雷夫·羅倫馬球 (RL) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Ralph Lauren first-quarter fiscal-year 2016 earnings call.

(Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Mrs.

Evren Kopelman.

Please go ahead.

Good morning and thank you for joining us on Ralph Lauren's first-quarter fiscal-2016 conference call.

The agenda for this morning's call includes an overview of the quarter and an update on our broader strategic initiatives from Jacki Nemerov, our President and COO; followed by a financial perspective on the first quarter from Bob Madore, our CFO; and concluding with commentary on our organizational restructure as well as our expectations for fiscal 2016 from Chris Peterson, our President of Global Brands.

After the Company's prepared remarks, we will open up the call 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 filing.

Now I'd like to turn the call over to Jacki.

Thank you, Evren, and good morning, everyone.

In the first quarter of our new fiscal year, we delivered revenues in line with our guidance and profits that were better than our expectations.

This was driven by the Company's attention to careful, disciplined operational and expense management.

We are pleased with these results in the context of the environment in which we operate, and we are on track to deliver our plan for the fiscal year.

We see the year developing as one of steady quarter-by-quarter improvement.

Looking at the first half, we are negatively impacted by the Easter calendar, significant foreign-exchange pressure, and our infrastructure investments.

In the second half we expect to see both sales and profit improvement due to the launch of Polo Sport and the opening of our new stores, the impact of product cost savings and pricing actions, and the benefit of our restructuring activities.

In addition, the foreign-exchange pressure will lessen as the year progresses.

Now let me turn to the quarter.

There are several factors impacting our results: first, the shift in global tourist traffic patterns around the world; second -- but related to the first point -- the changes in foreign-exchange rates; and third, the increasingly promotional US retail environment.

We are taking decisive actions to most effectively operate in this changing environment.

We always take a long-term view to protect both our brand and our profitability.

While our infrastructure investments have pressured our operating margin in the short-term, we believe these are the right investments that will pay off in the future.

Let me give you more texture on each of these topics.

In the first quarter the impact of currency movements on global tourism was especially pronounced.

We saw significant increases in traffic in Europe and Japan and a decline in the US.

We see that the customer is more astute than ever and adjusts travel and purchasing plans to make the smartest spending decisions.

Our business was up double digits in Europe and Japan, where the local currencies have weakened and tourism has increased.

In Japan, an increase in traffic from Chinese tourists and more domestic consumption from the Japanese as they traveled less overseas due to their weaker currency drove the business.

We also had specific merchandising and marketing initiatives implemented by our teams that were quite successful.

Europe experienced similar trends as tourist traffic increased with the weaker euro, and demand was especially strong in wholesale.

In the US the impact was disproportionate for us, as our distribution skews to the largest cities that have experienced the most significant slowdowns in traffic and spending from the foreign tourists.

Roughly half of our US Ralph Lauren and Club Monaco stores are in major gateway cities such as New York, Miami, and San Francisco.

Many of our largest points of wholesale distribution are also in major gateway cities.

And finally, our factory outlet presence is heavily skewed to centers that tend to attract more foreign tourists.

In the balance of our distribution across the rest of the country, our performance has been on or above plan, which tells us that the strength of our brands and appeal of our products remain high.

Now let me turn to the retail environment in the US.

The industry saw a late start to the spring season due to issues related to the West Coast port delays and an unseasonably cold weather pattern as well as the lower tourist traffic I spoke about earlier.

These conditions created an excess of inventory and, therefore, a more promotional environment in North America.

We made the decision to be less promotional than the landscape because we believe it's critical to protect our brand.

Looking at comp growth across some of our largest customers, we are in line or better than their stores' average performance.

For our retail business, revenue was up 3% in constant currency in the first quarter.

Global same-store sales were down 2% due to a slowdown in e-commerce.

E-commerce revenue was up 2%, which was softer than prior quarters.

As I referenced earlier, the environment in North America was highly promotional in the quarter, and this was more pronounced online.

And again, we chose to stay less promotional than the landscape and achieved a higher average unit retail over the prior-year period as a result.

While we knew this decision could slow our revenue growth, we believed it was the right thing to do for our brand.

