掛毯 (TPR) 2014 Q4 法說會逐字稿

Good day and welcome to the Coach conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Senior Vice President of Investor Relations, and Corporate Communications at Coach, Ms Andrea Shaw Resnick. You may begin.

Thank you. Good morning. Thank you for joining us. With me today to discuss our quarterly results are Victor Luis, Coach's -- excuse me -- Chief Executive Officer, and Jane Nielsen, Coach's CFO. Before we begin, we must point out that this conference call will involve certain forward-looking statements including projections for our business in the current and future quarters or fiscal years.

These statements are based on a number of continuing assumptions. Future results may differ materially from our current expectations based upon risks and uncertainties such as expected economic trends or our ability to anticipate consumer preferences. Please refer to our latest annual report on Form 10-K and our other filings with the Securities and Exchange Commission for complete list of risks and important factors. Also please note that historical trends may not be indicative of future performance.

Now let me outline the speakers and topics for this conference call. Victor Luis will provide an overall summary of our fourth fiscal quarter our annual 2014 results and will also discuss our progress on global initiatives. Jane Nielsen will conclude with details on financial and operational results for the quarter and year along with our outlook for FY15.

Following that, we will hold a question-and-answer session where we will be joined by Francine Della Badia, President North America Retail. This Q&A session will end shortly before 9.30 AM. Victor will then conclude with brief some summary comments. I would now like to introduce Victor Luis, Coach's CEO.

Good morning. Thanks, Andrea, and welcome everyone. As noted in our press release the fourth quarter capped a challenging year for the Company, most notably in the North America women's bag and accessory business. However, it was also a year of many accomplishments for Coach including the successful integration of our retail businesses in Europe, surpassing $500 million in sales in China, and driving men's to about $700 million in sales globally.

Most importantly, we laid the groundwork for our transformation to a modern luxury lifestyle brand across all key consumer touch points, product, stores, and marketing. A crucial milestone was the arrival of executive creative director, Stuart Vevers, last September who has already had a significant impact on the creative direction of the brand. This was highlighted by our first New York fashion week presentation in February and the editorial praise his inaugural collection received globally.

We also developed our new retail concept inspired by our New York City heritage, using an iconic materials palette that is distinctively Coach. And throughout the year we continued to refine our global marketing message, just announcing our new campaign for fall. Most recently, at our Analyst Day in June, we presented our comprehensive long-term strategic plan to reinvigorate our business and rewrite the Coach play-book to achieve growth and leadership.

We are taking the key transformation actions to enable the strategic path forward, embarking on the execution phase of our journey. Turning to the results of last quarter, some key financials were, first, net sales on a reported basis totaled $1.14 billion versus $1.22 billion a year ago, a decrease of 7%.

On a constant currency basis, sales declined 6% for the quarter. Second, earnings per share totaled $0.59 as compared to $0.89 in the prior year's fourth quarter, excluding transformation related charges in both periods. Third, international sales increased 7% to $414 million from $388 million last year. On a constant currency basis, international sales rose 9%.

Sales in China remained very strong, increasing 20% with the continuation of double-digit comps, while sales in our directly operated locations in Asia and Europe rose significantly as well. And fourth, North American sales fell 16% to $691 million, from $825 million last year on a 17% comparable store sales decrease. During the quarter, looking at distribution, the Company closed six North American retail locations and opened two net new outlet locations.

At the end of FY14, there were 332 retail and 207 outlet stores in about 160 outlet malls in North America. For the full year, we closed five net locations in North America. Moving on to China, during the quarter we opened six net new locations, all on the mainland, bringing the total to 153 locations including 134 on the mainland in 55 cities. This represented a net increase of 27 for the year. In Japan we had one net closure during the quarter.

This took us to seven net openings for FY14. At the -- at year-end, there were 198 directly operated locations which include 151 retail and 47 outlet locations in about 30 outlet malls. Also in Asia, during the fourth quarter we opened one location in Malaysia, taking us to five net openings for the year, and bringing the total to 97 directly operated locations in the balance of Asia including 48 in South Korea, 27 in Taiwan, 13 in Malaysia and nine in Singapore.

