雷夫·羅倫馬球 (RL) 2012 Q4 法說會逐字稿

Good morning and thank you for calling the Ralph Lauren fourth-quarter fiscal 2012 earnings conference call.

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

All lines will be in a listen-only mode during the presentation.

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

Instructions on how to ask a question will be given at that time.

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

Please go ahead, sir.

Good morning and thank you for joining us on Ralph Lauren's fourth-quarter and full-year fiscal '12 conference call.

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

Jacki Nemerov, our Executive Vice President, will provide some product commentary and Tracey Travis, our Chief Financial Officer, will provide operational and financial highlights from the fourth quarter in addition to reviewing our initial expectations for fiscal '13.

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

During today's call, we will be making some forward-looking statements within the meaning of the federal securities laws, including our financial outlook.

Forward-looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward-looking statements.

Our expectations contain many risks and uncertainties.

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

And now I would like to turn the call over to Roger.

Thank you, Jim and good morning, everyone.

We are pleased to be reporting exceptional fourth-quarter and full fiscal '12 results this morning.

For the full year, our sales increased 21% to nearly $9 billion reflecting -- $7 billion -- excuse me -- I am already excited -- reflecting excellent growth across our major channels of distribution and geographic regions.

We achieved record level operating earnings of over $1 billion, a function of our strong sales growth and our ability to leverage expenses even as we continued to make substantial investments to support our long-term growth objectives.

Diluted EPS rose 24% for the year, which is an acceleration from the low teens compounded growth we delivered in the prior three years.

We ended fiscal '12 with $1.3 billion in cash and investments.

In recognition of our strong performance, liquidity metrics and comfort with our long-term plans and projections, our Board of Directors recently authorized a doubling of our cash dividend to $1.60 a share annually.

This is the third 100% increase in the quarterly cash dividend in as many years and is a clear demonstration of our Company's commitment to enhance shareholder returns.

As strong as our operating performance was for fiscal 2012, let's not forget that we started the year facing some formidable headwinds.

Every year has its own unique set of challenges of the onset.

Some of that is purposeful and strategic and some of that are a function of external realities.

At the beginning of fiscal '12, we were contending with considerable political and social uncertainty in Europe and the Middle East.

The aftermath of the devastating earthquake and tsunami in Japan and most significantly of all, we faced an unprecedented spike in our cost of goods.

We managed through these external factors thoughtfully while staying focused on our long-term growth objectives of expanding our international presence, extending our direct-to-consumer reach, including significant investments in global e-commerce, innovating and developing new product categories such as the launch of Denim & Supply and assuming the control of our home textile operations, investing in our global systems and infrastructure and attracting and developing world-class talents.

Our results confirm the extraordinary operational and managerial disciplines of our global teams and they are reflected in the incredible appeal of the Ralph Lauren brand worldwide.

Our international sales rose 33% in 2012 and represented 36% of our revenue, which is 300 basis points above the prior-year level and compares to just 20% five years ago.

Our European revenue was up 26%, an acceleration from the low teens compounded growth rate we achieved over the prior five years.

This is considerable progress for a period characterized by substantial macroeconomic challenges and despite near-term caution, it is also a validation of growth opportunities we continue to see in Europe over the long term.

We made major progress transforming our operations and brand presence throughout Asia during the year.

Our talented, locally-based teams are leveraging our more comprehensive and direct control over the regions and are implementing plans that we believe significantly benefit our Company over the long term.

We have a unique opportunity to get this right, so we are being thoughtful and deliberate in the pacing and sequencing of our investments in people, systems, infrastructure, distribution and marketing.

In some cases, this involves taking a step back in order to find a clear and more profitable path to the future.

This same approach has worked very well for us in the past in Europe and Japan and with the transition of many of our product licenses.

As most of you know, we embarked on a major brand repositioning effort in greater China, closing 95 points of distribution, representing 60% of our network during the year.

We effectively reset our presence in the market, leaving us with what we believe is a more brand-appropriate and a stronger foundation for growth.

Over the next three years, we expect to open approximately 60 new stores in greater China, all in premier locations and adjacent to the world-leading luxury brands.

15 of those stores are in place for the back half of fiscal 2013 across many of the major cities, including Beijing, Shanghai and Hong Kong.

The integration of our formerly licensed South Korean operations was executed seamlessly during the year and in a relatively short period of time, the local team has embraced our culture and operating procedures.

Over the last year, we've successfully closed and repositioned 30 concession shops, which is approximately 17% of our total Korean shop presence.

And we are beginning to implement many of the strategic merchandise initiatives that have worked well for us in other parts of the world.

Today, more than half of our Asian revenues are generated in Japan.

We started fiscal '12 with a cautious outlook for Japan in the aftermath of the devastating earthquake and tsunami.

And while sales were challenging in the few weeks following the disasters, they recovered quickly and gained momentum throughout the year.

I believe the current strength of our Japanese operations is a function of resetting our presence there.

This is a process that began in earnest four years ago and included the closing and relocating of shops and implementing strategic merchandise initiatives.

