雷夫·羅倫馬球 (RL) 2018 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Ralph Lauren First Quarter Fiscal 2018 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 2018 Conference Call.

With me today are Patrice Louvet, the company's President and Chief Executive Officer; and Jane Nielsen, Chief Financial Officer.

(Operator Instructions)

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 Patrice.

Thank you, Evren.

Good morning, everyone, and thank you for joining today's call.

It's great to be at the company and partner with Ralph and the entire team.

The last few weeks have been exciting for me as I spent time in the marketplace and had the chance to meet with many of our team members as well as our consumers, wholesale partners and key industry opinion leaders.

What is clear to me is that we have an iconic brand, a passionate team and a lot of opportunity ahead.

Seizing our opportunity requires us to evolve how our iconic brand is experienced and expressed to win the hearts and minds of consumers globally.

It's something Ralph and I are deeply committed to.

As you can see in this quarter's results, we're making good progress with setting a strong foundation for future growth.

The team continues to deliver on our commitments to improve quality of sales and distribution with increased efficiency.

On my first call with you, I thought it would be valuable to share what motivated me to join the company, my observations to date and our areas of focus to get back to growth and value creation.

Then I'll turn it over to Jane to walk through the details of the quarter and our guidance.

At the end, we'll take your questions together.

To start, I've long admired Ralph and I am honored to partner with him.

We are both committed to preserving the essence of our brand while actively evolving it to renew long-term growth, profitability and returns.

To achieve that, Ralph and I are clear on how we will partner together.

Ralph is the Chief Creative Officer in charge of the creative brand aesthetic decisions.

As CEO, I will lead the company's strategy, execution and business results.

Ralph has already been a great partner, and I could not be more enthusiastic about our collaboration.

I appreciate the confidence and latitude he has given me in leading this company forward.

During this time of transformation for our industry and our business, I am confident we will accomplish a great deal together.

Our opportunity is to take an iconic brand and advance it in ways that drive new growth and value in an industry that is undergoing unprecedented change.

Our experiences and expertise will be a powerful and winning combination.

People who know me well describe me as a builder of both brands and teams.

Building up people and teams to accomplish amazing things motivates me.

I believe this is one reason Ralph and I click.

He was looking for somebody to come in, understand what makes this place so unique and special and build boldly from that point.

I am also committed to objectively evaluating the business and identifying both the strengths on which we can build and the areas that need focused attention and improvement.

I am passionate about building brands that consumers love.

To do that, we must understand the target consumer, his or her interests and motivations, clearly define what the brand stands for in today's world, and then most importantly, connect it to in a way in which the brand becomes irresistible.

To say the retail industry is at an inflection point would be an understatement.

Technology has transformed the way consumers shop and connect with retail brands.

Retail store closures are near a 20-year high as the fundamental shift to e-commerce continues.

To stand out and compete in this environment, consumers expect an omnichannel shopping experience that's unlike anything they've seen before.

While not easy, I see it as our job to redefine the shopping experience of the future.

All of these changes are creating challenges, but they're also creating opportunity.

The Ralph Lauren brand was built on a belief that we all dream of living a fulfilling life, a life that makes you feel good.

I think that is a universally aspirational idea.

It's an idea that transcends boundaries and generations.

And it's as relevant today as it has ever been.

Our role is to make it feel vivid and exciting today for consumers everywhere, from Boston to Barcelona to Beijing.

We are starting with a great foundation.

Our brand is iconic and the underlying fundamentals of our business are solid.

I am focused on continuing to execute on the operational improvements that were part of the Way Forward Plan, and the team is making good progress in driving efficiencies and improving the quality of our sales by reducing excess discounts, excess inventory, supply chain lead times, unproductive distribution and SKUs as well as aligning our creative more closely with the consumer.

Further, I've been incredibly impressed by the caliber and dedication of the people here at Ralph Lauren.

We have a team of talented and hard-working employees who are eager to get back to winning.

And with their enthusiastic support, we will push ahead to create more value for our shareholders.

It is too early to talk about the evolution of our strategy.

However, as I start to work with the team, we have a strong focus on growth that creates value.

We are focused on exploring our opportunities in becoming more digital and more global, as well as how we evolve and elevate the offerings and experiences we provide to consumers in order to drive growth.

