Capri Holdings Ltd (CPRI) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to today's Michael Kors Holdings Ltd fourth quarter and fiscal 2012 conference call.

As a reminder, today's conference is being recorded.

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.

Now, I'd like to turn the call over to Ms. Krystyna Lack.

Please go ahead.

Good morning.

Thank you for joining us for Michael Kors' fourth quarter and fiscal year 2012 earnings call.

Presenting on today's call are John Idol, Chairman and Chief Executive Officer and Joe Parsons, Chief Financial Officer 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 filings with the SEC, which are available on the Company's website at www.michaelkors.com.

Investors should not assume that the statements made during the call will remain operative at a later time.

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.

Thank you, Christina.

Good morning.

Welcome to our fourth quarter and annual fiscal 2012 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 year and share with you some highlights on our strategic growth plans.

Joe will then provide a detailed review of our fourth quarter and annual financial performance.

Additionally, he will provide an outlook for our fiscal 2013 first quarter and full year.

As we all know, product is the most important component of a luxury brand.

I would first like to congratulate Michael and his design team for the creative vision they provide to the Company, which significantly contributes to our success.

Michael and his team conceptualize and direct the design of all of our products.

Their design leadership is a unique advantage that we possess.

While the global economy is seeing mixed results by region, our brand and Michael's designs are resonating with fashion consumers around the world.

Michael Kors Holdings Ltd is positioned as a global luxury lifestyle brand.

We are pleased that our key strategies have resulted in both revenue and earnings growth across all of our business segments and operating regions.

We operate in the growing luxury marketplace which we believe will continue to contribute to our global expansion.

Our multi-channel segment strategy, unique design, jet-set attitude and strong infrastructure provide a platform for our continued growth.

Our outstanding management team and strong balance sheet will enable us to execute our growth strategies, led by opening free-standing stores and shop-in-shops globally.

During the fourth quarter, we continued implementing our six growth strategies.

First, in North America, our fashion assortment of lifestyle merchandise, increased brand awareness and exceptional jet-set in-store experience have resulted in 24 consecutive quarters of comparable store sales growth.

Second, we continued our Retail store expansion in North America.

Third, we converted Wholesale department store doors into branded shop-in-shops in North American department stores.

Fourth, we are continuing to expand our European presence through Retail and Wholesale door openings.

Fifth, we are developing our business in Japan which is in the start-up phase.

Sixth, we are initiating and growing businesses in other areas of the Far East through regional licensees.

I would now like to review a few financial highlights for our fourth quarter and the year, then discuss our segments, our operations by region, and finally, our expansion in the Far East through our regional licensees.

Our total revenue in the quarter grew 58% to $380 million and for the year by 62% to $1.3 billion as a result of strong performance in all segments of our luxury business -- Retail, Wholesale and Licensing.

Michael Kors is unique among American luxury brands, with accessories, footwear, watches and eyewear being the largest component of our revenue mix.

As we had anticipated, accessories and related products has grown and represents now 75% of our product mix for our fiscal year as compared to 62% last year.

For the quarter, we delivered gross margin expansion of 180 basis points to 58% and for the year, an expansion of 230 basis points to 58%.

Both quarter and annual increases were primarily as a result of our increased Retail and European businesses as a percent of sales mix, which have higher gross margins.

Our income from operations totaled $79 million for the quarter or $77 million excluding a one-time item and $248 million or $272 million excluding items for the year.

This compares to $43 million and $137 million in last year's fourth quarter and fiscal year, respectively.

For our segments, we grew our Retail sales by 80% over the prior fourth quarter to $172 million.

Our comparable store sales grew 36%.

We believe that this comp performance reflects our brand's strength, merchandise assortment and exciting jet-set in-store experience.

Retail sales growth was also driven by 71 store openings since the fourth quarter of last year, including six openings during the fourth quarter.

We ended the quarter with 237 Company-owned global Retail stores including concessions.

Our Wholesale segment sales increased by 46% to $191 million for the fourth quarter and 48% to $610 million for the year.

Our product assortment continues to be well-received by department stores and specialty store customers and we are experiencing strong sell-throughs.

In our accessories categories, we are seeing similar to or greater comp store increases as compared to our Retail stores in department stores.

