雷夫·羅倫馬球 (RL) 2013 Q4 法說會逐字稿

Good morning and thank you for calling Ralph Lauren's fourth-quarter fiscal 2013 earnings conference call.

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

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

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 2013 conference call.

The agenda for this morning'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 merchandising highlights; and Chris Peterson, our Chief Financial Officer, will provide operational and financial perspective on the fourth quarter in addition to reviewing our initial expectations for fiscal 2014.

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

On 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.

Now I would like to turn the call over to Roger.

Thank you, Jim, and good morning, everyone.

We are reporting excellent fourth-quarter and full-year fiscal 2013 results today.

The 42% earnings per share growth that was achieved for the fourth quarter and the 14% increase for the full year, excluding the Rugby-related charges, were a function of strong product acceptance and exceptional profit flow-through on sales.

The double-digit earnings growth was a continuation of a multiyear trend that highlights the extraordinary creativity and operational excellence that characterizes our Company.

It also showcases the powerful diversity of our operating model across merchandise categories, channels, and regions.

This is particularly true for fiscal 2013, as our global teams successfully managed through a challenging macroeconomic environment during the year.

Fiscal 2013 was a year of important progress on each of our long-term strategic growth objectives.

With respect to our direct-to-consumer efforts, retail segment sales increased high single digits in constant currency.

And that growth was mostly comp driven, led by e-commerce.

During the year we commenced an exciting multiyear initiative to grow our brand presence in Asia, with a particular focus on Greater China.

We also significantly enhanced our global e-commerce capabilities.

We have built a talented team with global oversight, supported by three strong regional teams.

In addition, we extended our reach in Western Europe, launched our first Asia site in Japan, and launched Club Monaco e-commerce capabilities in the United States and Canada.

We are also in the final months of doubling the size of our customer fulfillment center in North Carolina.

E-commerce will remain a critical area of focus and investment for us over the next several years.

Retail now accounts for 52% of our consolidated revenues, up from approximately 40% five years ago, and we expect much of our future growth be direct-to-consumer led.

Our second major strategy has been our desire to expand our international presence.

European revenues were up low single digits in constant currency during the year as strength in our retail operations more than offset a proactive pullback in wholesale distribution.

We were able to grow our Europe profitability and an even stronger rate as the locally based team prudently managed the business, distorting resources to higher performing channels and countries.

In Asia, where we are just beginning a long and exciting journey, we now have most of the major building blocks in place of our new shared service hub in Hong Kong, with strong country management to focus on growth.

And even as we have made outside investments in new stores and e-commerce, we were able to improve the profitability of our Asian operation with disciplined management.

The increased global acceptance of our products is a validation of our sustained commitment to investing in innovation and world-class supply-chain capabilities, and supporting those efforts further with our highly strategic merchandising initiatives, compelling advertising and marketing campaigns, and extraordinary shopping environments.

Continued marketshare gains in many of our core merchandise categories in North America, which is our most developed market, is a clear indication of the incredible vitality of the Ralph Lauren brand.

We are making great progress with our accessories, denim, and home offerings since assuming direct control of those categories, and we look forward to nurturing the recently transitioned Chaps men's sportswear in a similar manner.

Over time we believe these emerging merchandise categories can become meaningful drivers of incremental growth in the US and around the world.

During fiscal 2013 we successfully completed the first phase of a multiyear implementation of an integrated global systems platform.

We believe the consistent strengthening and evolution of our corporate infrastructure will boost the global information we need to run our growing business.

The clarity and purpose of our Company's vision and strategy is well understood throughout the organization.

Ralph and I are proud of the progress the team is making with our long-term growth objectives and with the Company's ability to consistently invest in those long-term strategies while executing the day-to-day and consistently delivering annual results.

We are excited about the many compelling opportunities that lie ahead of us, and we intend to match this excitement with an accelerated investment back into the business over the next several years.

We are confident we have the right strategies and teams to execute our goals, and with $1.4 billion in cash and investments on our balance sheet, we certainly have the means to fund our strategies.

Those of you who are familiar with our Company understand that our consistent reinvestment back in the business has been an important driver of sales and profit performance.

Over the last decade we have delivered 16% compounded annual earnings per share growth on 11% compounded annual sales growth and have returned $3 billion to shareholders via repurchase or dividends.

