雷夫·羅倫馬球 (RL) 2017 Q1 法說會逐字稿

Welcome to the Ralph Lauren first-quarter fiscal year 2017 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 Ralph Lauren's first-quarter fiscal 2017 conference call.

With me today are Stefan Larsson, the Company's President and Chief Executive Officer, and Bob Madore, Senior Vice President and Chief Financial Officer.

After 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.

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

To find disclosures and reconciliations of non-GAAP measures that we use when discussing our financial results, you should refer to this morning's earnings release and to our SEC filings that can be found on our Investor Relations website.

And now I will turn the call over to Stefan.

Thank you, Evren, and good morning, everyone.

We last spoke at our Investor Day in early June where we shared with you the details of our Way Forward Plan.

The Way Forward Plan is our multi-year plan to build on the unique brand strength we have, go back to the core of what made us iconic, evolve from that core and build the business back to sustainable profitable growth.

Today I will share my key takeaways from the first quarter and then provide a brief update on what we have achieved and learned so far in starting to drive the execution of our Way Forward Plan.

Then I will turn it over to Bob to review the Company's quarterly financial performance in more detail.

Beginning with the quarter performance was mostly in line with our expectations with some minor puts and takes as we would expect at this early stage of the execution of our Way Forward Plan.

On the revenue side the domestic business, as expected, continued to be challenged while the international business delivered a strong quarter posting 10% revenue growth year over year.

The main drivers to the decline in North America are what we shared in detail during the Investor Day: a combination of not having evolved our consumer offering enough in product, marketing, shopping experience and having had an operating model that has generated too much excess inventory.

Having these self-induced challenges are hurting us when we, like everyone else, are facing difficult retail traffic trends in a highly promotional environment.

In our international markets, even though we have a much smaller presence there than in North America, and we globally have much improvement work to do ahead of us there were valuable learnings in the quarter that we will use in building back strength in our domestic business.

Let me give you a few examples.

In Asia over the last six months we have acted aggressively to drive quality of sales up.

Our team there proactively closed 43 brand weakening locations, reduced the length of the sale period by an average of 30%, and significantly decreased the depth of markdown rates.

We have seen some very encouraging results.

Our average unit retail prices and our gross profit dollars were both up significantly.

Simultaneously the team has continued to drive high-quality expansion.

In Europe, as expected, this quarter benefited from a shift in timing of wholesale shipments.

However, the underlying business was also solid and our team has driven several successful quality of sale initiatives.

They have been able to reduce buys for this year in a way that has protected full price selling, increased the stock turnover and, if the current trend continues, will significantly reduce excess inventory at the end of the season.

As a part of executing the Way Forward Plan you will see us increasingly focus on proactively driving quality of sales up.

These initiatives will include pulling back on inventory receipts, cutting lead times, strengthening our assortment and store closures.

These will be some of the most important drivers in getting us back to sustainable profitable growth.

Speaking of profitability, in the first quarter operating margin was better than our guidance.

However, this was driven by one-time benefits that Bob will take you through in detail.

Excluding this impact the quarter was in line with our expectations.

Now let me give you an update on our progress on the execution of the Way Forward Plan.

As you recall from Investor Day, the Way Forward Plan is built up of a consumer facing part where we are going to refocus on and evolve from the core in product, marketing and the shopping experience.

And the second part, that is about evolving the operating model where we are developing four business engines: a systematic repeatable way of building a stronger assortment; a demand driven supply chain; a best-in-class sourcing; and a multichannel global expansion strategy.

Underlying both of these two parts is the foundation of strengthening the leadership, team and culture as well as developing a strong economic model.

Let me start by sharing how we have strengthened the foundation, starting with the leadership team.

Jane Nielsen, our new Chief Financial Officer, will be starting right after Labor Day.

I can't tell you how excited I am to soon have Jane here on the ground working next to me.

Jane has the knowledge and experience to support us with driving a very strong execution.

Jeff Kuster, our new Group President for the Americas, and has been on the ground for a month.

He has already met several of our biggest customers and started the work together with his team to build a value creating plan that will get us back to high-performance in North America.

Halide Alagoz, Our new Head of Global Sourcing, who started in early June, has already had a positive effect on the sourcing decisions we are making.

She is working very closely with her team to build a best-in-class sourcing capability.

