Yahoo Finance

Justin Picicci

Thanks, Patrice, and good morning, everyone. Fiscal '25 was another successful year for Ralph Lauren. We delivered on the financial commitments we laid out last May, and made meaningful progress against our long-term strategic priorities. We closed out the year with fourth quarter results that exceeded our expectations across revenues and gross and operating margins. All three regions contributed to both revenue growth and operating margin expansion.
In addition to driving excitement and desirability for our branded products around the world, we were especially proud to reinforce our strong quality of sales. consistent with our long-term elevation strategy. At the same time, our strong balance sheet and cash flow generation enabled us to continue investing behind our key strategic growth drivers while maintaining our commitments to shareholders.
We generated $1 billion of free cash flow this year, enabling us to return $625 million to shareholders through dividends and repurchases. And our Board of Directors recently authorized a 10% increase in our annual dividend and an additional $1.5 billion in share repurchases to support future returns. These results are strong proof points of our multiple drivers of growth as we enter the new fiscal year in the midst of a more uncertain global consumer backdrop.
Let me walk you through our financial highlights from the fourth quarter, which, as a reminder, are provided on a constant currency basis. Total company fourth quarter revenue growth of 10% was above our 6% to 7% outlook driven by better performance in both our direct-to-consumer and wholesale channels. This year's later Easter shifted about 1 point of sales growth from the fourth quarter into the first quarter of next fiscal year.
By region, Europe led our performance with sales increasing 16%, followed by Asia up 13% and North America up 6%. Total company comp sales increased 13%, led by an acceleration in our own digital business and ongoing momentum in our brick-and-mortar channels. Total digital ecosystem sales, including owned sites and wholesale digital accounts, grew high teens, led by Europe. Total company adjusted gross margin expanded 260 basis points to 69.2%. This increase was driven by AUR growth, favorable mix shift towards our full price and international businesses and lower cotton costs more than offsetting higher noncotton material cost.
AUR increased 9% in the fourth quarter. supported by strong full price selling trends, reduced discounting and favorable channel and geographic mix. We expect similar high single-digit AUR growth in the first quarter of fiscal '26, reflecting our ongoing brand elevation strategy. Adjusted operating expenses grew 11% to 58.1% of sales, up 30 basis points to last year. The increase was primarily driven by higher compensation and variable selling expenses. Fourth quarter marketing investments increased 9% to 6.5% of sales.
Full year marketing grew 11% to 7.3% of sales, ahead of our long-term strategic target of 7%, and we expect a similar level of marketing as a percentage of sales in fiscal '26. Fourth quarter adjusted operating margin expanded 240 basis points to 11.1%, and operating profit increased 40%, both ahead of plan.
Moving to segment performance. and starting with North America, fourth quarter revenue increased 6%, exceeding our outlook due to stronger-than-expected sales in both our DTC and wholesale channels. And the region delivered its highest fourth quarter adjusted operating margin since we began our elevation journey more than eight years ago.
In North America Retail, fourth quarter comps increased 9% and with strong growth in both our Ralph Lauren and outlet stores. Digital comps increased 8%, improving sequentially on recent interventions. And we drove another strong quarter in our digital wholesale business, with sellout up low teens.
Total North America wholesale revenue increased 2%. Our wholesale AUR increased low single digits on well-positioned inventories in the channel. Full price sell-out was once again in line with sell-in this quarter after adjusting for the Easter shift, supported by a strong product offering and growth in core replenishment. While we are encouraged by our recent stabilization in the channel, we maintain our cautious outlook into fiscal '26 on potential macro challenges in the broader North America market.
We completed the exit of 60 department store doors this fiscal year. And we plan to exit about 90 doors in fiscal '26 with approximately half of these related to Hudson's Bay. While the ongoing exits are not material to our financial results, we continue to proactively evaluate and refine our brand presence on a door-by-door basis.
Moving to Europe. Fourth quarter revenue increased 16% and driven by double-digit growth in both our retail and wholesale channels. All of our key markets delivered growth in the quarter and for the full year, led by Germany, France and Italy.
Sales grew in the UK for the second consecutive quarter, following several years of inflationary pressures, reflecting strong brand momentum and continued improvement in our underlying trends. Europe retail comps increased 18% to last year, led by our digital channels with continued strong momentum in our brick-and-mortar businesses.
Our digital ecosystem, including owned and wholesale digital accounts, grew more than 20% on top of a solid compare last year. Europe wholesale increased 14%, supported by strong reorder trends and the previously discussed timing shift of receipts from the second quarter to the back half of the year. Adjusting for the shifts, wholesale would have increased roughly mid-single digits to last year, in line with our underlying trend of low to mid-single-digit growth in the channel.
Turning to Asia. Fourth quarter revenue increased 13%, with all markets contributing to growth for both the quarter and the full year. Retail comps were up 15%, with strong growth in both digital and brick-and-mortar stores, fueled by our impactful brand activations across the region.
