雷夫·羅倫馬球 (RL) 2017 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Ralph Lauren third-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 third-quarter fiscal 2017 conference call.

With me today are Stefan Larsson, the Company's President and Chief Executive Officer, and Jane Nielsen, 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.

As you saw in the release this morning, the Company and I mutually agreed to part ways, and I want to take a brief moment to give you some context.

Ralph and I both love and respect the DNA of this great brand and we recognize the need to evolve; however, we have found that we have different views on how to evolve the creative and consumer-facing parts of the business.

I want everyone on the call, shareholders and analysts, to know that the Board, Ralph, and I have over the last month worked very hard to find common ground.

After many serious conversations with one another, we mutually agreed to part ways.

None of this changes how proud I am of all the progress we've made against the goals we laid out in our Way Forward plan in June.

As I shared then, the Way Forward plan is about refocusing on the core of what made us iconic and evolving that core for today, to strengthen the brand and return the Company to long-term profitable growth.

Both Ralph and the Board are committed to continue the execution of our plan.

We are on track to deliver on our commitments.

A key driver to this is our strengthened management team and their ability to drive high-quality execution.

Together, we have already created a strong foundation, one that puts us in a position to continue to deliver.

Our progress includes the strengthening of the leadership team, refocusing on our core brands, starting to evolve our iconic products and marketing, matching inventory to demand, drastically reducing lead times, creating a more nimble organizational structure, beginning to right-size the store fleet, achieving the initial cost reductions, and, as we learned from our recent global employee survey, we have substantially improved employee engagement and understanding of the strategy.

When Jane later in this call will speak about the progress we made in the third quarter, you will hear how these initiatives are starting to show up in the Company's P&L.

I remain very confident that the Way Forward framework has the ability to drive the Company back to high performance and I will stay on until May 1 to ensure the uninterrupted execution.

Before I turn it over to Jane for her to review the progress we have made on the Way Forward plan in the quarter, I want to say a few words about her.

As I begin my transition, she will take charge of the execution of our plan.

Jane and I have been co-pilots since she joined and we will work closely together to make this transition successful.

She has the credibility, the experience, and the trust from Ralph and the Board.

I could not be more confident in her ability to deliver.

With that, I would like to turn the call over to Jane.

Thank you, Stefan, and good morning, everyone.

Before I review our performance and future outlook, I want to reiterate that our foundation is strong.

As Stefan said, we've worked very closely since I joined and we will continue that partnership through his extended transition period to ensure that our progress is uninterrupted.

With the support of Ralph, the Board, and together with our leadership team, I am committed to leading our continued execution.

We are as focused as we have ever been on delivering the Way Forward plan to strength the brand and drive sustainable profitable growth over the long term.

Now, onto our performance.

First, let's review the progress we made this quarter in executing the Way Forward plan, starting with product for fall 2017.

First, we refocused and evolved our iconic core product offering.

We updated our color palettes, materials, and fits, incorporating more consumer insights and marketplace intelligence into our decision making.

Second, we improved our discipline in applying a systematic repeatable way of building a stronger assortment.

This means being very clear on what we are testing, what we are growing, and what icons we are reinventing.

This has enabled us to cut the long tail of unproductive styles, delivering a double-digit reduction in the number of SKUs we have designed for fall 2017, resulting in a much more focused, productive assortment and lower development costs.

Third, our improved discipline in the assortment creation is enabling us to buy closer to market and reduce early commitments.

Our premarket commitment for next fall is down significantly to last year.

For Polo, we committed to only 15% of our buys premarket before our wholesale customers place their orders.

Last year, this figure was 60%.

As a result, we are buying much more informed, which will significantly improve our ability to match inventory to demand.

The initial feedback from our wholesale customers that have seen our fall product has been very positive.

Fourth, we are well underway to build a best-in-class sourcing capability and a demand-driven supply chain.

We remain on track to reach our goal of a nine-month lead time.

