雷夫·羅倫馬球 (RL) 2014 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Ralph Lauren third-quarter 2014 earnings call.

At this time all participants are in a listen-only mode.

Later we will conduct a question-and-answer session.

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

(Operator Instructions).

As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Mr. James Hurley.

Please go ahead.

Good morning, thank you for joining us on Ralph Lauren's third-quarter fiscal 2014 conference call.

The agenda for today's call is with Jacki Nemerov, our President and Chief Operating Officer, who will comment on our broader strategic initiatives and provide some merchandising highlights from the quarter.

Chris Peterson, our Chief Administrative Officer and Chief Financial Officer, will provide operational and financial perspective on the third quarter in addition to reviewing our outlook for the balance of fiscal 2014.

After the Company's prepared remarks, we will open the call for your questions, which we ask that you please 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.

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

Thank you, Jim, and good morning, everyone.

We are pleased to be reporting exceptional third-quarter results that demonstrate an acceleration in revenue and profit growth.

You will recall that we established aggressive sales and profit plans for Fall and Holiday and we are proud to have met the high expectations.

Our 9% revenue growth and 11% increase in earnings per share were achieved in the face of one of the most challenging holiday seasons in recent memory.

Revenue momentum was broad-based, supported by strong trends across every major geographic region and most merchandise categories.

Disciplined operational management enabled us to deliver robust expense leverage even as we continued to make substantial investments in our longer-term growth initiative.

We achieved quite a lot in the first nine months of the year including the successful transition of our Chaps men's sportswear business from licensed to owned.

The integration of the Australia/New Zealand territories, the doubling of ralphlauren.com's North American distribution center and a smooth transition to SAP for several of our most critical operations.

Our year-to-date results confirm that fiscal 2014 is actualizing as the tale of two halves that we outlined at the beginning of the year.

In the back half we are delivering accelerated revenue momentum and leveraging our operational -- operating expenses while continuing to invest in the future.

Our financial performance not only demonstrates the operational excellence of our global team, but also confirms the tremendous scope and breadth of the world of Ralph Lauren.

We continue to be uniquely capable of servicing both the discerning luxury customer and the quality-seeking aspirational customer.

The continued growth of our men's, women's, and children's assortments reflects Ralph's ability to consistently deliver fresh interpretations of his iconic design sensibility.

Women's was particularly strong in the quarter with momentum across sportswear, dresses, footwear, and handbag categories.

And we also achieved outstanding growth for Purple Label and men's and women's Black Label.

Growing our global presence is an important area of strategic focus.

So I would like to spend some time on our performance by region beginning with the Americas, which account for over two thirds of our revenue and where sales accelerated to double-digit growth from mid to high single increase in the first half, supported by strong trends in both wholesale and retail segments.

This growth is particularly noteworthy given the decline in-store traffic and highly promotional environment of the holiday season.

The diversity of our operating model, which is a carefully constructed mosaic of customized product assortments for each distribution channel, enabled us to capture share.

Given the scale of the Americas, this growth is clear proof that our winning combination of terrific product, thoughtful planning and merchandising, and powerful brand presentation leads to sustained market share gains.

European revenues increased at a high single-digit rate in constant currency in the third quarter fueled by the strength of our retail business.

Our European wholesale operations reached an important inflection point in shipment trends for 2014 spring/summer season.

Following several quarters of strategic reductions and wholesale shipments to Southern Europe, we are now returning to growth.

Before the financial crisis, Europe was a substantial driver of the Company sales and profit growth.

We are pleased the region's economic climate has stabilized to a point where we feel more confident about returning to our prerecession trajectory.

At 20% of our consolidated revenues, Europe remains a significant area of opportunity for the Company in wholesale and retail channels throughout the region.

Sales in Asia also gained momentum in the quarter, growing at a double-digit rate supported by the contribution from our newly integrated Australia and New Zealand operations, improved trends in Japan, and accelerated growth in Greater China.

As many of you know, Asia is an area of substantial opportunity for our Company.

Today it represents just over 10% of our total sales with Japan and Korea accounting for 70% of the region's total.

Our focus in Japan and Korea is on reinvigorating the performance of department store concession shops.