The net result of our actions have been over a 700% increase in total shareholder return, which reflects the focused execution of our global strategies.

Now I would like to turn the call over to Jacki.

Thank you, Roger, and good morning, everyone.

I would like to expand on two of the themes Roger touched on in his opening remarks.

The first being the operational excellence that is a defining characteristic of our Company, and the second being the incredible marketshare gains of our North American wholesale business.

The operational expertise of our global supply-chain organization is one of the Company's most significant competitive advantages.

Over the years our sourcing and logistics team have navigated through not only the growing scope of our global operations across regions, channels, and product categories, but also dynamic changes in input costs -- all while meeting the Company's high standards of innovation and quality.

Their ability to consistently execute with excellence, delivering exquisite, high-quality product while still achieving cost savings and other efficiencies, has been an important driver of our sales and profit growth.

Much of the organization's success is the result of the steady investment in talent and capital we have made to develop these world-class capabilities as our business has evolved.

In fiscal 2014 our supply-chain organization will ensure a seamless integration of Chaps men's sportswear and our Australia/New Zealand operations, the doubling in size of our US distribution center for ralphlauren.com, and organic business expansion.

I know that many of you have an interest in input cost dynamics, so I will offer some perspective on our input costs for this year.

Fall 2013 costing is expected to be modestly below the prior-year period.

This is a function of lower raw material costs that are mostly offset by higher wages and our plans to invest back into the product, whether through materials and trim or construction details, in order to deliver the most compelling product to the consumer.

As we look even farther ahead to spring/summer 2014 season, we expect to see higher prices for our most important raw materials.

But I'm confident in our team's ability to meet this challenge and find ways to mitigate that pressure.

The continued expansion of our North American wholesale business is a testament to the strong aspirational appeal of the Ralph Lauren brand.

The mid-single-digit increase in our comparable operations during fiscal 2013 was a continuation of a multiyear trajectory that has far outpaced industry growth.

Much of this growth has been achieved through our core men's, women's, and children's apparel offerings, but our newer women's accessories, footwear, dresses, and our Denim & Supply brand were also important contributors.

We look forward to thoughtful wholesale distribution expansion of these categories and believe they have the potential to support our continued growth.

On a related note, we just opened two freestanding Denim & Supply stores in the US -- one on Newbury Street in Boston, and the other today on University Place in New York City.

These stores are an outstanding expression of the Denim & Supply brand, and I encourage you to visit them.

We believe that selective retail expansion of Denim & Supply worldwide will foster greater awareness for the brand and serve as a positive complement to its wholesale distribution.

In addition to the strong wholesale performance of the Ralph Lauren brand in North America, Chaps also performed very well in the fourth-quarter and full-year periods.

Established 35 years ago as a men's-only brand, Chaps has evolved over the last decade into a complete lifestyle offering, with a robust product assortment across men's, women's, children's, accessories, and our home categories.

The combination of classic style and great quality at an accessible price point has made Chaps a highly regarded and aspirational national brand.

We are in the process of integrating our previously licensed Chaps men's sportswear business into our Company as a directly operated wholesale business.

We have in place a transition service agreement to ensure a seamless process without disruption for our customers over the coming months.

With all of the largest merchandise categories now directly managed by our Company, we will further enhance the clarity and consistency of the brand.

We also believe there is a consumer appetite and a compelling opportunity to develop the Chaps brand on a global scale over time.

Everything we do across all of our brands at Ralph Lauren is born out of a sensibility and an aesthetic that are reflected across each of our merchandise categories.

The extraordinary creativity that is a hallmark and point of pride for our Company is matched only by tremendous merchandising discipline that has enabled us to maximize our market share potential.

I want to share with you how we have transformed a historically strong US-based merchandising organization into a truly global one.

Since we have assumed direct control of most of our strategically important merchandise categories and regions, we have learned that there is a great commonality to our worldwide bestsellers.

This insight is a foundational principle that grounds our global merchandising organization.

Centralized in New York in order to work in close proximity to Ralph and his design teams, we have built teams made of merchants representing our key regions around the world to work side by side in a highly collaborative manner to conduct global line reviews and plan global buys.

These teams worked very closely with the respective brand teams across sales, planning, and marketing in order to inform their thought process with real-time feedback on sales trend, product performance, and marketplace dynamics.