We continue to expect to get halfway there by the end of this fiscal year and 90% there by the end of next fiscal year.

This quarter, we achieved our goal of having all our core fabrics platformed for the upcoming fall 2017 season, which enables us to make further progress in cutting our lead times.

Moving on to marketing, we are making good progress in our search for a Chief Marketing Officer.

In the meantime, we are preparing our first cut-through Polo marketing campaign for summer.

For this past fall/holiday season, we launched the Ralph Lauren Icons marketing campaign, which was built on our goal to refocus on and evolve our core iconic products in luxury.

The campaign was very well received and we will be launching the second part of the campaign later this month.

Moving on to our financials for the quarter, we continued to deliver against our commitments.

We increased our quality of sale by moderating discount levels, lowering our inventory to a line supply with demand, and reducing our lead times.

As you saw in our press release, revenues declined 12%, in line with guidance.

Adjusted operating margin was 12.8%.

On a constant-currency basis, adjusted operating margin was up about 40 basis points to last year.

Additionally, non-GAAP operating margin expanded in constant currency in both the retail and wholesale segments.

The adjusted operating margin performance was better than the outlook we provided in November, largely driven by gross margin and proactive expense management.

Adjusted gross margin expanded by 140 basis points versus last year, driven by favorable geographic and channel mix and initiatives to improve quality of sales, including reduced promotional activity across our businesses.

This was partially offset by unfavorable foreign-currency effects of approximately 100 basis points.

Operating expenses, excluding restructuring and other related charges, were down 7% compared to last year as a result of expense initiatives under the Way Forward plan, including streamlining the organization to reduce headcount, process changes in product development to reduce costs, and closing unprofitable stores to improve the profitability of our fleet.

In North America, across our businesses the team started to execute against the plan we shared last quarter to come back to high performance.

North America continues to be our most challenged market.

Revenue declined 15% in the quarter, led by a planned decline in wholesale.

We strengthened our foundation by strategically reducing shipments to better align with underlying demand and right-sized our inventory levels.

In addition, we started to rebalance our distribution in our off-price wholesale business.

We also executed these important quality-of-sales initiatives in our direct-to-consumer e-commerce business.

These actions will continue to impact our results in the fourth quarter on our e-commerce site.

E-commerce has been our most overpromoted channel and we are moving to harmonize pricing across channels and reduce promotion depth.

These are the first steps in the execution of our plan to come back to high performance in North America.

They are difficult, but necessary, actions to build a healthy base to grow from.

We expect these actions to continue through the first half of fiscal 2018.

In Europe, store comps improved in the third quarter, despite lower markdowns, and we continued to deliver on our quality-of-sales initiatives.

Our Europe team continued to drive substantial improvement in both gross margin and operating margin in constant currency.

Revenue was down 6% in constant currency and 12% on a reported basis.

As expected, we shifted $18 million of wholesale shipments to the fourth quarter to better align with demand in our wholesale doors.

Excluding this shift, revenue would have been close to flat in constant currency.

In our retail business in Europe, we reduced promotion, drove up AURs, and expanded gross margin significantly on a year-over-year basis in constant currency.

Our team continues to focus on tighter inventory management and strengthening the assortment going forward.

Similarly, in Asia we drove significantly lower markdown rates in each channel and expanded margins.

Revenue was down 1% in constant currency and up 4% on a reported basis.

Comp growth was positive in Asia in the third quarter.

Going forward, we are focused on returning to revenue growth in Asia as new distribution growth offsets closures.

Moving to comparable-store sales.

On a global basis, comps decreased 4% in constant currency.

As a reminder, the high-volume week after Christmas was included in the Company's third quarter this year versus the fourth quarter last year, with a positive impact of approximately 2.5 percentage points, which will pressure comps in the fourth quarter.

Additionally, Easter will shift into the first quarter of FY18.

The combined effects of these two calendar shifts will pressure fourth-quarter comps approximately 3 percentage points.

Moving to global e-commerce, revenues declined 9% in constant currency.

