雷夫·羅倫馬球 (RL) 2010 Q1 法說會逐字稿

Good morning and thank you for joining the Polo Ralph Lauren's first quarter fiscal 2010 earnings conference call.

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

(Operator Instruction) At the end of the presentation, we will conduct a question-and-answer session.

Now, for opening remarks and introductions, I'd like to turn the conference over to Mr.

James Hurley.

Please go ahead, sir.

Good morning and thank you for joining us on Polo Ralph Lauren's first quarter fiscal 2010 conference call.

The agenda for the call today includes Roger Farah, President and Chief Operating Officer, who will give you an overview of the quarter and comment on our broader strategic initiatives.

And then, Tracey Travis, our Chief Financial Offer, will provide operational and financial highlights from the first quarter, in addition to reviewing our expectations for the remainder of fiscal 2010.

After that, we will open the call up for your questions, which we ask that you limit to one per caller.

As you know, we'll be making some forward-looking statements today, including our financial outlook.

The principal risks that could cause our results to differ materially from our current expectations are detailed in our SEC filings.

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

Thank you, Jim.

And good morning everyone.

Today, we reported first quarter results that I believe demonstrate the focus and responsiveness of our organization to very challenging global consumer spending trends.

Our first quarter revenues declined 8% and our earnings per diluted share were 18% below prior year period, when we reported record first quarter results.

I believe, however, the quality of our results tell a different story.

As many of you know, we have prepared for weaker consumer demand trends for some time.

Nearly two years ago, we took proactive measures to reduce shipments across our various channels of distribution.

So, even though our shipment volumes are down, our sell-throughs and margin trends are stronger and we continue to gain market share at our leading wholesale accounts around the world.

Our commitment to product development and the clarity of our merchandising initiatives, which focus on targeted assortments that offer outstanding enduring value in unique channels of distribution have also been important contributors to our market share gains.

The improvements in our first quarter gross profit margins speak not only to our improved sell-throughs but also to the progress we've made to diversify our product distribution mix and to develop our international presence.

These efforts have been supported further by our sophisticated supply chain and sourcing organizations, where we are leveraging our global scale and becoming more nimble in responding to near-term consumer demand trends.

Our operating expenses for the quarter were better than expected, even as we maintained our investment spending.

We executed against decisions to align our expenses with more challenging sales trends.

And we are using those savings to fund other high growth, high margin opportunities.

This delicate balance between near term market realities and our commitment to our long-term growth objectives is a defining characteristic of our organization and is even more critical in such unsettling market conditions.

And once again, we improved our already impressive financial condition, ending the first quarter with an excellent balance sheet, characterized by than more than $1 billion in cash, while we continued to invest for the future.

The pace and sequencing of our strategic growth initiatives; One, those being international development; Two, our direct to consumer expansion; And three, the development of new products; has been a key component to the consistency of our historic sales and earnings performance.

Resulting in a more than doubling of our net income and a nearly quadrupling of our operating cash flows over the last five years.

It as also helped to offset some of the impact of lower domestic demand trends we've experienced over the last year.

And we continue to have a compelling long-term growth trajectory ahead of us.

This is not meant to minimize the progress we've made on our past efforts, such as assuming control of and growing our childrenswear and Lauren products or the developing of Europe in to a $1 billion plus market.

We still see considerable opportunities for childrenswear and Lauren, particularly internationally and Europe still has enormous development opportunities in front of it.

For our current and future efforts, we are concentrating on accessories in the Asia Pacific regions, representing categories and geographies where we believe we are significantly under penetrated.

We are fortunate to have strong leadership in place to capitalize on these opportunities.

In Japan, we're making progress, immersing our retail partners in the world of Ralph Lauren.

In a context of weak market trends, Japanese retailers are responding favorably to the authenticity of our brand and our products and our unique ability to engage customers by tiering merchandise, from the aspirational to the heights of luxury.

Our efforts are greatly facilitated by the fact that we now have all core power categories managed by our Japanese leadership team.

We continue to invest in new technology and global processes to aid the development of this critical market, which we will complete the integration of three stand-alone businesses into one by the end of the year.

And we are actively preparing for the transition of our wholesale and retail distribution in southeast Asia.

We have drawn from our global talent pool and Company-wide best practices to build teams, systems and processes that not only prepare us to assume direct management of this region on January 1, 2010 but will also support our future expansion efforts.

By the end of fiscal 2010, we expect to have more than 200 locally-based employees building our Corporate and operational infrastructure and more than 500 store-line employees.

