掛毯 (TPR) 2002 Q3 法說會逐字稿

Today's call is being recorded. At this time, for opening remarks and introductions, turn the call over to the Vice President of Investor Relations, Andrea Shaw-Reznick (phonetic). You may begin.

Good morning and thank you. joining me Today is Lew Frankfort, chairman and ceo and Mike Devine, Coach's cfo. We must point out that the call involves certain forward-looking statements including projections in the fu in the future quarters or fiscal years. These statements based on assumptions and results may differ from the expectations based upon risks and expectations like economic trends or ability to anticipate -- control costs. Please refer to our latest report for a complete list of these risk factors. Please note that historical growth trends may not indicate present growth trends. The failure to update the information should not be taken as the acceptance of the estimates on a continuing basis. Coach may discontinue presenting at any time. Lew Frankfort will begin with a summary of the third quarter fiscal 2002 results. Mike will follow with details on operational highlights for the quarter and jut look for the fourth quarter, fiscal year 2002 and initial guidance for fiscal 2003. Following Mike, hold a question and answer session. I'd like to now introduce Lew Frankfort Coach's chairman and ceo.

Welcome, everyone. This morning, we announced strong results for the third fiscal quarter ended March 30, 2002. Ahead of both our revised expectations and analysts' expectations. 89% increased and 88% respectively over prior year levels as 29% increase in sales and improvement in margins continued to drive the bottom line. The highlights of our third fiscal quarter were, net income rose 89% to $14.7 million or 32 cents per fully diluted share compared with 7.8 million or 17 cents per share in the third quarter of fiscal year 2001. Net sales totaled $161.6 million versus $125.7 million a year ago, a gain in nearly 29%. Directed consumer sales which con v*is consists primarily of Coach stores in U.S. rose 29.9% to $93.9 million during the third quarter from $77 million in the comparable period of the prior year. Store sales for the quarter rose 9.6% with retail stores up 9.9% and factory stores up 9.2%. During a quarter as planned we opened one store in North Carolina. Renovated four retail stores and concerted one retail store to a factory store. At the end of the third quarter, there are 132 Coach retail stores and 73 factory stores in operation. Indirect sales in the quarter rose 39.1% to $67.7 million on the year over year basis driven by the consolidation of Coach Japan as well as remarkable performance in U.S. department stores and mid single digit comparable location sales in Japan. We were pleased with these results given the 20% cut in the year ago period when we launched the signature collection. It should be mentioned that our same location sales in Japan have reaccelerated and running about 10% ahead of last year in April, month to date. During a quarter, two addition allocations were opened in Japan while two marginal ones were closed. Bringing a total at 81. As noted during our January call, Coach Japan completed the acquisition of the remaining Coach distributor J Solomon on January 1st. While Michael will get into detail on the financials, I wanted to give you this recap and tell you how pleased we are with Coach's third quarter results, especially in light of the continuing challenges in the marketplace. Our strong sales this string built upon the success of holiday reflect Coach's growing recognition as a gift resource at the same time we have maintained our existing franchise while attracting increasing numbers of new consumers to the brand. During the third quarter, we had a strong response to our assortment across all price points and styles including the heart shaped keys toing and double sack signature and the new seasonal girlie bags. In particular, we were delighted with the strength of the U.S. full price business which enjoyed increases in traffic and conversion in our own stores and significant double digit increases in sales at U.S. department stores. Sales continued to be driven by handbags of women's reflecting the success of new products and groups such as soft signature introduced in January. The net flux business generated by this collection particularly gratifying gratifying given the strong nirnl strong initial launch in the year ago period. The Hampton's market tote, the focus of the spring marketing campaign introduced in March and rose over 5% of retail store sales. In addition, the performace of women's accessories also been strong with signature also driving this category. Signature accessories represented nearly 6% of total full price sales this quarter including our first embossed leather collection launched in early February. Along with the strength of the leather's goods, the key items contributed to our results. From the