Bill Campbell, our new Head of Global Supply Chain and Inventory Management, will be leaving Amazon shortly and joining us in early October.

Finally, Fredrik Hjalmers, our Head of Global Expansion, started in June and has begun the work with his team to build out a global multi-brand and multi-channel expansion plan.

Moving to the progress we have made in strengthening the organization.

We already completed the planned rightsizing of our headcount by decreasing it with 8% and reduced layers from an average of 9 to 6, increasing each leader's span of control.

The biggest positive effect of this is that we have become leaner, faster, will empower the doers and reclaim the entrepreneurial culture.

In addition, it drives an SG&A saving of approximately $[150] million on an annualized basis already this year.

Completing the planned rightsizing of the organization has given us a good start in fixing the overall cost structure and developing a disciplined financial model.

We are also underway with closing the underperforming stores we identified as part of the Way Forward Plan.

In the first quarter we closed 8 of the 50 plus total stores under consideration.

We are also on track to getting the other targeted SG&A cost savings out during the remainder of the year.

Let me now move to the consumer facing part of the Way Forward Plan and share some highlights that we are driving there.

For the last few months Valerie Hermann and the other brand presidents have been intensely centered on refocusing our core product offering and evolving from that core.

And in doing that we have not only been able to improve our classic iconic styles, but we have also been able to start cutting the long tail of unproductive styles.

So far we have been able to partially impact what we bought for spring 2017 with a double-digit percentage reduction in the number of SKUs across our biggest brands.

The bigger impact in both evolving the product core and cutting more of the long tail will be seen for fall 2017 when we will be able to not just reduce what we buy but also what we develop.

As we discussed in June, a big value driver that is connected to evolving our products and assortment is developing best-in-class sourcing.

Just a few weeks after Halide started as our head of sourcing, she and I held a very important meeting in Asia with our key strategic suppliers where we solicited their support in driving increased quality, decreased cost and increased flexibility and speed in our sourcing.

We received a very strong response from many of our suppliers and, together with them, we have already started to make measurable improvements in driving quality up, costs down on comparable products and decreasing our time to market.

We are also full speed ahead with shortening our lead times from 15 to 9 months.

And even though the full effect will not be seen for a few seasons, we will be 50% there already by the end of this year.

Next year we should be 90% of the way there.

Almost equally important to cutting the overall lead times down is the work we are doing in building an eight week test and rapid response pipeline.

For this year we are just starting and by next fall we will have the capability that will enable testing on most of the new product ideas before introduction.

The work of developing a demand driven supply chain has just started.

Even though Bill Campbell is not starting until October, we have already adjusted our inventory levels down to better match demand and decreased excess inventory that drove excess markdowns and cannibalization.

Overall inventory levels are projected to go down for the remainder of the year.

In parallel to driving the execution of the Way Forward Plan there were several important examples recently that demonstrated how we are building strength in the business from a position of unique and iconic brand strength.

One of those proud moments was our presence at Wimbledon earlier this summer and another was the Olympic ceremony this last Friday where we could see team USA walking to the stage and demonstrating the strength of American iconic style.

We are so proud to be able to partner up with and support the US Olympic team.

In conclusion, even though it is early days in the execution of our Way Forward Plan, this is a multi-year journey and we are now one quarter in, just in the beginning of the execution phase.

I am very pleased with the progress we are making.

We have guided this year as a reset and stabilize year and that is what we are delivering on.

We will continue to balance meeting our near-term commitments with staying on track to execute our long-term Way Forward Plan.

As I noted, we have made progress in a number of areas from strengthening the leadership team to starting to improve the product and assortment building, starting to cut the lead times and improving our sourcing to the execution in the regions and the cost initiatives.

I am excited to see our teams taking on the challenges head on and we believe the Company is again moving in the right direction.

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

Thank you, Stefan, and good morning, everyone.

First-quarter net revenues of $1.6 billion were down 4% compared to the prior year period on both a reported and constant currency basis.

This is in line with the guidance we provided this past June of a mid-single-digit revenue decline.

Foreign currency translation did not have a material impact on revenue growth in the first quarter.

On an adjusted basis gross profit margin was 61.1% in the first quarter excluding non-cash inventory-related charges of $54 million associated with our restructuring activities.