As of March 31, 2012, we had approximately 2,700 doors in America and Europe in Wholesale.

Our Licensing segment revenues increased 27% to $17 million for the fourth quarter and 43% to $65 million for the year.

We have experienced double-digit increases during both periods at Retail in our watch and eyewear businesses.

Additionally, we launched jewelry in fall 2011 and we are pleased with the early results.

For our operations by region, in North America revenues increased 52% to $339 million for the fourth quarter and 55% to $1.2 billion for the year.

Our comp store sales increased by 37% for the fourth quarter and 40% for the year.

We opened three stores during the quarter and 47 for the year.

We continue to convert department store locations in North America into branded shop-in-shops which significantly increases sales volume in each door where a shop was installed.

Our strong momentum continued in Europe, where revenues increased by 123% to $37 million for the fourth quarter and 183% to $109 million for the year.

Our comp store sales increased by 14% in the fourth quarter and 22% for the year.

We opened 12 stores for the year.

We continued to open Wholesale doors, primarily specialty stores, and sell-throughs have maintained a strong pace.

In Japan, where we are in the start-up phase, our revenues increased to $4 million in the fourth quarter and $10 million for the year.

We opened three shops during the fourth quarter and 12 for the year.

We are very focused on brand awareness in Japan and building that awareness through advertising, public relations and social media.

As I will discuss in greater detail in a minute, Japan will be an important market for us and we are taking a long-term view for development in this region.

We continue to build the Michael Kors luxury brand in the Far East, other than Japan, through our regional licenses.

Our most established territory is Korea, where there are 36 Michael Kors Retail stores including concessions.

Other regional licenses are in Southeast Asia, primarily Singapore, Malaysia and the Philippines, where there are 10 Michael Kors stores.

In Greater China, which is in the start-up phase, our licensee has opened four Michael Kors Retail stores including concessions and is in the early phase of building brand awareness.

While we recognize that building our brand in the Far East is a long-term proposition, we are excited to be planting the seeds for the future development of these territories.

In addition to owned Retail stores, the Company has 64 additional Retail stores including concessions operated through Licensing partners.

There are now 301 Michael Kors stores globally including concessions in Europe, Japan, Korea, the Middle East, Philippines, Singapore, Malaysia and North America.

Looking forward, the luxury segment continues to grow globally and our positioning as a jet-set lifestyle brand will enable us to continue our global expansion.

Now, I would like to talk to you about our expectations for our businesses by region.

Starting with North America.

We will continue our store roll-out in North America to expand our Retail segment.

We expect to open 40 to 50 Retail stores annually and continue to believe that we can ultimately reach 400 locations in this region.

We expect comp store sales to continue to be strong at approximately 20%.

We expect to drive double-digit sales growth in our Retail segment, as we continue to increase brand awareness, introduce new and innovative merchandise and provide a superior jet-set in-store customer experience.

In our Wholesale business, we will increase sales as we continue to convert department store doors to shop-in-shops.

Consistent with our Retail segment, we have experienced strong double-digit comp increases.

We believe that we can continue at a double-digit sales pace in North America Wholesale channel.

In Europe, I previously noted that our revenues increased by 183% and our comp store sales increased by 22% for the year.

I would like to take a minute to talk about the macroeconomic events in Europe and the impact on our business there.

While we are of course concerned about the headline news to date, we have not been impacted by these conditions.

Michael Kors is a desirable jet-set brand with increasing brand awareness.

We are taking market share in the European accessories, footwear and apparel markets.

Our business has been supported by continued advertising, public relations and social media activities.

We are uniquely positioned to build a Pan-European accessible luxury business.

We have 29 Retail stores in Europe including concessions.

We are on track to open 10 to 15 Retail stores annually with continued expansion of Wholesale doors.

Finally, we have invested in the appropriate inventory, infrastructure and other working capital needs to support our planned expansion in this territory.

We are experiencing strong momentum in our current quarter and are excited about both Retail and Wholesale business prospects in Europe.

We continue to believe that we can ultimately have 100 stores and 2,000 Wholesale doors in Europe, with the potential of achieving $500 million in net sales in the long-term.

In conclusion, we are excited about prospects in Europe.

In Japan, we established our business in September 2010 and as I stated earlier, we are in the early stages of growth.

