雷夫·羅倫馬球 (RL) 0 Q0 法說會逐字稿

Good morning, and welcome to the Polo Ralph Lauren fourth quarter and fiscal year 2004 conference call.

At this time I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode.

I will now turn the conference over to Nancy Murray, Senior Vice President, Public Relations and Financial Communications.

Please go ahead.

Good morning and thank you for joining our Polo Ralph Lauren fourth quarter and fiscal 2004 conference call.

In addition this morning, we announced the plan to acquire our children's licensee, which is very exciting news and an important milestone in our strategy of controlling our brands on a worldwide basis.

First let me go over the flow of the call today.

I'll review the numbers for the fourth quarter and the full fiscal year 2004 and then give a financial outlook for fiscal 2005.

Then Roger will highlight our accomplishments for fiscal ''04 and give an overview of our initiatives for this year.

And then, of course, we'll open it up for questions and answers.

As you know from past calls, we will be making some forward-looking comments in our discussion today including future earnings expectations.

There are some risks that could cause our results to differ materially from current expectations.

The principle risks are described in our earnings release and in our SEC filings and we refer you to them.

And please note that our press release today has both GAAP results and adjusted numbers.

For today's discussion purposes we will be comparing our adjusted earnings which exclude foreign currency gains and losses and restructuring charges.

We refer you to the table reconciliation of GAAP results to adjusted results in the earnings release.

Our fourth quarter '04 adjusted EPS was 79 cents and that compares to 77 cents last year, and that's a net income of 80.4 million this year, compared to 76.1 million last year.

Our diluted average shares were 102.3 million this year compared to 99.3 million shares last year.

Outstanding diluted shares increased due to the inclusion of more stock options as a result of the higher stock price during the year.

Revenues increased 18.3% to 818.8 million, reflecting the inclusion of the Lauren line and strong growth in our retail businesses.

Revenues also benefited from the strengthening euro and Canadian dollar.

We had a 12% decline in licensing revenue which was expected because of the absence of royalty income associated with the previously licensed Lauren business.

This decrease in licensing was partially offset by the inclusion of revenues from our Japanese master license.

We are very pleased with the success of the Lauren relaunch.

Our shipments in the fourth quarter were on track.

We are making good progress with our new shop installations, and plan to have 500 installed by the end of the calendar year.

And most importantly, the new lines have been well-received by the consumer with strong sell-throughs.

This season the customer is looking for color, and that's the trend that we all know Ralph has led and we've certainly addressed their needs with both feminine and tailored styling.

We planned the quarter's menswear revenues to decrease slightly as we continue to position our men's Polo business in the top tier department and specially stores where full price sell-throughs continue to increase.

Thus we are dramatically reducing inventory and the sales to the off-price channels.

Our European wholesales were soft due to the continuing economic uncertainty there as well as lower initial spring orders.

Our retail revenues grew 32.6% to 259.9 million, with comparable store sales increasing 20.2% and that's based on a 14-week quarter this year versus a 13-week quarter last year.

On an apples to apples basis comparable store sales increased 10.1% and that was driven by positive performance in all of our retail formats.

Comparable store sales were up 11.4% at Ralph Lauren stores, 23.8% at Club Monaco stores and 7.7% in our outlet stores.

And you should note that that's going against an overall 5.8% comparable store sale increase in the fourth quarter of last year.

Now during the quarter we opened two stores and we closed four.

We ended the quarter with 263 stores with 1.86 million square feet.

Turning to licensing, the revenuers in the fourth quarter declined approximately $9.3 million, and again, that's primarily because of the absence of royalty associated with the Lauren line, partially offset by the revenues from our Japanese master license.

You'll recall, this is the first quarter that we have no Lauren royalty in our numbers.

For the quarter, gross profit increased 13.1% to 391 million.

The increase was driven by the Lauren line, now reported in our wholesale business, and strong retail performance in our Ralph Lauren and Club Monaco stores.

This was partially offset by the decrease in the licensing royalties.

Gross margin was 47.8% compared to 50% last year.

Our SG&A expenses increased 17.8% largely from the addition of 14th week of selling costs in retail this year, the start-up cost of the Lauren line and the inclusion of expenses of our Japanese master license that were not in last year's results.

Our operating income rose 4.5% to 128.5 million with an operating margin of 15.7%.

Improved operating profit generated by our retail and Lauren businesses were partially offset by a decrease in licensing operating profit.

Operating results in our retail group increased 75.3% with an 810 basis point improvement in the quarter.

Now let me turn to the full year review.

In fiscal '04 we produced another strong year.

We often say that our success begins with product, and this year is another example of the power of Ralph's creative leadership and of the global reach of our brands.

Our net revenues for the year were 2.6 billion, an increase of 8.6%, or 210.3 million.

This was primarily driven by increases in our retail business and reflects growth in all of our retail formats.

We continued to drive positive comp sales and ended the year with a 9.3% comp sales increase on a 52-week comparable basis.

This increase was driven by 13.2 positive comps at Ralph Lauren stores, 6.6% positive comps at outlet stores, and 19.1 positive comps at Club Monaco stores.

Revenue increases also reflect the Lauren line revenues in our wholesale segment in the fourth quarter, our first shipping quarter since assuming operating responsibility for the line.

And you should note that revenues also benefited from the strengthening of the euro and the Canadian dollar.

As we discussed previously our menswear revenues decreased as we rationalized the distribution to lower margin customers and reduced off-price sales.

For the full year we reduced our off-price sales by more than 20%.

For the year our gross-profit margin was 49.9%, that represents an improvement of 40 basis points compared to last year and this improvement was really driven by our retail performance as a result of stronger sell-throughs at full price and a reduced promotional calendar.

For the full year our SG&A expenses increased 13.8% and this was driven primarily from the increased retail business and the addition of the 53rd week of expenses as well as costs associated with the Lauren relaunch and inclusion of expenses of our Japanese master license.

Foreign exchange also contributed to the higher SG&A this year.

Our operating income decreased $9.5 million as planned, and reflects the incremental costs associated with the start up of the Lauren line in our second, third and fourth quarters as well as the absence of Lauren royalties in the fourth quarter.

The decrease also reflects our initiative to dramatically reduce distribution of our men's apparels and off-price channels.

The decrease as I mentioned above were partially offset by significant improvements in our retail business.

Overall operating income for our retail segment increased 80.6% for the year, and generated an operating margin of 6.2%.

That represents a 220 basis point improvement over last year and that's right in line with our stated goals.

This really is strong evidence that our retail strategy is on track and that's based on a winning combination of merchandising, marketing and operational improvements.

We delivered a 184.6 million net income, or $1.83 per diluted share and that compares with 183.7 million or $1.85 per diluted share last year.

Our diluted average shares for the year were 101 million compared to 99.3 million shares.

The increase in average shares reflects the required accounting under the treasury stock method when the stock prices increased during the period.

Therefore, our net income increased while the EPS actually decreased.

