Operator: Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Michael Kors Holdings Limited Fourth Quarter Fiscal 2013 Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. As a reminder, today's conference is being recorded.
Now, I would like to turn the conference over to Ms. (Christina Lack), Vice President and Treasurer. You may begin.
Christina Lack - VP and Treasurer: Good morning, and thank you for joining us for our fourth quarter earnings call. Presenting on today's call are John Idol, Chairman and Chief Executive Officer; and Joe Parsons, Chief Financial and Chief Operating Officer.
Before we begin, let me remind you that certain statements made on this call may constitute forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those that we expect. Those risks and uncertainties are described in today's press release and in the Company's SEC filings, which are available on the Company's website, www.michaelkors.com.
Investors should not assume that the statements made during the call will remain operative at a later time and the Company undertakes no obligation to update any information discussed on the call.
I will now turn the call over to Michael Kors' Chairman and Chief Executive Officer, Mr. John Idol.
John D. Idol - Chairman and CEO: Thank you, Christina. Good morning, and welcome to Michael Kors's fourth quarter and full year fiscal 2013 earnings call. With me today is Joe Parsons, Chief Financial and Chief Operating Officer.
I will begin the discussion with a brief overview of the quarter and fiscal year and share with you an update on our strategic growth plans. Joe will then provide a detailed review of our fourth quarter financial results. Additionally, he will provide an outlook for our fiscal 2014 first quarter and full year.
Michael Kors delivered record results in 2013. Total revenue grew 68%, exceeding the $2 billion mark. Comparable store sales increased 40% and operating income grew 132% to $630 million, excluding one-time items.
Our global retail store base increased from 237 locations to 304 locations, including concessions. Our international presence expanded with revenue growth of 103% in Europe and 119% in Japan. We reached approximately 950 shop-in-shops globally in accessories, footwear, and women's wear.
We attribute our outstanding success to the creative vision of Michael Kors, our exceptional product offering, a highly talented management team, and our operational excellence.
The year ended on a strong note, with continued momentum in the fourth quarter as the brand strength, innovative fashion design and jet-set in-store experience drove strong sales and earnings across all businesses and geographies.
Total revenue in the fourth quarter grew 57% to $597 million. Gross margin expanded 200 basis points and income from operations grew 102% to $155 million, excluding one-time items.
We also continued to make progress on our six key growth strategies during the fourth quarter. First, we delivered our 28th consecutive quarter of comp store growth in North America with a 35% increase.
Second, we continued our retail expansion efforts in North America opening three new stores during the quarter.
Third, with 500 department store door conversions to date, we reached a halfway mark on our goal of 1,000 North American accessory shop-in-shops.
Fourth, we expanded our presence in Europe with the addition of one retail location in the quarter as well as new wholesale doors.
Fifth, we further developed our business in Japan with the addition of three retail locations.
Sixth, we continued to build the foundation for growth in other areas of the Far East through regional licensees. We ended the fourth quarter with 66 retail locations in this region.
Now turning to our segment results. In the fourth quarter, retail net sales grew 59% to $273 million and comparable store sales increased 37% globally, underscoring Michael Kors exceptional brand power, compelling luxury merchandise assortment and unique jet-set in-store experience.
Retail sales growth was also driven by 67 net new store openings since the fourth quarter of last year, including seven openings during the fourth quarter. We ended the year with 304 company-owned global retail stores, including concessions and 400 stores, including licensees.
Wholesale net sales increased 59% to $305 million in the fourth quarter, driven by continued strong performance of Michael Kors luxury products in department stores and specialty stores, as well as our conversion to shop-in-shops in department stores.
Our accessories, footwear, and women's wear businesses, all showed strong performance during the quarter. In our licensing segment, revenues increased 16% to $20 million in the fourth quarter, driven by the continued strength in luxury watches, jewelry and eyewear.
Turning to our operations by region; for the fourth quarter, North American revenues increased 52% to $517 million and comparable store sales increased 35%. We opened three stores during the quarter and ended the year with 231 locations. In our wholesale business in addition to generating strong comparable store sales, we continued to successfully convert department store locations into brand shop-in-shops driving significant sales volume growth per door.
In Europe, we continued to see growing brand awareness of the Michael Kors brand as we see our luxury products resonate with European customers. During the fourth quarter, European revenue increased 97% to $73 million and comparable store sales increased 63%. We opened one store during the quarter and ended the quarter with 44 retail locations. Additionally sell-through in our wholesale segment remains very strong. We continued to expand this channel primarily with the opening of 216 wholesale doors in the fourth.
Turning to Japan; for the fourth quarter, our revenues increased 96% to $7 million with comparable store sales increasing 14%. We opened three concessions in Japan during the fourth quarter and ended the year with 29 retail locations. We continued to believe that the Japanese marketplace will be a meaningful contributor to our revenue and net income growth in the future.
