Ralph Lauren Corp Class A RL
Q4 2013 Earnings Call Transcript
Transcript Call Date 05/23/2013

Operator: Good morning, and thank you for calling Ralph Lauren's Fourth Quarter Fiscal 2013 Earnings Conference Call. As a reminder, today's conference is being recorded. All lines will be in a listen-only function during the presentation today. At the end of the presentation, we will conduct a question-and-answer session. Instructions on how to ask a question will be given at that time.

Now for opening remarks and introductions, I will turn the conference over to Mr. James Hurley. Please go ahead, sir.

James Hurley - IR: Good morning, and thank you for joining us on Ralph Lauren's fourth quarter and full year fiscal '13 conference call. The agenda for this morning's call includes Roger Farah, our President and Chief Operating Officer, who will give you an overview of the year and comment on our broader strategic initiatives. Jackie Nemerov, our Executive Vice President will provide some merchandising highlights and Chris Peterson, our Chief Financial Officer will provide operational and financial perspective on the fourth quarter, in addition to reviewing our initial expectations for fiscal 2014. After that, we will open up the call for your questions, which we ask that you please limit to one per caller. On today's call we'll be making some forward-looking statements within the meaning of the federal securities Laws, including our financial outlook. Forward-looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward-looking statements. Our expectations contain many risks and uncertainties. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings.

Now, I'd like to turn the call over to Roger.

Roger N. Farah - President and COO: Thank you, Jim, and good morning, everyone. We're reporting excellent fourth quarter and full year fiscal '13 results today. The 42% earnings per share growth that was achieved for the fourth quarter and the 14% increase for the full year excluding the rugby-related charges, were a function of strong product acceptance and exceptional profit flow-through on sales.

The double-digit earnings growth was a continuation of a multiyear trend that highlights the extraordinary creativity and operational excellence that characterizes our company. It also showcases the powerful diversity of our operating model across merchandise categories, channels and regions. This is particularly true for fiscal 2013 as our global teams successfully managed through a challenging macroeconomic environment during the year.

Fiscal '13 was a year of important progress on each of our long-term strategic growth objectives. With respect to our direct-to-customer efforts, Retail Segment sales increased high-single digits in constant currency, and that growth was mostly comp driven led by e-commerce.

During the year, we commenced an exciting multiyear initiative to grow our brand presence in Asia, with a particular focus on Greater China. We also significantly enhanced our global e-commerce capabilities. We have built a talented team with global oversight supported by three strong regional teams. In addition, we extended our reach in Western Europe, launched our first Asia site in Japan, and launched Club Monaco e-commerce capabilities in the United States and Canada.

We are also in the final month of doubling the size of our customer fulfillment center in North Carolina. E-commerce will remain a critical area of focus and investment for us over the next several years.

Retail now accounts for 52% of our consolidated revenues, up from approximately 40% five years ago, and we expect much of our future growth to be direct-to-customer led.

Our second major strategy has been our desire to expand our international presence. European revenues were up low single-digits in constant currency during the year, as strength in our retail operations more than offset a proactive pullback in wholesale distribution.

We're able to grow our Europe profitability at an even stronger rate, as the locally based team prudently managed the business, distorting resources to higher performing channels and countries.

In Asia, where we are just beginning a long and exciting journey, we now have most of the major building blocks in place of our new shared service hub in Hong Kong, with strong country management to focus on growth.

Even as we've made outside investments in new stores and e-commerce, we're able to improve the profitability of our Asian operations with disciplined management. The increased global acceptance of our products is a validation of our sustained commitment to investing in innovation and world-class supply-chain capabilities. And supporting those efforts further with a highly strategic merchandising initiatives, compelling advertising and marketing campaigns, and extraordinary shopping environments.

Continued market share gains in many of our core merchandise categories in North America, which is our most developed market, is a clear indication of the incredible vitality of the Ralph Lauren brand. We are making great progress with our accessories, denim and home offerings since assuming direct control of those categories. We look forward to nurturing the recently transitioned Chaps men's sportswear in a similar manner. Over time we believe these emerging merchandise categories can become meaningful drivers of incremental growth in the U.S. and around the world.