Now let me spend a few moments on our balance sheet.

We have a very strong balance sheet and ended the year with a cash position net of debt of 66.1 million.

At April 3rd, we had a 343.5 million in cash, and that was after paying down 100 million in short-term debt earlier in the year.

We ended the year with zero short-term debt and long-term debt of 277.3 million of euro bonds.

One of our multi-year initiatives has been to better manage our inventory levels and we continue to make terrific progress in this area.

We ended the year with 363.7 million of inventory, primarily unchanged from last year.

And this year's levels include the Lauren line as well as the impact of foreign exchange from the strengthening euro and Canadian dollar.

Our capital expenditures for the year were 123 million and that compares to 98.7 million last year.

The majority of the increase was associated with the Lauren line and that was primarily from modifying our Greensboro warehouse, shop in shop refurbishing and the establishment of operation and headquarter offices in New York.

Now let me spend a few minutes turning to our outlook on fiscal '05 because we really do see fiscal '05 as a breakout year.

As you saw in our separate release today we announced that we'll be acquiring our childrenswear licensee.

And while we expect this transaction to be highly accretive beginning in fiscal '06 with incremental earnings per share in the range of 15 to 20 cents at this point we expect the transaction to be neutral to earnings per share in fiscal '05 and that's because the increases to our wholesale and retail businesses will be offset by the reduced licensing royalties.

We expect the transaction to close in June and due to the nature of the purchase accounting we won't have the full P&L impact until then.

Therefore, today's guidance and all the projections we're discussing do not include the impact of the children's acquisition.

We will share that information with you after the transaction is complete.

So excluding the children's acquisition we're reaffirming our outlook for '05 to be in the range of $2.35 to $2.45.

These projected results anticipate high single digit percent consolidated revenue growth and approximately 150 basis point improvement in our operating margins.

We expect revenues to reflect high teen percent growth in wholesale sales, mid-single digit percent growth in retail revenues and a mid-single digit percent decrease in licensing revenue as a result of the elimination of the U.S. and Canadian Lauren and Ralph license royalties.

We also expect the earnings results of each quarter in fiscal '05 to exceed the comparable quarter in fiscal '04 and our quarterly profit flows in fiscal '05 should be similar to fiscal '04s.

As a percentage of the annual profit as you know the first quarter of the year or the June end quarter is the smallest due to lower wholesale shipments for the summer.

The second quarter which will now include the Lauren fall shipment and that we expect to be the second largest profitable quarter in the year.

The third quarter would be the third largest quarter as a result of our growing retail business and again, the fourth quarter should produce the largest quarterly profit and that's due to strong wholesale shipments in the U.S. and Europe.

For the first quarter of fiscal '05 we expect earnings per share to be in the range of 9 cents to 12 cents and that compares to 4 cents in the first quarter of '04.

Revenues should increase mid-teen percent with operating margin expansion of approximately 150 basis points.

As we said in our press release today while we will continue to give quarterly earnings guidance with details about our business operations and trends we are discontinuing quarterly earnings per share guidance after the first quarter we just gave you.

Now let me give you a little more detail about our individual business segment.

In wholesale, we expect full year wholesale revenues to grow in the high teen percent and really that's driven by the Lauren business and the single digit increases in Europe.

As we've discussed as part of our long-term strategy, these gains will be partially offset by planned decreases in our menswear business.

On a quarterly is basis we would expect that our wholesale segment revenues would grow significantly in the first three quarters as the Lauren revenues will be reported for the first time now as a part of our wholesale segment.

The Lauren business is expected to make the largest contribution to revenues in the second and fourth quarters as we ship our fall and spring merchandise.

And as you know, the first quarter will typically be the smallest quarter when we ship summer merchandise.

The quarterly phasing of revenues will be very similar year-on-year and just to remind you in our overall wholesale segment second and fourth are the strongest quarters.

Our European wholesale business is expected to grow modestly in fiscal '05 as we continue to expect our consolidation efforts to begin to produce benefits for us.

We also expect that the quarterly phasing in Europe in '05 will be similar to '04 with the first quarter being the smallest, the second quarter being the second strongest, and fourth quarter continuing to be the strongest.

We would also expect for the year our wholesale operating margins to expand significantly in the range of 400 to 450 basis points.

Looking at retail, we are very excited about our specialty retail expansion in fiscal '05 and plan to open 10 Ralph Lauren stores in the U.S., a flagship store Milan this fall and eight Club Monaco stores.

We continue to expect mid-single digit percent sales growth in retail and that represents growth in all of our retail formats, Ralph Lauren stores, Club Monaco stores and our outlet stores.

And we expect consolidated comparable store sales improvement in the low to mid-single digits.

We continue to expect retail sales growth with the strongest growth in the first and third quarters.

The fourth quarter will decrease as we will be comparing a 13-week quarter in fiscal '05 to a 14-week quarter in fiscal '04.

We continue believe we're on track to produce additional retail operating margin improvement of another 200 basis points in fiscal '05.

In licensing, we anticipate a mid-single-digit decrease in licensing revenue.

In the first, second and third quarters, the decrease is a result of the elimination of the Lauren and Ralph license royalties, somewhat offset by gains in Japan.

We would expect royalties to increase year-over-year in the fourth quarter as we anniversary though the loss of the Lauren royalty in the fourth quarter, and again, all of this information about licensing excludes the impact of the children's acquisition.

As a result in licensing, we would expect licensing operating margins to be in the range of 37 to 38% next year.

For fiscal '05 we would also expect our capital expenditures to be in the range of 140 to $150 million and that's primarily focused on retail expansion, shop expansion and infrastructure investments.

And now I'm happy to turn the call over to Roger so he can discuss some of our recent accomplishments, the strategic look at the fiscal '05 and then we'll be back on the line for Q&A.

Okay.

Thank you, Nancy, and good morning.

We are very excited about the announcement today regarding the acquisition of our children's business from our licensee.

Of as you know, we've taken strategic steps over the past few years to establish more direct control over our brand and we see this as an opportunity to more fully develop our kid's brands to optimize the financial contribution it makes to our company.

In addition to the well established existing wholesale business, we plan to introduce additional product categories and expand the business through our Ralph Lauren retail stores taking advantage of vertical retail margins and support a major international opportunity.

With respect to fiscal '04, this was a strong year for Polo Ralph Lauren.

Nancy walked you through our financial performance and now I'd like to highlight some of our strategic accomplishments this year and there were many.

We continue to believe our products and designs for all merchandise categories have terrific global appeal.

Our marketing and advertising have been ground-breaking over the years and we have established a signature Ralph Lauren aesthetic.

In the past couple of years we've been concentrating on operational execution and the refinement of our business processes.

Our goal is to match our world class design with a world class organization and infrastructure and we believe we have made tremendous progress in this area.

The most visible accomplishment this year was the relaunch of the Lauren line which was a huge undertaking.

