 basis point increase in our effective tax rate was primarily driven by the impact of stock compensation, favorable impact of the change in the geographic mix of our foreign operations in Fiscal 2015,worldwide earnings, tax adjustments related to audit settlements, and certain deferred tax adjustments, partially offset by additional tax reserves associated with$3.4 million related to a net operating loss carryback under the conclusionCARES Act. See Note 10 to the accompanying consolidated financial statements.
Net Income (Loss). We reported net income of tax examinations during Fiscal 2015 and the absence of prior-year tax reserve reductions associated with the conclusion of a tax examination.
Net Income (Loss) per Diluted Share. We reported net income per diluted share of $8.07 in Fiscal 2022, as compared to a net loss per diluted share of $1.65 in Fiscal 2021. The $9.72 per share increase was driven by the higher level of net income, as previously discussed. Net income per diluted share declinedin Fiscal 2022 and Fiscal 2021 were negatively impacted by $0.55, or 6.5%$0.31 per share and $2.71 per share, respectively, related to net restructuring-related charges, impairment of assets, and certain other charges (benefits), to $7.88and favorably impacted by approximately $0.22 per share as a result of the 53rd week in Fiscal 2022, as previously discussed. Net loss per diluted share in Fiscal 2015 from $8.432021 was also negatively impacted by $0.64 per share in Fiscal 2014. The decline was due to lowerincremental net income,tax expense recorded in connection with one-time tax events, as previously discussed, partially offset by lower weighted-average diluted shares outstanding during Fiscal 2015, driven by our share repurchases during Fiscal 2015. discussed.
| 61 | ||||||||
FINANCIAL CONDITION AND LIQUIDITY
Financial Condition
The following table presents our financial condition as of April 1, 2023 and April 2, 2016 and March 28, 2015.2022.
| April 2, 2016 | March 28, 2015 | $ Change | ||||||||||
| (millions) | ||||||||||||
| Cash and cash equivalents | $ | 456 | $ | 500 | $ | (44 | ) | |||||
| Short-term investments | 629 | 644 | (15 | ) | ||||||||
Non-current investments(a) | 187 | 8 | 179 | |||||||||
| Short-term debt | (116 | ) | (234 | ) | 118 | |||||||
Long-term debt(b) | (597 | ) | (298 | ) | (299 | ) | ||||||
Net cash and investments(c) | $ | 559 | $ | 620 | $ | (61 | ) | |||||
| Equity | $ | 3,744 | $ | 3,891 | $ | (147 | ) | |||||
| April 1, 2023 | April 2, 2022 | $ Change | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Cash and cash equivalents | $ | 1,529.3 | $ | 1,863.8 | $ | (334.5) | ||||||||||||||
| Short-term investments | 36.4 | 734.6 | (698.2) | |||||||||||||||||
Current portion of long-term debt(a) | — | (499.8) | 499.8 | |||||||||||||||||
Long-term debt(a) | (1,138.5) | (1,136.5) | (2.0) | |||||||||||||||||
| Net cash and short-term investments | $ | 427.2 | $ | 962.1 | $ | (534.9) | ||||||||||||||
| Equity | $ | 2,430.5 | $ | 2,536.0 | $ | (105.5) | ||||||||||||||
(a)See Note 11 to the accompanying consolidated financial statements for discussion of the carrying values of our debt. |
The declinedecrease in our net cash and short-term investments position at April 2, 20161, 2023 as compared to March 28, 2015April 2, 2022 was primarily due to our use of cash to support our Class A common stock repurchases of $500$488.6 million, including withholdings in satisfaction of tax obligations for stock-based compensation awards, to invest in our business through $418$217.5 million in capital expenditures, and to make cash dividend payments of $170$198.3 million, during Fiscal 2016,as well as the unfavorable effect of exchange rate changes on our cash, cash equivalents, and restricted cash of $8.8 million, partially offset by our operating cash flows of $1.007 billion.$411.0 million.
The declinedecrease in our equity was attributable to our share repurchase activity and dividends declared during Fiscal 2023, partially offset by our comprehensive income and the net impact of stock-based compensation arrangements during Fiscal 2016.
arrangements.
Cash Flows
Fiscal 20162023 Compared to Fiscal 20152022
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | $ Change | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Net cash provided by operating activities | $ | 411.0 | $ | 715.9 | $ | (304.9) | ||||||||||||||
| Net cash provided by (used in) investing activities | 471.5 | (717.9) | 1,189.4 | |||||||||||||||||
| Net cash used in financing activities | (1,208.8) | (665.7) | (543.1) | |||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (8.8) | (48.3) | 39.5 | |||||||||||||||||
| Net decrease in cash, cash equivalents, and restricted cash | $ | (335.1) | $ | (716.0) | $ | 380.9 | ||||||||||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | $ Change | ||||||||||
| (millions) | ||||||||||||
| Net cash provided by operating activities | $ | 1,007 | $ | 894 | $ | 113 | ||||||
| Net cash used in investing activities | (583 | ) | (689 | ) | 106 | |||||||
| Net cash used in financing activities | (473 | ) | (421 | ) | (52 | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 5 | (81 | ) | 86 | ||||||||
| Net decrease in cash and cash equivalents | $ | (44 | ) | $ | (297 | ) | $ | 253 | ||||
Net Cash Provided by Operating Activities. Net cash provided by operating activities increased to $1.007 billion during Fiscal 2016, from $894was $411.0 million during Fiscal 2015.2023, as compared to $715.9 million during Fiscal 2022. The $113$304.9 million net increasedecrease in cash provided by operating activities was primarily due to a net favorableunfavorable change related to our operating assets and liabilities, including our working capital, partially offset by aas compared to the prior fiscal year period, as well as the decline in net income before non-cash charges.
The net favorableunfavorable change related to our operating assets and liabilities, including our working capital, was primarily driven by:
•a favorablenet unfavorable change in our accounts receivable balance,payable and accrued liabilities largely driven by lower net revenues at the end of Fiscal 2016a decrease in our bonus accrual and the timing of cash collections; and
•an unfavorable change related to our accounts receivable, largely driven by stronger performance in our wholesale businesses, as well as timing of cash receipts.
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These decreases related to our operating assets and (ii) accounts payableliabilities were partially offset by:
•a favorable change related to our inventories, largely driven by a more normalized receipt cadence; and accrued liabilities balances, both
•a favorable change related to our income tax receivables and payables largely driven by the timing of payments.cash receipts and payments, respectively.
Net Cash Used inProvided by (Used in) Investing Activities. Net cash provided by investing activities was $471.5 million during Fiscal 2023, as compared to cash used in investing activities was $583of $717.9 million during Fiscal 2016, as compared to $689 million during Fiscal 2015.2022. The $106 million net decrease$1.189 billion increase in cash used inprovided by investing activities was primarily driven by by:
•a $142 million decline$1.241 billion increase in cash used to purchase investments, less proceeds from sales and maturities of investments, less purchases of investments. During Fiscal 2016,2023, we madereceived net investment purchasesproceeds from sales and maturities of $143investments of $694.8 million, as compared to making net investment purchases of $285investments of $546.0 million during Fiscal 2015.2022.
•a $27$50.6 million increase in capital expenditures. During Fiscal 2016,2023, we spent $418$217.5 million on capital expenditures, as compared to $391$166.9 million during Fiscal 2015.2022. Our capital expenditures during Fiscal 20162023 primarily related to our global retail store expansion, department storeopenings and renovations, as well as enhancements to our global information technology systems, and further development of our infrastructure, including the build-out of a new distribution center in High Point, North Carolina.systems.
In Fiscal 2017,2024, we expect to spend approximately $400$275 million into $300 million on capital expenditures primarily related to supportstore opening and renovations, as well as enhancements to our global retail store expansion and further development of our infrastructure, including continued investment in a new global e-commerce platform. Our capital expenditures will also be focused on department store renovations and the continued implementation of SAP and otherinformation technology systems.
Net Cash Used in Financing Activities. Net cash used in financing activities was $473$1.209 billion during Fiscal 2023, as compared to $665.7 million during Fiscal 2016, as compared to $421 million during Fiscal 2015.2022. The $52$543.1 million increase in cash used in financing activities was primarily driven by:
•a $54$500.0 million decreaseincrease in proceeds from debt issuances, less cash used to repay debt. During Fiscal 2016,2023, we received net proceedsrepaid our previously outstanding $500.0 million principal amount of $299 million from our issuance of 2.625% unsecured 1.700% senior notes that matured June 15, 2022. On a comparative basis, during Fiscal 2022, we did not issue or repay any debt; and
•a $48.3 million increase in August 2015payments of dividends, due to the reinstatement of our quarterly cash dividend program during Fiscal 2022 after being temporarily suspended at the beginning of the COVID-19 pandemic as a preemptive action to preserve cash and $26strengthen our liquidity position, as discussed in "Dividends" below, as well as an increase to the quarterly cash dividend per share. Dividends paid amounted to $198.3 million in borrowings under our credit facilities, which were partially offsetand $150.0 million, during Fiscal 2023 and Fiscal 2022, respectively.
Fiscal 2022 Compared to Fiscal 2021
| Fiscal Years Ended | ||||||||||||||||||||
| April 2, 2022 | March 27, 2021 | $ Change | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Net cash provided by operating activities | $ | 715.9 | $ | 380.9 | $ | 335.0 | ||||||||||||||
| Net cash provided by (used in) investing activities | (717.9) | 195.0 | (912.9) | |||||||||||||||||
| Net cash provided by (used in) financing activities | (665.7) | 356.8 | (1,022.5) | |||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (48.3) | 25.5 | (73.8) | |||||||||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | (716.0) | $ | 958.2 | $ | (1,674.2) | ||||||||||||||
Net Cash Provided by net repayments of $145Operating Activities. Net cash provided by operating activities was $715.9 million relatedduring Fiscal 2022, as compared to our commercial paper note issuances and repayments. During$380.9 million during Fiscal 2015, we received net proceeds of $234 million related to our commercial paper note issuances and repayments; and
the prior fiscal year.
The net unfavorable change related to our operating assets and liabilities, including our working capital, was primarily driven by:
•a year-over-year increase in our inventory levels largely to support revenue growth, as well as higher goods-in-transit to mitigate ongoing global supply chain delays;
•a net unfavorable change in our accrued liabilities largely driven by an unfavorable change in our restructuring reserve due to a decrease in restructuring charges recorded during Fiscal 2022 as compared to the prior fiscal year, partially offset by a favorable change in our dividends payable related to the temporary suspension and subsequent resumption of our quarterly cash dividend program; and
•an unfavorable change related to our prepaid expenses and other current assets largely driven by an increase in non-trade receivables primarily related to transition services being performed in connection with the disposition of our former Club Monaco business (see "Recent Developments"), as well as the timing of cash payments; and
•an unfavorable change related to our income tax receivables and payables largely driven by the timing of cash receipts and payments, respectively.
These increasesdecreases related to our operating assets and liabilities were partially offset by:
•a favorable change related to our accounts receivable, largely driven by a return to more normalized operations in comparison to the prior fiscal year period.
Net Cash Provided by (Used in) Investing Activities. Net cash used in investing activities was $717.9 million during Fiscal 2022, as compared to cash provided by investing activities of $195.0 million during Fiscal 2021. The $912.9 million decrease in cash provided by investing activities was primarily driven by:
•an $848.6 million decrease in proceeds from sales and maturities of investments, less purchases of investments. During Fiscal 2022, we made net purchases of investments of $546.0 million, as compared to receiving net proceeds from sales and maturities of investments of $302.6 million during Fiscal 2021; and
•a $59.1 million increase in capital expenditures. During Fiscal 2022, we spent $166.9 million on capital expenditures, as compared to $107.8 million during Fiscal 2021. Our capital expenditures during Fiscal 2022 primarily related to store openings and renovations, as well as enhancements to our information technology systems.
Net Cash Provided by (Used in) Financing Activities. Net cash used in financing activities were partially offsetwas $665.7 million during Fiscal 2022, as compared to net cash provided by financing activities of $356.8 million during Fiscal 2021. The $1.022 billion decrease in cash provided by financing activities was primarily driven by:
•a $32$466.9 million decrease in cash proceeds from the issuance of debt, less debt repayments. During Fiscal 2022, we did not issue or repay any debt. On a comparative basis, during Fiscal 2021, we received $1.242 billion in proceeds from the issuance of our 1.700% unsecured senior notes and 2.950% unsecured senior notes, a portion of which was used to repay $475.0 million of borrowings previously outstanding under our credit facilities and our previously outstanding $300.0 million principal amount of 2.625% unsecured senior notes that matured August 18, 2020;
•a $454.9 million increase in cash used to repurchase shares of our Class A common stock. During Fiscal 2016,2022, we used $480 million to repurchase shares of Class A common stock pursuant toresumed activities under our common stock repurchase program and repurchased $450.5 million of shares of our Class A common stock, and an additional $20$42.1 million in shares of our Class A common stock were surrendered or withheld in satisfaction of withholding taxes in connection with the vesting of awards under our long-term stock incentive plans. On a comparative basis, during Fiscal 2015, we used $500 million to repurchase shares of Class A common stock pursuant to our common stock repurchase program, and an additional $322021, $37.7 million in shares of our Class A common stock were surrendered or withheld for taxes.taxes; and
| Fiscal Years Ended | ||||||||||||
| March 28, 2015 | March 29, 2014 | $ Change | ||||||||||
| (millions) | ||||||||||||
| Net cash provided by operating activities | $ | 894 | $ | 907 | $ | (13 | ) | |||||
| Net cash used in investing activities | (689 | ) | (488 | ) | (201 | ) | ||||||
| Net cash used in financing activities | (421 | ) | (599 | ) | 178 | |||||||
| Effect of exchange rate changes on cash and cash equivalents | (81 | ) | 3 | (84 | ) | |||||||
| Net decrease in cash and cash equivalents | $ | (297 | ) | $ | (177 | ) | $ | (120 | ) | |||
"Dividends" below.
Sources of Liquidity
Our primary sources of liquidity are the cash flows generated from our operations, availability under our credit facilities, our issuances of commercial paper notes, our available cash and cash equivalents and short-term investments, availability under our credit and overdraft facilities and commercial paper program, and other available financing options.
During Fiscal 2016,2023, we generated $1.007 billion$411.0 million of net cash flows from our operations. As of April 2, 2016,1, 2023, we had $1.085$1.566 billion in cash, cash equivalents, and short-term investments, of which $1.066 billion$930.4 million were held by our subsidiaries domiciled outside the U.S. We are not dependent on foreign cash to fund our domestic operationsoperations. Undistributed foreign earnings generated on or before December 31, 2017 that were subject to the one-time mandatory transition tax in connection with U.S. tax legislation commonly referred to as the Tax Cuts and doJobs Act (the "TCJA") are not expectconsidered to repatriate these balancesbe permanently reinvested and may be repatriated to meet our domestic cash needs.the U.S. in the future with minimal or no additional U.S. taxation. We intend to permanently reinvest undistributed foreign earnings generated after December 31, 2017 that were not subject to the one-time mandatory transition tax. However, if our plans change and we choose to repatriate any fundspost-2017 earnings to the U.S. in the future, we would be subject to applicable U.S. and foreign taxes.
The following table presents ourthe total availability, borrowings outstanding, and remaining availability under our credit and overdraft facilities and Commercial Paper Program as of April 2, 2016:1, 2023:
| April 2, 2016 | ||||||||||||
Description(a) | Total Availability | Borrowings Outstanding | Remaining Availability | |||||||||
| (millions) | ||||||||||||
Commercial Paper Program(b) | $ | 500 | $ | 90 | (c) | $ | 410 | |||||
| Global Credit Facility | 500 | 9 | (d) | 491 | ||||||||
| Pan-Asia Credit Facilities | 57 | 26 | (c) | 31 | ||||||||
| April 1, 2023 | ||||||||||||||||||||
Description(a) | Total Availability | Borrowings Outstanding | Remaining Availability | |||||||||||||||||
| (millions) | ||||||||||||||||||||
Global Credit Facility and Commercial Paper Program(b) | $ | 500 | $ | 12 | (c) | $ | 488 | |||||||||||||
| Pan-Asia Credit Facilities | 37 | — | 37 | |||||||||||||||||
| Pan-Asia Overdraft Facilities | 52 | — | 52 | |||||||||||||||||
(a)As defined in Note 11 to the accompanying consolidated financial statements. (b)Borrowings under the Commercial Paper Program are supported by the Global Credit Facility. Accordingly, we do not expect combined borrowings outstanding under the Commercial Paper Program and the Global Credit Facility to exceed $500 million. (c)Represents outstanding letters of credit for which we were contingently liable under the Global Credit Facility as of April 1, 2023. |
We believe that ourthe Global Credit Facility is adequately diversified with no undue concentration in any one financial institution. In particular, as of April 2, 2016,1, 2023, there were nineeight financial institutions participating in the Global Credit Facility, with no one participant maintaining a maximum commitment percentage in excess of 20%. In accordance with the terms of the agreement, we have the ability to expand our borrowing availability under the Global Credit Facility to $1 billion through the full term of the facility, subject to the agreement of one or more new or existing lenders under the facility to increase their commitments.
Borrowings under the Pan-Asia Credit Facilities and Pan-Asia Overdraft Facilities (collectively, the "Pan-Asia Borrowing Facilities") are guaranteed by the parent company and are granted at the sole discretion of the participating regional branches of JPMorgan Chase (the "Banks")banks (as described within Note 11 to the accompanying consolidated financial statements), subject to availability of the Banks'respective banks' funds and satisfaction of certain regulatory requirements. We have no reason to believe that the participating institutions will be unable to fulfill their obligations to provide financing in accordance with the terms of the Global Credit Facility and the Pan-Asia CreditBorrowing Facilities in the event of our election to draw additional funds in the foreseeable future.
Our sources of liquidity are used to fund our ongoing cash requirements, including working capital requirements, global retail store and e-commerce development anddigital commerce expansion, construction and renovation of shop-within-shops, investment in infrastructure, including technology, acquisitions, joint ventures, payment of dividends, debt repayments, Class A common stock repurchases, settlement of contingent liabilities (including uncertain tax positions), and other corporate activities, including our restructuring actions. We believe that our existing sources of cash, the availability under our credit facilities, and our ability to access capital markets will be sufficient to support our operating, capital, and debt service requirements for the foreseeable future, the ongoing development of our businesses, and our plans for further business expansion. However, prolonged periods of adverse economic conditions or business disruptions in any of our key regions, or a combination thereof, such as those resulting from pandemic
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diseases and other catastrophic events, could impede our ability to pay our obligations as they become due or return value to our shareholders, as well as delay previously planned expenditures related to our operations.
See Note 1311 to the accompanying audited consolidated financial statements for additional information relating to our credit facilities.
Debt and Covenant Compliance
In September 2013,August 2018, we completed a registered public debt offering and issued $300$400 million aggregate principal amount of unsecured senior notes due September 26, 2018,15, 2025, which bear interest at a fixed rate of 2.125%3.750%, payable semi-annually (the "2.125%"3.750% Senior Notes"). In August 2015,June 2020, we completed a secondanother registered public debt offering and issued an additional $300$500 million aggregate principal amount of unsecured senior notes that were due and repaid on June 15, 2022 with cash on hand, which bore interest at a fixed rate of 1.700%, payable semi-annually (the "1.700% Senior Notes"), and $750 million aggregate principal amount of unsecured senior notes due August 18, 2020,June 15, 2030, which bear interest at a fixed rate of 2.625%2.950%, payable semi-annually (the "2.625%"2.950% Senior Notes").
The indenture and supplemental indentures governing the 2.125%3.750% Senior Notes and 2.625%2.950% Senior Notes (as supplemented, the "Indenture") contain certain covenants that restrict our ability, subject to specified exceptions, to incur certain liens; enter into sale and leaseback transactions; consolidate or merge with another party; or sell, lease, or convey all or substantially all of our property or assets to another party. However, the Indenture does not contain any financial covenants.
We have a credit facility that provides for a $500 million senior unsecured revolving line of credit through August 12, 2024, which is also used to support the issuance of letters of credit and the maintenance of the Commercial Paper Program (the "Global Credit Facility"). Borrowings under the Global Credit Facility may be denominated in U.S. Dollars and other currencies, including Euros, Hong Kong Dollars, and Japanese Yen. We have the ability to expand the borrowing availability under the Global Credit Facility to $1 billion, subject to the agreement of one or more new or existing lenders under the facility to increase their commitments. There are no mandatory reductions in borrowing ability throughout the term of the Global Credit Facility.
The Global Credit Facility contains a number of covenants, as described in Note 1311 to the accompanying audited consolidated financial statements. As of April 2, 2016,1, 2023, no Event of Default (as such term is defined pursuant to the Global Credit Facility) has occurred under our Global Credit Facility. The Pan-Asia CreditBorrowing Facilities do not contain any financial covenants.
See Note 1311 to the accompanying audited consolidated financial statements for additional information relating to our debt and covenant compliance.
Common Stock Repurchase Program
Repurchases of shares of our Class A common stock are subject to overall business and market conditions, as well as other potential factors such as the temporary restrictions previously in place under our Global Credit Facility. Accordingly, in response to business disruptions related to the COVID-19 pandemic, effective beginning in the first quarter of Fiscal 2021, we temporarily suspended our common stock repurchase program as a preemptive action to preserve cash and strengthen our liquidity position. During the third quarter of Fiscal 2022, we resumed activities under our Class A common stock repurchase program as restrictions under our Global Credit Facility were lifted (see Note 11 to the accompanying consolidated financial statements) and overall business and market conditions have improved since the COVID-19 pandemic first emerged.
On February 2, 2022, our Board of Directors approved an expansion of our existing common stock repurchase program that allowed us to repurchase up to an additional $1.500 billion of our Class A common stock. As of April 1, 2023, the remaining availability under our Class A common stock repurchase program was approximately $1.175 billion.
As discussed in Note 10 to the accompanying consolidated financial statements, the Inflation Reduction Act ("IRA") was signed into law by President Biden in August 2022. Among its various provisions, the IRA imposes a 1% excise tax on share repurchases made after December 31, 2022.
See Note 16 to the accompanying consolidated financial statements for additional information relating to our Class A common stock repurchase program.
Dividends
In response to business disruptions related to the COVID-19 pandemic, effective beginning in the first quarter of Fiscal 2021, we temporarily suspended our quarterly cash dividend program as a preemptive action to preserve cash and Other Obligationsstrengthen our liquidity position. On May 19, 2021, our Board of Directors approved the reinstatement of our quarterly cash dividend program at the pre-pandemic amount of $0.6875 per share.
On May 18, 2022, our Board of Directors approved an increase to the quarterly cash dividend on our common stock from $0.6875 to $0.75 per share.
We intend to continue to pay regular dividends on outstanding shares of our common stock. However, any decision to declare and pay dividends in the future will ultimately be made at the discretion of our Board of Directors and will depend on our results of operations, cash requirements, financial condition, and other factors that the Board of Directors may deem relevant, including economic and market conditions.
See Note 16 to the accompanying consolidated financial statements for additional information relating to our quarterly cash dividend program.
Material Cash Requirements
Firm Commitments
The following table summarizes certain of our aggregate contractual obligationsmaterial cash requirements as of April 2, 2016,1, 2023, and the estimated timing and effect that such obligations are expected to have on our liquidity and cash flows in future periods. We expect to fund these firm commitments with operating cash flows generated in the normal course of business and, if necessary, through availability under our credit facilities or other accessible sources of financing.
| Fiscal 2024 | Fiscal 2025-2026 | Fiscal 2027-2028 | Fiscal 2029 and Thereafter | Total | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
| Senior Notes | $ | — | $ | 400.0 | $ | — | $ | 750.0 | $ | 1,150.0 | ||||||||||||||||||||||
| Interest payments on debt | 37.1 | 66.8 | 44.3 | 55.3 | 203.5 | |||||||||||||||||||||||||||
| Operating leases | 299.1 | 515.9 | 336.2 | 386.9 | 1,538.1 | |||||||||||||||||||||||||||
| Finance leases | 33.0 | 68.5 | 65.6 | 242.6 | 409.7 | |||||||||||||||||||||||||||
| Other lease commitments | 1.5 | 5.4 | 3.9 | 10.0 | 20.8 | |||||||||||||||||||||||||||
| Inventory purchase commitments | 878.6 | — | — | — | 878.6 | |||||||||||||||||||||||||||
| Mandatory transition tax payments | 23.4 | 75.9 | — | — | 99.3 | |||||||||||||||||||||||||||
| Other commitments | 54.5 | 55.8 | 11.3 | 20.5 | 142.1 | |||||||||||||||||||||||||||
| Total | $ | 1,327.2 | $ | 1,188.3 | $ | 461.3 | $ | 1,465.3 | $ | 4,442.1 | ||||||||||||||||||||||
| Fiscal 2017 | Fiscal 2018-2019 | Fiscal 2020-2021 | Fiscal 2022 and Thereafter | Total | ||||||||||||||||
| (millions) | ||||||||||||||||||||
| Senior Notes | $ | — | $ | 300 | $ | 300 | $ | — | $ | 600 | ||||||||||
| Interest payments on Senior Notes | 14 | 25 | 12 | — | 51 | |||||||||||||||
| Capital leases | 30 | 54 | 55 | 106 | 245 | |||||||||||||||
| Operating leases | 346 | 634 | 494 | 733 | 2,207 | |||||||||||||||
| Inventory purchase commitments | 525 | 416 | — | — | 941 | |||||||||||||||
| Other commitments | 58 | 43 | 38 | 10 | 149 | |||||||||||||||
| Total | $ | 973 | $ | 1,472 | $ | 899 | $ | 849 | $ | 4,193 | ||||||||||
The following is a description of our material, firmly committed obligations as of April 2, 2016:1, 2023:
•Senior Notes represents represent the principal amount of our outstanding 2.125%3.750% Senior Notes and 2.625%2.950% Senior Notes. Amounts do not include any fair value adjustments, call premiums, unamortized debt issuance costs, or interest payments (see below);
•Interest payments on Senior Notesdebt represent the semi-annual contractual interest payments due on our 2.125%3.750% Senior Notes and 2.625%2.950% Senior Notes;
Notes. Amounts do not include the impact of potential cash flows underlying our related swap contracts (see Note 13 to the accompanying consolidated financial statements for discussion of our swap contracts);•Lease obligations represent the minimum lease rentalfixed payments due underover the lease term of our noncancelable leases for ourof real estate and operating equipment. In addition to such amounts, we are normally required to payequipment, including rent, real estate taxes, insurance, andcommon area maintenance fees, and/or certain occupancy costs relating to our leased real estate properties, which are not included in the table above. Approximately 70% of theseother costs. For lease obligations relate to our retail operations. Informationterms that have commenced, information has been presented separately for capitaloperating and operating leases;
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finance leases. Other lease commitments relate to executed lease agreements for which the related lease terms have not yet commenced as of April 1, 2023;
•Inventory purchase commitments represent our legally-binding agreements to purchase fixed or minimum quantities of goods at determinable prices;
•Mandatory transition tax payments represent our remaining tax obligation incurred in connection with the deemed repatriation of previously deferred foreign earnings pursuant to the TCJA (see Note 10 to the accompanying consolidated financial statements for discussion of the TCJA); and
•Other commitments primarily represent our legally-binding obligations under sponsorship, licensing, and other marketing and advertising agreements; distribution-related agreements; information technology-related service agreements; and pension-related obligations.
Excluded from the above contractual obligations table is the non-current liability for unrecognized tax benefits of $81$93.8 million as of April 2, 2016,1, 2023, as we cannot make a reliable estimate of the period in which the liability will be settled, if ever. The above table also excludes the following: (i) amounts recorded in current liabilities in our consolidated balance sheet as of April 2, 2016, including borrowings outstanding of $90 million and $26 million under our Commercial Paper Program and Pan-Asia Credit Facilities, respectively,1, 2023, which will be paid within one year;year, other than lease obligations, mandatory transition tax payments, and accrued interest payments on debt; and (ii) non-current liabilities that have no cash outflows associated with them (e.g., deferred revenue)income), or the cash outflows associated with them are uncertain or do not represent a "purchase obligation" as thesuch term is used herein (e.g., deferred taxes, derivative financial instruments, and other miscellaneous items).
We also have certain contractual arrangements that would require us to make payments if certain events or circumstances occur. See Note 1615 to the accompanying audited consolidated financial statements for a description of our contingent commitments not included in the above table.
Off-Balance Sheet Arrangements
In addition to the commitments included in the above table, our other off-balance sheet firm commitments relating to our outstanding letters of credit amounted to approximately $10$11.9 million as of April 2, 2016.1, 2023. We do not maintain any other off-balance sheet arrangements, transactions, obligations, or other relationships with unconsolidated entities that would be expected to have a material current or future effect on our consolidated financial statements.
MARKET RISK MANAGEMENT
As discussed in Note 1513 to the accompanying audited consolidated financial statements, we are exposed to a variety of levels and types of risks, including the impact of changes in foreign currency exchange rates relating toon foreign currency-denominated balances, certain anticipated cash flows fromof our international operations, and possible declines in the value of reported net assets of certain of our foreign operations, as well as changes in the fair value of our fixed-rate debt obligations relating to changesfluctuations in benchmark interest rates. Consequently, at times,Accordingly, in the normal course of business we employassess such risks and, in accordance with our established policies and procedures, including themay use of derivative financial instruments to manage such risks.and mitigate them. We do not enter into derivative transactionsuse derivatives for speculative or trading purposes.
Foreign Currency Risk Management
We manage our exposure to changes in foreign currency exchange rates through the use ofusing forward foreign currency exchange and cross-currency swap contracts. Refer to Note 1513 to the accompanying audited consolidated financial statements for a summary of the notional amounts and fair values of our outstanding forward foreign currency exchange and cross-currency swap contracts, outstanding as well as the impact on earnings and other comprehensive income of April 2, 2016.such instruments for the fiscal years presented.
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Forward Foreign Currency Exchange Contracts
We enter into forward foreign currency exchange contracts as hedges to reduce ourmitigate risk related to exchange rate fluctuations on inventory transactions made in an entity's non-functional currency, intercompany royalty payments made by certainthe settlement of our international operations, and other foreign currency-denominated operational and intercompany balances, and cash flows.the translation of certain foreign operations' net assets into U.S. Dollars. As part of our overall strategy to managefor managing the level of exposure to the risk of foreign currencysuch exchange rate fluctuations,risk, relating primarily to changes in the value of the Euro, the Japanese Yen, the South Korean Won, the Australian Dollar, the Canadian Dollar, the British Pound Sterling, the Swiss Franc, and the Hong Kong Dollar,Chinese Renminbi, we generally hedge a portion of our foreign currencyrelated exposures anticipated over a two-year period. In doing so, we usethe next twelve months using forward foreign currency exchange contracts that generally havewith maturities of two months to two yearsone year to provide continuing coverage throughoutover the hedging period.period of the respective exposure.
Our foreign exchange risk management activities are governed by our Company's established policies and procedures. These policies and procedures provide a framework that allows for the management of currency exposures while ensuring the activities are conducted within our established guidelines. Our policies include guidelines for the organizational structure of our risk management function and for internal controls over foreign exchange risk management activities, including, but not limited to, authorization levels, transaction limits, and credit quality controls, as well as various measurements for monitoring compliance. We monitor foreign exchange risk using different techniques, including a periodic review of market values and performance of sensitivity analyses.
Cross-Currency Swap Contracts
See Note 3 to the accompanying consolidated financial statements for further discussion of our foreign currency exposures and €274 million floating-rate Euro-denominated liabilities, respectively.the types of derivative instruments used to hedge those exposures.
Sensitivity
We perform a sensitivity analysis to determine the effects that market risk exposures may have on the fair values of our forward foreign currency exchange and cross-currency swap contracts. To perform the sensitivity analysis,In doing so, we assess the risk of loss in the fair values of these contracts that would result from the effect of hypothetical changes in foreign currency exchange rates. This analysis assumes a like movement by the foreign currencies in our hedge portfolio against the U.S. Dollar. As of April 2, 2016,1, 2023, a 10% appreciation or depreciation of the U.S. Dollar against the exchange rates for foreign currencies under contract would result in a net increase or decrease, respectively, in the fair value of our derivative portfolio of approximately $155$109 million. As our outstanding forward foreign currency exchange contracts are primarily designated as cash flow hedges of forecasted transactions, and as our cross-currency swap contracts are designated as hedges of our net investment in certain of our European subsidiaries, thisThis hypothetical net change in fair value wouldshould ultimately be largely offset by the net change in the fair values of therelated underlying hedged items.
Interest Rate Risk Management
Sensitivity
As of April 2, 2016, notwithstanding the aforementioned Interest Rate Swaps,1, 2023, we had no variable-rate debt outstanding. As such, our exposure to changes in interest rates primarily relates to a changechanges in the fair valuevalues of our fixed-rate Senior Notes, commercial paper notes, and borrowings outstanding under our credit facilities.Notes. As of April 2, 2016,1, 2023, the aggregate fair values of our Senior Notes commercial paper notes, and borrowings outstanding under our credit facilities were $614 million, $90 million, and $26 million, respectively.$1.071 billion. A 25 basis25-basis point increase or decrease in the level of interest rates would decrease or increase, respectively, the aggregate fair valuevalues of our Senior Notes commercial paper notes, and borrowings outstanding under our credit facilities by approximately $5 million. Such potential increases or decreases in the fair value of our debt would only be relevant if we were to retire all or a portion of the debt prior to its maturity, and are$13 million based on certain simplifying assumptions, including an immediate across-the-board increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the period. Such potential increases or decreases in the fair value of our debt would only be realized if we were to retire all or a portion of the debt prior to its maturity.