During fiscal '13, we successfully completed the first phase of a multiyear implementation of an integrated global systems platform. We believe the consistent strengthening and evolution of our corporate infrastructure will boost the global information we need to run our growing business. The clarity and purpose of our Company's vision and strategy is well understood throughout the organization. Ralph and I are proud of the progress the team is making with our long-term growth objectives with the Company's ability to consistently invest in those long-term strategies, while executing the day-to-day and consistently delivering annual results.

We are excited about the many compelling opportunities that lie ahead of us, and we intent to match this excitement with an accelerated investment back into the business over the next several years. We are confident we have the right strategies and teams to execute our goals, and with $1.4 billion in cash and investments on our balance sheet, we certainly have the means to fund our strategies. Those of you who are familiar with our Company understand that our consistent reinvestment back in the business has been an important driver of sales and profit performance.

Over the last decade we've delivered 16% compounded annual earnings per share growth on 11% compounded annual sales growth, and have returned $3 billion to shareholders via repurchase or dividends. The net result of our actions have been over a 700% increase in total shareholder return, which reflect the focused execution of our global strategies.

Now, I'd like to turn the call over to Jackie.

Jackwyn L. Nemerov - EVP: Thank you, Roger, and good morning everyone. I'd like to expand on two of the themes Roger touched on in his opening remarks, the first being the operational excellence, that is a defining characteristic of our company, and the second being the incredible market share gains of our North American wholesale business.

The operational expertise of our global supply chain organization is one of the Company's most significant competitive advantages. Over the years our sourcing and logistics teams have navigated through not only the growing scope of our global operations across regions, channels and product categories, but also dynamic changes in input costs, all, while meeting the Company's high standards of innovation and quality. Their ability to consistently execute with excellence delivering exquisite, high quality product, while still achieving cost savings and other efficiencies has been an important driver of our sales and profit growth.

Much of the organization's success is the result of the steady investment in talent and capital we've made to develop these world-class capabilities as our business has evolved. In fiscal 2014, our supply chain organization will ensure the seamless integration of Chaps men's sportswear and our Australia and New Zealand operations, the doubling in size of our U.S. distribution center for ralphlauren.com and our organic business expansion.

I know that many of you have an interest in input cost dynamics. I'll offer some perspective on our input costs for this year.

Fall '13 costing is expected to be modestly below the prior year period. This is a function of lower raw material costs that are mostly offset by higher wages and are in plans to invest back into the product whether through materials or construction details in order to deliver the most compelling product to the consumer. As we look even farther ahead to spring summer 2014 season. We expect to see higher prices for our most important raw materials, and I'm confident in our team's ability to meet this challenge and find ways to mitigate that pressure.

The continued expansion of our North American wholesale business is a testament to the strong aspirational appeal of the Ralph Lauren brand. The mid-single-digit increase in our comparable operations during fiscal '13 was a continuation of a multiyear trajectory that has far outpaced industry growth.

Much of this growth has been achieved through our core men's, women's and children's apparel offerings, but our newer women's accessories, footwear, dresses and our Denim & Supply brand were also important contributors. We look forward to thoughtful wholesale distribution expansion of these categories and believe they have the potential to support our continued growth.

On a related note, we just opened two freestanding Denim & Supply stores in the U.S. one on Newbury Street in Boston and the other today on University Place in New York City. These stories are of an outstanding expression of the Denim & Supply brand and I encourage you to visit them. We believe that selective retail expansion of Denim & Supply worldwide will foster greater awareness for the brand and serve as a positive complement to its wholesale distribution.

In addition to the strong wholesale performance of the Ralph Lauren brand North America, Chaps also performed very well in the fourth quarter and full year periods. Established 35 years ago as a men's only brand, Chaps has evolved over the last decade into a complete lifestyle offering with a robust product assortment across men's, women's, children's, accessories and/or home categories. The combination of classic style and great quality at an accessible price point has made Chaps a highly regarded an aspirational national brand.

We are in the process of integrating our previously licensed Chaps men's sportswear business into our Company and the directly operated wholesale business. We have in place a transition services agreement to ensure a seamless process without disruption for our customers over the coming months. With all of the largest merchandise categories now directly managed by our Company, we will further enhance the clarity and consistency of the brand. We also believe there's a consumer appetite and a compelling opportunity to develop the Chaps brand on a global scale over time.