We have seen a pickup in sales at the beginning of the second quarter; however, we remain cautious, as most of the quarter remains ahead of us.

Now I'd like to provide some perspective on international sales trends.

As I mentioned, Europe had a strong quarter, with revenue up 10% in constant currency.

Wholesale demand was particularly strong with robust sellthroughs and reorders, and all brands across the portfolio are performing well.

By region, Northern and Central Europe performed the best.

In Asia, revenue was up 9% in constant currency.

Japan, which is our largest business in Asia, had a strong quarter with double-digit revenue growth in constant currency, driven by successful merchandising and marketing initiatives as well as the increase in traffic from Chinese tourists that I previously mentioned.

In Korea we experienced a strong trend until the MERS outbreak in June, which negatively impacted traffic.

China was strong, once again, with double-digit comp growth.

Hong Kong and Macau traffic remained pressured, but we saw improvement in our conversion rate.

We continued to see strong performance of women's Polo and the expansion of the Lauren brand through new distribution in Japan and Korea, which represents an additional opportunity for growth.

Turning to some of the product highlights, let me begin with luxury.

I spoke on our last call about the merging of our luxury labels to create a singular Ralph Lauren Collection label for women and Ralph Lauren Purple Label for men.

I am delighted to report that this is on track for the spring 2016 season, with positive feedback from both the retail and editorial communities, who immediately understood the clarity of our offering.

For the first time in many years Ralph Lauren participated in Milan Men's Fashion Week, with an elegant and exclusive presentation of the spring 2016 Purple Label collection.

This took place at the Ralph Lauren palazzo in the heart of Milan that beautifully represents the aesthetic and sensibility of Ralph Lauren luxury.

Within the accessories part of the luxury business, we are continuing to expand the signature Ricky handbag line with the newest style, the drawstring Ricky, that was featured in our most recent advertising campaign.

We will continue to grow our luxury accessory assortment and broaden the price tiering of our product offering.

Turning to the Polo brand, we unveiled our new Polo Sport line in mid-June on ralphlauren.com in the US and have seen strong interest through our preorder capability.

Starting with men's and boys' product, this performance-oriented collection not only brings forward an important aspect of the Polo heritage and DNA but also speaks to the performance-inspired active trend.

Polo Sport will be available in our own stores and select department stores worldwide leader this month and will be introduced at Dick's Sporting Goods in late fall.

Our Polo Tech shirt, which combines the aesthetic of Polo Sport and industry-leading advancements in wearable technology, will also be available for purchase later this month.

This high-performance shirt will be supported by an interactive Polo Tech app that will feature exclusive video content that allows the wearer to optimize training performance.

We presented our spring 2016 collections for Polo sportswear, Polo tailored clothing, and Polo Sport as part of the first-ever New York Men's Fashion Week last month.

And the reception across the Board was very strong, with a tremendous amount of favorable commentary on the evolution of the brand.

Turning to the women's component of our Polo brand, as we enter its second year, we will be broadening the product line to address additional dimensions of our customers' lifestyle.

Denim & Supply continues to see strong growth in both men's and women's.

Both Polo for women and Denim & Supply feature product that spoke to some of the season's biggest trends, such as bohemian looks and fringe details, which are core to our DNA.

And across all brands, we had terrific consumer response to our denim offerings.

Our dress business, Lauren footwear, and Lauren accessories are also performing well.

In our licensed businesses, men's Polo furnishings, Lauren tailored clothing, and home continue to grow and gain market share in the department store channel.

We remain focused on managing the business and the brands for the long-term.

We continued to be disciplined about expense management, especially given the challenging macro operating environment, in order to allow us to thoughtfully invest in our long-term strategic growth initiatives.

I would like to recognize the talent, experience, and dedication of our senior leaders and their teams.

And with that, I'll turn the call over to Bob.

Thank you, Jacki, and good morning, everyone.

I'd like to begin with a brief recap of the quarter.

On a constant currency basis, revenues were in line with the prior year, driven by double-digit revenue growth internationally.

This is in line with the guidance we provided in May.

The negative FX impact to revenue growth was approximately 500 basis points, which is slightly better than we anticipated, as the euro performed slightly better against the US dollar.