This was 130 basis points above the prior year period primarily reflecting favorable sales mix shifts, lower product costs and an improvement in Asia driven by initiatives to improve quality sale metrics.

Operating expenses on an adjusted basis were $821 million excluding $105 million in restructuring and other related charges.

These expenses were down only 1% to last year as our headcount reduction and other expense initiatives under the Way Forward Plan had limited benefit in the first quarter due to the timing of these activities.

Adjusted operating margin in the first quarter was 8.2% excluding $159 million in restructuring and other related charges.

This was 60 basis points below last year due to fixed expense deleverage on lower net revenues and partially offset by higher gross margin.

The adjusted operating margin performance was better than the outlook we provided in June of a 110 to 160 basis point decline driven by more favorable impact of our inventory management initiatives, specifically lower inventory reserves due to restructuring-related inventory charges as well as product mix.

The product mix shift was significant in Europe and was driven by a higher level of summer product within the wholesale shipments and a higher level of made for factory product in factory stores due to less excess inventory.

Adjusted net income for the first quarter of fiscal 2017 was $90 million or $1.06 per diluted share excluding restructuring and other related charges.

On a reported basis net loss in the first quarter was $22 million or a loss of $0.27 per diluted share.

The effective tax rate was 29% in the first quarter on an adjusted basis compared to an effective tax rate of 30% in the prior year period.

Moving on to segment performance, wholesale revenues decreased 5% in both reported and constant currency in the first quarter to $607 million.

The decrease was primarily due to a decline in North America as the US department store channel continues to experience challenging traffic trends.

This was partially offset by wholesale revenue growth in Europe primarily driven by a benefit from timing of shipments relative to last year in addition to proactive measures taken to clear inventory.

Adjusted wholesale operating margin in the first quarter was 23.7% excluding restructuring and other related charges.

This was 190 basis points above the prior year period driven by a higher gross margin.

Retail segment sales decreased 3% in both reported and constant currency in the first quarter to $907 million.

The sales decline was driven by a comparable-store sales decline that was partially offset by non comparable-store sales growth.

Consolidated comparable-store sales decreased 7% in constant currency and 6% as reported during the first quarter, primarily driven by lower traffic trends during the quarter in a challenging microenvironment in most regions.

Global e-commerce revenues declined 6% during the quarter on a reported basis primarily due to the Company's pricing harmonization and other quality of sale initiatives.

At the end of the first quarter of fiscal 2017 we had 485 directly operated stand-alone stores and 598 concessions globally.

Compared to the first quarter of fiscal 2016 the Company had 18 net new directly operated stores and 40 net new concession shops at the end of the first quarter of fiscal 2017.

In addition, our international licensing partners operated 96 Ralph Lauren stores and 17 dedicated shops as well as 60 Club Monaco stores and 74 Club Monaco concession shops at the end of the first quarter of 2017.

Retail operating margin in the first quarter, excluding restructuring and other related charges, was 13.8%, which was 120 basis points above the prior year period due to a higher gross margin.

Licensing revenues decreased 8% in both reported and constant currency impacted by timing of shipments during the quarter.

Licensing segment operating income was down 7% in the first quarter compared with the prior year period.

Now I would like to provide some color on performance by geography in the first quarter.

In the Americas net revenue declined 11% as we continue to see pressure in the US department store channel.

Same-store sales were down high-single-digits in North America in the first quarter driven by traffic challenges.

In Europe net revenues increased 14% on a reported basis and grew 15% in constant currency.

This growth was mostly driven by a benefit from timing of shipments relative to last year.

Excluding this shift the underlying trend was solid in the quarter.

Going forward we note that the potential impact of Brexit on consumer spending and geopolitical volatility in the region are increasing uncertainty in this market.

In Asia net revenues increased 3% on a reported basis and were flat with the prior year period in constant currency.

We experienced continued growth in Japan and Australia.

Same-store sales growth was negatively impacted by our ongoing strategy to improve our quality of sale metrics in the region.

We continue to express gross margin improvement and average unit retails were up significantly while markdown rates were down significantly.

Now let me provide you with an update on our restructuring activities related to the Way Forward Plan.

The Company continues to expect restructuring activities to result in approximately $180 million to $220 million of annualized expense savings related to its initiatives to streamline the organizational structure and right size its cost structure and real estate portfolio.