We believe that there is strong potential for the Michael Kors brand in Japan, and that we can ultimately have 100 Retail stores in this region.

We believe that we must take a long-term view for development in this market.

As the Number Two luxury goods market in the world, we believe Michael Kors brand will resonate with Japanese fashion consumers.

In summary, this is an exciting time for our Company.

Michael Kors has strong and expanding global recognition as a brand that embodies the jet-set luxury lifestyle that consumers aspire to.

We believe that we are uniquely positioned to continue to build our global luxury lifestyle brand and that we have a tremendous opportunity for growth.

Now, I will turn the call over to Joe for additional analysis of the results.

Thank you, John.

Good morning.

I will begin with a review of our fiscal 2012 fourth quarter financial results, followed by our outlook for the first quarter and full year for fiscal 2013.

For the fourth quarter, total revenue grew 58.3% to $380.0 million as compared to $240.0 million last year with strong growth in each of our Retail, Wholesale and Licensing segments.

Retail net sales increased 80.3% to $172.2 million in the quarter as compared to $95.5 million last year, driven by comparable store increases of 36.1% and the opening of 71 stores since the fourth quarter of last year.

This comp store performance was led by the strength of the accessories and watch categories.

Wholesale net sales grew 45.5% to $190.7 million for the quarter compared to $131.0 million last year.

This growth was primarily the result of increased sales of our accessories business driven by our unique design and merchandise assortment and the continued conversion of North American department stores' doors to shop-in-shops.

In our Licensing segment, royalty revenues grew 26.9% to $17.1 million for the quarter as compared to $13.5 million last year, primarily driven by continued strength in watches and eyewear.

Gross profit increased 63.4% to $219.1 million as compared to $134.1 million last year.

Gross profit as a percentage of total revenue increased 178 basis points to 57.7%, driven primarily by higher sales in our Retail business relative to Wholesale as the Retail business maintains a higher gross margin.

Total operating expenses were $140.3 million in the quarter as compared to $91.5 million for last year.

As a percentage of total revenue, total operating expenses decreased to 36.9% from 38.1% last year.

The decrease was primarily due to lower depreciation and amortization as a percentage of total revenue.

SG&A expenses were $130.4 million compared to $83.0 million for the last year.

As a percentage of total revenue, SG&A expense decreased marginally to 34.3% from 34.6%.

SG&A expenses for the fourth quarter included a $2 million IPO related credit.

Excluding this credit, SG&A expenses as a percent of total revenue increased marginally to 34.8% from 34.6%.

Depreciation and amortization expense was $9.9 million during the fourth quarter as compared to $8.5 million for the last year, primarily due to new stores and shop-in-shops.

As a result of these factors, income from operations on an adjusted basis grew 80.2% to $76.8 million or 20.2% of total revenue as compared to $42.6 million or 17.8% of total revenue for the fourth quarter of last year.

Income taxes were $33.6 million in the fourth quarter as compared to $20.5 million for last year.

Our effective tax rate was 43.5% compared to 54.1% for the same period last year.

The decrease in our effective tax rate resulted primarily due to the decrease in statutory tax rates applicable to certain non-US subsidiaries, a decrease in our US blended state income tax rate and the recognition of certain -- of a greater portion of income in jurisdictions with lower income tax rates.

Net income on an adjusted basis increased 140.0% to $41.6 million in the fourth quarter as compared to $17.4 million for the last year.

Adjusted diluted earnings per share was $0.21 based upon 196.9 million weighted average shares outstanding.

This compares to diluted earnings per share of $0.10 based upon 179.2 million weighted shares outstanding for last year.

Turning to the balance sheet.

At March 31, 2012, cash and cash equivalents, net of $22.7 million of borrowings under our credit facility, were $83.7 million as compared to $8.3 million at the end of last year.

Inventory was $187.4 million as compared to $117.2 million at the end of last year.

This 60% increase in inventory was primarily due to an increase in net sales in our Retail and Wholesale segments as well as the addition of 71 stores since the fourth quarter of last year.

Capital expenditures during fiscal 2012 totaled $88.2 million.

The majority of these expenditures relate to new store openings with the remainder being used for investments in connection with building new shop-in-shops, the buildout of our new warehouse, corporate offices and enhancing our information systems infrastructure.

We ended the year with 237 stores including concessions.