It is important to note that we will balance driving growth with improving efficiencies.

We aim to increase our productivity by continuing to simplify and streamline our operations company-wide so we can invest in growth.

With the consumer as our touchstone, we're also going to focus on how we work as an organization so our employees are more empowered, more connected and more energized.

Getting culture right is critical for us.

In closing, as I shared earlier, we are eager to evolve how the brand is experienced and expressed to win the hearts and minds of consumers globally.

While our transformation is in its early days, we are progressively strengthening our position to create new value and renew long-term growth.

With that, I'll turn it over to Jane to walk you through the details of the quarter, and I'll join her at the end to answer your questions.

Thank you.

Thank you, Patrice, and good morning, everyone.

I'd like to start by saying that our entire team is thrilled to welcome Patrice to the company.

He joins at a critical moment when we are executing on initiatives to strengthen the foundation of our business that will allow us to position for future growth.

Our first quarter results demonstrate the strong and continued progress we are making in this area.

As you know, last year, we started the important work of enhancing our operational efficiencies by improving our cost structure, evolving towards a demand driven sell-through culture and improving our quality of sales and distribution.

As we started this fiscal year, we are encouraged by the progress in the first quarter and are confident that our efforts are the right ones to lay the groundwork for our future growth initiatives.

Let me take you through the key strategic and financial highlights of the first quarter.

This quarter, we continue to deliver against our strategy to drive quality of sales and elevate our brand.

Key areas of operational focus were: aligning receipts to underlying demand, reducing promotion frequency and depth, optimizing our distribution and improving our inventory position with increased productivity.

Our financial results were consistent with this focused execution.

As you saw in our press release, revenues declined 13%, in line with guidance.

Adjusted operating margin was 10.2%, 200 basis points above last year and above our guidance of 9.5% to 10% in constant currency.

Gross margin also reflected this work and was up 210 basis points to last year.

Excluding the impact of foreign currency, the gross margin was 260 basis points better than last year.

Importantly, we are delivering both average unit retail increases and discount rate reductions.

Across our global retail network, discount rates were down and AUR was up almost 4%.

Gross margin also benefited from favorable geographic and channel mix as our high gross margin international and retail businesses represented a large percentage of sales compared to last year.

We expect these factors to drive gross margin expansion for the remainder of the year.

This work has come in conjunction with continued progress on rightsizing our cost structure.

Operating expenses were down 13% to last year in the first quarter.

This was driven by: one, streamlining the organization to reduce headcount; two, closing unprofitable stores; and three, changing product development processes through SKU optimization.

We are on track with our expense savings targets for the year, and this will allow us to invest some of the savings into product, marketing and distribution renovations to drive future sales growth and improve the customer experience.

Our current and upcoming product marketing initiatives highlight our iconic core products, emphasize the core values of the brand while adding interest and newness.

As an example, last month, we launched our new limited-edition Polo shirt collection.

We are releasing a new shirt every month through November, each inspired by one of our signature design motifs.

The launch is supported by social media as we collaborate with influencers on Instagram.

Our goal for this program is to position our Polo shirt as an item to covet, reach a new consumer and garner fashion editorial coverage of our icon.

We also recently introduced our new fragrance, Ralph Lauren Woman.

The face of this new fragrance is two-time Oscar-nominated actress, Jessica Chastain.

Digital and social media support for the launch started in July and the product is available this month.

In September, we will launch our new global family marketing campaign with strong outdoor and digital components.

This, too, highlights Ralph Lauren's core values that our brand is built on.

Moving on to our segment highlights.

As you know, we are now reporting under our new segments: North America, Europe and Asia.

This offers increased visibility into our sales and profitability by region and increased transparency into the development of our business and the progress of our initiatives around the globe.

In North America, we continue to execute our plan to come back to profitable growth.

Revenue was down 17% in the first quarter and reflected important progress across our quality-of-sales initiatives.

As a result, we expanded gross margin and prudently reduced expenses, delivering 110 basis points of expansion in adjusted operating margin.

In North America wholesale, we continued our work to right size our business for the long-term health of the brand.

We strategically reduced shipments to better align with underlying demand, exited brands, lowered our sales to the off-price channel and closed underperforming doors.

We are on track to close 20% to 25% of our U.S. department store points of distribution by the second half of FY '18.