We continue to expect restructuring charges of up to $400 million as a result of the fiscal 2017 restructuring activities and up to a $150 million inventory charge associated with the Company's Way Forward Plan.

These charges are expected to be substantially realized by the end of fiscal 2017.

In the first quarter of fiscal 2017 the Company recorded $104 million in restructuring and related impairment charges and $50 million in inventory charges.

Now moving on to the balance sheet.

Consolidated inventory was $1.2 billion at the end of the first quarter, down 2% year-over-year.

The Company expects inventory quality to continue to improve on the balance sheet as inventory clearance activities continue.

Moving to capital expenditures.

We spent $78 million in the first quarter of fiscal 2017 compared to $68 million in the prior year period, mostly to support our retail store network, concession shops and infrastructure projects.

During the first quarter the Company paid approximately $100 million related to repurchase of its Class A common stock.

At the end of the quarter approximately $200 million remained available for future share repurchases.

We ended the year with approximately $1.2 billion in cash and investments on the balance sheet and $692 million of total debt.

Now I would like to turn to guidance for fiscal 2017.

As a reminder this guidance excludes restructuring, impairment and inventory-related charges in connection with the Company's Way Forward Plan.

For fiscal 2017 the Company continues to expect consolidated net revenues to decrease at a low-double-digit rate due to a proactive pullback in inventory receipts, store closures, pricing harmonization and other quality of sales initiatives combined with the weak retail traffic and a highly promotional environment in the US.

Based on current exchange rates foreign currency will have minimal impact on revenue growth in fiscal 2017.

The Company continues to expect operating margin for fiscal 2017 to be approximately 10% as cost savings are expected to be offset by growth in new store expenses, unfavorable foreign currency impacts, infrastructure investments and fixed expense deleverage.

The fiscal 2017 tax rate is estimated to be approximately 29%.

For the second quarter of fiscal 2017 the Company expects consolidated net revenues to be down mid- to high-single-digits on a reported basis.

Based on current exchange rates foreign currency will have minimal impact on revenue growth in the second quarter.

Operating margin for the second quarter of fiscal 2017 is expected to be 200 to 250 basis points below the comparable prior year period.

Initiatives under the Way Forward Plan are expected to have a greater impact in the second half of the fiscal year than the second quarter.

Second-quarter tax rate is estimated at 29%.

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

(Operator Instructions).

Omar Saad, Evercore ISI.

Thanks for the update.

I guess my question I want to ask -- maybe for a little bit more information and insight on what you learned in Asia as you kind of improved the quality of sales there.

It is a different market in terms of it is a lot more [own] retail or concession model, you don't have that kind of big wholesale piece.

Trying to understand -- I also think the brand maybe is a little bit -- the architecture is a little bit simpler in Asia.

Maybe help us understand what is the difference between the Asian market, what you are learning there, and maybe what we can expect in North America, which is -- because of the omni-channel wholesale brand architecture might be a different path towards elevating the quality of sales.

Thanks.

Yes, thank you, Omar.

The biggest changes that we have made to support and strengthen the quality of sale that we are seeing in Asia is to really significantly cut back on our promotional stance.

Two different ways -- significantly shortening the length of promotion; and two, just the depth of the discounting and the markdown.

And what we have seen is overall from a quality of sale perspective, whether it is looking at discount rate, which has decreased significantly; we have seen a very significant increase in average unit retail.

And although we have seen a more moderate decrease in UPTs, overall it is driving a stronger average transaction value for us.

That has been the biggest change and the biggest benefit that we have seen from that.

When it comes to Jeff Kuster who just started, he is -- as I mentioned in my opening remark, he is starting with assessment of the challenge in North America and diagnosing that in detail so we get a fact based view on what we're up against.

And then we are pivoting to building a plan to increase quality of sales in North America.

So differences there, Omar, coming back to your question.

There are definitely differences in Asia and North America based on channel differences as being one big difference.

But it comes back to how we plan the inventory, how we buy the inventory to demand, how our promotional strategy, our promotional execution and how that plays across channels.

That is why that fact-based diagnosis is so important.

Jeff just started three, four weeks ago and he is underway with a team and will work with the different channels and that is where we are going to have the most value in this analysis.