performance of the crusher hat which represented 3% of Coach store sales this quarter, to studio watches and our -- a multipurpose accessory case, we have seen innovation continue to drive our business. Finally, the response to our women's shoes has been very encouraging representing nearly 8% of sales. And reenforcing our decision to expand footwear to 60 Coach retail stores this fall from 23 today. Footwear only, we'll begin to accommodate seasonal market downs this spring in line with industry practice. Finally, we were especially proud of the improvement in margins as our stable pricing and combination with cost cutting initiatives in the spending continued to drive our bottom line results. Our third quarter sales were driven by the remarkable performance of string introductions and continued strength in core collections aided in part by unusually mild weather and early Easter. We remain confident that the momentum of spring will continue. We have a strong and loyal consumer franchise with a proven formula to sustain growth by driving sales through fashion innovation and product diversification, growing market share in the U.S. through new Coach store openings, and by increasing our penetration with the Japanese consumer. In addition, we are continuing to improve operating efficiencies in our core business resulting in superior returns. The drive top line results first in the U.S. we'll continue to drive sales growth through new retail store openings at least 20 in total for fy 02. Fourteen of which by the end of march and six more expected in Q4. Of the 20 new retail stores in fy 02, most existing cluster markets which have ample numbers of target Coach households (inaudible) addition allocations. These would include such locations as Madison Avenue and Wayne, New Jersey in the New York metro area and San Diego in southern California. Also, we're planning to renovate 16 retail stores in Q4 and expand or relocate in additional two stores essentially completing our renovation program by the end of this fiscal year. In fy 03, we'll embark on a major modernization program in the factory channel making the stores more feminine, inviting and easier to shop. In fy 03 remodel about 20 factory stores. We also intend to rent rent Nate top doors in U.S. department stores, focusing on locations in major me to areas. Fy 02, renovating about 25 U.S. department store locations and will be increasing this program to about 35 stores next fiscal year. At the end of the next year, the top 100 metro and regional doors will be in the new format. Next, internationally, we'll leverage our growing popularity with the Japanese consumer through coordinated in-store marketing activities and strong public relations. In terms of new locations in Japan, we now expect to open to open 11 in fy 02 bringing our total to 85. These locations include the Ginsa flagship store opening on schedule in late May. This 5400 square foot store is expected to be the largest volume Coach store in the world, and will offer a full assortment of products. Lastly, in all channels, we'll continue to drive sales through fashion innovation and existing handbag collections such as signature, new colors and styles will be introduced to keep them current. We'll also update our wearables with new fabrics and styles of hats, scarfs and spring outerwear. Continuing to ensure is relevancy of the product assortment will give our consumers new reasons to visit Coach. Our momentum has continued into April with excellent consumer response to our overall spring offerings. The market tote, the April focus, features a fresh new stripe and matching accessories. The straw collection debuting this month already received considerable fashion press with the reversible Hamptons tote and one spring colors and looking forward to the leather and twill classic stripe and signature stripe groups introduced in June. Of course, we'll also maintain our key item focus around gift giving opportunities during this quarter, especially Mother's Day. To drive our bottom line results, we'll continue to manage U.S. inventories tightly and leverage our expense base. Specifically, we expect to recognize additional cost savings as we further refine our worldwide sourcing efforts. This will continue over the next two years with a recent closure of Lares which Mike will discuss in detail in a moment. Channel mix will augment our margins as the highest gross margin channels, U.S. retail and international will grow faster than our overall business. Finally, we'll continue to optimize our supply chain leveraging volume, maximizing our factory mix, and fine tuning worldwide logistics. The strategies and actions I have just outlined build on the strength of our core grab and business efforts. They're designed to reenforce Coach's leadership position as an American classic life-style accessories brand offering accessible luxury to our consumers worldwide. I will turn it over to Mike Devine.