In Coach Europe we opened one directly operated door during the period for a total of nine directly operated door openings during FY14. As of the end of the quarter, there were 27 directly operated locations in Europe, across the UK, France, Ireland, Spain, Portugal, Germany and Italy. We also opened several wholesale doors. Moving on to sales by channel and geography and starting with our domestic businesses.

Our total revenues in North America declined 16% for the quarter with our directly operated businesses down 15%. As noted, total Q4 same store sales declined 17%. For the full year, sales in North America fell 11% with our directly operated businesses down 10% on a 15% comp decline.

In department stores, our sales trend at POS were modestly above prior year during the fourth quarter, while shipments into department stores declined as expected. The out-performance vis-a-vis our retail stores was consistent with prior quarters and reflective of the overall channel and generally better traffic trends than the malls at large. For the year, our department store sales at POS were slightly lower.

For both the quarter and the year, our women's handbag and accessory business was challenged, facing both increased competition and intensified promotional activity, while the overall category continued to grow. Overall, we estimate that growth in the North American premium women's market excluding moderate brands grew at a high single digit rate, topping $11 billion as bags and accessories continued to represent a growing portion of her wardrobing spend.

The premium men's market in North America demonstrated continued momentum from a much smaller base, growing at a low double-digit pace to over $1 billion. Therefore, the combined North American premium women's and men's market rose about 9% in FY14 to over $12 billion, with Coach representing a combined market share of about 23%. Similar to what we've done over the last few quarters, I want to provide some underlying texture to the comp performance, both in those areas where we've seen progress and those areas where we see the opportunity to improve our positioning in North America.

As was the case industry-wide, in-store traffic continued to decline with the Shopper Track retail traffic index, which includes outdoor lifestyle and outlet malls still down about 8% for the quarter but an improvement from the double-digit decline in the March quarter, helped by the Easter shift into April and better weather. The NRTI focused on indoor malls having less of a weather impact was up slightly, 2% in the quarter, after declining slightly in the previous quarter.

In aggregate, conversion and transaction size were neutral to our store business, while traffic drove the comp declines. As noted on our previous calls during this fiscal year, and as expected, our online business dampened our overall North America comp in the fourth quarter by about 3 percentage points. Specifically, our year-over-year comparisons continued to be impacted by our strategic decisions to both eliminate third party flash events this fiscal year and limit access and invitations to our outlet flash site.

Excluding these factors, our Internet comp would have contributed to our aggregate performance. There were some sustained themes in our North American women's business throughout the year including our fourth quarter. Leather continues to outpace logo across all channels, and we are designing into this trend. It's a long-term shift that favors Coach, given our heritage in leather goods. Small bags also continued to trend well.

In addition, we saw relative strength in our elevated product in our retail stores, more generally, the above $400 price bucket grew in penetration and represented 21% of handbag sales versus roughly 16% last year. Outside of handbags, we continue to see relative strength in our lifestyle categories in Q4. Footwear, which re-launched last March in about 170 retail locations held its penetration at last year's level at about 12% of retail store sales while we're also seeing a positive response to our expanded men's and women's footwear assortment in outlet stores.

We remain focused on building our market share within the fragmented nearly $25 billion global premium footwear category through both distribution, adding international and wholesale doors, and by maximizing footwear productivity through mix, increasing AURs and overall penetration levels across our businesses. At the end of Q4, about 285 Coach international retail locations offered the updated women's fashion collection, and the response from customers has been excellent.

We remain confident that Coach's increasing fashion credibility, being built through Stuart's collections, will provide a much stronger platform for our brand's development of footwear and other lifestyle categories. Turning to men's which represents 18% of the global category spend or about $7 billion today and is expected to grow faster than women's at about a 10% rate over the next five years.

As we've discussed, we're also continuing to drive our men's business globally through new standalone and dual gender stores. In the fourth quarter, Coach's sales of men's bags and accessories continued to rise, taking the year to about $700 million globally. Looking ahead, we remain bullish about the prospects of our men's global business.