This is in addition to our 500 person manufacturing group based in southeast Asia.

So, we will have a significant presence and talent pool that is critical for this region.

As we highlighted last quarter, we've developed a compelling long-term growth strategy for southeast Asia and China in particular.

I'm sure you seen the recent news flow from many luxury retailers regarding exceptional growth that they are experiencing in China.

Many of these brands are far more developed in this region than we are at this time.

So, we are clearly very excited about the significant opportunity that is available to us.

Speaking about our international development, we recently welcomed Hubert Joly, President and CEO of the Carlson Companies, to our Board of Directors.

We believe Mr.

Joly's vast experience in hospitality and customer service on a global scale will provide us with youthful perspective as we continue to strengthen and expand our business around the world.

Regarding our direct to consumer efforts, we continue to focus on leading domestic and international markets, both with our directly operated stores and for our various licensed locations.

As you saw in today's release, same store sales trends for our retail segment remain soft, although the size of the comp store decline improved from last quarter.

The weakness is concentrated in the United States.

Our international retail comps are positive in constant currency.

Our retail segment is up against several years of consistently strong comp growth, a challenge in of itself and one that is obviously intensified by the current economic conditions that have had a negative impact on consumer traffic, conversion and average transaction size.

Ralphlauren.com, which is an increasingly important component of our direct-to-consumer strategy, continues to grow at double digit rates, Indicating that our domestic customers clearly have a desire to shop.

In addition to strong international performance, improvement in retail profitability during the first quarter demonstrates effectiveness of our efforts to respond to the rapidly evolving external dynamics.

We are managing our expenses to be in line with lower sales and the fourth quarter restructuring efforts have helped to bolster our profits.

We recently announced we will continue our relationship with the US Olympic as an official outfitter for the US Olympics and Paralympic teams for 2010 and 2012 in Vancouver and London, respectively.

Associated products for men's, women's and children will be available for sale in our own retail stores at ralphlauren.com, in US Olympic shops and at selected department stores.

In addition to being an enormous source of pride for our Company, our association with the US Olympics provides us with a very compelling exposure to customers around the world.

The tremendous media coverage of the Beijing Olympics exposed our brands to an important emerging customer base for us.

Just as the association with Wimbledon has done for us in Europe.

Those impressions will become even more impactful as we develop our wholesale and retail distribution in China, over the next several years.

While it is difficult sit here today and report lower sales and earnings, we expected this dynamic emerge and planned carefully for it.

Although industry wide sales trends make it hard to be optimistic about the outlook for consumer spending, our team is executing well and we are very much in control of the controllables.

We remain intensely focused on aggressively pursuing market share gains across brands and region, balancing our characteristic prudence with strategic opportunitism.

We believe the sophistication of sourcing, supply chain and logistics operations will allow us to better read and react to the change in consumer behavior than ever before.

Enabling us to chase goods if demand increases or to reduce exposure if demand slackens.

Regardless of the near-term market dynamics, we continue to have a clear, compelling growth strategy ahead of us.

And our Company has a longstanding track record of success.

We intend to emerge from this recession as even a stronger organization.

So, before I turn the call over to Tracey, I think Ralph and I would like to thank all of the employees for their continued hard work and flexibility in navigating through this difficult environment.

We are extremely proud of and grateful for their accomplishments and I'd also like to thank the shareholders for their continued support.

And now, I'll turn it over to Tracey.

Thank you, Roger.

And good morning, everyone.

For the first quarter, consolidated net revenues were $1 billion or 8% below the prior year period.

The decline in revenues primarily reflects lower planned domestic wholesale shipments and a 9% reduction in global same store sales at our retail segment.

The net negative impact of currency translation on our total reported revenue growth for the quarter was slightly more than 2%.

Relative to the guidance we provided you in late May, our wholesale revenue performance was in line with our expectations.

While our retail comps were better than the mid teens decline we originally anticipated.

And that was primarily as the result of stronger performance in our international stores, as Roger just mentioned.

Our gross profit rate increased 140 basis points to 58.7% in the first quarter, which was achieved on top of a 200 basis point gain in the prior year period.

The net unfavorable affect of foreign currency translation on our gross margin rate was approximately 20 basis points.

The expansion in the gross profit rate reflects improved wholesale and retail segment margins, particularly in Europe and Japan.