At the end of the quarter, we operated 96 Michael Kors retail stores through various partnerships worldwide, including Mexico and the Caribbean, Central and South America, Europe, the Middle East, Korea, Southeast Asia and greater China. Including these locations, there were 400 Michael Kors stores at the end of the fourth quarter worldwide.
We expect fiscal 2014 to be another outstanding year for Michael Kors, as we continue to execute on our growth strategies. Our growing brand recognition, fashion-focused luxury product and jet-set in-store experience will continue to be the drivers of our success.
Starting with North America, we expect to drive comp store sales growth with the continued introduction of new luxury merchandise coupled with our focus on delivering a superior jet-set in-store experience. Today we have 231 stores. We anticipate opening approximately 50 stores in North America in fiscal 2014, and still believe there is long-term potential for 400 locations in this region.
In our wholesale business, we expect sales to be driven by comparable store sales growth and continued conversion of department stores to shop-in-shops in accessories, footwear, and women's wear. We will also expand shop-in-shops in men's sportswear and men's leather goods, as we view these categories as long-term growth opportunities for the Company.
In Europe, we will continue to increase our brand awareness and capture market share as we expand our retail and wholesale presence. Today, we have 44 stores including concessions in this region. We plan to open 40 new stores in fiscal 2014. Given how strongly our brand has performed in the market, how well it resonates with European consumers, and after careful review of the growth opportunities across the European market, we have concluded that the retail store growth potential is greater than the hundred locations we initially targeted. We now believe we can open 200 retail locations in Europe.
In addition, we see significant opportunity to expand our wholesale business through additional wholesale doors and shop-in-shop locations.
Today, we have approximately 1,000 wholesale department store and specialty store doors in Europe, where we are seeing strong performance for the brand. Long-term, we continue to target 2,000 doors in this region.
Japan is also a key market and a great long-term opportunity for the Michael Kors brand. We have 29 stores in Japan and we expect to open seven locations this fiscal year. We continue to believe we can ultimately operate 100 retail locations in this region. That said, Japan will take time to mature as we are in the early stages of developing brand awareness in this market.
In the Far East, we are beginning to establish our brand and we'll continue to expand in this market through regional partnerships. We believe that the Far East represents a large market opportunity for the Company.
The stores in this region are showing positive results, which means the consumer is beginning to embrace the Michael Kors' luxury lifestyle brand. As such, we are increasing our retail store growth target to 200 locations in this region from our initial target of 150 locations. We continue to focus our growth in Greater China, Korea, Singapore, Malaysia, Indonesia and the Philippines.
In terms of our travel business, we remain on track to expand Michael Kors luxury products and jet-set in-store experience into the finest airports in the world. We continue to see approximately 50 airport and duty-free shops worldwide over time, including free-standing stores, shop-in-shops, and stores operated by specialists in the travel retail business.
Finally, we'll continue to work towards bringing our North American e-commerce business in-house in the fourth quarter of fiscal 2014. As we announced on our last call, we will evolve this in-house platform to enable us to offer an omnichannel experience to our customers and broaden our merchandise offering of Michael Kors luxury products. Customers will have a consistent and exciting Michael Kors experience across our retail stores, our shop-in-shops, and our website.
In addition to enhancing the experience of our current customers, we believe this site will also provide us an opportunity to effectively engage new customers. In the long-term, we believe that e-commerce could represent a multimillion dollar channel opportunity and we expect this business to reach approximately 10% of total retail revenues.
In summary, we are pleased to have ended the year on such a strong note having delivered exceptional financial results and making advances on our operational goals. Looking ahead, we continue to execute on our growth initiatives with the support of a strong balance sheet and cash flow generation, which enables us to make the investments necessary to reach our long-term growth targets. We look forward to continuing to build Michael Kors into a leading global luxury lifestyle company.
Now, I will turn the call over to Joe Parsons for additional analysis of our financial results.
Joseph B. Parsons - EVP, CFO, COO and Treasurer: Thank you, John. Good morning. I will begin with a review of our fiscal 2013 fourth quarter financial results followed by our outlook for the first quarter and the full year 2014. For the fourth quarter, total revenue grew 57.1% to $597.2 million as compared to $380.0 million in the fourth quarter of last year with strong growth in each of our retail, wholesale and licensing segments.
Retail net sales increased 58.8% to $272.7 million in the quarter as compared to $171.8 million in the fourth quarter last year driven by a comp store increase of 36.7% and the opening of 67 new stores since the fourth quarter of last year. The comp store sales performance was driven primarily by the continued strength of accessories and watches.
Wholesale net sales grew 59.4% to $304.7 million in the fourth quarter compared to $191.1 million in the same period last year. The increase was primarily the result of strong growth across all our categories including accessories, footwear and women's wear as we continue to enhance our presence in the department and specialty stores with the conversion of existing doors to shop-in-shops as well as expansion of our European operations.