We previously reported that the Company experienced certain operational difficulties transitioning to our new distribution facility which impacted deliveries to our Wholesale customers and Retail stores.

I am pleased to report that we completed this transition with minimal additional disruptions.

We anticipate the long-term benefits of operating in our new facility will serve as a solid foundation for our future growth.

Turning to our outlook.

For fiscal 2013, total revenue for the year is expected to be between $1.7 billion and $1.8 billion.

This reflects approximately 70 new stores and comp store sales increased growth of approximately 20%.

We expect diluted earnings per share for fiscal 2013 in the range of $1.08 to $1.12 per share based upon an estimated tax rate of 38% and 201.2 million weighted average shares outstanding.

For the first quarter of 2013, we expect total revenues to be between $360 million and $370 million, assuming 12 new stores and a comp store increase of approximately 35%.

We expect diluted earnings per share of between $0.18 and $0.20 assuming a tax rate of 38% and 199.0 million shares outstanding.

We anticipate the gross margin to be somewhat higher in the first quarter compared to the comparable prior year period and somewhat lower for the full year as markdowns normalize.

Total operating expenses for the quarter and fiscal year will continue to include public Company costs, including equity compensation expense, professional fees, staff costs and other expenses.

We expect capital expenditures to be in the range of $150 million to $170 million.

We plan to open approximately 70 stores including approximately 45 in North America, 15 in Europe and 10 in Japan.

Thank you.

I will now turn the call back to John Idol.

Thank you, Joe.

We are pleased with our strong performance this quarter and fiscal year.

As you can see, these results position us for growth in fiscal 2013 and beyond in all our operating segments and regions.

Thank you for participating in this call.

We will now open the call for questions.

(Operator Instructions) Brian Tunick, JPMorgan.

Congrats, John and Joe.

Looking at the results, the last couple of quarters, have you updated your thoughts on what your goals might be for Retail as a percentage of the mix over the next couple of years and how that plays into maybe a longer term operating margin target?

Then from investing in the jet-set luxury brand, have you thought about what marketing spend, bringing eCom in-house and maybe hiring a COO, what do those expenses look like over the next couple of quarters?

Thank you very much, Brian.

I'll start with the first question, the percentage of Retail to Wholesale.

We are on track, as we had said that we think we can have approximately 600 stores globally, 400 in the US, 100 in Europe and 100 in Japan.

So we see our plans and being able to execute those plans as remaining very consistent.

We believe over time that the mix of our Retail and Wholesale will look closer to 70/30 and that's as you're looking in the out years over the next three to five years.

That being said, this year in fiscal 2013, the mix will still probably feel closer to, say 55/45, something in that zone.

I'm not giving you the exact, accurate number.

It's just the Wholesale business for us in department stores in North America and Europe is outstanding.

We continue to see, as we stated in the call, strong double-digit comp store growth.

In many cases, we're comping even higher than our own Retail stores.

So the brand is resonating with consumers, whether they be in New York, in LA and Miami or whether they're in Ohio or whether they're in Madrid or Barcelona or Milan, it's really extraordinary how the product is selling and selling through.

So I think that's the answer to the first question.

In terms of -- I want to go to the last one first.

The COO, we are publicly searching for a head of Operations to support Joe and the team here.

We are growing rapidly and globally, so we need additional people and that's happening all across the Company.

We're adding many different levels of Management and just employees in general because the Company's growing so quickly.

So our greatest need is actually the people.

It's not the positions themselves.

So you'll see that all across the Company as we go forward.

As we've said to you before, there's two things when you're thinking about your model.

When we give comp store guidance, Joe talked about what first quarter looks like and that's obviously higher than the year.

We do believe that at some point the brand begins to see some normalization in terms of sell-throughs and markdowns.

Then also, some of those expenses on the new hires and other infrastructure improvements we're putting in place, are going to start to show up on the SG&A line.

Then lastly, as it relates to marketing spend, again, we are very focused on continuing to build brand awareness.

I think we've told you in previous meetings and calls, we are spending a lot of money and energies in particular in the social media space.

You'll see some information coming out about where Michael Kors ranks in that shortly.

We think we're making tremendous in-roads in that area.

Hence, you can see what it's doing for our brand awareness and how the brand is resonating.