We have made good progress in the last few months by implementing read and react merchandising strategies and customer engagements initiatives.

In Greater China, our focus is on elevating the brand's image by expanding our points of distribution.

Over the last two years, we have tested a variety of concepts in the region and we have gained valuable customer insight and feedback.

The investment we have made in new distribution has increased our brand awareness among Chinese consumers, both in the region and throughout the world, and we have begun to see a greater number of Chinese tourists visiting our stores in the US and Europe.

Next Fall, we will establish our first dual gender flagship presence in Greater China with a 20,000 square foot Ralph Lauren store in Hong Kong's prestigious Lee Garden shopping district.

As flagship stores offer the most elevated and comprehensive representation of the world of Ralph Lauren, this opening will mark a significant milestone for us in the region.

Based on the improved awareness we have established for the Ralph Lauren brand in fiscal 2015, we will begin a multiyear plan to open Polo stores throughout Greater China.

This is an important evolution in our approach to the market as we expect Polo stores to become a powerful catalyst for our anticipated growth in Greater China.

The Polo store strategy represents a tremendous global opportunity for the Company.

We are already securing several locations around the world for this exciting new concept.

You have heard me speak about the Fifth Avenue flagship store we will open in New York City this fall and today I am excited to tell you we have secured a 20,000 square foot space on Regent Street in London.

In addition to New York and London, we expect to open several other locations in the US, Europe and Asia over the next couple of years.

Our decision to accelerate the rollout of these Polo stores coincides with several important product initiatives.

First and foremost is the debut of women's Polo this fall, which marks a major milestone in the brand's history.

We are also excited to unveil a fantastic assortment of men's Polo suits, suit separates, sport jackets and trousers this fall as a result of taking the men's clothing license in-house.

The line features the more refined, dressier aspect of the Polo Brand DNA and fills a white space in both the consumer's wardrobe and our offering.

E-commerce is another very important area of focus for our Company.

The holiday season sales data clearly validates the customer's growing comfort level with the channel.

In the third quarter our global e-commerce operation achieved high teens comp growth with our North American operations being the most significant contributor to that increase.

Our newer Ralph Lauren International e-commerce and Club Monaco businesses are expanding even faster.

Our international e-commerce revenues have grown more than 50% this year with excellent trends in both Europe and Japan and ClubMonaco.com is up over 70%.

In the wholesale online space where we have focused quite a lot of our attention, our performance has also been exceptional.

Given the rise of both browsing and buying with mobile devices, we are enhancing our capabilities in that area while also continuing to strengthen the customer experience online.

The importance of our consistent investment in world-class advertising, marketing, and public relations is undeniable, particularly in the current environment.

Consumers clearly recognize that the Ralph Lauren brand signifies style, quality, and enduring value and our communication strategies provide immediate call to action that generate sales.

While we support our entire portfolio with the appropriate messages, I would like to highlight three of our current campaigns.

First is the star of our Ralph Lauren accessories line, the Ricky handbag.

On our last call I shared the momentum we were seeing from the global campaign for our Soft Ricky handbag.

This is an effort that was executed consistently across all key customer touchpoints and that was supported by the complete alignment of our production, merchandising, visual presentation, and sales teams.

I am pleased to report that the ongoing results have been tremendous and have in fact exceeded our expectations.

The Soft Ricky has been extremely well received in our own Ralph Lauren stores as well as our select specialty store partners around the world.

As we hoped it would, the Soft Ricky has generated awareness and interest in our complete Ricky line and has proven our credibility in the luxury accessories arena.

This strategy continues into Spring season which three exciting new styles will be introduced.

A mini version of the original Ricky, a two-tone Soft Ricky in eight color combinations and a new Ricky model with a chain detail on the strap.

For the luxury accessories consumer who is always in the market for something new, these three new styles are sure to catch their eye.

Next, the Olympics.

In the coming weeks our brand will enjoy extraordinary global visibility at the Winter Games in Sochi where we are the proud sponsors of Team USA for the fourth time.

We wish our athletes the very best and we thank everyone at Ralph Lauren whose hard work and dedication allows us to support their efforts and represent our country so beautifully.