Investment Risk Management
As of April 2, 2016,1, 2023, we had cash and cash equivalents on-hand of $456 million,$1.529 billion, consisting of deposits in interest bearing accounts, and investedinvestments in money market fundsdeposit accounts, and investments in time deposits with original maturities of 90 days or less. Our other significant investments included $629$36.4 million of short-term investments, consisting of investments in time deposits and corporate bonds with original maturities greater than 90 days; $46 million of restricted cash placed in escrow with certain banks as collateral, primarily to secure guarantees in connection with certain international tax matters; and $187 million of investments with maturities greater than one year, consisting of time deposits.
days.
We actively monitor our exposure to changes in the fair value of our global investment portfolio in accordance with our established policies and procedures, which include monitoring both general and issuer-specific economic conditions, as discussed further below.in Note 3 to the accompanying consolidated financial statements. Our investment objectives include capital preservation, maintaining adequate liquidity, diversification to minimize liquidity and credit risk, and achievement of maximum returns within the guidelines set forth in our investment policy. See Note 1513 to the accompanying audited consolidated financial statements for further detail of the composition of our investment portfolio as of April 2, 2016.1, 2023.
CRITICAL ACCOUNTING POLICIES
An accounting policy is considered to be critical if it is important to our results of operations, financial condition, and cash flows, and requires significant judgment and estimates on the part of management in its application. Our estimates are often based on complex judgments, assessments of probability, and assumptions that management believes to be reasonable, but that are inherently uncertain and unpredictable. It is also possible that other professionals, applying reasonable judgment to the same set of facts and circumstances, could develop and support a range of alternative estimated amounts. We believe that the following list represents our critical accounting policies. For a discussion of all of our significant accounting policies, including our critical accounting policies, see Note 3 to the accompanying audited consolidated financial statements.
Sales Reserves and Uncollectible Accounts
A significant area of judgment affecting reported revenue and net income involves estimating sales reserves, which represent the portion of gross revenues not expected to be realized. In particular, gross revenue related to our wholesale revenuebusiness is reduced by estimates of returns, discounts, end-of-season markdowns, operational chargebacks, and operational chargebacks. Retailcertain cooperative advertising allowances. Gross revenue related to our retail business, including e-commercedigital commerce sales, is also reduced by an estimate of returns.
In determiningdeveloping estimates of returns, discounts, end-of-season markdowns, and operational chargebacks, and cooperative advertising allowances, we analyze historical trends, actual and forecasted seasonal results, current economic and market conditions, retailer performance, and, retailer performance.in certain cases, contractual terms. Estimates for operational chargebacks are based on actual customer notifications of order fulfillment discrepancies and historical trends. We review and refine these estimates on a quarterly basis. Our historical estimates of these costsamounts have not differed materially from actual results. However, unforeseen adverse future economic and market conditions, such as those resulting from widespread pandemic diseases and/or other catastrophic events, could result in our actual results differing materially from our estimates. A hypothetical 1% increase in our reserves for returns, discounts, end-of-season markdowns, and operational chargebacks, and certain cooperative advertising allowances as of April 2, 20161, 2023 would have decreasedreduced our Fiscal 20162023 net revenues by approximately $2$1 million.
Similarly, we evaluate our accounts receivable balances to determine ifdevelop expectations regarding the extent to which they will ultimately be collected. Significant judgmentsjudgment and estimatesestimation are involved in this evaluation, including a receivables aging analysis which shows, by aged category, the percentage of receivables that has historically gone uncollected, an analysis of specific risks on a customer-by-customer basis for larger accounts (including consideration of their financial condition and customers,ability to withstand potential prolonged periods of adverse economic conditions), and a receivables aging analysis that determinesan evaluation of current and forecasted economic and market conditions over the percentage of receivables that has historically been uncollected by aged category.respective asset's contractual life. Based on this information, we provide a reserverecord an allowance for the estimated amounts believedthat we ultimately expect not to be uncollectible.collect due to credit. Although we believe that we have adequately provided for thosethese risks as part of our bad debt reserve,allowance for doubtful accounts, a severe and prolonged adverse impact on our major customers' business and operations beyond those forecasted could have a corresponding material adverse effect on our net sales,revenues, cash flows, and/or financial condition. A hypothetical 1% increase in the level of our allowance for doubtful accounts as of April 1, 2023 would have increased our Fiscal 2023 SG&A expenses by less than $1 million.
See "Accounts Receivable" in Note 3 to the accompanying audited consolidated financial statements for an analysis of the activity in our sales reserves and allowance for doubtful accounts for each of the three fiscal years presented.
Inventories
We hold retail inventory that is sold in our own stores and digital commerce sites directly to consumers. We also hold inventory that is sold through wholesale distribution channels to major department stores and specialty retail stores. We also hold retail inventory that is sold in our own stores and e-commerce sites directly to consumers. Substantially all of our inventories are comprised of finished goods, which are stated at the lower of cost or estimated realizable value, with cost primarily determined on a weighted-average cost basis.
The estimated net realizable value of inventory is determined based on an analysis of historical sales trends of our individual product lines, the impact of market trends and economic conditions (including those resulting from pandemic diseases and other catastrophic events), and a forecast of future demand, giving consideration to the value of current orders in-house for future sales of inventory, as well as plans to sell inventory through our factoryoutlet stores, among other liquidation channels. EstimatesActual results may differ from actual resultsestimates due to the quantity, quality, and mix of products in inventory, consumer and retailer preferences, and economic and market conditions. Reserves for inventory shrinkage, representing the risk of physical loss of inventory, are estimated based on historical experience and are adjusted based upon physical inventory counts. Our historical estimates of these costs and the related provisions have not differed materially from actual results. However, unforeseen adverse future economic and market conditions could result in our actual results differing materially from our estimates.
A hypothetical 1% increase in the level of our inventory reserves as of April 2, 20161, 2023 would have decreased our Fiscal 20162023 gross profit by approximately $1$2 million.
Impairment of Goodwill and Other Intangible Assets
Goodwill and certain other intangible assets deemed to have indefinite useful lives are not amortized. Rather, goodwill and indefinite-lived intangible assets are assessed for impairment at least annually. Finite-lived intangible assets are amortized over their respective estimated useful lives and, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their carrying values may not be fully recoverable.
We generally perform our annual goodwill impairment assessment using a qualitative approach to determine whether it is more likely than not that the fair value of a reporting unit is less than its respective carrying value. However, in order to reassess the fair values of our reporting units, we periodically perform a quantitative impairment analysis in lieu of using the qualitative approach.
Performance of the qualitative goodwill impairment assessment requires judgment in identifying and considering the significance of relevant key factors, events, and circumstances that affect the fair values of our reporting units. This requires consideration and assessment of external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as our actual and planned financial performance. We also give consideration to the difference between each reporting unit's fair value and carrying value as of the most recent date that a fair value measurement was performed. If the results of the qualitative assessment conclude that it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, additional quantitative impairment testing is performed.
The quantitative goodwill impairment test is a two-step process. The first step is to identify the existence of potential impairment byinvolves comparing the fair value of a reporting unit with its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, the reporting unit's goodwill is considered not to be impaired and performance of the second step of the quantitative goodwill impairment test is unnecessary.impaired. However, if the carrying value of a reporting unit exceeds its fair value, the second step of the quantitative goodwill impairment test is performed to measure the amount of impairment loss to be recorded, if any. The second step of the quantitative goodwillimpairment test compares the implied fair value of the reporting unit's goodwill with the carrying value of that goodwill. If the carrying value of the reporting unit's goodwill exceeds its implied fair value, an impairment loss is recognizedrecorded in an amount equal to that excess. Any impairment charge recognized is limited to the amount of the respective reporting unit's allocated goodwill.
Determining the fair value of a reporting unit under the first step of the quantitative goodwill impairment test and determining the fair values of individual assets and liabilities of a reporting unit (including any unrecognized intangible assets) under the second step of the quantitative goodwill impairment test requires judgment and often involves the use of significant estimates and assumptions.assumptions, including an assessment of external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as actual and planned financial performance. Similarly, estimates and assumptions are used when determining the fair values of other indefinite-lived intangible assets. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and the magnitude of any such charge. To assist management in the process of determining any potential goodwill impairment, we may review and consider appraisals from accredited independent valuation firms. Estimates of fair value are primarily determined using discounted cash flows, market comparisons, and recent transactions. These approaches useinvolve significant estimates and assumptions, including projected future cash flows (including timing), discount rates reflecting the risks inherent in those future cash flows, perpetual growth rates, and determinationselection of appropriate market comparables.comparable metrics and transactions.
We performed our annual goodwill impairment assessment as of the beginning of the second quarter of Fiscal 20162023 using the qualitative approach discussed above, while giving consideration toabove. In performing the assessment, we considered the results of our most recent quantitative goodwill impairment test, (thewhich was performed as of the end of Fiscal 2020 and incorporated assumptions related to COVID-19 business disruptions, the results of which indicated that the fair values of our reporting units significantly exceeded their respective carrying values).values. Based on the results of the qualitative impairment assessment performed, we concluded that it is more likely than not that the fair values of our reporting units significantly exceeded their respective
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carrying values and there were no reporting units at risk of impairment. Additionally, noNo goodwill impairment charges have beenwere recorded during any of the three fiscal years presented.
See Note 12 to the accompanying consolidated financial statements for further discussion.
In evaluating finite-lived intangible assets for recoverability, we use our best estimate of future cash flows expected to result from the use of the asset and its eventual disposition where probable. To the extent thatIf such estimated future undiscounted net cash flows attributable to the asset are less than its carrying value, an impairment loss is recognized equal to the difference between theextent that such asset's carrying value of such asset andexceeds its fair value, as estimated considering external market participant assumptions.
It is possible that our conclusions regarding impairment or recoverability of goodwill or other intangible assets could change in future periods if, for example, (i) our businesses do not perform as projected, (ii) overall economic conditions in future years vary from current assumptions, (iii) business conditions or strategies change from our current assumptions, or (iv) the identification of our reporting units change, among other factors. Such changes could result in a future impairment charge of goodwill or other intangible assets, which could have a material adverse effect on our consolidated financial position or results of operations.
Impairment of Other Long-Lived Assets
Property and equipment and lease-related right-of-use ("ROU") assets, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying values may not be fully recoverable. In evaluating long-lived assets for recoverability, we use our best estimate of future cash flows expected to result from the use of the asset (including any potential sublease income for lease-related ROU assets) and its eventual disposition, where applicable. To the extent thatIf such estimated future undiscounted net cash flows attributable to the asset are less than its carrying value, an impairment loss is recognized equal to the difference between theextent that such asset's carrying value of such asset andexceeds its fair value, as estimated considering external market participant assumptions.assumptions and discounted cash flows, including those based on estimated market rents for lease-related ROU assets. Assets to be disposed of and for which there is a committed plan of disposal (commonly referred to as assets held-for-sale) are reported at the lower of carrying value or fair value, less costs to sell.
In determining future cash flows, we take various factors into account, including changes in merchandising strategy, the emphasis on retail store cost controls, the effects of macroeconomic trends such as consumer spending, and the impacts of more experienced retail store managers and increased local advertising. Since the determination of future cash flows is an estimate of future performance, future impairments may arise in the event that future cash flows do not meet expectations. For example, unforeseen adverse future economic and market conditions could negatively impact consumer behavior, spending levels, and/or shopping preferences and result in actual results differing from our estimates. Additionally, we may review and consider appraisals from accredited independent valuation firms to determine the fair value of long-lived assets, where applicable.
During Fiscal 2016, 2023, Fiscal 2015,2022, and Fiscal 2014,2021, we recorded non-cash impairment charges of $49$9.7 million,, $7 $21.3 million,, and $1$96.0 million,, respectively, to reducewrite-down the net carrying valuevalues of certain long-lived assets primarily in our Retail segment, tobased upon their estimatedassumed fair values. See Note 108 to the accompanying audited consolidated financial statements for further discussion.
Income Taxes
In determining our income tax provision for financial reporting purposes, we establish a reserve for uncertain tax positions. If we considerbelieve that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, we recognize the tax benefit. We measure the tax benefit by determining the largest amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the appropriate taxing authority that has full knowledge of all relevant information. These assessments can be complex and require significant judgment, and we often obtain assistance from external advisors. To the extent that our estimates change or the final tax outcome of these matters is different from the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made. If the initial assessment of a position fails to result in the recognition of a tax benefit, we will recognize the tax benefit if (i) there are changes in tax law or analogous case law that sufficiently raise the likelihood of prevailing on the technical merits of the position to more likely than not; (ii) the statute of limitations expires; or (iii) there is a completion of an audit resulting in a settlement of that tax year with the appropriate agency.
Deferred income taxes reflect the tax effect of certain net operating losses, capital losses, general business credit carryforwards, and the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. Valuation allowances are established when management determines that it is more likely than not that some portion or all of a deferred tax asset will not be realized. Tax valuation allowances are analyzed periodically by assessing the adequacy of future expected taxable income,
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which typically involves the use of significant estimates. Such allowances are adjusted as events occur, or circumstances change, that warrant adjustments to those balances.
See Note 1210 to the accompanying audited consolidated financial statements for further discussion of income taxes.
Contingencies
We are periodically exposed to various contingencies in the ordinary course of conducting our business, including potential losses relating to certain litigation, alleged information system security breaches, contractual disputes, employee relation matters, various tax or other governmental audits, and trademark and intellectual property matters and disputes. We record a liability for such contingencies to the extent that we conclude their occurrencethat it is probable that a loss has been incurred and the related losses areamount of such loss is reasonably estimable. In addition, if it is considered reasonably possible that an unfavorable settlement of a contingency could exceed theany established liability, we disclose the estimated impact on our liquidity, financial condition, and results of operations, if practicable. Management considers many factors in making these assessments. As the ultimate resolution of contingencies is inherently unpredictable, these assessments can involve a series of complex judgments about future events including, but not limited to, court rulings, negotiations between affected parties, and governmental actions. As a result, the accounting for loss contingencies relies heavily on management's judgment in developing the related estimates and assumptions.
Stock-Based Compensation
We expense all stock-based compensation awarded to employees and non-employee directors based on the grant date fair value of the awards over the requisite service period, adjusted for forfeitures which are estimated forfeitures.based on an analysis of historical experience and expected future trends.
Restricted Stock Units ("RSUs")
We grant service-based RSUs to certain of our senior executives and other employees, as well as to our non-employee directors. In addition, we grant RSUs with performance-based and market-based vesting conditions to such senior executives and other key employees.
The fair values of our service-based RSU and performance-based RSU awards are measured based on the fair value of our Class A common stock on the date of grant, adjusted to reflect the absence of dividends for any awards for which dividend equivalent amounts do not accrue while outstanding and unvested. Related compensation expense for performance-based RSUs is recognized over the employees' requisite service period, to the extent that our attainment of performance goals (upon which vesting is dependent) is deemed probable, and involves judgment as to expectations surrounding our achievement of certain defined operating performance metrics.
The fair value of our market-based RSU awards, for which vesting is dependent upon total shareholder return ("TSR") of our Class A common stock over a three-year performance period relative to that of a pre-established peer group, is measured on the grant date based on estimated projections of our relative TSR over the performance period. These estimates are made using a Monte Carlo simulation, which models multiple stock price paths of our Class A common stock and that of the peer group to evaluate and determine our ultimate expected relative TSR performance ranking. Related compensation expense, net of estimated forfeitures, is recorded regardless of whether, and the extent to which, the market condition is ultimately satisfied. See Note 18 to the accompanying consolidated financial statements for further discussion.
Stock Options
Stock options aremay be granted to employees and non-employee directors with exercise prices equal to the fair market value of our Class A common stock on the date of grant. We use the Black-Scholes option-pricing model to estimate the grant date fair value of stock options, which requires the use of both subjective and objective assumptions. Certain key assumptions involve estimating future uncertain events. The key factors influencing the estimation process include the expected term of the option, expected volatility of our stock price, our expected dividend yield, and the risk-free interest rate, among others. Generally, once stock option values are determined, accounting practices do not permit them to be changed, even if the estimates used are different from actual results.
No stock options were granted in Fiscal 2016.during any of the fiscal years presented. See Note 1918 to the accompanying audited consolidated financial statements for further discussion.
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Sensitivity
The assumptions used in calculating the grant date fair values of our stock-based compensation awards represent our best estimates. In addition, judgment is required inprojecting the achievement level of certain performance-based awards, as well as estimating the number of stock-based awards that are expected to be forfeited.forfeited, requires judgment. If actual results or forfeitures differ significantly from our estimates and assumptions, or if we change the assumptions used to estimate the grant date fair value forof future stock-based award grants or if there are changes in market conditions,significantly changed, stock-based compensation expense and, therefore, our results of operations could be materially impacted. A hypothetical 10% change in our Fiscal 2023 stock-based compensation expense would have affected our Fiscal 2016net income by approximately $6 million.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 4 to the accompanying audited consolidated financial statements for a description of certain recently issued accounting standards which have impacted our consolidated financial statements or may impact our consolidated financial statements in future reporting periods.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
For a discussion of our exposure to market risk, see "Market Risk Management" in Item 7 included elsewhere in this Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data.
See the "Index to Consolidated Financial Statements" appearing at the end of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are the controls and other procedures of an issuer that are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time period specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that material information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
We have evaluated, under the supervision and with the participation of management, including our Chief Executive Officerprincipal executive and Chief Financial Officer,principal financial officers, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of the end of the fiscal year covered by this annual report. Based on that evaluation, our Chief Executive Officerprincipal executive and Chief Financial Officerprincipal financial officers have concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level, as of the fiscal year-end covered by this Annual Report on Form 10-K.
(b) Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Securities Exchange Act Rule 13a-15(f). Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with U.S. Generally Accepted Accounting Principles. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of the Company's assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on our financial
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statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may decline.
Under the supervision and with the participation of management, including our Chief Executive Officerprincipal executive and Chief Financial Officer,principal financial officers, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of the end of the fiscal year covered by this report based on the framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework (2013 Framework). Based on this evaluation, management concluded that the Company's internal controls over financial reporting were effective at the reasonable assurance level as of the fiscal year-end covered by this Annual Report on Form 10-K.
Ernst & Young LLP, the Company's independent registered public accounting firm, has issued an attestation report on the Company's internal control over financial reporting as included elsewhere herein.
(c) Changes in Internal Controls over Financial Reporting
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information relating to our directors and corporate governance will be set forth in the Company's proxy statement for its 20162023 annual meeting of stockholders to be filed within 120 days after April 2, 20161, 2023 (the "Proxy Statement") and is incorporated by reference herein. Information relating to our executive officers is set forth in Item 1 of this Annual Report on Form 10-K under the caption "Information About Our Executive Officers."
Item 11. Executive Compensation.
Information relating to executive and director compensation will be set forth in the Proxy Statement and such information is incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Equity Compensation Plan Information as of April 2, 2016
The following table sets forth information as of April 2, 20161, 2023 regarding compensation plans under which the Company's equity securities are authorized for issuance:
| (a) | (b) | (c) | |||||||||
| Plan Category | Numbers of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options ($) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | ||||||||
| Equity compensation plans approved by security holders | 4,170,629 | (1) | $ | 146.58 | (2) | 2,522,816 | (3) | ||||
| Equity compensation plans not approved by security holders | — | — | — | ||||||||
| Total | 4,170,629 | $ | 146.58 | 2,522,816 | |||||||
| (a) | (b) | (c) | |||||||||||||||||||||
| Plan Category | Numbers of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options ($) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | ||||||||||||||||||||
| Equity compensation plans approved by security holders | 2,549,875 | (1) | N/A | (2) | 2,766,316 | (3) | |||||||||||||||||
| Equity compensation plans not approved by security holders | — | — | — | ||||||||||||||||||||
| Total | 2,549,875 | $ | — | 2,766,316 | |||||||||||||||||||
(1)Consists of restricted stock units that are payable solely in shares of Class A common stock (including 496,298 service-based restricted stock units that have fully vested but for which the underlying shares have not yet been delivered as of April 1, 2023). (2)No options were outstanding as of April 1, 2023. (3)All of the securities remaining available for future issuance set forth in column (c) may be in the form of restricted stock units, performance awards, restricted stock, options, stock appreciation rights, or other stock-based awards under the Company's 2019 Incentive Plan. |
Other information relating to security ownership of certain beneficial owners and management will be set forth in the Proxy Statement and such information is incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required to be included by Item 13 of Form 10-K will be included in the Proxy Statement and such information is incorporated by reference herein.
Item 14. Principal Accountant Fees and Services.
The information required to be included by Item 14 of Form 10-K will be included in the Proxy Statement and such information is incorporated by reference herein.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) 1., 2. Financial Statements and Financial Statement Schedules. See index on Page F-1.
3. Exhibits
Exhibit Number | Description | |||||
| 3.1 | ||||||
| 3.2 | ||||||
| 3.3 | ||||||
| 4.1 | ||||||
| 4.2 | ||||||
| 4.4 | ||||||
| 10.1 | ||||||
| 10.2 | ||||||
| 10.3 | ||||||
| 10.4 | ||||||
| 10.5 | ||||||
| 10.6 | ||||||
| 10.8 | ||||||
| 10.10 | ||||||
| 10.11 | ||||||
| 10.13 | ||||||
| Amendment No. 1 to the Amended and Restated Employment Agreement, | ||||||
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| Exhibit Number | Description | |||||
| 10.17 | ||||||
| 10.22 | ||||||
| 10.23 | ||||||
| 10.28 | ||||||
| 10.29 | ||||||
| 10.31 | ||||||
| 10.32 | ||||||
| 10.33 | ||||||
| 78 | ||||||||
| Exhibit Number | Description | |||||
| 32.1* | ||||||
| 101.INS* | XBRL Instance Document - the | |||||
| 101.SCH* | XBRL Taxonomy Extension Schema Document. | |||||
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document. | |||||
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document. | |||||
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document. | |||||
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document. | |||||
Exhibits 32.1 and 32.2 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibits shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or Securities Exchange Act of 1934.
| * | Filed herewith. | ||||
| † | Management contract or compensatory plan or arrangement. | ||||
Item 16. Form 10-K Summary.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| RALPH LAUREN CORPORATION | |||||||||
| By: | |||||||||
/S/ | |||||||||
| (Principal Financial and Accounting Officer) | |||||||||
| Date: May | |||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
| Signature | Title | Date | ||||||||||||
/S/ RALPH LAUREN | Executive Chairman, Chief Creative Officer, and Director | May 25, 2023 | ||||||||||||
| Ralph Lauren | ||||||||||||||
/S/ | ||||||||||||||
| President, Chief Executive Officer, and Director (Principal Executive Officer) | May | |||||||||||||
/S/ | May | |||||||||||||
| David Lauren | ||||||||||||||
/S/ | Director | May | ||||||||||||
/S/ | Director | May | ||||||||||||
/S/ FRANK A. BENNACK, JR. | Director | May 25, 2023 | ||||||||||||
| Frank A. Bennack, Jr. | ||||||||||||||
| /s/ DEBRA CUPP | Director | May 25, 2023 | ||||||||||||
| Debra Cupp | ||||||||||||||
| /s/ LINDA FINDLEY | Director | May 25, 2023 | ||||||||||||
| Linda Findley | ||||||||||||||
| /s/ MICHAEL A. GEORGE | Director | May 25, 2023 | ||||||||||||
| Michael A. George |
| 80 | ||||||||
| Signature | Title | Date | ||||||||||||
/S/ VALERIE JARRETT | Director | May 25, 2023 | ||||||||||||
| Valerie Jarrett | ||||||||||||||
/S/ HUBERT JOLY | Director | May 25, 2023 | ||||||||||||
| Hubert Joly | ||||||||||||||
/S/ DARREN WALKER | Director | May 25, 2023 | ||||||||||||
| Darren Walker | ||||||||||||||
/S/ WEI ZHANG | Director | May 25, 2023 | ||||||||||||
| Wei Zhang | ||||||||||||||
| 81 | ||||||||
RALPH LAUREN CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
| Page | ||||||||
| Consolidated Financial Statements: | ||||||||
F- | ||||||||
F- | ||||||||
F- | ||||||||
F- | ||||||||
F- | ||||||||
F- | ||||||||
F- | ||||||||
F- | ||||||||
| F-1 | ||||||||
RALPH LAUREN CORPORATION
CONSOLIDATED BALANCE SHEETS
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 456 | $ | 500 | ||||
| Short-term investments | 629 | 644 | ||||||
| Accounts receivable, net of allowances of $254 million and $251 million | 517 | 655 | ||||||
| Inventories | 1,125 | 1,042 | ||||||
| Income tax receivable | 58 | 57 | ||||||
| Deferred tax assets | — | 145 | ||||||
| Prepaid expenses and other current assets | 268 | 281 | ||||||
| Total current assets | 3,053 | 3,324 | ||||||
| Property and equipment, net | 1,583 | 1,436 | ||||||
| Deferred tax assets | 119 | 45 | ||||||
| Goodwill | 918 | 903 | ||||||
| Intangible assets, net | 244 | 267 | ||||||
| Other non-current assets | 296 | 131 | ||||||
| Total assets | $ | 6,213 | $ | 6,106 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Short-term debt | $ | 116 | $ | 234 | ||||
| Accounts payable | 151 | 210 | ||||||
| Income tax payable | 33 | 27 | ||||||
| Accrued expenses and other current liabilities | 898 | 715 | ||||||
| Total current liabilities | 1,198 | 1,186 | ||||||
| Long-term debt | 597 | 298 | ||||||
| Non-current liability for unrecognized tax benefits | 81 | 116 | ||||||
| Other non-current liabilities | 593 | 615 | ||||||
| Commitments and contingencies (Note 16) | ||||||||
| Total liabilities | 2,469 | 2,215 | ||||||
| Equity: | ||||||||
| Class A common stock, par value $.01 per share; 101.0 million and 100.0 million shares issued; 57.0 million and 60.4 million shares outstanding | 1 | 1 | ||||||
| Class B common stock, par value $.01 per share; 25.9 million shares issued and outstanding | — | — | ||||||
| Additional paid-in-capital | 2,258 | 2,117 | ||||||
| Retained earnings | 6,015 | 5,787 | ||||||
| Treasury stock, Class A, at cost; 44.0 million and 39.6 million shares | (4,349 | ) | (3,849 | ) | ||||
| Accumulated other comprehensive loss | (181 | ) | (165 | ) | ||||
| Total equity | 3,744 | 3,891 | ||||||
| Total liabilities and equity | $ | 6,213 | $ | 6,106 | ||||
| April 1, 2023 | April 2, 2022 | |||||||||||||
| (millions) | ||||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 1,529.3 | $ | 1,863.8 | ||||||||||
| Short-term investments | 36.4 | 734.6 | ||||||||||||
| Accounts receivable, net of allowances of $175.3 million and $214.7 million | 447.7 | 405.4 | ||||||||||||
| Inventories | 1,071.3 | 977.3 | ||||||||||||
| Income tax receivable | 50.7 | 63.7 | ||||||||||||
| Prepaid expenses and other current assets | 188.7 | 172.5 | ||||||||||||
Total current assets | 3,324.1 | 4,217.3 | ||||||||||||
| Property and equipment, net | 955.5 | 969.5 | ||||||||||||
| Operating lease right-of-use assets | 1,134.0 | 1,111.3 | ||||||||||||
| Deferred tax assets | 255.1 | 303.8 | ||||||||||||
| Goodwill | 898.9 | 908.7 | ||||||||||||
| Intangible assets, net | 88.9 | 102.9 | ||||||||||||
| Other non-current assets | 133.0 | 111.2 | ||||||||||||
Total assets | $ | 6,789.5 | $ | 7,724.7 | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Current portion of long-term debt | $ | — | $ | 499.8 | ||||||||||
| Accounts payable | 371.6 | 448.7 | ||||||||||||
| Current income tax payable | 59.7 | 53.8 | ||||||||||||
| Current operating lease liabilities | 266.7 | 262.0 | ||||||||||||
| Accrued expenses and other current liabilities | 795.5 | 991.4 | ||||||||||||
Total current liabilities | 1,493.5 | 2,255.7 | ||||||||||||
| Long-term debt | 1,138.5 | 1,136.5 | ||||||||||||
| Long-term finance lease liabilities | 315.3 | 341.6 | ||||||||||||
| Long-term operating lease liabilities | 1,141.1 | 1,132.2 | ||||||||||||
| Non-current income tax payable | 75.9 | 98.9 | ||||||||||||
| Non-current liability for unrecognized tax benefits | 93.8 | 91.9 | ||||||||||||
| Other non-current liabilities | 100.9 | 131.9 | ||||||||||||
| Commitments and contingencies (Note 15) | ||||||||||||||
Total liabilities | 4,359.0 | 5,188.7 | ||||||||||||
| Equity: | ||||||||||||||
| Class A common stock, par value $.01 per share; 107.7 million and 106.9 million shares issued; 40.7 million and 45.0 million shares outstanding | 1.0 | 1.0 | ||||||||||||
| Class B common stock, par value $.01 per share; 24.9 million shares issued and outstanding | 0.3 | 0.3 | ||||||||||||
| Additional paid-in-capital | 2,824.3 | 2,748.8 | ||||||||||||
| Retained earnings | 6,598.2 | 6,274.9 | ||||||||||||
| Treasury stock, Class A, at cost; 67.0 million and 61.9 million shares | (6,797.3) | (6,308.7) | ||||||||||||
| Accumulated other comprehensive loss | (196.0) | (180.3) | ||||||||||||
Total equity | 2,430.5 | 2,536.0 | ||||||||||||
Total liabilities and equity | $ | 6,789.5 | $ | 7,724.7 | ||||||||||
See accompanying notes.
| F-2 | ||||||||
RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions, except per share data) | ||||||||||||
| Net sales | $ | 7,230 | $ | 7,451 | $ | 7,284 | ||||||
| Licensing revenue | 175 | 169 | 166 | |||||||||
| Net revenues | 7,405 | 7,620 | 7,450 | |||||||||
Cost of goods sold(a) | (3,218 | ) | (3,242 | ) | (3,140 | ) | ||||||
| Gross profit | 4,187 | 4,378 | 4,310 | |||||||||
Selling, general, and administrative expenses(a) | (3,389 | ) | (3,301 | ) | (3,142 | ) | ||||||
| Amortization of intangible assets | (24 | ) | (25 | ) | (35 | ) | ||||||
| Gain on acquisition of Chaps | — | — | 16 | |||||||||
| Impairment of assets | (49 | ) | (7 | ) | (1 | ) | ||||||
| Restructuring and other charges | (143 | ) | (10 | ) | (18 | ) | ||||||
| Total other operating expenses, net | (3,605 | ) | (3,343 | ) | (3,180 | ) | ||||||
| Operating income | 582 | 1,035 | 1,130 | |||||||||
| Foreign currency losses | (4 | ) | (26 | ) | (8 | ) | ||||||
| Interest expense | (21 | ) | (17 | ) | (20 | ) | ||||||
| Interest and other income, net | 6 | 6 | 3 | |||||||||
| Equity in losses of equity-method investees | (11 | ) | (11 | ) | (9 | ) | ||||||
| Income before provision for income taxes | 552 | 987 | 1,096 | |||||||||
| Provision for income taxes | (156 | ) | (285 | ) | (320 | ) | ||||||
| Net income | $ | 396 | $ | 702 | $ | 776 | ||||||
| Net income per common share: | ||||||||||||
| Basic | $ | 4.65 | $ | 7.96 | $ | 8.55 | ||||||
| Diluted | $ | 4.62 | $ | 7.88 | $ | 8.43 | ||||||
| Weighted average common shares outstanding: | ||||||||||||
| Basic | 85.2 | 88.2 | 90.7 | |||||||||
| Diluted | 85.9 | 89.1 | 92.0 | |||||||||
| Dividends declared per share | $ | 2.00 | $ | 1.85 | $ | 1.70 | ||||||
(a) Includes total depreciation expense of: | $ | (286 | ) | $ | (269 | ) | $ | (223 | ) | |||
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions, except per share data) | ||||||||||||||||||||
Net revenues | $ | 6,443.6 | $ | 6,218.5 | $ | 4,400.8 | ||||||||||||||
Cost of goods sold | (2,277.8) | (2,071.0) | (1,539.4) | |||||||||||||||||
Gross profit | 4,165.8 | 4,147.5 | 2,861.4 | |||||||||||||||||
| Selling, general, and administrative expenses | (3,408.9) | (3,305.6) | (2,638.5) | |||||||||||||||||
| Impairment of assets | (9.7) | (21.3) | (96.0) | |||||||||||||||||
| Restructuring and other charges, net | (43.0) | (22.2) | (170.5) | |||||||||||||||||
Total other operating expenses, net | (3,461.6) | (3,349.1) | (2,905.0) | |||||||||||||||||
Operating income (loss) | 704.2 | 798.4 | (43.6) | |||||||||||||||||
| Interest expense | (40.4) | (54.0) | (48.5) | |||||||||||||||||
| Interest income | 32.2 | 5.5 | 9.7 | |||||||||||||||||
| Other income (expense), net | (4.1) | 4.7 | 7.6 | |||||||||||||||||
Income (loss) before income taxes | 691.9 | 754.6 | (74.8) | |||||||||||||||||
| Income tax provision | (169.2) | (154.5) | (46.3) | |||||||||||||||||
Net income (loss) | $ | 522.7 | $ | 600.1 | $ | (121.1) | ||||||||||||||
| Net income (loss) per common share: | ||||||||||||||||||||
| Basic | $ | 7.72 | $ | 8.22 | $ | (1.65) | ||||||||||||||
| Diluted | $ | 7.58 | $ | 8.07 | $ | (1.65) | ||||||||||||||
| Weighted-average common shares outstanding: | ||||||||||||||||||||
| Basic | 67.7 | 73.0 | 73.5 | |||||||||||||||||
| Diluted | 69.0 | 74.3 | 73.5 | |||||||||||||||||
| Dividends declared per share | $ | 3.00 | $ | 2.75 | $ | — | ||||||||||||||
See accompanying notes.