Thank you, Lew. Lew just taking you through the highlights. Let me take you through some of the important financial details of our third quarter results. As Lew mentioned our revenues increased by nearly 29% with directed consumer up 22%, and indirect up 39%. In the quarter, our gross profit margin expanded by 480 basis points over the comp parable period of the prior year from 64.0% to 68.8% of sales. There are two primary contributors to this improvement. First, the positive impact of the joint venture due to the fact that sales previously recorded recorded at wholesale prices reported at retail prices. And second, product mix. Due to the increased penetration of mixed materials. Most notably, our signature collection. Selling general and administrative expenses essentially flat and represented 54.1% of sales versus 54.2% sales in the year earlier period. This reflected our ability to leverage sales increases in core businesses which offset costs associated with the joint venture. Our operating income before reorganization costs rose 92% to 23.7 million dollars in the third quarter versus is same period last year. Operating margin in the quarter improved to 14.7% of sales compared to 9.8% in the year ago quarter. Net income increased 89% to $14.7 million or 32 cents for fully diluted share as compared to 7.8 million or 17 cents per share in the year ago period. Results for the third quarter were ahead of the consensus estimate of 28 cents per share. Inventory levels of March 30, 2002, 132 preponderate $8 million or 26% above prior year levels. Increases entirely related to inventory in Japan which was on our distributor's balance sheet last year. U.S. inventory balances were flat versus prior year levels. As our supply chain improvements and inventory management programs allowed us to support 25 new stores and increase sales levels without further inventory investment. Inventory in Japan increased to 27.2 million as CGI completed the acquisition of Sigwaga (phonetic). During the third quarter, we increased our cash position by approximately $10 million to $76 million as a result of strong net income, and option exercises. Only Coach Japan's revolver borrowings remain on the consolidated balance sheet as short term debt. Net cash from operating activities in the third quarter was break even compared to positive $23 million last year during the Q3. Coach settled a $20 million receivable from former parent Sarah Lee in the third quarter of 2001. Free cash flow in the third quarter was $13.8 million versus $17.2 million in flow in the same period last year. Due to the receivable settlement, slightly higher cap ex spending and CGI's purchase. Cap ex-spending for new stores and renovations was $7.8 million versus $6.2 million in the same quarter a year ago. Finally, as Lew mentioned, we have closed our manufacturing facility in Lares, Puerto Rico. This was an one time charge of $4.5 million or 6 cents a share in the third fiscal quarter of 2002. This closure will begin to benefit gross margin in fiscal year '03 after completing the sell through of the Lares produced product early in that fiscal year and enjoy the full gross margin effect in fiscal year '04 and beyond. We expect this benefit total about $4 million in fiscal year '03 and $5 million in fiscal year '04 or about 50 basis points in each of those years. The net after tax contribution will be 3 cents and 4 cents per share respectively. This includes adjustments for the loss of 936 Puerto Rico tax credit. Now, I would like to provide you with some of our goals for the remainder of fiscal 2002. For the fourth quarter, ending June 29, 2002, we are targeting net sales approximately equal to third quarter 2002 levels of $162 million, representing a year on year increase of over 20% with mid single digit comparable store sales gains in the U.S. Operating income up approximately 50% year over year. Earnings per share of at least 32 cents. All of which translates to full year sales of about $710 million and earnings per share of at least a dollar 90 excluding the reorganization charge. Our preliminary goals for the full fiscal year 2003, ending June 30, 2003 are: Net sales growth of 10-15% with low to mid single digit comparable store gains, gross margin rate of 100 basis points above prior year levels, flat SG&A expenses as a percentage of sales on a year over year basis, as a result, operating income should grow by at least 25% in fiscal year '03 over fiscal year '02. Brief factors will sum up that growth on the eps line in 2003. First, the higher share count brought about by option exercises, second, a larger month interest payments to our cgi joint venture partner as a result of higher sales and profits at Coach Japan, and third, a higher tax rate due in part to the Lares closure and reduction of the 936 tax benefit. All taken together should produce earnings per share of at least $2.20 for fiscal year '03. While these are the current goals, our actual results may vary based upon a number of factors including those discussed under the business of Coach, Inc. and form 10k. Coach does not assume any obligation to update these targets as the year progresses. In summary, we're confident our growth strategies enable us to gain share in the large and growing global market for fine accessories and gifts. Thank you for your attention and now Lew, Andrea and I will take some questions.

Thank you. At this time, we're ready to begin the question and answer session. If you would like to ask a question, press star 1 on your touch tone phone. You'll be announced prior to asking your question. To withdraw your question, press star 2. Our first question comes from Bob. Sir, you may ask your question and please state your company name.

Lehman Brothers. Good morning. Congratulations on excellent numbers.

Thanks.

A couple of questions. Lew, can you further elaborate on the plans for the seasonal mark down strategy in footwear and how you came about the strategy?