Over the next several years, we intend to build on our strong foundation in Japan by relocating and adding concession shops in addition to growing our freestanding store network, which is very modest today.

It will take time and patience for us to substantially scale up our presence throughout Asia, especially since we will not compromise on the real estate or brand positioning.

Securing appropriate incremental distribution is a multiyear process, especially with our standards of excellence.

However, growing a more elevated local market presence should help sales to Asians and especially Chinese tourists visiting other parts of the world, particularly Europe and the United States.

In addition to opening new stores and concession shops, we made a significant investment in e-commerce last year.

We launched international e-commerce to Ralph Lauren in France, Germany and several other French and German-speaking countries and we launched e-commerce for Club Monaco in the United States followed by Canada.

We will continue to invest in this high-growth global channel with more dedicated marketing, more sophisticated technology, and more focus on delivering a best-in-class customer experience.

For fiscal 2013, we intend to launch e-commerce in Japan in the second half of the year.

We will also be doubling the capacity at RalphLauren.com's dedicated US customer service and distribution center in order to support an expected doubling of the business from current levels.

Since an increasing portion of our anticipated long-term growth is expected to come from our retail segment and customers are shopping across channels more than ever, during fiscal 2013, we intend to make substantial investment in global customer relation management and customer intelligence platforms.

We are in the early stages of development and investment, but we believe that over time knowing and servicing our customers better should support stronger sales and profits growth into the future.

We are already driving excellent productivity at our brick-and-mortar stores.

The substantial strength of our retail comps, which rose 14% in 2012 on top of a double-digit gain in 2011, is the best evidence of this.

In fact, the last three years, productivity per square foot at our directly operated retail concepts in the United States and Europe has accelerated.

These productivity gains are important drivers of consistent improvement in our retail segment profitability even in the context of fairly turbulent market conditions.

We have made some meaningful changes in our management team and organizational structure in 2012.

These changes provide more direct alignment with our key long-term growth objectives and should enable more powerful leverage with certain strategically important areas of our business.

Jacki assumed oversight of our global supply chain and logistics organization.

Since she already manages our global merchandising and product development, Jacki now manages the full product lifecycle from end to end, which was a real asset as we navigated through the raw materials inflation last year.

We also welcomed Daniel Lalonde to our organization in February as President of International with oversight of our operations outside of North America and in support of our ongoing focus on growing our international presence.

We also elevated Eric Korman to President of our Global Digital and E-Commerce operations, including leadership and oversight for our customer intelligence initiatives.

Fiscal '12 was a strong and productive year by any measure.

With a fair amount of uncertainty at the onset, the team planned prudently, but were positioned to seize marketshare opportunities as they emerged.

And ultimately our performance was better than we anticipated.

Our results are an affirmation of the powerful diversity of our operating model across channel, regions and merchandise categories.

They confirm that the strategies as we execute them continue to position us for compelling growth even as we contend with unforeseen external realities and make substantial reinvestments back into the business.

And while we enter fiscal '13 excited about our long-term global growth perspectives, we are faced with another set of unique challenges.

Once again, some are purposeful and strategic and some are a function of the external factors.

We are absolutely committed to our repositioning efforts in Asia, to our investment in global e-commerce and customer intelligence and to the continued upgrading of our systems and infrastructure.

These commitments will likely weigh on our expenses, especially in the first half of the year, but we believe they are critical to achieving our long-term objectives.

As we consider the current environment, we are concerned about near-term global economic trends, especially the uncertainty in Europe.

Geopolitical issues are likely to dominate consumer psyche for some time, whether it is adjusting to the new political realities emerging in Europe or the upcoming Presidential elections here in the US.

We believe we are proactively positioning ourselves to navigate through these dynamics, planning prudently while remaining agile enough to capitalize on opportunities as they emerge.

This approach has served us well in the past.

Regardless of the near-term dynamics, we have a clear and compelling growth trajectory ahead of us.

We are allocating talent and capital to our most compelling high-growth, high-return opportunities and we intend to continue operating the business according to the clearly defined strategies and disciplined execution that are the hallmarks of our organization.

The consistency of our approach has created significant shareholder value in the past and we believe it can support additional value creation over the long term.

And with that, I turn the call over to Jacki.

Thank you, Roger and good morning, everyone.

Fiscal 2012 was a tremendous year for us.

The allure of our brand and the impact of our merchandising initiatives drove strong global sales growth, including mid-teens expansion in our largest market, North America.

This exceptional performance was supported by momentum in even our most core product categories where we have long dominated.

We also saw excellent traction in the emerging accessories and denim categories.

The strength of our sales performance is supported by disciplined merchandising, planning and allocation strategies that combined with our brand leadership generated strong profitability for the Company and our wholesale partners.

Our marketshare gains in men's and children's worldwide is a testament to our commitment to innovation.

The constant evolution of our assortments to include a broader range of products and lifestyle sensibilities gives existing customers something fresh and attracts new customers to the world of Ralph Lauren.

In women's, the Spring/Summer Live in Color merchandising and marketing program for the Lauren lifestyle brand is a beautiful and highly coordinated expression of a brand-right and trend-right statement.