The e-commerce decline is driven by our initiatives in the US that I just took you through.

The impact of these actions will accelerate in the fourth quarter and continue to pressure the first half of fiscal 2018.

Turning to our store fleet, we are on track to close approximately 50 stores this year.

We closed 12 stores in the third quarter and 27 year to date.

This puts us on track to achieve the savings that we identified from store closures of approximately $70 million.

Importantly, we are also on track with our total savings targets.

At this time, restructuring charges are forecasted to be about $400 million and inventory charges about $150 million, associated with the Company's Way Forward plan.

In this quarter, we recorded $91 million in restructuring-related impairment and inventory charges.

Moving on to the balance sheet, our progress with the Way Forward plan is reflected in our inventory position.

At the end of the third quarter, inventory declined 23% to $984 million versus last year.

This inventory reduction is driven by both restructuring actions and our operating process initiative, including a proactive pullback in receipts and moving towards a demand-driven supply chain.

We ended the third quarter with approximately $1.5 billion in cash and investments and $589 million of total debt.

Now, I'd like to turn to guidance for fiscal 2017.

As a reminder, this guidance excludes restructuring and other related charges in connection with the Company's Way Forward plan and severance-related payments associated with the CEO departure announced today.

For fiscal 2017, we are maintaining our guidance.

We continue to expect revenues to decrease at a low double-digit rate as we execute the Way Forward plan.

Based on our current exchange rates, foreign currency is expected to have minimal impact on revenue growth in fiscal 2017.

We also continue 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-cost deleverage.

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

For the fourth quarter, we expect revenues to be down mid-teens on a reported basis.

This compares 13 weeks this year to 14 weeks last year.

The 53rd week last year contributed approximately $72 million of net revenue, including $10 million in the wholesale segment, and $62 million in the retail segment, as well as $12 million of operating income.

Based on current exchange rates, foreign currency is expected to pressure revenue growth by about 100 basis points in the fourth quarter and will pressure gross margin by approximately 70 basis points.

Operating margin for the fourth quarter is expected to be approximately 6% to 6.5%.

Foreign currency is estimated to pressure operating margin by about 100 basis points.

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

We now expect capital expenditures for fiscal 2017 to be approximately $325 million, down $50 million from our previous guidance of $375 million as we increased our rigor and focus on return on investment.

Regarding share repurchases, year to date we have repurchased 100 million of our stock and we plan to execute another 100 million in the fourth quarter to reach 200 million for the full year, consistent with our communication in June.

Our expectations for fiscal 2018 are consistent with the outlook we provided at our investor day in June.

We continue to expect the magnitude of revenue decline to stabilize and be less than the declines in fiscal 2017.

Currently, we are forecasting revenue in fiscal 2018 to decline high single digits in constant currency.

This includes 200 basis points of pressure from our actions in right-sizing our distribution in both wholesale and retail and another 200 basis points from the previously announced closure of Denim & Supply.

These actions will be taken in conjunction with our quality-of-sales and price-harmonization initiatives.

We expect our trend to improve in the second half of the year as we move forward in the execution of the Way Forward plan.

We expect operating margin to expand in fiscal 2018 in constant currency, driven by both gross margin and operating cost improvement.

We plan to provide more specific guidance for fiscal 2018 on our fourth-quarter call in May, as is our practice.

In summary, we have created a strong foundation and we are delivering our Way Forward plan commitment.

As I look ahead, with the support of Ralph, the Board, and together with our leadership team, we have the key elements in place to ensure our continued progress.

With the passion and commitment of over 25,000 Ralph Lauren employees around the globe, we will intensify our execution of the plan, which will strengthen our brand and return us to long-term profitable growth.

With that, I want to turn the call back to Stefan for some closing remarks.

Thank you, Jane.

In closing, while I'm disappointed that I will not be here to see the Way Forward plan completely implemented, I'm confident that we have built a strong foundation and have the right team in place to continue to deliver on what we set out in June.