And finally, our sponsorship of Downton Abbey, which provides us with the perfect environment to bring our Ralph Lauren luxury brand message to the right television audience.

While year-to-date, our performance reflects the consistent operational excellence of our team, it is also a result of many years of careful planning, strategic decisions and wise investments that, at times, may have had a negative short-term impact, but ultimately made us a stronger and more profitable organization.

We are confident that the investments we are making today in our growth initiatives, infrastructure and communication will continue to support topline momentum and create shareholder value for the long term.

And with that, I will turn the call over to Chris.

Thank you, Jacki, and good morning everyone.

As you have seen in this morning's press release, our third-quarter performance reflects accelerated topline momentum and resilient operating profitability that were in line with the high end of our expectations.

We are proud of these results especially in the context of a shorter and highly promotional holiday environment.

Consolidated net revenues in the third quarter were $2 billion, a 9% increase from the prior year period, with strong growth for both our wholesale and retail segments.

Excluding the impacts of discontinued businesses and unfavorable foreign currency translation, revenues were up 11%.

Revenue growth was broad-based with the Americas, Europe, and Asia all growing revenues by high single digits or better in constant currency terms.

Gross profit margin of 58.2% was 110 basis points lower than the prior year period as unfavorable foreign currency dynamics and the mix impact from integrating the Chaps menswear operations more than offset improved profitability in our core business.

Operating expense rate of 41.6% was 120 basis points below the prior year as disciplined operational management provided strong expense leverage on accelerated revenue growth.

Operating income was $334 million and operating margin was 16.6%, 10 basis points higher than the prior year which was at the high end of our expectations.

Net income for the third quarter was $237 million or 10% higher than the $216 million achieved in the comparable prior year period, and net income per diluted share increased 11% to $2.57.

An effective tax rate of 27% in the third quarter was in line with the prior year period.

The lower than expected tax rate reflects the favorable resolution of a discrete one-time item during the quarter.

Moving on to segment level details.

Wholesale revenues rose an impressive 14% to $840 million driven by the strong momentum in our core North American merchandise categories where we continue to gain market share, the addition of Chaps menswear operations and improved trends in Europe as we have annualized the rebasing of the business in Southern Europe.

Wholesale operating income of $168 million was 16% above the prior year period and wholesale operate margin increased 20 basis points to 19.9%.

The improvement in the wholesale segment margin was due to stronger profitability and core operations that was partially offset by the mix impact from the integration of the Chaps menswear operations and negative foreign currency effects.

Our retail segment sales rose 6% to $1.1 billion in the third quarter, reflecting the incremental contribution from new stores including the recently transitioned Australia and New Zealand operations and comparable store sales growth.

Excluding the impacts of discontinued businesses and negative foreign currency effects, retail sales increased 10%.

Consolidated comparable-store sales rose 1% on a reported basis and were up 2% in constant currency during the third quarter, on top of challenging multiyear comparisons.

Comp growth was primarily driven by strong global e-commerce performance.

We experienced lower traffic to many of our brick and mortar formats during the quarter, but the teams mitigated this pressure with exceptional customer service that drove improved conversion and higher units per transaction at most of our retail concepts worldwide.

Retail operating income of $223 million was 11% higher than the prior year period and retail operating margin improved 90 basis points to 19.8%.

The improvement in retail segment profitability reflects the extraordinary operational discipline of our global teams and was achieved despite increased investments in new store rollouts and e-commerce expansion efforts.

Licensing revenues of $45 million were 12% below the prior year period as higher licensing revenues for Ralph Lauren products were more than offset by lower Chaps in Australia and New Zealand licensing revenues as a result of recent license takebacks.

Licensing operating income of $34 million was 8% below the prior year period.

Consolidated inventory of $1.1 billion at the end of the quarter compares to $981 million in the prior year period, reflecting the integration of formerly licensed operations to directly controlled businesses and investments to support anticipated sales growth, including inventory for new stores and e-commerce operations.

We spent approximately $81 million on capital expenditures compared to $78 million in the prior year period, primarily to support our global retail development initiatives and infrastructure investments.

The Company repurchased about 1.1 million shares of its common stock in the quarter, bringing year-to-date repurchase activity to 2.3 million shares or about $400 million.