And coming back that is what gives me the most confidence when it comes to a plan to increase quality of sales, that we are doing this for the first time cross channel and we are going to do it together with our biggest customers as well.

So we are looking forward to come back and provide our insights when we get them.

I mean one other thing, Omar, related to the Asia quality of sale improvement.

We have also done an in-depth analysis of points of distribution and we reduced approximately 48 points of distribution in Asia this quarter that we felt really didn't properly represent the brand, but at the same time we also identified a number of additional points of distribution.

So, for example, in our wholesale channel, which is a relatively small business in Asia, but we saw in the quarter a 48% increase in the number of shops in our wholesale channel too.

So it is both cutting back on promotions whether it is depth/length, but then also making sure that we are in the correct points of distribution for the brands.

Next question, please.

Kate McShane, TD Research.

Thanks for the update on the supply-chain efforts.

I just wondered if you could maybe walk through some of the mechanics of how you are reducing the supply-chain lead time, especially in light of your commentary today about the 50% reduction in lead times this year and 90% by next year.

Let's see, yes, it is not a 50% and 90% reduction of lead time, it is we are moving -- it is a 50% -- we are going to be 50% on a nine-month lead time by the end of this year.

And we are going to be 90% on a nine-month lead time by next year.

As I mentioned on the Investor Day, the biggest change here is a cultural change and it is a change of how we work as a team.

So, instead of working in a sequential way where you hand over function by function and by that you build in slack in the lead times and you extend the lead times, we are working together cross functionally.

So, one thing that has really excited me over the first couple of months digging into the Way Forward execution with the team is to break down the silos.

To have design, merchandising, sourcing, sales distribution channel at the table from the first design idea all the way in to selling the actual product.

And just by that we cut a lot of time from the lead times.

And then it is about going and mapping through and Halide Alagoz is leading that work.

She is mapping every single component of the current lead times and looking at is -- how is every component and every day and hour spent adding value to driving brand strength and profitable sales growth and driving a stronger assortment.

And I can say that I am very encouraged by the facts that we are digging up, that we will be 90% on a nine-month lead time by the end of next year.

Parallel to that is going to be the eight-week test and rapid response pipeline, because that is going to be a big enabler as well.

That in a very short period of time we are going to be able to test any and every new big product idea before we go big.

And rapid response part of that is to say when we sell something and we see a bigger demand than expected we will be able to much faster chase back into those products.

Next question, please.

Michael Binetti, UBS.

Nice quarter.

Just one near-term I guess modeling question to help us think about the year, then maybe just a longer-term question.

On the model could you help us think about the planned cost-saving split between SG&A and cost of goods sold as we look at both the second quarter and the second half?

I guess I thought -- I guess we had it a little bit upside down in our model.

I thought some of the cost reductions you had already taken would have meant more SG&A leverage this quarter, maybe not as much cost of goods.

And then longer-term, as you guys laid out the plan for the next four years at the Analyst Day you referred to as 2018 as revenue stabilizing.

And as we look at it with the guidance you gave today we were able to do a little bit of math around the year.

And we can see that the back half of the year looks like revenues will be down by mid-to-high teens it looks like.

We know in the fourth quarter you will have to lap an Easter shift and an extra week and that you will be closing stores so it will naturally be lower.

But certainly some of the drivers on why the growth rate leaving the year will be so low will extend into the first half of next year.

I am trying to think if -- a little bit of time has gone by now -- if you could help us think about how to maybe start quantifying what your reference to stabilizing revenues will look like in fiscal 2018 given what you know about the business today as you start walking into the plan.

Relative to your first question on the SG&A cost savings; the majority of our restructuring activities are more heavily weighted to the second half of the year.

So, for instance, our organizational changes were just made in June.

So, you will start to see the benefit of those in Q2, but they will be much more heavily weighted to the second half.

Of the overall savings that we discussed and quantified at the Investor Day relative to the Way Forward Plan of $445 million, that is a gross number.

It doesn't represent net savings that will drop to the bottom line.

And all of those savings essentially represent SG&A savings, not cost of good savings.

So more heavily weighted to the second half related to your question on SG&A expenses, particularly as it relates to completion of our anticipated store closures.

So, we communicated 50 plus closures, we are actually looking a little deeper at that number.

And relative to that 50 plus we closed eight in Q1.