We are about halfway through these closures as of the end of the first quarter.

These deliberate actions accounted for almost 20 points of the 27% decline in U.S. wholesale in the quarter.

Consumer demand and channel dynamics remained a challenge as well.

To address this and improve the positioning of our brand, we are investing in refreshing our wholesale store environments to improve the consumer experience, and we are evolving our product and marketing to turn around this trend.

The sweet spot of U.S. wholesale is their growing digital business.

Our retail sales on our U.S. department store customer's websites continue to post positive growth versus last year and as a percentage of our total department store business.

We will continue to drive growth to our online partners in FY '18 and evolve our digital strategy to move with the consumer where, how and when they choose to shop.

Moving on to our directly operated e-commerce business in North America.

We are aggressively addressing our high level of promotion activity to both ensure price coherency across our channels and to enhance the overall brand and shopping experience in this our most important door.

These actions in North America drove strong gross margin expansion of 220 basis points to last year.

However, they put significant pressure on revenue.

North America e-commerce comps were down 22% in the first quarter, reflecting lower levels of promotion activity.

To improve the consumer experience online and move beyond promotion-lead sales, one of our key digital initiatives is the transition of our platform to a cloud-based solution.

With our new consumer interface, we will continue to directly operate and fulfill our e-commerce business with reduced transaction friction for our consumers, improve the ability to execute dynamic changes and enhance omnichannel capabilities.

We are on track to launch by the second half of fiscal 2018.

This solution will deliver a more brand enhancing and consistent experience for customers and provide a more flexible and nimble solution for us.

Moving on to our international regions.

In Europe, in constant currency, revenue was down 10% in the first quarter.

However, adjusted operating margin was up 90 basis points.

Wholesale revenue in Europe was down 28% in the first quarter.

About half of this decline was due to a shift in timing of shipments to bring delivery closer to demand.

Brand exits and reduced off-price sales accounted for the remainder of the decline.

Excluding these factors, the underlying trend of the Europe wholesale business is flattish.

In Europe, retail sales were flat to last year in constant currency with comps down 8% as we continued our work with quality-of-sales initiatives.

While this ongoing work impacted comp growth negatively in the first quarter, it drove an 8% increase in AUR, 500 basis point decline in discount rate and 500 basis points of gross margin improvement across our retail network.

This contributed to the improvement in operating margin for Europe, and we will continue this strategy for the remainder of the year.

In Asia, in constant currency, revenue was up 1% in the first quarter and adjusted operating margin was up 610 basis points.

As we mentioned on previous calls, we have been focused on improving quality of sales in Asia over the past 12 to 18 months.

We are beginning to see comps stabilize in the region.

And in the first quarter, they were up 2% in constant currency, driven by increased traffic.

Quality of sales metrics continued to be strong as well.

Average unit retails were up, discount rates were down and gross margin was up significantly in Asia.

We expect continued comp growth as we upgrade our distribution network and continue our marketing initiatives to amplify the brand, specifically by increasing engagement with celebrities and influencers in Asia.

Turning to our store fleet.

We continued to improve our retail network in the first quarter through a closure of underperforming locations and opening new stores with improved adjacencies.

We opened 6 and closed 5 stand-alone stores.

And in concessions, we opened 9 and closed 4 doors, ending the quarter with 467 stand-alone stores and 624 concessions on a global basis.

At year-end, we expect our stand-alone network of doors to be about flat to last year and have a net increase of 35 to 40 concessions, primarily in Asia.

Moving on to the balance sheet.

Our progress with our plan is reflected in our strength in inventory and cash positions.

At the end of the first quarter, inventory declined 31% to $860 million versus last year.

This inventory reduction is driven by prior year restructuring actions and more effective buying processes, including a proactive pullback in receipts.

We will continue to focus on inventory productivity and matching inventory flows with demand.

We ended the first quarter with approximately $1.7 billion in cash and short and long-term investments, up from $1.2 billion at the end of last year's first quarter.

Total debt at the end of the first quarter was $590 million.

Now I'd like to turn to guidance for the full year and the second quarter of fiscal '18.

As a reminder, this guidance excludes restructuring and other charges.

We are reiterating our guidance for fiscal '18.