However, given the announced brand transformation initiatives including slower global distribution growth and the planned pullback in our North America e-outlet business this year, we are now targeting $1 billion in sales in FY17, one year later than our original target. Turning now to our international segment, which represents about a third of Coach's business, sales rose 9% on a constant currency basis in the fourth quarter and 7% on a reported basis, primarily impacted by a weaker yen on a year-over-year basis.

As mentioned, China sales rose about 20% from prior year, taking the full year to $545 million, fueled by double-digit same store sales and distribution growth. We are pleased by the continued development of this market which bodes well for our global travel retail businesses where mainland Chinese tourists play an increasingly important role. Further, Coach is already recognized both as a dual gender and lifestyle brand as men's products and women's lifestyle categories taken together represent roughly a third of our sales.

Our other Asia direct businesses outside of China and Japan, South Korea, Taiwan, Malaysia and Singapore also posted strong aggregate growth, increasing at a double-digit rate for the quarter with comparable store sales gains. In Japan, we posted a 6% decrease in constant currency, due in large part to the impact of the April consumption tax increase. Dollar sales declined 10%, reflecting the weaker yen.

In Europe, where our brand is small but growing rapidly, we generated significant sales growth at POS and double-digit comps in the quarter. We continue to believe that Europe represents a significant long-term opportunity for Coach, both with domestic shoppers and the international tourists, notably in key European cities where the affordable luxury segment is outperforming traditional luxury.

As mentioned, during our Analyst Day in June, we announced our long-term strategic plan and have taken significant steps to set the foundation for a return to strong growth by streamlining our businesses, continuing to optimize our store fleet in North America, and committing to additional brand investment as we begin to execute our comprehensive transformation plan. Importantly, our focus remains on the long-term growth initiatives we have previously shared.

First, and most broadly, growing our business in North America and worldwide by transforming into a lifestyle brand. Second, leveraging the global opportunity by aggressively growing our international businesses. Third, tapping into the large and growing men's accessory market and other lifestyle categories. And fourth, harnessing the growing power of the digital world.

We've also discussed our holistic strategy to position Coach as a global modern luxury brand, further differentiating ourselves from the accessible luxury positioning that we defined. From a business perspective, this centers on our product, stores, and marketing. As we look to FY15, we're investing to achieve long-term, sustainable growth and a return to Best-in-Class profitability during our planning horizon.

We are particularly excited about the re-platforming of our brand with the launch of Stuart's first collection, starting this fall. We will also be introducing our new modern luxury retail concept in several key locations during holiday. Our global brand message will reinforce our distinctive positioning of effortless New York style through the use of iconic brand elements and the city's dynamic landscape as backdrop.

Taken together, these initiatives will pave the way for the celebration of our 75th anniversary, commencing in September of 2015. To this end, there are several key strategic priorities that we are now focused on and will implement across our distribution network throughout next year. First, in North America, where our priority is restoring productivity, we will close our underperforming stores and rebuild 3 flagships in our top 12 markets.

In addition, we will broaden our presentation in US department stores including moving to more open, accessible and fully branded displays, changing our product offering, driving relevance and making Coach more shopable. We will be further developing our outlet strategy to maximize our modern luxury merchandising strategies, product flow, and leverage our new store concept.

And finally, we will evolve our North American promotional strategies to continue to reduce the volume of promotional messaging and sales through our e-outlet store events. Internationally, we remain focused on our largest growth opportunities and the implementation of our brand transformation, including in China, where we are fine-tuning our strategy, gift -- giving -- given the shifting marketplace. In addition, other key Asian markets and Europe offer significant potential for the Coach brand.

In line with our plan, over the next two or three years we will be making significant investments in building new flagship stores and renovating existing flagships to our new concept with a key focus on international cities. So looking at our FY15 plans globally and starting with distribution, we expect that our square footage globally and across all channels will increase about 2% in FY15, compared to 7% in FY14, a marked slowdown, reflecting our North American fleet optimization.