As it relates to eCommerce, we're still formulating our plans on that.

We'll be making some announcements about that over the next six months.

Terrific.

Thanks so much, guys.

Good luck.

(Operator Instructions) Jeff Klinefelter, Piper Jaffray.

Congratulations on a great quarter.

I wanted to ask a couple questions.

First of all, in terms of Europe, indicating that things are going very, very well for the brand.

Just wondering, John, if this enables you to accelerate some of your growth plans in that market with respect to real estate availability, cost of real estate and any other distribution opportunities in that market?

Also just curious on the performance -- relative performance of apparel versus accessories in Europe.

Yes.

I think in terms of accelerating in the marketplace, I would use it on a more macro term than just real estate.

First and foremost, the brand is resonating and the performance at Retail is very strong in both our own free-standing stores and in our department store and specialty store business.

In fact, we're actually seeing acceleration in the current quarter that we're in from where we were sequentially in this past quarter.

So it's very encouraging to see what's happening there.

We're still, in terms of brand awareness, I think we reported in the last call at about 35% in that marketplace, so we're very pleased.

We look forward as the brand continues to grow in awareness what that will do for sales.

So I think we're trying to take advantage of the fact also that there's a lot of companies that are either Pan-European or locally in each of those countries who are concerned and struggling and whatnot and we're being a bit more aggressive and opportunistic in taking real estate and market share based on the brand's performance and based on the fact that other companies are not taking quite a positive position.

So we think that does bode well for us to take market share.

As it relates to real estate, it's still complicated as I've told you in the past.

Opening stores in Europe is -- it's a one by one situation where you're dealing with individual landlords.

It's not really a mall-based strategy in Europe.

So I would say that we're not going to be able to go a lot quicker in our minds on a free-standing store basis.

We'll probably be able to go a little bit quicker on the Wholesale side.

Okay.

Thank you.

That's helpful.

Then -- sorry, go ahead.

I was just going to ask also with respect to -- well the categories, I think you were going to answer, apparel versus accessories.

But then, also if you could just add, in the US market in terms of accessories' performance across sub-categories, a little bit more detail there, any inventory constraints on any of those trending categories?

Sure.

Apparel versus accessories in Europe, ultimately on the Wholesale side apparel will be a larger business than us than pure accessories, just because there's more specialty stores that are in the apparel, quote, business than there are accessory stores.

So we're a little bit more focused on the apparel on the Wholesale side, whereas obviously accessories will be the lead for our Retail business in Europe in particular.

But I also want to point out that, I think we're going to be in a very strong position at this time next year in accessories from a Wholesale standpoint also because of our pan-global positioning.

Again, we're in all markets.

We're in the UK, in France, in Germany, and Italy and Spain, et cetera.

So we're becoming dominant in many of those countries as a leading and if not the leading player in the accessible luxury accessories category.

Then lastly in terms of sub-categories, SLGs continue to be the strongest performer for us -- small leather goods, I'm sorry, in accessories, in terms of percentage growth.

We had planned that previously both in our own stores and in the Wholesale channel.

Currently, we are experiencing sell-throughs that are very, very high, continuing on.

As we've told you in the past, we have unique relationships with our manufacturers who will work closely with us and they've been able to get us the inventories that we've needed to meet those demands and you can clearly see that through our top line and our comp store sales growth.

Randy Konik, Jefferies.

Can we just get some color on recent demographic changes?

It seems like the brand's getting even a wider demographic, so that's powerful.

Then can you give us some color on the Monogram percent of sales.

Then finally, I think you said that accessories were 75% versus 62% last year.

Where do you see that kind of eventually going on a long-term base as a percent of sales?

Can you give us a little bit of a reminder on the margin differential between the accessories category and the apparel category?

Thanks a lot.

Sure.

So I'll start out.

The demographic changes, it really hasn't changed much since -- when we reported to you at the IPO.

So we're fortunate in that we do have a broad demographic.

We have our -- what we refer to as our core customer and we always envision her as being 35 years old.

Michael has said many times that every woman wants to be 35.

If she's 50, she wants to be 35 and if she's 25 she wants to have the wardrobe of a 35-year-old.

So we still keep that mental vision of who our customer is.

Obviously, our core customer continues to remain in that 25 to 45-year-old range.