In our licensing segment, revenue grew 15.7% to $19.8 million for the quarter as compared to $17.1 million last year, primarily driven by the continued strength in watches and eyewear.
Gross profit increased 62.6% to $356.2 million as compared to $219.1 million in last year's fourth quarter. Gross margin expanded 200 basis points to 59.7%, reflecting strong year-over-year gross margin increases in both our retail and wholesale segments. The margin increase was driven primarily by lower in-store markdowns, discounts and allowances, as well as a more favorable product mix shift to higher margin merchandise.
Total operating expenses were $200.9 million in the fourth quarter of fiscal 2013. Total operating expenses for the fourth quarter of 2012 were $140.3 million. As a percentage of total revenue, total operating expenses decreased to 33.6% from 36.9% in last year's fourth quarter.
For the fourth quarter of 2013, SG&A expenses increased 41.9% to $185.0 million as compared to $130.4 million for the fourth quarter last year, which included a $2 million IPO related credit. The increase in SG&A expense was primarily due to higher retail occupancy and salary cost related to new store openings, an increased in marketing spend, and increases in corporate employee related costs.
As a percent of total revenue, SG&A expense was 31.0% compared to 34.8% for the fourth quarter of last year, excluding the one-time credit I mentioned. The improvement in the SG&A rate is due to a leverage on strong sales.
Depreciation and amortization expense was $15.2 million during the fourth quarter, as compared to $9.9 million for the fourth quarter last year, primarily due to the build out of new retail locations, new shop-in-shops and investments in our IT infrastructure to support our growth.
We also reported a non-cash impairment charge of $725,000 in the fourth quarter related to one of our retail locations. As a result of these factors, income from operations was $155.3 million or 26.0% of total revenue.
For the fourth quarter of fiscal 2012 income from operations was $78.8 million. Excluding the IPO related credit, operating income for the fourth quarter of fiscal 2012 was $76.8 million or 20.2% as a percentage of total revenue.
Income taxes were $53.5 million in the fourth quarter as compared to $33.6 million for the fourth quarter last year. Our effective tax rate was 34.6% compared to 43.5% for the same period last year. The decrease in our effective tax rate was primarily due to the increase in taxable income in certain of our non-U.S. subsidiaries, which are subject to lower statutory income tax rates and a decrease in the U.S. blended state tax rate.
Net income was $101.1 million in the fourth quarter and diluted earnings per share were $0.50 based upon 203.8 million weighted average shares outstanding. Net income for the fourth quarter of fiscal 2012 was $43.6 million or $0.22 per diluted share, based upon a 196.9 million weighted average diluted shares outstanding. Excluding the aforementioned credit, net income for the fourth quarter of fiscal 2012 was $41.6 million, or $0.21 per diluted share.
Turning to the balance sheet, at March 30, 2013, cash and cash equivalents were $472.5 million. We had no borrowings under our credit facility. At the end of the fourth quarter last year, cash and cash equivalents, net of $22.7 million of borrowings were at $83.7 million. Inventory totaled $266.9 million and is compared to $187.4 million last year, an increase of 42%.
Capital expenditures during the fourth quarter totaled $46.5 million. The majority of these expenditures related to new store openings with the remainder being used for investments in connection with building shop-in-shops and enhancing our information system infrastructure. We opened seven stores in the quarter, three in North America; one in Europe and three in Japan, and ended the quarter with 304 retail stores including concessions.
Turning to our outlook; in the first quarter of fiscal 2014, we expect total revenues to be between $555 million and $565 million, assuming approximately 20% comp store increase. We expect diluted earnings per share to be in the range of $0.46 to $0.48 assuming a tax rate of 36% and 204.0 million shares outstanding.
We expect the first quarter gross margin and SG&A as a percent of total revenue to be similar to last year's first quarter. For fiscal 2014, we expect total revenues to be between $2.65 billion and $2.75 billion. Assuming comp store sales increases in the range of 15% to 20%. We expect diluted earnings per share to be in the range of $2.43 to $2.47, assuming a tax rate of 36% and 204.8 million shares outstanding.
Capital expenditures are expected to be approximately $230 million for fiscal 2014. We expect to open approximately 100 retail locations, including approximately 53 in North America, 40 in Europe and seven in Japan and continue with our shop-in-shop conversions as well as investment in our infrastructure and systems, including bringing e-commerce in-house.
Overall, we delivered excellent financial performance, maintained a very healthy balance sheet and generated strong cash flow in fiscal 2013. We remain very excited about our future prospects as we continue to execute on our key growth strategies.
Thank you. I will now turn the call back to John Idol.
John D. Idol - Chairman and CEO: Thank you, Joe. In closing, we're pleased to see the momentum continue across all of our business segments. Our success is being driven by Michael Kors' luxury product leadership and creative direction, a talented management team and a strong infrastructure.