This is a business that we continue to project at $400 million in revenue in its first full year under our direct control.

We assembled a first rate team of 150 people, we designed, manufactured and brought to market three lines, spring, summer and fall. 350,000 feet in our Greensboro distribution center was retrofitted to accommodate the Lauren product which is primarily shipped on hanger.

I'd like to point out that we have the adequate capacity to handle this will line as a direct benefit of our investments is in cross docking and other initiatives in Greensboro.

We established a Lauren headquarters at the 550 7th Avenue and opened new fully dedicated Lauren showrooms in New York and Dallas.

We improved the fashion, the quality of the product, the styling, the fabric and the trim.

We improved the mix of career versus daytime versus evening wear.

Our first shipment hit the selling floor right on schedule at the end of January.

The line has been very well-received by the consumer with its updated look, broadened lifestyle and enhanced quality.

We are very pleased with the sell-through and we continue to see a strong trend heading into summer with our top tiered doors.

In the department store environment we believe that all Ralph Lauren brands have to stand apart so we're continuing to partner with our better department stores to make sure that Lauren is positioned correctly.

We have said from the beginning we saw this relaunch as an opportunity to review the Lauren doors to make sure our product is properly placed and merchandised.

We have approximately 500 missy, petite and women's shop in shop renovations complete or underway to improve the presentation and shopping experience for the Lauren customer.

We're also happy to note that Lauren is now available on Polo.com.

In summary this was flawless execution completed on time and on budget and I really give our team an A plus for their hard work and accomplishments.

In our Polo brand for men our focus is to ensure the proper placements of our product in the marketplace.

And as you know over the past couple of years we've taken an aggressive approach to having the appropriate distribution and inventory level.

This focus has resulted in significant reductions of sales of our product in the off-price channel.

Looking forward, our priorities will be to increase profitability through improved planning, selling and target marketing into the top doors which generate a majority of our revenues.

We've taken a leadership position in the industry by piloting a program with Macy's West to improve performance.

Combination of better merchandising, staffing, training, marketing resulted in double digit sales improvements.

Because this was so successful we have already started to roll out the focused account strategy with seven additional department store group partners for this fall.

If we turn to our specialty retail business, this really begins with great product.

Ralph continues to create the finest quality brands in the world whether we're talking about women's Blue Label, Black Label or Collection, men's Polo or Purple Label, our specialty reflects Ralph's vision and have become unique shopping experiences as we continue to increase the amount of exclusive or limited distribution merchandise available in our stores.

We've improved our planning, merchandising and marketing and have direct mail in magazine ads that speak directly to our customers' sensibilities.

We've been very successful opening small niche stores whether it's our Kid's store in New York or Ralph Lauren stores New Canaan, Connecticut which offers men's, women's and children's apparel or just last week we opened on Main Street in Nantucket a new store that has had a tremendous reaction.

The Ralph Lauren outlet stores continue to benefit from significant operating improvements, staffing initiative, climate appropriate regional merchandising.

In fiscal 2005 we'll increase the penetration of women's, continue to reduce the promotional activity, expand cross stocking at our Greensboro facility.

We will continue to refine our execution and deliverables as we look to a very limited new store growth in this concept but with a great focus on productivity gains.

At our Club Monaco stores we think we have the winning formula.

We've been addressing the merchandise mix here with a renewed emphasis on color ensuring that we have the right real estate for our merchandising strategies.

We closed the Toronto headquarters this year and have successfully established a first rate team in New York City to run this business.

We have completed the integration of key back office and infrastructure systems into the Polo systems including systems such as loss prevention, purchasing, merchandising, financial controls and payroll.

Our focus on operational excellence in our retail group is paying off.

Over the last two years we've improved our operating margins by 420 basis points with an additional 200 basis point improvement planned for fiscal '05.

We are well on our way to hitting our intermediate term goals of 8 to 10% operating margins for our retail business.

In summary, we believe this improvement at retail is achieved through a combination of strong consumer response to our product as evidenced by our same-store sales this year, better planning, forecasting and improvements in our retail infrastructure and operations.

Our international strategy includes both broadening our reach around the world and having more direct control over our brands since reacquiring our licenses.

In fiscal '04 we focused our efforts in Europe on three main areas: One, the consolidation of five international headquarters in three cities into one central location in Geneva, two, the consolidation of our European logistics and distribution into a central location in Parma, Italy.

This new state-of-the-art distribution center which was paid for and built and staffed by a third party provider decreases transit time from Asia by about two weeks.

And we expect our cost per unit to decrease approximately 40% over the next two years as a result of efficiencies in the center.

And third to migrate the standard global systems for all of our operations.

Our warehouse management systems, planning, ordering, sourcing and finance systems are now seamlessly integrated.

Our consolidation in Europe was a very complex move but it was completed on time and on budget and we are shipping and billing on schedule.

With the consolidation behind us we will now focus on elevating the brand with selective wholesale distribution and growing our retail presence.

Fiscal '04 was a year of setting the stage for our long-term growth and we look forward to fiscal '05 as a breakout year for us with very significant increases in earnings.

In wholesale after a period of repositioning we're enthusiastic about the outlook of our men's business.

Our men's business at retail is healthy.

Our inventories are in line, and we are realizing more full price sell-through and significantly less promotional and off-price business.

We've told you about our Macy's West pilot program, and we're now looking forward to working with the additional department store partners for this fall.

As I said a few minutes ago our Lauren relaunch was successfully executed with a tremendous amount of excitement in the company during the entire start up period.

We look at fiscal '05 our priority is to operate this business to deliver the $400 million in revenue and mid-teens operating margins.

We'll continue to work with department stores to roll out new shop in shop to elevate our fall presentations.

We plan to execute our product offering with additional career assortments and more basic stock replenishment items.

We also see an opportunity to take bigger share in the women's special size markets.

In retail we're very excited about the success and the potential of our specialty retail group.

Our past success gives us confidence to execute an ambitious growth strategy.

We expect to see continued growth in this business next year as we begin to more fully realize the benefits of improved merchandising, direct marketing and the shared service operational efficiencies.

We've developed a strong store growth plan for our real estate expansion and we remain committed to expanding the number of Ralph Lauren stores in carefully selected locations.

In the next five years we plan to open 50 to 60 new stores in the U.S.

In Europe we also plan to expand our retail presence and we'll begin with the opening of our new flagship in Milan in this September.

This is our first store in Italy and we believe it makes an important statement about the breadth and depth of the Ralph Lauren brand.

The four story building will have a complete assortment of our products across all brands.

Our strategy in Europe is to open 20, 25 stores in the next three to five years.

At Club Monaco we're ready for accelerated growth.

With the systems in place and the headquarters now in New York, we plan to increase store count by opening new stores in approximately eight locations.

We believe fiscal '05 is an important year for the Club Monaco brand as we're now able to take advantage of clarity about our customer and the products they want as well as an integrated support structure to leverage the impressive sales that we have had.

