Item 7. Management's Discussion and Analysis of Financial Condition and Results of 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 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 to March 31. As such, Fiscal 2026 ended on March 28, 2026 and was a 52-week period; Fiscal 2025 ended on March 29, 2025 and was a 52-week period; Fiscal 2024 ended on March 30, 2024 and was a 52-week period; and Fiscal 2027 will end on April 3, 2027 and will be a 53-week period.
INTRODUCTION
MD&A is provided as a supplement to the accompanying consolidated financial statements and notes 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, global economic conditions and industry trends, and a summary of our financial performance for Fiscal 2026. 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 2026 compared to Fiscal 2025.
• Financial condition and liquidity. This section provides a discussion of our financial condition and liquidity as of March 28, 2026, 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 2026 compared to the prior fiscal year; (iii) an analysis of our liquidity, including the availability under our commercial paper borrowing program and credit facilities, our supplier finance program, outstanding debt and covenant compliance, common stock repurchases, and payments of dividends; and (iv) a summary of our material cash requirements as of March 28, 2026.
• 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 March 28, 2026.
• 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 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.
For discussion related to the results of operations and changes in our cash flows for Fiscal 2025 compared to Fiscal 2024, refer to Part II, Item 7. " Management's Discussion and Analysis of Financial Condition and Results of Operations " in our Fiscal 2025 Form 10-K.
OVERVIEW
Our Business
Our Company is a global leader in the design, marketing, and distribution of luxury lifestyle products, including apparel, handbags, footwear & accessories, fragrances, home, and hospitality. Our long-standing reputation and distinctive image have been developed across a wide range of products, brands, distribution channels, and international markets. Our brand names include Ralph Lauren, Ralph Lauren Collection, Ralph Lauren Purple Label, Double RL, Polo Ralph Lauren, Lauren Ralph Lauren, Polo Ralph Lauren Children, and Chaps, among others.
We diversify our business by geography (North America, Europe, and Asia, among other regions) and channel of distribution (retail, wholesale, and licensing). This allows us to maintain a dynamic balance as our operating results do not depend solely on the performance of any single geographic area or channel of distribution. We sell directly to consumers through our integrated retail channel, which includes our retail stores, concession-based shop-within-shops, and digital commerce operations around the world. Our 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 we have licensed the right to operate in defined geographic territories using our trademarks. In addition, we license to third parties for specified
periods and geographies the right to access our various trademarks in connection with the licensees' manufacture and sale of designated products, such as certain apparel categories, eyewear, fragrances, and home furnishings.
We organize our business into the following three reportable segments:
• North America — Our North America segment, representing approximately 41% of our Fiscal 2026 net revenues, primarily consists of sales of our Ralph Lauren branded products made through our retail and wholesale businesses primarily in the U.S. and Canada. In North America, our retail business is primarily comprised of our Ralph Lauren stores, our outlet stores, and our digital commerce sites, www.RalphLauren.com and www.RalphLauren.ca. Our wholesale business in North America is comprised primarily of sales to department stores and, to a lesser extent, specialty stores.
• Europe — Our Europe segment, representing approximately 31% of our Fiscal 2026 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 and licensee partners.
• Asia — Our Asia segment, representing approximately 26% of our Fiscal 2026 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 and various third-party digital and licensee partners.
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 2026 net revenues, which primarily consist of Ralph Lauren and Chaps branded royalty revenues earned through our global licensing alliances.
Approximately 59% of our Fiscal 2026 net revenues were earned outside of the U.S. See Note 19 to the accompanying consolidated financial statements for further discussion of our segment 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. 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.
Recent Developments
Next Generation Transformation Project
We began a multi-year global project in Fiscal 2024 that is expected to significantly transform the way in which we operate our business and further enable our long-term strategic pivot towards a global direct-to-consumer-oriented model (the "Next Generation Transformation project" or "NGT project"). The NGT project is expected to continue over the next several years, with implementation expected to occur in phases by region and/or capability, and involves the redesigning of certain end-to-end processes and the implementation of a suite of technology systems on a global scale. Such efforts are expected to result in significant process improvements and the creation of synergies across core areas of operations, as well as financial planning and reporting, better enabling us to optimize inventory levels and increase the speed with which we react to changes in consumer demand across markets, among other benefits.
During Fiscal 2026, we continued to advance key workstreams under the NGT project including completion of global design templates that support our core enterprise resource planning platform and related processes, automating certain distribution center operations, and progressing the global roll-out of merchandise allocation and long-range demand planning tools.
In connection with the NGT project, we incurred other charges of $83.9 million, $25.2 million, and $5.1 million during Fiscal 2026, Fiscal 2025, and Fiscal 2024, respectively, which were recorded within restructuring and other charges, net in the consolidated statements of operations.
Global Economic Conditions and Industry Trends
The global economy and retail industry are impacted by many factors beyond our control. In April 2025, the U.S. announced significant changes to its trade policies under the authority of the International Emergency Economic Powers Act ("IEEPA"), including widespread tariff increases on imported goods, with potential for new tariffs and further increases on existing tariffs in the future, as well as revisions or terminations to existing trade agreements. In response, many countries announced retaliatory tariffs on U.S. exports and other trade restrictions. In February 2026, the U.S. Supreme Court invalidated the IEEPA tariffs previously applied to our imports, after which a new round of tariffs was announced by the current administration under an alternative U.S. Trade Act authority. In March 2026, the U.S. Court of International Trade issued an order directing U.S. Customs and Border Protection to refund IEEPA tariffs that were previously collected, and in April 2026, U.S. Customs and Border Protection announced the refund process, leveraging the Consolidated Administration and Processing of Entries Claim Portal through a phased rollout. Although we have taken steps to preserve our rights with respect to the potential refunds, there can be no assurance that we will receive any refunds, in whole or in part. These developments have also increased uncertainty regarding the future relationship between the U.S. and other countries and could contribute to a global trade war, higher inflation, and a global economic slowdown, any of which has caused, and could continue to cause, significant volatility in global stock markets and foreign currency exchange rates.