We continue to expect revenues to decline 8% to 9% for the year, excluding the impact of foreign currency.

Brand and distribution exits in both wholesale and retail account for approximately half the decline with quality-of-sales initiatives and challenging traffic trends representing the remainder.

We expect the sales trend to improve as we move through the year.

Based on current exchange rates, foreign currency is now expected to have minimal impact on revenue growth in fiscal 2018.

This is more favorable than our previous guidance of 150 basis points of negative impact.

As you know, over the last several months, the euro has strengthened against the U.S. dollar.

While clearly volatile, we are now assuming a euro/U.

S. dollar exchange rate to be $1.14 versus our previous assumption of $1.06.

The change in our euro/U.

S. dollar exchange rate assumptions is much more impactful on our sales growth than on our gross and operating margins.

This is a result of our approach to hedging.

We hedge our transaction risk, but not our translation risk.

Our hedging programs for our inventory purchases enables us to have less volatility for our margin from exchange rate movements.

We continue to expect operating margin for fiscal 2018 to be 9% to 10.5%, excluding the impact of foreign currency.

Based on current exchange rates, foreign currency is now expected to pressure operating margin for fiscal 2018 by approximately 40 to 50 basis points, less than the 50 to 75 basis points we guided to in May.

For the second quarter, we expect revenues to be down 9% to 10%, excluding the impact of foreign currency.

Based on current exchange rates, the foreign currency is expected to pressure revenue growth by about 40 basis points in the second quarter.

Operating margin for the second quarter of fiscal 2018 is expected to be up 40 to 60 basis points, excluding currency impacts.

Foreign currency is estimated to pressure operating margin by approximately 40 basis points.

As we move through FY '18, we expect SG&A declines to moderate as we begin to lap last year's reductions and start to invest in growth initiatives around products, marketing and store concepts that demonstrate high potential for returns.

We believe this is the right decision for the long term as we balance near-term margin pressure with setting up the company to return to growth.

In addition, our SG&A rate is affected by sales mix shifts.

Similar to gross margin, as retail becomes a larger percentage of our mix, it pressures our SG&A rate because retail has a much higher SG&A rate than wholesale.

As a reminder, we record all our store occupancy and payroll expenses in our SG&A line.

It is also worth noting that FX is becoming less of a tailwind and in fact, is turning into a headwind for SG&A.

In terms of restructuring and other charges, we continue to expect approximately $200 million for the year.

We recognize $47 million of the charges in the first quarter.

Regarding tax rates.

As a reminder, the adoption of the new accounting standard, ASU 2016-09 for the accounting of employees share-based payments affects our effective tax rate and increases its variability, with one of the key variables being the price of our stock.

Our tax rate guidance assumes a stock price of $78 per share for the remainder of the year.

We expect our effective tax rate for fiscal '18 to be approximately 24% to 25% and for the second quarter to be approximately 24%, including ASU.

The guidance for fiscal '18 tax rate is lower than previously forecasted.

This is due to recent favorable movements in foreign exchange rates as we now expect to generate a larger portion of our earnings from jurisdictions where our earnings are taxed at a lower rate than the U.S. In addition, there was some modest favorable adjustments to our tax reserves that resulted in a net benefit to full year forecasted effective tax rate.

Let me finish by reviewing our priorities for cash and capital structure.

In times of dynamic change, a strong balance sheet is a strategic asset.

We are committed to maintaining our strong balance sheet and investment-grade credit rating to provide strategic flexibility, liquidity and access to capital markets.

Within that context, our first priority for cash is to invest in our business and lay the foundation for future profitable growth.

Our second priority is to return capital to shareholders with a commitment to maintaining our dividend.

Excess cash flow beyond current and future investment and dividend needs will be considered for future potential share repurchases.

We are not planning share repurchases for fiscal 2018.

We make this determination based on the cash needs of our business, sector dynamics and with consideration for the uncertain environment around U.S. tax reform.

We continue to expect capital expenditures for fiscal '18 to be approximately $300 million, driven by select new store openings, renovation of our retail environment and infrastructure investment.

In closing, we are moving in the right direction, and I am incredibly proud of our team of 23,000 committed, passionate and dedicated Ralph Lauren employees around the globe.

Together, we are committed to creating a strong foundation to evolve this iconic brand consistent with Ralph's enduring vision.