Our overarching focus will be on renovations and remodels to drive productivity. To this point, in North America our directly operated square footage will be down around 5%, given the 70 retail and 15 outlet closures, offset by the number of expansions within the context of our transformation, and the number of outlet store openings mentioned during our Analyst Day presentation.

In retail, we expect to execute on the majority of store closures in the first half of the fiscal year. Store investment activities will be timed to follow the launch of our product, marketing and customer experience initiatives this fall, with our first new retail concepts debuting in November. In outlet, our store closures will take place throughout the fiscal year, with Stuart's product for outlet launching in the second half.

Separately, reductions in our EOS event cadence began this quarter and will be phased in over the year. And in wholesale, we're moving to more open, accessible displays and rolling out a shop manager program. We expect our footprint in department stores to increase modestly in FY15. We plan to add about 40 locations and about 4% square footage, while converting about 250 to 300 locations from case line presentations to open sell, a move we delayed from FY14 to align with the launch of our new retail concept.

Turning to China. As mentioned at our Analyst Day, market dynamics are changing with the emergence of many new large scale shopping malls, and there will be clear winners and losers among retail developments going forward. Given these shifting dynamics in the rapidly evolving macro and competitive environment, we are refining our growth strategies and investing in brand transformation to solidify our leadership position.

Importantly, we will concentrate on fleet renewal in Shanghai and Beijing, impacting 80% of traffic by FY16, and 100% by FY17. We will also open regional flagship doors and reinforce Tier 1 and Tier 2 city distribution, where we -- while we continue to capitalize on Tier 3 and Tier4 opportunities that are sufficiently developed. In terms of outlets, we will continue to be highly selective with our openings, focused on the best managed and brand appropriate developments.

Through marketing we will build awareness and desire, leveraging our new marketing campaign and promotional model to build brand awareness and drive traffic. Therefore, looking to FY15, and given these changing priorities, we are planning distribution somewhat more conservatively. We are planning to open about 20 stores and could have about 10 closures, resulting in around 10 net openings.

And we would expect China sales of over $600 million, driven by both distribution and positive comps, given the deceleration in square footage with the higher proportion coming from expansions than in the past and focus of new unit openings in existing markets. While we expect to open a few stores in our other direct Asia markets outside of China and Japan in FY15, our portfolio approach is focused on maximizing productivity with only modest growth of our footprint.

We have been realizing the benefits of Coach's direct management in these markets and are pleased with the developments of both our teams and our brand. Turning to Japan, our largest market outside of North America, we will leverage our brand transformation to positively impact brand perceptions, re-engaging our core consumer, while appealing to the category engaged and millennials.

Led by retail, our brand transformation plans include renovation of key doors in Tokyo, representing over 70% of the traffic by the end of FY16. Including a new flagship store in Shinjuku, set to open in October, which will be our first modern luxury retail store in Japan. We will also renovate key locations in other important cities throughout the country, including our flagship stores in Ginza and Shibuya this spring.

FY15, we expect the total number of locations to remain the same with slight square footage growth from the new flagship and expansions of a few highly productive locations. Most generally, we would expect a continuation of current trends in Japan, given the ongoing drag from the consumption tax increase which won't anniversary until next April. Moving to Europe, which is a large and fragmented market representing about 20% of the total global men's and women's premium bag and accessory category, and represents the largest white space for Coach.

While our current business in Europe is very small, with sales at retail of just over $60 million, we see a big opportunity for brands at our price point which represent the fastest growing segment of the market. Our evolving design direction resonates with the European consumer. Our price positioning and quality offer compelling value while our heritage linked to New York fashion creates a differentiated positioning.

We see brand transformation as an opportunity to provide shoppers in this region with a clearer and more relevant alternative to the traditional luxury brands. In FY1 15 we expect to grow our business to over $100 million, adding about 15 directly operated locations and more than 100 wholesale locations. Our goal is to achieve over $0.5 billion in sales at retail, representing a mid single digit share of the premium men's and women's bag and accessory market over our planning horizon.