We are confident that over time, greater consistency in of the product story will drive both product development and production efficiencies that will allow us to leverage our global, growing scale and provide opportunity for continued gross margin expansion.

We believe a more centralized approach will ensure greater singularity of message, and therefore global consistency of advertising, marketing, and in-store presentations.

Creating an even more direct link between Ralph's vision and the consumer experience across all distribution channels becomes increasingly important as tourists traveling all over the world become a larger subset of our customer base.

And with that I would like to turn the call over to Chris.

Thank you, Jacki, and good morning, everyone.

As you have seen in this morning's press release, we are reporting strong fourth-quarter profit results today.

Let me start with a brief recap of the quarter.

Consolidated net revenues rose 1% to $1.6 billion, reflecting retail segment growth that was partially offset by a decline in wholesale shipments.

Excluding the impact of foreign exchange and strategic decisions to discontinue American Living and close certain stores in Greater China, revenues increased 4% in the fourth quarter.

The revenue results were below the expectations we articulated in February due to unseasonably cold weather that hurt early spring merchandise sales and foreign exchange.

For the full year fiscal 2013 period, net revenues grew 1% to $6.9 billion and were up 5% excluding the impact of the strategic decisions and foreign exchange.

Gross profit margin of 59.3% was 220 basis points greater than the prior-year period.

The improvement in gross profit margin is primarily attributable to lower input cost, beneficial channel and product mix, and operational discipline.

Operating expenses of $792 million were in line with the prior year, as we were able to offset higher investment in our growth initiatives and approximately $15 million of impairment and restructuring charges with operating expense savings through productivity gains.

Operating expense rate of 48.2% reflects 50 basis points of leverage compared to the prior year, which was better than our expectations due to disciplined expense management across the organization.

Operating income rose an impressive 33% to $182 million in the fourth quarter, and operating margin improved 270 basis points to 11.1%.

Strong profit flow-through was a function of the extraordinary operational discipline of our global teams.

For the full year of fiscal 2013 period, operating income increased 8% to $1.1 billion, and operating margin improved 100 basis points to 16.2%.

Excluding Rugby-related impairment and restructuring charges the fiscal 2013 operating margin improved 130 basis points to 16.5%.

Net income for the fourth quarter was $127 million, 35% greater than the prior-year period; and net income per diluted share increased 38% to $1.37.

Excluding Rugby-related charges, net income per diluted share grew 42% to $1.41 in the fourth quarter.

Higher operating income was the principal driver of the substantial increases in net income and net income per share.

EPS also benefited from a lower effective tax rate of 25%, which was 300 basis points below the prior year due to a favorable discrete tax item and geographic mix.

For the full year fiscal 2013 period, net income rose 10% to $750 million, and net income per diluted share increased 12% to $8.

Excluding Rugby-related charges, net income per diluted share grew 14% to $8.13 in fiscal 2013.

Moving onto segment highlights for the quarter.

Wholesale sales of $796 million were 4% below the prior-year period, primarily due to the discontinuation of American Living in fiscal 2013 and a proactive reduction in shipments to certain European wholesale customers.

Wholesale operating income grew 16% to $175 million in the fourth quarter, and wholesale operating margin improved 380 basis points to 22%.

The substantial improvement in wholesale operating margin was primarily due to higher gross profit margins as a result of lower input costs, favorable product mix, and operational discipline.

Fourth-quarter retail segment sales rose 7% to $804 million, supported by the contribution from new stores and e-commerce operations and a 4% constant dollar comparable store sales increase.

Sales trends continued to be strongest online and at Factory Stores worldwide.

Despite the challenges of the overall macro environment and unseasonable weather conditions, the fourth quarter's 4% constant dollar comp growth was achieved on top of difficult multiyear comparisons and was primarily a function of improved traffic and conversion.

Retail segment operating income grew an impressive 73% to $74 million in the fourth quarter, and the retail operating margin expanded 350 basis points to 9.2%.

The robust improvement in retail operating income and operating margin reflects stronger profitability in all major geographies, particularly in international markets, and was achieved despite higher restructuring and impairment charges and continued investment in global e-commerce development.