With Patrice's leadership, we will continue to intensely focus on execution as we, together, create a pathway towards sustainable growth.

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

(Operator Instructions) The first question comes from Ike Boruchow with Wells Fargo.

I guess, Patrice.

Patrice, so you're inheriting the company's Way Forward Plan.

I guess my question is, will you continue to implement the plan as it currently stands or maybe after taking a hard look at it, do you see any opportunities to tweak the original strategy in any way?

Ike, great question.

Listen, I think the Way Forward Plan is an operationally sound way to run the business.

So we remain fully committed to it and trust that we're not going to miss a beat when it comes to executing both the operations and the efficiency interventions that we've called out.

I'm actually very proud of the team's progress with setting a strong foundation for future growth, whether that's the work on improving the quality of sales or distribution, whether that's the reduction in excess inventory and SKUs and also, the progress that you've seen on efficiencies.

Now we also know that if we look at the future, we're going to have the balance progress on productivity with revenue growth.

And so moving forward, while we'll continue to drive the operational and efficiency elements of the Way Forward Plan, we're going to put more emphasis on the revenue growth dimension of our program moving forward.

And specifically here, I'll call out a few things.

One is we're exploring our opportunities to become more digital.

We're also looking at our opportunities to be more global because this brand obviously has incredible relevance around the world.

And then Ralph and I are very committed to make sure that we evolve how this iconic brand is expressed, how it's experienced to really win the hearts and minds of consumers around the world.

So that's kind of the focus on the growth pieces early thoughts.

We will obviously continue to drive productivity, and the focus here will be on continuing to simplify and streamline our operations company-wide.

And then the focus on how we work is also important to me and to Ralph and also to the leaders of this company.

So you'll also see us put more emphasis on new ways of working.

Initial thoughts are going to be around making sure our teams are more connected, our teams are more empowered and ultimately, we increase the level of energy that we have across all 23,000 employees of the company.

The next question comes from Michael Binetti with UBS.

Let me just ask, I guess, 2 questions.

First on the guidance for the year, Jane.

It looks like the -- with the second quarter, the EBIT margins are going to be up about 80 to 100 if we ignore currency.

But then if we just back out the second half from the year, it looks like the guidance, it shows the margins be down quite significantly in the back half.

I know you said SG&A will -- year-over-year SG&A improvement will moderate through the year.

Maybe just a little bit more on are you leaving room in the back half due to some kind of uncertainties on the top line?

Or is it truly that we expect to accelerate the investments for growth?

And then secondly is, you guys talked a lot about how you're thinking about the net level of revenue outlook for the year and moving towards quality-of-sale initiatives, reducing levels of discounting.

But maybe -- I think most people are wondering when you think at this point revenues could return to growth?

Are you seeing anything in your conversations as you start to look out into the spring and fall of next year?

Or you're starting to get some traction with the product where you consider yourself, "Look, there's a point in the horizon where we think all this work we're doing is out of the way, and we could return to revenue growth."

Well, certainly, the -- I'll try to unpack your question, Michael.

But certainly, as I look near in for the balance of this year, as I said, we're very comfortable with our guidance.

As we look at the top line, there's no change to the top line, we do see gross margin as we move through the second half of the year that will have at least 100 basis point of gross margin expansion.

Now with the guidance that we've given in terms of what SG&A will be down in the second quarter, we see operating margin expansion coming out of that.

As we move into the second half, we'll have that continued 100 basis points of gross margin.

But we expect that our SG&A will be flattish.

And with that, that brings us to our overall guidance that you will see some compression on a constant currency basis in operating margin.

As we look longer term, I think you've heard Patrice very, very clearly and passionately state, we are looking to balance efficiency with getting back to growth.

But it has to be sustainable, profitable growth.

And at this time, we are not ready to call the inflection point precisely.

That is the question.

We do think that we're building a plan that will return us to growth, and we'll come back and give you more specifics on the timing as we move forward.

The next question comes from Omar Saad with Evercore ISI.

I wanted to ask about social media.

I think, Jane, maybe you mentioned it in one your prepared remarks, and I'd love to get Patrice's views on the topic as well.

It seems like it's a growing channel for connecting with consumers and a marketing channel, if you will.

