SEC Filing | Ralph Lauren Corporation

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-13057

Ralph Lauren Corporation

(Exact name of registrant as specified in its charter)


Delaware		13-2622036
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
650 Madison Avenue,		10022
New York,	New York	(Zip Code)
(Address of principal executive offices)

(212) 318-7000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on which Registered
Class A Common Stock, $.01 par value	RL	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

At February 3, 2023, 41,098,099 shares of the registrant's Class A common stock, $.01 par value, and 24,881,276 shares of the registrant's Class B common stock, $.01 par value, were outstanding.

RALPH LAUREN CORPORATION

INDEX


		Page

PART I. FINANCIAL INFORMATION (Unaudited)
Item 1.	Financial Statements:
	Consolidated Balance Sheets	2
	Consolidated Statements of Operations	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Statements of Cash Flows	5
	Consolidated Statements of Equity	6
	Notes to Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	62
Item 4.	Controls and Procedures	62

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	63
Item 1A.	Risk Factors	63
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63

Item 6.	Exhibits	64
Signatures		65


			1

RALPH LAUREN CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	December 31, 2022		April 2, 2022
	(millions)
ASSETS
Current assets:
Cash and cash equivalents	$	1,566.1	$	1,863.8
Short-term investments	131.4		734.6
Accounts receivable, net of allowances of $184.4 million and $214.7 million	424.0		405.4
Inventories	1,238.4		977.3
Income tax receivable	50.5		63.7
Prepaid expenses and other current assets	220.9		172.5
Total current assets	3,631.3		4,217.3
Property and equipment, net	947.5		969.5
Operating lease right-of-use assets	1,073.0		1,111.3
Deferred tax assets	270.4		303.8
Goodwill	890.4		908.7
Intangible assets, net	92.3		102.9
Other non-current assets	135.0		111.2
Total assets	$	7,039.9	$	7,724.7
LIABILITIES AND EQUITY
Current liabilities:

Current portion of long-term debt	$	—	$	499.8
Accounts payable	468.0		448.7
Current income tax payable	118.7		53.8
Current operating lease liabilities	264.4		262.0
Accrued expenses and other current liabilities	898.5		991.4
Total current liabilities	1,749.6		2,255.7
Long-term debt	1,138.0		1,136.5
Long-term finance lease liabilities	320.9		341.6
Long-term operating lease liabilities	1,079.2		1,132.2
Non-current income tax payable	75.5		98.9
Non-current liability for unrecognized tax benefits	97.4		91.9
Other non-current liabilities	111.5		131.9
Commitments and contingencies (Note 13)
Total liabilities	4,572.1		5,188.7
Equity:
Class A common stock, par value $.01 per share; 107.7 million and 106.9 million shares issued; 41.1 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	2,808.7		2,748.8
Retained earnings	6,615.1		6,274.9
Treasury stock, Class A, at cost; 66.6 million and 61.9 million shares	(6,754.5)		(6,308.7)
Accumulated other comprehensive loss	(202.8)		(180.3)
Total equity	2,467.8		2,536.0
Total liabilities and equity	$	7,039.9	$	7,724.7

See accompanying notes.


			2

RALPH LAUREN CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended				Nine Months Ended
	December 31, 2022		December 25, 2021		December 31, 2022		December 25, 2021
	(millions, except per share data)
Net revenues	$	1,832.3	$	1,815.4	$	4,902.8	$	4,695.8
Cost of goods sold	(641.6)		(617.3)		(1,687.6)		(1,514.4)
Gross profit	1,190.7		1,198.1		3,215.2		3,181.4
Selling, general, and administrative expenses	(900.8)		(908.8)		(2,530.7)		(2,391.9)
Impairment of assets	—		—		(0.2)		(19.3)
Restructuring and other charges, net	(7.8)		(0.2)		(20.3)		(8.6)
Total other operating expenses, net	(908.6)		(909.0)		(2,551.2)		(2,419.8)
Operating income	282.1		289.1		664.0		761.6
Interest expense	(12.0)		(13.4)		(33.3)		(40.3)
Interest income	8.6		1.4		18.8		4.4
Other income (expense), net	1.7		0.1		(6.8)		(0.4)
Income before income taxes	280.4		277.2		642.7		725.3
Income tax provision	(63.9)		(59.5)		(152.3)		(149.6)
Net income	$	216.5	$	217.7	$	490.4	$	575.7
Net income per common share:
Basic	$	3.26	$	2.98	$	7.19	$	7.82
Diluted	$	3.20	$	2.93	$	7.07	$	7.68
Weighted-average common shares outstanding:
Basic	66.5		73.2		68.2		73.7
Diluted	67.6		74.3		69.4		75.0
Dividends declared per share	$	0.75	$	0.6875	$	2.25	$	2.0625

See accompanying notes.