Everything we do across all of our brands at Ralph Lauren is born out of a sensibility and an aesthetic that are reflected across each of our merchandise categories. The extraordinary creativity that is a hallmark and point of pride for our Company is matched only by tremendous merchandising discipline that has enabled us to maximize our market share potential.

I want to share with you how we've transformed the historically strong U.S. based merchandising organization into a truly global one. Since we've assumed direct control of most of our strategically important merchandise categories and regions. We've learned that there is a great commonality to our worldwide bestsellers. This insight is a foundational principle that grounds our global merchandising organization.

Centralized in New York in order to work in close proximity to Ralph and his design teams, we have built teams made of merchants representing our key regions around the world to work side-by-side in a highly collaborative manner to conduct global line reviews and planned global buys. These teams work very closely with the respective brand teams across sales, planning and marketing, in order to inform the thought process with real-time feedback on sales trends, product performance and marketplace dynamics.

We are confident that over-time, greater consistency of a product story will drive both product development and production efficiencies that will allow us to leverage our global growing scale and provide opportunity for continued gross margin expansion. We believe a more centralized approach will ensure greater singularity of message, and therefore global consistency of advertising, marketing and in-store presentations. Creating an even more direct link between Ralph's vision and the consumer experience across all distribution channels, becomes increasingly important as tourists traveling all of the world become a larger subset of our customer base.

With that, I'd like to turn the call over to Chris.

Christopher H. Peterson - CFO: Thank you, Jackie, and good morning everyone. As you've seen in this morning's press release, we're reporting strong fourth-quarter profit results today. Let me start with a brief recap of the quarter. Consolidated net revenues rose 1% to $1.6 billion reflecting retail segment growth that was partially offset by a decline in wholesale shipments. Excluding the impact of foreign exchange and strategic decisions to discontinue American Living and close certain stores in Greater China revenues increased 4% in the fourth quarter.

The revenue results were below the expectations we articulated in February due to unseasonably cold weather that hurt early spring merchandise sales and foreign exchange. For the full year of fiscal 2013 period net revenues grew 1% to $6.9 billion and were up 5% excluding the impact of the strategic decisions and foreign exchange.

Gross profit margin of 59.3% was 220 basis points greater than the prior year period. The improvement in gross profit margin is primarily attributable to lower input cost, beneficial, channel and product mix and operational discipline.

Operating expenses of $792 million were in line with the prior year as we were able to offset higher investment in our growth initiatives and approximately $15 million of impairment and restructuring charges with operating expense savings through productivity gains.

Operating expense rate of 48.2% reflects 50 basis points of leverage compared to the prior year which was better than our expectations due to disciplined expense management across the organization. Operating income rose an impressive 33% to $182 million in the fourth quarter and operating margin improved 270 basis points to 11.1%.

Strong profit flow-through was a function of the extraordinary operational discipline of our global teams. For the full year of fiscal 2013 period operating income increased 8% to $1.1 billion and operating margin improved 100 basis points to 16.2%.

Excluding rugby related impairment and restructuring charges the fiscal 2013 operating margin improved 130 basis points to 16.5%.

Net income for the fourth quarter was $127 million, 35% greater than the prior year period and net income per diluted share increased 38% to $1.37. Excluding Rugby-related charges, net income per diluted share grew 42% to $1.41 in the fourth quarter. Higher operating income was the principal driver of the substantial increases in net income and net income per share.

EPS also benefited from a lower effective tax rate of 25%, which was 300 basis points below the prior year due to a favorable discrete tax item and geographic mix. For the full year fiscal 2013 period, net income rose 10% to $750 million, and net income per diluted share increased 12% to $8. Excluding Rugby-related charges, net income per diluted share grew 14% to $8.13 in fiscal '13.

Moving on to segment highlights for the quarter. Wholesale sales of $796 million were 4% below the prior year period, primarily due to the discontinuation of American Living, in fiscal '13, and a proactive reduction in shipments to certain European wholesale customers. Wholesale operating income grew 16% to $175 million in the fourth quarter and wholesale operating margin improved 380 basis points to 22%. The substantial improvement in wholesale operating margin was primarily due to higher gross profit margins as a result of lower input costs, favorable product mix and operational discipline.