As a result, we are experiencing very strong performance across sportswear, dresses, accessories and footwear.

In fiscal 2012, we made a major commitment to growing our presence in the denim arena across multiple customer segments.

For our most premium customers, we introduced Black Label denim for men in our own stores and select specialty stores worldwide.

This not only added a compelling new dimension for the current Black Label customer, but it has also attracted a new customer to the brand.

We look forward to building on our early success with additional points of global distribution in the near future.

In addition, we introduced Denim & Supply last fall.

In the last six months of the year, we opened or converted hundreds of department store shop-in-shops and four freestanding stores worldwide.

The scale of the launch demonstrates our commitment to both denim category and the younger, more trend-conscious consumer.

As we transition out of Polo jeans, which is primarily an international market, we continue to focus on building customer awareness for Denim & Supply around the world, leveraging the familiarity of the Ralph Lauren name while expressing the youthful and independent spirit of this new brand.

Handbags and small leather goods are another meaningful growth strategy for us.

In the Ralph Lauren luxury segment, we are experiencing strong performance of our seasonal fashion styles and at the same time, steadily building a stable of signature styles that we expect to be the backbone of this global opportunity.

The majority of our distribution is still limited to select Ralph Lauren stores worldwide, but given the reaction to the line, we have slowly expanded the distribution to include a handful of our existing shops at our most prestigious partners, including Bergdorf Goodman, Saks Fifth Avenue and Harrods.

With our Lauren lifestyle brand, we are in our second Spring season with handbags and small leather goods and the brand has achieved more than double the distribution it had at this time last year.

For those of you who are familiar with the category, I'm sure you have seen the evolution of the Lauren handbag and small leather good assortments in a relatively short period of time.

We believe that the quality and value proposition of the line is unmatched in the category.

Customers have responded in comp gains and existing locations have been strong.

With more focused attention on product development and procurement and with expanded distribution and dedicated advertising and marketing, we believe handbags and small leather goods will become a very meaningful contributor to our consolidated sales flows over the next few years and they are, of course, a key component of our growth plans in Asia.

As our businesses become more complex across brands, merchandise categories, distribution channels and geographies, we have put a great deal of emphasis on streamlining our global processes.

A critical aspect of my expanded role is to bring continuity from design to merchandising, to manufacturing, into supply chain and sales.

Our optimized organizational structure provides an advantage point for me to leverage our unique strengths in each of these disciplines in a more integrated and impactful way.

It should also allow me to identify and develop new competencies that will enable us to be an even more agile organization.

A good example of how this optimized structure can add real value is how we navigated an unprecedented spike in raw materials last year.

It was imperative for us to maintain the design aesthetic for which we are known and the quality of make and continuity of execution for which we are respected throughout the industry.

In order to do so while maintaining the value proposition to the customer and protecting our profitability, we mobilized an extraordinary collaboration across our merchandising, buying, sourcing, production and logistics teams.

We also leveraged our strong relationship with outside partners and customer organizations.

Our sales results and marketshare gains attest to the fact that customers appreciate the decisions we made and we ended the year with only a modest decline in our gross profit margin, which we will -- we will experience in the second half a recovery in product margins.

If you have a feeling in the coming months that the Ralph Lauren brand is even more visible than usual, you will not be wrong.

Beginning with Father's Day, we will be celebrating what we call the Sports of Summer as a proud sponsor of this summer's great global sporting events, from the U.S. Open and British Open golf championships and the U.S. Open and Wimbledon tennis championships to Black Watch Polo and most notably the London Olympic Games.

Event-specific merchandise will highlight the heritage of each sport and the unique connection between the sensibility of the Ralph Lauren brand and these iconic athletic lifestyles.

We will be supporting each program with advertising and marketing that reflects our multichannel distribution.

The Sports of Summer will reinforce our position as the preeminent sports lifestyle brand and create global visibility and a powerful halo for all Ralph Lauren merchandise around the world.

We are very proud of our progress in fiscal 2012 and are especially excited to be in the earliest stages of development in some of the highest growth categories, which means that with as much as we have achieved, there is still so much more to come and with that, I will turn the call over to Tracey.

Thank you, Jacki and good morning, everyone.

As Roger highlighted earlier, we reported excellent fourth-quarter and full-year operating results.

We achieved this performance while managing extraordinary cost inflation and meaningful investment in our long-term growth initiatives, including the integration of formerly licensed South Korea and home textile operations, the global fall launch of Denim & Supply, the continued expansion of our international e-commerce capabilities and commencing a major repositioning of our distribution network in greater China through exiting the balance of what amounts to 95 total shop and store locations.

We ended the year with record sales and profit and we achieved progress on all of our strategic initiatives.

With respect to the fourth quarter, consolidated net revenues were $1.6 billion, 14% greater than the prior-year period and in line with our expectations.

We achieved double-digit growth in all of our major geographies and across both our wholesale and retail segments in the quarter.

The gross profit margin of 57.1% was 30 basis points higher than the prior-year period and better than we expected.