			3

RALPH LAUREN CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended				Nine Months Ended
	December 31, 2022		December 25, 2021		December 31, 2022		December 25, 2021
	(millions)
Net income	$	216.5	$	217.7	$	490.4	$	575.7
Other comprehensive income (loss), net of tax:
Foreign currency translation gains (losses)	67.0		(30.6)		(28.8)		(29.8)
Net gains (losses) on cash flow hedges	(12.5)		0.3		6.4		0.4
Net gains (losses) on defined benefit plans	—		0.1		(0.1)		—
Other comprehensive income (loss), net of tax	54.5		(30.2)		(22.5)		(29.4)
Total comprehensive income	$	271.0	$	187.5	$	467.9	$	546.3

See accompanying notes.


			4

RALPH LAUREN CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended
	December 31, 2022		December 25, 2021
	(millions)
Cash flows from operating activities:
Net income	$	490.4	$	575.7
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	163.3		169.3
Deferred income tax expense (benefits)	21.3		(1.8)

Stock-based compensation expense	59.9		62.6
Impairment of assets	0.2		19.3

Bad debt expense (reversals)	0.2		(2.7)
Other non-cash charges (benefits)	(1.3)		5.1
Changes in operating assets and liabilities:
Accounts receivable	(30.5)		31.7
Inventories	(282.7)		(211.6)
Prepaid expenses and other current assets	(54.2)		(37.8)
Accounts payable and accrued liabilities	(24.3)		296.1
Income tax receivables and payables	69.9		(11.0)

Operating lease right-of-use assets and liabilities, net	(9.8)		(42.2)
Other balance sheet changes	(5.4)		(31.0)
Net cash provided by operating activities	397.0		821.7
Cash flows from investing activities:
Capital expenditures	(155.9)		(113.6)
Purchases of investments	(562.2)		(1,234.8)
Proceeds from sales and maturities of investments	1,161.5		714.7



Other investing activities	(5.2)		(2.1)
Net cash provided by (used in) investing activities	438.2		(635.8)
Cash flows from financing activities:


Repayments of long-term debt	(500.0)		—
Payments of finance lease obligations	(15.9)		(16.8)
Payments of dividends	(148.8)		(101.1)
Repurchases of common stock, including shares surrendered for tax withholdings	(445.8)		(340.4)


Net cash used in financing activities	(1,110.5)		(458.3)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(23.2)		(30.2)
Net decrease in cash, cash equivalents, and restricted cash	(298.5)		(302.6)
Cash, cash equivalents, and restricted cash at beginning of period	1,872.0		2,588.0
Cash, cash equivalents, and restricted cash at end of period	$	1,573.5	$	2,285.4

See accompanying notes.


			5

RALPH LAUREN CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


	Three Months Ended December 31, 2022
	Common Stock(a)			Additional Paid-in Capital				Treasury Stock at Cost
						Retained Earnings							Total Equity
	Shares	Amount						Shares	Amount		AOCI(b)
	(millions)
Balance at October 1, 2022	132.6	$	1.3	$	2,789.5	$	6,448.1	66.3	$	(6,726.0)	$	(257.3)	$	2,255.6
Comprehensive income:
Net income						216.5
Other comprehensive income											54.5
Total comprehensive income													271.0
Dividends declared						(49.5)							(49.5)
Repurchases of common stock								0.3	(28.5)				(28.5)
Stock-based compensation				19.2									19.2
Shares issued pursuant to stock-based compensation plans	—	—		—									—
Balance at December 31, 2022	132.6	$	1.3	$	2,808.7	$	6,615.1	66.6	$	(6,754.5)	$	(202.8)	$	2,467.8

	Three Months Ended December 25, 2021
	Common Stock(a)			Additional Paid-in Capital				Treasury Stock at Cost
						Retained Earnings							Total Equity
	Shares	Amount						Shares	Amount		AOCI(b)
	(millions)
Balance at September 25, 2021	131.8	$	1.3	$	2,707.7	$	6,129.8	58.1	$	(5,856.0)	$	(120.0)	$	2,862.8
Comprehensive income:
Net income						217.7
Other comprehensive loss											(30.2)
Total comprehensive income													187.5
Dividends declared						(48.9)							(48.9)
Repurchases of common stock								2.5	(300.5)				(300.5)
Stock-based compensation				22.0									22.0
Shares issued pursuant to stock-based compensation plans	—	—		—									—
Balance at December 25, 2021	131.8	$	1.3	$	2,729.7	$	6,298.6	60.6	$	(6,156.5)	$	(150.2)	$	2,722.9

(a)Includes Class A and Class B common stock.