On a reported basis, net revenues declined 5% to $1.6 billion in the quarter.

Gross profit margin was 59.8% in the first quarter, excluding restructuring-related non-cash charges of $3 million.

This was 120 basis points below the prior-year period.

The decline in gross profit margin was due to unfavorable foreign currency effects.

Operating margin in the first quarter was 8.8%, excluding restructuring and related non-cash charges.

This was 550 basis points below the prior year; however, better than the outlook we provided in May of 600 to 650 basis point decrease.

The operating margin came in better than our guidance due to disciplined operational management across the organization.

Lower operating margin was attributable to the timing of revenue receipts in our wholesale business, incremental investments in infrastructure, and negative foreign currency effects.

Net income for the first quarter was $95 million or $1.09 per diluted share excluding restructuring and related non-cash charges.

On a reported basis net income was $64 million or $0.73 per diluted share.

The effective tax rate of 30% in the first quarter on an adjusted basis was in line with our guidance when compared to an effective tax rate of 31% in the prior-year period.

Moving on to segment performance, wholesale revenues declined 6% in constant currency during the first quarter.

Wholesale revenue was negatively impacted by our customers' receipt plans due to an earlier Easter this year, which was partially offset by double-digit constant currency growth in Europe.

Combining the two quarters to take a more holistic view of the spring/summer season, global wholesale revenues were up approximately 2% in constant currency.

On a reported basis wholesale revenues of $642 million were 9% below the prior-year period.

Wholesale operating margin in the first quarter was 21.8%, excluding restructuring-related non-cash charges.

This was 370 basis points below the prior-year period due to the change in customer receipt plans.

Retail sales increased 3% in constant currency to $935 million.

Growth was driven by incremental contribution from new stores and e-commerce expansion.

Comparable-store sales declined 2% in constant currency and declined 8% on a reported basis.

In Europe and Asia, same-store sales growth was positive, with particular strength in Japan and China.

In North America the strong US dollar pressured tourist traffic and the overall retail environment.

As Jacki mentioned, comps in brick-and-mortar stores were similar to last quarter in the range of down 2% to 3%.

However, e-commerce growth was softer than prior quarters at up 2%.

Again, the online environment in North America became highly promotional in the quarter, and we chose to stay less promotional than the landscape.

We achieved a higher average unit retail and higher average order value over the prior period as a result.

Excluding restructuring-related non-cash charges, retail operating margin in the first quarter was 12.6%, which was 490 points below the prior-year period, reflecting fixed expense to leverage and negative foreign currency effects.

Licensing revenues increased 6% in constant currency during the first quarter, and licensing operating income was in line with the prior-year period.

Moving on to the balance sheet, consolidated inventory was $1.3 billion at the end of the first quarter, up 8% year-over-year, reflecting investments to support new store openings, the launch of Polo Sport, and increased shipments of Polo women's, as well as a change in the timing of receipt plans.

In addition we spent $68 million on capital expenditures compared to $85 million in the prior-year period.

The Company also repurchased 1.1 million shares of its common stock during the first quarter at a cost of $150 million.

And at the end of the first quarter, approximately $430 million remained available for future share repurchases.

We ended the quarter with approximately $1.2 billion in cash and investments on the balance sheet.

Overall, we are pleased with the better-than-expected first-quarter results.

Disciplined planning and day-to-day execution enabled us to offset meaningful FX and environmental headwinds.

With that, I'll turn the call over to Chris to give you an update on our global brand reorganization effort and guidance for fiscal 2016.

Thanks, Bob, and good morning, everyone.

I'm excited to share an update on our transition to the new global brand management organization structure we spoke about on our last call, as we have made significant progress.

In the last 90 days we established six global brand groups, and I am pleased to report that we have filled all of the global brand President roles.

These Presidents reflect an equal balance of Ralph Lauren veterans with significant experience inside our organization and outside talent with critical category expertise.

In addition to the six brand Presidents, we have also begun to identify the design, merchandising, marketing, and finance leads for their respective teams and are pleased with the way these groups are forming.

A key element of our new operating model is the introduction of a global line planning process.

This is the end-to-end process by which we design, merchandise, and plan our assortments.