I truly believe that this brand and this team have the potential to do amazing things, and I expect them to take the Way Forward plan and make it even stronger.

This has been a great opportunity for me.

I'm glad I made the decision to join the Company.

I've learned a lot and I look forward to what's next.

Now, let's open up the call for your questions.

(Operator Instructions).

Omar Saad, Evercore ISI.

Good morning.

Nice quarter.

Good progress.

Stefan, are you willing to discuss in more detail about some greater-level insight about how yours and Ralph's views differed?

I know I'm asking you to talk about kind of some disagreements you may have had with this American icon and how to improve the Company that he founded, but you both have really successful track records in the industry, so it's really important, I think, for investors to have some insight into what you wanted to do that he didn't, especially since we don't have access to Ralph.

Thanks.

Thanks, Omar, and I understand the question.

First, I just want to say that I have deep respect for Ralph and the Board, and let's start with what we agree on.

We both share a deep respect and love for the DNA of the brand.

We both agree that we need to evolve, and that's why we set out on the Way Forward plan, which both Ralph and the Board supports.

What it came down to, Omar, was that we have different views on how to evolve the creative and consumer-facing parts of the Company.

The most detail I can be is to just say it comes down to decisions relating to how to evolve those areas, product, marketing, shopping experience, and we really worked hard, and I spent my whole career, 20 years, in family-controlled businesses, so we worked hard to find common ground.

We didn't, and that's what led to this mutual decision that we communicated today.

Rick Patel, CLSA.

Thank you.

Good morning and thanks for taking my question.

As you look at -- as we think about what you've accomplished so far and what's left to do, can you talk about the potential for longer-term margin recovery?

I know there's a lot of changes going on in the business right now and you haven't updated outlook for fiscal 2018, so as we think about all these moving pieces, do you still think you can get to mid-teen margins over the long run as you execute this plan or does that remain to be seen?

Rick, I think we have confidence in the guidance that we laid out in the Way Forward plan in June both for 2018 and beyond, in 2019 and 2020.

Our commitment is to get to profitable growth.

It will be a combination of topline growth and, in the near term, gross margin expansion and leveraging a better and more efficient cost structure.

So, we do see gross margin expansion.

You've seen over the past several quarters that we've had favorable trends in gross margin.

In this quarter, if you look at it on a constant-currency basis, we expanded gross margin by 240 basis points.

Obviously, we had 100 points of pressure from foreign currency, but we got a benefit from -- about half of the 140 points was a benefit from channel and geographic mix.

I expect that to continue.

And then, importantly, a little less than half of our gross margin expansion came directly from our quality-of-sales initiatives where across our businesses we reduced promotions and discount levels and were able to pull that through in terms of gross margin, so I do see that as a durable tailwind for us as we move into the future.

Michael Binetti, UBS.

Hey, guys, good morning.

Stefan, I wanted to dovetail off Omar's question a little bit and just ask as you look at it, maybe not as much about the disagreements at hand, but I think it would help everyone on this call a little bit if we could hear which parts of the Way Forward plan related to the areas where you had a disagreement could be on or off the table going forward, i.e., if we are holding the plan similar to where it was, what's changing along the path to get there that you laid out last year?

And then, secondly, Jane, as we look ahead to fiscal 2018 with the high-level guidance you guys helped us with, with revenues down high single digits, that's almost the same decline as we saw this year and you had a lot of fixed-cost leverage.

We know about half of the SG&A savings you said next year would -- you said last year would occur in fiscal 2018, but how do you get to the operating margin leverage next year with that high-level algorithm you gave us?

It's a little tough to get there in the model, at first glance.

Okay, Michael.

So, let me start with the question you have for me.

Well, both Ralph and the Board are committed to continue to execute on the Way Forward plan.

If you look at the quarter, what Jane went through, we start to see the operating improvements that we are driving through.

As a management team, we start to see that cut through in the P&L, and that's very exciting to see.