Licensing revenues of $43 million in the fourth quarter were in line with the prior year, as higher apparel product licensing revenues were offset by lower home product licensing revenues.

Operating income for the licensing segment declined 3% to $29 million.

Consolidated inventory was up 6% at the end of the fiscal year, and we spent approximately $276 million on capital expenditures to support new retail stores, shop installations, and infrastructure investments.

The Company repurchased 3 million shares of its common stock during fiscal 2013 at an average cost of $149, utilizing $450 million of our authorized share repurchase programs, and returned an additional $128 million to shareholders via dividend payments.

At the end of the fourth quarter the Company had $577 million available under previously authorized share repurchase programs for future buybacks, and we ended the year with approximately $1.4 billion in cash and investments.

We are very pleased with the strong fourth-quarter and full-year results.

The prudent planning, operational management, and financial discipline that characterize the Company have enabled us to maximize margin opportunities and deliver double-digit earnings growth.

We have achieved these results even as we have continued to make substantial re-investments to support our longer-term growth objectives.

Now I would like to turn to fiscal 2014.

As we articulated to you in February, we expect revenue growth to improve in fiscal 2014, and we are planning to increase our investments in the business to support long-term shareholder value creation.

Key areas of investment in fiscal 2014 include accelerated retail store development, global e-commerce capabilities, and upgrades to our management information systems.

With respect to retail store development, we currently plan to invest in approximately 30 new retail stores, mostly concentrated in international markets.

This accelerated rate of store investment means we expect to have a substantial increase in preopening costs, particularly since our plans include a handful of large, high-profile stores that are scheduled to open in the next two years.

Among these stores are new Ralph Lauren flagship stores in Asia as well as our first flagship store for the Polo brand in New York City.

We are in the early stages of an exciting plan to open Polo stores worldwide.

Supported by more than 45 years of Ralph's extraordinary vision and commitment, Polo is one of the most recognized brands in the world.

Our efforts are focused on leveraging the tremendous innovation and expertise that exists in our design and merchandising organizations to satisfy the growing global demand for our Polo and Blue Label products.

We believe Polo stores will be a good complement to the important wholesale distribution that exists today in North America and parts of Europe.

They will likely become the primary platform by which the brand is distributed in certain international markets, such as Asia and parts of Latin America, where the wholesale channel is less developed.

We recently opened our first Polo store in East Hampton, and we intend to open a second Polo store at the Short Hills Mall in September.

We have also committed to open a 35,000 square foot flagship store on Fifth Avenue in New York City that will be a major brand statement, featuring a full assortment of Polo men's, women's, and children's merchandise, as well as a restaurant.

Scheduled to open in the fall of next year, we believe the flagship store will really set the stage for the broader global strategy, especially since it is located one of the world's most popular tourist destinations.

We are actively engaged in and committed to finding additional Polo locations around the world, which will be a mix of flagship stores in key gateway cities in smaller formats and appropriately sized markets.

We also plan to increase our investment in e-commerce around the world, as the consumer is clearly choosing to shop more online.

Over the last year we have created a stronger global digital and e-commerce team to capitalize on this trend and provide a more holistic approach to managing this dynamic channel of distribution.

Specific plans for fiscal 2014 include a new Korean website, expanding the number of countries we can ship to in Europe and in Asia, evolving the online customer experience in existing markets, and investing in expanded distribution and fulfillment capacity to support our long-term growth expectations for the channel.

With respect to infrastructure investment, the largest area of incremental investment for us will be in a globally integrated ERP system.

As a reminder, during fiscal 2014 we plan to convert global product procurement and our North American wholesale order to cash processes from legacy systems to SAP.

After several months of testing, we go live with our pilot wave later this quarter.

While the pilot wave only represents a small part of our consolidated revenues, it allows us to test 95% of the functionality of the new system, allowing us to mitigate risk and make any necessary adjustments before rolling out to larger businesses.

Over time we believe the SAP implementation will yield productivity improvements and procurement savings in addition to providing the Company with a stronger platform for future growth.

We expect each of these investments to deliver a rate of return that is well in excess of our cost of capital.

However, for fiscal 2014 they will represent a significant step up in spending.

The combined year-over-year impact of these investments is estimated to affect operating profits by approximately $75 million for the full-year period.