As we look ahead, we are excited about our prospects for future growth. We remain focused on driving continued comparable store sales growth, expanding our retail base, converting our department store doors to shop-in-shops and growing our brand internationally.
In fiscal 2014, we are poised to deliver 25% revenue and 25% EPS growth as we see the opportunity to expand our presence through 100 retail store openings, 50 new license location store openings and an additional 500 global accessories, footwear, women's wear, and men's wear shop-in-shops. We believe we are ideally positioned to capitalize on the global growth opportunity in the luxury market with the Michael Kors fashion brand, which is resonating with customers globally.
We will now open up the call for questions.
Operator: Kimberly Greenberger, Morgan Stanley.
Kimberly Greenberger - Morgan Stanley: Congratulations on a great fourth quarter and a really terrific year. John, I am wondering if you can talk about your outlook here and if there is any comment you can share with us on what you are seeing so far here in the first quarter. On the last several conference calls, you have also talked about anticipating a sort of normalization of markdowns, either in the wholesale channel or in the retail channel. I was wondering if you could just share with us what you are seeing there as well.
John D. Idol - Chairman and CEO: Sure. Well, I think Joe talked about our outlook for the first quarter. So, obviously, that means that we're encouraged by our sales results to-date and we see continued momentum in the business. So we don't see anything that's indicating any differentiation with how the customer is responding to the business, North America, Europe, Japan or in Asia. So we feel very confident about our first quarter and the balance of our spring selling, both from a product standpoint and from a sell-through standpoint. In terms of the normalization, I think we've always said to you that our sell-throughs are really extraordinary. You can even see by our inventories this quarter, as good as we are about chasing inventory, we just still couldn't even chase it fast enough given the strong sell-throughs that we had at retail. So, normalization will come. We don't know when that will come, but it will, and until then, as we've said before, as the consumer is responding to the product, as the demand is there, we're going to do everything we can to fill her desire and hopefully his desire as we go forward as well and continue to deliver that exciting jet-set experience that Michael Kors has been capable of doing for over 30 years now.
Operator: Erinn Murphy, Piper Jaffray.
Erinn Murphy - Piper Jaffray: Thank you, and let me add my congratulations. John, I was hoping you could spend a little bit more time on Europe, (have been) extremely strong in the quarter. If you could just maybe speak to how you're seeing both the tourist versus the local demand, how that's evolved over the years that you've been in Europe now? Where is brand awareness, if you can give us an update there today? Then as we think about going into these 40 new retail stores that's here in Europe, are there any new markets you'll be entering into? Then, I guess, just last as it relates to Europe; again, longer-term, as you are kind of accelerating the longer-term target, how should we think about the gross margin component in Europe? A lot of time in these global markets, we do see higher gross margin generated outside of the U.S. I'm curious if that's something you would see as a longer-term driver in your business as well.
John D. Idol - Chairman and CEO: I think that was four questions in one, but let me see if I can get all of that. The first answer is that in Europe, our – biggest piece of our business is still the local market. It's the consumers who live in France, who live in Italy, who live in Spain, et cetera, and clearly they are responding to our product. So, we're one of few companies that probably gets on a call today and says, we're excited about our business in Spain, we're excited about our business in Italy, we're excited about our business In Greece. All three of those markets continue to do well for us, and obviously the primary, the bigger, the more healthy markets being the U.K. and Germany and France to a degree are all performing equally as well for us. So, we're not seeing any issues on a market-by-market basis for the brand and for the Company. Secondly, in terms of brand awareness, we did the study once a year, so the new study is not going to be out until the latter part of the summer, so I don't think we'll have it for our next conference call, probably would be after that, but in Europe we're running at about 44% brand awareness in total. That's not correct. I am sorry the brand awareness in Europe is 36%, which I think we reported previously, so we don't know what the results are in terms of had it increased or not until we have that study. The question – I am sorry, I forgot to answer about the tourists. The tourists market is really extraordinary for us, certainly in major cities, in Paris, in London, in locations like that, in Barcelona and in those markets, as we've told you before, we think we really are doing an extraordinary job. In many of these stores, we speak as many as 10 languages with our sales forces, and we think that we are well-equipped to capitalize on that tourist traffic and what's very interesting for us is how we're seeing customers. I think I've talked about this in the past. We opened up in Poland, as an example in Warsaw and the amount of customers coming in from Eastern Europe to visit the city and who know the brand Michael Kors are coming in and asking for Hamilton or Selma that they're finding, quite frankly, online is really extraordinary for us. So we see that as a continued opportunity. Then, of course, we talked about airports, and there are many outstanding airports in Europe to capitalize on the tourist traffic with Heathrow and Charles de Gaulle and Schiphol in Amsterdam and we're opening Michael Kors stores and in certain case the shop-in-shops inside of those locations. Lastly, in terms of the gross margin, I think we've said before that we do think that there is an opportunity long-term for the Company's gross margins in total to expand, let's says as retail becomes a greater part of our overall mix, and as Europe in particular and ultimately Japan come on, those businesses will generate higher gross margins than our current weighted average.