The improvement to the prior year was primarily a function of favorable channel and product mix that more than offset the net impact of cost-of-goods inflation in the quarter.

Operating expenses rose 14% to $790 million in the quarter and the operating expense margin of 48.7% was modestly above the prior-year period.

The increase in operating expenses was primarily a function of our sales growth and the mix of overall business growth, specifically higher retail segment growth, which maintains the higher expense structure than our other business segments.

We also had incremental costs associated with the assumption of our home textile operation and shifting in timing of some corporate expenses that we discussed with you on our third-quarter conference call.

Restructuring charges of $10 million in the fourth quarter were also in line with the outlook we provided on the third-quarter conference call.

Excluding the restructuring charges, we would've achieved 50 basis points of operating expense leverage.

Our fourth-quarter operating income of $136 million was 16% greater than the prior-year period and our operating margin rose 20 basis points to 8.4%, the net result of the higher gross profit margin and offset by the impact of the restructuring charges I mentioned.

Net income for the fourth quarter increased 29% to $94 million and net income per diluted share rose 34% to $0.99.

The growth in net income and diluted EPS was primarily a function of our higher operating income in addition to a lower effective tax rate in the fourth quarter of fiscal 2012 due to the favorable effect of discrete tax items.

Regarding our segment performance in the fourth quarter, wholesale revenues rose 10% to $828 million, a result of continued momentum in North America and in Europe where the fourth quarter also benefited from the earlier shipment of certain Spring/Summer products.

Our core apparel offering, particularly our men's and children's wear merchandise, supported most of this growth worldwide.

Incremental distribution for handbags in North America and footwear in Europe also contributed to the growth.

In North America, wholesale revenue growth also benefited from continued sales of new categories such as Denim & Supply and home textile.

Additional points of distribution for Lauren and accessories were growth drivers in Europe for the quarter.

Wholesale operating income grew 12% to $153 million in the fourth quarter and the wholesale operating margin rose 30 basis points to 18.5%.

The improvement in operating income and margin rate was primarily a result of stronger product margins that were partially offset by incremental expenses associated with new and emerging merchandise categories, particularly home textiles, Denim & Supply and the expansion of certain products in Europe.

Retail segment sales grew 19% to $752 million in the fourth quarter.

We experienced broad-based momentum with particular strength at our factory stores globally, at concession shops in Japan and Korea and online.

Overall comp store sales increased 12% in the fourth quarter, including 30% growth at RalphLauren.com, 5% expansion at Ralph Lauren stores, a 10% increase at our factory stores and 14% growth at Club Monaco stores.

Comp growth across retail formats was primarily a function of higher transactions and higher average dollars per transaction.

Trends at our Ralph Lauren stores in the US and Europe remain the most challenging during the quarter as local customers continued to be somewhat restrained with their discretionary and luxury apparel shopping.

We did, however, experience strong growth in the Asia-Pacific region led by Japan and despite completing the closing of an additional 53 points of distribution as part of our China brand elevation and network repositioning efforts.

Performance at RalphLauren.com and our factory stores worldwide and at Club Monaco remained robust, a continuation of trends that have persisted for all of those concepts throughout the year and on top of strong comp growth in the fourth quarter of fiscal 2011.

Retail segment operating income of $44 million was an impressive 72% greater than the prior-year period and the retail operating margin improved 180 basis points to 5.9%.

The growth in retail operating income and the expansion in margin rate are primarily a result of strong comp store sales growth and improved profitability in each of our major geographic regions.

Licensing royalties of $43 million in the fourth quarter were 2% below the prior-year period reflecting a decline in home product licensing royalties due to assuming direct control over our home textile operations.

The decline in licensing royalties contributed to a contraction in licensing operating income in the fourth quarter.

We ended the year with inventories up 20% from the prior-year period.

Approximately 7% of the increase is for merchandise to support revenue growth on comparable products, geographies and distribution.

The remaining 13% of this increase is related to non-comp items included in inventory this year, primarily home textiles, new stores and international e-commerce, in addition to cost-of-goods inflation.

There was no material foreign currency impact in the quarter.

We spent approximately $272 million in capital expenditures during the full fiscal year to support our retail store and wholesale shop development worldwide in addition to continued investment in our global systems and infrastructure.

Approximately half of our capital spending for the year was to support our international growth efforts and we continue to expect that an increasing portion of our capital spending will be allocated to international retail and development, particularly in Asia over the next several years.

Consistent with our commitment to return capital to shareholders, we purchased an aggregate 3.2 million shares of our Class A Common Stock for approximately $395 million during fiscal 2012.

At the end of the fourth quarter, we had approximately $577 million remaining under our authorized share repurchase program.

We also returned $74 million to shareholders in the form of dividends in fiscal 2012.

After funding all of our capital needs and working capital requirements and returning capital to shareholders, we ended the year with $1.3 billion in cash and investments, an increase from the $1.1 billion we ended fiscal 2011 with.

Fiscal 2012 was clearly a year of substantial growth and strategic progress for the Company.

We are very proud of our accomplishments and as Ralph mentioned in this morning's press release, we are also very excited about what is on the horizon for us.