Foreign currency exchange rates will also be a significant headwind for us in fiscal 2014, both in terms of translational and transactional impact.

The recent devaluation of the Japanese yen is expected to have the greatest impact.

Comparing the current yen to dollar exchange rate to the average 83 exchange rate we experienced in fiscal 2013, the yen is down approximately 25%.

To mitigate the cost impact of the yen devaluation, we instituted price increases in Japan three weeks ago.

But those actions will not provide a complete offset to the devaluation.

For the full-year period at today's rates, we expect about 150 basis points of negative currency translation on the Company's top line and that the combination of translational and transactional currency effects will negatively impact operating profit by about $75 million.

With that as backdrop, I would like to review our initial outlook for the year, which was outlined in this morning's press release.

As we have developed the plan for fiscal 2014, the year can be characterized as a tale of two halves, with the operating margin down in the first half and up in the second half.

First half of the year is impacted by upfront expenses related to the integration of the Chaps business and Australia/New Zealand, as well as preopening costs for new stores.

The second half is expected to benefit from the integration of the new businesses as well as the new store openings.

For the first quarter of fiscal 2014 we expect consolidated net revenues to increase at a low single-digit rate, with wholesale segment sales growing slightly faster than retail segment sales as a result of the Chaps integration.

Foreign currency effects are estimated to negatively affect revenue growth by approximately 150 basis points in the first quarter and will have more of an impact on our retail segment, given its geographic business mix.

Our operating margin for the fourth quarter is expected to be approximately 200 to 250 basis points below the prior-year period due to higher operating expenses related to the timing of investments to support the Company's strategic growth objectives, the Chaps integration, and the foreign exchange impact.

First-quarter tax rate is estimated at 32%.

For the full-year fiscal 2014 period, we expect consolidated revenues to increase by 4% to 7%, which includes a 150 basis point net negative impact from foreign currency.

Wholesale sales are expected to grow slightly faster than retail revenues due to the disproportionate impact that currency translation has on our retail segment.

We estimate that newly transitioned operations, which include Chaps men's sportswear on Austria/New Zealand beginning in the second quarter, account for approximate 350 basis points of our consolidated revenue growth.

We expect our full-year fiscal 2014 operating margin to be approximately 25 to 75 basis points below fiscal 2013's record level due to the integration of newly assumed operations; accelerated investment in strategic growth initiatives across geographies, distribution channels, and infrastructure; and to the FX impacts I highlighted earlier.

Excluding the impacts of incremental investment in the Company's strategic growth initiatives and foreign exchange, underlying operating income growth would be up low double digits for the year.

Our fiscal 2014 tax rate is expected to be 31%.

The higher level of investment that is flowing through the P&L is also reflected in our capital spending plans.

We are planning approximately $350 million to $450 million in capital expenditures in fiscal 2014 primarily to support our global direct-to-customer and infrastructure investments.

Approximately 75% of our capital is allocated for our global direct-to-customer activities, including new store investments and the expansion of our dedicated distribution and fulfillment center for our North American e-commerce operations.

Our commitment to investing in our strategic growth initiatives and infrastructure is clear, as is our expectation for return on capital.

We are excited about what we believe we can achieve over the next several years as we continue to focus our capital and managerial resources on the most compelling long-term opportunities.

At this point we would like to open up the call for your questions.

Operator, can you assist us with that, please?

(Operator Instructions).

Omar Saad, ISI Group.

Hoping to focus a little bit on the revenue line in the quarter.

I know you guys had guided to something like a mid-single-digit increase in the fourth quarter.

Obviously, it came in a little bit below that.

I assume the end was part of the factor there.

Could you talk through some of the other factors that led to the slight revenue disappointment?

Are there macro things going on out there?

Is it weather related?

Is a broad-based?

Is it focused in certain areas?

And then as you think about the guidance -- the revenue guidance and the top-line kind of profile for this Company for 2014 and above, where do you think the key factors are and the opportunities?

Do you still see a very broad-based growth across geographies, and categories, and channels?

Thanks.

Let me start with the revenue underperformance versus our guidance.

So when we provided the guidance at the beginning of February, we were coming off a month of January where we had a very strong revenue growth, and we were expecting February and March to be somewhat comparable conditions to the prior year.

There were really two things that happened during the months of February and March that led to the revenue being slightly below our previous guidance.