In addition to strong sell-through performance, the higher gross profit rate is also a result of the supply chain initiatives, which have allowed us to move more product via lower cost modes of transportation and have therefore, yielded freight savings on our inbound inventory.

Our supply chain organization manages the sourcing of our product from approximately 45 countries and the shipment of that product to nearly 80 countries.

As we have assumed more direct control over various product categories and regions, we are increasingly capitalizing on our scale and our improved global coordination capabilities to enhance profitability.

Operating expenses in the first quarter were approximately 2% below comparable period last year and modestly better than the guidance we provided on our last earnings call.

The lower operating expenses reflect the benefits of our focus on expense management and the restructuring efforts we implemented and discussed with you during the fourth quarter of fiscal 2009, as well as the net favorable foreign currency effect.

However, these benefits were mostly offset by incremental investment in newly acquired and emerging businesses that support our long-term strategic growth initiatives.

Operating income for the first quarter was $117 million, 20% below the prior year period.

And our operating margin for the quarter was 11.4%, 180 basis points below that of the first quarter of fiscal 2009.

The declines in operating income and the operating margin rate were primarily due to lower sales and higher operating expenses associated with our business expansion, that were partially offset by the higher gross margin rate and Company-wide cost control and restructuring initiatives.

Net income for the first quarter of fiscal 2010 declined 19%, $77 million and net income per diluted share was $0.76, which was 18% below the comparable prior year period.

The declines in net income and diluted earnings per share principally relate to the lower operating income I just discussed, that were partially offset by effective tax rate of 33% in the first quarter of fiscal 2010, compared to 35% in the prior year period.

The lower effective tax rate is primarily a result of a favorable geographic mix of income.

Moving to our segment highlights for the quarter, I will begin with our wholesale segment.

Where sales declined 10%, to $520 million and were down 7% in constant currency, primarily due to lower planned shipments from most of our domestic products, including American Living.

The decline was partially offset by incremental revenues related to our childrenswear and golf apparel in Japan.

The lower first quarter shipment volume to US department stores are a continued response, as I am sure you know, to declines in consumer spending across the channel.

From a category perspective in the US, our childrenswear product has been the most resilient and we continue to grow product categories, such as dresses and footwear.

Other strong performers during the first quarter were our Polo men's sportswear, our Lauren Jeans Company merchandise and Chaps.

In Europe, our brands have performed well in a challenging environment.

During the first quarter, we experienced good retail sales growth and year-over-year growth at most of our largest European wholesale accounts.

In terms of product and geographic trends, they remain consistent with those we highlighted last quarter.

Mainly, womenswear performance remains particularly strong.

The UK, United Kingdom is our best performing region and trends in Spain remain weak.

With respect to our recently launched Lauren product in Europe, sales are meeting expectations.

Fashion capsules are outperforming more classic merchandise and shops in larger, more affluent locations have performed -- have outperformed smaller, more remote locations.

The reception to Lauren in Germany and Switzerland has been particularly encouraging.

In Japan, sales of our core products continue to be challenging across the board, coinciding with broader Japanese department store trends.

That said, some innovative programs, such as outposts that create your own Polo products, been contributors in generating incremental sales in this region.

Later this month, the World of Ralph Lauren will be featured in all windows of Isetan Shinjuko, one of the country's premier department stores and there will be a coordinated outpost strategy focused on our various men's, women's and childrenswear products, on the highly trafficked, main floor and throughout the store.

Our first quarter wholesale operating income was $76 million.

And the operating margin rate was 14.6%, compared top 18.7% in the fist first of fiscal 2009.

The lower wholesale operating margin rate was primarily a result of lower domestic shipment volumes and higher expenses associated with the integration of our Japanese childrenswear and golf apparel operations, which more than offset an improved wholesale gross profit margin.

The net unfavorable impact of foreign currency translation also had an approximately 50 basis point impact on the wholesale operating margin.

For our retail group, first quarter sales declined 6%, to $463 million.

Overall comp store sales, which now include ralphlauren.com, were down 9% or 7% in constant currency, reflecting a 25% reduction at Ralph Lauren stores; a 4% reduction at factory stores; and a 15% reduction in Club Monaco.

In addition to lower overall traffic and transaction, the continued reduction in tourist travel in most of our major markets and particularly, in the New York metro area, continues to have a negative impact on our same store sales performance.

As Roger mentioned earlier, ralphlauren.com has continued to grow revenues in this environment, with sales rising 14% in the first quarter, driven primarily by strong double digit growth in customer traffic.