We ended the quarter with $1.4 billion in cash and investments, and our net cash balance was approximately $1.1 billion, both of which were in line with the prior year's levels.

So a fantastic quarter by any standard and even more so when we consider the challenges of the shorter and highly promotional holiday environment.

At this point, I would like to review our outlook for the balance of the year.

For the fourth quarter we expect revenue growth to accelerate and increase by 10% to 12% with wholesale growing faster than retail.

Foreign exchange and discontinued operations are estimated to negatively impact revenue growth by approximately 100 basis points in the fourth quarter with most of that headwind affecting the retail segment.

Operating margin for the fourth quarter is expected to improve 50 basis points to 90 basis points from the 11.1% achieved in the prior year period as a lower gross margin is more than offset by operating expense leverage, even as we continue to make significant investments in the Company's strategic growth objectives.

The fourth quarter tax rate is expected to be approximately 30%.

For the full-year fiscal 2014 period we are raising our revenue growth guidance to 7%, which is at the high end of our previous range of 5% to 7%, due to stronger than anticipated wholesale momentum.

Our revenue guidance includes an approximate 150 to 200 basis point negative impact from foreign currency effects and discontinued operations.

Our new outlook calls for the full-year fiscal 2014 operating margin to be 110 to 120 basis points below the prior year's record level of 16.2% and compares to our prior expectation of a 75 basis point decline.

The change in operating margin guidance is driven by three factors.

The channel mix impact from stronger wholesale revenue growth, the higher than anticipated restructuring and other charges, and incremental pressure as a result of the intensified promotional tenor of the US retail landscape in the post holiday period.

While we experienced strong sales and gross margin trends on our core business in the third quarter, we believe that being proactively competitive with the overall marketplace will position us well for the start of the Spring selling season.

As a reminder, the primary drivers of the year-over-year contraction in operating margin are the successful integration of newly assumed operations, accelerated investments in our strategic growth initiatives, and foreign exchange impacts.

The fiscal 2014 tax rate is now estimated at 29% compared to our prior expectation of 30%.

The net impact of our updated 2014 outlook keeps us in the range of our prior expectations although we get there in a slightly different manner with stronger revenue growth, a slightly lower operating margin, and a more favorable tax rate.

We remain committed to investing in the growth initiatives that have supported the Company's strong financial results over the last several years and that provide us with a more robust platform for future sales and profit growth.

While we are still in the process of refining our fiscal 2015 budget, I did want to provide some qualitative insight into how we are approaching the next fiscal year.

On the topline we expect significant contributions from a number of the growth initiatives we have invested in this year such as the Polo and Ralph Lauren flagship stores Jacki spoke about earlier, global e-commerce expansion and new product development.

Specifically, we expect the continuation of our strong momentum and are planning for revenues to increase at a high single-digit rate.

Fiscal 2015's consolidated revenue growth is expected to be retail led with international markets and e-commerce providing outsized contributions to growth.

There are several areas of incremental investment in fiscal 2015 that are expected to become important contributors to our growth over the next three- to five-year period.

These include the global expansion of the Polo brand, continued investment in our luxury business, and sustained investment in IT infrastructure.

With respect to the global expansion of the Polo brand, we will be investing on several fronts.

First and foremost, we plan to accelerate our global store development for Polo.

In addition to the Fifth Avenue flagship and Regent Street flagship locations, we will be actively looking for locations throughout the US, Europe, and Asia, including China where we think the time is right for us to reenter the market with Polo product.

We are also investing in broadening the Polo product portfolio including the launch of women's Polo and the introduction of a men's tailored clothing line that we are now directly operating.

As with other product launches and license takebacks, these will require incremental resources for design, merchandising, production, and sales.

We will also support the Polo expansion strategy with increased global advertising and marketing to build awareness for the new stores and merchandise categories.

For our luxury business, we are increasing our advertising, marketing, and PR activity to support the opening of our Lee Garden's flagship store in China, and also to drive the growth of accessories based on the success we have had with our Soft Ricky campaign.

We will also be investing in the product by using finer materials and higher-quality manufacturing resources.

While this will result in higher cost of goods, it will allow us to offer even more compelling value to the consumer and to support strong global momentum we are experiencing with our luxury merchandise.