(b)Accumulated other comprehensive income (loss).


			6

RALPH LAUREN CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY (Continued)

(Unaudited)


	Nine Months Ended December 31, 2022
	Common Stock(a)			Additional Paid-in Capital				Treasury Stock at Cost
						Retained Earnings							Total Equity
	Shares	Amount						Shares	Amount		AOCI(b)
	(millions)
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						490.4
Other comprehensive loss											(22.5)
Total comprehensive income													467.9
Dividends declared						(150.2)							(150.2)
Repurchases of common stock								4.7	(445.8)				(445.8)
Stock-based compensation				59.9									59.9
Shares issued pursuant to stock-based compensation plans	0.8	—		—									—

Balance at December 31, 2022	132.6	$	1.3	$	2,808.7	$	6,615.1	66.6	$	(6,754.5)	$	(202.8)	$	2,467.8

	Nine Months Ended December 25, 2021
	Common Stock(a)			Additional Paid-in Capital				Treasury Stock at Cost
						Retained Earnings							Total Equity
	Shares	Amount						Shares	Amount		AOCI(b)
	(millions)
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						575.7
Other comprehensive loss											(29.4)
Total comprehensive income													546.3
Dividends declared						(150.0)							(150.0)
Repurchases of common stock								2.8	(340.4)				(340.4)
Stock-based compensation				62.6									62.6
Shares issued pursuant to stock-based compensation plans	0.8	—		—									—

Balance at December 25, 2021	131.8	$	1.3	$	2,729.7	$	6,298.6	60.6	$	(6,156.5)	$	(150.2)	$	2,722.9

(a)Includes Class A and Class B common stock.

(b)Accumulated other comprehensive income (loss).

See accompanying notes.


			7

RALPH LAUREN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share data and where otherwise indicated)

(Unaudited)

1. Description of Business

Ralph Lauren Corporation ("RLC") is a global leader in the design, marketing, and distribution of luxury lifestyle products, including apparel, footwear & accessories, home, fragrances, and hospitality. RLC's long-standing reputation and distinctive image have been developed across a wide range of products, brands, distribution 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, and Chaps, 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 diversifies its business by geography (North America, Europe, and 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 sells directly to consumers through its integrated retail channel, which includes its retail stores, concession-based shop-within-shops, and digital 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 third parties for specified periods the right to access its various trademarks in connection with the licensees' manufacture and sale of designated products, such as certain apparel, eyewear, fragrances, and 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 17 for further discussion of the Company's segment reporting structure.

2. Basis of Presentation

Interim Financial Statements

These interim consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the "SEC") and are unaudited. In the opinion of management, these consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the consolidated financial position, income (loss), comprehensive income (loss), and cash flows of the Company for the interim periods presented. In addition, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP") and the notes thereto have been condensed or omitted from this report as is permitted by the SEC's rules and regulations. However, the Company believes that the disclosures provided herein are adequate to prevent the information presented from being misleading.

This report should be read in conjunction with the Company's Annual Report on Form 10-K filed with the SEC for the fiscal year ended April 2, 2022 (the "Fiscal 2022 10-K").

Basis of Consolidation

These unaudited interim consolidated financial statements 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 8, 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.


			8

RALPH LAUREN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal Periods

The Company utilizes a 52-53 week fiscal year ending on the Saturday immediately before or after March 31. As such, fiscal year 2023 will end on April 1, 2023 and will be a 52-week period ("Fiscal 2023"). Fiscal year 2022 ended on April 2, 2022 and was a 53-week period ("Fiscal 2022"). The third quarter of Fiscal 2023 ended on December 31, 2022 and was a 13-week period. The third quarter of Fiscal 2022 ended on December 25, 2021 and was also a 13-week period.

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 notes thereto. Actual results could differ materially from those estimates.

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 forfeiture rates; and reserves for restructuring 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.

Seasonality of Business

The Company's business is typically affected by seasonal trends, with higher levels of retail sales in its second and third fiscal quarters and higher wholesale sales in its second and fourth fiscal quarters. These trends result primarily from the timing of key vacation travel, back-to-school, and holiday shopping periods impacting its retail business and the timing of seasonal wholesale shipments. As a result of changes in its 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 the Company's 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. Accordingly, the Company's operating results and cash flows for the three-month and nine-month periods ended December 31, 2022 are not necessarily indicative of the operating results and cash flows that may be expected for the full Fiscal 2023.