Childrenswear, accessories and footwear products posted the strongest sales gain during the quarter and personalization features, such as our create your own programs, have been particularly successful for ralphlauren.com.

With respect to our European retail operations, the United Kingdom and the Benelux countries were our top performing regions during the first quarter for our Ralph Lauren stores, while France and Italy continue to be challenged with significantly lower tourist traffic.

Our factory stores are benefiting across the board from broad based strength throughout Europe, although the United Kingdom, again, continues to post the largest comp growth in the region.

The UK stores are benefiting from an increase in tourism among continental Europeans.

We opened two directly operated stores and closed three stores during the quarter, ending the quarter with 325 directly operated stores globally.

Our retail segment operating income grew in the first quarter to $70 million, which was 4% higher than the $67 million of retail operating income in the first quarter of fiscal 2009.

The retail operating margin was 15.1%, 150 basis points greater than the prior year period.

The growth we experienced in retail operating income and the expansion in margin rate was a result of strong international performance, disciplined expense management and the benefit of restructuring actions that we took in the fourth quarter of fiscal 2009, all of which more than offset the decline in retail segment revenues.

Licensing royalties for the quarter were $41 million, 12% below the prior year period, due to a decline in Japanese product licensing revenues related to the childrenswear and golf apparel acquisition and to lower fragrance licensing revenues.

Operating income for our licensing segment, however, increased 6%, to $26 million in the first quarter.

The growth was primarily related to lower costs associated with the transition of formally licensed Japanese products to our wholesale segment.

As Roger highlighted earlier, we ended the first quarter with more than $1 billion in cash, cash equivalents and short-term investments, compared to $820 million at the end of fiscal 2009.

Net of debt, we had $671 million in cash and short-term investments at the end of the first quarter, a 62% increase compared to the $414 million, net cash position we had at the end of fiscal 2009.

As many of you know, we recently completed a partial tender offer and repurchased approximately 91 million euro of our 300 million euro note.

A transaction that settled in our second quarter and allowed us to leverage our cash balance to retire this portion of our debt at a discount.

We expect to record an approximately $4 million gain related to the transaction in our second quarter.

We ended the first quarter with inventory up 8% from the same period in the prior year.

Excluding noncomp Japanese childrenswear and golf inventory, which we've referenced over the last three quarters, our consolidated inventory was up 5%, as we transitioned distribution of these products during the second quarter of last year.

This is the last quarter we will have noncomp inventory associated with the Japanese childrenswear and golf apparel.

The remaining portion of the increase in inventory is primarily related to a shift in the timing of receipts associated with supply chain cost savings initiatives.

This includes a shift in mix from air freighting a portion of our fall receipts that would typically be delivered in the second quarter, to taking receipt of those goods in the first quarter and shipping them via ocean in order to monetize the meaningful freight cost savings.

Due to continued improvements made in the planning calendar and to the order flow to factories, we are very comfortable with a cost benefit of pursuing supply chain and logistic savings opportunities that still allow us to maintain the currency of our global inventory.

This does, however, increase the in-transit time of a portion of our inventory by a few weeks.

We spent approximately $18 million on CapEx during the first quarter to support new retail stores, wholesale shop installation and other infrastructure investments.

We are now six weeks into the second quarter of fiscal 2010 and trends generally remain consistent with those in the first quarter.

As a result, we along with our wholesale partners, are continuing to plan shipments and receipts carefully.

In this morning's press release, we outlined our expectations for fiscal 2010, which I would briefly like to review.

With respect to our sales outlook, we continue to expect consolidated revenues to decline by a high single digit rate for the full year, which includes a net unfavorable foreign currency translation affect.

For the second quarter, we expect both wholesale revenues and comp store sales to decline by a low double digit rate.

I'd like to remind you that we are comparing against our strongest retail comp performance versus last year in the second quarter.

Due to sustained investment in our long-term growth initiatives, we currently expect operating expenses for the second quarter to be modestly below those in the comparable prior year period.

As a reminder, we expect investment spending related to the development of our southeast Asia operations to ramp up more meaningfully in the third and fourth quarters of fiscal 2010, as we prepare for the full transition of this business.

Of course, we remain focused on managing all aspects of our operating expenses and working capital to appropriate levels for the current global environment.

Our first quarter results demonstrate our ability to take definitive action in face of significant challenges.

We believe we've made the best investments that balance the near-term market realities with our commitment to our long-term growth objectives.