Fourth quarter Retail Segment sales rose 7% to $804 million, supported by the contribution from new stores and e-commerce operations and a 4% constant dollar comparable store sales increase. Sales trends continued to be strongest online and at factory stores worldwide.

Despite the challenges of the overall macro environment and unseasonable weather conditions, the fourth quarter's 4% constant dollar comp growth was achieved on top of difficult multiyear comparisons and was primarily a function of improved traffic and conversion.

Retail segment operating income grew an impressive 73% to $74 million in the fourth quarter, and the Retail operating margin expanded 350 basis points to 9.2%. The robust improvement in Retail operating income and operating margin reflects stronger profitability in all major geographies, particularly in international markets, and was achieved despite higher restructuring and impairment charges and continued investment in global e-commerce development.

Licensing revenues of $43 million in the fourth quarter were in line with the prior year as higher apparel product licensing revenues were offset by lower home product licensing revenues. Operating income for the Licensing segment declined 3% to $29 million.

Consolidated inventory was up 6% at the end of the fiscal year and we spent approximately $276 million on capital expenditures to support new retail stores, shop installations and infrastructure investments. The Company repurchased 3 million shares of its common stock during fiscal '13 at an average cost of $149 utilizing $450 million of our authorized share repurchase programs and returned an additional $128 million to shareholders via dividend payments.

At the end of the fourth quarter, the Company had $577 million available under previously authorized share repurchase programs for future buybacks, and we ended the year with approximately $1.4 billion in cash and investments. We are very pleased with the strong fourth quarter and full year results. The prudent planning, operational management and financial discipline that characterized the Company have enabled us to maximize margin opportunities and deliver double digit earnings growth.

We've achieved these results even as we've continued to make substantial reinvestments to support our longer term growth objectives.

Now I'd like to turn to fiscal '14. As we articulated to you in February we expect revenue growth to improve in fiscal '14 and we are planning to increase our investments in the business to support long-term shareholder value creation. Key areas of investment in fiscal '14 include accelerated retail store development, global e-commerce capabilities and upgrades to our management information systems.

With respect to retail store development, we currently plan to invest in approximately 30 new retail stores mostly concentrated in international markets. This accelerated rate of store investment means we expect to have a substantial increase in preopening cost, particularly since our plans include a handful of large high-profile stores that are scheduled to open in the next two years.

Among these stores are new Ralph Lauren flagship stores in Asia, as well as our first flagship store for the Polo brand in New York City. We are in the early stages of an exciting plan to open Polo stores worldwide supported by more than 45 years of Ralph's extraordinary vision and commitment Polo is one of the most recognized brands in the world.

Our efforts are focused on leveraging the tremendous innovation and expertise that exists in our design and merchandising organizations to satisfy the growing global demand for our Polo and Blue Label products.

We believe Polo stores will be a good complement to the important wholesale distribution that exists today in North America and parts of Europe, they will likely become the primary platform by which the brand is distributed in certain international markets such as Asia and parts of Latin America, where the wholesale channel is less developed. We recently opened our first Polo store in East Hampton, and we intend to open a second Polo store at the Short Hills Mall in September. We've also committed to open a 35,000 square-foot flagship store on Fifth Avenue in New York City that will be a major brand statement featuring a full assortment of Polo men's, women's and children's merchandise, as well as a restaurant. Scheduled to open in the fall of next year, we believe the flagship store will really set the stage for the broader global strategy, especially since it is located in one of the world's most popular tourist destinations. We are actively engaged in and committed to finding additional Polo locations around the world, which will be a mix of flagship stores and key gateway cities and smaller formats in appropriately sized markets.

We also plan to increase our investment in e-commerce around the world as the consumer is clearly choosing to shop more online. Over the last year, we've created a stronger global digital and e-commerce team to capitalize on this trend and provide a more holistic approach to managing this dynamic channel of distribution. Specific plans for fiscal '14 include a new Korean website, expanding the number of countries we can ship to in Europe and in Asia, evolving the online customer experience in existing markets and investing in expanded distribution and fulfillment capacity to support our long-term growth expectations for the channel.