As we look to the future, we remain committed to reinvesting in the business in order to fund the growth initiatives that have consistently supported our strong financial results.

As you are already aware, a critical part of our success formula over the past several years has been our ability to balance our support of initiatives that represent critical growth areas for the future, along with the exceptional daily execution of our core business operations.

Our European operation, our footwear line, or Lauren apparel brand and RalphLauren.com are all examples of investments we made within the last decade and they represent meaningful contributors to our profit growth today.

In fiscal 2013, there are a few areas of incremental investment that are expected to become important contributors to our growth for the next decade.

These include continued global e-commerce development with a more concerted focus on building capabilities in Asia in order to continue to support our customers' desire for channel shopping options.

As Roger spoke about earlier, we are also building internal capabilities to institutionalize and maximize customer relationship management and intelligence on a global basis across all channels of our business.

We intend to invest incrementally in the Ralph Lauren brand via advertising and marketing, particularly as we support our newer merchandise categories in regions of the world and as we leverage our sponsorship of the world's premier sports events, most notably this summer's Olympics.

We will also continue to invest thoughtfully in operating systems and infrastructure that support our global growth aspirations.

While we enter fiscal 2013 on the heels of impressive multiyear momentum, in the last few months, we have experienced the effects of some remarkable socio-political upheaval and the onset of another recession throughout much of Europe as many consumer-based companies have already noted in their earlier press releases.

Economic growth also appears to be slowing in other regions within Asia that have been important engines of global expansion for some time.

In the US, which remains our largest market, economic recovery remains uneven across many segments.

A derivative effect of these macro dynamics is reflected in the volatile foreign currency exchange rate, which has evolved into a material headwind for us this year.

The impact of this uncertainty, combined with actions we have taken to proactively position ourselves to take advantage of future growth opportunities, does mean that we expect fiscal 2013's growth will be less robust than our stellar fiscal 2012.

With that as a backdrop, I would like to review the financial outlook that we provided in this morning's press release.

For the full year fiscal 2013 period, we currently expect revenues to increase at a mid-single digit rate with a low single-digit decline in wholesale revenues offset by a low double-digit increase in retail segment sales.

Areas of our business that were the primary drivers of our strong revenue growth in fiscal 2012, including most of our retail formats worldwide and our core North American wholesale operations, are expected to provide continued momentum throughout fiscal 2013, but at a more modest rate given the economic climate.

And while Europe was an important contributor to our growth last year, we expect low single-digit expansion in the region this year as momentum at our retail segment in Europe is largely offset by a decline in wholesale volume due to the severity of the economic slowdown I discussed earlier.

We continue to transition certain Japanese wholesale license to directly controlled concessions, which is also expected to impact wholesale revenue growth throughout the year.

And strategic changes we decided to make in our business such as the impact of closing 60% of our Greater China distribution network and the winding down of American Living, combined with unfavorable foreign currency effects that are expected to persist throughout the year are estimated to suppress our consolidated sales growth for fiscal 2013 by approximately 4%.

Our full-year operating margin is expected to be modestly above fiscal 2012's level as a recovery in gross profit margin is largely offset by an increase in operating expense rate to support strategic investment in our growth initiative and also reflects the impact of our higher retail mix.

Our fiscal 2013 tax rate is planned at approximately 33%.

As I just mentioned, while we do expect to realize gross profit margin expansion this year, we don't expect meaningful improvement to begin until the Fall season, which is our fiscal third quarter.

This, coupled with the anticipated sequencing of our investments in our strategic initiatives, means that fiscal 2013 will evolve as a story of two halves for us.

We expect to experience operating margin pressure in the first half of the year, followed by operating margin expansion in the second half of the year.

For the first quarter, we expect consolidated net revenues to grow at a low single-digit rate as flat to slightly lower wholesale revenues are offset by high single-digit growth at our retail segments.

Our outlook includes continued broad-based strength in North America and at most of our retail formats worldwide that is moderated by a decline in European wholesale volumes, some of which is a function of a shift in the timing of certain Spring/Summer shipments that benefited the fourth quarter of fiscal 2012.

Revenue growth will also be impacted by reduced distribution in greater China.

Foreign currency effects are estimated to negatively impact consolidated sales growth by approximately 2% to 3% in the first quarter primarily due to weakness of the euro.

Operating margin for the first quarter of fiscal 2013 is expected to be down approximately 250 to 300 basis points from the prior-year period.

The decline in operating margin is primarily attributable to an anticipated deleveraging of operating expenses due to relatively flat wholesale revenues and lower concession sales in greater China where we are still absorbing the cost of our infrastructure despite the network contraction.

We are also incurring investments in the strategic initiatives I outlined earlier.

Our first-quarter gross profit margin is expected to be pressured at many of our retail concepts as they are still cycling through the cost-of-goods inflation that impacted our wholesale segment in the latter part of fiscal 2012.

We intend to spend approximately $360 million in capital expenditures in fiscal 2013 to support our retail and wholesale growth initiatives and the consistent upgrading of our global systems and infrastructures.