Regarding IT infrastructure, we will begin the next phase of SAP implementation which is focused on our European operations.

We will be starting this phase as we are simultaneously completing the successful implementation of our North America, wholesale, and global supply chain operations.

Over time, we believe SAP should enable appreciable productivity improvements and procurement savings.

We also plan to start a multiyear project to upgrade our core e-commerce technology platform globally.

Our e-commerce revenues have grown at a 25% compound annual rate over the last decade and we expect e-commerce to remain one of our fastest growing businesses.

This fiscal year, we invested $75 million in capital in ralphlauren.com's North Carolina-based Customer Fulfillment Center doubling the facility in order to support a doubling of the business from current levels.

The global platform upgrade we are beginning in fiscal 2015 will require a substantial investment in both capital and operating expense.

We were pioneers in selling luxury products online and have made tremendous progress in the last decade.

As we build the new platform out, it will allow us to improve our omnichannel capabilities and significantly enhance our online and mobile shopping experience, ensuring that ralphlauren.com remains a world-class destination for our customers.

We believe a more sophisticated technological backbone is a necessary enabler of sustained revenue growth, allowing e-commerce to become a more important part of our business.

The investments we are making in Polo, luxury and e-commerce are consistent with our strategy to distort resources to high-growth, high-margin opportunities.

While each of these areas of investment is expected to generate returns that greatly exceed our cost of capital, the near-term impact on operating expenses means that the fiscal 2015 operating margin will likely be below 2014's level.

We will be completing the fiscal 2015 planning process over the next few months and we will provide a more detailed outlook for next year when we report our fourth-quarter earnings in May.

We are confident that we are making the right investments to expand the Ralph Lauren brand in a manner that maximizes our global sales and profit potential over the intermediate and long term.

We have consistently made outside investments in the near term with an expectation that we would achieve strong returns as high-growth merchandising categories, channels, and regions evolve in the future.

You can see those returns playing out in the second half of fiscal 2014 which gives us the confidence to proceed with the next wave of important investments.

Our Board of Directors shares our conviction which is evidenced by the additional $500 million share repurchase authorization we announced today bringing our total authorizations to $730 million.

And with that, I will conclude the Company's remarks and open the call up for your questions.

Operator, can you assist us with that, please?

(Operator Instructions).

Omar Saad, ISI Group.

Congratulations, great quarter.

Really tough out there.

Thank you.

Wanted to ask a little bit about this kind of mix.

It sounds like your wholesale is accelerating, but retail has been such a big driver.

Chris, your additional comments for next year is sounds like retail is going to continue to be a big driver.

But maybe there's some margin pressure because of the wholesale growth and it is obviously -- at least at the gross margin level.

I think you made a comment about being proactively competitive.

Help me put all this into context and what it means for margins looking out.

I think in the fourth quarter, as we mentioned, we are expecting operating margin to be up 50 to 90 basis points and that brings our fiscal 2014 full-year margin, operating margin a little bit lower than our previous guidance and really there's three factors impacting that.

One is the revenue being stronger in wholesale than what we had anticipated previously, which does put a little bit of mix pressure because the wholesale business operates at a lower gross margin rate than the retail business.

The second is we are going to incur a little bit higher restructuring charges than what we had originally anticipated.

And then the third is, although we had a very strong third-quarter result in our core business -- so if you looked at our gross margin in the third quarter, excluding the impact of the mix impact from Chaps and foreign exchange -- our core business gross margin globally was actually up 50 basis points versus year ago in the third quarter.

We are just being a little bit cautious with regard to the environment we are operating in.

Because what we are seeing from a competitive dynamics standpoint is an intensified promotional environment and we want to make sure that, in the fourth quarter, we work through our inventory plan so that we can convert in a strong fashion into the Spring selling season.

So that is really what is happening with regard to margin dynamics this year.

With regard to next year, I think we are still early in our planning phase for next year, and I would expect that next year we will see gross margin higher next year than we are this year.

But because of the significant investments that we are making in future growth initiatives, at this point we think it is likely that operating margin will be down next year versus this year as I mentioned in the prepared comments.

Next question.