We have kicked it off in our Polo men's business as a pilot for the fall 2016 season.

We will use learnings from this pilot to inform its rollout across the other brands in spring 2017 and beyond.

We expect this new process to improve brand equity and revenue growth by creating better assortments and more consistent brand messaging and drive operating efficiencies at the same time.

The new organization structure and its accompanying processes will lead to a significant reduction in SKUs as well as sample and design costs, which will lead to better inventory turns, higher gross margins, and meaningful SG&A cost savings.

We expect to see the benefits from the global line planning process in the next 18 to 24 months as it rolls out across the portfolio.

We also implemented the headcount reduction that we spoke about on our last call.

These were difficult but necessary decisions, and we are on track to realize the $100 million in annual expense savings we spoke about previously, driven by the move to the new organization model.

Only a modest amount of the benefits will be realized in fiscal 2016, with more significant savings to come in fiscal 2017 and beyond.

We expect to incur restructuring and other one-time related charges of approximately $70 million to $100 million as a result of this reorganization, and we've recognized $45 million of this expected charge in the first quarter.

This charge encompasses the cost of separation associated with our workforce reduction as well as the cost of store and shop adjustments to provide greater clarity of brand presentation.

We are very encouraged by the early stages of our transition and pleased to report that it has gone smoothly.

We now feel even more confident that it will allow us to maximize growth and achieve meaningful operational and financial efficiencies.

Before I turn to guidance for fiscal 2016, I wanted to give an update on some of our key initiatives around new store development, infrastructure investments, and our efforts to mitigate foreign-exchange impacts.

In the first quarter we opened 6 directly-operated and 15 licensed stores around the world.

We are on track to open 40 to 50 directly-operated stores in fiscal 2016.

We continue to expect that these new store investments will be neutral to year-on-year margins in fiscal 2016, as the accelerated store opening pace is now in our base.

Regarding infrastructure investments, our e-commerce replatform is on schedule and ramping up as planned.

This is a multiyear initiative to significantly improve the Company's omnichannel capabilities and the customers' shopping experience.

Our SAP implementation in Europe is also on track.

We continue to expect our infrastructure investments to create a year-over-year drag of approximately 60 basis points on operating margin in fiscal 2016, largely driven by the critical e-commerce replatforming investment.

Moving to foreign exchange, let me give you an update on our previously announced actions to mitigate the negative currency impacts.

We have raised prices for cruise and spring seasons in those markets that have been impacted by currency devaluation, including Japan, Canada, Australia, and Europe.

These prices are generally in the mid- to high single-digit range.

Our retail partners have been very receptive to the price increases, and we believe our competitors are implementing pricing actions as well.

We expect to see the benefits on our income statement in the back half of the fiscal year.

In addition, we continue to expect lower product costs in the back half of fiscal year from lower raw material and oil prices.

With that as backdrop, I'd like to now turn to guidance for fiscal 2016.

We are maintaining our outlook for the fiscal year.

We continue to expect mid-single-digit constant currency revenue growth for the full year.

This will be supported by significant contributions from the strategic initiatives in which we have invested over the last several years.

Retail segment revenues are expected to grow faster than wholesale and, based on current exchange rates, foreign currency will have about a 450 basis point negative impact on fiscal 2016 revenue growth.

Moving to operating income, on a constant currency basis we expect an improvement in operating margin from continuing operations in fiscal 2016.

We intend to reinvest this improvement in our infrastructure buildout -- primarily the new global e-commerce platform and ongoing SAP implementation.

On a reported basis we continue to expect our full-year 2016 operating margin to be approximately 180 to 230 basis points below fiscal 2015's level, due to the unfavorable currency impact.

This guidance excludes restructuring and other one-time related charges associated with our global brand reorganizations.

In terms of the sensitivity on our operating income to movements in exchange rates, a change of about $0.05 in the euro to US dollar rate would impact our operating income by about $20 million on a full-year basis.

Our fiscal 2016 tax rate is expected to be 30%.

We are planning approximately $400 million to $500 million in capital expenditures in fiscal 2016 to support our global direct-to-consumer and infrastructure investments.