How are you guys thinking about it and other digital marketing activities?

And actually, Jane, I also think -- I heard you mentioned, I don't know if it was accelerating growth or strong growth from the digital platforms of some of your wholesale partners.

I think that was an interesting comment given the general challenges of the wholesale channel.

So Omar, nice to meet you on the phone.

Let me maybe just step back on how we look at e-commerce and online brand building and hopefully, that will address both of your questions.

So first of all, the way we look at the e-commerce opportunities is really through 3 lenses.

The first one is our own site, and I'll come back to that in a second.

The second one is our retailer sites and then the third one are the pure plays.

So if you look at the plan on our own site, I think this has been talked in the past, but we're in the process of completely transforming our RalphLauren.com site, and we expect by the end of the fiscal year to have something that we're excited about, both in terms of brand building and in terms of e-commerce, right?

The expectation really for the team is this site needs to be our flagship.

It's the kind of flagship store of the future, and it hasn't been that in the past.

So there's an important pivot there.

And then obviously, we need it to be an e-commerce machine.

As far as our retailers' .com operations are concerned, I've had the chance with my first couple of weeks on the business to actually meet with the CEOs of a number of our top retail partners.

And it's actually been exciting to see the focus they're putting on e-commerce.

And some of the numbers some of them are posting, right, which is actually quite strong.

So we want to make sure we're taking advantage of that momentum and working very closely with our retail partners on the way the brand shows up, both again from the brand building standpoint or storytelling end from e-commerce at that point.

Then the third area is pure plays, which is obviously growing significantly.

And we're starting to participate in that.

We just signed with Zulily a few weeks ago.

And you can expect this to expand our presence among the pure players, both here and North America and around the world.

Then if -- we double click on social media.

You heard in our remarks that Ralph and I are really committed to evolving how the brand is expressed and experienced.

And obviously, social media, Omar, you're absolutely right, it's got to be a key part of that.

We have a new CMO, a new global CMO that came in a few months ago, who's -- that's focused on understanding the landscape, getting super clear in which consumers we really go want to after and then leveraging all the social media platforms that you can think of, both here and around the world because this is how we will further modernize the brand and really make it even more relevant to the younger populations coming into the market.

Yes, Omar, I just thought I'd give you some dimension on what we see across our wholesale e-commerce business, both department stores and pure plays, that it's over about -- it's about $0.5 billion business for us at retail value globally, about 10% of our total wholesale business in FY '17.

That's an important part of our digital ecosphere, if you will.

And it's growing in the first quarter, and it has been growing.

So very positive trend there.

As we look at our own e-commerce site, I think we've been really clear about 2 things.

One is, job one this entire year is reducing the promotions on the site.

You're going to see that -- you saw that in the first quarter.

You'll see that through the year in terms of the pressure that will have on sales growth.

It's critical to deliver price coherency in the market.

It's critical from a pricing architecture standpoint, so we are committed to doing that through the year.

The growth is going to come as we launch, as we move out of this fiscal year and into the next year and we right size that pricing architecture and that promotion base.

And that will be enhanced by our new e-commerce platform, where we're going to have a better consumer experience and better digital assets and story telling on the site.

And you'll see that as we move through the second half of the year.

So I think we are very excited about this space.

We are putting resources on it for both our wholesale partners and for ourselves.

But it's really going to be FY '19 when you'll start to see that show up in the top line numbers.

You will see it show up in improved margins as you're seeing.

The next question comes from Dana Telsey with Telsey Advisory Group.

As you think about the business and as you evaluated it, how do you view the channels of distribution for the business over time?

And how should they look maybe different or evolve from where they are today?

And Jane, the gross margin improvement opportunity going forward, how do you see that evolving, whether it's lead times, speed-to-market and e-commerce?

So very nice to meet you, Dana.

First, I would say, we're going to follow the consumer, all right?

We're going to be driven by where the consumer wants to shop and we will be wherever it makes sense for the brand to show up and where the consumer wants to experience it.

So we have an omnichannel play, which we're going to continue to drive.

And I expect all these channels will continue to play an important role moving forward, whether that's department stores.

Yes, they're under pressure right now, but there's a lot of work going on to also improve the experience that consumers have there.

So obviously, that continues to be an important channel for us.