Kate McShane, Citigroup.

Good morning.

I was wondering if you could help us reconcile the rollout of Polo stores in China.

It seems like most recently the focus has been on the luxury end of Ralph Lauren in China and now it seems there is a sooner than expected rollout of Polo stores in China.

So can you help us understand what's changed there?

Sure.

Let me start on that.

So that is right.

So, I think as we have taken the license back from the licensee that we had previously several years ago and we have rebased the distribution in China with closing 95 points of distribution and resetting the brand image with opening our luxury store portfolio, we have been very closely monitoring the consumer reaction, both from an awareness standpoint and from a perception of the brand standpoint.

Not just in China through our store performance, but also outside of China as consumers -- Chinese consumers are shopping when they travel.

And so one of the things that we have been focused on is how is the Chinese consumer responding in our European business and in our US business.

And at least in the most recent period we have seen as a result of this resetting of the brand image in China, that -- in the most recent period, for example, in Europe -- the Chinese consumer in Europe business is actually up 50% versus year ago.

So we are starting to see him the impact that we wanted to see from a consumer perception translates into increases outside of China when the Chinese customer travels.

In the US, the Chinese consumer is now in the top five of our foreign customers that are buying in our stores as we are tracking that.

And because of that, and because of the opening of the Lee Garden's flagship store that we have this fall, we think the time is now right where we have appropriately reset the brand image to begin to roll out Polo stores in that marketplace.

So that has been an active dialogue inside the Company and is a decision that we have just made.

And since -- let me add to Chris's comment.

We are seeing that over 55% of the consumers that are Chinese consumers are actually shopping outside of China.

So many of the important statements that we have made throughout the rest of the world, whether that is in Europe or in the US, we are starting to really see an acceleration of that customer.

What we are also seeing is an important difference in the unit transaction with the Chinese consumer versus our more standard consumer that that transaction is actually doubled the size of our standard transaction.

So we are seeing that also as quite a meaningful opportunity for us.

Michael Binetti, UBS.

Good morning.

Congratulations on a great quarter.

A couple of questions for you.

Could we hear a little bit more about the change in trajectory?

It sounds like you saw in Japan in the quarter?

obviously the FX exacerbated an already challenging market there over the past few quarters, but maybe we could hear about a little bit more about what caused and inflection and if those concessions are actually positive and sustainably there.

And then if I could ask one other question it would be about the Polo women's opportunity that you talked about.

Maybe we could hear a little bit more about that as an opportunity and how big you think that is and perhaps how you see the distribution going for that.

Is that wholesale opportunity as we get through calendar 2014 after you open the store later this year?

Thanks.

Okay, I will start with Japan and Asia and then Jackie will -- can comment on the Polo store, women's Polo plans.

So, in Asia, you are right.

We did see an acceleration of our growth rate in Asia specifically and in Japan in particular.

So, if you look in Asia, our business was up; our revenues were up double digits in constant currency versus year ago, in Asia broadly defined.

And in Japan, we went from a period where on a constant currency basis our sales were challenged to a period where our sales in Japan were up low single digits on a constant currency basis.

I think part of what has happened in the Japan market is with the significant devaluation in the Japanese yen, we decided to take pricing back in May because we thought that it was the right thing for us to do as market leaders to try to price to recover the cost impact of the end devaluation.

It takes some time for competitors to see what we have done and then to decide whether they want to or not adjust their pricing in the market.

We think we are at a better place now, having adjusted our pricing and having seen some of the competitors adjust their pricing.

And so we are now at a point where that price gap that we established when we first took pricing is narrowing and is allowing us to return to a more normalized growth rate for that market.

In addition to Chris's comments, we have put up a task force in place around our Japanese opportunity, and we have solicited help from our very strong sales and merchandising teams kind of around the world to really build some of the very dynamic things that we have done in other parts of the world to help us really transition that business into what we believe is a wonderful opportunity.

So whether it is the content or merchandising, or store presentation, we have really worked hard to step up our game and we are starting to really see some nice results from that.

In addition on your comment about Polo women's, we are actually doing a brand launch both in retail and wholesale simultaneously.