When it comes to the different views, it comes back to being aligned on the love for the brand, being aligned on evolving, and then coming to a realization that we have different views on how to evolve the creative and consumer-facing parts.

That's as much as I can share right now.

Michael, on your question, since investor day what we've seen is that, as we signaled in our FY18 guidance, we still have quality and sales initiatives work to do as we move into FY18, and especially the first half.

We expect a sequential recovery in the second half.

What's giving us confidence in operating margin expansion on a constant-currency basis is that we have two strong pistons in the engine, both gross margin expansion and our increased confidence in that and increased confidence that we can deliver our SG&A savings that we laid out.

You'll see that in our results this year and you'll see it as we travel through to FY18.

Laurent Vasilescu, Macquarie.

Good morning and thanks for taking my question.

It looks like your Americas wholesale business will end the fiscal year at about $2 billion in revenues, so about a $500 million decline over the prior year.

I was curious to know, what do you think is the right size of that business on a go-forward basis?

And on the flipside, what are the opportunities to grow your European wholesale business further beyond fiscal 2017?

Let me start with your question on North America.

As you look at our results and our trends on a year-to-date basis, the primary driver of what's happening in North America is a result of our strategic actions.

First, if I just take this quarter, about half of the revenue decline was attributable to our efforts in the Way Forward plan to really match our inventories to demand.

In this quarter, that was about -- that attributed about half of the decline that we saw.

The other component, about 30%, was a reduction that we took to lower excess inventory to the value channels in wholesale.

So as we said, we think we're out of balance today and we are aggressively moving to right-size that balance.

So that's a part -- as you look at the trend, a great deal of that is attributable to what we've decided to do as a part of the Way Forward plan.

When we have a supply chain that is closer to market and closer to demand, as we continue to improve our ability to buy informed, we believe we can get back to share growth in our wholesale channel and that will be a propellant of growth for us as we move forward.

Kate McShane, Citi Research.

Thank you for taking my question.

It hasn't been asked yet, but just given that we haven't spoken to you since the results of the election, I wondered if you could update us on how you're thinking about the border adjustment tax and any kind of role Ralph Lauren is having in conversations with the government on this potential impact.

Sure, Kate, let me take that.

Obviously, let me step back from the question and just say that we are a very proud American company.

We are and always will be intrinsically tied to Ralph's vision of the American dream.

We are headquartered in New York City and directly employ over 15,000 Americans.

That said, there's not a lot of clarity right now on the various proposals and specifically the border adjustment proposals and there's a lot of speculation.

We are taking that very seriously and are closely monitoring any decisions made by the new administration.

We're obviously looking across our supply chain and looking for opportunities to mitigate any impact that we might see.

As a part of the retail community, we're playing a role in that community to put forth the impacts that this kind of action could have.

So, we are looking to -- as we look forward, of course we will comply with any new legislation, as has been our practice, and move swiftly to mitigate any of those actions, but right now we are looking at scenarios and alternatives and waiting to see what legislation will actually be enacted.

Dave Weiner, Deutsche Bank.

Good morning.

I was wondering if you could comment on what you saw in terms of tourism here in the US, both at your outlet stores and your full-price stores.

Thanks.

Dave, while foreign tourism was still down in this quarter, we are seeing a sequential improvement to what we saw in the first and second quarters of this year, so still pressured in foreign tourism, but a significant improvement from what we saw as we exited the second quarter.

And certainly, the declines are about half of what we saw in this same quarter last year, so overall improvement.

David Glick, Buckingham Research Group.

Thank you.

Good morning.

I just had a leadership and transition question.

Obviously, Jane, you've led a similar turnaround or way forward at Coach, but in terms of the non-financial parts of the business as Stefan exits, who's going to lead the product, the merchandising, the retail strategies as you guys move forward?

And is there a risk of additional departures?

Stefan obviously recruited a lot of very capable executives from outside the Company.

Is there some risk there?

Thank you.

Sure.

So Stefan is going to be fully on board through May 1 and we're going to work very closely on the transition.