For the second quarter of fiscal 2016 we expect net revenues to grow 3% to 5% in constant currency.

We estimate the negative currency impact on sales growth in the second quarter to be 550 basis points.

Our operating margin for the second quarter is expected to be approximately 275 to 325 basis points below the prior-year period due to negative foreign-currency effects, infrastructure investments, and timing of expense savings initiatives.

The second-quarter tax rate is estimated at 30%.

We are confident in the Company's potential for future growth.

We believe that the new global brand management operating model will allow us to more fully leverage the power of our brands, and we continue to make strategic decisions to minimize the impact of near-term market realities and maximize shareholder returns over time.

With that we will open up the call for your questions.

Operator, can you assist us with that?

(Operator Instructions) Omar Saad, Evercore ISI.

Good morning.

Thanks for the update.

I wanted to ask my questions around the retail business.

The comp -- the minus 2% comp -- it sounds like North America is the key driver there.

Do you have a sense for what the comp might have looked like if you had chosen to go down the promotional path?

And then, what are your expectations for the environment?

Do you expect the promotionality kind of across retail to moderate, and comp-store sales trends to resume to more of a positive level?

Also, an update on the Polo store specifically would be great.

Thanks.

Sure.

So let me start with sort of the comp trends.

It was really a mixed environment that we were operating in around the world, with a lot of different factors.

So I would start by saying that about 20% of our sales are driven by foreign tourists globally in our retail stores.

And you correctly mentioned that if you look at the international business, our retail comps were positive.

So we were up internationally in our retail comps, both in Europe and in Asia.

Part of that was driven by strong acceptance of the product; part of that was driven by increased traffic flows from foreign tourists, particularly in Japan and Europe.

In the US the business was under a little bit more pressure, and that was largely driven by the foreign tourist trend.

So I think that's been one of the biggest drivers, as we spoke about previously.

With regard to the e-commerce impact, it was a little bit of a different dynamic.

So in the e-commerce comps, we saw strong double-digit growth in e-commerce comps in the international business, where we continued to operate in a somewhat less promotional environment.

In the US, as we saw the promotional environment escalating, we chose to stay focused on driving full-price sellthrough and increasing the brand equity.

So we chose not to go down the promotional game.

And we saw, as a result of that, that our average unit retails were up versus year-ago.

Our average transaction size was up versus year-ago.

But we did see a slowdown in the revenue growth as a result, and that's really what held back the overall e-commerce comp growth in the quarter.

But we think it was the right move from a long-term perspective in terms of protecting the brand equity.

The Polo Fifth Avenue store -- I think we continue to be very encouraged about the Polo Fifth Avenue store in terms of the job that it's doing.

It's showcasing the brand aesthetic and brand sensibility.

We are continuing to learn in that store, based on the consumer response; and we are continuing to adjust the product assortment to not only showcase the direction that the brand is moving with new product, but also getting the product assortments right for that consumer that's walking into the store.

So I think we continue to feel very good about where we are with that store.

Thank you.

Michael Binetti, UBS.

Thanks for a great update.

Chris, since you like multipart questions, I want to ask you one here.

I know it's been a topic of intense discussion, but fiscal 2017, as we look to our longer-term models -- particularly on the margin -- you guys have a lot of projects going on with varying durations.

And as we look at next year, you guys have been commenting with us all intraquarter on a lot of these things.

Maybe just an update on a few of the buckets.

I think you said e-commerce and SAP are going to peak out in dollar terms this year -- maybe not decline next year, but no longer inflationary.

There's the restructuring savings -- if you could comment on how much of that you think would flow through to margins?

Because if all of it did, that would be obviously very impactful to earnings.

So I want to maybe help us context that.

And then currency -- I know most of the competitors now are starting to talk about the lagging impacts of hedges rolling off next year.

Maybe you could just help us contextualize that.

As we look at next year, will FX be a bigger or smaller impact to the margins versus this year?

Thanks.

Yes, sure.

So I think you've got the three big elements that you mentioned in the question.

But maybe I'll start with FX.

So for FX, I think we said on the last call that we expected FX to be a hurt of about $185 million to operating income this year, which effectively accounts for most of the -- if not all of the -- margin decline in operating margin this year.