With respect to infrastructure investment, the largest area of incremental investment for us will be in a globally integrated ERP system. As a reminder, during fiscal '14, we plan to convert global product procurement and our North American Wholesale order to cash processes from legacy systems to SAP. After several months of testing, we go live with our pilot wave later this quarter. While the pilot wave only represents a small part of our consolidated revenues, it allows us to test 95% of the functionality of the new system, allowing us to mitigate risk and make any necessary adjustments before rolling out to larger businesses. Over time, we believe the SAP implementation will yield productivity improvements and procurement savings in addition to providing the Company with a stronger platform for future growth.

We expect each of these investments to deliver a rate of return that is well in excess of our cost of capital. However, for fiscal '14, they will represent a significant step-up in spending. The combined year-over-year impact of these investments is estimated to affect operating profits by approximately $75 million for the full year period.

Foreign currency exchange rates will also be a significant headwind for us in fiscal '14, both in terms of translational and transactional impact. The recent devaluation of the Japanese yen is expected to have the greatest impact. Comparing the current yen to dollar exchange rate to the average 83 exchange rate, we experienced in fiscal '13, the yen id down approximately 25%.

To mitigate the cost impact of the yen devaluation, we instituted price increases in Japan three weeks ago. But those actions will not provide a complete offset to the devaluation. For the full year period at today's rates, we expect about 150 basis points of negative currency translation on the Company's top line and that the combination of translational and transactional currency effects will negatively impact operating profit by about $75 million.

With that as backdrop, I'd like to review our initial outlook for the year which was outlined in this morning's press release. As we've developed the plan for fiscal '14, the year can be characterized as a tale of two halves, with the operating margin down in the first half and up in the second half. First half of the year is impacted by upfront expenses related to the integration of the Chaps business and Australia New Zealand, as well as preopening costs for new stores. The second half is expected to benefit from the integration of the new businesses as well as the new store openings.

For the first quarter of fiscal '14 we expect consolidated net revenues to increase at a low single-digit rate with Wholesale Segment sales growing slightly faster than Retail Segment sales as a result of the Chaps integration.

Foreign currency effects are estimated to negatively affect revenue growth by approximately 150 basis points in the first quarter and will have more of an impact on our Retail Segment given its geographic business mix.

Our operating margin for the fourth quarter is expected to be approximately 200 to 250 basis points below the prior year period. Due to higher operating expenses related to the timing of investments to support the company's strategic growth objectives, the Chaps integration and the foreign exchange impact.

First quarter tax rate is estimated at 32%. For the full year fiscal '14 period we expect consolidated revenues to increase by 4% to 7%, which includes a 150 basis point net negative impact from foreign currency.

Wholesale sales are expected to grow slightly faster than retail revenues due to the disproportionate impact that currency translation has on our Retail Segment.

We estimate that newly transitioned operations, which include Chaps men's sportswear in Australia and New Zealand, beginning in the second quarter account for approximately 350 basis points of our consolidated revenue growth. We expect our full year fiscal '14 operating margin to be approximately 25 to 75 basis points below fiscal 2013's record level due to the integration of newly assumed operations, accelerated investment and strategic growth initiatives across geographies, distribution channels and infrastructure and to the FX impacts I highlighted earlier.

Excluding the impacts of the incremental investment in the Company's strategic growth initiatives and foreign exchange, underlying operating income growth would be up low double-digits for the year. Our fiscal 2014 tax rate is expected to be 31%. A higher level of investment that's flowing through the P&L is also reflected in our capital spending plans. We are planning approximately $350 million to $450 million in capital expenditures in fiscal '14, primarily to support our global direct to customer and infrastructure investments.

Approximately 75% of our capital is allocated for our global direct to customer activities, including new store investments and the expansion of our dedicated distribution of fulfillment center for our North American e-commerce operations. Our commitment to investing in our strategic growth initiatives and infrastructure is clear, as is our expectation for return on capital. We are excited about what we believe we can achieve over the next several years as we continue to focus our capital and managerial resources on the most compelling long-term opportunities.

At this point we'd like to open up the call for your questions. Operator, can you assist us with that please?

Transcript Call Date 05/23/2013

Operator: Omar Saad, ISI Group.

Omar Saad - ISI Group: Good morning. I'm hoping to focus a little bit on the revenue line. In the quarter, I know you guys had guided to something like a mid-single-digit increase in the fourth quarter, obviously came in a little bit below that. I assume the yen was part of the factor there. Could you talk through some of the other factors that led to the slight revenue disappointment? Are there macro things going on out there, is it weather-related, is it broad-based, is it focused in certain areas? And then, as you think about the revenue guidance and the top-line kind of profile for this Company for '14 and above, what do you think the kind of key factors are and the opportunities, or do you still see just a kind of very broad-based growth across geographies and categories and channels?