Erinn Murphy - Piper Jaffray: Joe, could I just add just a quick clarification question on the fourth quarter? On the licensing segment, the EBIT margins were a little bit more modest than I think some of us had anticipated. Could you just help us think about if that's a seasonality or kind of what was going on there in the fourth quarter?
Joseph B. Parsons - EVP, CFO, COO and Treasurer: Sure. Remember that our advertising costs are charged to the licensing segment. So that will be timing of the advertising.
Operator: Brian Tunick, JPMorgan.
Brian Tunick - JPMorgan: I'll add my congrats as well. I guess one for Joe on the margin side. I guess you gave us color on Q1 here for gross margins and SG&A. So we were wondering if you can give us some idea of what's assumed in your full year guidance on the gross margin and SG&A expectations, because as we think about the e-comm we are trying to wonder the impact on the P&L. In the shorter term, should we expect a noticeable impact on the SG&A rate this year, and then conversely, as you grow that business to a $50 million to $100 million business over time, could there be a positive benefit noticeable on the gross margin rate? The second question, I guess, for John, maybe just the discussion around the wholesale, the comps have been so strong. We're just sort of wondering from a conversion to the shop-in-shop perspective, where are we sort of in the best doors and where do you think we'll see those conversions going forward?
Joseph B. Parsons - EVP, CFO, COO and Treasurer: In terms of e-commerce, remember that e-commerce will come in the fourth quarter of our fiscal year. So it will have insignificant impact actually on the results. In terms of SG&A and CapEx, the e-commerce is all built into those numbers. I think we've indicated to you before that SG&A will grow in similar fashion with the growth in the revenues, which is true this year. We anticipate for the full year for SG&A to be similar to the prior year.
John D. Idol - Chairman and CEO: Brian, the other thing added on that note, obviously we're taking on a lot of expense this year in setting up the e-comm with basically no revenue. So there is a fairly large SG&A impact this year to the setup of e-commerce and if anyone tells you it's simple or inexpensive, they are not being – maybe they haven't gone through it before, but it is a very expensive and complicated process to do it the way that we're setting it up, which is not only for a domestic launch in calendar 2014, but we also hope to be live with the international launch at the end of 2014 as well. So the way we're building the platform is a global platform, not just the domestic platform. So the costs associated with that are really quite, quite high. Secondly, the interesting thing is, as we model the business out, we're not seeing tremendous upside in terms of operating margin in that business to our current retail business. I think if you talk to other people, who are starting to see the same, the impact of ultimately omnichannel and free shipping are really take a big bite out of the profitability of the Internet. I think they were probably two or three years ago, where you were able to charge for everything and it wasn't free shipping. I think the operating margin of that business was probably a little healthier, but it just become a competitive fact of life that the customer expects to get whatever they order on the Internet and probably some people do it in 24 hours, but let's say, 48 to whatever hours. So they are expecting very quick turnaround and that's an expensive proposition. So we see the revenue, we see the operating income, but I don't know if there is going to be tremendous leverage on that as it relates to what we're seeing in our current retail business. To the wholesale side, I'm pleased to once again report to you that the comp store increases in department stores was actually higher than our freestanding store comp stores, which really for me is just, say, is volumes about what's happening with the brand and Michael and our design team and the designs that they're putting forth, because you know very well that our competitors are very promotional around us and we are not doing that and we're still powering through and having extraordinary comp store increases. So that means the consumers walking in. She really is excited about what Michael and the design teams are giving them in terms of fashion and fashion leadership and product and quality and all that is resonating and we're seeing it happen. U.S., Europe, we're starting to see it happen in Asia now, ever so slightly every week the business is getting better and better and better. So, I think these are all just saying, when you are focused on product and you are focused on the lifestyle experience being consumer is smart and she really is – that's what she wants. She wants the best product from whoever the designer is.
Operator: Lindsay Drucker Mann, Goldman Sachs.
Lindsay Drucker Mann - Goldman Sachs: Just two quick ones, first of all, John, I was hoping you could elaborate a little more on what you commented about driving U.S. comps for next year, -- specifically adding more luxury, I guess luxury product to the store. Maybe just if you could breakdown some of the big comp drivers that are embedded in your guidance and some of the specifics around that and then just another clarification, I know you mentioned that, your expectation is that the online business will necessarily be margin accretive to retail, but I just want to clarify that, it would be accretive relative to the margin you are capturing today, where you are just getting a wholesale cut of that business?