By market, our performance was led by China, which grew more than 20% to last year on continued comp growth, high-quality new customer recruitment and key marketing moments, including our Lunar New Year activations. Sales in Japan increased mid-teen to last year, driven by strong full price selling and reduced discounting, along with continued tailwinds from foreign tourism.
Moving to the balance sheet. We ended the year with $2.1 billion in cash and short-term investments and $1.1 billion in total debt. Net inventory was up 5% to last year, reflecting increased global demand for our products and the timing shift of Easter into the first quarter of fiscal '26. Inventory levels are well positioned relative to our outlook and we continue to manage inventories with discipline in line with consumer demand.
Strategic and thoughtful balance sheet management has been a key enabler for Ralph Lauren. Our strong balance sheet has allowed us to weather significant industry volatility, make the best long-term decisions to protect and enhance our brand and fuel our strategic investments while also returning cash to shareholders. In the current environment, we are focused on leaning into market opportunities and investing for long-term growth. This includes investing in key city marketing activations, upgrading our store experiences, and pursuing very selective real estate opportunities as we continue to drive DTC-led growth.
For example, in April, we acquired our global Polo flagship location in Soho, Manhattan, one of New York's premier shopping destinations. Looking ahead, our outlook remains based on our best assessment of the current operating environment and consumer behavior. This includes tariffs, inflationary pressures and other consumer spending related headwinds, supply chain disruptions and foreign currency fluctuations, among other considerations.
Given the high level of volatility in the current context, we consider our full year outlook to be preliminary based on the information available today and subject to change as trade dynamics and other macro factors continue to evolve.
For fiscal '26, we expect constant currency revenues to increase low single digits, driven by our growth in our Asia and Europe businesses. We expect this year's performance to be heavily weighted to the first half of the year, notably Q1, with first half revenues up roughly mid-single digits. While we have not seen a change in our underlying business trends from Q4 into Q1 to date, we believe it is prudent to take a more cautious view on the second half of the year based on a number of macro indicators. Notably, the impact of tariffs, weakening consumer confidence in the US and increased risk of a broader consumer pullback and a more uncertain global operating environment in general.
We currently expect operating margin to expand modestly in constant currency, largely driven by SG&A leverage. Based on our current view of the tariff landscape, we expect gross margins to be roughly flat to last year with AUR growth, discount reductions and favorable product, DTC and international mix, offsetting negative impacts from tariffs and noncotton material costs.
We are assessing additional pricing actions for Fall '25 and Spring '26 to mitigate the potential impact of evolving tariffs. This is on top of the proactive pricing we already planned for Fall '25 in North America and Asia.
While tariffs will primarily impact our gross margins beginning in the second half of the year, we have a proven tool kit to manage cost inflation headwinds. This includes, first, significant supply chain diversification. We work with our many key suppliers worldwide to flex volume is based on quality and cost. No single country accounts for more than 20% of our production volumes with most countries representing a single-digit percentage, including our China production for the US.
Second, partnering with our suppliers to drive other efficiencies in our cost of goods and broader supply chain operations. And third, taking selective pricing actions and strategic discount reductions, with the goal of continuing to deliver the best value proposition for our consumers. While tariffs are expected to be a headwind, we are better positioned than ever before with greater agility to mitigate related pressures with a more elevated less price-sensitive customer base, international business that now represents 57% of our total revenues, up from 45% pre-pandemic. Gross margins that are 700 basis points higher than our pre-pandemic levels and disciplined inventory management and the ability to flex expenses.
We expect freight to be roughly neutral in fiscal '26. And based on our recent ocean contract renewals. Foreign currency is expected to have a relatively minimal impact on revenue as well as on gross and operating margins in fiscal '26. For the first quarter, which is marginally impacted by tariffs. We expect constant currency revenues to increase approximately high single digits.
We expect first quarter operating margin to expand approximately 150 to 200 basis points in constant currency, driven primarily by gross margin expansion as well as by modest operating expense leverage. Foreign currency is expected to have a roughly neutral impact on revenue and on gross and operating margins in the first quarter. We expect our first quarter tax rate to be in the range of 20% to 21%. And a full year fiscal '26 tax rate of approximately 20% to 22%.
Capital expenditures are expected in the range of approximately 4% to 5% of sales, in line with our long-term outlook. This includes our recent Prince Street store acquisition and ongoing investments in our key city ecosystems, technology and AI and and our multiyear next-generation transformation project, which we kicked off in fiscal '24.
In closing, we are proud of our team's execution in this third and final year of our next great chapter Accelerate plan. guided by Ralph's enduring vision of inspiring people everywhere to step into their dream of a better life. We will continue to navigate the evolving global environment with agility and resolve and remain acutely focused on delivering on our strategic priorities.
With that, let's open up the call for your questions.