So our store will open in the Fall season and, simultaneous to that, we will began to shift Polo women's in about 150 US stores and then a significant number of doors in Europe and in Asia, all simultaneous with this very unique launch.

We previewed with many, many, many customers from all over the world actually late December into early January.

Met with some very positive response to the line.

And so that launch will be simultaneous in both retail and wholesale.

We also intend to put an important marketing and advertising and PR strategy around that launch, around the world doing something more similar to what we did when we launched our Soft Ricky.

And so we will have a unified message around the world, around the Polo brand in general and both Polo's men's and women's.

Erinn Murphy, Piper Jaffray.

Good morning.

I just had a question on Europe.

Very encouraging to see some of that strength return to that market.

Could you elaborate a little bit more on some of the regional nuances during the quarter?

And how the local versus the tourist customer responded?

Then secondly, if we think about the fiscal 2015 topline guidance in the high single-digit range, maybe could you help us prioritize the ranks of [intentional] sales growth rate from the key regions?

So between Asia, Europe, and North America.

Thank you.

I will start with Europe.

So, in Europe about half of our business is wholesale and about half of our business in retail -- is retail.

And what has been happening in Europe over the last 18 months is we made this decision as we talked about 12 or 18 months ago to proactively pull back on shipments in the wholesale channel in Southern Europe, particularly to the specialty wholesale customer, which was in our view more at risk from a credit and macroeconomic standpoint.

We -- during that period we continued to see strong growth in our retail segment, but the decline in the wholesale business from the pullback proactively in shipments sort of mitigated that trend of European revenue growth over the last several quarters.

In the third quarter that we've just reported, we have now annualized that.

And so, if you look at the wholesale business in Europe we actually were up low single digits in wholesale across the European region.

And we were up double digits in the retail segment and the combination of those businesses resulted in Europe on a constant currency basis being up high single digits as the strength in the retail business is now coming through.

So that's a little bit about what has been going on in Europe.

If you continue to look at geographically at the strength of the business and the strength of the consumer holistically, I think we continue to be in a period where Northern Europe continues to be stronger than Southern Europe, but our view is that Southern Europe has stabilized now.

So it is not in as tough a situation compared to year ago as what we were facing 12 to 18 months ago.

But certainly the Northern European business continues to be stronger than the Southern European business.

The other thing that we are excited about in Europe is that when you look out on the wholesale business at future bookings, the future bookings are stronger and auger for continued growth in the wholesale business going forward.

I think the fiscal 2015 in terms of the high single-digit range was the other part of the question.

So I think it is a little bit premature to talk about the specifics between Europe, Asia, and North America.

Certainly, we expect Asia to represent disproportionate growth as a region as we open some of our new stores that we have had in the pipelines like Lee Gardens and continue the momentum in that business.

We continue to expect to grow market share with the plans that we have in place in the US marketplace.

And I think we think Europe is going to be strong because we think we are starting from a base now where we no longer have to rebase the business.

But we will provide more specifics on the next call.

Liz Dunn, Macquarie.

Good morning and let me add my congratulations on a strong quarter.

I'm interested in whether or not you see any potential for channel conflict as you roll out these Polo stores?

As well as longer term, what percentage of retail do you think will be achieved in the mix and what kind of store growth are you targeting?

I think we don't see a significant channel conflict risk in the Polo store rollout strategy.

And part of the reason for that is I think where you will see us go with the Polo stores is we believe we will have the flagship store on Fifth Avenue, which really sets the tone and the aesthetics of the brand globally, which we think will strengthen the Polo brand.

But when you look at a lot of the other Polo stores that we are going to be looking at, they are going to really be focused in areas that are more white space to us.

So if you think about China or if you think about parts of Europe or parts of Southeast Asia, Eastern Europe, really a lot of the locations that we are going to be going into are locations and geographies where there isn't a strong Polo distribution to begin with.

And so it is not so much a conflict as it is an opportunity to fill out white space, I think, going forward.

Christian Buss, Credit Suisse.

I was wondering if you could provide some color on the performance of your e-commerce business in the quarter and how should we be thinking about the returns on those incremental investments.

It would really be helpful for me if you could talk about the e-commerce penetration you have got and where the targets are longer term.