That said, this is -- we have a very strong, capable team of leaders around the globe, and so it is with that team that we will be working together to ensure execution of the Way Forward plan.

This is in no way a one-person leadership team; it's a strong leadership team with a strong bench.

It might be a little self-serving to say that Stefan has brought in a great bench of new talent, but set that aside, part of building this strong foundation and part of Stefan's contribution is the great talent that he's brought into the Company to blend with an already strong leadership team, and I know that, like me, many of us joined the Company because we believe in the brand, the strength of the brand, and Ralph's enduring vision that's the touchstone of the brand.

So we are going to secure execution and move forward as a team.

Erinn Murphy, Piper Jaffray.

Great.

Thanks.

Good morning.

I guess, Jane, for you, just going back to be wholesale channel, with the premarket commitment now 15% of the season versus 60%, that suggests a very significant reduction in the order book.

So what confidence does the team have there that the retailers will reorder and that the turns within wholesale and inventories aligned can accelerate for that at-once business, just given some of the structural challenges that we're all facing right now in this industry?

Erinn, I just want to be clear.

The 15% premarket commitment versus 60% is not a reduction in the order book; it's actually a timing trend that we in our past had placed 60% of our orders before we had the orders from our wholesalers.

The change is that now only 15% of our orders, because of longer lead times, have to be placed before we meet with our wholesale partners and receive their feedback and orders.

So it's not an order book reduction; it's actually moving that commitment date out so that we can be perfectly aligned with our wholesale partners.

Lindsay Drucker Mann, Goldman Sachs.

Thanks.

Good morning, everyone.

The design function had reported into Stefan.

During this period of transition, Ralph as Chief Creative Officer, will design be reporting directly into him?

And will he be playing an active day-to-day role in managing that part of the business or are we still talking about the strong bench that will be addressing design and creative?

And as we think about the timeline toward an evolution in the product, we had expected to see some initial changes under Stefan's leadership this spring.

As we think about how that aesthetic might evolve, given the difference of opinion, sort of what timeline are we talking about until we get to see the true vision of what Ralph's new product looks like?

Thank you, Lindsay.

Let me start.

So when it comes to the transition, I'm staying on for an extended transition period, as Jane mentioned.

I'm staying on until May 1, so no changes within the next three months.

And what we communicated this morning is that the Board and Ralph has initiated a CEO search.

When it comes to the initial product improvements, you will see some improvements this spring and we are just now finalizing the market for fall, the wholesale market for fall 2017.

And we see some great progress there in terms of cutting down productive tail, refocusing on the core, being better at looking at competitive intelligence to strengthen our own offerings, so it will be gradual improvements starting spring and going into fall and then onwards from there.

Lindsay, I just want to add that Ralph is not interested in running the business day to day.

He does want to play an active role in the creative decisions, including design and consumer-facing decisions.

In terms of reporting relationships, reporting relationships to Stefan will stay the same through May, and then Ralph and I and Stefan will work on an organization structure that makes sense to ensure the execution of the plan.

Bob Drbul, Guggenheim Securities.

Hi and good morning.

A couple of questions, just on the revenue outlook.

Jane, could you maybe just address the progression of expectation for the retail comps in FY18?

And do you have any idea when you would expect revenues to begin to grow again at the business?

Yes.

So Bob, I think -- and we will come back and give more specific guidance, as we typically do, on the fourth-quarter call.

What we are seeing now at this stage of our planning for FY18 is that we would expect quality-of-sales initiatives in retail and wholesale to continue to pressure revenue and comps through the first quarter -- through the first half.

And then as we move into the second half, much of that quality-of-sales initiatives and distribution will start to abate and you'll see a sequential improvement in performance.

That said, it's really FY19 where we would expect a return to revenue growth.

Ike Boruchow, Wells Fargo.

Hi, good morning, everyone.

Thanks for taking my question.

I guess, Jane, just two quick ones.

You said basically 50 closures for the year, and you've done 27, so 23 set for Q4.