So again, our store closures are more heavily weighted toward the second half of the year.

And that is purposeful because we had committed to inventory buys for a lot of those stores and we want to be able to liquidate them through those doors.

Relative to the revenue guidance for the remainder of the year, and then I will turn the question over to Stefan to talk about the guidance for the longer-term period.

The mid-high teens are really being driven by, again, timing of store closures, timing related to a number of quality of sale initiatives.

Whether it is pulling back significantly on inventory receipts which will reduce sales, whether it is the impact of pricing harmonization within regions and channels, etc.

And we also don't expect as much benefit from sales mix shifts as we have seen in Q1 in particular.

Thanks, Bob.

And to build on what Bob just said, Michael, when it comes to the facing of the Way Forward Plan and the financial outlook we gave on a four-year basis, if you look at -- start with the phasing, we guided top line from a phase perspective to reset and stabilize 2017 moving into 2018 and then pivot to growth.

And so, why Q3 and Q4, why we should expect an increase in the sales -- a decrease of sales in Q3 and Q4 versus the current trend, it comes back to the work Jeff and his team is doing in North America.

Given how big North America is of our overall business the assessment that Jeff and his team come back with will include several additional quality of sales initiatives.

So that is why we have guided the way we have guided.

Thank you.

Next question, please.

Lindsay Drucker Mann, Goldman Sachs.

Just as a quick follow up on what Jeff's team is doing.

When would you think after they come back with that analysis that those implementations would be in the market?

So are we talking about spring of 2017 where we might see a difference in quality of sale?

Is friends and family and couponing on the table?

And then just on the supply chain, the speed dynamics, you've talked about building a speed pipeline, as you mentioned, on test and react in department stores, which is pretty new.

As Halide has done her work, I know she is early on, but I am just curious how that dynamic will work when you are not a vertically integrated retailer, you are relying on your third-party retail partners to get data to test and react to.

So maybe just build a little bit on how that might work.

Thanks.

So, let's try to cover all your questions.

So starting with Jeff and his team's work in North America, how soon you will see that come through.

What I can say there is it is top priority.

It is by far our top priority to assess the North American challenge.

And as soon as we have clarity within the next few months we will start to implement additional quality of sales initiatives.

So we will keep you posted on a more detailed schedule.

But the ambition is full speed forward to assess, get the fact base and then lay out the plan and start executing it right away.

So, we should see an impact at the end of this year.

When it comes to friends and family and other couponing initiatives are on the table, everything is on the table.

Everything is on the table and then we look at how do we drive brand strength and sustainable profitable sales growth in a responsible way from where we are to where we are heading.

Eight week speed pipeline.

So, I mentioned a few times before that coming into this roll the wholesale relationship partnership was new to me and I was blown away by our biggest customers and their willingness to take on the challenge together with us.

So, they are waiting for us to come back and say relating to the eight-week speed pipeline and a number of other areas to say how can we partner up and create joint value out of this.

Because when we get into a more balanced inventory, and cut most of the excess out and be able to react on eight weeks, then we will be able to create value not only for us but for them.

And they are very clear on that.

So we have an ongoing dialogue with them and they are waiting for us to be ready to start to execute on it.

What excites me is to see by the speed Halide and her team has come in to not only assessing the [stage] but also reaching out to the suppliers.

As I mentioned, we went to Asia, Halide and I, and met with our key suppliers.

The suppliers that were there represent 70% approximately of our total volume.

And we invited them in to co-create this journey, to co-create the sourcing part of the Way Forward Plan, which also didn't surprise me because I have more experience from working closely with sourcing partners that they were more than ready to dive in.

So, I have seen several concrete examples of how working differently will be able to increase quality, decrease the cost and increase the flexibility and the speed.

Next question.

Matt Boss, JPMorgan.

So, on your wholesale reset, can you just talk a little bit about the process, how you select the doors to consolidate?

Is it location volume, is it retail or partner specific?

And then just more multi-year, what does your plan consider in terms of a potential larger scale department store closing?

Any strategies in place just to offset the potential impact if that were to transpire?

Okay, thanks for that.

I will take that question which is -- it comes back to Jeff's assessment that we need to do the fact-based assessment first.

I am a firm believer in getting the facts crystal clear on the table.