| F-3 | ||||||||
RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Net income | $ | 396 | $ | 702 | $ | 776 | ||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||
| Foreign currency translation gains (losses) | 36 | (318 | ) | 52 | ||||||||
| Net gains (losses) on cash flow hedges | (55 | ) | 47 | (27 | ) | |||||||
| Net losses on available-for-sale investments | — | — | (5 | ) | ||||||||
| Net gains (losses) on defined benefit plans | 3 | (8 | ) | — | ||||||||
| Other comprehensive income (loss), net of tax | (16 | ) | (279 | ) | 20 | |||||||
| Total comprehensive income | $ | 380 | $ | 423 | $ | 796 | ||||||
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
Net income (loss) | $ | 522.7 | $ | 600.1 | $ | (121.1) | ||||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||
| Foreign currency translation gains (losses) | (14.1) | (66.5) | 7.2 | |||||||||||||||||
| Net gains (losses) on cash flow hedges | (4.9) | 4.4 | (13.4) | |||||||||||||||||
| Net gains on defined benefit plans | 3.3 | 2.6 | 3.6 | |||||||||||||||||
Other comprehensive loss, net of tax | (15.7) | (59.5) | (2.6) | |||||||||||||||||
Total comprehensive income (loss) | $ | 507.0 | $ | 540.6 | $ | (123.7) | ||||||||||||||
See accompanying notes.
| F-4 | ||||||||
RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 396 | $ | 702 | $ | 776 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization expense | 310 | 294 | 258 | |||||||||
| Deferred income tax expense (benefit) | (8 | ) | 11 | 1 | ||||||||
| Equity in losses of equity-method investees | 11 | 11 | 9 | |||||||||
| Non-cash stock-based compensation expense | 97 | 81 | 93 | |||||||||
| Gain on acquisition of Chaps | — | — | (16 | ) | ||||||||
| Non-cash impairment of assets | 49 | 7 | 1 | |||||||||
| Excess tax benefits from stock-based compensation arrangements | (10 | ) | (8 | ) | (34 | ) | ||||||
| Other non-cash charges (benefits), net | 40 | (25 | ) | 6 | ||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | 129 | (96 | ) | (104 | ) | |||||||
| Inventories | (91 | ) | (97 | ) | (77 | ) | ||||||
| Prepaid expenses and other current assets | 30 | (96 | ) | (56 | ) | |||||||
| Accounts payable and accrued liabilities | 90 | 50 | 43 | |||||||||
| Income tax receivables and payables | (15 | ) | (22 | ) | 59 | |||||||
| Deferred income | (8 | ) | (21 | ) | (18 | ) | ||||||
| Other balance sheet changes, net | (13 | ) | 103 | (34 | ) | |||||||
| Net cash provided by operating activities | 1,007 | 894 | 907 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Capital expenditures | (418 | ) | (391 | ) | (390 | ) | ||||||
| Purchases of investments | (1,085 | ) | (1,398 | ) | (1,067 | ) | ||||||
| Proceeds from sales and maturities of investments | 942 | 1,113 | 1,011 | |||||||||
| Acquisitions and ventures | (16 | ) | (12 | ) | (40 | ) | ||||||
| Change in restricted cash deposits | (6 | ) | (1 | ) | (2 | ) | ||||||
| Net cash used in investing activities | (583 | ) | (689 | ) | (488 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Proceeds from issuance of short-term debt | 4,344 | 2,808 | — | |||||||||
| Repayments of short-term debt | (4,463 | ) | (2,574 | ) | — | |||||||
| Proceeds from issuance of long-term debt | 299 | — | 300 | |||||||||
| Repayments of current maturities of long-term debt | — | — | (269 | ) | ||||||||
| Payments of capital lease obligations | (25 | ) | (24 | ) | (9 | ) | ||||||
| Payments of dividends | (170 | ) | (158 | ) | (149 | ) | ||||||
| Repurchases of common stock, including shares surrendered for tax withholdings | (500 | ) | (532 | ) | (558 | ) | ||||||
| Proceeds from exercise of stock options | 34 | 52 | 52 | |||||||||
| Excess tax benefits from stock-based compensation arrangements | 10 | 8 | 34 | |||||||||
| Other financing activities | (2 | ) | (1 | ) | — | |||||||
| Net cash used in financing activities | (473 | ) | (421 | ) | (599 | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 5 | (81 | ) | 3 | ||||||||
| Net decrease in cash and cash equivalents | (44 | ) | (297 | ) | (177 | ) | ||||||
| Cash and cash equivalents at beginning of period | 500 | 797 | 974 | |||||||||
| Cash and cash equivalents at end of period | $ | 456 | $ | 500 | $ | 797 | ||||||
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||||||
| Net income (loss) | $ | 522.7 | $ | 600.1 | $ | (121.1) | ||||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||||||
| Depreciation and amortization expense | 220.5 | 229.7 | 247.6 | |||||||||||||||||
| Deferred income tax expense (benefit) | 3.9 | (46.1) | 35.6 | |||||||||||||||||
| Stock-based compensation expense | 75.5 | 81.7 | 72.7 | |||||||||||||||||
| Impairment of assets | 9.7 | 21.3 | 96.0 | |||||||||||||||||
| Bad debt expense (reversals) | 2.3 | (2.2) | (27.6) | |||||||||||||||||
| Other non-cash charges | 1.0 | 1.0 | 1.8 | |||||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||||||
| Accounts receivable | (52.6) | 32.4 | (143.0) | |||||||||||||||||
| Inventories | (106.2) | (269.3) | 3.7 | |||||||||||||||||
| Prepaid expenses and other current assets | (19.9) | (28.3) | 5.2 | |||||||||||||||||
| Accounts payable and accrued liabilities | (225.0) | 194.6 | 293.6 | |||||||||||||||||
| Income tax receivables and payables | 5.7 | (62.3) | (37.8) | |||||||||||||||||
| Operating lease right-of-use assets and liabilities, net | (17.5) | (61.6) | (30.2) | |||||||||||||||||
| Other balance sheet changes | (9.1) | 24.9 | (15.6) | |||||||||||||||||
Net cash provided by operating activities | 411.0 | 715.9 | 380.9 | |||||||||||||||||
| Cash flows from investing activities: | ||||||||||||||||||||
| Capital expenditures | (217.5) | (166.9) | (107.8) | |||||||||||||||||
| Purchases of investments | (598.6) | (1,510.6) | (704.6) | |||||||||||||||||
| Proceeds from sales and maturities of investments | 1,293.4 | 964.6 | 1,007.2 | |||||||||||||||||
| Settlement of net investment hedges | — | — | 3.7 | |||||||||||||||||
| Other investing activities | (5.8) | (5.0) | (3.5) | |||||||||||||||||
Net cash provided by (used in) investing activities | 471.5 | (717.9) | 195.0 | |||||||||||||||||
| Cash flows from financing activities: | ||||||||||||||||||||
| Repayments of credit facility borrowings | — | — | (475.0) | |||||||||||||||||
| Proceeds from the issuance of long-term debt | — | — | 1,241.9 | |||||||||||||||||
| Repayments of long-term debt | (500.0) | — | (300.0) | |||||||||||||||||
| Payments of finance lease obligations | (21.9) | (23.1) | (13.9) | |||||||||||||||||
| Payments of dividends | (198.3) | (150.0) | (49.8) | |||||||||||||||||
| Repurchases of common stock, including shares surrendered for tax withholdings | (488.6) | (492.6) | (37.7) | |||||||||||||||||
| Other financing activities | — | — | (8.7) | |||||||||||||||||
Net cash provided by (used in) financing activities | (1,208.8) | (665.7) | 356.8 | |||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (8.8) | (48.3) | 25.5 | |||||||||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | (335.1) | (716.0) | 958.2 | |||||||||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 1,872.0 | 2,588.0 | 1,629.8 | |||||||||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 1,536.9 | $ | 1,872.0 | $ | 2,588.0 | ||||||||||||||
See accompanying notes.
| F-5 | ||||||||
RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
| Additional | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock(a) | Paid-in | Retained | at Cost | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Shares | Amount | AOCI(b) | Equity | |||||||||||||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 28, 2020 | 129.8 | $ | 1.3 | $ | 2,594.4 | $ | 5,994.0 | 57.3 | $ | (5,778.4) | $ | (118.2) | $ | 2,693.1 | ||||||||||||||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | (121.1) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (2.6) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive loss | (123.7) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | 0.5 | (37.7) | (37.7) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 72.7 | 72.7 | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued pursuant to stock-based compensation plans | 1.2 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 27, 2021 | 131.0 | $ | 1.3 | $ | 2,667.1 | $ | 5,872.9 | 57.8 | $ | (5,816.1) | $ | (120.8) | $ | 2,604.4 | ||||||||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 600.1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (59.5) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 540.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | (198.1) | (198.1) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | 4.1 | (492.6) | (492.6) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 81.7 | 81.7 | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued pursuant to stock-based compensation plans | 0.8 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at April 2, 2022 | 131.8 | $ | 1.3 | $ | 2,748.8 | $ | 6,274.9 | 61.9 | $ | (6,308.7) | $ | (180.3) | $ | 2,536.0 | ||||||||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 522.7 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (15.7) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 507.0 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | (199.4) | (199.4) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | 5.1 | (488.6) | (488.6) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 75.5 | 75.5 | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued pursuant to stock-based compensation plans | 0.8 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2023 | 132.6 | $ | 1.3 | $ | 2,824.3 | $ | 6,598.2 | 67.0 | $ | (6,797.3) | $ | (196.0) | $ | 2,430.5 | ||||||||||||||||||||||||||||||||||||
| RALPH LAUREN CORPORATION | ||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF EQUITY | ||||||||||||||||||||||||||||||
| Additional | Treasury Stock | |||||||||||||||||||||||||||||
Common Stock(a) | Paid-in | Retained | at Cost | Total | ||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Shares | Amount | AOCI(b) | Equity | |||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||
| Balance at March 30, 2013 | 123.5 | $ | 1 | $ | 1,752 | $ | 4,647 | 32.6 | $ | (2,709 | ) | $ | 94 | $ | 3,785 | |||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||
| Net income | 776 | |||||||||||||||||||||||||||||
| Other comprehensive income | 20 | |||||||||||||||||||||||||||||
| Total comprehensive income | 796 | |||||||||||||||||||||||||||||
| Dividends declared | (153 | ) | (153 | ) | ||||||||||||||||||||||||||
| Repurchases of common stock | 50 | (c) | 3.6 | (608 | ) | (558 | ) | |||||||||||||||||||||||
| Stock-based compensation | 93 | 93 | ||||||||||||||||||||||||||||
| Shares issued and tax benefits recognized | ||||||||||||||||||||||||||||||
pursuant to stock-based compensation plans(d) | 1.4 | — | 86 | 86 | ||||||||||||||||||||||||||
Conversion of stock-based compensation awards(e) | (2 | ) | (13 | ) | (15 | ) | ||||||||||||||||||||||||
| Balance at March 29, 2014 | 124.9 | $ | 1 | $ | 1,979 | $ | 5,257 | 36.2 | $ | (3,317 | ) | $ | 114 | $ | 4,034 | |||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||
| Net income | 702 | |||||||||||||||||||||||||||||
| Other comprehensive loss | (279 | ) | ||||||||||||||||||||||||||||
| Total comprehensive income | 423 | |||||||||||||||||||||||||||||
| Dividends declared | (161 | ) | (161 | ) | ||||||||||||||||||||||||||
| Repurchases of common stock | 3.4 | (532 | ) | (532 | ) | |||||||||||||||||||||||||
| Stock-based compensation | 81 | 81 | ||||||||||||||||||||||||||||
| Shares issued and tax benefits recognized | ||||||||||||||||||||||||||||||
pursuant to stock-based compensation plans(d) | 1.0 | — | 60 | 60 | ||||||||||||||||||||||||||
Conversion of stock-based compensation awards(e) | (3 | ) | (11 | ) | (14 | ) | ||||||||||||||||||||||||
| Balance at March 28, 2015 | 125.9 | $ | 1 | $ | 2,117 | $ | 5,787 | 39.6 | $ | (3,849 | ) | $ | (165 | ) | $ | 3,891 | ||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||
| Net income | 396 | |||||||||||||||||||||||||||||
| Other comprehensive loss | (16 | ) | ||||||||||||||||||||||||||||
| Total comprehensive income | 380 | |||||||||||||||||||||||||||||
| Dividends declared | (168 | ) | (168 | ) | ||||||||||||||||||||||||||
| Repurchases of common stock | 4.4 | (500 | ) | (500 | ) | |||||||||||||||||||||||||
| Stock-based compensation | 97 | 97 | ||||||||||||||||||||||||||||
| Shares issued and tax benefits recognized | ||||||||||||||||||||||||||||||
pursuant to stock-based compensation plans(d) | 1.0 | — | 44 | 44 | ||||||||||||||||||||||||||
| Balance at April 2, 2016 | 126.9 | $ | 1 | $ | 2,258 | $ | 6,015 | 44.0 | $ | (4,349 | ) | $ | (181 | ) | $ | 3,744 | ||||||||||||||
See accompanying notes.
| F-6 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Ralph Lauren Corporation ("RLC") is a global leader in the design, marketing, and distribution of premiumluxury lifestyle products, including apparel, footwear & accessories, home, furnishings,fragrances, and other licensed product categories.hospitality. RLC's long-standing reputation and distinctive image have been consistently developed across an expanding numbera wide range of products, brands, salesdistribution channels, and international markets. RLC's brand names include Ralph Lauren, Ralph Lauren Collection, Ralph Lauren Purple Label, Polo Ralph Lauren, Double RL, Lauren Ralph Lauren, Polo Ralph Lauren Children, Denim & Supply Ralph Lauren,and Chaps, Club Monaco, and American Living, among others. RLC and its subsidiaries are collectively referred to herein as the "Company," "we," "us," "our," and "ourselves," unless the context indicates otherwise.
The Company classifiesdiversifies its businesses into three segments: Wholesale, Retail,business by geography (North America, Europe, and Licensing.Asia, among other regions) and channel of distribution (retail, wholesale, and licensing). This allows the Company to maintain a dynamic balance as its operating results do not depend solely on the performance of any single geographic area or channel of distribution. The Company's wholesale sales are made principally to major department stores and specialty stores around the world. The Company also sells directly to consumers through its integrated retail channel, which includes its retail stores, concession-based shop-within-shops, and e-commercedigital commerce operations around the world. The Company's wholesale sales are made principally to major department stores, specialty stores, and third-party digital partners around the world, as well as to certain third-party-owned stores to which the Company has licensed the right to operate in defined geographic territories using its trademarks. In addition, the Company licenses to unrelated third parties for specified periods the right to operate retail stores and/or to useaccess its various trademarks in connection with the licensees' manufacture and sale of designated products, such as certain apparel, eyewear, fragrances, and home furnishings.home.
The Company organizes its business into the following three reportable segments: North America, Europe, and Asia. In addition to these reportable segments, the Company also has other non-reportable segments. See Note 20 for further discussion of the Company's segment reporting structure.
2. Basis of Presentation
Basis of Consolidation
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP") and present the consolidated financial position, income (loss), comprehensive income (loss), and cash flows of the Company, including all entities in which the Company has a controlling financial interest and is determined to be the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.
Additionally, as discussed in Note 9, the Company completed the sale of its Club Monaco business at the end of its first quarter of Fiscal 2022 (as defined below) on June 26, 2021. As a result, assets and liabilities related to the Club Monaco business were deconsolidated from the consolidated statement of financial position effective June 26, 2021, with Club Monaco's operating results included in the consolidated statements of income (loss), comprehensive income (loss), and cash flows through the end of the first quarter of Fiscal 2022. Financial statements issued prior to this transaction were not affected.
Fiscal Year
The Company utilizes a 52-53 week fiscal year ending on the Saturday closest toimmediately before or after March 31. As such, fiscal year 20162023 ended on April 1, 2023 and was a 52-week period ("Fiscal 2023"); fiscal year 2022 ended on April 2, 20162022 and was a 53-week period ("Fiscal 2016"2022"). Fiscal; fiscal year 20152021 ended on March 28, 201527, 2021 and was a 52-week period ("Fiscal 2015"2021"). Fiscal; and fiscal year 2014 ended2024 will end on March 29, 201430, 2024 and was alsowill be a 52-week period ("Fiscal 2014"2024").
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and footnotesnotes thereto. Actual results could differ materially from those estimates.
| F-7 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Significant estimates inherent in the preparation of the consolidated financial statements include reserves for bad debt, customer returns, discounts, end-of-season markdowns, operational chargebacks, and certain cooperative advertising allowances; the realizability of inventory; reserves for litigation and other contingencies; useful lives and impairments of long-lived tangible and intangible assets; fair value measurements; accounting for income taxes and related uncertain tax positions; valuation of stock-based compensation awards and related estimated forfeiture rates; and reserves for restructuring activity; and accounting for business combinations,activity, among others.
Reclassifications
Certain reclassifications have been made to the prior periods' financial information in order to conform to the current period's presentation.
COVID-19 Pandemic
Beginning in the fourth quarter of the Company's fiscal year ended March 28, 2020 ("Fiscal 2020"), a novel strain of coronavirus commonly referred to as COVID-19 emerged and spread rapidly across the globe, including throughout all major geographies in which the Company operates, resulting in widespread adverse economic conditions and business disruptions. Since then, governments worldwide have periodically imposed preventative and protective actions, such as temporary travel bans, forced business closures, and stay-at-home orders, all in an effort to reduce the spread of the virus. Such actions have negatively impacted retail traffic, tourism, and consumer spending on discretionary items to varying degrees over the course of the pandemic.
As a result of the COVID-19 pandemic, the Company has experienced varying degrees of business disruptions and periods of closure of its stores, distribution centers, and corporate facilities, as have the Company's wholesale customers, licensing partners, suppliers, and vendors. During the first quarter of Fiscal 2021 at the peak of the pandemic, the majority of the Company's stores in key markets were closed for an average of 8 to 10 weeks due to government-mandated lockdowns and other restrictions, resulting in significant adverse impacts to its operating results. Resurgences and outbreaks in certain parts of the world resulted in further business disruptions periodically throughout Fiscal 2021, most notably in Europe where a significant number of the Company's stores were closed for approximately 2 to 3 months during the second half of Fiscal 2021, including during the holiday period, due to government-mandated lockdowns and other restrictions. Such disruptions continued throughout Fiscal 2022 and Fiscal 2023 in certain regions, although to a lesser extent than Fiscal 2021. Further, throughout the course of the pandemic, the majority of the Company's stores that were able to remain open have periodically been subject to limited operating hours and/or customer capacity levels in accordance with local health guidelines, with traffic remaining challenged. However, the Company's digital commerce operations have grown significantly from pre-pandemic levels, due in part to its investments and enhanced capabilities, as well as changes in consumer shopping preferences.
The COVID-19 pandemic also adversely impacted the Company's distribution, logistic, and sourcing partners, including temporary factory closures, labor shortages, vessel, container and other transportation shortages, and port congestion. Such disruptions resulted in periods of reduced availability of inventory, delayed timing of inventory receipts, and increased costs for both the purchase and transportation of such inventory, most notably during Fiscal 2022 and the first half of Fiscal 2023.
The pandemic continues to evolve, with resurgences and outbreaks occurring in certain parts of the world during Fiscal 2023, including those resulting from variants of the virus. While the impact of these disruptions has generally been less significant than those experienced in Fiscal 2021 and Fiscal 2022, the Company cannot predict for how long and to what extent the pandemic may continue to impact its business operations, the global supply chain, or the overall global economy.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Summary of Significant Accounting Policies
Revenue Recognition
Revenue withinfrom the Company's Wholesale segmentretail business is recognized when the customer takes physical possession of the products, which occurs either at the timepoint of sale for merchandise purchased at the Company's own retail stores and shop-within-shop locations, or upon receipt of shipment for merchandise ordered through direct-to-consumer digital commerce sites. Such revenues are recorded net of estimated returns based on historical trends. Payment is due at the point of sale.
Gift cards purchased by customers are recorded as a liability until they are redeemed for products sold by the Company's retail business, at which point revenue is recognized. The Company also estimates and recognizes revenue for gift card balances not expected to ever be redeemed (referred to as "breakage") to the extent that it does not have a legal obligation to remit the value of such unredeemed gift cards to the relevant jurisdiction as unclaimed or abandoned property. Such estimates are based upon historical redemption trends, with breakage income recognized in proportion to the pattern of actual customer redemptions.
Revenue from the Company's wholesale business is generally recognized upon shipment of products, at which point title passes and risk of loss is transferred to customers.the customer. In certain arrangements where the Company retains the risk of loss during shipment, revenue is recognized upon receipt of products by the customer. Wholesale revenue is recorded net of estimates of returns, discounts, end-of-season markdowns, operational chargebacks, and certain cooperative advertising allowances. Returns and allowances require pre-approval from management and discounts are based on trade terms. Estimates for end-of-season markdown reserves are based on historical trends, actual and forecasted seasonal results, an evaluation of current economic and market conditions, retailer performance, and, in certain cases, contractual terms. Estimates for operational chargebacks are based on actual customer notifications of order fulfillment discrepancies and historical trends. The Company reviews and refines these estimates on at least a quarterly basis. The Company's historical estimates of these costsamounts have not differed materially from actual results.
| F-9 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Contractually-Guaranteed Minimum Royalties(a) | ||||||||
| (millions) | ||||||||
| Fiscal 2024 | $ | 98.5 | ||||||
| Fiscal 2025 | 62.7 | |||||||
| Fiscal 2026 | 44.1 | |||||||
| Fiscal 2027 | 40.8 | |||||||
| Fiscal 2028 | 11.3 | |||||||
| Fiscal 2029 and thereafter | — | |||||||
| Total | $ | 257.4 | ||||||
(a)Amounts presented do not contemplate potential contract renewals or royalties earned in excess of the contractually-guaranteed minimums.
Disaggregated Net Revenues
The following tables disaggregate the Company's net revenues into categories that depict how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors for the fiscal years presented:
| Fiscal Year Ended | ||||||||||||||||||||||||||||||||
| April 1, 2023 | ||||||||||||||||||||||||||||||||
| North America | Europe | Asia | Other | Total | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
Sales Channel(a): | ||||||||||||||||||||||||||||||||
| Retail | $ | 1,872.6 | $ | 858.4 | $ | 1,322.1 | $ | — | $ | 4,053.1 | ||||||||||||||||||||||
| Wholesale | 1,147.9 | 980.8 | 104.6 | — | 2,233.3 | |||||||||||||||||||||||||||
| Licensing | — | — | — | 157.2 | 157.2 | |||||||||||||||||||||||||||
| Total | $ | 3,020.5 | $ | 1,839.2 | $ | 1,426.7 | $ | 157.2 | $ | 6,443.6 | ||||||||||||||||||||||
| Fiscal Year Ended | ||||||||||||||||||||||||||||||||
| April 2, 2022 | ||||||||||||||||||||||||||||||||
| North America | Europe | Asia | Other | Total | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
Sales Channel(a): | ||||||||||||||||||||||||||||||||
| Retail | $ | 1,878.6 | $ | 828.3 | $ | 1,207.4 | $ | 27.2 | $ | 3,941.5 | ||||||||||||||||||||||
| Wholesale | 1,089.6 | 952.4 | 79.4 | 5.9 | 2,127.3 | |||||||||||||||||||||||||||
| Licensing | — | — | — | 149.7 | 149.7 | |||||||||||||||||||||||||||
| Total | $ | 2,968.2 | $ | 1,780.7 | $ | 1,286.8 | $ | 182.8 | $ | 6,218.5 | ||||||||||||||||||||||
| Fiscal Year Ended | ||||||||||||||||||||||||||||||||
| March 27, 2021 | ||||||||||||||||||||||||||||||||
| North America | Europe | Asia | Other | Total | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
Sales Channel(a): | ||||||||||||||||||||||||||||||||
| Retail | $ | 1,214.1 | $ | 517.1 | $ | 968.4 | $ | 80.2 | $ | 2,779.8 | ||||||||||||||||||||||
| Wholesale | 778.3 | 648.8 | 59.1 | 12.4 | 1,498.6 | |||||||||||||||||||||||||||
| Licensing | — | — | — | 122.4 | 122.4 | |||||||||||||||||||||||||||
| Total | $ | 1,992.4 | $ | 1,165.9 | $ | 1,027.5 | $ | 215.0 | $ | 4,400.8 | ||||||||||||||||||||||
| F-10 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(a)Net revenues from the Company's retail and wholesale businesses are recognized at a point in time. Net revenues from the Company's licensing business are recognized over time.
Deferred Income
Deferred income forrepresents cash payments received in advance of the Company's transfer of control of products or services to its customers and generally consists of unredeemed gift cards when(net of breakage) and advance royalty payments from licensees. The Company's deferred income balances were $14.1 million and $16.6 million as of April 1, 2023 and April 2, 2022, respectively, and were primarily recorded within accrued expenses and other current liabilities within the likelihood of redemption by a customer is remote and the Company determines that it does not have a legal obligation to remit the valueconsolidated balance sheets. The majority of the unredeemed gift carddeferred income balance as of April 1, 2023 is expected to be recognized as revenue within the relevant jurisdiction as unclaimed or abandoned property.
Cost of Goods Sold and Selling Expenses
Cost of goods sold includes the expensesamounts incurred to acquire and produce inventory for sale to the Company's customers, including product costs, freight-in, and import costs, as well as changes in reserves for shrinkage and inventory realizability. Gains and losses associated with forward foreign currency exchange contracts that are designated and qualifying as cash flow hedges of inventory transactions are also recognized within cost of goods sold when the hedged inventory is sold. The costs of selling merchandise, including those associated with preparing merchandise for sale, such as picking, packing, warehousing, and order charges ("handling costs"), are included in selling, general, and administrative ("SG&A") expenses in the consolidated statements of income.operations.
Shipping and Handling Costs
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Shipping costs | $ | 79.9 | $ | 73.0 | $ | 54.8 | ||||||||||||||
| Handling costs | 169.7 | 151.8 | 138.3 | |||||||||||||||||
Advertising and Marketing Costs
Advertising costs, including the costs to produce advertising, are expensed when the advertisement is first exhibited. Out-of-store advertisingAdvertising costs paid to wholesale customers under cooperative advertising programs are expensed as an advertising cost within SG&A expenses if both the identified advertising benefit is sufficiently separable from the purchase of the Company's products by customers and the fair value of such benefit is measurable. Otherwise, such costs are reflected as a reduction of revenue. Costs of in-store advertising paid to wholesale customers under cooperative advertising programs are not included in advertising costs, but rather are reflected as a reduction of revenue since generally the benefits are not sufficiently separable from the purchases of the
Company's products by customers. Costs associated with the marketing and promotion of the Company's products are included within SG&A expenses.
Advertising and marketing expenses amounted to approximately $280were $438.1 million,, $275 $456.3 million,, and $256$265.0 million in Fiscal 2016,2023, Fiscal 2015,2022, and Fiscal 2014,2021, respectively. Deferred advertising, marketing, and promotional costs, which principally relate to advertisements that have not yet been exhibited or payments made for services that have not yet been received, were approximately $7$10.4 million and $7.9 million at the end of both Fiscal 20162023 and Fiscal 2015,2022, respectively, and were recorded within prepaid expenses and other current assets in the Company's consolidated balance sheets.
Foreign Currency Translation and Transactions
The financial position and operating results of the Company's foreign operations are primarily consolidated usingaccounted for in their respective functional currencies, which are generally consistent with the local currency as the functional currency. LocalFor purposes of consolidation, local currency assets and liabilities are translated to U.S. Dollars at the spot rates of exchange in effectprevailing on the balance sheet date, and local currency revenues and expenses are translated to U.S. Dollars at average rates of exchange in effect during the period. The
| F-11 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
resulting translation gains or losses are included in the consolidated statements of comprehensive income (loss) as a component of other comprehensive income (loss) ("OCI") and in the consolidated statements of equity within accumulated other comprehensive income (loss) ("AOCI"). Gains and losses on the translation of intercompany loans made to foreign subsidiaries that are of a long-term investment nature are also included within this component of equity.
The Company also recognizes gains and losses on both third-party and intercompany transactionsbalances that are denominated in a currency other than the respective entity's functional currency. ForeignSuch foreign currency transactiontransactional gains and losses are recognized in earnings and separately disclosedwithin other income (expense), net in the consolidated statements of income.operations, inclusive of the effects of any related hedging activities, and reflected a net loss of $4.5 million in Fiscal 2023 and net gains of $2.8 million and $8.7 million in Fiscal 2022 and Fiscal 2021, respectively.
Comprehensive Income (Loss)
Comprehensive income (loss), which is reported in the consolidated statements of comprehensive income (loss) and consolidated statements of equity, consists of net income (loss) and certain other gains and losses affecting equity that, under U.S. GAAP, are excluded from net income. The componentsincome (loss) and referred to as OCI. Components of OCI for the Company consist of foreign currency translation gains (losses); net realized and unrealized gains (losses) on cash flow hedges, such as forward foreign currency exchange contracts; net realized and unrealized gains (losses) on available-for-sale investments; and net realized and unrealized gains (losses) related to the Company's defined benefit plans.
Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common shares by the weighted-average number of common shares outstanding during the period. Weighted-average common shares include shares of the Company's Class A and Class B common stock. Diluted net income (loss) per common share adjusts basic net income (loss) per common share for the dilutive effects of outstanding stock options, restricted stock, restricted stock units ("RSUs"), stock options, and any other potentially dilutive instruments, only infor the periods in which such effects are dilutive under the treasury stock method.dilutive.
The weighted-average number of common shares outstanding used to calculate basic net income (loss) per common share is reconciled to shares used to calculate diluted net income (loss) per common share as follows:
| Fiscal Years Ended | |||||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | |||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
| Basic shares | 67.7 | 73.0 | 73.5 | ||||||||||||||||||||
| Dilutive effect of RSUs and stock options | 1.3 | 1.3 | — | (a) | |||||||||||||||||||
| Diluted shares | 69.0 | 74.3 | 73.5 | ||||||||||||||||||||
| Fiscal Years Ended | |||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | |||||||
| Basic shares | 85.2 | 88.2 | 90.7 | ||||||
| Dilutive effect of stock options, restricted stock, and RSUs | 0.7 | 0.9 | 1.3 | ||||||
| Diluted shares | 85.9 | 89.1 | 92.0 | ||||||
(a)Incremental shares of 1.2 million attributable to outstanding RSUs were excluded from the computation of diluted shares for Fiscal 2021 as such shares would not be dilutive given the net loss incurred during that fiscal year.
All earnings per share amounts have been calculated using unrounded numbers. Options to purchase shares of the Company's Class A common stock at an exercise price greater than the average market price of the common stock during the reporting period are anti-dilutive and therefore not included in the computation of diluted net income per common share. In addition, theThe Company has outstanding performance-based RSUs, that are issuable only upon the achievement of certain service and/or performance goals. Performance-based RSUswhich are included in the computation of diluted shares only to the extent that the underlying performance conditions (and any
| F-12 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock-Based Compensation
The Company recognizes expense for all stock-based compensation awards granted to employees and non-employee directors based on the grant date fair value of the awards over the requisite service period, adjusted for forfeitures which are estimated forfeitures.based on an analysis of historical experience and expected future trends. The Company uses the Black-Scholes valuation model to estimate the grant date fair value of its stock option awards. For performance-based RSU awards that include a market condition in the form of a total shareholder return ("TSR") modifier, the Company uses a Monte Carlo simulation valuation model to estimate the grant date fair value. The fair values of restricted stock awards, service-based RSUs and performance-based RSUs that are not subject to a TSR modifier are determined based on the fair value of the Company's Class A common stock on the date of grant, adjusted to reflect the absence of dividends for thoseany awards for which dividend equivalent amounts do not accrue while outstanding and unvested. The grant date fair value of the Company's market-based RSU awards, for which vesting is dependent upon total shareholder return ("TSR") of its Class A common stock over a three-year performance period relative to that are not entitledof a pre-established peer group, is estimated using a Monte Carlo simulation model. The Company uses the Black-Scholes valuation model to dividend equivalents. estimate the grant date fair value of any stock option awards.