Christopher H. Peterson - CFO: Let me start with the revenue underperformance versus our guidance. So, when we provided the guidance at the beginning of February, we were coming off a month of January, where we had a very strong revenue growth, and we were expecting February and March to be somewhat comparable conditions to the prior year. There were really two things that happened during the months of February and March that led to the revenue being slightly below our previous guidance. The first was, we had an incredible weather pattern this year with much colder conditions in both North America and Europe, as well as Northeast Asia that led to a tough February and March for seasonal spring product. The second was, to your point on foreign exchange, was foreign exchange. The yen continued to devalue during the quarter and Japan, for perspective, is our second largest country from a revenue standpoint. So, those were really the two factors that drove the revenue versus guidance in the quarter.

Roger N. Farah - President and COO: So, Omar, in terms of the go-forward, I think we would identify the following as the key growth engines that would provide the distortion. Obviously, e-commerce and retail, we've talked about and others have. Customer is making a clear choice to shop online, whether that’s through our wholesale partners where we are experiencing strong growth with our wholesale partners online, or whether it's in our own direct-to-consumer, whether it's Ralph Lauren or Club Monaco. We've seen an extraordinary response to the Club Monaco website in the first nine months it's been open. And so on and on and on around the world, the customers indicating to us they are comfortable shopping or getting product information, buying in the stores. And a lot of that interest is shifting to mobile, so the growth in mobile that you're seeing in the industry in general, continues for us. I would say the other headline is the Asia Pac region with all the puts and takes should provide distorted growth over the next couple of years. The bolt-on of Australia is relatively small, but completes the region for us in terms of owned territories plugged into our shared service hub network through a lot of the infrastructure, I think, will be a nice positive addition. Then I think the new product categories that we danced through quickly in the script that we brought back in-house over the last three or four years. That have gone through some form of rehab are now beginning to show their future potential, whether it's Denim & Supply, which Jackie talked about, or some of the accessory categories or even some of the changes we've made in the home business. We think those will provide future growth. I think we're viewing Europe cautiously. The trends there continue with strength in the northern part of Europe and it's softer in the southern part. I think our team did an outstanding job managing through that to deliver topline and even a better bottom line performance in the year. But I think we're planning that a little more cautiously going forward.

Operator: Kate McShane, Citi Research

Kate McShane - Citi: In your guidance you highlighted it was a tale of two halves with the operating margin. However, can you give a little bit more detail around the cadence of spend of the year and how we should think about gross margins for the year as well?

Christopher H. Peterson - CFO: Yeah. So, I think, on that I would say, the investments in the strategic growth initiatives are really going to be spread relatively evenly throughout the year. But if you look at the licensed businesses that we're taking back in Chaps in Australia and New Zealand, we're spending a disproportionate amount of money transitioning those businesses to be wholly-owned in the first half of the year, and we expect them to be significantly more profitable in the second half of the year. We also – FX is relatively evenly spread throughout the period, and so I think it's really a function of the take back of the licensed businesses that result in the operating margin improvement in the back half versus the front half.

Roger N. Farah - President and COO: I guess the other thing I would add to what Chris said is that, there are certain subjects like the Fifth Avenue store that we've talked about that we're planning to open next fall, September or October, that are very expensive and carry a lot of rents and we'll be carrying that for over year without the benefit of any sales. So, there are some of these big projects in Asia, here in New York on Fifth Avenue that we think are extraordinary opportunities for us long-term will establish the brand. Asia will be Ralph Lauren, here will be Polo and there's a cost of caring those for 12 months until they come online with sales. So, you know that's feathered in. Remember this time last year, we talked about fiscal '13 being a tale of two haves and I think there was some concern that we had anticipated more of the profile to come in the back half of the year. We're pleased to have delivered on that and for different reasons we're facing a similar situation as really our profit profile is being rebalanced more to a 50-50 split than what it had been for many years which was a heavier orientation on first and second quarter and a little bit lighter in the third and fourth quarter. Some of that's also coming from the growing retail business where we get some distortion in the back half of the year versus the first half.