The first was we had an incredible weather pattern this year, with much colder conditions in both North America and Europe, as well as Northeast Asia, that led to a tough February and March for seasonal spring product.

The second was -- to your point on foreign exchange -- was foreign exchange.

The yen continued to devalue during the quarter; and Japan, for perspective, is our second largest country from a revenue standpoint.

So those were really the two factors that drove the revenue versus guidance in the quarter.

I'll take the second part -- you want me to?

Go ahead.

So, Omar, in terms of the go-forward, I think we would identify the following as the key growth engines that would provide the distortion.

Obviously, e-commerce and retail -- we have talked about it; others have.

Customers making a clear choice to shop online.

Whether that is through our wholesale partners, where we are experiencing strong growth with our wholesale partners online, or whether it is in our own direct-to-consumer; whether it is Ralph Lauren or Club Monaco.

We have seen an extraordinary response to the Club Monaco website in the first nine months it has been open.

And so on and on and on around the world, the customer is indicating to us they are comfortable shopping, or getting product information, buying in the stores, and a lot of that interest is shifting to mobile.

So the growth in mobile that you are seeing in the industry in general continues for us.

I would say the other headline is the Asia-Pac region, with all the puts and takes, should provide distorted growth over the next couple of years.

The bolt-on of Australia is relatively small but completes the region for us in terms of owned territories, plugged into our shared service hub network through a lot of the infrastructure -- I think will be a nice positive edition.

And then I think the new product categories that we danced through quickly in the script that we brought back in-house over the last three or four years that have gone through some form of rehab are now beginning to show their future potential -- whether it is Denim & Supply, which Jacki talked about, or some of the accessory categories, or even some of the changes we have made in the home business.

We think those will provide future growth.

I think we are viewing Europe cautiously.

The trends there continue, with strength in the northern part of Europe and it is softer in the southern part.

I think our team did an outstanding job managing through that to deliver a top-line and even a better bottom-line performance in the year, but I think we are planning that a little more cautiously going forward.

Kate McShane, Citi Research.

In your guidance you highlighted it was a tale of two halves with the operating margin.

However, can you give a little bit more detail around the cadence of spend throughout the year, and how we should think about gross margins for the year, as well?

Yes, so I think on that I would say the investments in the strategic growth initiatives are really going to be spread relatively evenly throughout the year.

But if you look at the licensed businesses that we are taking back in Chaps in Australia/New Zealand, we are spending a disproportionate amount of money transitioning those businesses to be wholly owned in the first half of the year, and we expect them to be significantly more profitable in the second half of the year.

We also -- FX is relatively evenly spread throughout the period, and so I think it is really a function of the takeback of the licensed businesses that result in the operating margin improvement in the back half versus the front half.

I guess the other thing I would add to what Chris said is that there are certain subjects like the Fifth Avenue store that we've talked about that we are planning to open next fall -- September or October -- that are very expensive and carry a lot of rent, and we will be carrying that for over a year without the benefit of any sales.

So there are some of these big projects in Asia, here in New York on Fifth Avenue, that we think are extraordinary opportunities for us long term, will establish the brand.

Asia will be Ralph Lauren; here will be Polo.

And there is a cost of carrying those for 12 months until they come online with sales.

So that is feathered in.

And remember, this time last year we talked about fiscal 2013 being a tale of two halves.

And I think there was some concern that we had anticipated more of the profit to come in the back half of the year.

We are pleased to have delivered on that, and for different reasons we are facing a similar situation, as really our profit profile is being rebalanced more to a 50%-50% split than what it had been for many years, which was a heavier orientation on first and second quarter and a little bit lighter in the third and fourth quarter.

Some of that is also coming from the growing retail business, where we get some distortion in the back half of the year versus the first half.

Liz Dunn, Macquarie.

I guess my question was related to the Polo stores.

Can you (technical difficulty)?

We will move on to the next question.

Ms. Dunn, your line -- they cannot hear you.

Christian Buss, Credit Suisse.

I was wondering if you could provide some perspective on what is embedded in your expectations for the European business for fiscal 2014?

And if you could provide some color on when we start lapping the distribution closures or some of the trimming of distribution?

Sure.

So, I think, as Roger mentioned in the prepared remarks, the underlying business in Europe this year was up low single digits on a comparable basis.