Compensation expense for all performance-based RSUs is recognized over the requisite service period when attainment of the performance goal is deemed probable, net of estimated forfeitures. Compensation expense for market-based RSUs, net of estimated forfeitures, is recognized over the requisite service period regardless of whether, and the extent to which, the market condition is ultimately satisfied. The Company recognizes compensation expense on an accelerated basis for all awards with graded vesting terms, including stock options,certain RSUs, restricted stock, and certain RSUs.stock options, if any. For RSU awards with cliff vesting terms, compensation expense is recognized on a straight-line basis. For certain RSU awards granted to retirement-eligible employees, or employees who will become retirement-eligible prior to the end of the awards' respective stated vesting periods, the related stock-based compensation expense is recognized on an accelerated basis over a term commensurate with the period that the employee is required to provide service in order to vest in the award. See Note 1918 for further discussion of the Company's stock-based compensation plans.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with original maturities of 90 days or less, including investments in time deposits and debt securities and money market funds.securities. Investments in debt securities are diversified amongacross high-credit quality securitiesissuers in accordance with the Company's risk-management policies.
Restricted Cash
The Company is periodically required to place cash in escrow with various banks as collateral, primarily to secure guarantees of corresponding amounts made by the banks to international tax authorities on behalf of the Company, such as to secure refunds of value-added tax payments in certain international tax jurisdictions or in the case of certain international tax audits.audits, as well as to secure guarantees related to certain real estate leases. Such cash is classified as restricted cash and reported as a component of either prepaid expenses and other current assets or other non-current assets in the Company's consolidated balance sheets. The cash inflows and outflows related to restricted cash are classified as investing activities in the Company's consolidated statements of cash flows.
Investments
The Company's investment objectives include capital preservation, maintaining adequate liquidity, diversification to minimize liquidity and credit risk, and achievement of maximum returns within the guidelines set forth in the Company's investment policy.
Short-term investments consist of investments which the Company expects to convert into cash within one year, including any time deposits which haveand debt securities with original maturities greater than 90 days. Non-current investments, which are classified within other non-current assets inSee Note 13 for further information relating to the consolidated balance sheets, consistcomposition of those investments which the Company does not expect to convert into cash within one year.Company's short-term investments.
The Company classifies all of itssuch investments at the time of purchase as available-for-sale. These investmentsAccordingly, they are recorded at fair value with any related unrealized gains or losses classifiedgenerally recognized as a component of AOCI in the consolidated balance sheets, and related realized gains or losses classified as a component of interest and(or unrealized credit-related impairment losses, if any) recorded within other income (expense), net, in the consolidated statements of income.operations. Cash inflows and outflows related to the sale and purchase of investments are classified as investing activities in the Company's consolidated statements of cash flows.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Equity-method and Other Investments
Under the equity method of accounting, the following amounts are generally recorded in the Company's consolidated financial statements: the Company's original investment, inas subsequently adjusted for its share of the investee's earnings (losses) and amounts due toreduced by any dividends received and from the investee areother-than-temporary impairments recorded, is included in the consolidated balance sheets; the Company's share of the investee's periodic earnings (losses) is included in the consolidated statements of income;operations; and dividends and other cash distributions loans, or other cash received from the investee and additional cash investments loan repayments,made in or other cash paid to the investee are included in the consolidated statements of cash flows.
The Company's share of equity-method investments include its 50% interestinvestee earnings and losses is recognized within other income (expense), net, in the Ralph Lauren Watch and Jewelry Company, Sárl (the "RL Watch Company"), a joint venture formed with Compagnie Financière Richemont SA ("Richemont"), the Swiss luxury goods group, in March 2007. This joint venture is a Swiss corporation whose purpose is to design, develop, manufacture, sell, and distribute luxury watches and fine jewelry through Ralph Lauren stores, as well as through fine independent jewelry and luxury watch retailers around the world. Royalty payments due to the Company under the related license agreement for use of certain of its trademarks are reflected as licensing revenue within the consolidated statements of income.operations and was not material in any of the fiscal years presented.
These investments are recorded within other non-current assets in the consolidated balance sheets.
Impairment Assessment
The Company evaluates the need to recognize impairment charges for its investments heldthat are in unrealized loss positions, if any, for other-than-temporary impairmentand its other equity investments on a quarterly basis.basis (see Note 12). Such evaluation involves a variety of considerations, including assessments of the risks and uncertainties associated with general economic conditions and distinct conditions affecting specific issuers.issuers or investees. Factors considered by the Company include (i) the length of time and the extent to which the fair value has been below cost; (ii) the financial condition, credit worthiness,creditworthiness, and near-term prospects of the issuer;issuer or investee; (ii) future economic conditions and market forecasts; (iii) the length of time to maturity; (iv) future economic conditionsmaturity, if applicable, and market forecasts; (v) the Company's intent and ability to retain its investment for a period of time sufficient to allow for recovery of market value; and (vi) an assessment of whether it is more likely than not that the Company will be required to sell its investment before recovery of market value. See Note 15 for further information relating tovalue; and (iv) whether events or changes in circumstances indicate that the Company's investments.investment's carrying amount might not be recoverable.
Accounts Receivable
In the normal course of business, the Company extends credit to wholesale customers that satisfy certain defined credit criteria. Payment is generally due within 30 to 120 days and does not involve a significant financing component. Accounts receivable isare recorded at carrying value,amortized cost, which approximates fair value, and isare presented in the Company's consolidated balance sheets net of certain reserves and allowances. These reserves and allowances consist of (i) reserves for returns, discounts, end-of-season markdowns, operational chargebacks, and certain cooperative advertising allowances (see the "Revenue Recognition" section above for further discussion of related accounting policies) and (ii) allowances for doubtful accounts.
A rollforward of the activity in the Company's reserves for returns, discounts, end-of-season markdowns, operational chargebacks, and certain cooperative advertising allowances is presented below:as follows:
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Beginning reserve balance | $ | 240 | $ | 254 | $ | 230 | ||||||
| Amount charged against revenue to increase reserve | 749 | 756 | 758 | |||||||||
| Amount credited against customer accounts to decrease reserve | (753 | ) | (749 | ) | (739 | ) | ||||||
| Foreign currency translation | 4 | (21 | ) | 5 | ||||||||
| Ending reserve balance | $ | 240 | $ | 240 | $ | 254 | ||||||
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Beginning reserve balance | $ | 180.7 | $ | 173.7 | $ | 204.7 | ||||||||||||||
| Amount charged against revenue to increase reserve | 407.9 | 407.7 | 280.1 | |||||||||||||||||
| Amount credited against customer accounts to decrease reserve | (436.5) | (392.9) | (317.4) | |||||||||||||||||
| Foreign currency translation | (4.0) | (7.8) | 6.3 | |||||||||||||||||
| Ending reserve balance | $ | 148.1 | $ | 180.7 | $ | 173.7 | ||||||||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
An allowance for doubtful accounts is determined through analysis of accounts receivable aging, assessments of collectability based on evaluation of historical trends, the financial condition of the Company's customers and their ability to withstand prolonged periods of adverse economic conditions, and evaluation of the impact of current and forecasted economic and market conditions over the related asset's contractual life, such as those resulting from COVID-19 business disruptions (most notably during Fiscal 2021), among other factors.
A rollforward of the activity in the Company's allowance for doubtful accounts is presented below:as follows:
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Beginning reserve balance | $ | 11 | $ | 16 | $ | 15 | ||||||
Amount recorded to expense to increase reserve(a) | 7 | — | 3 | |||||||||
| Amount written-off against customer accounts to decrease reserve | (4 | ) | (2 | ) | (3 | ) | ||||||
| Foreign currency translation | — | (3 | ) | 1 | ||||||||
| Ending reserve balance | $ | 14 | $ | 11 | $ | 16 | ||||||
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Beginning reserve balance | $ | 34.0 | $ | 40.1 | $ | 71.5 | ||||||||||||||
Amount recorded to expense to increase (decrease) reserve(a) | 2.3 | (2.2) | (27.6) | |||||||||||||||||
| Amount written-off against customer accounts to decrease reserve | (8.5) | (2.8) | (6.1) | |||||||||||||||||
| Foreign currency translation | (0.6) | (1.1) | 2.3 | |||||||||||||||||
| Ending reserve balance | $ | 27.2 | $ | 34.0 | $ | 40.1 | ||||||||||||||
(a)Amounts recorded to bad debt expense are included within SG&A expenses in the consolidated statements of operations. |
Concentration of Credit Risk
The Company sells its wholesale merchandise primarily to major department andstores, specialty stores, and third-party digital partners around the world, and extends credit based on an evaluation of each customer's financial capacity and condition, usually without requiring collateral. In the Company's wholesale business, concentration of credit risk is relatively limited due to the large number of customers and their dispersion across many geographic areas. However, the Company has three key wholesale customers that generate significant sales volume. During Fiscal 2016, the Company's sales to its largest wholesale customer, Macy's, Inc. ("Macy's"), accounted for approximately 11% of total net revenues, and2023, the Company's sales to its three largest wholesale customers (including Macy's) accounted for approximately 24%16% of total net revenues. Substantially all of the Company's sales to its three largest wholesale customers related to its North America segment. As of April 2, 2016,1, 2023, these three key wholesale customers constitutedaccounted for approximately 36%34% of total gross accounts receivable.
Inventories
The Company holds inventory that is sold in its retail stores and digital commerce sites directly to consumers. The Company also holds inventory that is to be sold through wholesale distribution channels to major department stores, and specialty retail stores. The Company also holds retail inventory that is sold in its own stores, and e-commerce sites directly to consumers.third-party digital partners. Substantially all of the Company's inventories are comprisedconsist of finished goods, which are stated at the lower of cost or estimated realizable value, with cost primarily determined on a weighted-average cost basis.
The estimated realizable value of inventory is determined based on an analysis of historical sales trends of the Company's individual product lines, the impact of market trends and economic conditions (such as those resulting from pandemic diseases and other catastrophic events), and a forecast of future demand, giving consideration to the value of current in-house orders for future sales of inventory, as well as plans to sell inventory through the Company's factoryoutlet stores, among other liquidation channels. Actual results may differ from estimates due to the quantity, quality, and mix of products in inventory, consumer and retailer preferences, and actual economic and market conditions. ReservesIn addition, reserves for inventory shrinkage, representing the risk of physical loss of inventory, are estimated based on historical experience and are adjusted based upon physical inventory counts. The Company's historical estimates of these coststhe realizable value of its inventory and its related provisionsreserves for inventory shrinkage have not differed materially from actual results. However, unforeseen adverse future economic and market conditions could result in the Company's actual results differing materially from its estimates.
| F-15 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Implementation Costs Incurred in Cloud Computing Arrangements
For cloud computing arrangements that are a service contract, the Company capitalizes certain implementation costs incurred (depending on their nature) during the application development stage of the related project, and expenses costs during the preliminary project and post-implementation stages as they are incurred. Capitalized implementation costs are expensed on a straight-line basis over the reasonably certain term of the hosting arrangement, beginning when the module is ready for its intended use. The Company's cloud computing arrangements relate to various areas, including certain retail store and digital commerce operations, and corporate and administrative functions. Capitalized amounts related to such arrangements are recorded within prepaid expenses and other current assets and within other non-current assets in the consolidated balance sheets (see Note 7). Capitalized implementation costs expensed were $6.3 million, $9.2 million, and $8.4 million during Fiscal 2023, Fiscal 2022, and Fiscal 2021, respectively, and were recorded in SG&A expenses in the consolidated statements of operations.
Property and Equipment, Net
Property and equipment, net is stated at cost less accumulated depreciation. Depreciation is calculated using theon a straight-line methodbasis, based upon the estimated useful lives of depreciable assets, which range from three3 to seven7 years for furniture and fixtures, machinery and equipment, and capitalized software; and from ten10 to forty40 years for buildings and improvements. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the respective assets or the term of the related lease.
Property and equipment, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying values may not be fully recoverable.recoverable (see Note 12). In evaluating long-lived assets for recoverability, including finite-lived intangibles as described below, the Company uses its best estimate of future cash flows expected to result from theits use of the asset and its eventual disposition. To the extent thatdisposition, where applicable. If such estimated future undiscounted net cash flows attributable to the asset are less than its carrying value, an impairment loss is recognized equal to the difference between theextent that such asset's carrying value of such asset andexceeds its fair value, as estimated considering external market participant assumptions.assumptions and discounted cash flows. Assets to be disposed of and for which there is a committed plan forof disposal (commonly referred to as assets held-for-sale) are reported at the lower of carrying value or fair value, less costs to sell.
Leases
The Company's lease arrangements primarily relate to real estate, including its retail stores, concession-based shop-within-shops, corporate offices, and warehouse facilities and, to a lesser extent, certain equipment and other assets. The Company's leases generally have initial terms ranging from 3 to 10 years and may include renewal or early-termination options, rent escalation clauses, and/or lease incentives in the form of construction allowances and rent abatements. The Company is typically required to make fixed minimum rent payments, variable rent payments based on performance (e.g., percentage-of-sales-based payments), or a combination thereof, relating to its right to use an underlying leased asset. The Company is also often required to pay for certain other costs that do not relate specifically to its right to use an underlying leased asset, but that are associated with the asset, including real estate taxes, insurance, common area maintenance fees, and/or certain other costs (referred to collectively herein as "non-lease components"), which may be fixed or variable in amount, depending on the terms of the respective lease agreement. The Company's leases do not contain significantly restrictive covenants or residual value guarantees.
The Company determines whether an arrangement contains a lease at the arrangement's inception. If a lease is determined to exist, its related term is assessed at the lease commencement date, once the underlying asset is made available by the lessor for the Company's use. The Company's assessment of the lease term reflects the non-cancellable period of the lease, inclusive of any rent-free periods, plus any periods covered by early-termination options for which the Company is not considered reasonably certain of exercising, as well as periods covered by renewal options for which it is considered reasonably certain of exercising. The Company also determines lease classification as either operating or finance at lease commencement, which governs the pattern of expense recognition and the presentation thereof in the consolidated statements of operations over the lease term.
For leases with a lease term exceeding 12 months, a liability is recorded on the consolidated balance sheet at the lease commencement date reflecting the present value of its related fixed payment obligations over such term. A corresponding right-of-use ("ROU") asset equal to the initial lease liability is also recorded, increased by any prepaid rent and/or initial direct costs incurred in connection with execution of the lease, and reduced by any incentives provided by the lessor. The Company also includes fixed payment obligations related to non-lease components in the measurement of its ROU assets and lease liabilities,
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
given its election to account for lease and non-lease components together as a single lease component. Variable lease payments are not included in the measurement of ROU assets and lease liabilities. ROU assets associated with finance leases are presented separately from those associated with operating leases, and are included within property and equipment, net on the consolidated balance sheet. For purposes of measuring the present value of its fixed payment obligations for a given lease, the Company uses its incremental borrowing rate, determined based on information available at lease commencement, given that rates implicit in its leasing arrangements are not readily determinable. The Company's incremental borrowing rate reflects the rate it would pay to borrow on a secured basis an amount equal to the lease payments and incorporates the term and economic environment of the lease.
For operating leases, fixed lease payments are recognized as operating lease cost on a straight-line basis over the lease term. For finance leases, the initial ROU asset is depreciated on a straight-line basis over the lease term, along with recognition of interest expense associated with accretion of the remaining lease liability, which is ultimately reduced by the related fixed payments as they are made. For leases with a lease term of 12 months or less (referred to as a "short-term lease"), any fixed lease payments are recognized on a straight-line basis over such term and are not recognized on the consolidated balance sheet. For all leases, variable lease cost, if any, is recognized as incurred.
ROU assets, along with any related long-lived assets, are periodically evaluated for impairment whenever events or circumstances indicate that their carrying values may not be fully recoverable (see Note 12). To the extent that such assets are ultimately determined to be impaired, they are written down accordingly on a relative carrying amount basis, with the ROU asset written down to an amount no lower than its estimated fair value. Subsequent to the recognition of any such impairment, total remaining lease cost is recognized on a front-loaded basis over the remaining lease term.
See Note 14 for further discussion of the Company's leases.
Goodwill and Other Intangible Assets
At acquisition, the Company estimates and records the fair value of purchased intangible assets, which typically consist of reacquired license agreements, customer relationships, non-compete agreements, and/or order backlog. The fair values of these intangible assets are estimated based on management's assessment, considering independent third-party appraisals when necessary. The excess of the purchase consideration over the fair value of net assets acquired, both tangible and intangible, is recorded as goodwill. Goodwill and certain other intangible assets deemed to have indefinite useful lives are not amortized. Rather, goodwill and such indefinite-lived intangible assets are assessed for impairment at least annually. The Company generally performs its annual goodwill and indefinite-lived intangible assets impairment analyses using a qualitative approach to determine whether it is more likely than not that the fair values of such assets are less than their respective carrying values. If, based on the results of the qualitative assessment, it is concluded that it is not more likely than not that the fair value of the asset exceeds its carrying value, a quantitative test is performed. Under the quantitative test, if the carrying value of the asset exceeds its fair value, an impairment loss is recognized in the amount of the excess. The Company also periodically performs a quantitative test to assess its goodwill for impairment in lieu of using the qualitative approach in order to reassess the fair values of its reporting units.
Finite-lived intangible assets are amortized over their respective estimated useful lives and, along with other long-lived assets as noted above, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying values may not be fully recoverable. See discussion of the Company's accounting policy for long-lived asset impairment as previously described under the caption "Property and Equipment, Net."
Income Taxes
Income taxes are provided using the asset and liability method. Under this method, income taxes (i.e., deferred tax assets and liabilities, current taxes payable/refunds receivable, and tax expense) are recorded based on amounts refundable or payable in the current year and include the results of any difference between U.S. GAAP and tax reporting. Deferred income taxes reflect the tax effect of certain net operating losses, capital losses, general business credit carryforwards, and the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. The Company accounts for the financial effect of changes in tax laws or rates in the period of enactment.
| F-17 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In addition, valuation allowances are established when management determines that it is more likely than not that some portion or all of a deferred tax asset will not be realized. Tax valuation allowances are analyzed periodically and adjusted as events occur or circumstances change that warrant adjustments.
In determining the income tax provisionbenefit (provision) for financial reporting purposes, the Company establishes a reserve for uncertain tax positions. If the Company considers that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, it recognizes the tax benefit. The Company measures the tax benefit by determining the largest amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the appropriate taxing authority that has full knowledge of all relevant information. These assessments can be complex and the Company often obtains assistance from external advisors. To the extent that the Company's estimates change or the final tax outcome of these matters is different than the amounts recorded, such differences will impact the income tax provisionbenefit (provision) in the period in which such determinations are made. If the initial assessment fails to result in the recognition of a tax benefit, the Company regularly monitors its position and subsequently recognizes the tax benefit if (i) there are changes in tax law or analogous case law that sufficiently raise the likelihood of prevailing on the technical merits of the position to more likely than not; (ii) the statute of limitations expires; or (iii) there is a completion of an audit resulting in a settlement of that tax year with the appropriate agency. Uncertain tax positions are classified as current only when the Company expects to pay cash within the next twelve months. Interest and penalties if any, are recorded within the provision for income taxestax benefit (provision) in the Company's consolidated statements of incomeoperations and are classified on the consolidated balance sheets together with the related liability for unrecognized tax benefits.
The Company accounts for the minimum tax on global intangible low-taxed income ("GILTI") in the period in which it is incurred.
See Note 1210 for further discussion of the Company's income taxes.
Derivative Financial Instruments
The Company records all derivative financial instruments on its consolidated balance sheets at fair value. ForChanges in the fair value of derivative instruments that are designated and qualify for hedge accounting the effective portion of changes in their fair value isare either (i) offset through earnings against the changes in fair value of the related hedged assets, liabilities, or firm commitments through earnings or (ii) recognized in equity as a component of AOCI until the hedged item is recognized in earnings, depending on whether the derivativeinstrument is being used to hedgehedging against changes in fair value or cash flows and net investments, respectively.
Each derivative instrument that qualifies for hedge accounting is expected to be highly effective at reducingin offsetting the risk associated with the exposure being hedged.related exposure. For each derivative instrument that is designated as a hedge, the Company formally documents the related risk management objective and strategy, including identification of the hedging instrument, the hedged item, and the risk exposure, as well as how hedge effectiveness will be assessed prospectively and retrospectively over the instrument's term. To assess hedge effectiveness at the inception of a hedging relationship, the Company generally uses regression analysis, a statistical method, to compare the changeevaluate how changes in the fair value of the derivative instrument are expected to offset changes in the change in fair value or cash flows of the related hedged item. The extent to which a hedging instrument has been and is expected to remain highly effective in achieving offsetting changes in fair value or cash flows is assessed and documented by the Company on at least a quarterly basis.
The fair values of the Company's derivative instruments are recorded on its consolidated balance sheets on a gross basis. For cash flow reporting purposes, proceeds received or amounts paid upon the settlement of a derivative instrument are classified in the same manner as the related item being hedged, primarily within cash flows from operating activities.
activities for its forward foreign exchange contracts and within cash flows from investing activities for its cross-currency swap contracts, both as discussed below.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash Flow Hedges
The Company enters intouses forward foreign currency exchange contracts to reducemitigate its risk related to exchange rate fluctuations on inventory transactions intercompany royalty payments made by certain of its international operations, and other foreign currency-denominated operational cash flows.in an entity's non-functional currency. To the extent forward foreign currency exchange contracts are designated as cash flow hedges, and are highly effective in offsetting changes in the value of the hedged items, the related gains or losses on such instruments are initially deferred in equity as a component of AOCI and are subsequently recognized within cost of goods sold in the consolidated statements of income as follows:
Hedges of Net Investments in earnings withinForeign Operations
The Company periodically uses cross-currency swap contracts to reduce risk associated with exchange rate fluctuations on certain of its net investments in foreign currency gains (losses).
subsidiaries. Changes in the fair valuevalues of asuch derivative instrument or the carrying value of a non-derivative instrumentinstruments that isare designated as hedges of net investments in foreign operations are recorded in equity as a hedgecomponent of a net investment in a foreign operation are reportedAOCI in the same manner as aforeign currency translation adjustment, to the extent it is effective.adjustments. In assessing the effectiveness of a derivative financial instrument that is designated as a hedge of a net investment,such hedges, the Company uses a method based on changes in spot rates to measure the impact of foreign currency exchange rate changesfluctuations on both its foreign subsidiary net investment and the related hedging instrument. IfUnder this method, changes in the notional amountfair value of the hedging instrument designated as the hedge of a net investment is greaterother than the portion of the net investment being hedged, hedge ineffectiveness is recognized immediately in earnings within foreign currency gains (losses). To the extent the instrument remains effective,those due to changes in itsthe spot rate are initially recorded in AOCI as a translation adjustment and are amortized into earnings as interest expense using a systematic and rational method over the instrument's term. Changes in fair value associated with the effective portion (i.e., those due to changes in the spot rate) are recorded in equityAOCI as foreign currencya translation gains (losses), a component of AOCI,adjustment and are released and recognized in earnings within foreign currency gains (losses) only upon the sale or liquidation of the hedged net investment.
Undesignated Hedges
See Note 1513 for further discussion of the Company's derivative financial instruments.
4. Recently Issued Accounting Standards
In March 2016,September 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, "Improvements to Employee Share-Based Payment Accounting"2022-04, "Disclosure of Supplier Finance Program Obligations" ("ASU 2016-09"2022-04"). ASU 2016-09 simplifies several aspects related2022-04 requires entities to how share-based payments are accounted fordisclose the key terms of supplier finance programs they use in connection with the purchase of goods and presented inservices, along with the amount of obligations outstanding at the end of each period and an annual rollforward of such obligations. This standard does not affect the recognition, measurement, or financial statements, including the accounting for forfeitures and tax-effects related to share-based payments at settlement, and the classificationstatement presentation of excess tax benefits and shares surrendered for tax withholdings in the statement of cash flows.supplier finance program obligations. ASU 2016-092022-04 is effective for the Company beginning in its Fiscal 2024 and is to be applied retrospectively to all periods in which a balance sheet is presented. The annual rollforward disclosure is not required to be made until its fiscal year 2018, with earlyending March 29, 2025 ("Fiscal 2025") and is to be applied prospectively. Early adoption is permitted. The adoption methodology (i.e., prospective, retrospective, or modified-retrospective) varies by amendment. The Company is currently inOther than the process of evaluatingnew disclosure requirements, ASU 2022-04 will not have an impact on the impact that ASU 2016-09 will have on itsCompany's consolidated financial statements and related disclosures.statements.
In February 2016,March 2020, the FASB issued ASU No. 2016-02, "Leases" ("ASU 2016-02"2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" along with certain other ASUs that were subsequently issued to clarify and modify certain of its provisions (collectively "ASU 2020-04"). ASU 2016-02 requires that, among other changes to current practice, a lessee's rights2020-04 provides temporary optional expedients and obligations under almost all leases, including existing and new arrangements, be recognized as right-of-use assets and lease liabilities on the consolidated balance sheet. ASU 2016-02 is effectiveexceptions for the Company beginning in its fiscal year 2020, with early adoption permitted, and must be adopted using a modified retrospective approach which requires application of the guidance at the beginning of the earliest comparative period presented. The Company is currently in the process of evaluating the impactU.S. GAAP, if certain criteria are met, to contract modifications, hedging relationships, and other arrangements that ASU 2016-02 will have on its consolidated financial statements and related disclosures, but expects that it will result in a significant increase to its long-term assets and liabilities.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| Assets acquired and liabilities assumed: | ||||
| Inventory | $ | 9 | ||
| Fixed assets | 4 | |||
| Customer relationship intangible asset | 3 | |||
| Other assets | 2 | |||
| Other liabilities | (3 | ) | ||
| Fair value of net assets acquired | $ | 15 | ||
| Assets acquired: | ||||
| Inventory | $ | 30 | ||
| Accounts receivable | 19 | |||
| Licensed trademark intangible asset | 9 | |||
| Total assets acquired | 58 | |||
| Liabilities assumed: | ||||
| Accounts payable | (22 | ) | ||
| Other net liabilities | (2 | ) | ||
| Total net liabilities assumed | (24 | ) | ||
| Fair value of net assets acquired | 34 | |||
| Consideration paid | 18 | |||
Gain on acquisition(a) | $ | 16 | ||
5. Property and classified within SG&A expenses in the consolidated statement of income during Fiscal 2014.Equipment
Property and equipment, net consists of the following:
| April 1, 2023 | April 2, 2022 | |||||||||||||
| (millions) | ||||||||||||||
| Land and improvements | $ | 15.3 | $ | 15.3 | ||||||||||
| Buildings and improvements | 471.9 | 480.4 | ||||||||||||
| Furniture and fixtures | 608.8 | 589.6 | ||||||||||||
| Machinery and equipment | 375.9 | 375.7 | ||||||||||||
| Capitalized software | 541.1 | 532.1 | ||||||||||||
| Leasehold improvements | 1,216.1 | 1,170.1 | ||||||||||||
| Construction in progress | 60.9 | 55.4 | ||||||||||||
| 3,290.0 | 3,218.6 | |||||||||||||
| Less: accumulated depreciation | (2,334.5) | (2,249.1) | ||||||||||||
| Property and equipment, net | $ | 955.5 | $ | 969.5 | ||||||||||
Property and equipment, net includes finance lease ROU assets, which are reflected in the table above based on their nature.
Depreciation expense was $206.5 million, $211.8 million, and $227.4 million during Fiscal 2023, Fiscal 2022, and Fiscal 2021, respectively, and was recorded primarily within SG&A expenses in the consolidated statements of operations.
6. Goodwill and Other Intangible Assets
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
| Land and improvements | $ | 17 | $ | 17 | ||||
| Buildings and improvements | 460 | 409 | ||||||
| Furniture and fixtures | 727 | 686 | ||||||
| Machinery and equipment | 359 | 317 | ||||||
| Capitalized software | 460 | 402 | ||||||
| Leasehold improvements | 1,248 | 1,185 | ||||||
| Construction in progress | 216 | 99 | ||||||
| 3,487 | 3,115 | |||||||
| Less: accumulated depreciation | (1,904 | ) | (1,679 | ) | ||||
| Property and equipment, net | $ | 1,583 | $ | 1,436 | ||||
Goodwill
The following table details the changes in goodwill for each of the Company's reportable segments during Fiscal 20162023 and Fiscal 2015:2022:
| North America | Europe | Asia | Other Non-reportable Segments | Total | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
| Balance at March 27, 2021 | $ | 421.8 | $ | 304.0 | $ | 76.8 | $ | 132.0 | $ | 934.6 | ||||||||||||||||||||||
| Foreign currency translation | — | (18.0) | (7.9) | — | (25.9) | |||||||||||||||||||||||||||
| Balance at April 2, 2022 | 421.8 | 286.0 | 68.9 | 132.0 | 908.7 | |||||||||||||||||||||||||||
| Foreign currency translation | — | (4.2) | (5.6) | — | (9.8) | |||||||||||||||||||||||||||
| Balance at April 1, 2023 | $ | 421.8 | $ | 281.8 | $ | 63.3 | $ | 132.0 | $ | 898.9 | ||||||||||||||||||||||
| Wholesale | Retail | Licensing | Total | |||||||||||||
| (millions) | ||||||||||||||||
| Balance at March 29, 2014 | $ | 617 | $ | 210 | $ | 137 | $ | 964 | ||||||||
| Foreign currency translation | (46 | ) | (10 | ) | (5 | ) | (61 | ) | ||||||||
| Balance at March 28, 2015 | 571 | 200 | 132 | 903 | ||||||||||||
| Foreign currency translation | 11 | 3 | 1 | 15 | ||||||||||||
| Balance at April 2, 2016 | $ | 582 | $ | 203 | $ | 133 | $ | 918 | ||||||||
Based on the results of the Company's annual goodwill impairment testing in Fiscal 2016, 2023, Fiscal 2015,2022, and Fiscal 2014,2021, no goodwill impairment charges were recorded.
See Note 12 for further discussion of the Company's goodwill impairment testing.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Intangible Assets
Other intangible assets consist of the following:
| April 2, 2016 | March 28, 2015 | April 1, 2023 | April 2, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accum. Amort. | Net | Gross Carrying Amount | Accum. Amort. | Net | Gross Carrying Amount | Accum. Amort. | Net | Gross Carrying Amount | Accum. Amort. | Net | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (millions) | (millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible assets subject to amortization: | Intangible assets subject to amortization: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Re-acquired licensed trademarks | $ | 231 | $ | (122 | ) | $ | 109 | $ | 230 | $ | (112 | ) | $ | 118 | Re-acquired licensed trademarks | $ | 226.3 | $ | (174.7) | $ | 51.6 | $ | 228.6 | $ | (168.8) | $ | 59.8 | |||||||||||||||||||||||||||||||||||
| Customer relationships | 252 | (138 | ) | 114 | 247 | (120 | ) | 127 | Customer relationships | 239.8 | (211.9) | 27.9 | 245.8 | (212.3) | 33.5 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other | 28 | (14 | ) | 14 | 28 | (13 | ) | 15 | Other | 10.1 | (8.0) | 2.1 | 10.1 | (7.8) | 2.3 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total intangible assets subject to amortization | 511 | (274 | ) | 237 | 505 | (245 | ) | 260 | Total intangible assets subject to amortization | 476.2 | (394.6) | 81.6 | 484.5 | (388.9) | 95.6 | |||||||||||||||||||||||||||||||||||||||||||||||
| Intangible assets not subject to amortization: | Intangible assets not subject to amortization: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trademarks and brands | 7 | N/A | 7 | 7 | N/A | 7 | Trademarks and brands | 7.3 | N/A | 7.3 | 7.3 | N/A | 7.3 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | 518 | $ | (274 | ) | $ | 244 | $ | 512 | $ | (245 | ) | $ | 267 | Total intangible assets | $ | 483.5 | $ | (394.6) | $ | 88.9 | $ | 491.8 | $ | (388.9) | $ | 102.9 | |||||||||||||||||||||||||||||||||||
Amortization Expense
Amortization expense was $14.0 million, $17.9 million, and $20.2 million during Fiscal 2023, Fiscal 2022, and Fiscal 2021, respectively, and is recorded within SG&A expenses in the consolidated statements of operations.