John D. Idol - Chairman and CEO: Sure. I'll answer the second one first, the answer to that is yes. It would be more profitable for us to bring the business in-house versus our current wholesale arrangement with Neiman markets, but that will take a little time. You've to build up scale to be able to achieve that. Again, we have a nice size Internet business today and Neiman has done an outstanding job and has been an amazing partner for us. So we thank them again for all that they have done in our partnership. So we are taking over a business that's quite healthy and this year won't be accretive from that standpoint because of all the buildup in the cost, but next year it will be accretive versus our wholesale structure. In terms of the first question, the comp drivers, again, we go right to the top. It's – in terms of dollars comp store, it's clearly handbag business continues to accelerate across the entire globe and so that will be the number one dollar driver. Number one percentage driver will continue to be SLGs, small leather goods. That business just gets stronger and stronger and stronger. There is also some nice trends developing there in the swingpack business as well, which we think is going to continue to accelerate that along with the money pieces and certainly some of the tech products that are resonating well with consumers in that category. The next big dollar driver will really continue to be watches. Our watch business remains very, very strong, again both domestically and even stronger internationally, as I am sure Fossil has commented to you. Our business in watches in Europe and the beginnings of what we are seeing in Asia are really just outstanding and extraordinary. So we see that business as being something that's going to be – continue to drive comp store sales for us. Then jewelry, as we told you before, we got in year one it's already developed to be 5% of our business in our stores. We think that's got tremendous more legs in opportunity for us. We take that very serious, we don't look at it as the little piece of an accessory in the store. In fact, as we look at stores going forward in the future, you will see much larger presentations of watches and jewelry in the stores. Much, much more commensurate with what you're seeing in Rockefeller Center. We are approximately – a third of the store space is dedicated to watches and jewelry. We think we're the leader in that category. We're the number one designer watch business in the world today and we have a goal to be the number one jewelry designer business in the world also, that will take us a little time, but we think given our success rate in the past that we can do that. Then of course, our footwear business is coming on very, very strong, both in our own stores and in our department store channel as well. So, we like the development of that and I might just also add, not necessarily in our own stores, but in total our women's ready-to-wear business has been excellent, just excellent. So right now all the businesses will contribute, but in terms of dollars it will be handbags first, dollars second will be watches and then in percentage the two largest businesses would be jewelry and small leather goods.
Operator: Robert Drbul, Barclays Capital.
Robert Drbul - Barclays Capital: I guess, if I could follow on the last question, can you talk a little bit about traffic and ticket. Sort of what was in the quarter and in your guidance for the year, the expectation on the 15% to 20% for the full year?
John D. Idol - Chairman and CEO: Sure. We don't – you'd have just seen, that we don't guide for traffic, et cetera, but our ticket remains the same, just FYI, it's the strangest thing since we opened our first retail store in 2007, I think it was. Our average transaction, that's where we really look at, our average transaction, really hasn't changed. It runs around $215, and it just doesn't change, which was interesting because when we added jewelry which is a much lower average transaction – much lower average ticket, we thought it would drive the average transaction down, and in fact, what happened was the UPTs went up, so our average transaction remains just very similar. Traffic was up, again very consistent with where we've been in the past, well over 20% and our conversions are running well over 10%. So, again we're getting nice lift in both of those areas and you put the two together and that's how we kind of get to our comp store numbers, so we have not seen any differentiation in terms of our traffic or conversion growth. It's been both very strong and solid.
Robert Drbul - Barclays Capital: My second question is the men's business, you are just beginning to focus on that, like – what do you see is the opportunity there? There is sort of near-term and longer term?
John D. Idol - Chairman and CEO: Sure. We've been in the men's business since we bought the Company in 2003-2002. If you go to Bloomingdale's and the Saks and to Nordstrom, et cetera, you are going to see the product represented in beautiful shop-in-shop environments. We're having some very good success in our men's sportswear business. You also see in Europe, we've expanded; we're in over 100 locations today in Europe. We're also having very good response to the brand there. So, we're building more shop-in-shops in the men's business. So I would say the cornerstone for us is really sportswear, because remember, we do have a – we're lifestyle company, even though we're focused on accessories, which really do have a business like the other large luxury players around the world in men's and women's sportswear. That being said, you know there is an opportunity in men's leather accessories. We will be opening some flagship shops in some of the very, very prominent department stores, both domestically and internationally with men's leather; very, very, very early days, but it's important business and it's obviously in Asia, it's a very, very important business. So, we are learning our way through that, but we do see there is an opportunity for growth for the Company in the future.
Operator: Paul Lejuez, Wells Fargo.
Paul Lejuez - Wells Fargo: Can you talk about the mix of business in Europe retail stores? How that differs from U.S. maybe from a category and price point perspective? What are they buying over there versus here? Then just secondly, can you maybe go through your CapEx guidance this year and bucket that out for us in terms of how much for new stores, how much for e-comm, and what's the more normalized level of CapEx going forward if it is different than what we're expected to see this year?