Other recent economic conditions, including increases in oil and other energy prices, ongoing inflationary pressures, organized labor disputes, high interest rates, significant foreign currency volatility, and military conflicts (as discussed below), continue to impact consumer discretionary income levels, spending, and sentiment in the U.S. and beyond. In response to such pressures, as well as to reduce elevated inventory levels, many retailers (particularly in the U.S. and Europe) continue to resort to promotional activity in an attempt to offset traffic declines and increase conversion. Furthermore, the department store sector has also experienced consolidations, restructurings, bankruptcies, and other ownership changes in recent times, as well as an increase in store closures.
The global economy has also been negatively impacted by ongoing military conflicts, including the conflicts involving Iran and other hostilities in the Middle East. Although our ongoing operations in the Middle East are not material, our business has been, and may continue to be, affected by the broader macroeconomic implications resulting from these and other military conflicts, including inflationary pressures, unfavorable foreign currency exchange rates, increases in oil prices and other energy prices, food shortages, and financial market volatility, among other factors, which have adversely impacted consumer sentiment and confidence. It is not clear at this time how long these conflicts will endure, or if they will escalate further with additional countries taking part, which could further amplify the impacts of the various macroeconomic factors described above and potentially result in a prolonged global economic slowdown or recession.
The global supply chain has also been negatively impacted by various factors, including disruptions in the Red Sea and recent increases in oil and gas prices, as discussed above. Although our business has not been significantly impacted by such disruptions, we have experienced some shipping delays affecting the timing of inventory receipts. Prolonged disruptions or sustained increases in fuel prices could result in further inventory receipt delays and/or higher freight and transportation costs in the near-term and beyond.
We have implemented various global strategies to address many of these challenges and continue to build a foundation for long-term profitable growth by strengthening our consumer-facing areas and driving a more efficient operating model. We continue to monitor the current geopolitical landscape, including the potential impact of changes to tariffs. We have taken proactive measures in recent years to diversify our supply chain from a geographic perspective and believe we can further mitigate potential cost pressures associated with new tariffs through a combination of our disciplined inventory management, leveraging our relationships with suppliers to reduce product costs, our ability to change country of origin, and pricing actions. However, our profitability will be negatively impacted should tariffs increase significantly across our supply chain. Regarding mitigating inflationary pressures, our strategy includes numerous levers, including our ability to effectively increase prices, leveraging our diversified supply chain and strong supplier relationships, and leveraging our in-house quality control to reduce time and cost from the manufacturing process, among other efforts. Despite the competitive environment, we plan to continue driving our broader long-term strategy of brand elevation, which includes multiple levers to continue driving average unit retail growth and brand equity.
We will continue to monitor these conditions and trends and adjust our operating strategies to help mitigate the related impacts 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.
Summary of Financial Performance
Operating Results
In Fiscal 2026, we reported net revenues of $8.115 billion, net income of $941.1 million, and net income per diluted share of $15.11, as compared to net revenues of $7.079 billion, net income of $742.9 million, and net income per diluted share of $11.61 in Fiscal 2025. The comparability of our operating results has been affected by net restructuring-related charges, and certain other charges, as well as foreign currency volatility. Our operating results are also susceptible to changes in macroeconomic conditions.
Our operating performance for Fiscal 2026 reflected revenue increases of 14.6% on a reported basis and 11.8% on a constant currency basis, as defined within " Transactions and Trends Affecting Comparability of Results of Operations and Financial Condition " below. Net revenues reflected growth across all of our reportable segments.
Our gross profit as a percentage of net revenues increased by 130 basis points to 69.9% during Fiscal 2026, primarily driven by average unit retail ("AUR") growth, product elevation, and favorable foreign currency effects, more than offsetting pressure from tariffs and non-cotton product costs.
Selling, general, and administrative ("SG&A") expenses as a percentage of net revenues decreased by 70 basis points to 53.9% during Fiscal 2026, largely attributable to operating leverage on higher net revenues despite higher compensation-related expenses, marketing investments, and variable selling expenses.
Net income increased by $198.2 million to $941.1 million in Fiscal 2026 as compared to Fiscal 2025, primarily due to a $247.1 million increase in our operating income, partially offset by a $28.8 million increase in our income tax provision and a $20.1 million increase in our non-operating expense, net. Net income per diluted share increased by $3.50 to $15.11 per share during Fiscal 2026 driven by the higher level of net income and lower weighted-average diluted shares outstanding.
During Fiscal 2026 and Fiscal 2025, our operating results were negatively impacted by net restructuring-related charges and certain other charges totaling $118.1 million and $57.8 million, respectively, which had an after-tax effect of reducing net income by $92.1 million, or $1.48 per diluted share, and $46.0 million, or $0.72 per diluted share, respectively.
Financial Condition and Liquidity
We ended Fiscal 2026 in a net cash and short-term investments position (calculated as cash and cash equivalents, plus short-term investments, less total debt) of $826.1 million, as compared to $940.4 million as of the end of Fiscal 2025. The decrease in our net cash and short-term investments position at March 28, 2026 as compared to March 29, 2025 was primarily due to our use of cash to support Class A common stock repurchases of $623.8 million, including withholdings in satisfaction of tax obligations for stock-based compensation awards, to invest in our business through $408.1 million in capital expenditures, and to make dividend payments of $216.5 million, partially offset by our operating cash flows of $1.154 billion.
Net cash provided by operating activities was $1.154 billion during Fiscal 2026, as compared to $1.235 billion during Fiscal 2025. The net decrease in cash provided by operating activities was due to a net unfavorable change related to our operating assets and liabilities, including our working capital, as compared to the prior fiscal year, partially offset by an increase in net income before non-cash charges.
Our equity increased to $2.841 billion as of March 28, 2026, compared to $2.589 billion as of March 29, 2025 due to our comprehensive income and the net impact of stock-based compensation arrangements, partially offset by our share repurchase activity and dividends declared during Fiscal 2026.
Transactions and Trends Affecting Comparability of Results of Operations and Financial Condition
The comparability of our operating results for Fiscal 2026 and Fiscal 2025 has been affected by certain transactions, including net restructuring-related charges and certain other charges totaling $118.1 million and $57.8 million, respectively. See Note 8 to the accompanying consolidated financial statements.