Based on the balance of the Company's finite-lived intangible assets subject to amortization as of April 2, 2016,1, 2023, the expected amortization expense for each of the next five fiscal years and thereafter is as follows:
| Amortization Expense | ||||
| (millions) | ||||
| Fiscal 2017 | $ | 24 | ||
| Fiscal 2018 | 24 | |||
| Fiscal 2019 | 24 | |||
| Fiscal 2020 | 23 | |||
| Fiscal 2021 | 21 | |||
| Fiscal 2022 and thereafter | 121 | |||
| Total | $ | 237 | ||
| Amortization Expense | ||||||||
| (millions) | ||||||||
| Fiscal 2024 | $ | 13.2 | ||||||
| Fiscal 2025 | 12.9 | |||||||
| Fiscal 2026 | 10.7 | |||||||
| Fiscal 2027 | 10.0 | |||||||
| Fiscal 2028 | 10.0 | |||||||
| Fiscal 2029 and thereafter | 24.8 | |||||||
| Total | $ | 81.6 | ||||||
The expected future amortization expense above reflects weighted-average estimated remaining useful lives of 13.57.1 years for re-acquired licensed trademarks, 9.46.9 years for customer relationships, and 11.57.1 years for the Company's finite-lived intangible assets in total.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Other Assets and Liabilities
Prepaid expenses and other current assets consist of the following:
| April 2, 2016 | March 28, 2015 | April 1, 2023 | April 2, 2022 | |||||||||||||||||||
| (millions) | (millions) | |||||||||||||||||||||
| Other taxes receivable | $ | 112 | $ | 93 | Other taxes receivable | $ | 46.7 | $ | 26.2 | |||||||||||||
| Prepaid rent expense | 37 | 31 | ||||||||||||||||||||
| Restricted cash | 17 | 2 | ||||||||||||||||||||
| Non-trade receivables | Non-trade receivables | 30.7 | 41.4 | |||||||||||||||||||
| Prepaid software maintenance | Prepaid software maintenance | 18.5 | 16.4 | |||||||||||||||||||
| Inventory return asset | Inventory return asset | 10.5 | 8.3 | |||||||||||||||||||
| Prepaid advertising and marketing | Prepaid advertising and marketing | 10.4 | 7.9 | |||||||||||||||||||
| Prepaid logistic services | Prepaid logistic services | 6.5 | 6.6 | |||||||||||||||||||
| Cloud computing arrangement implementation costs | Cloud computing arrangement implementation costs | 6.2 | 4.0 | |||||||||||||||||||
| Prepaid occupancy expense | Prepaid occupancy expense | 5.8 | 6.0 | |||||||||||||||||||
| Prepaid insurance | Prepaid insurance | 4.1 | 3.0 | |||||||||||||||||||
| Tenant allowances receivable | Tenant allowances receivable | 3.9 | 6.1 | |||||||||||||||||||
| Derivative financial instruments | 16 | 65 | Derivative financial instruments | 1.7 | 8.7 | |||||||||||||||||
| Tenant allowances receivable | 13 | 14 | ||||||||||||||||||||
| Prepaid samples | 9 | 12 | ||||||||||||||||||||
| Prepaid advertising and marketing | 7 | 7 | ||||||||||||||||||||
| Other prepaid expenses and current assets | 57 | 57 | Other prepaid expenses and current assets | 43.7 | 37.9 | |||||||||||||||||
| Total prepaid expenses and other current assets | $ | 268 | $ | 281 | Total prepaid expenses and other current assets | $ | 188.7 | $ | 172.5 | |||||||||||||
Other non-current assets consist of the following:
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
| Non-current investments | $ | 187 | $ | 8 | ||||
| Security deposits | 32 | 28 | ||||||
| Restricted cash | 29 | 36 | ||||||
| Derivative financial instruments | 6 | 22 | ||||||
| Other non-current assets | 42 | 37 | ||||||
| Total other non-current assets | $ | 296 | $ | 131 | ||||
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
| Accrued operating expenses | $ | 186 | $ | 183 | ||||
| Accrued inventory | 176 | 75 | ||||||
| Accrued payroll and benefits | 149 | 162 | ||||||
| Other taxes payable | 139 | 108 | ||||||
| Accrued capital expenditures | 65 | 62 | ||||||
| Deferred income | 50 | 38 | ||||||
| Dividends payable | 41 | 43 | ||||||
| Restructuring reserve | 40 | 5 | ||||||
| Derivative financial instruments | 26 | 18 | ||||||
| Capital lease obligations | 21 | 19 | ||||||
| Other accrued expenses and current liabilities | 5 | 2 | ||||||
| Total accrued expenses and other current liabilities | $ | 898 | $ | 715 | ||||
| April 1, 2023 | April 2, 2022 | |||||||||||||
| (millions) | ||||||||||||||
| Derivative financial instruments | $ | 42.8 | $ | 23.7 | ||||||||||
| Security deposits | 33.0 | 30.6 | ||||||||||||
| Equity method and other investments | 10.6 | 12.0 | ||||||||||||
| Cloud computing arrangement implementation costs | 10.1 | 9.7 | ||||||||||||
| Deferred rent assets | 6.8 | 5.2 | ||||||||||||
| Restricted cash | 6.1 | 6.6 | ||||||||||||
| Other non-current assets | 23.6 | 23.4 | ||||||||||||
| Total other non-current assets | $ | 133.0 | $ | 111.2 | ||||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accrued expenses and other current liabilities consist of the following:
| April 1, 2023 | April 2, 2022 | |||||||||||||
| (millions) | ||||||||||||||
| Accrued inventory | $ | 212.3 | $ | 250.2 | ||||||||||
| Accrued payroll and benefits | 198.1 | 278.0 | ||||||||||||
| Accrued operating expenses | 194.4 | 223.4 | ||||||||||||
| Dividends payable | 49.2 | 48.1 | ||||||||||||
| Accrued capital expenditures | 37.2 | 49.6 | ||||||||||||
| Other taxes payable | 32.8 | 60.9 | ||||||||||||
| Restructuring reserve | 20.8 | 30.8 | ||||||||||||
| Finance lease obligations | 20.3 | 19.8 | ||||||||||||
| Deferred income | 14.0 | 16.5 | ||||||||||||
| Other accrued expenses and current liabilities | 16.4 | 14.1 | ||||||||||||
| Total accrued expenses and other current liabilities | $ | 795.5 | $ | 991.4 | ||||||||||
Other non-current liabilities consist of the following:
| April 1, 2023 | April 2, 2022 | |||||||||||||
| (millions) | ||||||||||||||
| Deferred lease incentives and obligations | $ | 43.2 | $ | 52.7 | ||||||||||
| Accrued benefits and deferred compensation | 12.4 | 12.0 | ||||||||||||
| Deferred tax liabilities | 7.2 | 12.5 | ||||||||||||
| Derivative financial instruments | — | 18.1 | ||||||||||||
| Other non-current liabilities | 38.1 | 36.6 | ||||||||||||
| Total other non-current liabilities | $ | 100.9 | $ | 131.9 | ||||||||||
8. Impairment of Assets
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
| Capital lease obligations | $ | 266 | $ | 238 | ||||
| Deferred rent obligations | 222 | 219 | ||||||
| Derivative financial instruments | 33 | 1 | ||||||
| Deferred tax liabilities | 17 | 87 | ||||||
| Deferred compensation | 8 | 9 | ||||||
| Deferred income | 1 | 20 | ||||||
| Other non-current liabilities | 46 | 41 | ||||||
| Total other non-current liabilities | $ | 593 | $ | 615 | ||||
During Fiscal 2016,2023, the Company recorded non-cash impairment charges of $49$9.7 million to write offwrite-down certain fixedlong-lived assets, of which $9.5 million related to a certain previously exited real estate location for which the related lease agreement has not yet expired and $0.2 million related to its domestic and international stores and shop-within-shops,restructuring plans (see Note 9).
During Fiscal 2022, the Company recorded impairment charges of which $27$21.3 million was recorded to write-down certain long-lived assets in connection with the Global Reorganization Planits restructuring plans (see Note 11) and $22 million was recorded in connection with underperforming stores subject to potential future closure.9).
During Fiscal 2015,2021, the Company recorded non-cash impairment charges of $7$96.0 million primarily to write offwrite-down certain fixedlong-lived assets, of which $69.4 million related to its domesticrestructuring plans (see Note 9), $17.5 million related to underperforming stores identified through its ongoing store portfolio evaluation and international retail stores.adverse impacts associated with COVID-19 business disruptions, and $9.1 million related to certain previously exited real estate locations for which the related lease agreements had not yet expired.
fiscal years presented.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Restructuring and Other Charges, Net
A description of significant restructuring and other activities and their related costs is provided below.
Fiscal 2021 Strategic Realignment Plan
The Company has undertaken efforts to realign its resources to support future growth and profitability, and to create a sustainable, enhanced cost structure. The key areas of the Company's initiatives underlying these efforts involved evaluation of its: (i) team organizational structures and ways of working; (ii) real estate footprint and related costs across its corporate offices, distribution centers, and direct-to-consumer retail and wholesale doors; and (iii) brand portfolio.
In connection with the first initiative, on September 17, 2020, the Company's Board of Directors approved a restructuring plan (the "Fiscal 2021 Strategic Realignment Plan") to reduce its global workforce. Additionally, during a preliminary review of its store portfolio during the second quarter of Fiscal 2021, the Company decided to close its Polo store on Regent Street in London.
Shortly thereafter, on October 29, 2020, the Company announced the planned transition of its Chaps brand to a fully licensed business model, consistent with its long-term brand elevation strategy and in connection with its third initiative. Specifically, the Company entered into a multi-year licensing partnership, which took effect on August 1, 2021 following a transition period, with an affiliate of 5 Star Apparel LLC, a division of the OVED Group, to manufacture, market, and distribute Chaps menswear and womenswear. This agreement created incremental value for the Company by enabling an even greater focus on elevating its core brands in the marketplace, reducing its direct exposure to the North America department store channel, and setting up Chaps to deliver on its potential with an experienced partner that is focused on nurturing the brand.
Later, on February 3, 2021, the Company's Board of Directors approved additional actions related to its real estate initiative. Specifically, the Company further rightsized and consolidated its global corporate offices to better align with its organizational profile and new ways of working. The Company also closed certain of its stores to improve overall profitability. Additionally, the Company further consolidated its North America distribution centers in order to drive greater efficiencies, improve sustainability, and deliver a better consumer experience.
Finally, on June 26, 2021, in connection with its brand portfolio initiative, the Company sold its former Club Monaco business to Regent, L.P. ("Regent"), a global private equity firm, with no resulting gain or loss on sale realized during the first quarter of Fiscal 2022. Regent acquired Club Monaco's assets and liabilities in exchange for potential future cash consideration payable to the Company, including earn-out payments based on Club Monaco meeting certain defined revenue thresholds over a five-year period. Accordingly, the Company has realized amounts related to the receipt of such contingent consideration (as discussed further below) and additional amounts may be realized in the future. Additionally, in connection with this divestiture, the Company provided Regent with certain operational support for a transitional period of approximately one year, varying by functional area.
Actions associated with the Fiscal 2021 Strategic Realignment Plan are now complete and no additional charges are expected to be incurred in connection with this plan.
| F-24 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the charges recorded in connection with the Global ReorganizationFiscal 2021 Strategic Realignment Plan during the fiscal years presented, as well as the cumulative charges recorded since its inception (inclusive of immaterial other restructuring-related charges previously recorded during the first quarter of Fiscal 20162021), is as follows:
| Fiscal Year Ended | Cumulative Charges | |||||||||||||||||||||||||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Cash-related restructuring charges: | ||||||||||||||||||||||||||||||||||||||||||||
| Severance and benefit costs (reversals) | $ | 8.6 | $ | (5.7) | $ | 144.2 | $ | 147.1 | ||||||||||||||||||||||||||||||||||||
| Other cash charges | 3.9 | 7.7 | 14.9 | 26.5 | ||||||||||||||||||||||||||||||||||||||||
| Total cash-related restructuring charges | 12.5 | 2.0 | 159.1 | 173.6 | ||||||||||||||||||||||||||||||||||||||||
| Non-cash charges: | ||||||||||||||||||||||||||||||||||||||||||||
| Impairment of assets (see Note 8) | 0.2 | 21.3 | 69.4 | 90.9 | ||||||||||||||||||||||||||||||||||||||||
Inventory-related charges(a) | 0.3 | — | 8.3 | 8.6 | ||||||||||||||||||||||||||||||||||||||||
Accelerated stock-based compensation expense(b) | — | 2.0 | — | 2.0 | ||||||||||||||||||||||||||||||||||||||||
| Other non-cash charges | 6.7 | — | — | 6.7 | ||||||||||||||||||||||||||||||||||||||||
| Total non-cash charges | 7.2 | 23.3 | 77.7 | 108.2 | ||||||||||||||||||||||||||||||||||||||||
| Total charges | $ | 19.7 | $ | 25.3 | $ | 236.8 | $ | 281.8 | ||||||||||||||||||||||||||||||||||||
| Fiscal Year Ended | ||||
| April 2, 2016 | ||||
| (millions) | ||||
| Cash-related restructuring charges: | ||||
| Severance and benefit costs | $ | 64 | ||
| Lease termination and store closure costs | 8 | |||
Other cash charges(a) | 14 | |||
| Total cash-related restructuring charges | 86 | |||
| Non-cash charges: | ||||
| Impairment of assets (see Note 10) | 27 | |||
Accelerated stock-based compensation expense(b) | 9 | |||
Inventory-related charges(c) | 20 | |||
| Total non-cash charges | 56 | |||
| Total charges | $ | 142 | ||
(a)Inventory-related charges are recorded within cost of goods sold in the consolidated statements of operations.
(b)Accelerated stock-based compensation expense, which was recorded within restructuring and other charges, net in the consolidated statements of operations, related to vesting provisions associated with certain separation agreements.
In addition to the charges summarized in the table above, the Company recognized $4.0 million of income during Fiscal 2022 primarily related to a certain revenue share clause in its agreement with Regent that entitled it to receive a portion of the sales generated by the Club Monaco business during a four-month business transition period. The Company donated this income to The Ralph Lauren Corporate Foundation, a non-profit, charitable foundation, which resulted in a related offsetting $4.0 million donation expense during Fiscal 2022. Subsequently, during Fiscal 2023, the Company recognized an additional $3.5 million of income related to consideration received from Regent as a result of the Club Monaco business exceeding certain previously defined revenue thresholds over a specified time period. The Company also donated this income to The Ralph Lauren Corporate Foundation, which resulted in a related offsetting $3.5 million donation expense during Fiscal 2023. The income and related offsetting donation expense in both Fiscal 2022 and Fiscal 2023 were all recorded within restructuring and other charges, net in the consolidated statements of operations.
| F-25 | |||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the activity in the restructuring reserve related to the Global ReorganizationFiscal 2021 Strategic Realignment Plan during the fiscal years presented is as follows:
| Severance and Benefit Costs | Other Cash Charges | Total | ||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| Balance at March 28, 2020 | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Additions charged to expense | 144.2 | 14.9 | 159.1 | |||||||||||||||||||||||
| Cash payments applied against reserve | (48.0) | (11.7) | (59.7) | |||||||||||||||||||||||
| Balance at March 27, 2021 | 96.2 | 3.2 | 99.4 | |||||||||||||||||||||||
| Additions (reductions) charged to expense | (5.7) | 7.7 | 2.0 | |||||||||||||||||||||||
| Cash payments applied against reserve | (60.5) | (10.8) | (71.3) | |||||||||||||||||||||||
| Non-cash adjustments | 0.6 | — | 0.6 | |||||||||||||||||||||||
| Balance at April 2, 2022 | 30.6 | 0.1 | 30.7 | |||||||||||||||||||||||
| Additions charged to expense | 8.6 | 3.9 | 12.5 | |||||||||||||||||||||||
| Cash payments applied against reserve | (18.2) | (4.0) | (22.2) | |||||||||||||||||||||||
| Non-cash adjustments | (0.3) | — | (0.3) | |||||||||||||||||||||||
| Balance at April 1, 2023 | $ | 20.7 | $ | — | $ | 20.7 | ||||||||||||||||||||
| Severance and Benefit Costs | Lease Termination and Store Closure Costs | Other Cash Charges | Total | |||||||||||||
| (millions) | ||||||||||||||||
| Balance at March 28, 2015 | $ | — | $ | — | $ | — | $ | — | ||||||||
| Additions charged to expense | 64 | 8 | 14 | 86 | ||||||||||||
| Cash payments charged against reserve | (33 | ) | (3 | ) | (11 | ) | (47 | ) | ||||||||
| Non-cash adjustments | — | 1 | — | 1 | ||||||||||||
| Balance at April 2, 2016 | $ | 31 | $ | 6 | $ | 3 | $ | 40 | ||||||||
Actions associated with the Company's restructuring plan initiated during its fiscal year ended March 30, 2019 were previously completed and no related charges were recorded in any of the fiscal years presented. The Company made cash payments of $0.2 million, $2.5 million, and $21.4 million during Fiscal 2023, Fiscal 2022, and Fiscal 2021, respectively, which were applied against the restructuring reserve associated with this restructuring plan. As of April 1, 2023, there was no remaining restructuring reserve associated with this plan.
Other Charges
Additionally, during Fiscal 2022, the Company also recorded other charges of April 2, 2016, the related aggregate remaining restructuring liability was not material.
$6.4 million in connection with non-income-related capital taxes resulting from Swiss tax reform (see Note 10).
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Income Taxes
Inflation Reduction Act of 2022
On August 16, 2022, President Biden signed the Inflation Reduction Act ("IRA") into law. The IRA enacted a 15% corporate minimum tax rate (subject to certain thresholds being met) that will be applicable to the Company beginning in its Fiscal 20142024, a 1% excise tax on share repurchases made after December 31, 2022, and created and extended certain tax-related energy incentives. The Company does not currently expect that the tax-related provisions of the IRA will have a material impact on its consolidated financial statements. See Note 16 for additional information relating to the Company's stock repurchase program.
Swiss Tax Reform
In May 2019, a public referendum was held in Switzerland that approved the Federal Act on Tax Reform and AHV Financing (the "Swiss Tax Act"), which became effective January 1, 2020. The Swiss Tax Act eliminated certain preferential tax items at both the federal and cantonal levels for multinational companies, and provided the cantons with parameters for establishing local tax rates and regulations. The Swiss Tax Act also provided transitional provisions, one of which allowed eligible companies to increase the tax basis of certain assets based on the value generated by their business in previous years, and to amortize such adjustment as a tax deduction over a transitional period.
The Swiss Tax Act was enacted into law during Fiscal 2020, resulting in a one-time income tax benefit and corresponding deferred tax asset of $122.9 million.
During Fiscal 2014,2021, the Company recorded restructuring charges of $8reduced its one-time tax benefit by $13.8 million primarily relateddue to severance and benefit costs associated with its corporate operations. As of both April 2, 2016 and March 28, 2015, the related aggregate remaining restructuring liability was not material.
Additionally, during Fiscal 2022, the Company recorded $10a charge of $6.4 million within restructuring and other charges, net in the consolidated statements of accelerated stock-based compensation expense during Fiscal 2014.operations in connection with non-income-related capital taxes resulting from Swiss tax reform.
Taxes on Income
Domestic and foreign pretax income (loss) are as follows:
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Domestic | $ | 275 | $ | 620 | $ | 710 | ||||||
| Foreign | 277 | 367 | 386 | |||||||||
| Total income before provision for income taxes | $ | 552 | $ | 987 | $ | 1,096 | ||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Current: | ||||||||||||
Federal(a) | $ | 88 | $ | 161 | $ | 211 | ||||||
State and local(a) | (3 | ) | 35 | 51 | ||||||||
| Foreign | 79 | 78 | 57 | |||||||||
| 164 | 274 | 319 | ||||||||||
| Deferred: | ||||||||||||
| Federal | (5 | ) | 22 | (4 | ) | |||||||
| State and local | (1 | ) | 3 | 1 | ||||||||
| Foreign | (2 | ) | (14 | ) | 4 | |||||||
| (8 | ) | 11 | 1 | |||||||||
| Total provision for income taxes | $ | 156 | $ | 285 | $ | 320 | ||||||
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Domestic | $ | 74.3 | $ | 180.7 | $ | (285.0) | ||||||||||||||
| Foreign | 617.6 | 573.9 | 210.2 | |||||||||||||||||
| Total income (loss) before income taxes | $ | 691.9 | $ | 754.6 | $ | (74.8) | ||||||||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Provisions for current and deferred income taxes are as follows:
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Current: | ||||||||||||||||||||
| Federal | $ | (35.7) | $ | (24.2) | $ | 38.5 | ||||||||||||||
| State and local | 1.4 | (21.6) | 1.5 | |||||||||||||||||
| Foreign | (131.0) | (154.8) | (50.7) | |||||||||||||||||
| (165.3) | (200.6) | (10.7) | ||||||||||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | 14.3 | 53.8 | (19.2) | |||||||||||||||||
| State and local | (8.0) | 8.2 | 3.5 | |||||||||||||||||
| Foreign | (10.2) | (15.9) | (19.9) | |||||||||||||||||
| (3.9) | 46.1 | (35.6) | ||||||||||||||||||
| Total income tax provision | $ | (169.2) | $ | (154.5) | $ | (46.3) | ||||||||||||||
Tax Rate Reconciliation
The differences between income taxes expected at the U.S. federal statutory income tax rate of 35%and income taxes provided are as set forth below:follows:
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Provision for income taxes at the U.S. federal statutory rate | $ | 193 | $ | 346 | $ | 384 | ||||||
| Increase (decrease) due to: | ||||||||||||
| State and local income taxes, net of federal benefit | 11 | 21 | 29 | |||||||||
| Foreign income taxed at different rates, net of U.S. foreign tax credits | (33 | ) | (96 | ) | (89 | ) | ||||||
| Unrecognized tax benefits and settlements of tax examinations | (13 | ) | 11 | (5 | ) | |||||||
| Other | (2 | ) | 3 | 1 | ||||||||
| Total provision for income taxes | $ | 156 | $ | 285 | $ | 320 | ||||||
Effective tax rate(a) | 28.2 | % | 28.9 | % | 29.2 | % | ||||||
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Benefit (provision) for income taxes at the U.S. federal statutory rate | $ | (145.3) | $ | (158.5) | $ | 15.7 | ||||||||||||||
| Change due to: | ||||||||||||||||||||
| State and local income taxes, net of federal benefit | (6.3) | (14.5) | 6.1 | |||||||||||||||||
| Foreign income taxed at different rates, net of U.S. foreign tax credits | (2.7) | (2.6) | (4.8) | |||||||||||||||||
| Deferred tax adjustments | — | 8.0 | — | |||||||||||||||||
| Non-creditable foreign taxes | (8.8) | — | — | |||||||||||||||||
| Foreign-derived intangible income benefit | — | 20.3 | — | |||||||||||||||||
| Changes in valuation allowance on deferred tax assets | (0.2) | 3.6 | (34.9) | |||||||||||||||||
| Unrecognized tax benefits and settlements of tax examinations | (1.2) | (11.5) | (4.6) | |||||||||||||||||
| Swiss Tax Act expense | — | — | (13.8) | |||||||||||||||||
| Compensation-related adjustments | (7.7) | (9.4) | (12.9) | |||||||||||||||||
| Charitable contributions | 2.8 | 3.7 | 7.4 | |||||||||||||||||
| Transfer pricing adjustments | — | — | (4.1) | |||||||||||||||||
| Other | 0.2 | 6.4 | (0.4) | |||||||||||||||||
| Total income tax provision | $ | (169.2) | $ | (154.5) | $ | (46.3) | ||||||||||||||
Effective tax rate(a) | 24.5 | % | 20.5 | % | (61.9 | %) | ||||||||||||||
(a)Effective |
The Company's Fiscal 2016, the2023 effective tax rate was favorably impacted byhigher than the U.S. federal statutory income tax benefits associated with provision to tax return adjustments, the reversalrate of certain tax liabilities21% primarily due to the expiration of statues of limitations, and a change in estimate related to the assessment periodunfavorable impact of certain tax liabilities, as discussed below, partially offset by the reversal of certainforeign deferred tax assets that were determined to not be realizable.adjustments, compensation-related adjustments, and state taxes. The Company's Fiscal 2022 effective tax rate during both Fiscal 2015 and Fiscal 2014 was favorably impacted by tax reserve reductions associated withslightly lower than the U.S. federal statutory income tax benefits resulting from the legal entity restructuringsrate of certain21% primarily due to favorable tax impacts of the Company's foreign operations. The Company's effective tax rate for Fiscal 2014 also reflected tax reserve reductions associated with the conclusion of a tax examination.
adjustments, partially offset
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
by the unfavorable impacts of additional income tax reserves associated with certain income tax audits and tax impacts of compensation related adjustments. The Company early-adopted ASU 2015-17, "Balance Sheet ClassificationCompany's Fiscal 2021 effective tax rate was unfavorable to the U.S. federal statutory income tax rate of Deferred Taxes"21% primarily due to incremental tax expense resulting from new legislation enacted in connection with the European Union's anti-tax avoidance directive, as of the end of its Fiscal 2016 and applied its provisions prospectively (see Note 4). As a result, the Company has classified all of itspreviously discussed, valuation allowances recorded against certain deferred tax assets as a result of significant business disruptions attributable to COVID-19, and liabilities, together with anytax impacts on stock-based compensation and other permanent adjustments, partially offset by an income tax benefit related valuation allowance, as non-current on the consolidated balance sheet as of April 2, 2016. The prior period was not retrospectively adjusted.to charitable contributions.
Deferred Taxes
Significant components of the Company's net deferred tax assets (liabilities)and liabilities are as follows:
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
| Current deferred tax assets: | ||||||||
| Receivable allowances and reserves | $ | — | $ | 64 | ||||
| Deferred compensation | — | 32 | ||||||
| Inventory basis difference | — | 24 | ||||||
| Other | — | 15 | ||||||
| Valuation allowance | — | — | ||||||
Net current deferred tax assets(a) | — | 135 | ||||||
| Non-current deferred tax assets (liabilities): | ||||||||
| Goodwill and other intangible assets | (217 | ) | (209 | ) | ||||
| Property and equipment | (89 | ) | (86 | ) | ||||
| Deferred compensation | 126 | 76 | ||||||
| Lease obligations | 88 | 86 | ||||||
| Receivable allowances and reserves | 66 | — | ||||||
| Inventory basis difference | 29 | — | ||||||
| Unrecognized tax benefits | 21 | 30 | ||||||
| Net operating loss carryforwards | 21 | 19 | ||||||
| Deferred rent | 17 | 18 | ||||||
| Deferred income | 15 | 12 | ||||||
| Accrued expenses | 9 | — | ||||||
| Cumulative translation adjustment and hedges | 8 | (1 | ) | |||||
| Transfer pricing | 6 | 14 | ||||||
| Other | 12 | 7 | ||||||
| Valuation allowance | (10 | ) | (8 | ) | ||||
Net non-current deferred tax assets (liabilities)(b) | 102 | (42 | ) | |||||
| Net deferred tax assets | $ | 102 | $ | 93 | ||||
| April 1, 2023 | April 2, 2022 | |||||||||||||
| (millions) | ||||||||||||||
| Lease liabilities | $ | 334.9 | $ | 349.5 | ||||||||||
| Deferred income | 69.8 | 96.0 | ||||||||||||
| Deferred compensation | 47.4 | 34.5 | ||||||||||||
| Property and equipment | 39.2 | 15.7 | ||||||||||||
| Unrecognized tax benefits | 34.2 | 31.7 | ||||||||||||
| Receivable allowances and reserves | 31.4 | 31.2 | ||||||||||||
| Inventory basis difference | 30.4 | 27.5 | ||||||||||||
| Capitalized software | 14.5 | — | ||||||||||||
| Net operating loss carryforwards | 11.7 | 58.9 | ||||||||||||
| GILTI-related carryforwards | 5.8 | 10.6 | ||||||||||||
| Accrued expenses | 5.5 | 7.3 | ||||||||||||
| Transfer pricing | — | 4.1 | ||||||||||||
| Lease ROU assets | (259.3) | (273.1) | ||||||||||||
| Goodwill and other intangible assets | (60.2) | (53.9) | ||||||||||||
| Cumulative translation adjustment and hedges | (23.1) | (11.3) | ||||||||||||
| Undistributed foreign income | (19.5) | (4.0) | ||||||||||||
| Other | (3.2) | 11.7 | ||||||||||||
| Valuation allowance | (11.6) | (45.1) | ||||||||||||
Net deferred tax assets(a) | $ | 247.9 | $ | 291.3 | ||||||||||
(a)Net deferred tax balances as of April 1, 2023 and April 2, 2022 were comprised of non-current deferred tax assets of $255.1 million and $303.8 million, respectively, recorded within deferred tax assets, and non-current deferred tax liabilities of $7.2 million and $12.5 million, respectively, recorded within other non-current liabilities in the consolidated balance sheets.
The Company has available state and foreign net operating loss carryforwards of $4$1.4 million and $71$2.5 million (all net of tax), respectively, for tax purposes to offset future taxable income. There are no federal net operating loss carryforwards available to the Company. The net operating loss carryforwards expire beginning in Fiscal 2017.2025.
The Company also has available state and foreign net operating loss carryforwards of $7$5.5 million and $17$2.3 million (both net of tax), respectively, for which no net deferred tax asset has been recognized. A full valuation allowance has been recorded against these carryforwards since managementthe Company does not believe that the Companyit will more likely than not be able to utilize these carryforwards to offset future taxable income. Subsequent recognition of these deferred tax assets would result in an income tax benefit in the year of such recognition. The valuation allowance relating to state net operating loss carryforwards remained consistent with the prior year. The valuation allowance relating to foreign net operating loss carryforwards increased by $6$0.8 million mainly (net of tax) as a result of additional net operating losseschanges in certaintax provision for jurisdictions where managementthe Company does not believe that the Companyit will more likely than not be able to utilize these carryforwards in the future. The valuation allowance relating to foreign net operating loss carryforwards decreased by $25.3 million, mainly due to the write-off of related net operating losses in jurisdictions where the Company will no longer be able to utilize the carryforwards in the future.
| F-29 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In January 2018, new U.S. tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "TCJA") became effective. The TCJA significantly revised U.S. tax law by, among other provisions, creating a territorial tax system that included a one-time mandatory transition tax on previously deferred foreign earnings. As a result of the taxation of undistributed foreign earnings in connection with the TCJA, the Company reevaluated its permanent reinvestment assertion and determined that undistributed foreign earnings that were subject to the TCJA's one-time mandatory transition tax were no longer considered to be permanently reinvested, effective December 31, 2017. The mandatory transition tax does not apply to undistributed foreign earnings generated after December 31, 2017. Accordingly, provision has not been made for U.S. or additional foreign taxes on $2.615approximately $2.178 billion of undistributed earnings of foreign subsidiaries. Those historicalsubsidiaries generated after December 31, 2017, as such earnings have been and are expected to continue to be permanently reinvested. These earnings could become subject to tax if they were remitted as dividends, if foreign earnings were lent to RLC, a subsidiary or a U.S. affiliate of RLC, or if the stock of the subsidiaries were sold. Determination of the amount of unrecognized deferred tax liability with respect to such earnings is not practicable. Management believes that the amount of the additional taxes that might be payable on the earnings of foreign subsidiaries, if remitted, would be partially offset by U.S. foreign tax credits.
Uncertain Income Tax Benefits
Fiscal 2016, 2023, Fiscal 2015,2022, and Fiscal 20142021 Activity
Reconciliations of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties, for Fiscal 2016, 2023, Fiscal 2015,2022, and Fiscal 20142021 are presented below:
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Unrecognized tax benefits beginning balance | $ | 75.4 | $ | 71.4 | $ | 72.7 | ||||||||||||||
| Additions related to current period tax positions | 13.3 | 21.6 | 3.2 | |||||||||||||||||
| Additions related to prior period tax positions | 0.6 | 8.1 | 8.8 | |||||||||||||||||
| Reductions related to prior period tax positions | (4.3) | (7.6) | (4.2) | |||||||||||||||||
| Reductions related to expiration of statutes of limitations | (2.9) | (1.1) | (2.1) | |||||||||||||||||
| Reductions related to settlements with taxing authorities | (4.5) | (14.8) | (9.6) | |||||||||||||||||
| Additions (reductions) related to foreign currency translation | (0.5) | (2.2) | 2.6 | |||||||||||||||||
| Unrecognized tax benefits ending balance | $ | 77.1 | $ | 75.4 | $ | 71.4 | ||||||||||||||
| Fiscal Years Ended | |||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | |||||||||||
| (millions) | |||||||||||||
| Unrecognized tax benefits beginning balance | $ | 69 | $ | 83 | $ | 100 | |||||||
| Additions related to current period tax positions | 5 | 5 | 6 | ||||||||||
| Additions related to prior period tax positions | 7 | 10 | 12 | ||||||||||
| Reductions related to prior period tax positions | (12 | ) | (1 | ) | (13 | ) | (b) | ||||||
| Reductions related to expiration of statutes of limitations | (7 | ) | (1 | ) | (2 | ) | |||||||
| Reductions related to settlements with taxing authorities | (12 | ) | (25 | ) | (a) | (23 | ) | (b) | |||||
| Additions (reductions) related to foreign currency translation | — | (2 | ) | 3 | |||||||||
| Unrecognized tax benefits ending balance | $ | 50 | $ | 69 | $ | 83 | |||||||
The Company classifies interest and penalties related to unrecognized tax benefits as part of its provision for income taxes. Reconciliations of the beginning and ending amounts of accrued interest and penalties related to unrecognized tax benefits for Fiscal 2016, 2023, Fiscal 2015,2022, and Fiscal 20142021 are presented below:
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Accrued interest and penalties beginning balance | $ | 16.5 | $ | 20.0 | $ | 16.2 | ||||||||||||||
| Net additions charged to expense | 2.6 | 2.6 | 5.5 | |||||||||||||||||
| Reductions related to prior period tax positions | (1.9) | (0.9) | (1.7) | |||||||||||||||||
| Reductions related to settlements with taxing authorities | (0.4) | (5.0) | (0.3) | |||||||||||||||||
| Additions (reductions) related to foreign currency translation | (0.1) | (0.2) | 0.3 | |||||||||||||||||
| Accrued interest and penalties ending balance | $ | 16.7 | $ | 16.5 | $ | 20.0 | ||||||||||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Accrued interest and penalties beginning balance | $ | 47 | $ | 49 | $ | 50 | ||||||
| Net additions charged to expense | 4 | 6 | 6 | |||||||||
| Reductions related to prior period tax positions | (15 | ) | (1 | ) | (4 | ) | ||||||
| Reductions related to settlements with taxing authorities | (5 | ) | (5 | ) | (5 | ) | ||||||
| Additions (reductions) related to foreign currency translation | — | (2 | ) | 2 | ||||||||
| Accrued interest and penalties ending balance | $ | 31 | $ | 47 | $ | 49 | ||||||
The total amount of unrecognized tax benefits, including interest and penalties, was $81$93.8 million and $116$91.9 million as of April 1, 2023 and April 2, 2016 and March 28, 2015,2022, respectively, and iswas included within the non-current liability for unrecognized tax benefits in the consolidated balance sheets. The total amount of unrecognized tax benefits that, if recognized, would affect the Company's effective tax rate was $60$59.6 million and $85$60.1 million as of April 1, 2023 and April 2, 2016 and March 28, 2015,2022, respectively.
| F-30 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Future Changes in Unrecognized Tax Benefits
The total amount of unrecognized tax benefits relating to the Company's tax positions is subject to change based on future events including, but not limited to, settlements of ongoing tax audits and assessments and the expiration of applicable statutes of limitations. Although the outcomes and timing of such events are highly uncertain, the Company does not anticipate that the balance of gross unrecognized tax benefits, excluding interest and penalties, will change significantly during the next twelve months. However, changes in the occurrence, expected outcomes, and timing of such events could cause the Company's current estimate to change materially in the future.