Approximately one-third of our capital spend is allocated to our distribution network development in Asia, mostly concentrated on greater China.

While we are once again entering our new fiscal year amidst a lot of uncertainty, we are taking proactive measures to navigate through these challenges in a manner that is both Ralph Lauren-appropriate and that supports our future growth objectives.

Whatever the near-term headwinds might be, they in no way alter our enthusiasm for or our focus on our long-term goals.

We are very confident in the relevance of our strategy and the strong growing appeal and glowing appeal of the Ralph Lauren brand across many merchandise categories worldwide, which should enable us to continue to deliver meaningful profit growth over the long term.

And with that, we will take your questions.

Operator, would you assist us with that now?

(Operator Instructions).

Omar Saad, ISI Group.

I was hoping, Roger and team, you guys could give a little bit more detail on kind of what you're seeing in Europe and how you are thinking about it near term and long term, especially in the context of several other high-profile companies reporting a significant slowdown there and your guidance for flat to down wholesale growth.

How you are thinking about the consumer spending environment, the macro, your opportunity kind of to offset that through owned retail growth, additional distribution on the wholesale side, either doors and/or categories and then how you are thinking about the tourism piece as well.

Is there a benefit there as the brand continues to grow globally?

Thanks.

Omar, I know we ran a little long with our end-of-the-year presentation, but that is a pretty long question.

Let me see if I can talk about Europe broadly and then hit on some of the specifics you had touched on.

If I miss some of them, I apologize.

We reported extraordinary results last year, 26% and we really saw that across all strategies -- retail, wholesale -- across almost all of the countries.

We had double-digit growth in France, Germany, Spain, the UK, Scandinavia and others.

I think what you have heard from us today and what you have heard from other people is that the ongoing overhang of economic uncertainties in Europe, which have been now prominent in the press pretty hot and heavy since the middle of last Fall straight through the Spring, are weighing on the customer's mind and I think that is true of both local customers by country and to some degree that has been masked by the tourist business in many of the key capitals.

Depending on the brands that you are talking about, if you have a high penetration of Chinese tourists visiting the major capitals of Paris or London or Switzerland or Milan, that has inflated I think the European results.

We don't happen to have -- based on our small penetration in China, we don't happen to have that kind of Chinese tourist running through our European operations.

While we do get a high degree of tourism, our major tourists are coming from the Middle East or Russia where we have strong presences and then they find us in other European cities.

But we think over time as we build our Chinese presence and we talked today about the 60 stores we plan on opening over the next three years, 15 in the back half of this year, we think our growing presence there at a luxury level will in fact begin to develop the tourist business in Europe and the United States that others are enjoying.

So our results to date have been primarily based on the local markets and/or tourism from other countries.

We are planning, based on our relationships with our key wholesale distribution, cautiously.

They want to be tight with their inventory.

They want to try to improve their turns.

There is a great deal of uncertainty in the southern tier of Europe, particularly Spain.

Italy has particular problems with their specialty distribution.

The specialty channel there has gone through several turbulent years.

And then the northern parts of Europe, whether it is Germany, France, Scandinavia or the UK, held up better last year and we believe will hold up better into the new year.

But I think the constant overhang of economic concern and then what the corrections will be to manage that issue is what is dragging that market into a slower growth environment.

So while we are planning growth, I think Tracey said it very clearly, we are just planning it more conservatively than we have done in the past.

Against that, we continue to invest in e-commerce growth in that market.

We have launched in the UK, France, Germany and we will continue to look for that channel to grow.

Quite frankly, the factory channel continues to perform well in Europe, but in our Ralph Lauren stores, we are seeing a softness that I think is a reflection of the local customer being cautious with their shopping in the near term.

None of this dissuades us from our long-term ambitions in Europe.

In '08 and '09, we took marketshare during a very difficult time.

My hope is that we will do that again, but we are very committed to the long-term distribution of Ralph Lauren in Europe and will continue for the right real estate.

Maybe this economic environment creates opportunities either to get better access to property or maybe at a better price or in perhaps some cases to buy.

So I think being nimble and being light on our feet in Europe will give us our long-term objectives.

The question is what happens over the near term.

Clearly, the euro has suffered.

So for us, that is an impact to us as it continues to kind of gyrate in the high 120s, low 130s and we will just see how that plays out as the year goes on.

Next question.

Adrianne Shapira, Goldman Sachs.

Roger, you have proven that you do better when you are in control.

We saw that in the '08/'09 downturn and so with this clear ongoing shift to retail, my question is really twofold.

One, as it relates to sales, help us think about how you are planning with wholesale down low singles versus retail up low doubles, how much of that is self-imposed as you shift to more retail?

And then the second part of the question how it relates to profitability.

As you mentioned, productivity per square foot is accelerating, so how do we think about this mix shift impacting overall profitability?

Thanks.

We have operated under the belief consistent with what you just said that whether it is controlling a license or controlling a region that our commitment to doing it right over the long term has paid off.

The shift in distribution channel from wholesale to retail or concession shops primarily in Asia to owned I think has served us well in terms of communicating to the customer in its purest way.