Operator: Christian Buss, Credit Suisse.

Christian Buss - Credit Suisse: I was wondering if you could provide some perspective on what's embedded in your expectations for the European business for fiscal '14? And if you could provide some color on when we start lapping the distribution closures or some of the trimming of distribution?

Christopher H. Peterson - CFO: Sure. So, I think, as Roger mentioned in the prepared remarks, the underlying business in Europe this year was up low-single digits on a comparable basis. We're expecting that to actually accelerate a little bit as we get into next year from low-single digits to a little bit faster than that, mid-single digits type range. Part of the reason for that is because we have a plan to enter some of the underpenetrated geographies of Central and Eastern Europe and the Middle East that we expect to contribute to the sales. Relative to the proactive reduction in shipments that we've made in the wholesale channel in Southern Europe which you saw generate strong profit results in the European numbers that we just reported will largely be through that from an annualization standpoint after the end of this first quarter of fiscal '14. So when we get to the second quarter we feel like we will have appropriately rebased that business.

Operator: David Glick, Buckingham Research.

David Glick - Buckingham Research: Just two questions. One Chris if you could help us understand what the constant currency direct-to-consumer comp guidance is for FY '14. And then secondly Roger any early learnings from your new store openings in China and sounds like you are potentially accelerating some of those openings, talking about a flagship, which obviously is an important investment in presence for you in China. So some of your early learnings and the pace of expansion in China? Thank you.

Christopher H. Peterson - CFO: I guess we've shied away from giving as I mentioned, I think on the last call or the call before constant currency comp guidance, but what I would point you to on the first question is our guidance for the year is 4% to 7% revenue growth within that there is 150 basis points of negative foreign exchange. So that would get you to 5.5% to 8.5% sort of all in growth and included in that is the 350 basis point improvement from the result of the Chaps and Australia business. So I think you can sort of back into the range that we're shooting for, for the year, which is sort of an underlying growth rate in the mid-single-digits type of range.

Roger N. Farah - President and COO: And I would respond to the second part of your question as follows. We've had a very interesting year learning about the Chinese consumer and while the first profile is how do they perform in China, they're obviously a big part of the shopping trends in Korea, other parts of Southeast Asia, Europe and the United States. So we're learning about that customer through the really global footprint we have. But fundamentally, and think Jackie touched on this, the best product sale worldwide. And so with our orientation towards apparel, we have to be mindful of the geographic and climate range in China. The northern part of China is almost similar to the Coast of Maine in terms of its weather and it goes all the way down.

Operator: Mr. Hurley, please go ahead.

Roger N. Farah - President and COO: Did we get dropped off the line operator?

Operator: Yes. You are connected again, please go…

Roger N. Farah - President and COO: I'm now connected?

Operator: Yes. Please continue. We were on David Glick's, Buckingham Research Group's question.

Roger N. Farah - President and COO: David, I'm not sure where I dropped off. Apparently, we lost the line.

David Glick - Buckingham Research: Yes. It was early in your answer on China. Sorry about that.

Roger N. Farah - President and COO: Let me go back, we're pleased to announce fourth quarter earnings today. In case nobody heard it, we were up 42% in EPS. I don't know that got through. Maybe, I'll start again. I was talking about China. I'll quickly summarize. We've learned a lot about the Chinese business. We've got a lot of feedback from the customers both in China, in Southeast Asia and Europe and United States. The good news is they are gravitating towards the same looks and categories and items. They clearly want luxury, created some unique product that responds to that market and they have really bought that well. So every day we are learning, we know we have a long way to go to tell the Ralph Lauren story in that market. We are investing in committing to key flagships, but in the key cities. I think one of the things we'll try to avoid is chasing the second and third tier cities too early on in our development of that market. I think we have to be important in Hong Kong and Shanghai and some of the key markets before we start going out to the second and third tier cities. I also expanded my answer to include Denim & Supply and in fact the Polo stores, because while we are in the early stages there, we think those are key high growth brand-specific high margin stores. And the early reads on a more classified approach in East Hampton has been very strong with color multiplier selling. Denim & Supply stores that we've opened internationally about a dozen, one and today two in the U.S., are really selling denim and the key to that customer is getting a fit on the denim bottoms that resonates with them, and then you can build the top business. Early trends there are reflecting a 30% penetration of denim bottoms, which is very high in that world. So I think the direct-to-customer business, whether it’s flagship in Asia or more classified smaller locations, we are beginning to feel confident about the path we are on.