Sure. First, as you probably know, a majority of women's footwear are actually sold on sale in the United States, and one of the things we've been wrestling with is how do we create a viable business model that will work for us in women's shoes so that we can provide shoes to consumers which -- and as I mentioned, they're doing very well. Consequently, we decided what we would do is embark upon point of sale mark downs late in the season starting, for example, in the spring. We'll do mark downs on selected styles on May 1st and then on later deliveries, June 1st. Our intention is to realize nearly complete sell through in our full price stores and we believe we can.

Okay. Sounds good. The other question I have is, on the comps, can you talk about maybe the difference between tourist locations and nontourist locations and how that played out in the quarter?

Sure. As you know, we defined tourist stores as any location with more than 10% tourists. And, those stores actually represent about up to 20% of Coach's annual store volume. Our tourist stores were down about 4%. Nontourist stores were actually up about 18% which are led to the overall 9% comp. And the business is down particularly in Hawaii and in select other stores that derive the good part of the historic sales from Japanese tourists.

Okay. And then one final question for you, Lew, in terms of the men's offering, when can we expect to see a significant offering in that category? And segment?

Well, first, Bob, we do have a significant offering to today of men's belts, wallets, briefcases, outerwear, and shoes in the small number of stores and we feel we have a viable collection. We do have a strong men's following in Coach stores, for example, they do represent between 10 and 15% of our stores. At the same time, we recognize that we can strengthen our men's franchise we putting the same level of focus on the man as we have on the woman during the last few years. And our (inaudible) as you know, also, we've -- recently bringing a senior men's wear designer to work with reed in the fruits of their efforts are in about 12 months.

Okay. Thank you. Congratulations once again.

You're very welcome.

Thank you. Margaret Major.

Hi. Goldman Saks. Congratulations to all of you. What a great result. A couple of questions. First of all, Lew, can you talk about in the 2020 -- 220 for next year what kind of contribution you see from the Japanese joint venture. I know we have to back something out. Do you have an assumption if you could go over that with us, I'd appreciate it. And a couple other questions.

Mike, pick this one up.

Sure. Margaret, we are expecting additional profits and sales out of cgi next year. We anticipate the joint venture entity producing about 4 million of net income resulting in a month interest payment in the $2 million range.

Okay. Second question, I didn't catch it if you said it. How many stores do you plan to open in the U.S. next year, and how would that breakdown between full price of factory?

We're planning to actually open at least 20 full price stores. And in addition, a few factory stores.

Okay. So comparable to this year?

Yes. Any change in the square footage of the stores as you look out or add new product categories? Will you make them a bit larger?

Yes. In fact, in part due to the decision on we made recently to expand footwear to a majority of our stores, as well as the expanding offerings that we have in other categories, we do intend to increase square footage somewhat over the next year and years to accommodate this larger assortment.

So what should we be using for an average store size for fiscal '03?

As you know, Margaret, to some extent, a lot depends on the actual location but I think if you use 2500 and 3,000 square feet, that would be a good range.

Okay.

Margaret, that's a new store opening. That's not what the average square footage of the stores will be this year or next year. As you know, we opened '01 at average 2010. This year, slightly higher as we continue to migrate to a higher footprint. The stores closer to 2500.

Right. Okay. Got it. I'm curious if you wouldn't mind going over what's going on in some of the new markets you opened in terms of the proto-- productivity and markets like new Orleans, Tampa, I think one or two on the west coast. If you could just talk about that.

First, we're enormously pleased with the markets. We refer to them as secondary markets. They generally have a me to pop -- me to poll tan area population of anywhere from 750,000 to 2 million people. They're performing on performing on plan. Both the two stores that you referenced both in Tampa and New Orleans. In addition, we're also also of course, opening a first store in spring in Vancouver. Which is a new market for us. And we are in the -- on the east coast in Kentucky, we're opening our first store, also, in Lexington. For the first most part of the rest of our stores have been in what we might call our catch areas of major metropolitan areas.

Okay. And so the productivity is meeting expectations?

Yes.

Okay. One more quick question. Or actually two more really quick. Marketing expend yours in fiscal '02 versus fiscal '01 and what you see for fiscal '03. This is an area getting leverage in the G&A. If you could review the marketing spent and then the last quick question is, comp store performance in the quarter, did it accelerate January, February, March and into April? Can you help us understand that? I heard you say in Japan. Wondering the U.S.. Thanks.