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. Such 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 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 for assessing how our businesses performed excluding the effects of foreign currency exchange rate fluctuations. We believe this information is useful to investors for facilitating comparisons of operating results and better identifying 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 discussion also includes reference to comparable store sales. Comparable store sales refer to the change in sales of our stores that have been open for at least 13 full fiscal 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 the 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 13 full fiscal months. All comparable store sales metrics 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 affected operating trends.
RESULTS OF OPERATIONS
Fiscal 2026 Compared to Fiscal 2025
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,
March 29,
Change
% / bps
Change
(millions, except per share data)
Net revenues
Cost of goods sold
Gross profit
Gross profit as % of net revenues
bps
Selling, general, and administrative expenses
SG&A expenses as % of net revenues
bps)
Restructuring and other charges, net
Operating income
Operating income as % of net revenues
bps
Interest expense
Interest income
Other expense, net
Income before income taxes
Income tax provision
Effective tax rate (a)
bps)
Net income
Net income per common share:
Basic
Diluted
(a) Effective tax rate is calculated by dividing the income tax provision by income before income taxes.
Net Revenues. Net revenues increased by $1.035 billion, or 14.6%, to $8.115 billion in Fiscal 2026 as compared to Fiscal 2025, reflecting growth across all of our reportable segments, including favorable foreign currency effects of $201.9 million. On a constant currency basis, net revenues increased by $833.6 million, or 11.8%.
The following table summarizes the percentage changes in our Fiscal 2026 consolidated comparable store sales as compared to the prior fiscal year:
% Change
Digital commerce
Brick and mortar
Total comparable store sales
Our global average store count during Fiscal 2026 decreased by 10 stores and concession shops, compared with the prior fiscal year, largely driven by concession shop closures in Asia.
The following table details our retail store presence by segment as of the end of the periods presented:
March 28,
March 29,
Freestanding Stores:
North America
Europe
Asia
Total freestanding stores
Concession Shops:
Europe
Asia
Total concession shops
Total stores
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 apps in the U.S. and Canada. 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
March 28,
March 29,
Reported
Constant Currency
Reported
Constant
Currency
(millions)
Net Revenues:
North America
Europe
Asia
Other non-reportable segments
Total net revenues
North America net revenues — Net revenues increased by $279.5 million, or 9.2%, during Fiscal 2026 as compared to Fiscal 2025. On a constant currency basis, net revenues increased by $277.6 million, or 9.1%.
The $279.5 million increase in North America net revenues was driven by:
• a $211.5 million increase related to our North America retail business. On a constant currency basis, net revenues increased by $209.5 million, reflecting an increase of $216.6 million in comparable store sales, partially offset by a decrease of $7.1 million in non-comparable store sales. The increase in our comparable store sales reflected mid-teens AUR growth and higher traffic during Fiscal 2026 as compared to the prior fiscal year. The following table summarizes the percentage changes in comparable store sales related to our North America retail business:
% Change
Digital commerce
Brick and mortar
Total comparable store sales
• a $68.0 million increase related to our North America wholesale business largely driven by improved selling trends and strong replenishment orders.
Europe net revenues — Net revenues increased by $364.0 million, or 16.7%, during Fiscal 2026 as compared to Fiscal 2025. On a constant currency basis, net revenues increased by $190.2 million, or 8.7%.
The $364.0 million increase in Europe net revenues was driven by:
• a $205.6 million increase related to our Europe wholesale business largely driven by stronger re-order trends and favorable foreign currency effects of $89.6 million, which more than offset planned reductions within the off-price wholesale channel; and
• a $158.4 million increase related to our Europe retail business, inclusive of favorable foreign currency effects of $84.2 million. On a constant currency basis, net revenues increased by $74.2 million, reflecting increases of $57.9 million in comparable store sales and $16.3 million in non-comparable store sales. The increase in our comparable store sales reflected high single-digit AUR growth during Fiscal 2026 as compared to the prior fiscal year. The following table summarizes the percentage changes in comparable store sales related to our Europe retail business:
% Change
Digital commerce
Brick and mortar
Total comparable store sales
Asia net revenues — Net revenues increased by $394.1 million, or 23.1%, during Fiscal 2026 as compared to Fiscal 2025. On a constant currency basis, net revenues increased by $368.0 million, or 21.5%.
The $394.1 million increase in Asia net revenues was primarily driven by:
• a $392.6 million increase related to our Asia retail business, inclusive of favorable foreign currency effects of $25.3 million. On a constant currency basis, net revenues increased by $367.3 million, reflecting increases of $270.1 million in comparable store sales and $97.2 million in non-comparable store sales. The increase in our comparable store sales reflected mid-teens AUR growth and higher traffic during Fiscal 2026 as compared to the prior fiscal year. The following table summarizes the percentage changes in comparable store sales related to our Asia retail business:
% Change
Digital commerce
Brick and mortar
Total comparable store sales
Gross Profit. Gross profit increased by $816.3 million, or 16.8%, to $5.669 billion in Fiscal 2026, including favorable foreign currency effects of $163.4 million. Gross profit as a percentage of net revenues increased to 69.9% in Fiscal 2026 from 68.6% in Fiscal 2025. The 130 basis point improvement reflected favorable foreign currency effects of 30 basis points. The remaining 100 basis point improvement was primarily due to mid-teens AUR growth and product elevation, more than offsetting pressure from tariffs and non-cotton product costs.
Gross profit is the difference between total net revenues and cost of goods sold. Cost of goods sold includes the amounts incurred to acquire and produce inventory for sale to our 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, are included in SG&A expenses in the consolidated statements of operations. As a result, our gross profit may not be comparable to that of other entities.
Selling, General, and Administrative Expenses. SG&A expenses include costs relating to compensation and benefits, marketing and advertising, rent and occupancy, distribution, information technology, legal, depreciation and amortization, bad debt, and other selling and administrative costs. SG&A expenses increased by $508.9 million, or 13.2%, to $4.372 billion in Fiscal 2026, including unfavorable foreign currency effects of $81.7 million. SG&A expenses as a percentage of net revenues decreased to 53.9% in Fiscal 2026 from 54.6% in Fiscal 2025. The 70 basis point decline was largely attributable to operating leverage on higher net revenues despite higher compensation-related expenses, marketing investments, and variable selling expenses.