If you look at that FX impact this year, about half of that is translational, and half of that is transactional.

The translational impact of currency rates stay where they are today, we would not have continuing into next fiscal year, because we would have fully anniversaried it by the time we get to next fiscal year.

We do expect, if FX rates stay where they are today, that we will have a lagging transactional hurt from FX that goes into next year.

But we expect the magnitude of that transactional hurt to be slightly smaller than the transactional hurt that we are experiencing this year because of the timing of when our hedges roll off.

On the infrastructure investments piece of that, I expect that the e-commerce replatforming investment is likely to ramp up next year versus this year, as we get closer to implementation.

And so we are expecting to be spending more money on the e-commerce replatforming project next year.

But on the SAP project, we expect that investment to ramp down year-over-year.

And so when you look at the infrastructure investments in total, it's too soon to say exactly how we net out, but probably we will be in a similar place in fiscal 2017 in total, when you look at the two projects together, as where we are this year.

And then -- let's see -- the third part of the question was on restructuring.

And on restructuring savings I think we've said that we expect to have a portion of the savings this year and a much more significant portion of the savings next year.

So I do expect the restructuring savings to be a help to operating margin next year in a meaningful way.

But obviously, how that nets out against the currency impact -- I think it's still premature for us to say.

Kate McShane, Citi Research.

I wondered if you could be a little bit more specific about some of the promotional pressure that you saw during the quarter -- how that differed quarter over quarter?

What categories were more promotional than other categories?

And finally, how it kind of differed between your wholesale partners and your own retail stores?

Thank you.

Yes.

I guess I'd characterize it by -- we didn't really see a change in promotional pressure in the international business.

So what we are talking about here is really the US business and the US retail and wholesale environment.

I think, as Jacki mentioned in the prepared remarks, what we saw was with the West Coast port slowdown, with the unseasonably cold winter, there was an overhang generally of product in the industry that resulted in a desire to clear some of that inventory across the industry.

And that led to a number of our wholesale partners as well as a number of our branded competitors going deeper and more frequent in their promotional cadence than what they had done a year ago.

So I think we felt good about the way that we navigated through that, because we tried to navigate through that in a way that both protected our brand equity and dealt with the market realities from a competitive environment.

I think we've got a strong track record of being able to navigate through those types of short-term issues, both protecting the brand and dealing with the market realities that we are facing.

And we saw it broadly across pretty much every product category -- in the men's business, the women's business, and the children's business, as well as the home business.

So it seemed to have affected all businesses in a very similar way.

None of our businesses stood out in any specific way.

The one other comment I would make on that is we also saw that the foreign tourist decline to the US also, I think, was a contributing factor that affected the whole industry in terms of inventory levels and promotional environment.

David Glick, Buckingham Research Group.

Two questions: one -- Jacki, if you can give us an update.

Obviously, accessories is a big growth initiative for the Company -- that category seems to be getting more challenging -- and the progress you are making toward growth in that business.

And then, secondly, if you look across your US wholesale business, historically you guys have talked about sort of low to mid-single-digit growth.

And I'm just wondering if, given the more challenging season that we just went through, whether you can still expect that kind of bookings and growth as we head through and into next year?

Thank you.

Yes, well our accessory category continues to grow faster than our overall Company average.

So we're really seeing very good momentum, both for our Ralph Lauren brand and our Lauren and Polo brands.

We've grown our accessory business at a 20% CAGR since 2008.

And that really today represents a high single-digit percentage of our total sales.

We are seeing strength in both handbags and footwear.

And our international full-price sellthroughs have been extremely strong, both in men's, women's, and across footwear and accessories.

So we are seeing great traction in the world of Ricky.

We had double-digit sales growth in this year in that category.

So we are really continuing to fuel that opportunity.

And we are expanding that line through new colors, silhouettes, and materials.

With the introduction of the Ricky drawstring, we've had great success with that and are expanding that as well.

In the US wholesale business, I think the low to mid-single is something that we are comfortable with.

And we continue to perform at or better than the customers (sic).

So I think that particularly with some of our new introductions in our Polo Sport opportunity that we are just in the beginning stages of this month, the continuation of Polo women's -- so I think we've got a lot of opportunity ahead of us in terms of some of these new introductions.