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 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, forced business closures, and stay-at-home orders, all in an effort to reduce the spread of the virus.

As a result of the COVID-19 pandemic, the Company has experienced varying degrees of business disruptions since its beginning, including periods of closure of its stores and corporate-related facilities, as have the Company's wholesale customers, licensing partners, and suppliers. Such disruptions continued throughout Fiscal 2022 in certain regions, although to a lesser extent than the widespread significant disruptions experienced during the Company's fiscal year ended March 27, 2021 ("Fiscal 2021"), and have since extended into Fiscal 2023, most notably in Asia where approximately 50% of the Company's stores in China experienced closures for a significant portion of the first quarter, followed by sporadic closures during the second quarter impacting approximately 35% of the Company's mainland stores. 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, as well as reduced staffing, with traffic remaining challenged. Most recently, more than 90% of the Company's mainland China stores were impacted during the third quarter by some form of closure, restricted operating hours, or reduced staffing due to higher levels of infection rates


			9

RALPH LAUREN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

following China's relaxation of its zero-COVID policy. 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 continues to adversely impact 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 have reduced the availability of inventory, delayed timing of inventory receipts, and resulted in increased costs for both the purchase and transportation of such inventory.

Despite the development of COVID-19 vaccines, the pandemic remains volatile and continues to evolve, with resurgences and outbreaks occurring in various parts of the world, including those resulting from variants of the virus. Accordingly, the Company cannot predict for how long and to what extent the pandemic will continue to impact its business operations or the overall global economy. The Company will continue to assess its operations location-by-location, considering the guidance of local governments and global health organizations.

3. Summary of Significant Accounting Policies

Revenue Recognition

The Company recognizes revenue across all channels of the business when it satisfies its performance obligations by transferring control of promised products or services to its customers, which occurs either at a point in time or over time, depending on when the customer obtains the ability to direct the use of and obtain substantially all of the remaining benefits from the products or services. The amount of revenue recognized considers terms of sale that create variability in the amount of consideration that the Company ultimately expects to be entitled to in exchange for the products or services, and is subject to an overall constraint that a significant revenue reversal will not occur in future periods. Sales and other related taxes collected from customers and remitted to government authorities are excluded from revenue.

Revenue from the Company's retail business is recognized when the customer takes physical possession of the products, which occurs either at the point 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 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 amounts have not differed materially from actual results.

Revenue from the Company's licensing arrangements is recognized over time during the period that licensees are provided access to the Company's trademarks (i.e., symbolic intellectual property) and benefit from such access through their own sales of licensed products. These arrangements require licensees to pay a sales-based royalty, which for most arrangements, may be subject to a contractually-guaranteed minimum royalty amount. Payments are generally due quarterly and, depending on time of receipt, may be recorded as a liability until recognized as revenue. The Company recognizes revenue for sales-based royalty arrangements (including those for which the royalty exceeds any contractually-guaranteed minimum


			10

RALPH LAUREN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

royalty amount) as licensed products are sold by the licensee. If a sales-based royalty is not ultimately expected to exceed a contractually-guaranteed minimum royalty amount, the minimum is generally recognized as revenue ratably over the respective contractual period. This sales-based output measure of progress and pattern of recognition best represents the value transferred to the licensee over the term of the arrangement, as well as the amount of consideration that the Company is entitled to receive in exchange for providing access to its trademarks. As of December 31, 2022, contractually-guaranteed minimum royalty amounts expected to be recognized as revenue during future periods were as follows:


	Contractually-Guaranteed Minimum Royalties(a)
	(millions)
Remainder of Fiscal 2023	$	14.5
Fiscal 2024	98.9
Fiscal 2025	62.8
Fiscal 2026	44.0
Fiscal 2027	40.7
Fiscal 2028 and thereafter	11.3
Total	$	272.2

(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 periods presented:


	Three Months Ended
	December 31, 2022										December 25, 2021
	North America		Europe		Asia		Other		Total		North America		Europe		Asia		Other		Total
	(millions)
Sales Channel(a):
Retail	$	653.5	$	254.9	$	361.5	$	—	$	1,269.9	$	638.4	$	246.4	$	364.2	$	—	$	1,249.0
Wholesale	284.1		214.4		24.7		—		523.2		290.3		216.5		18.4		0.2		525.4
Licensing	—		—		—		39.2		39.2		—		—		—		41.0		41.0
Total	$	937.6	$	469.3	$	386.2	$	39.2	$	1,832.3	$	928.7	$	462.9	$	382.6	$	41.2	$	1,815.4


	Nine Months Ended
	December 31, 2022										December 25, 2021
	North America		Europe		Asia		Other		Total		North America		Europe		Asia		Other		Total
	(millions)
Sales Channel(a):
Retail	$	1,515.3	$	675.6	$	963.6	$	—	$	3,154.5	$	1,472.5	$	646.7	$	885.4	$	27.2	$	3,031.8
Wholesale	849.6		702.8		73.1		—		1,625.5		821.4		666.6		55.3		5.5		1,548.8
Licensing	—		—		—		122.8		122.8		—		—		—		115.2		115.2
Total	$	2,364.9	$	1,378.4	$	1,036.7	$	122.8	$	4,902.8	$	2,293.9	$	1,313.3	$	940.7	$	147.9	$	4,695.8

(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.