The $508.9 million increase in SG&A expenses was driven by:
Fiscal 2026
Compared to
Fiscal 2025
(millions)
SG&A expense category:
Compensation-related expenses
Marketing and advertising expenses
Rent and occupancy costs
Selling-related expenses
Shipping and handling costs
Staff-related expenses
Consulting and professional fees
Depreciation and amortization expense
Other
Total increase in SG&A expenses
Restructuring and Other Charges, Net. During Fiscal 2026 and Fiscal 2025, we recorded restructuring charges of $25.9 million and $20.4 million, respectively, primarily consisting of severance and benefits costs. We also recognized income of $2.1 million and $2.8 million during Fiscal 2026 and Fiscal 2025, respectively, related to cash consideration received from Regent, L.P. in connection with our former Club Monaco business, which was sold as part of our restructuring activities during our fiscal year ended April 2, 2022. We donated this income both years to The Ralph Lauren Corporate Foundation, a non-profit charitable foundation, which resulted in related offsetting donation expenses of $2.1 million and $2.8 million during Fiscal 2026 and Fiscal 2025, respectively.
In addition, during Fiscal 2026 and Fiscal 2025, we recorded other charges of $83.9 million and $25.2 million, respectively, in connection with our Next Generation Transformation project (refer to " Recent Developments " for additional discussion), as well as other charges of $8.3 million and $12.2 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.
During Fiscal 2026, we also recognized income of $24.2 million related to the settlements of credit card interchange fee litigation matters. We donated this income to The Ralph Lauren Corporate Foundation, which resulted in related offsetting donation expense of $24.2 million during Fiscal 2026.
See Note 8 to the accompanying consolidated financial statements.
Operating Income. Operating income increased by $247.1 million, or 26.5%, to $1.179 billion during Fiscal 2026, reflecting favorable foreign currency effects of $81.8 million. Our operating results during Fiscal 2026 and Fiscal 2025 were negatively impacted by net restructuring-related charges and certain other charges totaling $118.1 million and $57.8 million, respectively. Operating income as a percentage of net revenues was 14.5% in Fiscal 2026, reflecting a 130 basis point improvement from Fiscal 2025. The improvement in operating income as a percentage of net revenues was primarily driven by the increase in our gross margin and the reduction in SG&A expenses as a percentage of net revenues, partially offset by higher net restructuring-related charges and certain other charges recorded during Fiscal 2026 as compared to the prior fiscal year, all as previously discussed.
Operating income and margin for our segments, as well as a discussion of the changes in each reportable segment's operating margin from the prior fiscal year, are provided below:
Fiscal Years Ended
March 28, 2026
March 29, 2025
Operating
Income
Operating
Margin
Operating
Income
Operating
Margin
Change
Margin
Change
(millions)
(millions)
(millions)
Segment:
North America
80 bps
Europe
180 bps
Asia
320 bps
Other non-reportable segments
(10 bps)
Total segment operating income
Corporate expenses, net
Restructuring and other charges, net (a)
Total operating income
130 bps
(a) See discussion above for additional information related to restructuring and other charges, net recorded during the fiscal years presented.
North America operating margin improved by 80 basis points, primarily due to a reduction of 130 basis points in SG&A expense as a percentage of net revenues, more than offsetting a decline of 50 basis points in gross margin due to tariff-related pressures.
Europe operating margin improved by 180 basis points, primarily due to an increase of 210 basis points in gross margin, partially offset by an increase of 40 basis points in SG&A expense as a percentage of net revenues. The overall improvement in operating margin was inclusive of the favorable impacts of approximately 140 basis points related to foreign currency effects.
Asia operating margin improved by 320 basis points, primarily due to an increase of 210 basis points in gross margin and a reduction of 120 basis points in SG&A expenses as a percentage of net revenues. The overall improvement in operating margin was inclusive of the unfavorable impacts of approximately 20 basis points related to foreign currency effects.
Corporate expenses increased by $77.1 million to $832.5 million in Fiscal 2026 as compared to the prior fiscal year. The increase in corporate expenses was due to higher compensation-related expenses of $68.8 million, higher marketing and advertising expenses of $16.8 million, and higher other expenses of $4.1 million, partially offset by higher intercompany sourcing commission of $12.6 million (which is offset at the segment level and eliminates in consolidation).
Non-operating Income (Expense), Net. Non-operating income (expense), net is comprised of interest expense, interest income, and other income (expense), net, which includes foreign currency gains (losses), equity in income (losses) from our equity-method investees, and other non-operating expenses. During Fiscal 2026, we reported non-operating expense, net of $1.5 million as compared to non-operating income, net of $18.6 million during Fiscal 2025. The $20.1 million increase in non-operating expense, net was primarily driven by a decline in interest income largely due to lower prevailing interest rates in financial markets.
Income Tax Provision. The income tax provision represents federal, foreign, state and local income taxes. Our effective tax rate will change from period to period based on various factors including, but not limited to, the geographic mix of earnings, the timing and amount of foreign dividends, enacted tax legislation, state and local taxes, tax audit findings and settlements, and the interaction of various global tax strategies.
The income tax provision and effective tax rate in Fiscal 2026 were $236.6 million and 20.1%, respectively, compared to $207.8 million and 21.9%, respectively, in Fiscal 2025. The $28.8 million increase in our income tax provision was primarily driven by an increase in our pretax income, partially offset by a 180 basis point decline in our effective tax rate. The decline in our effective tax rate was due to the favorable impact of uncertain tax positions, foreign-derived intangible income deduction and the tax impacts of compensation-related adjustments, partially offset by the unfavorable tax impact of earnings generated in higher taxed jurisdictions when compared to the prior fiscal year, the absence of a prior year favorable deferred tax adjustment
related to a transaction entered into as part of a reorganization of our corporate entity structure, and the absence of state and local credits received in the prior fiscal year. See Note 9 to the accompanying consolidated financial statements.