The Denim & Supply business has been extremely strong.

Denim as a foundation of that business has continued to grow and strengthen.

And we are feeling that in sort of the undercurrents of that business.

And we play strongly in that category across Polo, across our women's business -- in Polo women's in particular -- our Lauren brand.

And so that category -- and Polo men's, as well.

So I think that category we see as an increasing strong part of our opportunity going forward as well.

Christian Buss, Credit Suisse.

I was wondering if you could talk a little bit about inventory levels in the channel and your comfort with your own inventory levels?

Sure.

We saw -- our inventory was up about 8% at the end of the quarter, and we feel very comfortable with the inventory levels and the content of that inventory.

If you look at the inventory at the end of the quarter and what drove the increase, it was really impacted by the timing of receipt plans as well as getting ready for the launch of Polo Sport, the expansion of Polo women's, and the opening of new stores.

So when we look at the underlying factors that we are getting ready for going forward, we feel very confident and comfortable with the inventory content and level.

Lindsay Drucker Mann, Goldman Sachs.

I just wanted to follow up on two things.

Number one, Jacki, you commented that you saw business tick up at the beginning of the quarter.

I was hoping you should just put a little more color around channel, region, or where you saw some of the strengthening?

And then, second, if you could just go through in a bit more detail the drivers of your EBIT margin outlook -- you know, what are the kind of bucket, the key drivers of compression, or where you are seeing any offset for your 2Q outlook?

Thanks.

I think that from our perspective, we saw a strengthening in our e-commerce business.

We saw a strengthening in our overall retail business.

And while the first month of our quarter tends to be more promotional, because that's just the nature of the July timing, we started to also see a strengthening of the full-price business.

As we continued to sell down whatever sale we had left at this point, we also saw a nice uptick in our full-price business across the board.

So I think pretty much across all of our segments, we saw a nice increase.

And if you look at the EBIT margin or the operating margin compression in the second quarter, I think that's really driven by the way that the fiscal year lays out.

So in the first half -- or in the second quarter, we are still impacted in a significant way by foreign exchange, and we are impacted by the investments in the infrastructure investment, the e-commerce and the SAP investments.

But we don't yet have the benefit, which we expect to start getting in the back half of the year, of the pricing actions that we've taken to offset the foreign exchange; the cost reductions that we've negotiated with our manufacturing and sourcing partners, which flow more directly into the back half of the year; the beginning of the restructuring savings, which we expect to flow more in the back half of the year; as well as the benefit of new store openings, which we expect to be more pronounced in the back half of the year.

We also expect the foreign-exchange impact to be smaller in the fourth quarter.

And so I think the second quarter is still bearing the brunt of all of the foreign exchange and the infrastructure investments, without the benefit of the actions that we've taken to offset that, which we expect to flow more into Q3 and Q4.

Paul Swinand, Morningstar.

I just wanted to ask -- some of our investors have said, with all this restructuring, is there any chance that there could be damage to the brand in the long run?

And is there any way you can give some us color or assurance that -- I mean, I think it could actually be positive for the brand; but could you explain that, maybe?

Sure.

I think we believe that this is going to be very positive for the brands as we move into the new structure, because effectively what we're doing is we are going to be focused in creating organizations that are single-mindedly focused by brand at driving the brand equity and brand consistency around the world.

So one of the reasons that we've moved into this model was that as we looked at our previous operating model, as we started to take back licenses from the different geographies and licensed partners around the world, what we found was that we had different merchandise assortments around the world in like locations; we had a fragmented set of marketing campaigns because of that disparate assortments around the world.

And we think by moving to this global brand structure with the global line planning process, we are going to be able to drive a more consistent look and feel of the brand, more consistent marketing campaigns.

And that's going to drive an improvement in brand equity, which we think will allow us to showcase more clearly the design vision of the brand in all of the locations that consumers interact with our products around the world.

Matthew Boss, JPMorgan.

From a margin perspective, the retail operating margins have been negative, say, the past six quarters straight.