The Company files a consolidated U.S. federal income tax return, as well as tax returns in various state, local, and foreign jurisdictions. The Company is generally no longer subject to examinations by the relevant tax authorities for years prior to its fiscal year ended April 1, 2006.March 30, 2013.
11. Debt
Debt consists of the following:
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
$300 million 2.125% Senior Notes(a) | $ | 301 | $ | 298 | ||||
$300 million 2.625% Senior Notes(b) | 296 | — | ||||||
| Commercial paper notes | 90 | 234 | ||||||
| Borrowings outstanding under credit facilities | 26 | — | ||||||
| Total debt | 713 | 532 | ||||||
| Less: short-term debt | 116 | 234 | ||||||
| Total long-term debt | $ | 597 | $ | 298 | ||||
| April 1, 2023 | April 2, 2022 | |||||||||||||
| (millions) | ||||||||||||||
$400 million 3.750% Senior Notes(a) | $ | 398.4 | $ | 397.7 | ||||||||||
$500 million 1.700% Senior Notes(b) | — | 499.8 | ||||||||||||
$750 million 2.950% Senior Notes(c) | 740.1 | 738.8 | ||||||||||||
| Total debt | 1,138.5 | 1,636.3 | ||||||||||||
| Less: current portion of long-term debt | — | 499.8 | ||||||||||||
| Total long-term debt | $ | 1,138.5 | $ | 1,136.5 | ||||||||||
(c)The carrying value of the 2.950% Senior Notes is presented net of unamortized debt issuance costs and original issue discount of $9.9 million and $11.2 million as of April 1, 2023 and April 2, 2022, respectively.
Senior Notes
In September 2013,August 2018, the Company completed a registered public debt offering and issued $300$400 million aggregate principal amount of unsecured senior notes due September 26, 2018,15, 2025, which bear interest at a fixed rate of 2.125%3.750%, payable semi-annually (the "2.125%"3.750% Senior Notes"). The 2.125%3.750% Senior Notes were issued at a price equal to 99.896%99.521% of their principal amount. The proceeds from this offering were used for general corporate purposes, including repayment of the Company's previously outstanding €209$300 million principal amount of 4.5% Euro-denominated2.125% unsecured senior notes whichthat matured on October 4, 2013.September 26, 2018.
In August 2015,June 2020, the Company completed a secondanother registered public debt offering and issued an additional $300$500 million aggregate principal amount of unsecured senior notes that were due and repaid on June 15, 2022 with cash on hand, which bore interest at a fixed rate of 1.700%, payable semi-annually (the "1.700% Senior Notes"), and $750 million aggregate principal amount of unsecured senior notes due August 18, 2020,June 15, 2030, which bear interest at a fixed rate of 2.625%2.950%, payable semi-annually (the "2.625%"2.950% Senior Notes"). The 2.625%1.700% Senior Notes and 2.950% Senior Notes were issued at a priceprices equal to 99.795%99.880% and 98.995% of their principal amount.amounts, respectively. The proceeds from this offeringthese offerings were used for general corporate purposes.purposes, which included the repayment of $475 million previously outstanding under the Company's Global Credit Facility (as defined below) on June 3, 2020 and repayment of its previously outstanding $300 million principal amount of 2.625% unsecured senior notes that matured August 18, 2020.
| F-31 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company has the option to redeem the 2.125%3.750% Senior Notes and 2.625%2.950% Senior Notes (collectively, the "Senior Notes"), in whole or in part, at any time at a price equal to accrued and unpaid interest on the redemption date plus the greater of (i) 100% of the principal amount of the series of Senior Notes to be redeemed or (ii) the sum of the present value of Remaining Scheduled Payments, as defined in the supplemental indentures governing such Senior Notes (together with the indenture governing the Senior Notes, the "Indenture"). The Indenture contains certain covenants that restrict the Company's ability, subject to specified exceptions, to incur certain liens; enter into sale and leaseback transactions; consolidate or merge with another party; or sell, lease, or convey all or substantially all of the Company's property or assets to another party. However, the Indenture does not contain any financial covenants.
Commercial Paper
Borrowings under the Commercial Paper Program are supported by the Global Credit Facility as(as defined below,below). Accordingly, the Company does not expect combined borrowings outstanding under the Commercial Paper Program and Global Credit Facility to exceed $500 million. Commercial Paper Program borrowings may be used to support the Company's general working capital and corporate needs. Maturities of commercial paper notes vary, but cannot exceed 397 days from the date of issuance. Commercial paper notes issued under the Commercial Paper Program rank equally in seniority with the Company's other forms of unsecured indebtedness. As of both April 1, 2023 and April 2, 2016, the Company had $90 million in2022, there were no borrowings outstanding under itsthe Commercial Paper Program, with a weighted-average annual interest rate of 0.41% and a weighted-average remaining term of 3 days.Program.
Revolving Credit Facilities
Global Credit Facility
In February 2015,August 2019, the Company replaced its then existing credit facility and entered into an amended and restateda new credit facility (which was further amended in March 2016) that provides for a $500$500 million senior unsecured revolving line of credit through February 11, 2020August 12, 2024 (the "Global Credit Facility") under terms and conditions substantially similar to those previously in effect.of the previous facility. The Global Credit Facility is also used to support the issuance of letters of credit and the maintenance of the Commercial Paper Program. Borrowings under the Global Credit Facility may be denominated in U.S. Dollars and certain other currencies, including Euros, Hong Kong Dollars, and Japanese Yen. TheYen, and are guaranteed by all of the Company's domestic significant subsidiaries. In accordance with the terms of the agreement governing the Global Credit Facility, the Company has the ability to expand its borrowing availability under the Global Credit Facility to $750 million,$1 billion, subject to the agreement of one or more new or existing lenders under the facility to increase their commitments. There are no mandatory reductions in borrowing ability throughout the term of the Global Credit Facility. As of April 2, 2016, there were no borrowings outstanding under
Under the Global Credit Facility and the Company was contingently liable for $9 million of outstanding letters of credit.
as originally implemented, U.S. Dollar-denominated borrowings under the Global Credit Facility bearbore interest, at the Company's option, either at (a) a base rate, by reference to the greatest of: (i) the annual prime commercial lending rate of JPMorgan Chase Bank, N.A. in effect from time to time, (ii) the weighted-average overnight Federal funds rate plus 50 basis points,, or (iii) the one-month London Interbank Offered Rate ("LIBOR")LIBOR plus 100 basis points;points; or (b) LIBOR, adjusted for the Federal Reserve Board's Eurocurrency liabilities maximum reserve percentage, plus a spread of 87.575 basis points,, subject to adjustment based on the Company's credit ratings ("Adjusted LIBOR"). Foreign currency-denominated borrowings bearbore interest at Adjusted LIBOR.
In addition to paying interest on any outstanding borrowings under the Global Credit Facility, the Company is required to pay a commitment fee to the lenders under the Global Credit Facility with respectrelating to the unutilized commitments. The current commitment fee rate of 79 basis points under the terms of the Global Credit Facility is subject to adjustment based on the Company's credit ratings. Certain of these provisions were amended in January 2022 and March 2022, as discussed further below.
The Global Credit Facility contains a number of covenants that, among other things, restrict the Company's ability, subject to specified exceptions, to incur additional debt; incur liens; sell or dispose of assets; merge with or acquire other companies; liquidate or dissolve itself; engage in businesses that are not in a related line of business; make loans, advances, or guarantees; engage in transactions with affiliates; and make certain investments. The Global Credit Facility also requires the Company to maintain a maximum ratio of Adjusted Debt to Consolidated EBITDAR (the "leverage ratio") of no greater than 3.754.25 as of the date of measurement for the four most recent consecutive fiscal quarters. Adjusted Debt is defined generally as consolidated debt outstanding, including finance lease obligations, plus four times consolidated rent expense for the four most recent consecutive fiscal quarters.all operating lease obligations. Consolidated EBITDAR is defined generally as consolidated net income plus (i) income tax expense, (ii) net interest expense, (iii) depreciation and amortization expense, (iv) consolidated rent expense,operating lease cost, (v) restructuring and other non-recurring expenses, and (vi) acquisition-related costs. Certain of these requirements were temporarily amended in May 2020, as discussed below.
| F-32 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In response to the COVID-19 pandemic, the Company entered into an amendment of its Global Credit Facility in May 2020 (the "Amendment"), which among its various provisions (as described in Note 11 of the Fiscal 2021 10-K), temporarily waived its leverage ratio requirement and imposed certain restrictions, including but not limited to, the amount of dividends and distributions on, or purchases, redemptions, repurchases, retirements or acquisitions of, the Company's stock. Subsequently, in November 2021, all terms and conditions reverted back to the original credit facility agreement upon the Company satisfying certain requirements stipulated in the Amendment.
In 2020 and 2021, it was publicly announced that LIBOR rates would cease to be published for U.S. Dollars on June 30, 2023 and for Euros, Japanese Yen, and certain other currencies on December 31, 2021. The U.S. federal bank regulatory agencies jointly recommended that banks cease entering into new contracts using LIBOR as a reference rate as soon as practicable but by no later than December 31, 2021, and that new contracts entered into prior to December 31, 2021 should either use a reference rate other than LIBOR or include effective fallback language with a clearly-defined alternative reference rate effective upon the discontinuation of LIBOR. The Alternative Reference Rates Committee, which is a group of private-market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York to help ensure a successful transition from LIBOR, recommended the Secured Overnight Financing Rate published by the Federal Reserve Bank of New York ("SOFR") as the alternative to LIBOR.
As a result of April 2, 2016, no Eventthe cessation of Default (asLIBOR, in January 2022 the Company entered into a second amendment of its Global Credit Facility (the "Second Amendment"). Under the Second Amendment, alternate rates of interest were provided for specific Eurocurrency borrowings. Eurocurrency borrowings denominated in Euros now bear interest based on the Adjusted Euro Interbank Offered Rate, those denominated in Japanese Yen now bear interest based on the Adjusted Tokyo Interbank Offered Rate and those denominated in Hong Kong Dollars now bear interest based on the Adjusted Hong Kong Dollar Interbank Offered Rate, as each such term is defined pursuantin the Global Credit Facility as amended by the Second Amendment.
In March 2022, the Company entered into a third amendment of its Global Credit Facility (the "Third Amendment"). Under the Third Amendment, an alternative rate of interest to the LIBOR rate was established for U.S. Dollar-denominated borrowings. U.S. Dollar-denominated borrowings now bear interest based on, at the Company's option, either (a) a base rate, determined by reference to the greatest of: (i) the prime commercial lending rate as quoted in the Wall Street Journal in effect from time to time; (ii) the greater of the rate comprised of both overnight federal funds and overnight eurodollar transactions or the rate calculated based on federal funds transactions by depositary institutions, in either case determined by the Federal Reserve Bank of New York, plus 50 basis points; or (iii) the Adjusted Term SOFR Rate, as such term is defined in the Global Credit Facility as amended by the Third Amendment, for one-month plus 100 basis points, (b) the Term SOFR Rate, as such term is defined in the Global Credit Facility as amended by the Third Amendment, plus 10 basis points or (c) a rate equal to the Daily Simple SOFR Rate, as such term is defined in the Global Credit Facility, as amended by the Third Amendment, plus 10 basis points. The Third Amendment also added provisions to the Global Credit Facility) has occurredFacility to address possible future situations in which a reference rate for determining a relevant interest rate under the Company's Global Credit Facility. is no longer available or representative.
Upon the occurrence of an Event of Default under the Global Credit Facility, the lenders may cease making loans, terminate the Global Credit Facility, and declare all amounts outstanding to be immediately due and payable. The Global Credit Facility specifies a number of events of default (many of which are subject to applicable grace periods), including, among others, the failure to make timely principal, interest, and fee payments or to satisfy the covenants, including the financial covenant described above. Additionally, the Global Credit Facility provides that an Event of Default will occur if Mr. Ralph Lauren, the Company's Executive Chairman and Chief Creative Officer, and entities controlled by the Lauren family fail to maintain a specified minimum percentage of the voting power of the Company's common stock. As of April 1, 2023, no Event of Default (as such term is defined pursuant to the Global Credit Facility) has occurred under the Company's Global Credit Facility.
In March 2020, the Company borrowed $475.0 million under the Global Credit Facility as a preemptive action to preserve cash and strengthen its liquidity position in response to the COVID-19 pandemic, which was subsequently repaid in June 2020. As of both April 1, 2023 and April 2, 2022, there were no borrowings outstanding under the Global Credit Facility. However, the Company was contingently liable for $11.9 million and $9.5 million of outstanding letters of credit as of April 1, 2023 and April 2, 2022, respectively.
| F-33 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pan-Asia CreditBorrowing Facilities
Certain of the Company's subsidiaries in Asia have uncommitted credit facilities with regional branches of JPMorgan Chase (the "Banks") in China and South Korea (the "Pan-Asia Credit Facilities"). These creditAdditionally, the Company's Japan and China subsidiaries have uncommitted overdraft facilities with Sumitomo Mitsui Banking Corporation and HSBC Bank Company Limited, respectively, (the "Pan-Asia Overdraft Facilities"). The Pan-Asia Credit Facilities and the Pan-Asia Overdraft Facilities (collectively, the "Pan-Asia Borrowing Facilities") are subject to annual renewal and may be used to fund general working capital and corporate needs of the Company's operations in the respective countries. Borrowings under the Pan-Asia CreditBorrowing Facilities are guaranteed by the parent company and are granted at the sole discretion of the Banks,respective banks, subject to availability of the Banks'banks' funds and satisfaction of certain regulatory requirements. The Pan-Asia CreditBorrowing Facilities do not contain any financial covenants. The
A summary of the Company's Pan-Asia CreditBorrowing Facilities by country areis as follows:
•China Credit Facility — provides Ralph Lauren Trading (Shanghai) Co., Ltd. with a revolving line of credit of up to 100 million Chinese Renminbi (approximately $16 million)$14 million) through April 6, 2017, and may3, 2024, which is also able to be used to support bank guarantees. As of April 2, 2016, bank guarantees supported by this facility were not material.
•South Korea Credit Facility — provides Ralph Lauren (Korea) Ltd. with a revolving line of credit of up to 4730 billion South Korean Won (approximately $41$23 million) through October 27, 2023.
•Japan Overdraft Facility — provides Ralph Lauren Corporation Japan with an overdraft amount of up to 5 billion Japanese Yen (approximately $38 million) through April 30, 2024.
•China Overdraft Facility — provides Ralph Lauren Trading (Shanghai) Co., Ltd. with an overdraft amount of up to 100 million) Chinese Renminbi (approximately $14 million) through October 31, 2016.
June 17, 2023.As of both April 1, 2023 and April 2, 2016,2022, there were no borrowings outstanding under the Pan-Asia Credit Facilities were $26 million, which have been classified as short-term debt in the Company's consolidated balance sheet.Borrowing Facilities.
12. Fair Value Measurements
U.S. GAAP establishesprescribes a three-level valuation hierarchy for disclosure of fair value measurements. The determination of the applicable level within the hierarchy for a particular asset or liability depends on the inputs used in its valuation as of the measurement date, notably the extent to which the inputs are market-based (observable) or internally-derived (unobservable). A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:
•Level 1 — inputs to the valuation methodology based on quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2 — inputs to the valuation methodology based on quoted prices for similar assets or liabilities in active markets for substantially the full term of the financial instrument; quoted prices for identical or similar instruments in markets that are not active for substantially the full term of the financial instrument; and model-derived valuations whose inputs or significant value drivers are observable.
•Level 3 — inputs to the valuation methodology based on unobservable prices or valuation techniques that are significant to the fair value measurement.
The following table summarizes the Company's financial assets and liabilities that are measured and recorded at fair value on a recurring basis, excluding accrued interest components:
| April 1, 2023 | April 2, 2022 | |||||||||||||
| (millions) | ||||||||||||||
Derivative assets(a) | $ | 44.5 | $ | 32.4 | ||||||||||
Derivative liabilities(a) | 5.7 | 18.3 | ||||||||||||
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
| Financial assets recorded at fair value: | ||||||||
Corporate bonds — non-U.S.(a) | $ | 8 | $ | 8 | ||||
Derivative financial instruments(b) | 22 | 87 | ||||||
| Total | $ | 30 | $ | 95 | ||||
| Financial liabilities recorded at fair value: | ||||||||
Derivative financial instruments(b) | $ | 59 | $ | 19 | ||||
| Total | $ | 59 | $ | 19 | ||||
(a)Based on Level 2 measurements.
| F-34 | |||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company's derivative financial instruments are recorded at fair value in its consolidated balance sheets and are valued using pricing models that are primarily based on market observable external inputs, including spot and forward currency exchange rates, benchmark interest rates, and discount rates consistent with the instrument's tenor, and consider the impact of the Company's own credit risk, if any. Changes in counterparty credit risk are also considered in the valuation of derivative financial instruments.
To the extent the Company invests in commercial paper, such investments are classified as available-for-sale and recorded at fair value in its consolidated balance sheets using external pricing data, based on interest rates and credit ratings for similar issuances with the same remaining term as the Company's investments. To the extent the Company invests in bonds, such investments are also classified as available-for-sale and recorded at fair value in its consolidated balance sheets based on quoted prices in active markets.
The Company's cash and cash equivalents, restricted cash, and time deposits are recorded at carrying value, which generally approximates fair value based on Level 1 measurements.
The Company's debt instruments are recorded at their carrying valuesamortized cost in its consolidated balance sheets, which may differ from their respective fair values. The fair values of the Senior NotesCompany's senior notes are estimated based on external pricing data, including available quoted market prices, and with reference to comparable debt instruments with similar interest rates, credit ratings, and trading frequency, among other factors. The fair values of the Company's commercial paper notes and borrowings outstanding under its credit facilities, if any, are estimated using external pricing data, based on interest rates and credit ratings for similar issuances with the same remaining term as the Company's outstanding borrowings. Due to their short-term nature, the fair values of the Company's commercial paper notes and borrowings outstanding under its credit facilities, at April 2, 2016if any, generally approximate their amortized cost carrying values.
The following table summarizes the carrying values and the estimated fair values of the Company's debt instruments:
| April 1, 2023 | April 2, 2022 | |||||||||||||||||||||||||
Carrying Value(a) | Fair Value(b) | Carrying Value(a) | Fair Value(b) | |||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| $400 million 3.750% Senior Notes | $ | 398.4 | $ | 393.6 | $ | 397.7 | $ | 407.9 | ||||||||||||||||||
| $500 million 1.700% Senior Notes | — | N/A | 499.8 | 500.5 | ||||||||||||||||||||||
| $750 million 2.950% Senior Notes | 740.1 | 677.1 | 738.8 | 721.0 | ||||||||||||||||||||||
| April 2, 2016 | March 28, 2015 | |||||||||||||||
| Carrying Value | Fair Value(a) | Carrying Value | Fair Value(a) | |||||||||||||
| (millions) | ||||||||||||||||
| $300 million 2.125% Senior Notes | $ | 301 | (b) | $ | 306 | $ | 298 | (b) | $ | 304 | ||||||
| $300 million 2.625% Senior Notes | 296 | (b) | 308 | — | — | |||||||||||
| Commercial paper notes | 90 | 90 | 234 | 234 | ||||||||||||
| Borrowings outstanding under credit facilities | 26 | 26 | — | — | ||||||||||||
(a)See Note 11 for discussion of the carrying values of the Company's senior notes.
(b)Based on Level 2 measurements. |
Unrealized gains or losses resulting from changes in the fair value of the Company's debt instruments do not result in the realization or expenditure of cash unless the debt is retired prior to its maturity.
Non-financial Assets and Liabilities
The Company's non-financial assets, which primarily consist of goodwill, other intangible assets, and property and equipment, and lease-related ROU assets, are not required to be measured at fair value on a recurring basis, and instead are reported at carrying value.their amortized or depreciated cost in its consolidated balance sheet. However, on a periodic basis or whenever events or changes in circumstances indicate that their carrying valuethey may not be fully recoverable (and at least annually for goodwill and indefinite-lived intangible assets), the respective carrying value of non-financial instrumentsassets are assessed for impairment and, if applicable,ultimately considered impaired, are adjusted and written down to and recorded attheir fair value, consideringas estimated based on consideration of external market participant assumptions.assumptions and discounted cash flows.
During Fiscal 2016, 2023, Fiscal 2015,2022, and Fiscal 2014,2021, the Company recorded non-cash impairment charges to reduce the carrying values of certain long-lived store and shop-within-shop assets to their estimated fair values. The fair values of these assets were determined based on Level 3 measurements. Inputs to these fair value measurements, the related inputs of which included estimates of the amount and timing of the stores' or shop-within-shops'assets' net future discounted cash flows (including any potential sublease income for lease-related ROU assets), based on historical experience and consideration of current trends, market conditions, and market conditions.comparable sales, as applicable.
| F-35 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the impairment charges recorded by the Company during Fiscal 2016, Fiscal 2015, and Fiscal 2014:the fiscal years presented to reduce the carrying values of certain long-lived assets to their estimated fair values as of the assessment date:
| Fiscal Years Ended | ||||||||||||||||||||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||||||||||||||||||||
| Long-Lived Asset Category | Total Impairments | Fair Value as of Impairment Date | Total Impairments | Fair Value as of Impairment Date | Total Impairments | Fair Value as of Impairment Date | ||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||
| Property and equipment, net | $ | 0.2 | $ | — | $ | 1.0 | $ | — | $ | 44.1 | $ | 23.5 | ||||||||||||||||||||||||||
| Operating lease right-of-use assets | 9.5 | 14.8 | 20.3 | 27.8 | 51.9 | 84.3 | ||||||||||||||||||||||||||||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Aggregate carrying value of long-lived assets written down to fair value | $ | 49 | $ | 7 | $ | 1 | ||||||
Impairment charges(a) | (49 | ) | (7 | ) | (1 | ) | ||||||
No impairment charges associated with goodwill or other intangible assets were recorded during any of the three fiscal years presented. In Fiscal 2016,2023, the Company performed its annual goodwill impairment assessment using a qualitative approach as of the beginning of the second quarter of the fiscal year using a qualitative approach.Fiscal 2023. In performing the assessment, the Company identified and considered the significance of relevant key factors, events, and circumstances that affected the fair values and/or carrying amounts of its reporting units.units with allocated goodwill. These factors included external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as the Company's actual and plannedexpected financial performance. Additionally, the Company also considered the results of the Company'sits most recent quantitative goodwill impairment test, which was performed as of the end of Fiscal 2020 and incorporated assumptions related to COVID-19 business disruptions, the results of which indicated that the fair values of itsthese reporting units significantly exceeded their respective carrying values. Based on the results of its qualitative goodwill impairment assessment, the Company concluded that it is not more likely than not that the fair values of its reporting units are less than their respective carrying values and there were no reporting units at risk of impairment.
13. Financial Instruments
Derivative Financial Instruments
The Company is exposed to changes in foreign currency exchange rates, primarily relating to certain anticipated cash flows and the value of the reported net assets of its international operations, as well as changes in the fair value of its fixed-rate debt obligations attributed to changes in the benchmark interest rate. Consequently,rates. Accordingly, based on its assessment thereof, the Company usesmay use derivative financial instruments to manage and mitigate such risks. The Company does not enter into derivative transactionsuse derivatives for speculative or trading purposes.
The following table summarizes the Company's outstanding derivative instruments on a gross basis as recorded inon its consolidated balance sheets as of April 1, 2023 and April 2, 2016 and March 28, 2015:2022:
| Notional Amounts | Derivative Assets | Derivative Liabilities | ||||||||||||||||||||||||||||||
Derivative Instrument(a) | April 2, 2016 | March 28, 2015 | April 2, 2016 | March 28, 2015 | April 2, 2016 | March 28, 2015 | ||||||||||||||||||||||||||
Balance Sheet Line(b) | Fair Value | Balance Sheet Line(b) | Fair Value | Balance Sheet Line(b) | Fair Value | Balance Sheet Line(b) | Fair Value | |||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
| Designated Hedges: | ||||||||||||||||||||||||||||||||
| FC — Inventory purchases | $ | 532 | $ | 587 | PP | $ | 1 | PP | $ | 49 | AE | $ | 14 | AE | $ | 9 | ||||||||||||||||
FC — Other(c) | 210 | 118 | — | — | PP | 5 | AE | 9 | AE | 1 | ||||||||||||||||||||||
| IRS — Fixed-rate debt | 600 | — | ONCA | 2 | — | — | ONCL | 2 | — | — | ||||||||||||||||||||||
| CCS — NI | 630 | — | — | — | — | — | ONCL | 31 | — | — | ||||||||||||||||||||||
| Total Designated Hedges | $ | 1,972 | $ | 705 | $ | 3 | $ | 54 | $ | 56 | $ | 10 | ||||||||||||||||||||
| Undesignated Hedges: | ||||||||||||||||||||||||||||||||
FC — Other(d) | $ | 541 | $ | 464 | (e) | $ | 19 | (f) | $ | 33 | AE | $ | 3 | (g) | $ | 9 | ||||||||||||||||
| Total Hedges | $ | 2,513 | $ | 1,169 | $ | 22 | $ | 87 | $ | 59 | $ | 19 | ||||||||||||||||||||
| Notional Amounts | Derivative Assets | Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instrument(a) | April 1, 2023 | April 2, 2022 | April 1, 2023 | April 2, 2022 | April 1, 2023 | April 2, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance Sheet Line(b) | Fair Value | Balance Sheet Line(b) | Fair Value | Balance Sheet Line(b) | Fair Value | Balance Sheet Line(b) | Fair Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Designated Hedges: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FC — Cash flow hedges | $ | 345.1 | $ | 236.5 | PP | $ | 1.4 | PP | $ | 6.6 | AE | $ | 5.0 | $ | — | |||||||||||||||||||||||||||||||||||||||||||||||
Net investment hedges(c) | 700.0 | 700.0 | ONCA | 42.8 | ONCA | 23.7 | — | ONCL | 18.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Designated Hedges | 1,045.1 | 936.5 | 44.2 | 30.3 | 5.0 | 18.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Undesignated Hedges: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FC — Undesignated hedges(d) | 164.8 | 225.0 | PP | 0.3 | PP | 2.1 | AE | 0.7 | AE | 0.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Hedges | $ | 1,209.9 | $ | 1,161.5 | $ | 44.5 | $ | 32.4 | $ | 5.7 | $ | 18.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(a)FC = Forward foreign currency exchange contracts.
(b)PP = Prepaid expenses and other current assets; AE = Accrued expenses and other current liabilities; ONCA = Other non-current assets; ONCL = Other non-current liabilities.
(c)Includes cross-currency swaps designated as hedges of the Company's net investment in certain foreign operations.
(d)Relates to third-party and intercompany foreign currency-denominated exposures and balances.
The Company records and presents the fair values of all of its derivative assets and liabilities inrecorded on its consolidated balance sheets on a gross basis, even thoughwhen they are subject to master netting arrangements. However, if the Company were to offset and record the asset and liability balances of all of its derivative instruments on a net basis in accordance with the terms of each of its master netting arrangements, spread across eightnine separate counterparties, the amounts presented in the consolidated balance sheets as of April 1, 2023 and April 2, 2016 and March 28, 20152022 would be adjusted from the current gross presentation as detailed in the following table:
| April 1, 2023 | April 2, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| April 2, 2016 | March 28, 2015 | Gross Amounts Presented in the Balance Sheet | Gross Amounts Not Offset in the Balance Sheet that are Subject to Master Netting Agreements | Net Amount | Gross Amounts Presented in the Balance Sheet | Gross Amounts Not Offset in the Balance Sheet that are Subject to Master Netting Agreements | Net Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instrument | Gross Amounts Presented in the Balance Sheet | Gross Amounts Not Offset in the Balance Sheet that are Subject to Master Netting Arrangements | Net Amount | Gross Amounts Presented in the Balance Sheet | Gross Amounts Not Offset in the Balance Sheet that are Subject to Master Netting Arrangements | Net Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (millions) | (millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative assets | $ | 22 | $ | (11 | ) | $ | 11 | $ | 87 | $ | (14 | ) | $ | 73 | Derivative assets | $ | 44.5 | $ | (4.5) | $ | 40.0 | $ | 32.4 | $ | (0.2) | $ | 32.2 | |||||||||||||||||||||||||||||||||||
| Derivative liabilities | $ | 59 | $ | (11 | ) | $ | 48 | $ | 19 | $ | (14 | ) | $ | 5 | Derivative liabilities | 5.7 | (4.5) | 1.2 | 18.3 | (0.2) | 18.1 | |||||||||||||||||||||||||||||||||||||||||
The Company's master netting arrangements do not require cash collateral to be pledged by the Company or its counterparties. Refer toSee Note 3 for further discussion of the Company's master netting arrangements.
The following tables summarize the pretax impact of the effective portion of gains and losses from the Company's designated derivative instruments on its consolidated financial statements for the fiscal years presented:
| Gains (Losses) Recognized in OCI | ||||||||||||||||||||
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Designated Hedges: | ||||||||||||||||||||
| FC — Cash flow hedges | $ | 18.1 | $ | 9.0 | $ | (3.5) | ||||||||||||||
Net investment hedges — effective portion | 10.6 | 46.8 | (35.5) | |||||||||||||||||
| Net investment hedges — portion excluded from assessment of hedge effectiveness | 26.6 | 3.6 | (50.8) | |||||||||||||||||
| Total Designated Hedges | $ | 55.3 | $ | 59.4 | $ | (89.8) | ||||||||||||||
Gains (Losses) Recognized in OCI | Gains (Losses) Reclassified from AOCI to Earnings | Location of Gains (Losses) Reclassified from AOCI to Earnings | ||||||||||||||||||||||||
| Fiscal Years Ended | Fiscal Years Ended | |||||||||||||||||||||||||
| Derivative Instrument | April 2, 2016 | March 28, 2015 | March 29, 2014 | April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| Designated Cash Flow Hedges: | ||||||||||||||||||||||||||
| FC — Inventory purchases | $ | (7 | ) | $ | 50 | $ | (10 | ) | $ | 44 | $ | 3 | $ | 10 | Cost of goods sold | |||||||||||
| FC — Other | (14 | ) | 19 | — | (5 | ) | 14 | — | Foreign currency gains (losses) | |||||||||||||||||
| $ | (21 | ) | $ | 69 | $ | (10 | ) | $ | 39 | $ | 17 | $ | 10 | |||||||||||||
| Designated Hedges of Net Investments: | ||||||||||||||||||||||||||
CCS(a) | $ | (28 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
| Total Designated Hedges | $ | (49 | ) | $ | 69 | $ | (10 | ) | $ | 39 | $ | 17 | $ | 10 | ||||||||||||
| Location and Amount of Gains (Losses) from Cash Flow Hedges Reclassified from AOCI to Earnings | ||||||||||||||||||||||||||||||||||||||
| Fiscal Years Ended | ||||||||||||||||||||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||||||||||||||||||||
| Cost of goods sold | Other income (expense), net | Cost of goods sold | Other income (expense), net | Cost of goods sold | Other income (expense), net | |||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||
Total amounts presented in the consolidated statements of operations in which the effects of related cash flow hedges are recorded | $ | (2,277.8) | $ | (4.1) | $ | (2,071.0) | $ | 4.7 | $ | (1,539.4) | $ | 7.6 | ||||||||||||||||||||||||||
| Effects of cash flow hedging: | ||||||||||||||||||||||||||||||||||||||
| FC — Cash flow hedges | 23.8 | — | 3.8 | — | 12.6 | (0.3) | ||||||||||||||||||||||||||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| Gains (Losses) from Net Investment Hedges Recognized in Earnings | Location of Gains (Losses) Recognized in Earnings | |||||||||||||||||||||||||
| Fiscal Years Ended | ||||||||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| Net Investment Hedges: | ||||||||||||||||||||||||||
Net investment hedges — portion excluded from assessment of hedge effectiveness(a) | $ | 13.0 | $ | 11.9 | $ | 11.3 | Interest expense | |||||||||||||||||||
| Total Net Investment Hedges | $ | 13.0 | $ | 11.9 | $ | 11.3 | ||||||||||||||||||||
(a)Amounts recognized in OCI relating to the effective portion of the Company's net investment hedges would be recognized in earnings only upon the sale or liquidation of the hedged net investment.