Net Income. Net income increased to $941.1 million in Fiscal 2026, from $742.9 million in Fiscal 2025. The $198.2 million increase in net income was primarily due to an increase in our operating income, partially offset by an increase in our income tax provision and non-operating expense, net, all as previously discussed. Our operating results during Fiscal 2026 and Fiscal 2025 were negatively impacted by net restructuring-related charges and certain other charges totaling $118.1 million and $57.8 million, respectively, which had an after-tax effect of reducing net income by $92.1 million and $46.0 million, respectively.
Net Income per Diluted Share. Net income per diluted share increased to $15.11 in Fiscal 2026, from $11.61 in Fiscal 2025. The $3.50 per share increase was primarily driven by the higher level of net income, as previously discussed, and lower weighted-average diluted shares outstanding during Fiscal 2026 driven by our share repurchases during the last twelve months. Net income per diluted share for Fiscal 2026 and Fiscal 2025 were also negatively impacted by $1.48 per share and $0.72 per share, respectively, attributable to net restructuring-related charges and certain other charges, as previously discussed.
FINANCIAL CONDITION AND LIQUIDITY
Financial Condition
The following table presents our financial condition as of March 28, 2026 and March 29, 2025.
March 28,
March 29,
Change
(millions)
Cash and cash equivalents
Short-term investments
Current portion of long-term debt (a)
Long-term debt (a)
Net cash and short-term investments
Equity
(a) See Note 10 to the accompanying consolidated financial statements for discussion of the carrying amounts of our debt.
The decrease in our net cash and short-term investments position at March 28, 2026 as compared to March 29, 2025 was primarily due to our use of cash to support Class A common stock repurchases of $623.8 million, including withholdings in satisfaction of tax obligations for stock-based compensation awards, to invest in our business through $408.1 million in capital expenditures, and to make dividend payments of $216.5 million, partially offset by our operating cash flows of $1.154 billion.
The increase in our equity was attributable to our comprehensive income and the net impact of stock-based compensation arrangements, partially offset by our share repurchase activity and dividends declared during Fiscal 2026.
Cash Flows
Fiscal 2026 Compared to Fiscal 2025
Fiscal Years Ended
March 28,
March 29,
Change
(millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
Net increase in cash, cash equivalents, and restricted cash
Net Cash Provided by Operating Activities. Net cash provided by operating activities was $1.154 billion during Fiscal 2026, as compared to $1.235 billion during Fiscal 2025. The $80.9 million net decrease in cash provided by operating activities was due to a net unfavorable change related to our operating assets and liabilities, including our working capital, as compared to the prior fiscal year, partially offset by an increase in net income before non-cash charges.
The net unfavorable change related to our operating assets and liabilities, including our working capital, was primarily driven by:
• an unfavorable change in our non-current liability for unrecognized tax benefits, as detailed in Note 9 to the accompanying consolidated financial statements;
• an unfavorable change in income tax receivables and payables due to higher tax payments in connection with certain non-routine tax transactions and the higher level of pretax income, as well as the timing of tax payments; and
• an unfavorable change in our accounts payable driven by the timing of cash payments, as well as a net unfavorable change in accrued liabilities largely driven by accrued payroll and benefits resulting from the higher bonus payout during the first quarter of Fiscal 2026 as compared to the prior fiscal year.
Net Cash Used in Investing Activities. Net cash used in investing activities was $356.6 million during Fiscal 2026, as compared to $264.1 million during Fiscal 2025. The $92.5 million net increase in cash used in investing activities was primarily driven by:
• a $191.9 million increase in capital expenditures. During Fiscal 2026, we spent $408.1 million on capital expenditures, as compared to $216.2 million during Fiscal 2025. Our capital expenditures during Fiscal 2026 primarily related to the strategic purchase of real estate, as well as store openings and renovations, corporate office renovations, and enhancements to our information technology systems.
This increase in cash used in investing activities was partially offset by:
• a $137.1 million increase in proceeds from sales and maturities of investments, less purchases of investments. During Fiscal 2026, we received net proceeds from sales and maturities of investments of $89.6 million, as compared to making net investment purchases of $47.5 million during Fiscal 2025.
Net Cash Used in Financing Activities. Net cash used in financing activities was $769.7 million during Fiscal 2026, as compared to $704.0 million during Fiscal 2025. The $65.7 million net increase in cash used in financing activities was primarily driven by:
• a $142.9 million increase in cash used to repurchase shares of our Class A common stock. During Fiscal 2026, we used $500.2 million to repurchase shares of our Class A common stock pursuant to our common stock repurchase program, and an additional $123.6 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 2025, we used $424.5 million to repurchase shares of our Class A common stock pursuant to our common stock repurchase program, and an additional $56.4 million in shares of our Class A common stock were surrendered or withheld for taxes.
This increase in cash used in financing activities was partially offset by:
• a $98.2 million net increase in cash proceeds from the issuance of debt, less debt repayments. During Fiscal 2026, we received $498.2 million in proceeds from our issuance of the 5.000% Senior Notes (as defined below), a portion of which was used to repay $400 million of the 3.750% Senior Notes (as defined below) that matured in September 2025. On a comparative basis, during Fiscal 2025, we did not issue or repay any debt.
Sources of Liquidity
Our primary sources of liquidity are the cash flows generated from our operations, our available cash and cash equivalents and short-term investments, availability under our credit facilities and commercial paper program, and other available financing options. We also maintain access to the capital markets and may issue debt securities from time to time, which may provide an additional source of liquidity and/or funds to refinance existing debt.
During Fiscal 2026, we generated $1.154 billion of net cash flows from our operations. As of March 28, 2026, we had $2.065 billion in cash, cash equivalents, and short-term investments, of which $1.403 billion were held by our subsidiaries domiciled outside the U.S. We are not dependent on foreign cash to fund our domestic operations. 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 Jobs Act are not considered to be permanently reinvested and may be repatriated to 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 post-2017 earnings to the U.S., we would be subject to applicable U.S. and foreign taxes.