Question and Answer Session

Operator

(Operator instructions)
Matt Boss, JP Morgan.

Matthew Boss

Thanks and congrats on another great quarter.

Patrice Louvet

Thank you, Matt.

Matthew Boss

So Patrice, given the continued strong performance in a choppy environment, how are you thinking about the health of your consumer across regions in today's more uncertain backdrop or -- or what changes, if any, are you making to your strategy?
And then, Justin, maybe could you just help bridge the delta between high single-digit revenue growth in the first quarter relative to low single digits for the full year or what are you embedding in the back half by region relative to performance that you're seeing today?

Patrice Louvet

Good morning, Matt, and thanks for your question. So I'm going to start with the last part of your question and then address the consumer, and then we'll turn it over to Justin. So first of all, the last few years has really demonstrated that our strategy can deliver through very different types of environments. We have strong brand momentum with significant potential to continue growing across key markets and to continue to take market share, and we have proven resilience in our business model, supported by strong execution by our teams across our key cities around the world, our agile and diversified supply chain and our powerful balance sheet.
So I would say the backbone of our strategy is as relevant today as it was a few years ago and will remain broadly unchanged. Obviously, we'll be sharing more updates when we get together later this year for Investor Day, right? But the key tenants are -- we're continuing to invest in our brand and continuing to focus on driving desirability and value perception across generations.
We're continuing to leverage the breadth of our lifestyle portfolio, leaning into products that consumers know and trust from our iconic sweaters to Oxford shirts to Pony caps, and then we're deepening and expanding our key city ecosystem go-to-market model.
With our brand really resonating around the world. That's one of the things Jeff and I are most excited about about our recent performance is the breadth of our performance across the markets wherever you go. And the brand is resonating from Milan and Munich, all the way to Shanghai, Melbourne and closer to home here in New York.
Now we're keenly aware of the uncertainty that defines the current environment. One element of our culture and capabilities that we really reinforced in recent years is this muscle of agility. But as you've heard on this call, it's not about playing defense for us, it's about leaning into opportunities.
Now specifically on your question regarding the consumer and what we're seeing. So it's clear that the consumer in general is pressured by the geopolitical and economic environment. And we see that in consumer sentiment surveys in the US, in China, in the UK.
When it comes to our core consumer, which as you know, are more elevated consumers. They have remained resilient, as you heard from Justin's prepared remarks. We have not seen a change in the underlying trajectory of any of our three regions, APAC, EMEA or North America, and our full price sales continue to grow at a healthy pace.
Now at the same time, we're in touch with reality, and like all of you, we continue to closely monitor the macros. So to sum it up, we are still encouraged by what we're seeing so far, a few weeks into our new fiscal year, We are clearly staying on offense while remaining prudent and agile in how we allocate our resources and execute in this environment.
I'll turn it over to Justin to answer your question on the fiscal year planning.