E-commerce in the quarter grew high teens and -- which we feel very good about.

It continues to be a channel where consumers are choosing to shop.

I think the convenience of e-commerce and the brand experience that we have on our e-commerce site are really resonating with consumers.

We believe that trend is likely going to continue and so we are planning for e-commerce to continue to be a disproportionate driver of growth.

It is a high profit business in the US where we have scale.

So in the US our e-commerce business is about 10% of our overall US business today from a penetration standpoint and the operating margin of the e-commerce business in the US is at or above the balance of the US business.

So we feel very good about where we are there.

In Europe we are at an earlier stage, so we are not yet as penetrated in e-commerce in the European business because we didn't start as early as we did in the US.

This year we are expecting the e-commerce business in Europe to turn profitable, but we still aren't yet at going operating margins because we are not yet at full scale.

And in Asia where we had just started e-commerce with really a launch just in two countries, Japan and Korea, we are off to a strong start.

But we are still in investment mode in those markets because we haven't yet reached scale.

The other thing that may be worth talking a little bit about is we have a technology platform that underpins our e-commerce operation that the Company put in about eight or 10 years ago.

And that technology platform has served the Company very well.

But as the e-commerce channel and shopping experience continues to involve, we believe there is an opportunity to upgrade that e-commerce technology platform to better service the consumer, improve the shopping experience.

And so that is a multiyear project that we are going to be starting shortly here that we will talk more about over the upcoming calls.

Barbara Wyckoff, CLSA.

Could you talk about Denim & Supply performance US and overall?

Also can you comment on Club Monaco and what is going on there?

And thank you.

Our Denim & Supply performance has been very strong both internationally in Europe and Asia and in the US as well.

We are rolling out both wholesale and retail points of distribution for the brand and we are very encouraged as we continue to be a top performer in this space.

It is a new business and there's an interesting learning curve, but the denim penetration which was something that we were very focused on has -- it has been quite impressive.

And I think what we do in the tops and sweater area and outerwear area of the business are quite unique to this space.

So we have really had a great acceleration in this brand that we expect to see continue.

In Club Monaco, our business is -- has been quite good and we just, as you know, opened a new store on Fifth Avenue which has been very exciting and a top performer in the Company.

And then a week ago we opened our new store in Soho which is also through -- off to a very, very strong start.

So with the strength in the US, strong Asia business, and a growing Europe Denim & Supply business club -- I'm sorry, Club Monaco business, we are very, very excited.

The business in Asia is a licensed business and we are over 100 stores in Club Monaco today.

And we have similar plans for Europe while we are in early and beginning stages as an owned and operated business in Europe.

Robby Ohmes, Bank of America Merrill Lynch.

Jacki, could I get you to talk a little more about the Polo women's business and how that will be positioned globally relative to -- well, I guess in the US, relative to the Lauren business?

You were talking about Denim & Supply, maybe relative to the Denim & Supply growth in the women's side.

And just help us understand how these different women's apparel wholesale businesses you are doing will be differentiated globally.

Absolutely.

Let me start with our Lauren brand which is foundational today and the backbone of the department stores, better business, and has had quite a strong year.

And we are very pleased with where Lauren is and where it is positioned.

While Lauren serves a broad customer, the foundation of that business is a customer who is essentially in the 35 plus area and who really looks for our brand and our style to supply her broad wardrobe, whether it is her daywear, her evening wear.

We have great success in our dress business.

But, again, very broad-based and it tends to be sort of the backbone customer in the department store.

In Denim & Supply it is a new space that is defined under the millennial umbrella and in that space as I said we have really accelerated with our strength and in most cases in that competitive space we're now kind of in a number one, two or three position.

In our new Polo women's business we tend to really see our competition there as a Burberry, as a Tory Burch, in that more contemporary sensibility.

And while the line is defined through the iconic Ralph Lauren perspective, it is really appealing to what we see as a younger customer.

It has a slimmer fit and the expression of the brand is very eclectic in the way we mix our pieces together and make it very fresh-looking and we think something unique in the marketplace.

Great.

Thanks very much.

Thank you all very much.

Ladies and gentlemen, that does conclude your conference for today.

Thank you for your participation.

You may now disconnect.