Then our second biggest category of customer is the 18 to 25.

So we're very pleased with the demographic balance and age balance of our customer.

We think that's resonating quite well for the brand.

We're in the process of updating our brand awareness studies, so probably in our second -- our third quarter conference call, we'll probably talk to you more about that.

As it relates to Monogram as a percent of sales, I think we had told you when we went out in the IPO that we were looking for that to reach 25% of sales.

We've achieved that level.

That came a little quicker than we had anticipated.

Again, we're very conscious of not letting that get too large of a percentage of the business.

So, it will grow, but we're going to keep our eye on that because, again, we founded our Company on luxury leather and we do not want to have the logo business becoming the dominant piece of our Company.

So I think if you look at other luxury companies, particularly European luxury companies, they're very careful about monitoring that and we'll be in the same position.

Then lastly, as it relates to the accessories business at 75%, again, we got there a little quicker than we had anticipated.

That will probably grow to between 80% and 85% of the Company's revenues.

That's just going to be by natural -- opening more of our lifestyle stores and because we're opening more shop-in-shops for accessories than we are for women's ready-to-wear.

So that balance will move to that level.

Then in terms of margins, all of the accessories categories carry higher margins.

We have never disclosed the differentiation in margin between those businesses, but it is higher.

So what you'll see is operating margins will, in the future -- in the out years, potentially expand as Retail becomes a higher component of the business and Europe becomes a higher component of the business.

Paul Lejuez, Nomura.

It's Tracy Kogan filling in for Paul.

Two questions.

You mentioned that your gross margin expansion in the quarter was mainly driven by channel shift and I was wondering if the gross margins within each channel were also up and what the magnitude of that increase was.

Then secondly, I was wondering if you could talk about the performance of your new stores this year and how that compared to your expectations?

Also what you're seeing from your outlet business.

Thanks.

In terms of channel shift, we do not disclose margins by channel.

We will say that margins have been consistent to slightly up and we're feeling that is across the business.

As John and I both mentioned, we're having very good results in terms of markdowns and other performance related items that drive margins.

In terms of the stores, I'm going to turn that back over to John.

I'm going to respond to the stores by first telling you that we did an analysis right before this call, it's quite interesting and I think I've mentioned it in previous -- in the IPO, et cetera.

When we look back at the stores that are one-year-old, two years old, five years old, there is almost very, very minor differentiation in terms of comp store performance in legacy stores versus new stores which really is a testament to first and foremost the brand, the product that Michael and the design team that I spoke about earlier are putting out.

Because you don't have a business like we have today, unless you have fantastic product.

That's led by Michael himself and an incredible design team.

Then of course, the amazing jet-set in-store experience that we're having and we think, again, that's something that we work very hard on, spend a lot of time, energy, effort on training the employees.

I might add, that you not only find that in our free-standing stores, but you also find that in our department stores where we have quite a few Michael Kors employees based in those department stores globally.

So the new store performances that we're seeing across the world are meeting and/or exceeding our targets.

So we're very pleased with that.

Again, as it relates -- you asked a question about outlet stores.

We've said many times before, we're benign to full price versus outlet store from the standpoint that our full price stores are highly productive.

You'll be able to -- we don't disclose it, but I think you will be able to back in to where the numbers are.

We believe we're one of the highest sales per square foot companies particularly in the US in shopping malls.

We don't see tremendous differentiation between our full price and our outlets in terms of productivity.

So we're not a Company that's looking to drive the outlet business at the expense of the full price business.

We're quite frankly the opposite.

Because we see such fantastic profitability in our full price channel, we continue to want to focus on that and have that be the core to our openings.

Blair Mlnarik, Robert W Baird.

Certainly the top margin driver for you is the growth in the Retail business and in Europe, but then probably Japan becoming more profitable and just wondering given your comments about taking the long-term view there and building brand awareness, any change in your thinking for how much spend might be necessary and how much time that could take?

Sure, I'll talk about that.

Before we go to that -- the other thing that's obviously driving gross margin for us besides Retail and Europe is, I want to point out again, our outstanding performance at Wholesale in our shop-in-shops, both domestically and internationally for accessories.

The comp store sales as I indicated are really extraordinary and we're taking market share.