We have 8 to 10% operating margin goals and our success to date and our plans for this division put us on our way to reaching that range this year.

In licensing our strategy continues to be to find the right mix between what we own and operate and what we license to appropriate and strategic partners based on our core competencies.

We have had a lot of exciting developments in this year in the business.

The Chaps brands will be developed into a full line of products for men including dress shirts, neckwear, hosiery, underwear, small leather goods and luggage and we plan to expand Champs into women's, childrenswear, denim and home items.

Our home product line is great example of our tiering strategy at work.

We've licensed brands for table top, bed and bath, furniture, paint, broadloom and gift items and selected Ralph Lauren stores carry the Ralph Lauren home products we developed the Lauren brands for our better department store partners.

We'll also be supporting the Lauren brand this fall with a significant advertising program covering apparel, home and our new fragrance Lauren Style which is on plan to be launched this fall.

Operationally we continue to make investments in our infrastructure to support our anticipated growth.

We have made dramatic changes in the way we support our business and we now have a flexible platform to leverage the growth of our various businesses and that has allowed us to take in Lauren and now the children's business.

We now have a global logistics platform that can support our currents business and allow us to take advantage of future opportunities.

Our initiatives in this area are predicated on a disciplined use of capital with three objectives: Maximize the productivity of our investment inventory, have a consistent and efficient supply chain execution and to have true global collaboration with our supply chain partners.

We've also made significant progress in standardizing our systems and have completed the development of our retail, finance and human resources systems.

Next year the last major piece is to consolidate four warehouse management systems to one and implement a global wholesale system encompassing sourcing, booking, allocating and shipping.

The savings and efficiencies that we are generating from these systems initiatives have enabled us to continue to invest not only in product design and development but also in additional advertising, marketing and people.

We have made great progress in refining our direct marketing efforts to develop one-on-one relationships with our customers and in addition to our national advertising, we speak to our customers in their local communities through regional newspaper and other media.

Our rigorous management of capital has dramatically altered our balance sheet.

We've been able to use cash to acquire our license businesses in Italy and Japan and will use cash for our children's acquisitions.

We have stepped up our investment in people in a variety of ways.

Our new global reviews, training programs and executive management programs provide a platform to identify and develop the talent we need so we'll be better positioned to seize the opportunities ahead of us as we execute our multi-year strategic initiatives.

In closing you can see that we've made tremendous progress in many important and complicated initiatives from the successful relaunch of the Lauren line to the expansion and improved profitability of our retail business to today's news about the children's business.

The integration of our international businesses in Europe and the integration of Club Monaco into U.S. have all been major accomplishments.

Our investments of time, energy and money in a global infrastructure has made these achievements and more to come possible.

We see fiscal '05 as our breakout year, a year when Europe gets some traction, Lauren comes to fruition, retailing goes to even the next level, the year in which we rollup all of our hard work and our various initiatives which we think will produce substantial earnings growth.

Before I turn the call over to questions I'd like to thank the 13,000 employees who make up Polo Ralph Lauren worldwide.

I'm proud to be a part of this organization and to work with the talented people who are responsible for this year's performance and for the growth you'll see in the future as we continue execute on our multi-year strategic initiatives.

I think at this point we'd be happy to field a couple questions.

Thank you.

The question-and-answer session will begin at this time.

If you're using a speaker phone please pick up the handset before pressing any numbers.

Should you have a question please press star one on your push-button telephone.

If you wish to withdraw your question please press star two.

Your questions will be taken in the order they are received.

Please stand by for your first question.

Our first question comes from Robby Ohmes from Banc of America Securities.

Please state your question.

Thank you.

Actually two quick questions.

Roger, I was hoping you could remind us what key licenses are left that could make sense for you guys to either buy in or bring in the house?

And then also it sounds like you're pretty happy with what you're seeing in the menswear business.

I was curious as to why you see it decreasing again in fiscal '05 or fiscal '06?

Thanks.

Okay.

I think the first one's like a trick, an early morning trick, Robby, where you're hoping to get the information we haven't given in the past.

We have I think 36 worldwide licenses.

I think we've said in the past that we regularly review them to see which ones make sense in terms of our expertise versus those that we think we continue to run.

We regularly evaluate that list and try to come to some conclusions.

Obviously the kid's business has been very successfully run by the Schwab Company and we're very pleased with them as partners and really want to thank them for their efforts in helping us build this.

It's also a business that we feel we can expand on a global basis in vertical retail as well as wholesale and so the fit was fairly obvious.

And clearly with the accretion in the first full year it's a good deal for them and it's a good deal for us.

We'll continue to review that list and see where it takes us.

The men's business has been trending very nicely this spring.

We're very pleased, and we're getting high single digit results in our department store distribution and specialty store.

They are getting better full price sell-throughs, better margins.

They have less inventory and so the whole strategy seems to be coming together nicely.

Additionally the Macy's West experiment for their season to date which is really February 'til now it sort of crosses our fourth and first quarter.

They're running a 19% increase, more than double our increase in total.

So that's very encouraging.

I think we're going to continue to see, you know, more careful sell-ins, less off-price and some door closures working through the men's business for several more quarters even though the actual retail results are very, very encouraging.

So I think we're on the right strategy.

I think the retailers are ecstatic.

We seem to be leading the pack in menswear in terms of performance and a lot of the initiatives that we piloted at Macy's West are being used to build plans for fall.

For the first time ever we're actually shaping some of the markdown money that we've historically, you know, used to partner with retailers, and we're putting it into staffing and presentation and other initiatives that will drive more sales at full price and everybody seems to be excited about that.

So I don't think we'll see it in the wholesale business for several more quarters, but I'm very excited about the results with the retail customers and their individual consumers.

And are the profits up significantly in the menswear business as you're shrinking it in total?

Well, we anticipate that fiscal '05 we will see an improvement in profit.

But perhaps more importantly for the long-term, the profits of our retail customers are up a lot which inevitably will then flow back through us as time goes on.

Great.

Thank you very much.

Thank you.

Thank you.

Our next question comes from Dennis Rosenberg from Credit Suisse First Boston.

Please state your question.

Good morning, congratulations.

I have a few questions.

To start could you give us a little bit more color on Europe?

When you say you expected to gain traction this year and you talked about expectations of modest improvement.

Given what's been happening in recent quarters, what gives you confidence that Europe will turn around?

Well, the good news is, Dennis, that even though we sold in less in spring in Europe we're actually not dissimilar to the United States getting much better sell-through at the retail level and I think we've talked about in the past that Europe has a larger reorder component.

They've actually been getting, you know, March, April, May, incremental reorders compared to last year on spring product which has been, encouraged them, the customers, to be a little more bullish about fall and cruise holiday bookings.

So I think as Nancy said if you could follow that guidance, very complex guidance that we are planning for an increase in the business in Europe in constant dollars as opposed to this past year where we saw a decrease in constant dollars.