Are there any openings we should be modeling for Q4?

And then, just when you mentioned the op margin up next year in constant currency, is that to mean that ex currency you would expect margins might not be up?

And I'm just kind of curious at current spot rates what you think the FX impact on your margin would be right now, just to help us think about the model.

Sure.

So Ike, as -- in the fourth quarter, we have one opening and we're on track, as you mentioned, for 50 closures this year.

As I look at the model and current pressures, right now at current spot rates I'm expecting about 50 to 75 basis points of pressure on an operating margin.

I think we have to see what happens on currency rates.

Overall, what I can say is that on a constant-currency basis, we will have operating margin expansion in FY18.

Matthew Boss, JPMorgan.

Thanks.

So as we think about the wholesale reset, I guess what assumption have you made for the department-store sector looking ahead?

Are you anticipating further door closures?

And just what's the strategy for the mix of off-price business versus today?

Sure.

Yes, we are anticipating door closures with our retail partners.

In fact, as of the end of Q3, we have worked closely and collaboratively with our department-store partners and have worked through about 70% alignment on the point-of-sale closures that we announced last quarter that would reduce our points of distribution in department stores by 20% to 25%, so we are well underway there.

We're obviously working in partnership with them to understand their future door plans so that we're fully aligned on that, and that's incorporated into our overall guidance.

Between door closures and wholesale closures, it's about 200 basis points of pressure, so I feel that we are aligned with our partners and we're modeling that into our guidance.

In terms of the right balance with what I'll call off-price wholesale, what we know as a touchstone is that we have to be where the consumer wants to shop, and so they are an important part of our distribution.

But what we also know is that we are not in balance where that distribution should be.

So what we've modeled is continued rebalancing of that channel through the balance of FY18, and that will be down significantly double digits as we move through FY2018.

Dana Telsey, Telsey Advisory Group.

Hi, good morning, everyone.

As you think about the team, are there other holes in the team that need to be filled?

And on the speed-to-market process, where are we and is it getting faster?

What should we see in terms of the product assortment?

And do you expect -- should we see it in fall or how should we see it coming into fall?

Thank you.

So Dana, just on the team, as we've said, we have one significant search out there and it is for a Chief Marketing Officer.

We're making progress, but that's the most significant search that we have right now for the team.

Yes.

Dana, when it comes to the speed to market, I'm really pleased with the progress that Halide Alagoz, our head of sourcing from H&M, and Bill Campbell, who is 11 years from Amazon on the supply chain, how they come together and deliver on our nine-month lead times, cutting the lead times from 15 to nine.

They are making great progress, and so you should expect that to continue.

They are working in close cooperation with Valerie Hermann and the brand teams as well.

So it's a teamwork that I'm very excited about that you can already see in the Q3 performance that is starting to get traction.

Jay Sole, Morgan Stanley.

Great.

Thanks for taking my question.

Jane, my question is there's clearly been a lot of discussions about how to evolve the creative and consumer-facing parts of the business.

It sounds like maybe at least some decisions have been made.

Can you just tell us at a high level what will be different going forward about the creative and consumer-facing parts of the business?

So, the pieces that we talked about in the Way Forward plan remain.

We are going to evolve from a classic iconic core and continue to execute 50% new/50% DNA classic product.

I think it's the direction of that product that will evolve and Ralph is going to play an active role in evolving that.

You will see our progress in the Way Forward plan specifically on product starting in fall of 2017 and continue through into the spring season, so we are making progress.

You'll see it evolve and it will continue to evolve from there.

It's been part of our DNA as a Company; we've evolved for the past 50 years and it's Ralph's intention to continue that evolution.

(multiple speakers) I'll turn it to Jane to close the call.

I want to thank you for joining us today.

I look forward to speaking with many of you shortly and through the quarter, and we're committed to executing our plan and providing you transparency on our progress and moving forward.

Thank you.

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

Thank you for your participation.

You may now disconnect.