We are expecting that to actually accelerate a little bit as we get into next year, from low single digits to a little bit faster than that -- mid-single digits type of range.

Part of the reason for that is because we have a plan to enter some of the under-penetrated geographies of Central and Eastern Europe and the Middle East that we expect to contribute to the sales.

Relative to the proactive reduction in shipments that we have made in the wholesale channel in Southern Europe, which you saw generate strong profit results in the European numbers that we just reported, we'll largely be through that from an annualization standpoint after the end of this first quarter of fiscal 2014.

So when we get to the second quarter, we feel like we will have appropriately rebased that business.

David Glick, Buckingham Research group.

Just two questions.

One, Chris, if you could help us understand what the constant currency direct-to-consumer comp guidance is for FY 2014?

And then, secondly, Roger, any early learnings from your new store openings in China?

It sounds like you're potentially accelerating some of those openings.

We are talking about a flagship, which obviously is an important investment and presence for you in China.

So some of your early learnings and the pace of expansion in China.

Thank you.

I guess we have shied away from giving, as I mentioned, I think, on the last call or the call before, constant currency comp guidance.

But what I would point you to on the first question is our guidance for the year is 4% to 7% revenue growth.

Within that there is 150 basis points of negative foreign exchange, so that would get you to 5.5% to 8.5% all-in growth.

And included in that is this 350 basis point improvement from the result of the Chaps and Australia business.

So I think you can back into the range that we are shooting for for the year, which is an underlying growth rate in the mid-single digits type of range.

And I would respond to the second part of your question as follows.

We have had a very interesting year learning about the Chinese consumer.

And while the first profile is how do they perform in China -- they're obviously a big part of the shopping trends in Korea, other parts of Southeast Asia, Europe, and the United States.

So we are learning about that customer through the really global footprint we have.

But fundamentally, and I think Jacki touched on this, the best products sell worldwide.

And so with our orientation towards apparel, we have to be mindful of the geographic and climate range in China.

The northern part of China is almost similar to the coast of Maine in terms of its weather.

And it goes all the way down (technical difficulty).

Please stand by.

Please continue, Mr. Hurley.

Please stand by as we reconnect Mr. Hurley's line.

Mr. Hurley, please go ahead.

Did we get dropped off the line, operator?

Yes, you are connected again.

Please go ahead.

I am now connected?

Yes, please continue.

We were on David Glick's Buckingham Research Group question.

David, I am not sure where I dropped off.

Apparently we lost the line.

Yes, it was early in your answer on China.

Oh!

(laughter).

Let me go back.

We are pleased to announce fourth-quarter earnings today.

In case nobody heard it, we were up 42% in EPS.

I don't know that that got through.

Maybe I will start again.

(laughter).

I was talking about China.

I will quickly summarize.

We have learned a lot about the Chinese business.

We have gotten a lot of feedback from the customers, both in China, in Southeast Asia, in Europe, the United States.

The good news at is they are gravitating towards the same looks, and categories, and items.

They clearly want luxury.

We created some unique products that respond to that market, and they have really bought that well.

And so every day, we are learning.

We know we have a long way to go to tell the Ralph Lauren story in that market.

We are investing and committing to key flagships, but in the key cities.

I think one of the things we will try to avoid is chasing the second- and third-tier cities too early on in our development of that market.

I think we have to be important in Hong Kong, and Beijing, and Shanghai, and some of the key markets before we start going out to the second- and third-tier cities.

I also expanded my answer to include Denim & Supply, and in fact, the Polo stores.

Because while we are in the early stages there, we think those are key, high-growth, brand-specific, high-margin stores.

And the early reads on a more classified approach in East Hampton has been very strong, with color multipliers selling.

Denim & Supply stores that we have opened internationally -- about a dozen, one and today two in the US are really selling denim.

And the key to that is customer is getting a fit on the denim bottoms that resonates with them, and then you can build the top business.

Early trends there are reflecting a 30% penetration of denim bottoms, which is very high in that world.

So I think the direct-to-customer business, whether it is flagships in Asia or more classified smaller locations, we are beginning to feel confident about the path we are on.

Erinn Murphy, Piper Jaffray.

Appreciate the detail, Chris, on the key investment areas for this year.