As of April 1, 2023, it is estimated that $4.2 million of pretax net gains on both outstanding and matured derivative instruments designated and qualifying as cash flow hedges deferred in AOCI will be recognized in earnings over the next twelve months. Amounts ultimately recognized in earnings will depend on exchange rates in effect when outstanding derivative instruments are settled.
The following table summarizes the pretax impact of gains and losses from the Company's undesignated derivative instruments on its consolidated financial statements for the fiscal years presented:
| Gains (Losses) Recognized in Earnings | Location of Gains (Losses) Recognized in Earnings | |||||||||||||||||||||||||||||||||||||||
Gains (Losses) Recognized in Earnings | Location of Gains (Losses) Recognized in Earnings | Fiscal Years Ended | ||||||||||||||||||||||||||||||||||||||
| Fiscal Years Ended | April 1, 2023 | April 2, 2022 | March 27, 2021 | |||||||||||||||||||||||||||||||||||||
| Derivative Instrument | April 2, 2016 | March 28, 2015 | March 29, 2014 | |||||||||||||||||||||||||||||||||||||
| (millions) | (millions) | |||||||||||||||||||||||||||||||||||||||
| Undesignated Hedges: | Undesignated Hedges: | |||||||||||||||||||||||||||||||||||||||
| FC — Other | $ | (7 | ) | $ | 18 | $ | 20 | Foreign currency gains (losses) | ||||||||||||||||||||||||||||||||
| FC — Undesignated hedges | FC — Undesignated hedges | $ | 13.0 | $ | 6.9 | $ | (0.8) | Other income (expense), net | ||||||||||||||||||||||||||||||||
| Total Undesignated Hedges | $ | (7 | ) | $ | 18 | $ | 20 | Total Undesignated Hedges | $ | 13.0 | $ | 6.9 | $ | (0.8) | ||||||||||||||||||||||||||
Risk Management Strategies
Forward Foreign Currency Exchange Contracts
The Company enters intouses forward foreign currency exchange contracts to reducemitigate its risk related to exchange rate fluctuations on inventory transactions made in an entity's non-functional currency, intercompany royalty payments made by certainthe settlement of its international operations, and other foreign currency-denominated operational and intercompany balances, and cash flows.the translation of certain foreign operations' net assets into U.S. Dollars. As part of its overall strategy to managefor managing the level of exposure to the risk of foreign currencysuch exchange rate fluctuations,risk, relating primarily to changes in the value of the Euro, the Japanese Yen, the South Korean Won, the Australian Dollar, the Canadian Dollar, the British Pound Sterling, the Swiss Franc, and the Hong Kong Dollar,Chinese Renminbi, the Company generally hedges a portion of its foreign currencyrelated exposures anticipated over a two-year period. In doing so, the Company usesnext twelve months using forward foreign currency exchange contracts that generally havewith maturities of two months to two yearsone year to provide continuing coverage throughoutover the hedging period.
Cross-Currency Swap Contracts
See Note 3 for further discussion of the Company's accounting policies relating to its derivative financial instruments.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Investments
No significant realized or unrealized gains or losses on available-for-sale investments or other-than-temporary impairment charges were recorded induring any of the fiscal years presented.
Refer to Note 18 for further detail.
14. Leases
The following table summarizes ROU assets and lease liabilities recorded on the consolidated balance sheet:
| April 1, 2023 | April 2, 2022 | Location Recorded on Balance Sheet | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Operating leases | $ | 1,134.0 | $ | 1,111.3 | Operating lease right-of-use assets | |||||||||||||||
| Finance leases | 271.7 | 299.4 | Property and equipment, net | |||||||||||||||||
| Total lease assets | $ | 1,405.7 | $ | 1,410.7 | ||||||||||||||||
| Liabilities: | ||||||||||||||||||||
Operating leases: | ||||||||||||||||||||
| Current portion | $ | 266.7 | $ | 262.0 | Current operating lease liabilities | |||||||||||||||
| Non-current portion | 1,141.1 | 1,132.2 | Long-term operating lease liabilities | |||||||||||||||||
| Total operating lease liabilities | 1,407.8 | 1,394.2 | ||||||||||||||||||
Finance leases: | ||||||||||||||||||||
| Current portion | 20.3 | 19.8 | Accrued expenses and other current liabilities | |||||||||||||||||
| Non-current portion | 315.3 | 341.6 | Long-term finance lease liabilities | |||||||||||||||||
| Total finance lease liabilities | 335.6 | 361.4 | ||||||||||||||||||
| Total lease liabilities | $ | 1,743.4 | $ | 1,755.6 | ||||||||||||||||
The following table summarizes the composition of total lease cost during the fiscal years presented:
| Fiscal Years Ended | ||||||||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | Location Recorded in Earnings | |||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| Operating lease cost | $ | 294.3 | $ | 300.2 | $ | 323.5 | (a) | |||||||||||||||||||
Finance lease costs: | ||||||||||||||||||||||||||
| Depreciation of leased assets | 24.5 | 26.1 | 20.5 | (b) | ||||||||||||||||||||||
| Accretion of lease liabilities | 11.2 | 12.2 | 9.7 | Interest expense | ||||||||||||||||||||||
| Variable lease cost | 318.3 | 291.2 | 224.7 | (c) | ||||||||||||||||||||||
| Short-term lease cost | 2.8 | 3.6 | 4.9 | SG&A expenses | ||||||||||||||||||||||
| Sublease income | (8.2) | (6.7) | (1.8) | Restructuring and other charges, net | ||||||||||||||||||||||
| Total lease cost | $ | 642.9 | $ | 626.6 | $ | 581.5 | ||||||||||||||||||||
Minimum Operating Lease Payments(a)(b) | ||||
| (millions) | ||||
| Fiscal 2017 | $ | 346 | ||
| Fiscal 2018 | 329 | |||
| Fiscal 2019 | 305 | |||
| Fiscal 2020 | 279 | |||
| Fiscal 2021 | 215 | |||
| Fiscal 2022 and thereafter | 733 | |||
| Total net minimum rental payments | $ | 2,207 | ||
included
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
within cost of goods sold, $307.0 million was included within SG&A expenses, and $13.1 million was included within restructuring and other charges, net.
The following table summarizes certain cash flow information related to approximately $278the Company's leases:
| Fiscal Year Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||||||
| Operating cash flows from operating leases | $ | 342.7 | $ | 384.6 | $ | 360.6 | ||||||||||||||
| Operating cash flows from finance leases | 11.2 | 12.3 | 6.7 | |||||||||||||||||
| Financing cash flows from finance leases | 21.9 | 23.1 | 13.9 | |||||||||||||||||
See Note 21 for supplemental non-cash information related to ROU assets recorded in connection with the recognition of new lease liabilities.
The following table presents a maturity analysis summary of contractual cash payments for the Company's lease liabilities recorded on the consolidated balance sheet as of April 1, 2023:
| April 1, 2023 | ||||||||||||||
| Operating Leases | Finance Leases | |||||||||||||
| (millions) | ||||||||||||||
| Fiscal 2024 | $ | 299.1 | $ | 33.0 | ||||||||||
| Fiscal 2025 | 296.5 | 34.1 | ||||||||||||
| Fiscal 2026 | 219.4 | 34.4 | ||||||||||||
| Fiscal 2027 | 186.0 | 33.9 | ||||||||||||
| Fiscal 2028 | 150.2 | 31.7 | ||||||||||||
| Fiscal 2029 and thereafter | 386.9 | 242.6 | ||||||||||||
| Total lease payments | 1,538.1 | 409.7 | ||||||||||||
| Less: interest | (130.3) | (74.1) | ||||||||||||
| Total lease liabilities | $ | 1,407.8 | $ | 335.6 | ||||||||||
Additionally, the Company has $20.8 million and $251 million at of future payment obligations relating to executed lease agreements for which the related lease terms had not yet commenced as of the end of Fiscal 20162023, and, Fiscal 2015, respectively, nettherefore, are not recorded on the consolidated balance sheet as of accumulated depreciationApril 1, 2023.
| F-40 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the weighted-average remaining lease terms and weighted-average discount rates related to the Company's operating and finance leases recorded on the consolidated balance sheet:
| April 1, 2023 | April 2, 2022 | |||||||||||||||||||||||||
| Operating Leases | Finance Leases | Operating Leases | Finance Leases | |||||||||||||||||||||||
| Weighted-average remaining lease term (years) | 6.5 | 12.7 | 6.8 | 13.5 | ||||||||||||||||||||||
| Weighted-average discount rate | 2.5 | % | 3.1 | % | 1.9 | % | 3.2 | % | ||||||||||||||||||
See Note 3 for discussion of approximately $53the Company's accounting policies related to leases.
15. Commitments and Contingencies
TCJA Mandatory Transition Tax
In connection with the TCJA's provision that subjects previously deferred foreign earnings to a one-time mandatory transition tax, the Company had a remaining related income tax payable obligation of $99.3 million as of April 1, 2023, which is expected to be paid as follows:
Mandatory Transition Tax Payments(a) | ||||||||
| (millions) | ||||||||
| Fiscal 2024 | $ | 23.4 | ||||||
| Fiscal 2025 | 33.7 | |||||||
| Fiscal 2026 | 42.2 | |||||||
| Total mandatory transition tax payments | $ | 99.3 | ||||||
(a)Included within current and $30 million, respectively. Such assets are classified within property and equipment, netnon-current income tax payable in the consolidated balance sheets based on their nature.
Minimum Capital Lease Payments(a)(b) | ||||
| (millions) | ||||
| Fiscal 2017 | $ | 30 | ||
| Fiscal 2018 | 28 | |||
| Fiscal 2019 | 26 | |||
| Fiscal 2020 | 28 | |||
| Fiscal 2021 | 27 | |||
| Fiscal 2022 and thereafter | 106 | |||
| Total net minimum rental payments | 245 | |||
| Less: amount representing interest | (59 | ) | ||
| Present value of net minimum rental payments | $ | 186 | ||
Employee Agreements
The Company has employment agreements with certain executives in the normal course of business which provide for compensation and certain other benefits. These agreements also provide for severance payments under certain circumstances.
Other Commitments
Other off-balance sheet firm commitments amounted to approximately $1.151$1.257 billion as of April 2, 2016,1, 2023, including inventory purchase commitments of approximately $941$878.6 million, lease commitments related to lease agreements for which the related lease terms have not yet commenced of $20.8 million, outstanding letters of credit of approximately $10$11.9 million, interest payments related to the Company's Senior Notesdebt of approximately $51$203.5 million, and other commitments of approximately $149$142.1 million, comprised of the Company's legally-binding obligations under sponsorship, licensing, and other marketing and advertising agreements, distribution-related agreements, information technology-related service agreements, and pension-related obligations.
Other Matters
The Company is involved, from time to time, in litigation, other legal claims, and proceedings involving matters associated with or incidental to its business, including, among other things, matters involving credit card fraud, trademark and other intellectual property, licensing, importation and exportation of its products, taxation, unclaimed property, leases, and employee relations. The Company believes at present that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on its consolidated financial statements. However, the Company's assessment of theany current litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact which are not in accord with management's evaluation of the possible liability or outcome of such litigation or claims.
| F-41 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In the normal course of business, the Company entersmay enter into certain guarantees or other agreements that provide general indemnifications. The Company has not made any significant indemnification payments under such agreements in the past and does not currently anticipate incurring any material indemnification payments.
16. Equity
Capital Stock
The Company's capital stock consists of two classes of common stock. There are 500 million shares of Class A common stock and 100 million shares of Class B common stock authorized to be issued. Shares of Class A and Class B common stock have substantially identical rights, except with respect to voting rights. Holders of Class A common stock are entitled to one vote per share and holders of Class B common stock are entitled to ten votes per share. Holders of both classes of stock vote together as a single class on all matters presented to the stockholders for their approval, except with respect to the election and removal of directors or as otherwise required by applicable law. All outstanding shares of Class B common stock are owned by Mr. Ralph Lauren, the Company's Executive Chairman and Chief Creative Officer, and entities controlled by the Lauren family, and are convertible at any time into shares of Class A common stock on a one-for-one basis.
A summary of the Company's repurchases of Class A common stock under its common stock repurchase program is as follows:
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Cost of shares repurchased | $ | 454.3 | $ | 450.5 | $ | — | ||||||||||||||
| Number of shares repurchased | 4.8 | 3.7 | — | |||||||||||||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (in millions) | ||||||||||||
| Cost of shares repurchased | $ | 480 | $ | 500 | $ | 548 | (a) | |||||
| Number of shares repurchased | 4.2 | 3.2 | 3.2 | (a) | ||||||||
On February 2, 2022, the Company's Board of Directors approved an expansion of the Company's existing common stock repurchase program that allows it to repurchase up to an additional $1.500 billion of its Class A common stock. As of April 2, 2016,1, 2023, the remaining availability under the Company's Class A common stock repurchase program was approximately $100 million. On May 11, 2016,$1.175 billion.
As discussed in Note 10, as a result of the IRA's enactment into law, the Company is now subject to a 1% excise tax on share repurchases, effective for share repurchases made after December 31, 2022. This excise tax may be reduced for the value of certain share issuances. The excise tax incurred in connection with the Company's Boardstock repurchases during the fourth quarter of Directors approved an expansionFiscal 2023 was not material.
In addition, during Fiscal 2023, Fiscal 2022, and Fiscal 2021, 0.3 million, 0.4 million, and 0.5 million shares of the program that allows it to repurchase up to an additional $200 million of Class A common stock. Repurchases of shares ofCompany's Class A common stock, are subject to overall business and market conditions.
Repurchased and surrendered shares are accounted for as treasury stock at cost and held in treasury for future use.
| F-42 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dividends
In response to business disruptions related to the COVID-19 pandemic, effective beginning in the first quarter of Fiscal 2021, the Company temporarily suspended its quarterly cash dividend program as a preemptive action to preserve cash and strengthen its liquidity position. On November 5, 2013,May 19, 2021, the Company's Board of Directors approved the reinstatement of its quarterly cash dividend program at the pre-pandemic amount of $0.6875 per share. On May 18, 2022, the Company's Board of Directors approved an increase to the Company's quarterly cash dividend on its common stock from $0.40 per share$0.6875 to $0.45 per share. On February 3, 2015, the Company's Board of Directors approved a further increase to the Company's quarterly cash dividend on its common stock from $0.45 per share to $0.50$0.75 per share. Dividends paid amounted to $170$198.3 million,, $158 $150.0 million,, and $149$49.8 million in for Fiscal 2016, 2023, Fiscal 2015,2022, and Fiscal 2014,2021, respectively.
17. Accumulated Other Comprehensive Income (Loss)
The following table presents OCI activity, net of tax, accumulated in equity:
Foreign Currency Translation Gains (Losses)(a) | Net Unrealized Gains (Losses) on Cash Flow Hedges(b) | Net Unrealized Gains (Losses) on Defined Benefit Plans(c) | Total Accumulated Other Comprehensive Income (Loss)(d) | |||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| Balance at March 30, 2020 | $ | (130.4) | $ | 18.0 | $ | (5.8) | $ | (118.2) | ||||||||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||||
| OCI before reclassifications | 7.2 | (3.0) | 3.3 | 7.5 | ||||||||||||||||||||||
| Amounts reclassified from AOCI to earnings | — | (10.4) | 0.3 | (10.1) | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | 7.2 | (13.4) | 3.6 | (2.6) | ||||||||||||||||||||||
| Balance at March 27, 2021 | (123.2) | 4.6 | (2.2) | (120.8) | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||||
| OCI before reclassifications | (66.5) | 7.7 | 2.2 | (56.6) | ||||||||||||||||||||||
| Amounts reclassified from AOCI to earnings | — | (3.3) | 0.4 | (2.9) | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | (66.5) | 4.4 | 2.6 | (59.5) | ||||||||||||||||||||||
| Balance at April 2, 2022 | (189.7) | 9.0 | 0.4 | (180.3) | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||||
| OCI before reclassifications | (14.1) | 15.6 | 3.7 | 5.2 | ||||||||||||||||||||||
| Amounts reclassified from AOCI to earnings | — | (20.5) | (0.4) | (20.9) | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | (14.1) | (4.9) | 3.3 | (15.7) | ||||||||||||||||||||||
| Balance at April 1, 2023 | $ | (203.8) | $ | 4.1 | $ | 3.7 | $ | (196.0) | ||||||||||||||||||
(a)OCI before reclassifications to earnings related to foreign currency translation gains (losses) includes income tax provisions of $12.6 million and $17.7 million for Fiscal 2023 and Fiscal 2022, respectively, and includes an income tax benefit of $22.1 million for Fiscal 2021. OCI before reclassifications to earnings includes gains of $28.2 million (net of a $9.0 million income tax provision) and $38.1 million (net of a $12.3 million income tax provision) for Fiscal 2023 and Fiscal 2022, respectively, and includes a loss of $65.6 million (net of a $20.7 million income tax benefit) for Fiscal 2021, related to changes in the fair values of instruments designated as hedges of the Chairman, the Company entered into employment agreements withCompany's net investment in certain foreign operations (see Note 13).
(b)OCI before reclassifications to earnings related to net unrealized gains (losses) on cash flow hedges are presented net of its executive officers, which became effective duringincome tax provisions of $2.5 million and $1.3 million for Fiscal 2014,2023 and converted certain fully-vestedFiscal 2022, respectively, and expensed stock-based compensation awards to a cash contribution into a deferred compensation account. The Company recorded the excess of both these awards' then current redemption values over their original grant-date fair values to retained earnings, with a corresponding increase to other non-current liabilities in the consolidated balance sheet.
are
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(c)Activity is presented net of taxes, which is accumulated in equity:were immaterial for all periods presented.
Foreign Currency Translation Gains (Losses)(a) | Net Unrealized Gains (Losses) on Cash Flow Hedges(b) | Net Unrealized Gains (Losses) on Available-for-Sale Investments(c) | Net Unrealized Gains (Losses) on Defined Benefit Plans(d) | Total Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||
| (millions) | ||||||||||||||||||||
| Balance at March 30, 2013 | $ | 73 | $ | 23 | $ | 5 | $ | (7 | ) | $ | 94 | |||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||
| OCI before reclassifications | 52 | (20 | ) | (4 | ) | — | 28 | |||||||||||||
| Amounts reclassified from AOCI to earnings | — | (7 | ) | (1 | ) | — | (8 | ) | ||||||||||||
| Other comprehensive income (loss), net of tax | 52 | (27 | ) | (5 | ) | — | 20 | |||||||||||||
| Balance at March 29, 2014 | 125 | (4 | ) | — | (7 | ) | 114 | |||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||
| OCI before reclassifications | (318 | ) | 62 | — | (9 | ) | (265 | ) | ||||||||||||
| Amounts reclassified from AOCI to earnings | — | (15 | ) | — | 1 | (14 | ) | |||||||||||||
| Other comprehensive income (loss), net of tax | (318 | ) | 47 | — | (8 | ) | (279 | ) | ||||||||||||
| Balance at March 28, 2015 | (193 | ) | 43 | — | (15 | ) | (165 | ) | ||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||
| OCI before reclassifications | 36 | (19 | ) | — | 1 | 18 | ||||||||||||||
| Amounts reclassified from AOCI to earnings | — | (36 | ) | — | 2 | (34 | ) | |||||||||||||
| Other comprehensive income (loss), net of tax | 36 | (55 | ) | — | 3 | (16 | ) | |||||||||||||
| Balance at April 2, 2016 | $ | (157 | ) | $ | (12 | ) | $ | — | $ | (12 | ) | $ | (181 | ) | ||||||
(d)The Company generally releases income tax effects from AOCI when the corresponding pretax AOCI items are reclassified to earnings.
The following table presents reclassifications from AOCI to earnings for cash flow hedges, by component:
| Fiscal Years Ended | ||||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | Location of Gains (Losses) Reclassified from AOCI to Earnings | |||||||||||
| (millions) | ||||||||||||||
Gains (losses) on cash flow hedges(a): | ||||||||||||||
| FC — Inventory purchases | $ | 44 | $ | 3 | $ | 10 | Cost of goods sold | |||||||
| FC — Other | (5 | ) | 14 | — | Foreign currency gains (losses) | |||||||||
| Tax effect | (3 | ) | (2 | ) | (3 | ) | Provision for income taxes | |||||||
| Net of tax | $ | 36 | $ | 15 | $ | 7 | ||||||||
| Fiscal Years Ended | ||||||||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | Location of Gains (Losses) Reclassified from AOCI to Earnings | |||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
Gains (losses) on cash flow hedges(a): | ||||||||||||||||||||||||||
| FC — Cash flow hedges | $ | 23.8 | $ | 3.8 | $ | 12.6 | Cost of goods sold | |||||||||||||||||||
| FC — Cash flow hedges | — | — | (0.3) | Other income (expense), net | ||||||||||||||||||||||
| Tax effect | (3.3) | (0.5) | (1.9) | Income tax provision | ||||||||||||||||||||||
| Net of tax | $ | 20.5 | $ | 3.3 | $ | 10.4 | ||||||||||||||||||||
(a)FC = Forward foreign currency exchange contracts. 18. Stock-based Compensation |
Long-term Stock Incentive Plans
On August 1, 2019, the Company's shareholders approved the 2019 Long-Term Stock Incentive Plan (the "2019 Incentive Plan"), which replaced the Company's Amended and Restated 2010 Long-Term Stock Incentive Plan (the "2010 Incentive Plan"). The Company's stock-based compensation awards are currently issued2019 Incentive Plan provided for 1.2 million of new shares authorized for issuance to the participants, in addition to the approximately 3.0 million shares that remained available for issuance under the 2010 Incentive Plan which was approved by its stockholders onas of August 5, 2010. However,1, 2019. In addition, any prioroutstanding awards granted under the 19972010 Incentive Plan remain subject toor the terms of that plan. Any awardsCompany's 1997 Long-Term Stock Incentive Plan (the "1997 Incentive Plan") that expire, are forfeited, or are surrendered to the Company in satisfaction of taxes, arewill become available for issuance under the 20102019 Incentive Plan. On September 24, 2013, the Company registered with the SEC an additional 1.7 million shares of its Class A common stock for issuance pursuant toThe 2019 Incentive Plan became effective August 1, 2019 and no further grants will be made under the 2010 Incentive Plan. Outstanding awards issued prior to August 1, 2019 will continue to remain subject to the terms of the 2010 Incentive Plan or 1997 Incentive Plan, as applicable. As of April 2, 2016, 2.51, 2023, 2.8 million shares remained available for future issuance under the Company's incentive plans.
Stock-based compensation awards that may be made under the 20102019 Incentive Plan include, but are not limited to, (i) stock options,RSUs, (ii) restricted stock, and (iii) RSUs. In recentstock options. During the fiscal years the Company's annual grants of stock-based compensation awards to its employees primarily consisted of stock options and RSUs. However, in Fiscal 2016, thepresented, annual grants consisted entirely of RSUs, as the Company elected to issue service-based RSUs in lieu of stock options. Additionally, new vesting provisions for certain awards granted to retirement-eligible employees were introduced. Specifically, beginning in Fiscal 2016, for certain service-based and performance-basedRSUs. For RSUs granted to retirement-eligible employees, or employees who will become retirement-eligible prior to the end of the awards' respective stated vesting periods, vesting continues post-retirement for all or a portion of the remaining unvested RSUs.
Impact on Results
A summary of the total stock-based compensation expense and the associatedrelated income tax benefits recognized related to stock-based compensation arrangements is as follows:
| Fiscal Years Ended | |||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | |||||||||||
| (millions) | |||||||||||||
| Compensation expense | $ | 97 | (a) | $ | 81 | $ | 93 | (a) | |||||
| Income tax benefit | $ | (37 | ) | $ | (30 | ) | $ | (34 | ) | ||||
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
Compensation expense(a) | $ | 75.5 | $ | 81.7 | $ | 72.7 | ||||||||||||||
| Income tax benefit | (12.6) | (13.0) | (12.4) | |||||||||||||||||
(a)Fiscal 2022 includes $2.0 million of accelerated stock-based compensation expense recorded within restructuring and other charges, net in the consolidated statements of operations (see Note 9). All other stock-based compensation expense was recorded within SG&A expenses.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| Fiscal Years Ended | ||||||||
April 2, 2016(a) | March 28, 2015 | March 29, 2014 | ||||||
| Expected term (years) | N/A | 4.2 | 4.2 | |||||
| Expected volatility | N/A | 30.2 | % | 32.9 | % | |||
| Expected dividend yield | N/A | 1.10 | % | 0.98 | % | |||
| Risk-free interest rate | N/A | 1.4 | % | 1.1 | % | |||
| Weighted-average option grant date fair value | N/A | $37.91 | $45.83 | |||||
Number of Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value(a) | ||||||||||
| (thousands) | (years) | (millions) | |||||||||||
| Options outstanding at March 28, 2015 | 3,225 | $ | 129.28 | 4.0 | $ | 69 | |||||||
| Granted | — | N/A | |||||||||||
| Exercised | (625 | ) | 52.37 | ||||||||||
| Cancelled/Forfeited | (182 | ) | 163.56 | ||||||||||
| Options outstanding at April 2, 2016 | 2,418 | $ | 146.58 | 3.7 | $ | 6 | |||||||
Options vested and expected to vest at April 2, 2016(b) | 2,391 | $ | 145.60 | 3.7 | $ | 6 | |||||||
| Options exercisable at April 2, 2016 | 1,818 | $ | 140.34 | 3.3 | $ | 6 | |||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
Aggregate intrinsic value of stock options exercised(a) | $ | 44 | $ | 35 | $ | 63 | ||||||
| Cash received from the exercise of stock options | 34 | 52 | 52 | |||||||||
| Tax benefits realized on exercise of stock options | 17 | 12 | 24 | |||||||||
Service-based RSUs granted to certain of the Company's senior executives and other employees, as well as certain of its other employees,non-employee directors, generally vest over a three-yearthree-year period, subject to the employee's continuing employment (except for awards granted in Fiscal 2016 to retirement-eligible employees, or employees who will become retirement-eligible prior to the end of the awards' respective stated vesting periods, as previously discussed). The fair values of service-based RSUs are based on the fair value of the Company's Class A common stock on the date of grant, adjusted to reflect the absence of dividends for any awards for which dividend equivalent amounts do not entitled to accrue dividend equivalents while outstanding.outstanding and unvested.
A summary of service-based RSU activity during Fiscal 2023 is as follows:
| Service- based RSUs | ||||||||||||||
| Number of Shares | Weighted-Average Grant Date Fair Value | |||||||||||||
| (thousands) | ||||||||||||||
| Nonvested at April 2, 2022 | 1,566 | $ | 87.07 | |||||||||||
| Granted | 668 | 92.07 | ||||||||||||
| Vested | (579) | 88.40 | ||||||||||||
| Forfeited | (70) | 95.58 | ||||||||||||
| Nonvested at April 1, 2023 | 1,585 | $ | 88.32 | |||||||||||
| Service- based RSUs | ||||||||
| $ | 41.2 | |||||||
| Weighted-average period expected to be recognized over (years) | 1.2 | |||||||
Restricted Stock | Service- based RSUs | |||||||||||||
Number of Shares | Weighted-Average Grant Date Fair Value | Number of Shares | Weighted-Average Grant Date Fair Value | |||||||||||
| (thousands) | (thousands) | |||||||||||||
| Nonvested at March 28, 2015 | 5 | $ | 164.73 | 47 | $ | 150.01 | ||||||||
| Granted | 17 | 111.94 | 508 | 125.19 | ||||||||||
| Vested | (7 | ) | 153.53 | (18 | ) | 149.28 | ||||||||
| Forfeited | (1 | ) | 139.87 | (47 | ) | 129.60 | ||||||||
| Nonvested at April 2, 2016 | 14 | $ | 110.68 | 490 | $ | 126.30 | ||||||||
Restricted Stock | Service- based RSUs | |||||||
| Total unrecognized compensation expense at April 2, 2016 (millions) | $ | 1 | $ | 25 | ||||
| Weighted-average period expected to be recognized over (years) | 1.8 | 1.5 | ||||||
Additional information pertaining to restricted stock and service-based RSU activity is as follows:
| Fiscal Years Ended | ||||||||||||||||||||||||||||||||
| Fiscal Years Ended | April 1, 2023 | April 2, 2022 | March 27, 2021 | |||||||||||||||||||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||||||||||||||||||||||
| Restricted Stock: | ||||||||||||||||||||||||||||||||
| Weighted-average grant date fair value of awards granted | $ | 111.94 | $ | 162.36 | $ | 164.76 | ||||||||||||||||||||||||||
| Total fair value of awards vested (millions) | $ | 1 | $ | 1 | $ | 1 | ||||||||||||||||||||||||||
| Service-based RSUs: | Service-based RSUs: | |||||||||||||||||||||||||||||||
| Weighted-average grant date fair value of awards granted | $ | 125.19 | $ | 150.23 | N/A | Weighted-average grant date fair value of awards granted | $ | 92.07 | $ | 117.33 | $ | 64.55 | ||||||||||||||||||||
| Total fair value of awards vested (millions) | $ | 2 | $ | 1 | $ | 16 | Total fair value of awards vested (millions) | $ | 56.7 | $ | 79.5 | $ | 33.4 | |||||||||||||||||||
Performance-based RSUs
The Company grants performance-based RSUs to its senior executives and other key executives, as well as certainemployees. The fair values of its other employees.performance-based RSUs are based on the fair value of the Company's Class A common stock on the date of grant, adjusted to reflect the absence of dividends for any awards for which dividend equivalent amounts do not accrue while outstanding and unvested. Performance-based RSUs generally vest (i) upon the completion of a three-yearthree-year period of time (cliff vesting), subject to the employee's continuing employment (except for awards granted in Fiscal 2016 to retirement-eligible employees, or employees who will become retirement-eligible prior to the end of the awards' respective stated vesting periods, as previously discussed) and the Company's achievement of certain performance goals established at the beginning of the three-yearthree-year performance period or (ii) ratably, over a three-yearthree-year period of time (graded vesting), subject to the employee's continuing employment during the applicable vesting period (except for awards granted in Fiscal 2016 to retirement-eligible employees, or employees who will become retirement-eligibleretirement-
| F-45 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
eligible prior to the end of the awards' respective stated vesting periods, as previously discussed) and the achievement by the Company of certain performance goals in the initial year of the three-year vesting period.
For performance-based RSUs subject to cliff vesting, the number of shares that may be earned ranges between 0% (if the specified threshold performance level is not attained) and 150%200% (if performance meets or exceeds the maximum achievement level) of the awards originally granted. If actual performance exceeds the pre-established threshold, the number of shares earned is calculated based on the relative performance between specified levels of achievement.
Market-based RSUs
The Company grants cliff vesting performance-based RSU awards granted by the Company,to its senior executives and other key employees, which, in addition to being subject to continuing employment requirements and(except for awards granted to retirement-eligible employees, or employees who become retirement-eligible prior to the Company's performance goals noted above,end of the awards' respective stated vesting periods, as previously discussed), are also subject to a market condition in the form ofbased on a total shareholder return ("TSR") modifier.TSR performance metric. The actual number of shares that vest atupon the endcompletion of the respective three-yeara three-year period of time is determined basedby comparing the Company's TSR relative to that of a pre-established peer group over the related three-year performance period. Depending on the Company's level of achievement of the three-yearagainst its TSR performance goals, described above, as well as its TSR relative to the S&P 500 over the related three-year performance period. At the end of the three-year performance period, if the performance condition is achieved at or above the pre-established threshold, the number of shares earnedthat ultimately vest may range from 0% to 200% of the awards originally granted.
The Company estimates the fair value of its TSR awards on the date of grant using a Monte Carlo simulation, which models multiple stock price paths of the Company's Class A common stock and that of its peer group to evaluate and determine its ultimate expected relative TSR performance ranking. Compensation expense, net of estimated forfeitures, is further adjustedrecorded regardless of whether, and the extent to which, the market condition is ultimately satisfied. No such awards were granted during Fiscal 2021 as the Company elected to temporarily issue service-based RSUs in lieu of performance-based RSUs as a result of business disruptions and uncertainty created by athe COVID-19 pandemic.