Mike, why don't you take the marketing question first, if you would.

Sure. What we call map expanses -- expenses basically flat year over year in Q3 in dollar terms which as you appropriately point out, Margaret, allowed us to leverage that line item significantly. And in terms of '03 guidance, we'll see a small increase in dollars spent relatively flat in improved leverage on that line into '03, as well. Pfrjts with regard to on the same store sales, our full price store sales actually did accelerate through the quarter and the strong rate has continued into our April factory stores have been more uneven. A good part of our factory business as you know, Margaret, promotionally driven depending on holidays and our tactical strategies. We're very confident that we can achieve the single digit comps forecasting for this quarter.

Okay. Congratulations again to everybody.

Thank you.

Thank you. Jeffrey Etleman. You may ask your question.

Thank you. UBS War bird. Lew, a couple of questions questions. One, could you discuss your capital expenditures this year? Building up a lot of cash. How much of that will be going to new stores and what's the likelihood of being able to step up the rate going through the year renovations and also, other perhaps productivity enhancements.

Sure. Mike will take it.

Sure, Jeff. I'll take that one if that's all right. As you may recall after 9-11 Coach made a conscious decision to fir and put off longer return lead capital projects. Most notably, the systems area. Those have been reinvigorated and planning the land with xap exspending in $50 million range up from this year's figure in the low 40's. 41 million, 42 million. In that area. That $50 million will go to the 23-25 new stores. We hope to open. We've re. We've reenergizing the refurbishment program for factory stores as Lew mentioned and reinvigorated refurbishment in the U.S. department store channel. Along with that, we'll spend dollars on infastructure at infastructure at CGI, and we will reinvigorate those systems initiatives. Most notably to enhance productivity in the field with the working towards the ultimate im the ultimate implementation of a new POS system for new U.S. Coach stores.

Okay. What would be the inhibiting factor to increasing the store growth count slightly through the year? Available locations or just working through on a timely basis?

Only available locations. So when we talked about 20, that's our lowest expectation, we have actually secured agreements for a majority of that target. We're working to identify new locations and open them as fast as we can identify them.

Great. Thanks. Finally, Mike, a couple of housekeeping issues since you brought it up. What share count for the new year as well as tax rate?

Sure. We are targeting at this point a tax rate in the mid 36, 36 1/2, I think would be an appropriate tax rate to utilize in our modeling, Jeff. A share count, 46 1/2 million on an average basis for the full year is a number that we're comfortable with at this time.

Okay. Should we expect that to rise through the year or just program it out each quarter?

Well, no. It will rise through the year, certainly, largely driven by employees exercising stock options and appreciation in the share price. We're confident we'll -- will occur through next year as well and increase the in the money stock options for fully diluted calculations

Let's keep it rising. Thank you.

Thank you. Our next question from David. Sir, you may ask your question.

Hi. Sun Trust Robinson Humphrey. Congrats as well. One remaining question for me. Payables extended nicely. Could you talk about that, Mike?

Sure. That's largely, if you also look on the balance sheet, David, you see that corresponding increase in inventory and as you know, that is -- those two line items go hand in hand. That's primarily open payables with the inventory increase.

No changes within inventory in the payable ratio?

No. Nothing material.

Okay. Thank you.

Thank you. Robby Ohms, ask your question.

Morgan Stanley. Two quick questions. First question is, I was hoping to get more, you know, kind of background on what happened in Japan in terms of why the comps decelerated and reaccelerated again which would be. The other question is getting more on wearables, what percent of the business has it been and where's's it going for spring and then into fall. Thanks.

Sure. First, as you know, Robby, last spring, that is our spring in calendar '01, launched signature with a national campaign in early February. And this is the first optimal collection introduced in Japan and of course the Japanese embraced it very thoroughly. In fact, in the quarter as we already said, our comps were up 20% last year. Indeed, during February, our same store sales were up 45%. So, we are -- had an anniversary a month where the sales last year 145% of the prior year and we came through that okay. March was stronger and April is stronger yet. And as I mentioned, our comps April to date running about 10% ahead of our y and confident that we'll be able to maintain our momentum. Overall sales in Japan this month running about 20% ahead of our y. With regard to wearables, when we talk about wearables, we really focus on Coach stores, and we include in these categories hats, outerwear, scarfs, gloves, and they represent a growing role in our stores in the -- this past quarter, I believe in the neighborhood of 6-7% of sales. We believe that they will be even higher this fall. I mentioned earlier we've had enormous reception with Coach hats, sunglasses are also doing extremely well which we just introduced during the month of March and of course, our outerwear collection is doing real well especially on the women's side.