The following table presents the total availability, borrowings outstanding, and remaining availability under our credit and overdraft facilities and Commercial Paper Program as of March 28, 2026:
March 28, 2026
Description (a)
Total
Availability
Borrowings
Outstanding
Remaining
Availability
(millions)
Global Credit Facility and Commercial Paper Program (b)
Pan-Asia Credit Facilities
Japan Overdraft Facility
(a) As defined in Note 10 to the accompanying consolidated financial statements.
(b) Borrowings under the Commercial Paper Program are supported by the Global Credit Facility. Combined borrowings under the Commercial Paper Program and the Global Credit Facility are limited to $750 million.
(c) Represents outstanding letters of credit for which we were contingently liable under the Global Credit Facility.
We believe that the Global Credit Facility is adequately diversified with no undue concentration in any one financial institution. In particular, as of March 28, 2026, there were six financial institutions participating in the Global Credit Facility, with no one participant maintaining a maximum commitment percentage in excess of 25%. In accordance with the terms of the agreement, we have the ability to expand our borrowing availability under the Global Credit Facility to $1.500 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 Japan Overdraft Facility (collectively, the "Pan-Asia Borrowing Facilities") are guaranteed by the parent company and are granted at the sole discretion of the participating banks (as described within Note 10 to the accompanying consolidated financial statements), subject to availability of the 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 Borrowing 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 digital commerce expansion, construction and renovation of shop-within-shops, investment in infrastructure, including technology, dividend payments, 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 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 10 to the accompanying consolidated financial statements for additional information relating to our credit facilities.
Supplier Finance Program
We support a voluntary supplier finance program which provides certain of our inventory suppliers the opportunity, at their sole discretion, to sell their receivables due from us (which generally have 90-day payment terms) to a participating financial institution for a discounted payment amount made earlier than the payment terms stipulated between us and the supplier. Our vendor payment terms and amounts due are not impacted by a supplier's decision to participate in the program. We have not pledged any assets and do not provide guarantees under the supplier finance program. Our payment obligations outstanding under our supplier finance program were $172.1 million and $181.0 million as of March 28, 2026 and March 29, 2025, respectively, and were recorded within accounts payable in the consolidated balance sheets. See Note 3 to the accompanying consolidated financial statements for additional information relating to our supplier finance program.
Debt and Covenant Compliance
In August 2018, we completed a registered public debt offering and issued $400 million aggregate principal amount of unsecured senior notes that were due and repaid on September 15, 2025 with cash on hand, which bore interest at a fixed rate of 3.750%, payable semi-annually (the "3.750% Senior Notes"). In June 2020, we completed another registered public debt offering and issued $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 June 15, 2030, which bear interest at a fixed rate of 2.950%, payable semi-annually (the "2.950% Senior Notes"). In June 2025, we completed another registered public debt offering and issued $500 million aggregate principal amount of unsecured senior notes due June 15, 2032, which bear interest at a fixed rate of 5.000%, payable semi-annually (the "5.000% Senior Notes").
The indenture and supplemental indentures governing the 2.950% Senior Notes and 5.000% 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 $750 million senior unsecured revolving line of credit through June 30, 2028, which is available for working capital needs, capital expenditures, certain investments, general corporate purposes, and for funding acquisitions, as well as 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 certain 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 $1.500 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 10 to the accompanying consolidated financial statements. As of March 28, 2026, no Event of Default (as such term is defined pursuant to the Global Credit Facility) has occurred. The Pan-Asia Borrowing Facilities do not contain any financial covenants.
See Note 10 to the accompanying consolidated financial statements for additional information relating to our debt and covenant compliance.
Common Stock Repurchase Program
On May 15, 2025, our Board of Directors approved an expansion of our existing common stock repurchase program that allows us to repurchase up to an additional $1.500 billion of our Class A common stock, excluding related excise taxes. As of March 28, 2026, the remaining availability under our common stock repurchase program was approximately $1.352 billion. Repurchases of shares of our Class A common stock are subject to overall business and market conditions.
See Note 15 to the accompanying consolidated financial statements for additional information relating to our Class A common stock repurchase program.
Dividends
We have generally maintained a regular quarterly cash dividend program on our common stock since 2003.
On May 15, 2025, our Board of Directors approved an increase to our quarterly cash dividend on our common stock from $0.825 to $0.9125 per share. On May 14, 2026, our Board of Directors approved an additional increase to the quarterly cash dividend on our common stock from $0.9125 to $1.00 per share. The first quarterly dividend to reflect this increase is expected to be payable to shareholders of record at close of business on June 26, 2026 and paid on July 10, 2026.
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 15 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 material cash requirements as of March 28, 2026, 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
Fiscal
Fiscal
Fiscal
2032 and
Thereafter
Total
(millions)
Senior Notes
Interest payments on debt
Operating leases
Finance leases
Other lease commitments
Inventory purchase commitments
Other commitments
Total
The following is a description of our material, firmly committed obligations as of March 28, 2026:
• Senior Notes represent the principal amount of our outstanding 2.950% Senior Notes and 5.000% Senior Notes. Amounts do not include any call premiums, unamortized debt issuance costs, or interest payments (see below);
• Interest payments on debt represent the semi-annual contractual interest payments due on our 2.950% Senior Notes and 5.000% Senior Notes. Amounts do not include the impact of potential cash flows underlying our related cross-currency swap contracts (see Note 12 to the accompanying consolidated financial statements for discussion of our swap contracts);
• Lease obligations represent fixed payments due over the lease term of our noncancelable leases of real estate and operating equipment, including rent, real estate taxes, insurance, common area maintenance fees, and/or certain other costs. For lease terms that have commenced, information has been presented separately for operating and finance leases. Other lease commitments relate to executed lease agreements for which the related lease terms have not yet commenced as of March 28, 2026;
• Inventory purchase commitments represent our legally-binding agreements to purchase fixed or minimum quantities of goods at determinable prices; and
• Other commitments primarily represent our legally-binding obligations related to sponsorship, licensing, and other marketing and advertising 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 $168.7 million as of March 28, 2026, 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 March 28, 2026, which will be paid within one year, other than lease obligations and accrued interest payments on debt; and (ii) non-current liabilities that have no cash outflows associated with them (e.g., deferred income), or the cash outflows associated with them are uncertain or do not represent a "purchase obligation" as such term is used herein (e.g., deferred taxes, derivative financial instruments, asset retirement obligations, 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 14 to the accompanying 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 $10.4 million as of March 28, 2026. 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 12 to the accompanying consolidated financial statements, we are exposed to a variety of levels and types of risks, including the impact of changes in currency exchange rates on foreign currency-denominated balances, certain anticipated cash flows of our international operations, and the value of reported net assets of our foreign operations, as well as changes in the fair value of our fixed-rate debt obligations relating to fluctuations in benchmark interest rates. Accordingly, in the normal course of business we assess such risks and, in accordance with our established policies and procedures, may use derivative financial instruments to manage and mitigate them. We do not use derivatives for speculative or trading purposes.