Our own stores, whether it's our factory stores or our full price stores and then, obviously, e-commerce, as we were just talking in the context of Omar's question.

So -- and then, there is a role for off-price to play within our overall strategy.

So I expect this to continue to drive across these channels.

Obviously, the relative size of them and growth rates will vary over time and will vary by country and by region.

But we're committed to making sure that we are set up to win where the consumer wants to shop consistently moving forward.

Dana, as I look at gross margin, that dynamic that Patrice just described, which is really that you're going to see digital be a long-term driver of growth as well as direct-to-consumer overall.

And so that will play positively into what you'll see in terms of long-term gross margin expansion.

Also, the international opportunity is a tailwind long term to gross margin expansion.

I expect those to be both durable and long term.

They'll play into our gross margin expansion this year and also into long term.

What's also playing into gross margin as we talked about the at least 100 basis points of expansion as we look at balance of year is our price -- AUR improvements and promotion reduction in terms of depth and frequency, and that's also a tailwind through this year of gross margin expansion.

As we, long term, take on a -- pursue our strategy and execute the strategies that elevate the brand, I do see AUR also as a long-term driver to gross margin expansion.

The next question comes from Lindsay Drucker Mann with Goldman Sachs.

I had 2 questions.

Patrice, you talked about in your opening remarks a need and a desire to redefining the shopping experience for consumers.

Can you give us a little more detail on what that means to you?

What is a redefined shopping experience in all the key channels you talk about doing business?

And then secondly, for Jane, you talked about in your prepared remarks also that excluding certain actions in Europe, shipment timing, et cetera, European, I think you said wholesale sales were roughly flattish.

Do you have that detail for North America?

In other words, excluding some of your inventory actions, et cetera, what is the trend for wholesale, for sales at retail with -- at your wholesale partners?

So I'll probably be in a better position to answer your question a few months from now.

But the way I'm thinking about it with the team is how do we further engage the consumer in our brand, really find a way to tell our story, going well beyond just selling items, but really telling our story and portraying the world that we offer and then closing the sale, all right, closing the sale and driving loyalties.

So all these are -- that's the general conceptual direction, I'd reserve the right to get back to you in our next call with more granularity as we work through the plans with the team.

So Lindsay, as I look at -- as we've -- just to parse your question now.

In Europe, as we look at the shipment timing, that accounted for about half of the decline in the wholesale sales this quarter.

The other half was really brand exits and reduced off-price.

And that -- if we exclude that, that's how we get to be about flattish wholesale trend in wholesale.

And really, what we expect to see roughly as we move through the year.

And as I look at North America, what -- and we step back from overall wholesale.

So we declined 27 points in the quarter.

About 20 was really attributable to what I would say is brand exits, pullback in receipts and door closures.

Those 3 factors were about 20 points of the decline.

So if you look at that over time, we're looking at wholesale underlying trends at about down mid to high single digits.

The next question comes from Laurent Vasilescu with Macquarie.

It's nice to see continued progress around the gross margin, but I wanted to ask about SG&A margins.

First, near term, can you possibly quantify in dollar terms the key buckets which drove the 13% decline in this quarter?

And secondly, longer term, where do you think SG&A margins can go as you invest in marketing and product creation?

Are there any SG&A buckets where synergies can be gained in order to offset these investments?

Sure.

So as I think about in the first quarter, where did the benefit come, it really is in terms of we saw a significant reduction in payroll, reduction in occupancy expenses associated with the store closures that we completed, reduction in depreciation and then some trimming of what you'd expect consulting expenses, T&E, rounded out the reductions.

But if I had to prioritize them, it will be in that sort of ingredient label order.

As we look at longer-term efficiencies, what I think is clear is that we're committed to elevating this brand, and that implies that as we get back to growth, that marketing will grow hand in hand with growth.

But we do believe there are opportunities for streamlining and efficiencies through our operating processes, through production processes, through streamlined and better leverage of our distribution facilities.

And of course, the ultimate lever is comp growth, which will leverage our fixed costs infrastructure.

But that's where I see the longer-term opportunities.

The next question comes from Simeon Siegel with Nomura Securities.

So Patrice, your comments on the growing digital in the pure plays.

Amazon obviously comes up in just a few conversations.

Can you share your view there?

And then congrats on the strong gross margin.