I wanted to focus just on the SAP for second phase.

Erinn, I think we lost you now.

I beg your pardon?

Operator, are you there?

Yes, please go ahead.

Can you hear me?

Ms. Murphy, I can hear you.

Go ahead -- Mr. Hurley, can you hear Ms. Murphy?

We can, yes.

Thank you very much.

I appreciate the key detail on the investments for the year, and I wanted to focus on the second phase of the SAP implementation.

I guess just given the global complexity of your business model, once this phase has been tested and implemented, could you just maybe provide a little more context or some of the key applications of this second phase of this system, and how we should think about the meaningful margin leverage going forward in the model as we exit fiscal 2014 and get into fiscal 2015?

Thank you.

Sure.

So the phase of the SAP implementation that we are in right now really focuses on the global product procurement and the North America wholesale order to cash, which is a significant part of our global systems infrastructure.

And as background, just to step back, because in the history of the Company, the Company started by licensing a lot of the geographies and a lot of the product categories, as the Company brought those businesses back in, those businesses came back in with each on a different legacy system.

And so the Company's starting point from a systems infrastructure is a large number of systems that are not integrated and not as connected as they could be.

And so we believe the implementation of SAP will allow us to get to an integrated global system that will drive significant productivity, because, for example, we will be able to put in a style once, and that style will be consistent around the world -- whereas today we have to do that multiple times around the world, with multiple different codings and with manual interfaces from one system to the next.

That process will all become automated.

The second thing is that we will increase our visibility to data.

So today, where it is very difficult to understand, for example, how many of a specific item we are selling around the world, once we get to common nomenclature and common systems, that will become much easier.

And we believe we will be able to leverage that information to drive procurement savings.

The other point I would make on this is that because it is a fairly significant endeavor, we have broken up the implementation into three waves, because we didn't want to go with an approach where we tried to implement everything at once.

And so the first wave, as I mentioned in my prepared remarks, will be a wave that tests the majority of the functionality, but on a limited percent of the revenue from a branding standpoint.

And then we will go to a second wave and a third wave.

We expect most of this implementation to be completed during fiscal 2014, and we expect the benefits to start to really kick in starting in fiscal 2015.

We will take our last question now, please.

Barbara Wyckoff, CLSA.

I guess for Roger and Jacki, can you talk about efforts to modernize the Blue Label and Lauren women's product, obviously, staying within the brand aesthetic?

And then, secondly, can you talk about your plans to accelerate growth and penetration of key accessories?

I know it has been growing, but there have been -- such categories as handbags and footwear have been so strong across the industry.

How are you going to be accelerating that growth?

We have put a lot of focus on the development and the continued modernization of our Lauren brand, and we have had a very successful Fall holiday season, followed by what is a great beginning of Spring into Summer.

Whereas the women's business over the last few years has been very challenging, we are finding over this past year, with a lot of increased efforts from our design team to excite the customer and from our merchandising team to focus on the right strength of the line and the presentation of products -- as I said, the results of that have been fantastic.

In the most recent NPD, of course, Lauren stands ahead.

We are 12% above plan against last year for the season.

And the results of that keep us in that number one position, distant, way above our competition.

We have then -- as we have the focus of our Lauren brand, we have a Lauren footwear and accessory business that we have seen very, very nice momentum in.

And then, of course, our luxury accessory business is also moving along nicely.

We have -- our leather good business there, our shoe business; and as a penetration to our Company, we are moving into the mid to high single-digit range at this point in our revenues.

It is a higher percent of our business in the Ralph Lauren stores, where we have beautiful and dedicated space to present our merchandise.

And certainly, our longer-term growth plan and goal for accessories is for it to be a more substantial part of our business over time.

We have introduced a bag which we call the Soft Ricky, and it is a new interpretation of our most iconic bag.

And it has been very strong worldwide.

And we are in the middle of a big rollout for that bag, which we believe will have tremendous results within the fall season.

And as you know, the accessory business tends to be an item business.

Focused on the centerpiece of the Ricky, we believe we can develop a very strong accessory business with that as our centerpiece going forward.

Okay, with that I will thank you all for your listening and your patience with the audio communications.

Appreciate your support.

We will look forward to talking to you in August.

And that will conclude today's call.

We thank you for your participation.