Great. Thank you very much.

You're very welcome.

Thank you. Our next question from Dana Talsy.

Bears sterns. Congratulations on a terrific quarter. Can you talk about the drivers of gross margin? Where you see gross margin going to going forward and also talk about the percentage of leather versus mixed materials? Where we see that going in the future and then with the men's product, what changes do you see in the store size or what categories will be added given the new push for men's? Thank you.

Mike, why don't you take the first part.

I'll take the gross margin part. As we talked about in the commentary, the 480 gross margin basis point improvement was largely driven by the step up from wholesale to retail, in our Japan business coming from Coach Japan Coach Japan but also included in there was a significant portion attributable to the sourceing efforts that we've undertaken so far in improvement in base costs and then favorable results from product mix. Signature commanded a larger percentage of our total business. This year third quarter versus last and the mixed materials carry higher gross margins shs so we will --, the base in that 480 is about 100 basis points that is not attribute to believe the cgi portion of the increase. Looking out, fourth quarter, we'll see the traditional seasonal dropoff ever so slightly about 100 basis points in Q4 and should land a year close to where our guidance for the year was of 66-6 for full fiscal year '03. I'm sorry. Fiscal year '02 and fiscal year '03 the additional 100 basis points of guidance should land us at approximately in the high 67's. Maybe approaching 68% of sales for fiscal year '03.

with regard to leather and mixed materials, obviously, it's a seasonal shift and in the spring, if you visit Coach stores as you do, Dana, you see a predominance of leather and fabric collections including of course signature, as well as our market totes and indeed, mixed materials did account for 60% of handbag sales this past quarter compared to only about 45, 50% last year, same quarter. We expect the pendulum to swing, of course, going into the fall. In fact, we expect leather to be a larger part of our business this fall as we introduce two very strong groups. One is ergo group. Styles and the second is a slim duffel group. And at the same time, I should mention that leather prices are down, and we don't expect them to be a problem for us. With regard to the men's offering, we intend to have a concise offering where. We're expecting we can have higher productivity than we do today as we stress in the men's proposition in the 12-24 months ahead and our intention is to have a stronger focal area within the Coach the Coach stores for the world of men, and we believe that the store size of 2500-3,000 square feet I mentioned earlier as a general range that we're looking for will gladly and easily accommodate the men's offering.

Terrific. Thank you.

You're welcome.

Thank you. As a reminder to ask any further questions, please press star 1 on your touch tone phone. Our next question is from Eric Bader.

Ladenburg Solomon. Good morning, guys. I want to talk about department stores. Seems like that's a huge positive for you this quarter. Beyond that, I guess was that door driven or what was the big drive in the department stores?

We're really thrilled with our department store performance. Not door driven. We don't have additional doors. It's higher productivity. In fact, our sales for the quarter pos sales up 25% from prior year. And when we look from February 1st through last week, our sales were up nearly 50% versus last quler. What that really tells Mary Wang and all of us is that we're enjoying substantial market share gains. Our handbag business in U.S. department stores runs about 12% on the historical basis and we're now running along at a 17 or 18% level which we're going to strive to maintain. I should also mention that every store group is up double digits since February 1st, including our classic strong holds in the most and particularly gratifying because they were slow to embrace the world of Coach and they have today and everyone is clicking along with very substantial increases. One last piece. Women's shoes are also galloping ahead. Women's shoes, as you know, we worked with Jim as a licensed category for us and we have a very strong point with his team. The business is running ahead. Over 100% over last year at pso.

Wow. In terms of specific markets, how has San Francisco, Vegas and New York recovered?