We're becoming a leader as we are in watches in many of these department stores, so that velocity clearly adds to the margin of the overall Company.

It's not as high as Retail but it certainly makes for overall driving the SG&A down because the performance of the sales being so strong.

In terms of marketing, we are continuing to spend at levels that we think are appropriate in each of the markets.

Now, you have to understand, in Europe and in Japan we're spending at much, much higher levels than are typical of a business that is at some level of maturity.

We're doing that obviously for two reasons.

Number one, we're doing it to build brand awareness and emphasize the brand to the consumer, but also we take a slightly different perspective and that is that when we go into a marketplace, we have to act initially like we're a bigger brand than we actually are.

By doing that, whether that was in Europe or whether that's been in licensed territories -- we're off to a terrific start in Malaysia and Singapore and of course, Japan we're seeing some very nice results there as well.

So as we see the brand continue to accelerate, we actually will feed on that and drive more into it.

So that's how we approach the marketing in those areas.

Again, lastly, we are definitely talking to our customer globally through Facebook, through Twitter, through Instagram and through multiple other channels on social media.

I think many of you get the numbers and can see things, but our growth on those different communication vehicles has been really extraordinary.

We're going to continue to spend a lot of focus, time and energy on those.

Of course, Michael's a great voice.

So again, we think we have a competitive advantage against other companies, their brands.

We have Michael, the man who is tweeting or putting communications out to his customer on Facebook, Instagraming pictures, et cetera.

Thanks, John.

You touched on my follow-up, which would just be on the Far East side of the spend and marketing investment.

I saw some of the articles on the Taiwan opening, I'm wondering in general, how much involvement that takes from either you or from Michael and what you're doing there or is that your License partners that are really making those investments?

Sure.

That's an excellent question.

First off, customers travel globally today.

I want to start with that.

We have -- probably our strongest global consumer after Europeans traveling to buy our products around the world is South Americans.

We don't have a store in South America.

We're certainly looking at that market.

We'll be making some announcements in the future.

So hence, the focus on the regional territories through Licenses is not only about the business that you do in Korea, the Philippines, Malaysia, Singapore or Greater China, but as you well know, I think it's been reported in certain studies that 50% of all business done by the Chinese or where they're purchasing luxury goods is outside of China.

That would include parts of Greater China.

But they're traveling in Europe.

They're traveling in small numbers here to the US and whatnot, but we're seeing it in our travel airport business, whether it's Koreans or Japanese or Chinese.

Our emphasis is not only on developing the business in those individual marketplaces, but really capturing them in all the different places that they're traveling around the world, so the Licensees are actively developing and spending money in those marketplaces.

Then we're actively spending time, energy, marketing in those marketplaces.

You saw that we did the big event in Taiwan which was quite successful.

We have other events planned in the region to help bring -- build brand awareness, both short-term, long-term, in those domestic marketplaces and as they travel internationally.

Omar Saad, ISI Group.

This is Sam Lee in for Omar Saad.

Congratulations on a great quarter, guys.

My question is on the Europe comp of 14%.

It's a good, solid comp number that's stronger than what we've been seeing from other names, but it wasn't as strong as the US.

Is that just the macro environment impacting or is it something else?

Secondly, can you give us a sense for which stores are in the comp base?

Finally, can you give us an idea of the comp expectations by region you're embedding in the overall guidance for 20% this year.

Sure.

Addressing the first question, the comp in Europe was actually a bit more of a reflection of us getting product to that region.

We think we've gotten that taken care of.

As I stated earlier in the call, we're actually seeing acceleration in that marketplace on a sequential basis.

So we're very pleased with what's happening.

Again, it's a little trickier for us in Europe, just operating because of all the different countries and our infrastructure which we think is in pretty good shape right now.

But we're clearly seeing trends happening that we're reacting to and we think we've got ourselves in a good place.

Europe's not going to trend, though, like the domestic marketplaces because the brand awareness is not as high.

So I would not anticipate on a long-term basis -- I would anticipate that the US will continue or North America will continue to have higher comp store sales than both Europe and Japan, just as a kind of an overall issue.

In terms of which stores are in the comp base, it's any store that's been open for over a year, so we handle comp the same way that we do everything else.

Actually, it's any store that's open over 13 months.