And so again I think the customer, you know, leads the charge and at this point we're getting better sell-throughs and more reorders and with the distraction of the consolidation behind us, while we're planning conservatively I think that's encouraging.

Okay.

And on the men's, can you talk about the additional department stores, can you identify which ones those are that you are going to be putting in the improved assortments?

Well you know it's interesting, after we talked about the Macy's West example and the shocking improvement in results, we had a stampede of people wanting to replicate the program.

I think our point of view, Dennis, was to take one or two divisions in every one of the major department store groups, so two out of Federated, two out of May, two out of Dillard's plus Marshall Fields to make sure that we aren't moving too quickly in our ability to support that.

And so those doors which have all developed a partnership with our men's wholesale group will get the same treatment in terms of merchandising, focus on presentation, improved shop builds out, putting more into staffing both what they're putting into it and what we're putting into it, on and on and on, and that, you know, should play out this fall which we think will generate similar results for the Macy's West experiment.

The interesting other little tidbit of the Macy's West experiment is of that 19% season to date we're running, the top doors, meaning their flag ships and their large doors A and B are running north of 30% increases and then it grades down to their smaller stores which are running a 2% increase.

So all the doors that benefited clearly where we can show the product, show it in its full breadth, get enough critical mass in the presentation and the staffing, we're getting dramatic improvements.

Where the doors are still too small, where the fragmented presentations are not compelling, we're getting modest improvement but not nearly as much.

So that's been one of the big learnings that we hoped to apply to the next round of doors we focus on.

And my last question.

Could you comment on Lauren's performance in retail in April and May?

Off The Record came out with something yesterday indicating that there was a slowdown.

Sure.

Lauren's performance in April and May has been on plan.

The additional information I would say to that is, we have exceeded plan and what I'm going to call the doors that have historically had a better customer.

And whether that's Bloomingdale's or whether that's Lord & Taylor, or really all of Federated, Nordstrom's, Marshall Field's, all of the better department store doors have performed above plan.

The more moderate part of the Lauren distribution, some of the May Company doors, some of the Dillard doors have probably performed slightly under plan during that time period.

So the mix of all that has, you know, has us continuing to track right on plan with the learnings being the improved product, styling, quality, being better received in the higher doors and being, you know, a little slower planned in the more moderate channel.

Net-net, we're on plan, but we're learning about what those more moderate doors can have versus what the better doors have, and we're shifting accordingly.

Thank you.

Thank you.

Thank you.

Our next question comes from Noelle Grainger from J. P. Morgan.

Please state your question.

Hi.

Good morning.

Actually, two if I could.

Just to continue on the men's wholesale piece, was interested in your comments about your Macy's West pilot and the fact that it's the upper doors are seeing significantly better performance.

How does that impact how you look at your overall C and D door, you know, distribution, going forward?

Does that perhaps accelerate maybe revisiting those stores and making some decisions about where it's best to be presented?

And then I have an additional question.

Let me answer the first one.

Actually, it is terrific information but it supports what our instincts would have led us to believe anyway.

The initial door reduction discussions we've had with all of our major customers, we agreed that we would then watch that for a year.

And come back a year later and decide how some those lower tier doors are performing and that's really the path we're on.

So at least through this fall and into early next spring, the door reduction strategy that we went through is pretty much what we're going to adhere to, and then we'll review progress and improvements and results to date.

Again with an equal effort at Macy's West across all their doors to see the biggest doors growing 30% is pretty startling.

I think the overall results are about five or six times greater increase than the rest of the store is running.

So I think we're going to hold the fort for the next 12 months and then we'll come back and reevaluate.

Next spring.

I'm sorry.

Next spring.

Right.

Yeah.

And my question is a little bit more bigger picture.

You seem to be very much on track with all your initiatives for fiscal '05.

I'd be interested in what area you think presents the biggest risk to successfully achieving your financial performance goals for fiscal '05.

That's like a curve ball.

Well, we obviously, you know, feel pretty good about the start to the year.

Both our retail stores and our sell-in and sell-through and wholesale are performing to our expectation.

I think having said that, I think the biggest risk at this point is more the macro economics.

I'm not clear on the overall economic environment in Europe and its ability to get dramatically better.

Most luxury companies who have reported results have reported improved results in the U.S. and Asia with Europe still being bumpy.

I'm not sure if the political environmental or the latest warning of a potential, you know, disruption in a terrorist attack is healthy for our business.

So I think the macro economics continue to make, you know, the next 12 months in my opinion less clear than we like it although I think in general the U.S. business is better than it's been over the last two or three years.

I think our retail strategies have a lot of strength to them.

I think we're clear on where we're trying to open stores and what we're doing.

I think our sell-in and wholesale through the fall and cruise are realistic, we have not oversold.

We're being very careful about that.

And I think the major transformational European integration of Club Monaco's are behind us.

We obviously have to get our hands around the kid's business.

We have to learn that business and what has to be done there.

But I think we're buying a very healthy business that's been well run.

We are buying the sourcing and infrastructure that comes with it.

So it's not a startup.

I just think we have a lot on our plate, Noelle, and therefore, when you have a lot going on, the possibilities of macro economic disruption or internal execution just increases the risk on that level.

But otherwise I'm feeling pretty good.

Great.

Good luck.

Thanks.

Thank you.

Thank you.

Our next question comes from Liz Dunn from Prudential.

Please state your question.

Good morning, thank you.

First just a couple of follow-ups.

So on Europe are you still anticipating that Europe can add 20 cents to fiscal '05?

Yep.

Yeah.

Okay.

And then second, just to clarify on the domestic men's wholesale business.

Sorry for the ringing, I'm sitting on a trading floor right now.

Are you saying that you're not pulling out of C and D doors at this point?

You're going to watch the business for a little bit and make that decision in fiscal '06?

Yeah.

We are not adjusting the door distribution count beyond what we've already done and we want to see how the fall initiatives and the focus stores perform.

So we don't see any change beyond the changes we've already made, that's correct.

Okay.

On Lauren, you said that April and May were on plan with the mixed performance by door.

Is that, that's a slowdown from an above plan performance prior to that?

No.

I mean, I read those notes based on discussions with May Company stores.

I think that's a very small sample set.

We're very pleased.

It's tracking exactly as we planned it to.

We haven't seen any change in that.

I think again, we've seen some above plan and some below plan within that mix for the reasons I've already stated.

Okay.

But it's pretty much been on plan.

Right.

Since launch.

Okay.

And then my final question you mentioned the 8 to 10% operating margin goal in retail as an intermediate goal.

Would you care to share a longer term goal with us?

Well you know when I started this we were making no money in retail and everybody was questioning our sanity and we said we could get to 8 to 10% and the fact is we look like we can get there this year so we're very pleased with that.

But you know any goal that you have that once you achieve it you say you're satisfied would be in my opinion bad management.

So let's get there this year.

Hopefully we will and then I think we can, you know, have some fun with where we want to go from there.