Given our use of derivative instruments, we are exposed to the risk that the counterparties to such contracts will fail to meet their contractual obligations. To mitigate such counterparty credit risk, it is our policy to only enter into contracts with carefully selected financial institutions based upon an evaluation of their credit ratings and certain other factors, adhering to established limits for credit exposure. Our established policies and procedures for mitigating credit risk include ongoing review and assessment of the creditworthiness of our counterparties. We also enter into master netting arrangements with counterparties, when possible, to further mitigate credit risk. As a result of the above considerations, we do not believe that we are exposed to undue concentration of counterparty risk with respect to our derivative contracts as of March 28, 2026. However, we do have in aggregate $14.2 million of derivative instruments in net asset positions held across four creditworthy financial institutions.
Foreign Currency Risk Management
We manage our exposure to changes in foreign currency exchange rates using forward foreign currency exchange and cross-currency swap contracts. Refer to Note 12 to the accompanying 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, as well as the impact on earnings and other comprehensive income of such instruments for the fiscal years presented.
Forward Foreign Currency Exchange Contracts
We use forward foreign currency exchange contracts to mitigate risk related to exchange rate fluctuations on inventory transactions made in an entity's non-functional currency, the settlement of foreign currency-denominated balances, and the translation of certain foreign operations' net assets into U.S. Dollars. As part of our overall strategy for managing the level of exposure to such exchange rate risk, relating primarily to the Euro, the Japanese Yen, the Chinese Renminbi, the South Korean Won, the Australian Dollar, the British Pound Sterling, the Swiss Franc, and the Canadian Dollar, we generally hedge a portion of our related exposures anticipated over the next one year using forward foreign currency exchange contracts with maturities of two months to one year to provide continuing coverage over the period of the respective exposure.
Our foreign exchange risk management activities are governed by 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 periodic review of market values and performance of sensitivity analyses.
Cross-Currency Swap Contracts
We periodically designate pay-fixed rate, receive-fixed rate cross-currency swap contracts as hedges of our net investment in certain European subsidiaries. These contracts swap U.S. Dollar-denominated fixed interest rate payments based on the contract's notional amount and the fixed rate of interest payable on certain of our senior notes for Euro-denominated fixed interest rate payments, thereby economically converting a portion of our fixed-rate U.S. Dollar-denominated senior note obligations to fixed rate Euro-denominated obligations.
See Note 3 to the accompanying consolidated financial statements for further discussion of our foreign currency exposures and 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. In doing so, we assess the risk of loss in the fair values of these contracts that would result from 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 March 28, 2026, a 10% appreciation or depreciation of the U.S. Dollar against the foreign currencies under contract would result in a net increase or decrease, respectively, in the fair value of our derivative portfolio of approximately $141 million. This hypothetical net change in fair value should ultimately be largely offset by the net change in the related underlying hedged items.
Interest Rate Risk Management
Sensitivity
As of March 28, 2026, we had no variable-rate debt outstanding. As such, our exposure to changes in interest rates primarily relates to changes in the fair values of our fixed-rate Senior Notes. As of March 28, 2026, the aggregate fair value of our Senior Notes was $1.206 billion. Based on certain simplifying assumptions, including an immediate across-the-board change in interest rates with no further changes for the remainder of their respective terms, a 25-basis point increase or decrease in interest rates would have the effect of reducing or increasing, respectively, the aggregate fair value of our Senior Notes by approximately $14 million. Such potential fluctuations in fair value would only be realized if we were to retire all or a portion of the debt prior to maturity.
Investment Risk Management
As of March 28, 2026, we had cash and cash equivalents on hand of $1.988 billion, consisting of deposits in interest bearing accounts, investments in money market deposit accounts, and investments in time deposits with original maturities of 90 days or less. Our other significant investments included $77.0 million of short-term investments, consisting of time deposits with original maturities greater than 90 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 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 12 to the accompanying consolidated financial statements for further detail of the composition of our investment portfolio as of March 28, 2026.
CRITICAL ACCOUNTING POLICIES
An accounting policy is considered critical if it is important to our results of operations, financial condition, and/or cash flows, and requires significant judgment and estimates made by management in its application. Our estimates are often based on complex judgments, assessments of probability, and assumptions that management believes to be reasonable, relating to matters 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 consolidated financial statements.
Sales Reserves and Uncollectible Accounts
A significant area of judgment affecting our reported net revenues involves estimating sales reserves, which represent the portion of gross revenues not expected to be realized. In particular, gross revenues related to our wholesale business are reduced by estimates of returns, discounts, end-of-season markdowns, operational chargebacks, and certain cooperative advertising allowances. Gross revenues related to our retail business, including direct-to-consumer digital commerce sales, are also reduced by estimates of returns.
In developing estimates of returns, discounts, end-of-season markdowns, operational chargebacks, and cooperative advertising allowances, we analyze historical trends, actual and forecasted seasonal results, current economic and market conditions, retailer performance, and, in certain cases, contractual terms. Estimates of 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 amounts have not differed materially from actual results. However, significant 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, operational chargebacks, and certain cooperative advertising allowances as of March 28, 2026 would have reduced our Fiscal 2026 net revenues by approximately $2 million.