Then the comps by region, obviously North America -- as Joe said before, is going to be approximately 20% and again, if the trend continues that we are currently seeing for the fourth quarter into the balance of the year, we think we'll be able to react from an inventory position and be able to support the stores but currently we're forecasting approximately 20%.

Then I would assume that both -- that Europe will be in and around that range also and Japan would be below that, because Japan is the lowest brand awareness.

So we would kind of look in the high single-digits to low double-digits.

Dana Telsey, Telsey Group.

Congratulations.

Can you talk a little bit about pricing?

How pricing has changed?

What you're expecting going forward in terms of price changes.

Also can you give any commentary on new store productivity and how you're planning that for next year given the rate of store openings?

Thank you and congratulations.

Thank you, Dana.

The pricing is -- we don't see any real pricing change for us.

I'll let Joe speak in a minute about manufacturing on a global basis.

But we like the sell-throughs of what our product is today.

We've kind of always kept that strategy that we're in the accessible -- that's our predominant business is accessible luxury.

We want to continue to have the customer having a fantastic experience in our store from a jet-set standpoint, the service -- and really embrace what Michael does from a design standpoint.

Then we want them to walk out of the store feeling great about what they've bought and feeling that they've had this sense of - wow, I got this incredible handbag for $400 and it looks to me like it's a $1,000 handbag or I walked out with a $250 watch and it looks to me like that's a $200,000 watch.

That's something that we think is really an important part of what makes our brand successful.

I'll let Joe talk about manufacturing globally for a second.

We're not seeing any particular pressure on the manufacturing side.

Honestly, our biggest issue right now is currency for our international divisions.

We do hedge our purchases.

They're not accounting hedges but they are economic hedges.

So we are entering hedges in order to try to minimize currency fluctuations.

Then on the new store productivity going forward, we're still at the same place that we've said from our original IPO.

New stores will not trend at the same because you can all back in to roughly where we are.

We don't publicly state that, but you can look at the square footage and the sales and you'll come up with an estimation.

But new store openings are below our total average just because we're open -- in America, we've covered most of the A markets and now we're in building out the B and C market categories.

Europe, we still have many A markets to go, but in America which is the bulk of the store openings, the productivities will be below what the chain-wide average is.

Corinna Freedman, Wedbush Securities.

Just several questions.

First, were there any operating expense increases this year versus last year related to the running of the multiple facilities for the distribution center consolidation?

Secondly, Project Runway is filming now.

When will it air and with significantly more stores in the base versus the last time that Michael appeared, is there an opportunity for co-branding or a store tie-in or are you looking at anything on the marketing side on that front?

Thanks.

So in terms of the operating expenses, certainly there were marginal expenses as we transitioned.

We believe that we've captured all those either in the actuals or in anticipated expenses.

So we don't think that any of those are going to cause any anomalies in terms of the ultimate performance.

Again, we have completed that transition.

We are operating in our new warehouse.

There are many things that we need to do to create efficiencies there, but we have the move behind us.

We're feeling good about that.

In terms of Project Runway, I will turn it back to John.

Project Runway is scheduled to, I believe start airing somewhere in September.

I'm in the zone, I apologize to you, that may not be 100% accurate but I think it's around September.

No, we don't do any tie-ins between Project Runway and the brand.

I might add, we're very proud to be a part of Project Runway.

I believe it's Michael's ninth or tenth year on the show -- tenth season, sorry, on the show and it certainly has added value to our brand awareness.

But remember, in totality it's only a piece of what we do.

Our main activities relate, still to print advertising, our second largest activity in the Company for building brand awareness is public relations through traditional means, everything from newspaper to blogs to that type of media.

Then our third, which is our fastest growing and where we're spending our most amount of time, energy, effort and ultimately long-term probably will be money is in social media.

We're seeing some really strong results from those efforts.

So like where we think we are today in terms of store productivity and the way we operate our stores, we think we're one of the Best-in-Class on a global basis.

We view our marketing, PR and social media efforts to have the same standard, where we want to be and hopefully are getting there to be Best-in-Class in terms of that category.

Okay, I'd like to thank everyone for being on the call today.

We look forward to speaking to you at our next conference call for our first quarter earnings of 2013.

Thank you.

Once again, ladies and gentlemen, that concludes today's conference.

We appreciate your participation today.