We are confident in our product and geographic diversification strategy, the power of our targeted brand portfolio, the dedication of our global teams, the strength of our balance sheet and our ability to continue to deliver strong profitable growth over the long-term.

And with that, I'll conclude the Company's remarks and we will open the call up for question and answers.

Operator, could you assist us with that please?

(Operator Instructions) Our first question today will come from Omar Saad with Credit Suisse.

Good morning.

It was a very nice quarter.

Thank you.

Could you guys go into a little bit more detail and help explain the mechanics of some of the supply chain initiatives and how you expect that to work out?

Or use some anecdotes to explain how that's going to translate to higher gross margin.

Obviously, the gross margin this quarter was phenomenal.

Thanks, Omar.

Yes, there are a number of different initiatives and we actually started talking about these a little bit last year at a very high level.

Calling out the fact that we were working on supply chain initiatives.

Those being, really trying to consolidate our orders in overseas at the factory base, so we can benefit from pooling of shipments and therefore, saving freight savings.

We talked about the fact that we are trying to, in our planning calendar and have been successful at, improving the planning calendar, which allows us to receive goods from factories earlier and boat those goods, as opposed to shipping those goods.

And a variety of other things that have really manifested themselves in terms of benefits this year as it relates to margin.

With the evolution of our brand and the fact that we now control more of our brands, this really has been beneficial to us in terms of pooling of resources, pooling of inventory and allowing us to realize some good savings in this area.

Omar, I think I'm going to add to Tracey's remarks because it's an important issue and it obviously comes through the P&L in a variety of ways here.

As Tracey said, we have a very complicated manufacturing and global distribution system that allows us to manufacture product in 45 countries and turn around and ship it to 80 countries.

And so, the classic thought around distribution and logistics, I don't think, has really been looked at the way we developed.

And if you look at a three month delivery window for fall, so that's usually June, July and August, usually that first month, which is the heaviest piece, is historically air shipped.

Because you have the shortest time from design to manufacturing and then, the ratio of air to boat turns a little bit different in the second month and the third month.

We've set up really what's an air traffic controller concept in Asia.

So that at the last minute we can decide, depending on need and depending on what stage of manufacturing we're in, whether to get the savings off of boat or whether air shipments are needed.

And it allowed us to shave dramatic costs out of the transit line of the margin.

So, it's a concept that's in place and should pay benefits for us as we continue to move forward and try to service distribution over 80 countries.

Did I put you to sleep Omar or is that enough?

Next question.

The next question will come from Liz Dunn with Thomas Weisel.

Hi, good morning, let me add my congratulations.

I also have a question on supply chain.

I was actually just in Asia last week and at some of the factories that manufacture.

And first, just a comment.

They were complimentary on the things that you were doing and called you out as one of the more forward thinking direct importers.

So, congrats on that.

As it relates to the product costs, do you see an opportunity for cost to go lower, some of the -- outside of just what your own initiatives are, just because of the market has changed and demand is down for global manufacturing?

Yes, I think it's a good call out, Liz.

First, I have to give our people, Jackie and her team and our supply chain and manufacturing people, at lot of credit.

We are, I think, on the cutting edge of new thoughts and ways of handling it.

Partly out of need, multiple brands and countries, at multiple price points have forced us to be incredibly good at this.

But I also think our partners in Asia and around the world have been receptive to new ways of thinking about this.

And so, it's really been a quite fascinating collaboration.

I think over the long haul, the opportunities come out of both logistics and distribution breakthroughs but I think it also comes from cost of goods.

There is no doubt with worldwide demand being down, that we are able to enter discussions with our partners about where we can look to get cost of good savings appropriately, without at all diminishing the quality.

And that's whether it's a high end product or whether it's something for a Kohl's or Penney's.

And I think our team has been able to read that and make the adjustments, whether it's in raw materials or the cost of production or ultimately the cost of transportation.

I think that's why, Tracey remarked earlier, we were up 200 basis points last year in the first quarter margin and again, I think 140 basis points this year.

Those are pretty startling numbers given the difficult market that existed last year and again in this quarter.

And I think it speaks to the cost of goods, the supply chain initiatives and I think improved sell-throughs.

Selling in the right amount of goods and getting the sell-throughs at a more healthy level, even as the customer is contracting a bit.

So, I appreciate that call out by you.

And our next question will come from Bob Drbul with Barclays Capital.

Good morning,.

Hi, Bob.