But certainly at 8 to 10% we have a lot of reasons to be proud of what we've accomplished and if any of you have been in our full price stores recently or the Club Monaco stores or outlet stores I think from where we were four years ago you're seeing a dramatic change and the customer is obviously voting for.

And you can see that in our sustained comp store performance.

So if we get there this year then I promise you this time next year we'll sit down and have some fun with some new numbers.

Okay.

On the Nantucket store--

Yes.

I haven't been to the Nantucket store yet.

We're offering free one week trips for anybody who understands our guidance.

But is there some sort of a different format there that you'd like to discuss or --

Well, I think the selling space in Nantucket is only about 2,000 feet.

It's in a historic building that we actually bought and you know in keeping with what's appropriate for the community both from store build out as well as merchandise, we try to be very true to the island yet, you know, express the Ralph Lauren point of view.

We opened on Friday last week to a record really breaking opening for that size store.

And all I would say is I think it demonstrates our ability to operate not as a cookie cutter retailer but to adapt so whether it's New Canaan, we're going to open a store later this year in Princeton, and we're going to open a store in other communities like that.

There is clearly a message to our retail but we try to adjust based on, you know, local customer expectation as well as what's appropriate.

And it makes a statement about where we can go with retail beyond large multi-level flagships so it's another brick in the building process.

Okay.

Thanks, congratulations on a year of impressive maneuvering.

Thank you, Liz.

Thank you.

Our next question comes from Virginia Genereux from Merrill Lynch.

Please state your question.

Good morning, and thank you.

Just a couple questions.

First, Nancy or Roger, on the kid's business so I understand I think you said that your 235 to 245 outlook for this year did not include any impact from that integration.

So maybe we could see some dilution like we did with Lauren.

No, I think, I want to be clear.

Okay.

We think the kid's acquisition is going to be neutral in the partial fiscal '05 we're going to own it, so the 235 to 245 does not move.

What Nancy was saying is that all the other guidance about wholesale sales, retail sales, margins, expenses, have not had the kid's impact apply to them even though the net-net will still end up at 235 to 245 with fiscal '06, we believe seeing the significant EPS accretion of 15 to 20 cents in the full year.

But we did not attempt to adjust the revenues, the margins, or any of the detailed guidance that Nancy gave you to support the 235 to 245.

Thank you, Roger.

That's perfect.

Okay.

And so next year as you said, that was part B. It's 15 to 20 cents net accretion so that's after the loss of the kid's royalty.

Everything.

And any financing charge, okay.

Everything.

So it's obviously is a very good deal for us and that's before any incremental strategies that we may be able to apply on a worldwide basis.

That's great.

That's very helpful.

And then may I ask on licensing you're sort of outlook for margins this year, I mean, as I was just penciling, I know your revenue is going to be down so you're loosing some operating leverage that way, but it's still, looks like you're going from in licensing 47% margins or so this year to the kind of midish to high 30s so that implies an increase in your costs associated with running the licensing segments.

Is there --

Actually, I mean that is one conclusion, but that's not the correct one.

The fact is again, with every one of our licenses being different, as we have taken out the Jones royalty for nine quarters, you know, that came through the P&L with pretty pure margin implications.

Other pieces of our licensing business like home that we carry decent expense on as Jerry and Nancy have talked about, the Asia acquisition have brought with it expenses and revenues, it's really a fairly flat expense base with the loss revenue causing the margin rate to change pretty dramatically.

But it is not an increase in licensing expenses or any radical changes beyond that.

Thank you.

And then lastly very quick.

You're growing, your mid-single digit growth outlook for retail.

You talked about 19 stores, so it sounds like you got 7% store growth and maybe some comp help.

So, but some mid-single digit retail revenue growth sounds conservative to me but maybe you're thinking about that extra week you're losing in the fourth quarter.

Is that for this year?

Is that fair?

Well, I think it's a good question, Virginia.

One, we do lose a week, so that's worth something.

Two, we're talking about store growth, but we will continue to prune stores off the bottom that don't perform.

I guess the response to your question about conservative guidance really probably should be discussed around the comp number which we've used low to mid-single digits.

That is conservative based on our run rate over the last couple of years.

It may prove to be too conservative but against a very high comp last year and because we don't have to plan for or buy incrementally to get a better comp than that, it's our technique to help improve turn, manage expenses and deal with the uncertainty of the market plus the loss of the 53rd week and the high comps we're going against.

Time will tell.

It may prove to be overly conservative.

But it's that kind of low single-digit comp that's driving that number.

Great.

Nice jobs and congratulations, Roger.

Thank you.

Thanks.

Thank you.

Our next question comes from Margaret Mager from Goldman Sachs.

Please state your question.

Hi, it's Margaret.

How are you?

Good morning, Margaret.

How are you?

Roger, I want to claim that week-long trip to Nantucket because I thought Nancy's guidance was excellent.

That's the spirit.

You and Nancy will be on the first Piper Cub out of New York.

I understood every word.

It was great.

Let me see.

I think the retail division improvements are really impressive and I'd like to understand a little bit more about the outlook for the next 200 basis points improvement in operating margin.

Where is that coming from?

If you could give me some sense of, you know, the relative contribution among the three segments being the factory outlets, the Ralph Lauren stores and the Club Monaco stores and maybe a historical context?

You know, has there been a bigger improvement in one of those three versus the others?

You know, any kind of sense of how they mix together to impact and drive that operating margin.

Okay.

You know, I'm going to try to answer it two ways, Margaret.

I want to cut it margin against expense and then I'll cut it for you with the three business formats.

If I look at margin versus expense over the last couple of years, I think we've seen the biggest part of the improvement coming out of margin.

We have gotten significantly more professional about planning, allocating, distributing product, our supply chain initiatives as well as a dramatic reduction in promoting.

As a matter of fact, this past May, we pushed back the end of the season sale in our full price stores several weeks because business was so good.

So I would say the bulk of the improvement to date has come more heavily out of margin than probably pure expense.

And I think that over the next 200 basis points I think I would say we're going to get a little more 50/50 in terms of improvement as our systems and investments and infrastructure leveraged against what is now a more aggressive new store opening plan begin to kick in.

You know, I started to use the 8 to 10% as an intermediate goal.

I think it would have been presumptious when we were making no money to use it as an intermediate goal but I think we are now feeling like we can go beyond that in time.

We are seeing good margin improvement, but particularly we've seen a huge margin improvement in Club Monaco, a huge margin improvement in PRC which is our Ralph Lauren stores as we have learned to better sort and plan and I would say they had the distortions in their margin improvement.

I also think that we're going to see in the next 200 basis points a bigger margin improvement in the outlet business because, in fact, we're looking to raise our prices.

We think that some of that product has been going out the door too in expensively and as we've cleaned up our distribution and off-price availability, that's really pushing even more customers into the only place they can find it.

I also think that we have begun to learn how to build stores and open stores on time and on budget and again we'll see some leverage in that but all of our new store growth is focused around Ralph Lauren stores and Club Monaco.