Could you just quantify what the geographic -- what the mix shifts were?

And then what you'd expect them to be for the rest of the year?

So yes, obviously, I know Amazon is top of mind for all of you and it is for all of us, obviously, as well.

So going back to our strategy.

We are looking at these 3 buckets: our own sites, our wholesale.com and pure plays.

Within pure plays, we're actually doing a very thorough exercise as we speak, both for North America and around the globe to understand where we need to show up, where is the consumer shopping, what's the better fit for our brand.

And so nothing to announce at this point, but know that we're actively working through what are the right pure play partnerships for this business moving forward.

Yes.

And just as I look at drivers of gross margin expansion in the quarter, about half of it was channel and geographic mix.

And about the -- and the other half was really driven by what I will call pricing and promotion reductions and AUR improvements.

And I -- those dynamics, I expect them to continue through the year with about that level of contribution.

The next question comes from Erinn Murphy with Piper Jaffray.

I guess, Patrice, I had a question for you.

I know you've been there just a few months.

But when you take a step back and just think about the prognosis of the Ralph Lauren brand, how do you think about it as it relates to today's millennials and keeping the brand relevant?

It just seems like that's a cohort of consumers that's a been a little bit harder to reach in the last few years.

And then, Jane, just for you.

In North America, as it relates to international tourist flows, what did you see during the first quarter?

Very good question on the millennial consumer.

Well, I kind of step back, and Ralph and I had actually had a number of conversations on this that says, okay, what are the core values of the Ralph Lauren brand, all right?

And we would say they are entrepreneurship, creativity, stylish living and authenticity.

And all that is coupled with a very rich heritage of real storytelling.

All of that is timeless, right?

If you think through the values that are relevant to today's consumer, millennials would raise their hand and say that makes lot of sense to them.

The second thing I would say is as we look at the millennial consumer, is that they are looking for meaning in brands.

Again, they're not just buying a product, they're buying into a world, they're buying into a set of values.

And they place a lot of emphasis on: Where do you come from?

What do you stand for?

What's your story?

What are your values?

Are you giving back to the world?

I think again, the Ralph Lauren brand is incredibly well positioned on this whole meaning space.

So the challenge for us is, okay, with these strong value foundations, with this sensitive meaning, how do we translate it today for that consumer group, right?

And that's the work Ralph and I and the team are committed to.

That's why we talk about evolving and elevating the way the brand is expressed and experienced because we know we are going to have some changes in terms of how we engage to the consumer, where we engage the consumer, go back to the earlier conversation we were having on social media, back to the earlier discussion we were having on driving digital harder because a number of the millennial consumers are not interested in going into brick-and-mortar.

But I feel very confident coming in with the foundations of this brand.

And now the challenge and the task for us, and I'm very confident we can do this well, is to translate it in a way that connects with today's consumers and the millennial population coming up.

And Erinn, just in terms of the foreign tourist trends that we're seeing.

As we normalize for some of the calendar pushes and pulls as we move through '17, really, '17 foreign tourist traffic, we saw it down about 15%.

And we're seeing some positive signs.

Foreign tourist traffic is still down in the first quarter, but really in the high single-digit range.

So again, some improvement as you normalize out of last year and adjust for some of the calendar shifts from down 15% to down high single-digit.

The last question comes from Christian Buss with Crédit Suisse.

Could you provide an update on the design cycles?

And how you're feeling about the progress on speeding design cycles in speed-to-market?

We feel great.

We have -- we are on track to deliver what we said, which was 90% of our product in a 9-month time frame.

And additionally, we are looking to have 35% of our product now on a 6-month time frame.

So we are very encouraged by the work that we're doing.

We know it gives us greater ability to read the market and react to the market and manage our inventory flows productively.

So very encouraged with that.

And then I would second that, and I think as I have engaged with the teams, we have real energy to continuously raise the bar.

So as Jane has mentioned, we're making great progress against the original targets that we had set for ourselves.

We're not going to stop there, all right?

We're going to continue to raise the bar until ultimately we get to best-in-class position across the board for lead times.

Good.

Well, listen, this closes out our call.

Thank you for joining us, and then we look forward to speaking to you again next quarter.

Thanks.

Have a great day.

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

Thank you for your participation.

You may now disconnect.