Roger, the question I have, on your retail stores, can you talk a little bit more around any geographic call outs on the full line Ralph Lauren stores, whether the New York stores are really weighing you down or any additional thoughts you might have in terms of the trends of the business there?

Sure.

I would say that our retail stores, first and I think again, Tracey referenced this, performed -- on a comp currency basis, we had a comp increase internationally.

So outside the US, for one, has performed better.

Even within that number, those cities that have historically had the high tourist businesses are suffering a bit.

So where in the past, we've gotten heavy tourist action in a Paris or Milan, those are a little softer.

The rest of the fleet has been quite good.

Quite frankly, with the exchange rate in England, meaning a weaker pound, they hare gotten a tremendous amount of continental Europe tourist business, which has helped both the full priced stores and the outlets.

Here in the United States, I would say those stores that have also had heavy tourist business are suffering the most.

The actual year-over-year tourist decline that we can measure in those gateway cities is in about the 30% range.

So, it's one part the domestic customer and it's a second part significant falloff in the international tourist that the gateway cities enjoyed in prior years.

So, we think the nontourist stores are performing reasonably well in this environment.

But with New York being a pretty dense part of our geographic footprint, we're feeling it here.

Does that help?

And our next question will come from Kate McShane with Citi Investments.

Hi, good morning.

Just wondering if you could break down how much of your inventory growth during the quarter was from the shifting in timing of some of your deliveries and how much was from the Japanese business?

I'm not sure, Kate, we can do that, I think Tracey did point out that the Japanese incremental business was about 3%.

4.5%.

4.5% excuse me, of the incremental.

The extra in-transit, as we owned the product that we spoke about earlier, boat versus air was a piece of it.

And I think the rest is scattered around in smaller numbers but I don't know that I could give you that off the top of our head.

And our next question will come from David Glick with Buckingham Research.

Yes, good morning and congrats on the quarter.

Roger, a question on value and sometimes value can also mean price, it can also be a lot of other things.

Offering more value has become a big push across the spectrum of the retail and apparel industry, from discount to luxury.

And I'm sure that some of your retail partners are clamoring for you to provide them more value in the assortments.

And I'm just wondering, how you are approaching that important issue across the spectrum of your business in order to drive sales while still maintaining the integrity of your brand and your profitability?

And then, just if you could give us a quick update on the timing of the handbag launch in department stores?

I would appreciate that as well.

Well, let's start with the value question.

Quite frankly, one of the benefits of our Corporation is that we've got a tiered brand portfolio that allows customers to merchandise within that.

We can do that on our own stores, by choosing to distort either a blue label or black label versus a collection in times like this and our customers can do that.

We are very proud of the collection luxury shop that just opened at Saks Fifth Avenue.

It's the best of the best.

But we will also open, in September, a blue label wholesale distribution for the United States for the first time with Sax.

So, their customers will be able to pick from a collection assortment or a black label assortment or now a blue label assort.

So, part of the way we respond to value with our wholesaler retail is really in our ability to mix different levels of product offering.

Second, within the brands and within the labels, there's a wide range of choice in terms of price points that can be assorted to reflect location, urban, suburban or different geographies.

So that gives flexibility as well.

And I would say the whole merchandising team here, lastly, is very conscious of the value question.

And I think we've looked at where appropriate key price points can be emphasized.

And have gotten behind in a way that I think gives the customer a very very comfortable level of, depending on the label and price, what they're getting versus what they're paying.

So, I think we've approached it in multiple ways.

I think the customer that is looking to buy at a lower level has an opportunity and those that are still looking to buy at the highest level, I think, will like the full products quite a bit.

I'd like to hold off on the handbag or accessory questions until maybe the next call in November.

I think that would be the appropriate time for us to give you a more complete update on accessories in general.

We've spent a lot of time talking about Asia and I think we'll give you a robust feel for that that next call, if you don't mind.

And our next question will come from Christine Chen with Needham and Company.

Thank you and congratulations on a good quarter in a tough environment.

Thanks Christine.

I was just wondering if you could comment on how you're feeling about inventory at your wholesale customers?

They certainly have been cutting back and cutting back.

And I know you've been aggressively managing your inventories there.

But is there a point in the second half of this calendar '09 year where perhaps, inventories have been cut too much.

Well, I think that's a question we all are trying to wrestle with.

I think the wholesale accounts are buying products now against a trend that has not really changed since the middle of last fall.

And while I think we'll see what July looks like when they report later this week, I dont' know that July is a real indicator of what fall will be.