John D. Idol - Chairman and CEO: In Europe, the breakout of the business is almost identical to the U.S. Obviously, the transaction is higher, because the retail price points are higher in Europe. They run approximately 30% to 35% higher than the U.S. retails, but really the percentage doesn't change much between the accessories, in the watches, in the jewelry, in the footwear and the women's ready-to-wear. We are in Europe building – certain stores are multilevel in Europe, so we are getting the opportunity to put full women's ready-to-wear collections in a certain amount of the European stores, which we're excited about. We think that's an opportunity for us to showcase our full ready-to-wear in certain countries. Again, we have a very large specialty store business there, so that resonates well with our ready-to-wear customer accounts in the territory. The product is having some very strong sell-throughs, so that's really the only difference; you'll see it in a handful of flagship locations where we do have that opportunity. Typically, those will be two level stores. I'll let Joe answer the CapEx piece.
Joseph B. Parsons - EVP, CFO, COO and Treasurer: Sure. Paul, we don't actually breakdown the CapEx, in general, we're spending most of our money in building the retail stores. The next biggest bucket will be shop-in-shops, and then the last bucket will be kind of corporate type expenses, and again, part of what you are seeing this year will be some spend for e-commerce that will go down a little bit, but we would anticipate that CapEx in the future will run – will be at a run rate similar to what we are seeing this year.
Operator: Randy Konik, Jefferies.
Randy Konik - Jefferies: I guess, John, can you just give us some perspective on how your demographic is starting to change over the last 12 to 18 months, and now we've had a couple – really accelerating sales trends over the last couple of years has obviously been repurchase activity by your customers. What are they – how is their buying behavior changing? Are they moving up in price point? Are they moving to purchasing bags plus apparel? Just give us some perspective on how your repeat customers are changing their buying behavior and what's happening with the demographics?
John D. Idol - Chairman and CEO: The demographics, about three or four years ago we made a concerted effort to talk to a slightly younger customer. Being younger, I'm talking more 18 to 25, and that really resonated well with that consumer and in a funny way helped us actually with some of the older customers. Because there was a point in their very early development, where people said, well, Michael Kors isn't for me, that's for my daughter. There's so much mother-daughter shopping that happens today in stores, and whether you're 60 years old or you're 25 years old, everyone sees everything on the Internet or on television or wherever it is. So the information is so free-flowing. As Michael always says, if you're 50 years old, you want to look like you're 35 years old, or if you're 25 years old, you want to have a wardrobe of a 35-year-old. So we still believe in that mantra and that philosophy, and so our demographics shifted about three years ago. They haven't really shifted much since then and that's – we like where we are today. We think that what we're seeing with the customer, to kind of answer your second question, is that she's coming to the store a little bit more frequently, that we do know, which we like and as I said to you before, UPTs are actually up in the stores and we have a very nice balance of still new customers coming to the store, which is something we look at. We like to drive our repeat customers through retargeting and mailing and all the different engagement activities that we're working on with Facebook and Twitter and Instagram, et cetera. But we also like to draw new customers. We think that's a very important way for us to continue to drive traffic into the stores. I think we're really good at doing that today. If you look at, we were the number one search brand, fashion brand on Google for last year from the data that we've seen. So that means consumers are really reaching out. They want to understand what's going on with the brand. They want to engage with the brand. Our engagement rates on Facebook are one of the highest of any brand that the Facebook is operating with today. We know that from our deep relationship with them. So, we think that we're going to continue to deliver her the newest, most exciting fashion product. Secondly, with our sales associates in the store and the engagement that we have with the customer where we're really putting time, energy and effort into, quite frankly, upselling and cross-selling with them, that we have more opportunity to get her to come back in the store, and that clearly is happening.
Operator: Oliver Chen, Citi.
Oliver Chen - Citi: Regarding the gross margin, there was commentary on the product mix benefiting this line. Could you just clarify what happened in the upside there and if that's an opportunity going forward? Also, there has been industry chatter about the smart watch opportunity. I definitely feel like you are the lead fashion executers, but if you could comment on your thoughts on electronic watches and the spending that may or may not happen there?
John D. Idol - Chairman and CEO: Oliver, I couldn't really hear you clear. What was your first question again?
Oliver Chen - Citi: On the gross margin line, if there was an upside driven by product mix and if that's something that will continue? I think you mentioned that earlier in your call.