So I think we'll see the leverage coming out of those businesses as we go forward.

Uh-huh.

Thank you.

Would it be fair to characterize, you know, the level you achieved in '04, the 6.2%, that the PRC and the CM are below that level and the factory outlets are above that level at this juncture?

You know, Margaret, at least you're consistent.

Every year you want me to break it out by business and you've asked this 12 different ways.

You've just lost three days off your Nantucket trip.

I think directly that's probably fair but we have lots of things going on for the next year in retail and I would say that, you know, our entire corporation, because as proud as I am of the retail group it's been with the support of design and the manufacturing and logistics and infrastructure and finance, everybody's contributed, everybody's gotten behind us in a way that I think we all feel pretty proud.

We've talked a lot about Lauren but the fact is, we're equally proud of the progress we've made in retail and the avenues it opens up to us on a worldwide basis.

You made a management change there in the retail division.

Can you just talk about that a little bit?

Sure.

You know, Bridget Rhine-Berman after many years here decided that with three kids at home and the demands on her schedule, traveling internationally and what it's going to take to drive this business that she needed to have more personal flexibility, needed to be home more with three kids and didn't think she could keep up the pace.

And so I would say, you know, that was a, you know, long conversation about quality of life that we were sorry to see her go but respect her personal choices.

Our ability to attract a world-class operator like Jeff Sherman who has been long the operating partner at Bloomingdale's through both Marvin Traub and Mike Gould really adds to our expertise in terms of how to operate and run the infrastructure of our business.

The merchandising and strategic direction of retail will really continue to come from Ralph and myself and so there's really no change in the strategy.

It's just, you know, it was a personal decision and we were fortunate enough to be able to track a very sophisticated and experienced operator to keep the car going forward.

Okay.

Well, give Brigitte our regards and we look forward to interacting with Jeff going forward.

Thank you.

Thank you.

Our next question comes from Lee Backus from Buckingham Research.

Please state your question.

Yeah, first congratulations on a good quarter and you've a lot going on and you certainly accomplished it very effectively, Roger.

Thank you, Lee.

We're all very excited.

On your operating profit margins for wholesale they were down slightly as one would expect with everything that was going on in developing the Lauren line.

But maybe you can give us a sense of breaking that down somehow.

Operating margins for the men's wholesale business versus Lauren.

And are you still comfortable with Lauren margins of mid-teens for the year and how will that flow and whether the first quarter margins were as expected?

First quarter?

Q4 margins.

Oh, sorry.

Well I would say, Lee, that you basically have it right.

There's a lot of moving parts within our wholesale margin.

There's Lauren, there's the men's wholesale, there's our collection women's business and really there's Europe soon to be, you know, followed with the kid's business.

As I said earlier, the Lauren business continued to be right on plan in terms of margins, sell-in and to date sell-throughs.

The men's business, you know, continues to, I think in the long-term benefit by a reduction in off-price.

We cut the off-price in the fourth quarter by 30% so that continues to be the right strategy but it has taken margin dollars off the table.

We believe that that the combination of Europe returning to a more normalized level of profitability, Lauren, men's, the 400 to 450 basis point guidance that Nancy gave for wholesale margin improvement for fiscal '05 is the right number.

That reflects a recovery in margin in men's, a recovery in Europe against the parallel costs and all the other things we've talked about as well as Lauren continuing to track both sales and margins on plan.

Nancy also said it does not include whatever the impact of kid's will be in whatever the shortened year will be fiscal '05.

But we think we're on track.

The inventories are spotless in terms of cleanliness and we ended the year including Lauren with the same amount of wholesale inventory we had last year when it was just men's so that really speaks to the quality and level of inventory.

So I think we head into the year feeling pretty good about delivering the 400 to 450 basis point improvement.

Also, could you discuss Japan, any additional plans for consolidating that market or for developing that market?

Well, yes.

We are studying Japan as well as really the whole Pacific rim, Lee.

As you know, we have separate licensing agreements in a variety of the countries including Korea, Australia, Singapore, Taiwan, Hong Kong, China and the Japanese as we've discussed in the past.

Within the Japanese market the 51% ownership of the master license was a first step.

The 20% equity stake we took in our major licensee which is men's, women's and jeans, does not include kid's in Japan, does not include golf in Japan, does not include home in Japan, so that is a complicated but an important part of our future and I think as we are comfortable we'll more clearly articulate where we're going with that.

There's a separate licensee for kid's in Japan?

Yes there is.

Thank you.

Operator?

Yes, our next question comes from Jeff Edelman from UBS.

Thank you, good morning.

Good morning, Jeff.

Roger, could you give us a little more detail on the fourth quarter wholesale shipments?

One adjusting 13 weeks versus 13 weeks and secondly, some insight as to what Europe did in the fourth quarter and really the full year?

Okay.

The fourth quarter for wholesale had relatively no impact from the 53rd week because the start ship date really that drive the quarter which is the 125's, 225's and the 325's, the fact that there's an extra week has very little impact in terms of the wholesale business.

It obviously had an important impact as Nancy said in terms of the retail business because you're getting sales margins but expenses off that and it really doesn't impact the wholesale business.

The wholesale shipments for Europe, if that was your other question?

Yes.

Are slightly off for the fourth quarter mid-single digits to last year.

If I took out the currency impact of that, they were probably down in the low teens to last year on a constant dollar basis.

Okay.

And I assume that the year was also off in the low teen area?

Yeah, I think it's comparable based on an earlier question.

I forget what we saw was lower spring sell-ins reflected in the number I just said with better sell-throughs and therefore the beginning of some reorder business coming through in the March, April, May, time period.

Okay.

Good.

And secondly, since someone else has asked it, since Nancy has given us really such great guidance, I was a little surprised to see the fact that you're going to discontinue quarterly earnings guidance.

Is this, especially in light of the moving parts or is that one of the reasons behind it?

Nancy did take a lot of time and energy today as she always does to try to give you more and more detail and I think over the last three or four years we continue to report in excruciating detail both results and guidance to the best of our ability.

I think what we've said is we want to discontinue EPS guidance starting with second quarter yet I think we've given out all the pieces and parts that are pertinent to try to develop that.

I think the world we're living in, Jeff, with growing operations in women's, soon to be kid's, international, retail, worldwide fluctuating currencies in and out of the P&L, in and out of the earnings makes EPS guidance and the precision of that a very time consuming and complicated exercise.

I think if we've done nothing in the last four years we've demonstrated our ability to articulate our strategies and to be as complete in our explanation about what we're trying to do and then how we do against our own expectations as we can be, and I think we'll continue to do that.

But I just think the level of precision necessary on a quarterly basis is counterproductive for a company who has always tried to run the business with an eye on the long-term strategy yet obviously deliver appropriately for our shareholders in the short-term.

So it's a decision we think is consistent with how we've been operating and the level of detail and communications given and, you know, we'll continue give.