Justin Picicci

So as Patrice mentioned, we're still seeing really nice momentum in our business across regions. And for our full year outlook, you saw us got pretty consistent growth trends for international, led by Asia, followed by Europe. North America is where we took a bit more of a cautious approach to our preliminary guide given the macro environment and the impact of cost inflation on consumer spending and notably for that second half of the year.
So now we're focusing on our current trends, right? The Q1 guide still reflects positive growth, right? And it's really a call on our part of the macro. So it's really consumer sentiment and the expectation that customers have to deal with significant pricing across the board as a result of cost inflation. It's our best estimate at this time of those two. And if they improve for the second half and the risk doesn't materialize and we saw opportunities to chase into and capture that higher demand like we saw us do for holiday.

Corinna Van der Ghinst

Thank you. Next question, please.

Operator

Jay Sole, UBS.

Jay Sole

Great, thank you so much, Justin, we understand that the tariff situation is still unfolding, and your outlook is subject to change based on some of these moving targets. But how should we think about your pricing strategy for fiscal '26, especially in the context of all the AUR growth you've already delivered over the past eight years?

Justin Picicci

Thanks, Jay. Our company is well positioned to manage a variety of cost headwinds. And as Patrice just talked, we've been on a multiyear strategic journey to elevate our brand, our products, our customer environment and experiences and one notable output of that, of course, has been AUR, which has grown every quarter for the past eight years. It is up pretty meaningfully over that same period of time.
Another important output has been our luxury and value perceptions, which have also grown progressively over time. So for Fall '25, we proactively plan to select pricing actions in North America and certain of our other global markets like Japan, where, as we all know, we're offsetting several years of structural FX headwinds.
So with the recent tariff announcements, what we're doing is we're assessing and we're activating our various proven levers to offset the related impact. And these levers include, first, as you know, we've already significantly diversified our global supply chain over the past eight, nine years. And as the cost equation shifts, we'll continue to reallocate production to markets with lower overall landed costs, while at the same time, maintaining our high level quality.
Today, as a result of our diversification, no single country is over 20% of our production exposure. And our China to US production is a single-digit percentage. Second, we're working together with our strategic supply chain partners to drive greater cost efficiencies. Third, continuing to drive overall cost savings across the value chain and increasingly leveraging AI analytics to enable even more efficient inventory planning.
And fourth, assessing selective pricing actions and further reductions in discounts, both in North America and in our other regions with a continued focus on providing a compelling value proposition to our consumers.
So specifically, Jay, to your question, we expect AUR for Q1 to trend consistently with the quarter we just reported. So up roughly high single digits to last year. And for the balance of the year, we're staying flexible. We have a range of established levers we can activate as needs.

Corinna Van der Ghinst

Thank you. Next question.

Operator

Michael Binetti, Evercore ISI.

Michael Binetti

Hi, guys, thanks for all the details today. Congrats on a great quarter. Justin, could you just double-click a little bit on the comment that you made earlier on pricing. It sounds like you had some that you do have included in the year that I think you phrased it as proactive -- but it sounds like you haven't included pricing in full for the tariffs that are on the table right now for the back half of the year.
Maybe just some commentary there. And then -- if you could just maybe offer a little bit more color to one of your answers earlier on revenues by the geographies in first quarter to understand. It sounds like the momentum is continuing across all three. Where we need to be mindful of any shifting or one-offs as we think about building up the model by the geographies and segments for the first quarter. Thank you.