Put everything on the table and then look at where we set out to go, which is one common goal for the whole team which is in the US for wholesale, for all channels strengthen the brand and drive profitable sales growth.

And then map out the path to that.

So I will have to come back to you on the details.

Next question, please.

Ike Boruchow, Wells Fargo.

Just to go back to the low-double-digit sales decline outlook for the fiscal year.

I was wondering if you could give us some more color on the moving pieces that kind of get you there.

Maybe meaning how much is negative comps from your quality of sale initiatives impacting the retail side of the business versus wholesale decline as you reduce sell-in on inventory.

And then maybe just specifically more detail on the North America geography within the wholesale channel for the year, would be really helpful.

Yes, so it is really driven by a combination of things, some of which I have already mentioned.

Store closures plays a big role in that as it relates to the retail business.

We are planning retail comps at the mid- to high-single-digit level for the remainder of the year.

In addition to that, as we said, there is a number of quality of sale initiatives that are being undertaken whether it's pulling back inventory receipts, whether it is significantly reducing promotional cadence both timeframe and depth of those -- all of that is going to drive a pullback on the revenue side of things.

But it will help strengthen the brand and improve our profitability going forward.

Those are the main drivers.

One other item worth noting, which is very significant, is pricing harmonization across all the regions.

And we found as we did our deep assessment of the business and the challenges that that was a huge issue for us particularly in North America across all our channels and that is a very important initiative.

Okay, next question please.

Dana Telsey, Telsey Advisory Group.

Hi, Dana.

Let's take the next one, Raya.

We will come back to Dana.

Erinn Murphy, Piper Jaffray.

A couple of questions, just first a follow-up on Europe.

Could you just quantify the impact of the timing of the wholesale shift in the region during the quarter?

And then I think you mentioned that North American comps were down high-single.

How did comps look in Europe and if there was any variance by region, that would be helpful.

Yes, so, the impact of the timing of the wholesale shipments in the first quarter were roughly about $20 million.

And then relative to the comp performance, Europe had a low-single-digit negative comp in the first quarter.

Okay, (multiple speakers).

And we don't really (multiple speakers), we don't break that out by region or country.

And then if I could just follow up on the e-commerce, I think you mentioned it was down 6% in the quarter.

And I realize you have got kind of the impact of the pricing harmonization.

But how should we just think about that channel going forward and what is implied in your guidance in Q2 throughout the balance of the year?

Thank you so much.

Yes, you should think of that guidance as mid- to high-single-digit decrease.

Really, again, driven particularly in North America by the pricing harmonization and the other quality of sale initiatives.

We are clearly looking to be much less promotional within that channel.

Okay.

So, e-commerce and brick-and-mortar will be down to the similar level?

Yes.

Okay.

Thank you, very much.

Next question, please.

Dana Telsey, Telsey Advisory Group.

As you think about the Way Forward Plan, Stefan, how are you seeing the product evolution evolve?

What should we see as we go through the next few quarters or to the next year how you want to see the product resonate with the three brands that you are focusing on?

And do price points change?

Thank you.

Okay, thank you, Dana.

So, when it comes to the product part of the Way Forward Plan it is all going to be about going back to the core of what made us iconic and the core of what drives the business and the core of what the consumer already loves.

So, the core for us is what we have been known for, which is classic iconic style.

And how you will see that refocus and evolving the core, the work that we are doing, how you will see that is that you will gradually see it in spring 2017.

And then gradually season by season you will see the core being focused on in terms of we will make sure that we have an updated classic iconic style that has an effortless twist that makes it current today.

So, it is about -- you will see that the core from everything from placement to presentation to marketing, it will cut through and it will be one message and it will be a core that is updated and relevant for today.

Thank you.

David Glick, Buckingham Research Group.

Stefan, I just had a question on this lead time reduction.

I just wondered what are the trade-offs that you have to make as you go down that path?

Obviously having shorter lead times there is a potential to having -- to have higher product costs, perhaps not.

But I am interested if that is part of the trade-off.

Obviously you are trying to save markdowns by being six months smarter about what you are committing to.

But I was just wondering if you could kind of walk us through that?

Thank you.

Thank you, David.

So, when it comes to trade-offs what has been very encouraging to see is that coming back to the work behind -- the drivers behind moving from 15 to 9 to start with and adding the eight-week test pipeline.