And so I think you saw comp stores last year that were extraordinary at 14% on top of the year before that of 10% and years and years of compounding have given us very high sales productivity.

That in turn has given us very strong profitability in retail.

Those of you who have followed our story for a long time know that we started from a very low point and we have made pretty amazing progress.

Our point of view is that in Asia particularly where there is not an appropriate or robust distribution channel, our future depends on our ability to run our shop-in-shops or run direct retail.

Now the margins in retail even at the high levels we are at today or our hopes of getting them higher are not quite as high as our wholesale margins, which are extraordinary.

The inventories will turn slower, there will be capital involved, but we believe over the long haul, our ability to take our message directly to the customer in brick-and-mortar or e-commerce really is the foundation of our future growth.

The other issue, which I will just mention and I think you all know this, but as cost of goods begin to improve and inbound receipts begin to return to a more normalized level, we are very pleased with our decision a year ago not to change the quality and not to change our sourcing strategy.

And I think the customer reacted to that quality.

But those inbound receipts come in and turn faster in our wholesale segment where the margins will begin to recover sooner.

In retail where the inventory turns slower, it is a combination of the onhand and the new receipts and as they turn through the year, the margin will begin to rise.

So the rate of margin improvement cycled through different at wholesale and retail because it is not the inbound receipts that is driving margin; it is the margin on what you sell.

So if the wholesale goods are turning five or six or seven times a year and retail is turning two or three or four depending on the format, the wholesale margins will recover faster followed by the retail margins.

So that is an important nuance to the way the year lays out.

Next question please.

Liz Dunn, Macquarie.

Hi, good morning.

I guess I am wondering about your sort of awareness with the Chinese customer consumer.

Is the reason that you don't have as much of that business in Europe just that the business hasn't been positioned well there and what, other than just distribution in China and getting the right locations, what other steps are you taking to increase your awareness with the Chinese consumer?

Okay, Liz, the reality is that we had a licensee that was based in Hong Kong for many, many years and with that, his focus was on Hong Kong, Taiwan, Singapore, Malaysia and had very little distribution in Ralph Lauren products in China proper.

What he did have was positioned as a casual sportswear brand primarily for men in B and C type locations.

So our brand awareness over the last 10 or 15 years and the quality impression of our brand is very different than the way we see it here in the United States and Europe.

So as those customers travel, they are looking for the brands that they have learned over the last 10 or 15 years signify quality and heritage.

And their knowledge of our brand is much lower and incomplete.

So we believe that not only will that grow business in China as we add the right kind of stores, but as we expose the customer through the store experiences, through marketing or through future Internet activities, they will then look for the brand when they travel around the world.

Today, many of the luxury brands are reporting European sales of 25%, 30% or 40% to Chinese.

Our Chinese tourist business in Europe is less than 2%.

So we believe that we will get the multiplier effect as we push out in China over the next three to five years.

Next question please.

Christian Buss, Credit Suisse.

Yes, I was wondering if you could talk a little bit about the cadence of incremental investments over the balance of the year.

Can you help us understand how you are planning to roll out some of the investments that you are talking about now?

Okay.

Well, let me break the investments into a couple buckets.

The primary international investments are being made in Asia.

And I think I said earlier that the bulk of the 15 stores that are being opened in China will be in the back end.

That doesn't mean we are not spending money in the front half, so the opening date is really the culmination of the spending.

So in that case, back-side openings will be front-side spending.

The ongoing investments in the Internet are really 12 months of the year, whether that is distribution and logistics here in the United States or the ramp-up in building as we go to a full launch in Japan.

So that spending in advance of the revenue will be for the first nine months.

Separately, the ongoing investments in technology, infrastructure and systems is really a 12-month cycle and should be evenly spread through the year.

So I guess the sum of all that is more investment spending in the early part of the year, culminating with openings or launching in the Fall and we get the revenue in the back half of the year.

Next question, operator.

Jeff Klinefelter, Piper Jaffray.

Yes, thank you.

I'm just curious, a little bit more color on the domestic business, the wholesale business.

Given the strong Spring we had in the industry, the apparent interest in color, which seems to play very well into your brand, your brands, wondering puts and takes kind of, Roger, by category.

You have some new categories that are gaining distribution.

What about kind of the organic or heritage categories, any movement in the number of doors that you are in or floor space would be helpful?

Thank you.

Okay, Jeff.

I would say that you are correct.

We have had a very strong domestic performance with our wholesale partners at their retail.

Putting aside the way Easter falls within our fiscal reporting because, as you know, the March/April time period for us is split between fourth quarter and first quarter.

For most other people not.

We have enjoyed our strongest businesses this Spring and our heritage and core businesses like men's has had a very strong Spring.

The children's business has had a strong Spring.

Lauren has begun to perform better in sportswear, but we have got a very strong business in dresses.

Jacki talked about accessory and footwear, so we are really seeing broad-based strength in the performance of our products at retail.

The domestic retailer continues to operate with a mindset towards conservatism in terms of inventory and turn, but nevertheless we have had a strong Spring.