Justin Picicci

Sure. So on pricing, just to take a step back for a moment, right? So we're on a long-term brand elevation journey. And you've seen our AUR grow along with our value perception -- and there are a number of durable drivers behind the AUR growth, right? There's product elevation and mix, there's channels and geo favorable mix, there's discount reductions and there's targeted pricing actions.
Right now as we discuss, we expect a high single-digit AUR growth. And in Q1, consistent with past quarters, but tariffs and any related mitigation actions have a minimal impact on that quarter. So while the situation is fluid and still evolving, we're confident we have the flexibility to do what we need to do to offset any potential cost headwinds.
You saw us do it during cotton inflation. You saw us doing (inaudible) freight cost peak. You still have to do it for structural FX weakness. And as you would expect, we're approaching this by looking at our full toolkit to mitigate any potential cost ends, right?
And one of those tools is price, but there are other tools as I just laid out. Now we did proactively take price, as I mentioned, for full '25, a few months ago. And so we're focused on reassessing additional opportunities as the situation evolves and really, the number one foundational focus is ensuring the customer is seeing value in our elevation work across product, marketing, experience and environment.

Corinna Van der Ghinst

And the revenue side geography?

Justin Picicci

So the revenues by geography, and I talked a little bit about this before, if we think about the shape of the year, overall, we're guiding sort of that low single-digit growth, I would say, led by Asia at that sort of high single-digit mark, followed by Europe in that mid-single-digit growth range. And then with North America, would that caution in the second half overall, down low to mid-single digits.

Corinna Van der Ghinst

Next question, please.

Operator

Dana Telsey, Telsley Advisory Group.

Dana Telsey

Good morning everyone. Given the -- as we think about next year, how are you thinking about marketing spend and recreate the potential categories of women, outerwear and handbags did very well up high teens. How are those being planned going forward? And what are you seeing there? And just lastly, the real estate ownership of SoHo was very interesting. What is the real estate plans for this upcoming fiscal year? And does any other ownership being thought about? Thank you.

Patrice Louvet

All right, Dana. Thank you. Good morning. So listen, on marketing, you know that we've taken marketing up significantly over the past few years. Used to be less than 4% of revenue. We're a record high 7.3% of revenue this past fiscal year. We expect to continue at that level in the fiscal year that we just started.
What that enables is a portfolio of marketing activations that enables us to talk to many different generations ranging from activities around the Hampton show to our major baseball activation in Tokyo to road blocks, Polo Beach activity. So expect that to continue. And then as we've talked in prior meetings, over time, we would like to continue to expand our marketing investments while also continuing to expand the overall profitability of the company. So more to come on that when we get together for Investor Day in September.
I'm glad you noticed our high potential categories have done particularly well. We're really pleased with the work that our teams are doing on women's apparel, outerwear across all brands and handbags. We have very nice momentum across all three. We are building scale across these businesses. I feel very good about the capabilities that we have in place.
These markets, as you know, to use Matt's favorite terminology of TAM, total addressable market have significant potential for us -- and so you're going to see us continue to build on the core because that's the foundation of this company and the court did well again this quarter, but continue to drive accelerated performance across all three of these different businesses where the consumer is clearly responding across across generations.
When it comes to real estate, turning over to Justin.

Justin Picicci

Perfect. So Dan, when you think about our capital allocation principles that we've talked, they're consistent and they remain largely unchanged. The first and foremost, principal is investing in our business focused on strong ROI opportunities, right, both in the short term and the longer term. And I would include targeted real estate acquisitions here as well.
The Prince Street purchase is really about investing in our business by pursuing a selected key location of a store that we plan to be in for the long term that plays an iconic world in our key city ecosystem, like New York City, one of our key top ecosystems.
French free store, our global Pollo collection. We've been there for many years. It's a really smart investment to purchase a location to future-proof our business in this critical market, and it also results in pretty meaningful year-over-year P&L benefit due to the rent saving. We're on a deep PC-led growth path here, and this is reinforcing that strategy of putting our balance sheet to work a little bit more and show that we can do both. We can deliver on our short-term commitments and also continue to make investments for a longer term.