			11

RALPH LAUREN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Deferred Income

Deferred income represents 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 (net of breakage) and advance royalty payments from licensees. The Company's deferred income balances were $22.0 million and $16.6 million as of December 31, 2022 and April 2, 2022, respectively, and were primarily recorded within accrued expenses and other current liabilities within the consolidated balance sheets. The majority of the deferred income balance as of December 31, 2022 is expected to be recognized as revenue within the next twelve months.

Shipping and Handling Costs

Costs associated with shipping goods to customers are accounted for as fulfillment activities and reflected as selling, general, and administrative ("SG&A") expenses in the consolidated statements of operations. Costs of preparing merchandise for sale, such as picking, packing, warehousing, and order charges ("handling costs"), are also included in SG&A expenses. Shipping and handling costs billed to customers are included in revenue.

A summary of shipping and handling costs for the fiscal periods presented is as follows:


	Three Months Ended				Nine Months Ended
	December 31, 2022		December 25, 2021		December 31, 2022		December 25, 2021
	(millions)
Shipping costs	$	25.7	$	24.1	$	60.7	$	52.9
Handling costs	51.5		43.4		128.2		113.6

Net Income per Common Share

Basic net income per common share is computed by dividing net income 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 per common share adjusts basic net income per common share for the dilutive effects of outstanding restricted stock units ("RSUs"), stock options, and any other potentially dilutive instruments, only for the periods in which such effects are dilutive.

The weighted-average number of common shares outstanding used to calculate basic net income per common share is reconciled to shares used to calculate diluted net income per common share as follows:


	Three Months Ended		Nine Months Ended
	December 31, 2022	December 25, 2021	December 31, 2022	December 25, 2021
	(millions)
Basic shares	66.5	73.2	68.2	73.7
Dilutive effect of RSUs and stock options	1.1	1.1	1.2	1.3
Diluted shares	67.6	74.3	69.4	75.0

All earnings per share amounts have been calculated using unrounded numbers. The Company has outstanding performance-based RSUs, which are included in the computation of diluted shares only to the extent that the underlying performance conditions (i) have been satisfied as of the end of the reporting period or (ii) would be considered satisfied if the end of the reporting period were the end of the related contingency period and the result would be dilutive. In addition, options to purchase shares of the Company's Class A common stock at an exercise price greater than the average market price of such common stock during the reporting period are anti-dilutive and therefore not included in the computation of diluted net income per common share. As of December 31, 2022 and December 25, 2021, there were 0.3 million and 0.4 million, respectively, of additional shares issuable contingent upon vesting of performance-based RSUs that were excluded from the diluted shares calculations.


			12

RALPH LAUREN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 are recorded at amortized cost, which approximates fair value, and are presented in the 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 as follows:


	Three Months Ended				Nine Months Ended
	December 31, 2022		December 25, 2021		December 31, 2022		December 25, 2021
	(millions)
Beginning reserve balance	$	166.8	$	184.8	$	180.7	$	173.7
Amount charged against revenue to increase reserve	96.6		101.1		298.8		289.8
Amount credited against customer accounts to decrease reserve	(114.2)		(106.0)		(316.9)		(283.2)
Foreign currency translation	7.5		(4.3)		(5.9)		(4.7)
Ending reserve balance	$	156.7	$	175.6	$	156.7	$	175.6

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, among other factors.

A rollforward of the activity in the Company's allowance for doubtful accounts is presented as follows:


	Three Months Ended				Nine Months Ended
	December 31, 2022		December 25, 2021		December 31, 2022		December 25, 2021
	(millions)
Beginning reserve balance	$	27.7	$	37.9	$	34.0	$	40.1
Amount recorded to expense to increase (decrease) reserve(a)	(0.4)		(1.8)		0.2		(2.7)
Amount written-off against customer accounts to decrease reserve	(0.6)		(0.5)		(5.5)		(1.8)
Foreign currency translation	1.0		(0.7)		(1.0)		(