Similarly, we regularly evaluate our accounts receivable balances to develop expectations regarding the extent to which they will ultimately be collected. Significant judgment and estimation are involved in this evaluation, including a receivables aging analysis which shows, by aged balance 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 ability to withstand potential prolonged periods of adverse economic conditions), and an evaluation of current and forecasted economic and market conditions over the respective asset's contractual life. Based on this information, we estimate and record an allowance for amounts that we ultimately expect not to collect due to customer credit risk. Although we believe that we adequately provide for such risk through our allowance for doubtful accounts, severe and prolonged adverse impacts on our major customers' businesses and operations beyond those forecasted could have a corresponding material adverse effect on our results of operations, cash flows, and/or financial condition. A hypothetical 1% increase in our allowance for doubtful accounts as of March 28, 2026 would have increased our Fiscal 2026 SG&A expenses by less than $1 million.
See "Accounts Receivable" in Note 3 to the accompanying consolidated financial statements for an analysis of the activity in our sales reserves and allowance for doubtful accounts balances for each of the three fiscal years presented.
Inventories
We hold retail inventory that is sold directly to consumers in our own stores and through our own digital commerce sites. We also hold inventory that is sold through our wholesale distribution channels to major department stores, specialty stores, and third-party digital partners. Substantially all of our inventories consist of finished goods, which are reported at the lower of cost or estimated net realizable value, with cost 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 unforeseen catastrophic events of any nature), and forecasts of future demand, giving consideration to the value of current outstanding orders from wholesale customers, as well as plans to sell inventory through our outlet stores, among other liquidation channels. Actual results may differ from our estimates due to the quantity, quality, and mix of products in inventory, consumer and retailer preferences, and economic and market conditions. Additionally, reserves for inventory shrinkage, representing the risk of physical loss, 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 actual results differing materially from our estimates.
A hypothetical 1% increase in the level of our inventory reserves as of March 28, 2026 would have reduced our Fiscal 2026 gross profit by approximately $3 million.
Impairment of Goodwill and Other Intangible Assets
Goodwill and certain other intangible assets determined to have indefinite useful lives are not amortized, but 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 whenever events or changes in circumstances indicate that their carrying amounts may not be fully recoverable.
We typically 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 amount. However, to reassess the fair values of our reporting units, we periodically perform a quantitative impairment analysis in lieu of using the qualitative approach.
Performing 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 consider the difference between each reporting unit's fair value and carrying amount as of the most recent date that a fair value reassessment using the quantitative 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 amount, additional quantitative impairment testing is performed.
The quantitative goodwill impairment test involves comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, the reporting unit's goodwill is concluded not to be impaired. However, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recorded 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 quantitative goodwill impairment test requires judgment and often involves the use of significant estimates and 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 involved when determining the fair values of other indefinite-lived intangible assets. These estimates and assumptions could have a significant impact on whether 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 involve significant estimates and assumptions, including the amount and timing of projected future cash flows, discount rates reflecting the risks inherent in those future cash flows, perpetual growth rates, and selection of appropriate market comparable metrics and transactions.
We performed our annual goodwill impairment assessment as of the beginning of the second quarter of Fiscal 2026 using the qualitative approach discussed above. In performing the assessment, we considered the results of our most recent quantitative goodwill impairment test, which was performed as of the beginning of the second quarter of Fiscal 2024, the results of which indicated that the fair values of each of our reporting units significantly exceeded their respective carrying amounts. Based on the results of the qualitative impairment assessment, we concluded that it is not more likely than not that the fair values of our reporting units are less than their respective carrying amounts and there were no reporting units at risk of impairment. No goodwill impairment charges were recorded during any of the fiscal years presented. See Note 11 to the accompanying consolidated financial statements for further discussion.
In evaluating other intangible assets for recoverability, we use our best estimate of future cash flows expected to result from our use of the asset and its eventual disposition where applicable. If such estimated future undiscounted net cash flows attributable to the asset are less than its carrying amount, an impairment loss is recognized to the extent that such asset's carrying amount exceeds 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 whenever events or changes in circumstances indicate that their carrying amounts 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. If such estimated future undiscounted net cash flows attributable to the asset are less than its carrying amount, an
impairment loss is recognized to the extent that such asset's carrying amount exceeds its fair value, as estimated considering external market participant 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 (referred to as assets held-for-sale) are reported at the lower of carrying amount or fair value, less costs to sell.
In estimating 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 estimated future cash flows inherently involves uncertain 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 could 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.
See Note 8 to the accompanying 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 believe 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, 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 9 to the accompanying consolidated financial statements for further discussion of income taxes.
Contingencies
We are 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 relations matters, various tax or other governmental audits, and trademark and intellectual property matters and disputes. We record a liability for such contingencies when we conclude that it is probable that a loss has been incurred and the amount of such loss is reasonably estimable. In addition, if it is considered reasonably possible that an unfavorable settlement of a contingency could exceed any related 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 recognize expense for all stock-based compensation awarded to employees and non-employee directors based on the award's grant date fair value. Such expense is recognized over the recipient's requisite service period, adjusted for forfeitures which are estimated 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 certain other employees, as well as to our non-employee directors. In addition, we grant RSUs with performance-based and market-based vesting conditions to our senior executives and other key employees.
The fair values of our service-based and performance-based RSU awards are measured based on the fair value of our Class A common stock on the grant date, 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 periods, to the extent that our attainment of specified performance goals (upon which vesting is dependent) is deemed probable, which involves judgment regarding expectations surrounding 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 17 to the accompanying consolidated financial statements for further discussion.
Sensitivity
The assumptions used in calculating the grant date fair values of our stock-based compensation awards reflect our best estimates. Projecting the achievement level of certain performance-based awards and estimating the number of awards expected to be forfeited requires judgment. If actual results or forfeitures differ significantly from our estimates and assumptions, or if assumptions used to estimate the grant date fair value of future stock-based award grants are significantly changed, stock-based compensation expense and our results of operations could be materially impacted. A hypothetical 10% change in our Fiscal 2026 stock-based compensation expense would have affected our net income by approximately $9 million.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 4 to the accompanying 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.