Patrice Louvet

And then Dan, I think as you look ahead, exactly to Justin's point, as we build this key city ecosystem, we're going to be very selective where we see these real estate opportunities, but where we have prime presence that we believe will be important for the business for the long term and if there's an opportunity to put our resources to use in a smart way, then we will do that, but expect us to do that very selectively for iconic locations.

Corinna Van der Ghinst

Next question, please.

Operator

Ike Boruchow, Wells Fargo.

Ike Boruchow

Hey everyone, Let me add my congrats to the quarter to the brand heat. Maybe, Justin, I wanted to kind of focus on the US wholesale channel. So you've kind of seems like sell and sell out has been stabilized. The channel is growing a little bit, but I know you've got some door closures and you're still refining it to some extent. Can you kind of just talk about the outlook for that channel from a growth perspective and how you're kind of thinking about it multiyear from here?

Justin Picicci

Sure. So I would say we're encouraged by the sequential improvement that we've seen in that channel stabilization of the business in recent quarters. We have sell-in aligned with sell-out and positive sell-out, which continues to date market shares across our brand portfolio and consistently solid quality of sales. So our brand is in a strong position here.
And our presentation and our exposure in the channel, as you mentioned, is more elevated after we gone through the step change in refining our distribution. And we've been on this multiyear journey to shift our customer base towards less price-sensitive consumers, especially in the full (inaudible) show. So this sort of fits that bill.
In Q4, again, continuation of trends and I would say no impact on our underlying trends today, but the macro headlines are pretty prevalent in the US right now, right? And they're weighing on consumer sentiment. So we want to be mindful of that in our assumptions and our outlook for the US for fiscal '26 does take into consideration some unit elasticity in the second half in reaction to broader industry price increases, particularly where consumers are more price sensitive.
That said, we've got momentum here. Our strategy is continue to prune the lower tiers and add to the top. We have great traction in our top-tier distribution and accounts, strong traction in digital, strong traction in key doors. We had to lean in there and take share and navigate what we expect to be a choppy environment.

Corinna Van der Ghinst

Thank you. Next question please, Angela.

Operator

John Kernan, TD Cowen.

John Kernan

Good morning. Let me add my congrats as well.

Patrice Louvet

Thank you, John.

John Kernan

Justin, I wanted you talk Europe. Obviously, tremendous growth, particularly in DTC set the geographic EBIT margin now at 26%, it's your highest margin region. Maybe talk more about the key city approach here, the high-growth categories like women's and also the outlook for the operating margin here as it continues to provide a nice accretive margin mix shift.

Justin Picicci

Absolutely, John. So we're encouraged by our underlying went into Europe. And really by our strong elevated brand positioning throughout the region has been a competitive advantage for us. We delivered another strong quarter in Q4 and really, it was drug based, right, growth across all key markets and all channels. And we saw that momentum continue into Q1 to date across all of our key markets.
And I think some of the marketing that we've been activating in that region is really, really cutting through and driving strong new customer acquisition as well as strong traffic. We've guided for continued growth in Europe in our '26 guide, we're comping up against a pretty strong second half.
And as we think about the backdrop that we're operating in, I would say we're encouraged by our position in performance but still cautious sentiment still pressured despite easing inflation in markets like the UK, in Germany and Spain. And also, there's still some geopolitical destructions in the efforts in two wars in the region still going on. So I guess from a guide perspective, if the macros improve as we move through the year and the risk doesn't materialize, then I think we feel good about our opportunities to capture the incremental demand.
I think the key city eco strategy that we kind of started with in Asia now have rolled out globally is really working well in Europe. And you're seeing not only from a marketing activation perspective, you saw it with our holiday takeovers in places like London, in places like Paris, et cetera. But also, if you think about what we're doing in opening up new stores, Europe is an area where we have meaningful white space and we're opening up new stores into that white space across regions focused on the key cities, and that's another big reason to believe that the momentum we have currently will continue forward.