John D. Idol - Chairman and CEO: Joe mentioned that. Oliver, that's just a result of certain products that we're selling today that our leather costs are a little bit more favorable than some of our other leather costs. So, we've actually seen some very nice pickup on that. That's not something you can count on to continue. It's just trending, if it's a certain leather that sells better than another leather and we might buy that for slightly lower cost. But that's – you enjoy the fruits of those things when they happen, but as Joe indicated before, we think our gross margins are going to be similar on a year-on-year basis in the quarter and slightly down maybe for the year but not by much. So we're feeling good about the product sell-through and the gross margin mix that's in the assortment today. On the second issue, I don't really want to comment about what we're doing in the watch business because we think we are one of the leaders in terms of what's happening in design, technology and materials and, quite frankly, we have a lot of companies chasing us. So if you don't mind, I'm going to not answer that question, but we're looking at all the technologies that are in the watch business and viewing them very carefully and how that might continue to excite and enhance our watch business. But one last thing I will leave you with the watch business is, as I said to you before, continues to have just strong, strong, strong double-digit sell-throughs, both in our own stores and at retail. I hope everyone goes down to see our new flagship shop at Macy's – it's extraordinary – that opened, I believe, yesterday, and really is, I think, something that's world-class for any watch company. But our customer continues to collect. She wants everything from a rose gold watch to a silver watch, to a gold watch, to a tortoise, to a bone, and our key to success is to continue to drive newness and innovation.
Operator: Omar Saad, ISI Group.
Omar Saad - ISI Group: I wanted to ask about inventory guys. I think it's the first time we've seen a sequential decline, quarterly decline in inventory, which obviously given the amount of growth you've had you've been growing inventories in that, but quarter-over-quarter inventories fell and it kind of begs two questions. Number one, how does that bode for kind of near to medium term gross margin trends, it looks like your inventories are quite clean coming out of the quarter, and then I guess the second question would be how is the setup? Did you have enough inventories? It sounded like in the quarter you didn't really even have enough to kind of chase the business. How do you feel about your inventory position overall in light of those things?
Joseph B. Parsons - EVP, CFO, COO and Treasurer: Omar, we feel very good about our inventory position as we've indicated to you before, it's really in a high growth mode. It's difficult for you to be able to project what our inventory is going to be. We are opening stores, opening shops and the timing of those openings will change and drive kind of what our inventory needs are. The other thing is obviously as we're growing replenishment programs, we're constantly reviewing those and adjusting those and it's a normal type thing, but at the end of the day, we are feeling very comfortable with our inventory position. We think that we will probably get back to where the inventory will be growing slightly higher than revenues, but we're in very good position today and you are correct, our inventories are indeed very clean.
John D. Idol - Chairman and CEO: Omar, I wouldn't expect any significant increase in gross margin, because remember, even when we had higher inventories or sell-throughs were so good, so it's not like we were taking higher markdowns to get rid of higher inventory. So that's not our situation. I think you can feel comfortable that that will not be the trend, but that being said as Joe indicated, we will definitely go back to where inventories should be growing faster than sales, just because we're opening more stores. So the inventory has to be there between the shop-in-shops of the stores to be ready to fill them as they are opening.
Operator: Dana Telsey, Telsey Advisory Group.
Dana Telsey - Telsey Advisory Group: Can you talk a little bit about what you're seeing in real estate in terms of average store size? How you're planning that going forward? Also pricing, do you see any changes in pricing this year, whether are new products or what's happening with raw material cost for Kors?
John D. Idol - Chairman and CEO: Sure. I'll address the second one first. Pricing, we don't see any changes for us. Our pricing has remained pretty consistent over the past five, six years. We did raise small other goods prices over the past two years somewhat – nothing really significant. So, again, we feel that our customer is responding to the value that we create for her; first with the design of the product, second with the quality, and then thirdly, the price/value relationship. Michael feels very strongly the consumers are smart today that they shop the Internet, they have opportunity to compare our product versus our competitors' product, and not only do we have to win on design, but we've got to win on quality and price/value relationship. That doesn't mean we're selling things for cheap, it just means people are smart today and we like the fact that people leave our store and they feel great about it. When they bought $400 Michael Kors' handbag, they look at it and they thing it looks like $1,000 handbag or when they walk out with a Michael Kors' watch for $250, they think it looks like $2,000 watch and that's one of the real keys to our success is delivering that high-quality price/value relationship along with the design integrity. In terms of shop size, I will tell you the following; number one, we'll continue on our kind of average of 2,000 to 2,500 square foot stores. The majority of the openings will be in that range in the U.S. We have indicated in the past that there are certain of our freestanding stores today that need to be upsized, the productivity levels are very, very high in our stores and we've said before, you know we have stores they're doing between $10 million and $15 million in 2,002 to 3,000 square feet. So, clearly, those stores need to be upsized. There is not going to be many of them, but we are looking at upsizing a handful of stores more into the 5,000 square foot range. Again, we will still be very, very productive upsizing into that. Believe it or not, not a lot of that space will go into actual more presentation of product, it will go into more stocks space inside the store just to go with service, the daily and in some cases hourly needs of whatever happening in these very, very high productivity stores. Well, I would like to thank everyone for joining us on today's call, and I look forward to speaking you on future calls to update you on the success and the growth of the Michael Kors business. Thank you.
Operator: That concludes today's conference. We thank you for your participation.