As we move forward -- and if you try to parse out foreign exchange -- I guess I'm trying to dig in what kind of retail comp do you think you need to see the fixed cost deleverage -- either stabilize, or actually turn to leverage in the model?

And then, separately, excluding the Easter receipt shift, would operating margins at wholesale have actually been up this quarter?

So let me take the second piece first.

So the Easter shift accounted for about $50 million or so of revenue shift between Q4 and Q1.

So if you looked at the wholesale business between Q4 of last year and Q1 of this year -- if you put those two together, the wholesale business globally would have been up 2% in constant currency.

If you look at the wholesale business just in Q1 without the Easter shift, the wholesale business would have been up marginally, even in the first quarter, on a stand-alone basis without that Easter shift impact.

The Easter shift really accounted for all of the margin compression, effectively, in the wholesale business.

So we don't think that there is an underlying trend issue with regard to margin compression in wholesale that we are seeing.

If you look back to -- the first part of the question, which is around the retail comp trend, I think the margin compression that we're seeing this year is really a function of foreign exchange more than a function of retail comps.

So I don't think we've got an issue that we are relying on significant retail comp growth in order to drive operating leverage going forward.

I think we believe we can drive operating leverage going forward even in an environment of relatively muted retail comp growth.

That being said, we're shooting to try to improve our retail comp figures going forward.

And we think that the global brand structure is going to play a key role in that process.

Jay Sole, Morgan Stanley.

I have got two questions.

The first -- you know, the press release mentioned in the last 90 days, the Company established six global brand groups and filled a lot of roles.

What's the next step?

Can you set up a roadmap for us for what to look for over the next 90 days?

And then the other question is on Polo women's.

Polo shirts, khakis, underwear are such staples in the Polo men's business.

Can those categories also be staples in women's Polo?

And if not, what's really going to drive Polo women's from a product perspective?

Sure.

So I'll take the brand part of the question.

So over the next 90 days, what we are expecting with the global brand groups is to get the balance of the teams formed.

We've made good progress -- as I mentioned, we filled all the President roles.

We've made good progress on many of the key leadership positions in those.

But we still have work to do to finalize the entirety of those brand structures.

We also are beginning a strategy process in each of the global brand groups to look at what the global strategy is for that.

And we expect to make progress on that in the next 90 days.

We won't be complete on that, but we are going to make significant progress.

The other key piece, which I spoke about in the prepared remarks, is the global line planning process, which we expect to have kicked off -- at least initiated -- in almost all of the brand groups over the course of the next 90 days.

We're starting with men's Polo for the fall 2016 season.

We kicked off that pilot in May.

And so that group got a head start, which we have learned a significant amount from.

And I think we are very encouraged by what we are seeing from that line planning process approach.

And I think we will begin to kick off in many of the other brands for the spring 2017 season.

And those kickoffs of that process will happen in the next 90 days.

On the women's Polo business, you are absolutely right.

But what's so interesting about the women's business is that we are finding key core categories in Polo women's that are as meaningful as those categories in Polo men's, starting off with items like our cable cashmere sweater -- in the spring season we do a cotton version.

Those categories have performed extremely well.

We have a great Polo shirt business that is consistent and strong in women's.

We do, similar to men's, an expanded woven shirt business that we are really known for.

And that crisp shirt -- whether it's the white shirt, or multiple stripes, and checks, and so forth also are as valuable in women's to us as they are in men's.

And then, of course, we have key bottoms.

It's not the chino pants, but for us the DNA is around our blazer, which continues to perform extremely well, as well as our cargo pants, another key thing that we are known for that has been extremely important and powerful as a key bottoms statement.

So while the women's business is driven, certainly, by fashion, we're able to offset that with these key strategies.

Our signature blazer also is part of that core strategy.

So with women's it's more of a balance, but we have multiple staples that travel through our Polo women's business that is important to us.

Okay.

Thank you very much for dialing in today.

I think we are very pleased with the start that we've had to the fiscal year in the first quarter.

We're maintaining our outlook for the year, and we're excited about the progress that we're making on the global brand management reorganization.

As always, Evren, Bob, and myself will be available for follow-up calls -- and Jacki, as needed.

Thanks again.

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

Thank you for your participation.

You may now disconnect.