It comes very much back to the disciplined approach of working cross functionally from design idea all the way into the store and reading the sales and responding to that.

So, working with Halide and her team and putting sourcing at the table up front together with design and merchandising has led to that we have been able to move towards the nine-month lead time, have an eight-week speed, increase the quality at the same time as we see costs on comparable products go down.

So, Halide has -- like everyone else working on the Way Forward Plan, she has started -- she and her team have started focusing on the core.

And that is what will make the biggest difference from a consumer perspective and from a business perspective.

And very encouraging to see that we were able to cut the lead times, increase the quality, decrease the price at the same time -- decrease the cost price.

Next question, please.

Jay Sole, Morgan Stanley.

My question is about the store closures.

Can you talk to us about what types of stores you are closing, where they are, what criteria you are using to determine which stores will close?

And Bob mentioned taking a deeper look at store closures.

Does that mean that you are considering closing possibly more than 50 stores?

Thank you.

Yes, thank you, Jay.

So, the criteria with which we selected stores for closure was really twofold.

One was is the store strategic in strengthening the brand?

And then secondly, the overall level of profitability were the major drivers and the major criteria that we looked at.

Yes, we are looking at possibly closing more than 50 stores.

There were some stores that went through our initial evaluation using those criteria that we may have felt were strategic and that we could turn the productivity around in the stores.

And we are going back and just validating that and questioning that.

Next question, please.

John Kernan, Cowen and Company.

It seems like the Way Forward Plan is definitely gaining some momentum.

Your gross margin ex restructuring charges was up pretty significantly in the first quarter.

And Bob, you talked about lower inventory reserves on the balance sheet.

So can you help us understand what we should expect for gross margin that is embedded in your guidance for the remainder of the year?

Thank you.

Yes, so the first quarter was benefited from a few things that we consider to be kind of one time in nature.

So, one was the significant favorable sales mix shifts that we experienced from product, geography and a channel perspective.

We don't see that magnitude of favorability on the go forward.

With respect to the impact on inventory reserves, that is really commentary relative to the guidance that we gave.

That as we were working through and executing on our inventory initiatives, whether they are restructuring or other initiatives, what we found is that we did not have to record the level of inventory reserves that we had initially estimated when we gave our guidance.

So, it was just a function of refinement of our restructuring and inventory management activities that were going to be one time in nature relative to the visibility we had when we gave guidance, versus how we are seeing things play out as we look at the plans materializing relative to the forecast going forward.

Okay, and we will take one final question, please.

Robby Ohmes, Bank of America Merrill Lynch.

Just a quick one.

I was hoping you could remind us or maybe tell us how e-commerce performed for you guys in the quarter.

And maybe, Stefan, remind us where dot.com business fits in to the Way Forward Plan globally and sort of what the initiatives are underway there right now?

Thanks.

Yes, so e-commerce comps were down mid-single-digits.

We had better performance in Europe than we experienced in North America.

In North America our top-line revenue was impacted by two things primarily.

One, again, was the pricing harmonization that we talked about.

And then also cutting back on our promotions.

We cut back significantly on the length of the promotions, the number of promotions and the discount rate depth relative to how we've historically operated.

That is really what drove the North American performance.

And longer-term, in terms of the e-commerce role in the Way Forward is going to have a really important part.

We have mentioned a number of times before that we are going to follow the consumer where the consumer is going.

The consumer is clearly going to e-commerce and mobile first.

We are developing an e-commerce platform since a while back; we are on target to deliver that.

That is going to enable us to not only build a flagship online that is highly aspirational and stands for everything that is Ralph original edition about life in style and be very focused on the core product strategy, the icon strategy and it is going to be very shoppable at the same time.

So, when it comes to its role short-term here and now over the next six months, it is going to be a part of Jeff's strategy that he is developing for North America because that is multi-channel and e-commerce is going to play an important role.

Okay, that was the final question.

I look at Evren here and she smiles and nods.

So before we close I just want to say on behalf of Ralph, myself and the Board I would like to thank Bob for all his contributions to the Company over the last 12 years.

It is going to be your final quarterly call.

Thank you from all of us.

And to all of you, thanks for joining on the call today, look forward to speaking again next quarter.

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

Thank you for your participation.

You may now disconnect.