I think the retailers will continue to order cautiously against reduced sales trends and try to get better sell-throughs, better margins and better turns.

Until the customer really dictates that they're in a different mindset.

Having said that, what we've tried to do and as we've talked about in our prepared remarks, the last couple of years, we've tried to work with them in our planning to make sure the sell-in is appropriate, which have improved our sell-throughs and our margins, both for us and for them.

And I think that's well known and well acknowledged.

I think the other thing we're trying to do is develop this response capability that allows us to chase good selling items or trends on a much quicker cycle than in the past maybe we could have accommodated.

And I think that is beginning to reflect itself in chase orders that, I think this fall and into next spring, should help us.

But I think until the customer comes back in a more rigorous way, I think wholesale retail is going to be a dynamic about getting the supply and demand in alignment, which I think is a healthy thing.

Next question.

Our next question will come from Jeff Klinefelter with Piper Jaffray.

Yes, congratulations, as well, everyone on a well managed quarter.

A question about Europe wholesale versus US.

Can you give us any more color with respect to your outlook if terms of growth rates, what you're expecting out of Europe on a constant currency basis versus the US market?

And then any more, Roger, that you could share on the anticipated margin structure of Europe and Asia versus the US?

It seems pretty compelling in terms of the mix benefiting your margins as Europe continues to grow.

And then just lastly, your tax guidance for the year at 35%, a little higher than this quarter.

Does that imply that you're expecting the mix of international/domestic to change for the balance of the year?

All right, well I'm going to try the first two and Tracey will try the third.

Our wholesale business in Europe has continued to be strong.

We continue to pick up market share.

It is not a question of new distribution.

And as you know, we've talked in prior calls, the distribution in Europe is about 50% specialty door and about 50% large department store.

And quite frankly, we've come off a strong spring in both cases.

So, while we planned the business in Europe for modest growth in a constant currency basis, I think the sell-throughs and the market share gains and our performance does gives us some optimism about our ability through the balance this year and into spring, summer of next year to continue to pick up share.

I don't see the same pull back by the customers for our products in Europe.

I think parts of Europe, as we all know, are suffering economically but we continue to move through that both in our men's, women's, kids.

And with the new Lauren business, we're feeling very good about it.

I think in the United States, as I said earlier to Christine, I think until the retail sales performance picks up, I think our domestic customer base is going to continue to be cautious.

The margin structure, quite frankly, in wholesale and retail is higher internationally than domestically.

The amount of sale activity is carefully controlled in most international countries.

Full price sell-throughs are higher.

And in some cases, our global pricing on same items allows us to make a bit of a higher initial mark.

So all of that dovetails with our overall strategy of growing the international businesses.

And while it's complicated to do that, I think it does add to the margin growth.

And I think you saw some of that over the last couple of years and I think you've seen some of that in the first quarter, as we continue to hopefully benefit in Europe and grow our international Asia Pacific region, I think that should continue to drive margin opportunities.

Tracey?

With respect to the tax rate, what we had called out before and we talked about on our fourth quarter call, was the fact that we were expecting and we experienced in this quarter a negative impact from exchange rates for the quarter.

And we were expecting that for the full year.

We had a little bit of improvement as it relates to exchange rates and obviously, our international business performed better.

Therefore, we had a benefit from geographic mix related to the tax rate.

If those trends continue, we'll end up with a better tax rate for the full year.

But right now, our forecast is consistent with what we had provided in the fourth quarter in terms of mix of income.

And our next question will come from Adrianne Shapira with Goldman Sachs.

Thank you.

I was wondering if you could help us on the investment in Asia.

It sounds as if a meaningful ramp in the third and the fourth quarter.

Perhaps, quantify any sort of potential dilution coming come that investment?

And then the second, it sounds as if this perhaps, was the first quarter that rl.com was included in the comp calculation.

Perhaps, give us a sense of how much that added to the comps?

Thanks.

Well, Adrianne, with respect to the investment in southeast Asia, we haven't, other than that your point, talked about the fact than it is meaningful.

We have not talked specifically in terms of what that is.

It think you can expect, as we've called out, expenses of slightly better in the first quarter and expectation of slightly better in the second quarter.

In the third quarter, when we see a ramp-up in southeast Asia, we will not be experiencing that.

So, that's just a little bit of a flavor.

There will be a significant ramp up in the third and fourth quarter.

Roger mentioned the amount of people that we are bringing on board, the office investment that we're making, the information technology investment that we're making.