Well, first, I'll take that, mark, in the reverse order. New York City done extremely well. And the metropolitan area done exceptionally well. The only store that has not recovered fully is our 57 street in Madison avenue store historically generated 37% or so of the sales from the yap Japanese. The tristate area has been doing extremely well. Las Vegas has been affected particularly recently. And, in fact, is only running I believe in the -- if you hold just a second I'll tell you exactly what it ran in the third quarter. With regard to San Francisco, we've suffered for two reasons. One is the lack of Japanese tourism within San Francisco and the general economic decline. Las Vegas specifically for the quarter -- give me sun me sun second. It actually ran 20% down for the quarter. A big improvement over where it was running during Q2. So what we're finding on an overall basis, domestic tourism largely come back. Japanese tourism come back somewhat. The greatest San Francisco market, I might add, still running ahead for the quarter. 6% ahead but that includes the suburbs, of course.

Okay. Thank you.

You're welcome.

Thank you. Lee Backus.

Buckingham research. Add my congratulations. Lew, as the Japanese joint venture matures, what operating profit margins should be achieveible in that business?

First, I think you are aware, of course, Lee, is that we first structured the joint venture so that we would maintain a (inaudible) relationship with the joint venture entity so that we would be able to realize the same level of profitability going into Japan as we realized when we were selling to the distributors if they were wholesale accounts. That income is there and perptruety.

Mid single income op percentages next year as the top line continues to grow and leverage the expense base. I would say that two three years out, Lee, not unthinkable to be low double digit 10% on the cgi business business.

Low double digits plus the money you make -- that's correct. Imbedded on the sales forecast for next year is the level of sales for cgi?

Do you have that, Mike?

I'm sorry. For '03?

Yeah.

Approximately 130 million in that range. Yen exchange rate, of course, could could change that over time. 135 yen to the dollar and holds true, 130 million figure million figure in that range is good to use. Sounds like next year generating quite a bit of cash. Any additional uses for the cash on the balance sheet?

We are, as Mike indicated, planning to accelerate capital expenditures. Making significant technology investments to strengthen our customer relationship marketing programs through points of sales registry systems in Coach stores. We also will take advantage of every appropriate and suitable opening for potential coach stores so the number of full price stores is staying at least 20. We expect it will be higher.

Okay. Thank you.

You're welcome.

Thank you. You may ask your question.

Thanks. Few questions. First of all, with regard to the hiring of the new innocent's designer, what do you hope to increase men's accessories from and to over time as a percentage of sales or -- do you have a figure?

Well, I'd mentioned earlier our men's represent between 10 and 15% within our Coach stores. They did represent as much as 20% plus three years ago. Our intention is to stabilize men's sales at the 10 to 15 15% level so as our proposition continues to grow, strength on women's side, we're doing today, we'll be able to achieve the same levels of growth on the men's side.

Okay. And then, can you refresh us for the quarter what signature is as a percentage of Japanese sales, and what it is as a percentage of total sales? And then maybe also throw in duffel and Hampton as a percentage of total.

Sure. First, overall signature represented about 40% of our sales on the during quarter full price sales and it ranged up from a higher -- high of 43% internationally to a low of 30% in Coach stores. What should be mentioned at the same time is that there was a very healthy percentage because handbags, for example, of the nearly 40% of signature handbags were only about 25 to 28% with good strength on signature accessories. As well as other signature items such as hats. In terms of other areas such as duffel sack, duffel sack was extremely strong across all sizes and materials. It represented -- trying to get the right number. It represented across our full -- all of our full price businesses about 6 or 7% of our sales. Perhaps a bit higher than that. Actually, a tad higher than that. What was the third group?

Hamptons overall.

Hamptons were between 6 and 8% of our sales. We feel very good about the breadth and strength of our offering as I mentioned during my formal remarks. A lot of strength across classics, a lot of strength across accessories and key items in every classification.

Finally, prospects for any new high-end distribution in the U.S.? Are you working on anything? Is there anything to look forward to in terms of expanding the department store distribution?

We're continuing to strengthen our association with -- such key retrailers as Saks, Bloomingdales and several of their locations we will be expanding our presence and repositioning ourselves to more prime real estate.

Great. Thank you.

You're very welcome.

Thank you. As a reminder to ask any further questions or comments, please press star 1 at this time. At this time, there are no further questions.

Thank you everybody for joining us today. Of course, Mike and I will be available for questions.

Thank you.