Patrice Louvet

John, just to put some color on that in terms of the number of stores open. So Investor Day, fiscal year '20 when we were together in September '22, we talked about opening 40 to 50 owned and partnered new doors across EMEA. We're right on track on that. We're actually slightly ahead of it. And for this fiscal year, we're planning 10 new owned stores and another 25 partner stores.
The starting point, as you know, across this region was very limited DTC presence, right? We were particularly on full price. We're very dependent on wholesale and and our teams in Europe have done a fantastic job to transforming how we show up, where we show up elevating the presence, leaning into direct-to-consumer, leaning into digital and I think you're seeing that translate into the performance this past quarter, and honestly, this full year where Europe delivered double-digit growth for the full year in what continues to be, we often forget it, but a very challenging environment.

Corinna Van der Ghinst

Thank you. Next question.

Operator

Laurent Vasilescu, BNP Paribas.

Laurent Vasilescu

Good morning. Thank you very much for taking my question. Patrice, I wanted to ask about China. China was very strong in this quarter. I know you don't comment about a comment about what you're seeing, what your expectations are embedded that Asia growth of high single digits for fiscal year.
And then, Justin, on the gross margin, you mentioned that the tariff impact will start to materialize in (inaudible), can you -- for the audience, maybe quantify in basis points terms, what your gross margin for this year? Thank you very much.

Patrice Louvet

Good morning, Laurent. Okay, Okay. China. We're more than happy to talk about China. So delivered a strong quarter, up 20%. This comes on top of 20% growth last quarter. And last fiscal year, this is on top of double-digit growth. So many quarters and years now of strong consistent performance in China. I am very proud of the work that our teams are doing in that market. What underpins this is the combination of really strong consumer engagement and marketing activation. And when we look at key metrics on our China brand performance, our awareness is increasing meaningfully.
Our luxury and value perception is among the highest in the world. Our consideration, particularly among the younger cohorts is increasing meaningfully. And you are seeing the pace of marketing activations in China actually accelerate. We did the very Ralph documentary showing in Shanghai back in the fall.
The number of people that viewed it live is in the tens of millions of people. We recently has very powerful Lunar New Year activations that differently from many of our competitors are not focused on promotional activity, but rather focus on new consumer recruiting through storytelling and engaging moments -- and then we had our first fashion show in Shanghai just a few weeks ago.
So marketing activation accelerating and being very impactful. We're also expanding our store footprint in a quality way and an impactful way. And all the stores that we're opening are actually coming in ahead of our expectations generally. And then we have strong comp performance that underpins that. If you look at our expectations for this fiscal year, you're right that we generally don't guide by market.
But our expectation is we're going to continue to build on the momentum we have in China. As you know, this is still a big growth opportunity for us. Today, China is about 9%. Last quarter, I think it's 9% of total company, so significant opportunity for acceleration and continued expansion. Our assumption at this point is that China will be up low double digits in the fiscal year. So maintaining this double-digit performance as we continue to activate recruit new consumers and expand our footprint.

Justin Picicci

And on the gross margin for fiscal '26 call. So based on our current view of the cost headwind landscape, for the full year, we expect gross margins to be flat with our durable tailwinds of AUR growth, discount reduction and favorable product challenge, geographic mix, offsetting the headwinds from cost inflation, including tariffs and also no material cotton cost labor, et cetera.
And I would say from a quarterly cadence perspective, we're planning for a stronger first half from a gross margin perspective as opposed to the second half, which again speaks to the timing of when the cost headwinds are expected.

Corinna Van der Ghinst

Next question, please.

Operator

Chris Nardone, Bank of America.

Chris Nardone

Thanks guys, good morning. The longer-term Patrice, can you discuss your confidence level in driving operating margins higher beyond this year's expectation of the modest expansion maybe it would be helpful if you could discuss what geography still the potential to see further AUR gains beyond the first half of this year?