As you mentioned, color plays well for us as a brand and I really do believe based on our last couple of experiences with Olympic products, it will be a very exciting lead up through the August Olympics.

So we think domestically we are well-positioned in the core product categories.

Denim & Supply is the first Spring we are in the market.

We have added to the distribution of our handbag and accessory businesses, so those are beginning to roll out.

I think Jacki quoted a doubling of the doors in our handbag and accessories from this time last year.

We are also beginning to see traction in our ownership of the home business.

I think our partnerships with the department stores and their confidence in the way we have taken licenses and repositioned them, I think people are beginning to get excited about the opportunities in home here in the domestic market.

So lots of good things in the core, and the new businesses are beginning to get traction and door count.

So we will take another question, please, operator.

Faye Landes, Consumer Edge Research.

Hi, Roger, and everyone.

Just two quick questions, one more technical but the first -- as follows.

First of all, Roger you have spoken before of volatility, relative volatility quarter to quarter -- week to week rather -- in your US retail, especially in gateway cities and flagship stores.

You've talked about that in the last several calls.

I was hoping you could address that.

Then the more technical question is it appears that you have bought back few if any shares in this quarter, and I was hoping you could address that, given your general enthusiasm for the share buyback.

Okay, Faye, I will start with the week to week.

The predictability of the trendlines really post the recession has been different than probably prerecession.

The consumer mentality I think in the last two years, while in aggregate has been spectacular, I think they are more careful about their spending.

I think they are more selective.

I think they are looking for great product, but maybe the great piece or the great item or the great accessory.

I do believe they are buying closer to need, so some of the weather patterns has affected the business with spectacularly warm earlier in the year and then it got cold.

And I think the customer has exhibited a sensitivity to that that we probably didn't see before.

The other part of your question is the gateway cities where the United States has seen important tourist activities.

Where Florida was particularly hurt during the recession, it has come back, and some of that has been fueled by the tremendous tourist business from the Brazilians.

When we track by country where our international tourist business is here in the United States, the Brazilians rank very, very high not only in Florida but in New York.

So we see tourism not only affecting the travel patterns and the shopping in Europe, we see it here in the United States.

The more technical part of your question, which is our strategy to return excess capital to the shareholder, as we have talked about in the past, Tracey and I have said our first priority is investing back into our business if we think we can get a return and I think we have done that well over the years and we expect to do that into the new year and beyond.

Our second alternative, assuming we have done that properly, is to take excess cash and return it to shareholders either through dividends or share buyback, and I think you have seen as our cash flows have grown over the last couple of years, we have done that pretty aggressively.

I think today's announcement to double the dividend again, third year in a row we have doubled the dividend, I think reinforces our commitment to return money to shareholders in the most efficient way we think is appropriate.

And I think you will see in fiscal '13 the combination of this more aggressive dividend and share repurchase going back to the shareholder if we don't have a proper use for it.

We are clearly holding a lot of cash on our balance sheet.

We have very little debt.

We did that proactively through the recession.

At this point, with early reads on interest rates staying low for a long time, my guess is we will look to return excess capital to the shareholder both ways throughout the year.

Final question please, operator.

Barbara Wyckoff, CLSA.

Hi, everybody.

Can you talk about the accessory penetration, where can it go over time and also opportunities in categories outside of handbags and small leather goods?

Okay, Barbara.

We don't quote percentages, but I would say that whether we are talking about the Ralph Lauren level of accessories or whether we are talking about a Lauren or Polo level of accessories, the Company is putting a lot of time, energy and money to distort those categories.

We have clearly developed multiple tiers and multiple channels for our apparel, but we are very focused on the right distribution in product and accessories.

Then the question always becomes how do you define accessories.

Does that include eyewear and does that include watches and jewelry and handbags, small leather goods, belts, scarves?

Interestingly, because I know, Barbara, you go in a store up the street on 72nd, we devoted the entire main floor to our accessory area, which for us is a future direction, but does not read the same way in many of our former stores.

Some of the real strong categories there have been the belts, scarves and footwear, things that in the past don't seem to get the same kind of attention that perhaps handbags and small leather goods go to.

So we are finding the customer has a real appetite for Ralph's design sensibility across all product categories.

And of course, we are in the early stages of developing watches, which, if you travel the world, has been one of the strongest growth categories for luxury companies everywhere.

And while that is a long process to do that, we have some spectacular watches that are beginning to get traction with the largest single store in the world for us in watches being Macau.

And I think that gives you a sense of the upside to some of these product categories as we reinforce that with our commitment to the Asian market.

So with that, operator, I apologize; we have run a little late.

It was the end of the year and I thought it deserved a little extra attention in the prepared remarks, just a spectacular year on every level.

We started the year with some concerns as we do again this year, but it was a spectacular year.

I think the team really maximized the opportunity in the Ralph Lauren brand, in the Ralph Lauren way and we are excited about the new year.

So we thank you for your interest and your attention.

We look forward to updating you in August.

Thank you.

That concludes today's conference.

We thank you for your participation.