The assumptions used to estimate the fair value of TSR modifierawards granted were as follows:
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| Expected volatility | 49.9 | % | 46.8 | % | N/A | |||||||||||||||
| Expected dividend yield | 3.0 | % | 2.2 | % | N/A | |||||||||||||||
| Risk-free interest rate | 3.1 | % | 0.4 | % | N/A | |||||||||||||||
| Weighted-average grant date fair value | $ | 124.62 | $ | 146.46 | N/A | |||||||||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| Performance-based RSUs | ||||||||||||||
| Number of Shares | Weighted-Average Grant Date Fair Value | |||||||||||||
| (thousands) | ||||||||||||||
| Nonvested at April 2, 2022 | 542 | $ | 104.29 | |||||||||||
| Granted | 261 | 106.58 | ||||||||||||
| Change due to performance and/or market condition achievement | (58) | 88.03 | ||||||||||||
| Vested | (269) | 86.94 | ||||||||||||
| Forfeited | (7) | 120.14 | ||||||||||||
| Nonvested at April 1, 2023 | 469 | $ | 117.35 | |||||||||||
| Performance-based RSUs | ||||||||
| Total unrecognized compensation expense at April 1, 2023 (millions) | $ | 25.8 | ||||||
| Weighted-average period expected to be recognized over (years) | 1.6 | |||||||
Additional information pertaining to performance-based RSU activity including TSR awards is as follows:
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| Performance-based RSUs: | ||||||||||||||||||||
| Weighted-average grant date fair value of awards granted | $ | 106.58 | $ | 129.56 | N/A | |||||||||||||||
| Total fair value of awards vested (millions) | $ | 26.8 | $ | 27.6 | $ | 55.0 | ||||||||||||||
Stock Options
Stock options were previously granted to employees and non-employee directors with a TSR modifier may range from 0%exercise prices equal to187.5% of the awards originally granted.
| Fiscal Years Ended | ||||||||
April 2, 2016(a) | March 28, 2015 | March 29, 2014 | ||||||
| Expected term (years) | N/A | 3.0 | 2.9 | |||||
| Expected volatility | N/A | 29.8 | % | 32.6 | % | |||
| Expected dividend yield | N/A | 1.09 | % | 0.98 | % | |||
| Risk-free interest rate | N/A | 0.9 | % | 0.4 | % | |||
| Weighted-average grant date fair value | N/A | $169.47 | $169.14 | |||||
Performance-based RSUs — without TSR Modifier | Performance-based RSUs — with TSR Modifier | |||||||||||||
Number of Shares | Weighted-Average Grant Date Fair Value | Number of Shares | Weighted-Average Grant Date Fair Value | |||||||||||
| (thousands) | (thousands) | |||||||||||||
| Nonvested at March 28, 2015 | 697 | $ | 155.47 | 214 | $ | 158.65 | ||||||||
| Granted | 341 | 126.48 | — | N/A | ||||||||||
| Change due to performance/market condition achievement | (8 | ) | 137.08 | (20 | ) | 136.27 | ||||||||
| Vested | (293 | ) | 147.26 | (50 | ) | 136.30 | ||||||||
| Forfeited | (46 | ) | 155.61 | (2 | ) | 167.64 | ||||||||
| Nonvested at April 2, 2016 | 691 | $ | 144.81 | 142 | $ | 169.46 | ||||||||
Performance-based RSUs — without TSR Modifier | Performance-based RSUs — with TSR Modifier | |||||||
| Total unrecognized compensation expense at April 2, 2016 (millions) | $ | 25 | $ | 3 | ||||
| Weighted-average period expected to be recognized over (years) | 1.6 | 1.1 | ||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| Performance-based RSUs — without TSR Modifier: | ||||||||||||
| Weighted-average grant date fair value of awards granted | $ | 126.48 | $ | 157.10 | $ | 171.93 | ||||||
| Total fair value of awards vested (millions) | $ | 38 | $ | 65 | $ | 109 | ||||||
| Performance-based RSUs — with TSR Modifier: | ||||||||||||
| Weighted-average grant date fair value of awards granted | N/A | $ | 169.47 | $ | 169.14 | |||||||
| Total fair value of awards vested (millions) | $ | 7 | $ | — | $ | — | ||||||
| 19. Employee Benefit |
Defined Contribution Plans
The Company sponsors defined contribution benefit plans covering substantially all eligible employees in the U.S. and Puerto Rico who are not covered by a collective bargaining agreement. The plans include a savings plan feature under Section 401(k) of the Internal Revenue Code. The Company makes matching contributions to the plans equal to 50% of the first 6% of salary contributed by an eligible employee. Additionally, the Company makes a supplemental matching contribution for plan years in which the Company achieves a "stretch" or a "maximum"an "above target" performance targetlevel based on certain goals established at the beginning of each fiscal year, increasing the matching contribution to 75% or between 67% and 100%, respectively, depending on the performance level achieved, of the first 6% of salary contributed by eligible employees, not to exceed the maximum contribution permitted by the plan.
Under the terms of the plans, a participant becomes 100% vested in the Company's matching contributions after five years of credited service. Contributions made by the Company under these plans were $11$8.3 million, $12.9 million, and $9.8 million in each of Fiscal 20162023, Fiscal 2022, and Fiscal 2015, and $10 million in Fiscal 2014.2021, respectively.
| F-47 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
International Defined Benefit Plans
The Company sponsors certain single-employer defined benefit plans and cash balance plans at international locations which are not considered to be material individually or in the aggregate to the Company's financial statements. Pension benefits under these plans are based on formulas that reflect the employees' years of service and compensation levels during their employment period.
The aggregate funded status of the single-employer defined benefit plans reflected net liabilitiesassets of $5$8.2 million and $8$2.5 million as of April 1, 2023 and April 2, 2016 and March 28, 2015,2022, respectively, and were primarily recorded within other non-current liabilitiesassets in the Company's consolidated balance sheets. These single-employer defined benefit plans had aggregate fair values of plan assets of $52.7 million and aggregate projected benefit obligations of $65$44.5 million andas of April 1, 2023, compared to aggregate fair values of plan assets of $60$48.6 million as of April 2, 2016, compared toand aggregate projected benefit obligations of $60$46.1 million and aggregate fair values of plan assets of $52 million as of March 28, 2015.April 2, 2022. The asset portfolio of the single-employer defined benefit plans primarily consists of fixed income securities, which have been measured at fair value largely using Level 2 inputs, as described in Note 14. Pension12.
Net pension expense for these plans was $3.9 million, $4.6 million, and $5.1 million in Fiscal 2023, Fiscal 2022, and Fiscal 2021, respectively. The service cost component of $4.2 million, $4.8 million, and $5.9 million in Fiscal 2023, Fiscal 2022, and Fiscal 2021, respectively, was recorded within SG&A expenses in the Company's consolidated statements of operations. All other components of net pension expense during the fiscal years presented were recorded within other income was $6 million(expense), net, in Fiscal 2016 and $5 million in eachthe consolidated statement of Fiscal 2015 and Fiscal 2014.operations.
Union Pension Plan
The Company participates in a multi-employer pension plan and is required to make contributions to the Workers United union (which was previously known as UNITE HERE) (the "Union") for dues based on wages paid to union employees. A portion of these dues is allocated by the Union to a retirement fund which provides defined benefits to substantially all unionized workers. The Company does not participate in the management of the plan and has not been furnished with information with respect to the type of benefits provided, vested and non-vested benefits, or assets.
Under the Employee Retirement Income Security Act of 1974, as amended, an employer, upon withdrawal from or termination of a multi-employer plan, is required to continue funding its proportionate share of the plan's unfunded vested benefits. Such liability was assumed in conjunction with the acquisition of certain assets from a non-affiliated licensee. The Company has no current intention of withdrawing from the plan.
The Company has three reportable segments based on its business activities and organization: Wholesale, Retail, and Licensing. These segments offer a variety of products through different channels of distribution.
•North America — The WholesaleNorth America segment primarily consists of sales of Ralph Lauren branded apparel, footwear & accessories, home, furnishings, and related products which are sold to major department stores, specialty stores, golf and pro shops, andmade through the Company's licensedretail and franchised retail storeswholesale businesses primarily in the U.S. and overseas.Canada. In North America, the Company's retail business is primarily comprised of its Ralph Lauren stores, its outlet stores, and its digital commerce site, www.RalphLauren.com. The RetailCompany's wholesale business in North America is comprised primarily of sales to department stores and, to a lesser extent, specialty stores.
•Europe — The Europe segment primarily consists of sales of Ralph Lauren branded apparel, footwear & accessories, home, and related products made through the Company's retail and wholesale businesses in Europe and emerging markets. In Europe, the Company's retail business is primarily comprised of its Ralph Lauren stores, its outlet stores, its concession-based shop-within-shops, and its various digital commerce sites. The Company's wholesale business in Europe is comprised primarily of a varying mix of sales to both department stores and specialty stores, depending on the country, as well as to various third-party digital partners.
•Asia — The Asia segment primarily consists of sales of Ralph Lauren branded apparel, footwear & accessories, home, and related products made through the Company's retail and wholesale businesses in Asia, Australia, and New Zealand. The Company's retail business in Asia is primarily comprised of its Ralph Lauren stores, its outlet stores, its concession-based shop-within-shops, and its various digital commerce sites. In addition, the Company sells its products online through various third-party digital partner commerce sites. The Company's wholesale business in Asia is comprised primarily of sales to department stores, with related products distributed through shop-within-shops.
| F-48 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
No operating segments were aggregated to form the Company's reportable segments. In addition to these reportable segments, the Company also has other non-reportable segments, which primarily consist of Ralph Lauren and Chaps branded royalty revenues earned through its global licensing alliances. In addition, prior to its disposition at the end of the Company's integrated worldwide retail operations, which sellfirst quarter of Fiscal 2022, other non-reportable segments also included sales of Club Monaco branded products made through its retail stores, concession-based shop-within-shops, and e-commerce sites, which are purchased from the Company's licenseesretail and suppliers. The Licensing segment generates revenues from royalties earned onwholesale businesses in the saleU.S., Canada, and Europe, and its licensing alliances in Asia. Refer to Note 9 for additional discussion regarding the disposition of the Company's apparel, home,former Club Monaco business, as well as the transition of its Chaps business to a fully licensed business model.
The Company's segment reporting structure is consistent with how it establishes its overall business strategy, allocates resources, and other products internationally and domestically through licensing alliances. The licensing agreements grant the licensees rights to use the Company's various trademarks in connection with the manufacture and saleassesses performance of designated products in specified geographical areas for specified periods.
its business. The accounting policies of the Company's segments are consistent with those described in Notes 2 and 3. Sales and transfers between segments are generally recorded at cost and treated as transfers of inventory. All intercompany revenues including such sales between segments, are eliminated in consolidation and are not reviewed when evaluating segment performance. Each segment's performance is evaluated based upon net revenues and operating income before restructuringrestructuring-related charges, impairment of assets, and certain other one-time items, such as legal charges, if any. Certain corporate overhead expenses related to global functions, most notably the Company's executive office, information technology, finance and accounting, human resources, and legal departments, largely remain at corporate. Additionally, other costs that cannot be allocated to the segments based on specific usage are also maintained at corporate, including corporate advertising and marketing expenses, depreciation and amortization of corporate assets, and other general and administrative expenses resulting from corporate-level activities and projects. Asset information by segment is not utilized for purposes of assessing performance or allocating resources, and therefore such information has not been presented.
Net revenues for each of the Company's segments are as follows:
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Net revenues: | ||||||||||||||||||||
| North America | $ | 3,020.5 | $ | 2,968.2 | $ | 1,992.4 | ||||||||||||||
| Europe | 1,839.2 | 1,780.7 | 1,165.9 | |||||||||||||||||
| Asia | 1,426.7 | 1,286.8 | 1,027.5 | |||||||||||||||||
| Other non-reportable segments | 157.2 | 182.8 | 215.0 | |||||||||||||||||
| Total net revenues | $ | 6,443.6 | $ | 6,218.5 | $ | 4,400.8 | ||||||||||||||
Operating income (loss) for each of the Company's segments is as follows:
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
Operating income (loss)(a): | ||||||||||||||||||||
| North America | $ | 543.2 | $ | 676.7 | $ | 334.0 | ||||||||||||||
| Europe | 406.5 | 444.0 | 189.3 | |||||||||||||||||
| Asia | 289.6 | 228.8 | 148.2 | |||||||||||||||||
| Other non-reportable segments | 146.4 | 138.4 | 32.4 | |||||||||||||||||
| 1,385.7 | 1,487.9 | 703.9 | ||||||||||||||||||
| Unallocated corporate expenses | (638.5) | (667.3) | (577.0) | |||||||||||||||||
Unallocated restructuring and other charges, net(b) | (43.0) | (22.2) | (170.5) | |||||||||||||||||
| Total operating income (loss) | $ | 704.2 | $ | 798.4 | $ | (43.6) | ||||||||||||||
(a)Segment operating income during Fiscal 2021 reflects bad debt expense reversals of $22.0 million, $4.8 million, $0.3 million, and $0.5 million related to North America, Europe, Asia, and other non-reportable segments, respectively, primarily related to adjustments to reserves previously established in connection with COVID-19
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
business disruptions. Segment operating income and unallocated corporate expenses during the fiscal years presented also included asset impairment charges (see Note 8), which are detailed below:
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Asset impairment charges: | ||||||||||||||||||||
| North America | $ | (9.5) | $ | (2.4) | $ | (12.2) | ||||||||||||||
| Europe | — | — | (24.3) | |||||||||||||||||
| Asia | — | (1.1) | (1.4) | |||||||||||||||||
| Other non-reportable segments | — | (0.3) | (18.2) | |||||||||||||||||
| Unallocated corporate expenses | (0.2) | (17.5) | (39.9) | |||||||||||||||||
| Total asset impairment charges | $ | (9.7) | $ | (21.3) | $ | (96.0) | ||||||||||||||
(b)The fiscal years presented included certain unallocated restructuring and other charges, net (see Note 9), which are detailed below:
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Unallocated restructuring and other charges, net: | ||||||||||||||||||||
| North America-related | $ | (0.4) | $ | 0.1 | $ | (22.4) | ||||||||||||||
| Europe-related | (2.7) | 2.1 | (30.0) | |||||||||||||||||
| Asia-related | (1.3) | 2.8 | (7.4) | |||||||||||||||||
| Other non-reportable segment-related | — | (0.1) | (3.3) | |||||||||||||||||
| Corporate operations-related | (14.8) | (8.9) | (96.0) | |||||||||||||||||
| Unallocated restructuring charges | (19.2) | (4.0) | (159.1) | |||||||||||||||||
| Other charges (see Note 9) | (23.8) | (18.2) | (11.4) | |||||||||||||||||
| Total unallocated restructuring and other charges, net | $ | (43.0) | $ | (22.2) | $ | (170.5) | ||||||||||||||
The following tables summarize depreciation and amortization expense and capital expenditures for each of the Company's reportable segments are as follows:segments:
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Net revenues: | ||||||||||||
| Wholesale | $ | 3,297 | $ | 3,495 | $ | 3,486 | ||||||
| Retail | 3,933 | 3,956 | 3,798 | |||||||||
| Licensing | 175 | 169 | 166 | |||||||||
Total net revenues(a) | $ | 7,405 | $ | 7,620 | $ | 7,450 | ||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Operating income: | ||||||||||||
Wholesale(a) | $ | 822 | $ | 943 | $ | 963 | ||||||
Retail(b) | 359 | 527 | 572 | |||||||||
| Licensing | 155 | 152 | 150 | |||||||||
| 1,336 | 1,622 | 1,685 | ||||||||||
| Unallocated corporate expenses | (611 | ) | (577 | ) | (553 | ) | ||||||
Gain on acquisition of Chaps(c) | — | — | 16 | |||||||||
Unallocated restructuring and other charges(d) | (143 | ) | (10 | ) | (18 | ) | ||||||
| Total operating income | $ | 582 | $ | 1,035 | $ | 1,130 | ||||||
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Depreciation and amortization expense: | ||||||||||||||||||||
| North America | $ | 74.3 | $ | 72.8 | $ | 73.4 | ||||||||||||||
| Europe | 32.0 | 32.3 | 31.6 | |||||||||||||||||
| Asia | 48.3 | 51.9 | 56.3 | |||||||||||||||||
| Other non-reportable segments | — | 0.4 | 4.3 | |||||||||||||||||
| Unallocated corporate | 65.9 | 72.3 | 82.0 | |||||||||||||||||
| Total depreciation and amortization expense | $ | 220.5 | $ | 229.7 | $ | 247.6 | ||||||||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| Fiscal Years Ended | |||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | |||||||||||
| (millions) | |||||||||||||
| Restructuring and other charges: | |||||||||||||
| Restructuring charges: | |||||||||||||
| Wholesale-related | $ | (13 | ) | $ | (4 | ) | $ | — | |||||
| Retail-related | (27 | ) | (4 | ) | — | ||||||||
| Licensing-related | (1 | ) | — | — | |||||||||
| Corporate operations-related | (54 | ) | (2 | ) | (8 | ) | |||||||
| Unallocated restructuring charges | (95 | ) | (10 | ) | (8 | ) | |||||||
| Other charges (see Note 11) | (48 | ) | — | (10 | ) | ||||||||
| Total unallocated restructuring and other charges | $ | (143 | ) | $ | (10 | ) | $ | (18 | ) | ||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Depreciation and amortization: | ||||||||||||
| Wholesale | $ | 61 | $ | 66 | $ | 66 | ||||||
| Retail | 157 | 154 | 125 | |||||||||
| Licensing | 1 | — | — | |||||||||
| Unallocated corporate | 91 | 74 | 67 | |||||||||
| Total depreciation and amortization | $ | 310 | $ | 294 | $ | 258 | ||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Capital expenditures: | ||||||||||||
| Wholesale | $ | 43 | $ | 48 | $ | 53 | ||||||
| Retail | 173 | 237 | 252 | |||||||||
| Licensing | 4 | 4 | 1 | |||||||||
| Unallocated corporate | 198 | 102 | 84 | |||||||||
| Total capital expenditures | $ | 418 | $ | 391 | $ | 390 | ||||||
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
| Total assets: | ||||||||
| Wholesale | $ | 2,569 | $ | 2,643 | ||||
| Retail | 2,540 | 2,395 | ||||||
| Licensing | 188 | 197 | ||||||
| Corporate | 916 | 871 | ||||||
| Total assets | $ | 6,213 | $ | 6,106 | ||||
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Capital expenditures: | ||||||||||||||||||||
| North America | $ | 73.5 | $ | 36.6 | $ | 23.8 | ||||||||||||||
| Europe | 34.3 | 39.0 | 16.9 | |||||||||||||||||
| Asia | 68.4 | 49.1 | 41.2 | |||||||||||||||||
| Other non-reportable segments | — | 1.8 | 2.4 | |||||||||||||||||
| Unallocated corporate | 41.3 | 40.4 | 23.5 | |||||||||||||||||
| Total capital expenditures | $ | 217.5 | $ | 166.9 | $ | 107.8 | ||||||||||||||
Net revenues and long-lived assets by geographic location of the reporting subsidiary are as follows:
| Fiscal Years Ended | ||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | March 27, 2021 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
Net revenues(a): | ||||||||||||||||||||
The Americas(b) | $ | 3,201.1 | $ | 3,164.5 | $ | 2,208.4 | ||||||||||||||
Europe(c) | 1,815.9 | 1,766.1 | 1,164.3 | |||||||||||||||||
Asia(d) | 1,426.6 | 1,287.9 | 1,028.1 | |||||||||||||||||
| Total net revenues | $ | 6,443.6 | $ | 6,218.5 | $ | 4,400.8 | ||||||||||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
Net revenues(a): | ||||||||||||
The Americas(b) | $ | 4,938 | $ | 5,077 | $ | 4,983 | ||||||
Europe(c) | 1,573 | 1,627 | 1,580 | |||||||||
Asia(d) | 894 | 916 | 887 | |||||||||
| Total net revenues | $ | 7,405 | $ | 7,620 | $ | 7,450 | ||||||
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
Long-lived assets(a): | ||||||||
The Americas(b) | $ | 1,206 | $ | 1,106 | ||||
Europe(c) | 212 | 148 | ||||||
Asia(d) | 165 | 182 | ||||||
| Total long-lived assets | $ | 1,583 | $ | 1,436 | ||||
| April 1, 2023 | April 2, 2022 | |||||||||||||
| (millions) | ||||||||||||||
Long-lived assets(a): | ||||||||||||||
The Americas(b) | $ | 1,121.5 | $ | 1,068.9 | ||||||||||
Europe(c) | 612.7 | 698.2 | ||||||||||||
Asia(d) | 355.3 | 313.7 | ||||||||||||
| Total long-lived assets | $ | 2,089.5 | $ | 2,080.8 | ||||||||||
(a)For certain of the Company's licensed operations, net revenues and long-lived assets, which is comprised of property and equipment and lease ROU assets, are included within the geographic location of the reporting subsidiary which holds the respective license.
(b)Includes the U.S., Canada, and Latin America. Net revenues earned in the U.S. were $3.055 billion, $3.039 billion, and $2.103 billion in Fiscal 2023, Fiscal 2022, and Fiscal 2021, respectively. Long-lived assets located in the U.S. were $1.106 billion and $1.057 billion as of April 1, 2023 and April 2, 2022, respectively.
(c)Includes the Middle East.
(d)Includes Australia and New Zealand.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
21. Additional Financial Information
Reconciliation of Cash, Cash Equivalents, and Restricted Cash
A reconciliation of cash, cash equivalents, and restricted cash as of April 1, 2023 and April 2, 2022 from the consolidated balance sheets to the consolidated statements of cash flows is as follows:
| April 1, 2023 | April 2, 2022 | |||||||||||||
| (millions) | ||||||||||||||
| Cash and cash equivalents | $ | 1,529.3 | $ | 1,863.8 | ||||||||||
| Restricted cash included within prepaid expenses and other current assets | 1.5 | 1.6 | ||||||||||||
| Restricted cash included within other non-current assets | 6.1 | 6.6 | ||||||||||||
| Total cash, cash equivalents, and restricted cash | $ | 1,536.9 | $ | 1,872.0 | ||||||||||
Restricted cash relates to cash held in escrow with certain banks as collateral, primarily to secure guarantees in connection with certain international tax matters and real estate leases.
Cash Paid for Interest and Taxes
Cash paid for interest and income taxes is as follows:
| Fiscal Years Ended | Fiscal Years Ended | |||||||||||||||||||||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | April 1, 2023 | April 2, 2022 | March 27, 2021 | |||||||||||||||||||||||||||
| (millions) | (millions) | |||||||||||||||||||||||||||||||
| Cash paid for interest | $ | 15 | $ | 15 | $ | 20 | Cash paid for interest | $ | 39.9 | $ | 46.6 | $ | 33.5 | |||||||||||||||||||
| Cash paid for income taxes | $ | 172 | $ | 317 | $ | 302 | ||||||||||||||||||||||||||
| Cash paid for income taxes, net of refunds | Cash paid for income taxes, net of refunds | 160.2 | 216.3 | 47.8 | ||||||||||||||||||||||||||||
Non-cash Transactions
Operating lease ROU assets recorded in connection with the recognition of new lease liabilities were $342.2 million, $287.4 million, and $66.7 million during Fiscal 2023, Fiscal 2022, and Fiscal 2021, respectively. Finance lease ROU assets recorded in connection with the recognition of new lease liabilities were $0.4 million and $133.2 million during Fiscal 2023 and Fiscal 2021, respectively, and no finance lease ROU assets were recorded in connection with the recognition of new lease liabilities during Fiscal 2022. Additionally, $55.7 million of operating lease ROU assets were reclassified and reflected as finance lease ROU assets as a result of certain lease amendments executed during Fiscal 2021.
Non-cash investing activities also included capital expenditures incurred but not yet paid of $65$37.2 million, $62$49.6 million,, and $45$21.3 million as of the end of Fiscal 2016, 2023, Fiscal 2015,2022, and Fiscal 2014,2021, respectively.
There were no other significant non-cash investing or financing activities for any of the fiscal years presented.
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Ralph Lauren Corporation is responsible for the preparation, objectivity, and integrity of the consolidated financial statements and other information contained in this Annual Report. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include some amounts that are based on management's informed judgments and best estimates.
These consolidated financial statements have been audited by Ernst & Young LLP in Fiscal 2016, 2023, Fiscal 2015,2022, and Fiscal 2014,2021, which is an independent registered public accounting firm. They conducted their audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and have expressed herein their unqualified opinions on those financial statements.
The Audit Committee of the Board of Directors, which oversees all of the Company's financial reporting process on behalf of the Board of Directors, consists solely of independent directors, meets with the independent registered accountants, internal auditors, and management periodically to review their respective activities and the discharge of their respective responsibilities. Both the independent registered public accountants and the internal auditors have unrestricted access to the Audit Committee, with or without management, to discuss the scope and results of their audits and any recommendations regarding the system of internal controls.
May 19, 201625, 2023
| /s/ | /s/ | ||||||||||
| President and Chief Executive Officer | |||||||||||
| (Principal Executive Officer) | (Principal Financial and Accounting Officer) | ||||||||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ralph Lauren Corporation and subsidiaries (the "Company")Company) as of April 1, 2023 and April 2, 2016 and March 28, 2015, and2022, the related consolidated statements of income,operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended April 1, 2023, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 1, 2023 and April 2, 2016. 2022, and the results of its operations and its cash flows for each of the three years in the period ended April 1, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of April 1, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 25, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| End-of-season Markdown Reserves | |||||
| Description of the Matter | As disclosed in Note 3 of the consolidated financial statements, estimates for end-of-season markdown reserves are based on historical trends, actual and forecasted seasonal results, an evaluation of current economic and market conditions, retailer performance, and, in certain cases, contractual terms. Auditing management's estimate of end-of-season markdown reserves was complex and judgmental as reserve amounts are sensitive to changes in market or economic conditions (including the effects of the global pandemic), and have a direct, material impact on the amount of revenue recognized by the Company. There is also significant estimation required to establish markdown reserve rates by brand and customer, which are based on the Company's review of the seasonal negotiations with each customer and the expected performance of the products in the customers' stores. | ||||
| F-54 | ||||||||
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's process to calculate the end-of-season markdown reserves, including the consideration of historical experience, actual and forecasted seasonal results, current economic and market conditions (including the effects of the global pandemic), retailer performance, and contractual terms as applicable. To test the estimate of end-of-season markdown reserves, we performed audit procedures that included, among others, assessing methodologies and testing the assumptions regarding seasonal negotiations with each customer which include the application of market and economic conditions to individual customers and the expected performance of the products in the customers' stores that were used by the Company to calculate the projected markdown allowances to be issued upon settlement. We compared the significant assumptions used by management to current market and economic trends, historical results and other relevant factors. We assessed the historical accuracy of management's estimates and performed sensitivity analyses of significant assumptions to substantively test the changes in the estimate that would result from reasonable changes in the assumptions. | ||||
| Estimated Realizable Value of Inventory | |||||
| Description of the Matter | As of April 1, 2023, the Company's net inventory balance was $1,071.3 million. As described in Note 3 to the consolidated financial statements, the valuation of inventory requires management to make assumptions and judgments about the recoverability of inventory and its estimated realizable value. The estimated realizable value of inventory is determined based on an analysis of historical sales trends, market trends and economic conditions including the lingering effects of the global pandemic (e.g., supply chain volatility and inflationary pressures), future sales forecasts, on-hand inventory quantities, and consideration of the value of existing customer orders for future sales of inventory. Given the importance of inventory to the Company's operations and the materiality of the balance, coupled with the judgment involved in estimating future sales, auditing management’s estimated realizable value involved a higher extent of testing and the involvement of more senior members of the engagement team in executing, supervising and reviewing the results of the procedures. | ||||
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the process to determine the estimated realizable value of inventory, including controls over the inputs and assumptions used in management's calculation as described above. Our audit procedures to test the estimated realizable value of inventory included, among others, evaluating the appropriateness of management's inputs to the calculation, including testing the completeness and accuracy of the data used in management's calculation such as historical sales activity and loss rates for each class of inventory, write-off activity, on-hand inventory levels and inventory aging. To evaluate management's ability to accurately estimate future sales projections, which is also a key factor in the determination of the reserve, we retrospectively reviewed actual sales compared to projections and considered the lingering impacts of the global pandemic (e.g., supply chain volatility and inflationary pressures) on market trends and economic conditions. We also tested the mathematical accuracy of the Company's calculation. | ||||
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2008.
New York, New York
May 25, 2023
| F-55 | ||||||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Ralph Lauren Corporation
Opinion on Internal Control Over Financial Reporting
We have audited Ralph Lauren Corporation's internal control over financial reporting as of April 1, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, the financial statements referred to above present fairly,Ralph Lauren Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of April 1, 2023, based on the consolidated financial position of Ralph Lauren Corporation and subsidiaries at April 2, 2016 and March 28, 2015, and the consolidated results of their operations and their cash flows for each of the three years in the period ended April 2, 2016, in conformity with U.S. generally accepted accounting principles.COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reportingconsolidated balance sheets of the Company as of April 1, 2023 and April 2, 2016, based on criteria established in Internal Control — Integrated Framework issued by2022, the Committeerelated consolidated statements of Sponsoring Organizationsoperations, comprehensive income (loss), equity, and cash flows for each of the Treadway Commission (2013 framework)three years in the period ended April 1, 2023, and the related notes and our report dated May 19, 201625, 2023 expressed an unqualified opinion thereon.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
New York, New York
May 19, 2016
25, 2023
Fiscal Years Ended(a) | ||||||||||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014(b) | March 30, 2013(c) | March 31, 2012 | ||||||||||||||||
| (millions, except per share data) | ||||||||||||||||||||
| Statement of Income Data: | ||||||||||||||||||||
| Net revenues: | ||||||||||||||||||||
| Net sales | $ | 7,230 | $ | 7,451 | $ | 7,284 | $ | 6,763 | $ | 6,679 | ||||||||||
| Licensing revenue | 175 | 169 | 166 | 182 | 181 | |||||||||||||||
| Net revenues | 7,405 | 7,620 | 7,450 | 6,945 | 6,860 | |||||||||||||||
| Gross profit | 4,187 | 4,378 | 4,310 | 4,156 | 3,998 | |||||||||||||||
| Depreciation and amortization expense | (310 | ) | (294 | ) | (258 | ) | (233 | ) | (225 | ) | ||||||||||
| Impairment of assets | (49 | ) | (7 | ) | (1 | ) | (19 | ) | (2 | ) | ||||||||||
| Restructuring and other charges | (143 | ) | (10 | ) | (18 | ) | (12 | ) | (12 | ) | ||||||||||
| Operating income | 582 | 1,035 | 1,130 | 1,127 | 1,039 | |||||||||||||||
| Interest expense, net | (15 | ) | (11 | ) | (17 | ) | (16 | ) | (13 | ) | ||||||||||
| Net income | $ | 396 | $ | 702 | $ | 776 | $ | 750 | $ | 681 | ||||||||||
| Net income per common share: | ||||||||||||||||||||
| Basic | $ | 4.65 | $ | 7.96 | $ | 8.55 | $ | 8.21 | $ | 7.35 | ||||||||||
| Diluted | $ | 4.62 | $ | 7.88 | $ | 8.43 | $ | 8.00 | $ | 7.13 | ||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||
| Basic | 85.2 | 88.2 | 90.7 | 91.3 | 92.7 | |||||||||||||||
| Diluted | 85.9 | 89.1 | 92.0 | 93.7 | 95.5 | |||||||||||||||
| Dividends declared per common share | $ | 2.00 | $ | 1.85 | $ | 1.70 | $ | 1.60 | $ | 0.80 | ||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | March 30, 2013 | March 31, 2012 | ||||||||||||||||
| (millions) | ||||||||||||||||||||
| Balance Sheet Data: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 456 | $ | 500 | $ | 797 | $ | 974 | $ | 672 | ||||||||||
| Investments | 816 | 652 | 490 | 406 | 616 | |||||||||||||||
Working capital(a) | 1,855 | 2,138 | 2,359 | 1,842 | 1,954 | |||||||||||||||
| Total assets | 6,213 | 6,106 | 6,088 | 5,418 | 5,416 | |||||||||||||||
| Total debt (including current maturities of debt) | 713 | 532 | 298 | 267 | 274 | |||||||||||||||
| Equity | 3,744 | 3,891 | 4,034 | 3,785 | 3,653 | |||||||||||||||
| F-56 | ||||||
Quarterly Periods Ended(a)(b) | ||||||||||||||||
| June 27, 2015 | September 26, 2015 | December 26, 2015 | April 2, 2016(c) | |||||||||||||
| (millions, except per share data) | ||||||||||||||||
| Net revenues | $ | 1,618 | $ | 1,970 | $ | 1,946 | $ | 1,871 | ||||||||
| Gross profit | 966 | 1,113 | 1,094 | 1,014 | ||||||||||||
| Net income | 64 | 160 | 131 | 41 | ||||||||||||
Net income per common share(d): | ||||||||||||||||
| Basic | $ | 0.74 | $ | 1.87 | $ | 1.55 | $ | 0.49 | ||||||||
| Diluted | $ | 0.73 | $ | 1.86 | $ | 1.54 | $ | 0.49 | ||||||||
| Dividends declared per common share | $ | 0.50 | $ | 0.50 | $ | 0.50 | $ | 0.50 | ||||||||
Quarterly Periods Ended(a) | ||||||||||||||||
| June 28, 2014 | September 27, 2014 | December 27, 2014 | March 28, 2015 | |||||||||||||
| (millions, except per share data) | ||||||||||||||||
| Net revenues | $ | 1,708 | $ | 1,994 | $ | 2,033 | $ | 1,885 | ||||||||
| Gross profit | 1,043 | 1,132 | 1,159 | 1,044 | ||||||||||||
| Net income | 162 | 201 | 215 | 124 | ||||||||||||
Net income per common share(d): | ||||||||||||||||
| Basic | $ | 1.82 | $ | 2.27 | $ | 2.44 | $ | 1.43 | ||||||||
| Diluted | $ | 1.80 | $ | 2.25 | $ | 2.41 | $ | 1.41 | ||||||||
| Dividends declared per common share | $ | 0.45 | $ | 0.45 | $ | 0.45 | $ | 0.50 | ||||||||