Patrice Louvet

Sure. So why don't we talk team on this one because Justin is our resident expert on operating margin expansion. Why don't you take that, and I'll talk to you

Justin Picicci

Absolutely. So Chris, taking a step back, and we're really pleased with where the came in this year and how we overdelivered on our full year commitment to get to our 15% operating margin target (inaudible) rates at the end of fiscal '25. I think as we think about the outlook going forward, 15% cost dollar is not sealed, right? We're going to continue to balance margin expansion with making investments in long-term strategic growth.
So I think for this year, you see we've guided for modest operating margin expansion despite some macro pressures and some costs headwinds, that's really driven by SG&A leverage as we start to scale some of the investments that you've seen us make over the previous couple of years.
And I think beyond fiscal '26, we'll talk more at our upcoming Investor Day, but likely still expecting a combination of gross margin expansion, modest gross market expansion and operating expense leverage could be the driver of our profitability.

Patrice Louvet

And on AUR, Chris, the short answer is yes. The more expanded answer is as follows. And we'll -- obviously, we'll guide when we get together for Investor Day on how we think about top line growth for the next three years. But the way we think about it is really three drivers, right, for top line growth, continued AUR expansion, unit growth and new consumer recruiting, right?
And you saw how closely new consumer recruiting and top line growth correlated this year since consumer recruiting at $5.9 million is up low double digits, and we're growing high single digits. So a strong correlation between the three. So all three will be drivers for top line growth moving forward.
As you look at the drivers for us of AUR growth, right? This is still the elevation strategy that's playing out that we're going to continue to drive. So we are on an elevation journey. We are pleased with the progress we are making, and we still have meaningful opportunities looking ahead. Our AUR drivers will continue to be product mix, channel and geographic mix, continued promotional pullback you saw in this last quarter, another example of our ability to significantly pull back on promotions. I think the number is 270 basis points reduction in promotional investment, while at the same time, strengthening consumer value perception, while at the same time, strengthening luxury perception.
And then the fourth vector is like pricing. But I think as we continue to elevate the storytelling as we continue to elevate the product offering and the quality, as we continue to elevate the engagement of the shopping experience, whether that's online and brick-and-mortar, then that drives value perception and luxury perception that then enables AUR. So expect that to continue. We'll talk about what we expect the relative size of these three drivers, AUR unit and new consumer recruiting to be in the overall mix.
We see opportunities across all three regions. So interestingly, people look at our AURs and China, in particular, and they say, well, can you go further? Can you go beyond that? And I think the teams are demonstrating quarter-on-quarter that when we do a good job on storytelling, product and shopping experience, then we create the opportunity for us to continue to expand AUR.
So we're three years into this AUR journey. We're eight years into this elevation journey. We're going to continue to run that play. Again, with agility and with discernment as we look at where we allocate our resources.

Corinna Van der Ghinst

We take the last question, please.

Operator

Tom Nikic, Needham.

Tom Nikic

Hey, everyone, thank, thanks for taking my question. It sounds like most of your macro-related caution is domestic. I was just curious if you're, if there's any caution or if you've seen any kind of pushback from consumers outside the US, just kind of given some of the rhetoric around tariffs and given how kind of Americana focused, the Ralph Lauren brand image is I'm wondering if there's any caution around the international business, given the political situation?

Patrice Louvet

That's a good question, Tom. And you're right that most of our caution is domestic, particularly in the second half of the year. As you can imagine, we're tracking consumer sentiment and social activity quite closely, both for our industry and for our brand, in particular. At this stage, we have no call out in terms of slowing brand momentum or any concerns with anti-American sentiment that would apply to our business.
Now it's important to keep in mind that ever since Ralph founded this company, this company has founded on values that are pretty universal, right? If you think about optimism, authenticity timelessness, elegance, family.
Those are globally relevant and pretty universal and I think resonating really well wherever we play, including markets where you might be concerned about anti-American sentiment. We are not seeing any of that at this stage. And obviously, we continue to monitor that and make sure that we're engaging consumers in a way that's most effective and relevant for them.
All right. Well, thank you, everyone, for joining us today. We look forward to speaking with you on our first quarter earnings call in August. And in the meantime, take care and have a great day.

Operator

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