So, all of that contributes to the general investment in southeast Asia but we haven't given a specific number as it relates to that.

In terms of Ralph Lauren Media, the comp performance in the quarter was down 9%.

Excluding Ralph Lauren Media, the comp performance was down 11%.

Our next question will come from Evren Kopelman with JPMorgan.

Thanks, good morning.

A question on the operating margins in the retail segment.

It was really impressive that they were up 150 basis points on a down 9% comp.

So, there with two questions there.

One, you highlighted the international comps being positive.

Can you talk about the margins in the US, were they down actually in the quarter or were they up as well because of the restructuring actions?

And then, the second question is, can we expect a similar dynamic in the second quarter on a slightly worse comp expectation?

Yes, well, ket's talk for a minute about how we plan our retail business.

Coming off the third and fourth quarter, comp declines that you all know about, we had no reason to believe first or second quarter of this year would be significantly different.

Obviously, when we hit the middle of September last year and the businesses changed radically, we'll see how we fair against those numbers as we go around the horn.

There is an expectation that against those weaker third and fourth quarter comps, the comps will begin to optically look better but we have not planned for an improvement in consumer spending, really, in the plan as we've got it currently constructed.

I think the operating margins in retail were impressive in the first quarter.

To experience that kind of comp decrease and end up with a higher operating profit than last year, I think, probably puts us in unique company.

It was a combination of better merchandise gross margins.

Some of that's mark up.

Some of that's reducing the buy against reduced sales, which allowed for better sell-throughs.

And in the end, I think it was also the expense work we did in the back half of last year, where we took aggressive action to align it with the sales trends we were seeing and we were expecting to get.

I think all in all that added up to a pretty remarkable first quarter, supplemented by better results internationally than domestically.

So, when you put all that together and you put the brick and mortar business down but the online business up.

I'm very pleased with the fact that we actually ended up with higher operating income in the quarter than this time last year.

And our final question will come from Jennifer Black with Jennifer Black and Associates.

Good morning let me add my congratulations as well.

Thank you Jennifer.

You've talked about the softening in career suiting, which most companies have talked about.

And I was curious to know if you think this is a cycle or a permanent change in the way today's consumers lives their lives?

And I wondered, if you have better adjusted our assortment to better reflect the trends today?

And then, just my second question, have you had any thoughts to take advantage of the real estate opportunities and possibly open an accessory only store?

Thank you.

Wow.

Okay.

Well, let's talk about the mix of the female business.

It's true that the career business over the last year has been more challenging and the casual business has been stronger.

Some of that movement has actually moved in to dresses, which continue to be a strong business in the industry and a strong business for us.

And I think that's a combination, Jennifer, of a more casual workplace.

I think it also reflects more women working from home.

Many companies are now, from a technology point of view, set up to allow employees to work from their homes, which certainly drives a more casual wardrobe.

And I don't discount at all the fact that a casual outfit is less expensive than a more tailored outfit.

So, I think the economy plays in to all three of those things.

And within our women's business and if you use Lauren as an example, I clearly can say our casual and jeans, is stronger than the career side.

So, we're seeing it at our own business.

Whether that's a permanent change or not is hard to tell.

I've always found when customers get comfortable in casual clothes, it's hard to get them to want to go dress up again.

But I can also recall when casual Friday was in vogue and casual workplaces, as the economy has gotten more serious, as I go around, I see more people wearing shirts and ties and dressing up.

So I don't think trends are ever permanent but I think there's something about this in combination with comfort, work at home and value that is probably going to be a part of the mix to come.

In terms of your second question, I do think there are real estate opportunities in this market.

The early stages of it, I think, have had people focused on getting out of stores, or trying to reduce rents or try to renegotiate to get rents more in line with sales trends.

I think when that settles in, I think you'll see that there will be a opportunities to take advantage of more realistic rents, really, around the world.

I don't think this is just the case of the United States.

So, I think we will look to be optimistic but we will never compromise the quality of the location just because we could get a good deal.

Most of our real estate activity over the next couple of years, following our overall strategy will focus on the Asia Pacific region, as we look to create an appropriate network of owned stores to complement the distribution that we are taking over from our licensed partners.

So, I think with that, we've answered all the questions.

We appreciate your interest and attention.

Any follow up questions, obviously, Jim and Tracey are around today or tomorrow.

We look forward up to updating you in November.

That does conclude today's conference call.

Thank you for your participation