Operator: Aaron Murphy, Piper Jaffray.

Aaron Murphy - Piper Jaffray: I appreciate the kind of key detail on the investments for the year, and I wanted to focus on the second phase of the SAP implementation. I guess, just given the global complexity of your business model, once this phase has been tested and implemented, could you just maybe provide a little more context of some of the key applications of this kind of second phase of this system, and how we should think about the meaningful margin leverage going forward in the model as we exit fiscal '14 and get into fiscal '15? Thank you.

James Hurley - IR: So, the phase of the SAP implementation that we're in right now really focuses on the global product procurement and the North America Wholesale order to cash, which is a significant part of our global systems infrastructure. And as background just a step back. Because in the history of the Company, the Company started by licensing a lot of the geographies and a lot of the product categories, as the Company brought those businesses back in, those businesses came back in with each on a different legacy system. So the Company's starting point from a systems infrastructure is a large number of systems that are not integrated and not as connected as they could be. So we believe the implementation of SAP will allow us to get to an integrated global system that will drive significant productivity, because, for example, we'll be able to put in a style once and that style will be consistent around the world, whereas today we have to do that multiple times around the world with multiple different codings and with manual interfaces from one system to the next, that process will all become automated. The second thing is that we'll increase our visibility to the data. So, today, where it's very difficult to understand, for example, how many of the specific items we're selling around the world, once we get to sort of common nomenclature and common system, that will become much easier, and we believe we will be able to leverage that information to drive procurement savings. The other point I would make on this is that, because it's a fairly significant endeavor, we've broken up the implementation into three waves, because we didn't want to go with an approach where we try to implement everything at once. And so the first wave, as I mentioned in my prepared remarks, will be a wave that test the majority of the functionality, but on a limited percent of the revenue from a branding standpoint, and then we'll go to a second wave and a third wave. We expect most of this implementation to be completed during fiscal '14, and we expect the benefits to start to really kick in starting in fiscal '15.

Operator: Barbara Wyckoff, CLSA.

Barbara Wyckoff - CLSA: I guess for Roger and Jackie, can you talk about efforts to modernize the Blue Label and Lauren women's product obviously staying within the brand aesthetic? And then secondly, can you talk about your plans to accelerate growth and penetration of key accessories. I know it's been growing, but you know there have been such categories as handbags and footwear have been so strong, across the industry. How are you going to be accelerating that growth?

Jackwyn L. Nemerov - EVP: We've put a lot of focus on the development and the continued monetization of our Lauren brand, and we've had a very successful fall holiday season followed by what is the great beginning of spring into summer. Whereas the women's business over the last few years has been very challenging, we are finding over this past year with a lot of increased efforts from our design team to excite the customer and from our merchandising team to focus on the right strength of the line and the presentation of product, and the result of that has been fantastic. In the most recent NPD, of course, Lauren stands ahead. We're 12% above (plans) against last year for the season and the results of that keep us in that number one position, distant, way above our competition. We have been as we have the focus of our Lauren brand, we have a Lauren footwear and accessory business that we've seen very, very nice momentum in, and then of course, our luxury accessory business is also moving along nicely. We have our leather good business there, our shoe business, and as a penetration to our Company, we're moving into the mid-to-high single digit range at this point in our revenues. It's a higher percentage of our business in the Ralph Lauren stores where we have beautiful and dedicated space to present our merchandise and certainly our long-term growth plans and goals for accessories is for it to be a more substantial part of our business over time. We have introduced a bag which we call the Soft Ricky. And it’s a new interpretation of our most iconic bag and it's been very strong worldwide and we are in the middle of a big roll out for that bag which we believe will have tremendous results within the fall season. And as you know the accessory business tends to be an item business focused on the centerpiece of the Ricky we believe we can develop a very strong accessory business with that as our centerpiece going forward.

James Hurley - IR: With that I'll thank you all for your listening and your patience with the audio communications. Appreciate your support. We'll look forward to talking to you in August.

Operator: That will conclude today's call. We thank you for your participation.