Okay.

Thank you.

Thank you.

Our next question comes from Brian Agnew from Stadia.

Please state your question.

Yes, I just had a quick question on the initiatives that Warnaco is working on with Chaps.

Can you share any color on the expanded distribution for Chaps?

I think that as we said a few minutes ago we're very excited about the partnerships we've set up with Chaps.

We think it has an opportunity to be a very successful and large lifestyle brand.

As you all know we've repositioned that going forward as just Chaps, not Chaps by Ralph Lauren.

Warnaco had been the sportswear licensee.

They are signed up signed up to continue to be sportswear as well as denim going forward and to date they've had terrific response from some of the new distribution partners like Kohl's and others.

And I think if you listen to their guidance for the future, they've talked about Chaps being the largest revenue opportunity they have.

So we've begun to see a very powerful reaction from that new channel relative to product and positioning and what they all think it can be.

We've continued to look for and identify and sign up additional partners within men's and then as I said earlier, expect within a reasonably short amount of time to have partnerships around women's and kid's and home.

So we see it as a very important future potential for our company in terms of licensing revenue.

Is that something you're taking into guidance for next year in the numbers that Nancy shared vis-a-vis EBIT profitability?

You say next year.

You mean '05 or '06?

Back half of '05, '06.

Well I think we haven't given any guidance for '06 other than the kid's acquisition.

I think when we give fiscal '06 guidance I think it will include the impact of the Chaps initiatives.

I don't think there'll been a significant impact in our fiscal '05 as most of that product is really designed to be shipped into the spring season of next year.

Okay.

Thank you very much.

Thank you.

Our next question comes from Marie Driskell from Standard & Poor's.

Please state your question.

Hi, thank you.

I'm curious about your guidance on the retail comps because when I look at your fourth quarter comps were twice the full year comps.

Yeah.

So it sounds like you ended the year on very strong momentum.

And, you know, can you talk about how you were doing in April and May?

Well, Maria, I think as we've said our comps last year in the year were obviously very strong.

And you've correctly identified they seem to have accelerated as the year went on in the third and fourth quarter so that's all very exciting.

Our business continues to be very strong this spring but we've taken a cautious approach to the balance of the year in terms of planning the business based on those macro economic factors that seem to be hanging out there including oil issues, economic issues, terrorists and political issues.

Having said that, we believe if the macro economic issues do not impact us we probably can expect the businesses to perform better than the current forecasts.

Obviously as we end the first quarter and we have a chance to talk with you in the summer about how we're doing we can all look at that together and see how we feel.

Okay.

And could you just further elaborate on the Macy's West test?

You mentioned that you were rolling that out to seven other retail partners.

How many stores in total is that being rolled out to?

You know, I don't have that number.

What I think we've said is we're trying to do two with Federated, two with May and two with Dillard's and Marshall Fields.

I don't actually have the door count at my fingertips but if that's important to you, you can follow up separately with Nancy or Denise, and they'll get it to you.

Okay.

Could you just further explain to me what it is that the test is doing?

Okay.

Well, we have said, you know, in the past that one of the keys to the success of our business is the ability to offer a broad assortment of merchandise presented in a lifestyle manner supported with strong selling and marketing.

I think it was our belief over the last couple of years that had begun to break down in many of the department store doors to the point we were either being bought just with basics.

We had not felt like our presentations were as sharp as they should have been and certainly as department stores struggled in the last three or four years there had been pullback in staffing to the point of borderline self-service.

We felt in order to put a stake in the ground and to prove to ourselves and to the department stores that properly executed we could not only, you know, protect our business but drive a significant increase.

We sat with Macy's West because we thought they'd be a good partner and said if we bought the merchandise differently, renovated and rebuilt the shops and presentations, focused on what is the right staffing level and developed some different type of marketing initiatives to communicate with their customers, we felt we could turn a negative trend into a positive and drive dramatic increases because we thought the product was just that good.

We were seeing the results in our own retail stores, obviously weren't seeing it to the same extent in department stores.

As we talked about in the past we took a pretty negative trend and now have turned it around through the fall, holiday and into spring to the kind of increases we've just talked about that are so compelling we've had the other major department store groups kind of lining up to want to participate in it.

Our point of view is we're willing to support the department stores, but we're going to begin to trademark down money.

Right.

Which really does not accomplish much in terms of full price selling and begin to funnel it into these initiatives which have now proven to be successful.

Thank you.

You're welcome.

Operator, it's Nancy, we have time I think for one more call.

Our last question comes from Jennifer Black from Jennifer Black and Associates.

Please state your question.

Good morning.

Good morning.

I have a few questions.

My first question is on the men's side and I wanted to know if your great cotton picay program was one of your strongest areas of your men's?

It really was.

The marketing that we started late spring, summer of last year, really Ralph got behind in a very compelling way.

The colors, the change in silhouette have all driven a huge increase both in men's, women's and kid's in that iconic product.

At the "Create Your Own Gift Pack" that's now on your Web site, I wondered if that, did you had that last year?

And if you think that that will be meaningful for Father's Day because we are in such a strong classic cycle will and I also wondered how Polo.com has been doing?

I'm grad you asked, Jennifer.

Actually, the "Create Your Own" was a brainchild of David Lauren and he should get full credit for that because he really authored it and sponsored it.

It's turned into a huge part of Polo.com's business as people have really gravitated towards that and we now have it in Oxford shirts and other products.

Polo.com is having a phenomenal performance.

As strong as our retail performance is year-to-date, Polo.com is up 85%, and we are really seeing tremendous results there across all product categories.

So obviously in conjunction with our own retail performance, our direct to consumer initiatives seems to be resonating with the customers very well.

And did you have that "Create Your Own Gift", was that a year ago?

I think it started right around this time last year so we may be coming up on an anniversary of sorts.

But it should be very strong for Father's Day.

Yeah.

Okay.

And then lastly, Roger, I know your sourcing talents and I just wondered if there was any impact with the quota changes for any parts of your business?

Well, I think we talked before, Jennifer, we believe while still uncertain that post January 1, '05 the likelihood is that it should be a benefit to us.

I think that we have long-term relationships with our key suppliers so we don't believe that the potential October, November, disruption will impact us.

I think if the quota changes that are currently legislated for January 1 stay in place, that should be a benefit for us in addition to helping the kid's acquisition as that comes full circle as well.

Okay.

Great.

Congratulations and thank you.

Thank you.

I would just say in summary it's been a long call.

Obviously the kid's news is very exciting for us but it comes on the heel of, you know, many exciting things and we stay committed to fiscal '05 being the breakout year to reap the benefits of some of this.

We look forward to reporting later in the summer on how first quarter's proceeding so thank you all for your interest and your time on what's been a long call.

Margaret, I'll be calling you about our Nantucket trip.

Thank you.

Ladies and gentlemen, this concludes our conference for today.

Thank you all for participating and have a nice day.

All parties may now disconnect.