As you know, we also have significant and growing distributor run businesses in other countries. Our primary areas of focus for what we call domestic focused international wholesale are, first, other Asia-Pacific markets, second, Central and South America, and third, the Middle East. We also believe there is a significant opportunity for the Coach brand in global travel retail which represents the majority of our international wholesale sales.

Before handing the call over to Jane Nielsen, our CFO, I wanted to reinforce the key points from our Analyst Day about the future of Coach. First and foremost, we are an amazing brand, and we compete in a growing and very attractive category. At the same time, understanding that we compete on a playing field that is changing dramatically, we as a management team have clear awareness of this evolving market context and the clarity on how to address our challenges and capture the great opportunity that is ahead of us.

Importantly, we have the right leaders, the history of operational excellence and the resources to execute our plan. While this will be a journey, the opportunities on the other side are compelling for our brand, our team, and our shareholders. And as I've stated, as we continue our journey, we are committed to helping you follow and measure our progress.

Now I'll ask Jane to provide some additional detail on our financials and outlook for the balance of the year. Jane?

Thanks, Victor. Victor has just taken you through the highlights and strategies. Let me now take you through some of the important financial details of our fourth quarter and fiscal year results as well as our outlook for FY15. Our quarterly revenues declined 7%, with North America down 16% and international up 7%.

As noted, on a constant currency basis, revenues decreased 6% overall with international sales up 9%. For the fiscal year, sales decreased 5%, totaling $4.81 billion with North America down 11% and international up 6%. On a constant currency basis, total sales declined 3% for the year, with international sales up 12%. Excluding transformation and other related charges, net income for the quarter totaled $164 million, with earnings per diluted share of $0.59.

This compared to net income of $254 million, and earnings per diluted share of $0.89 in the prior year's fourth quarter, excluding restructuring and transformation related charges. For the quarter, operating income totaled $231 million versus $371 million last year on a non-GAAP basis, while operating margin was 20.4% versus 30.3%. During the quarter, gross profit totaled $789 million as compared to $892 million a year ago, while gross margin was 69.4% versus 73%.

SG&A expenses as a percentage of net sales totaled 49%, compared to 42.6% in the year-ago quarter, all on a non-GAAP basis. For the full year FY14, operating income totaled $1.25 billion on a non-GAAP basis, compared to $1.58 billion in the year-ago period. Also on a non-GAAP basis, operating margin was 26% versus 31.1% last year.

Non-GAAP gross profit totaled $3.38 billion from $3.7 billion a year ago with gross margin rate of 70.3% versus 73% a year ago. SG&A expenses as a percentage of net sales totaled 44.3% compared to 41.9% in FY13. As I turn to GAAP metrics, let me recap key transformation and other related charges. For context, and as previously announced at our Analyst Day and in subsequent filings, we expect to incur pretax charges of approximately $250 million to $300 million, associated with our transformation plan, a portion of which we reflected in our fiscal fourth quarter 2013 results and the remainder to be substantially incurred during FY15.

These charges are related to inventory and fleet related costs, primarily in North America, including impairment, accelerated depreciation, and severance associated with store closures. In total, we expect to capture $70 million in savings related to our transformation initiatives in FY15, and approximately $150 million in ongoing annual savings beginning in FY16.

During the fourth quarter of FY14, we recorded charges of approximately $130 million for transformation and other related actions. These charges consisted primarily of the realignment of inventory, impairment charges, and a portion of the costs related to store closures. In aggregate, these actions increased our COGS by $82 million, and SG&A expenses by $49 million in the period, negatively impacting net income by $88 million after tax or $0.31 per diluted share.

In July, following our fiscal year-end, we announced the elimination of over 150 jobs related to our organizational effectiveness initiatives, representing a 6% decrease in global corporate staffing levels. This plan will drive efficiencies across our business by streamlining our organization and leveraging our global capabilities, resulting in savings that will in part fund key investments related to our transformation. In the fourth quarter of FY13, the Company recorded charges of $53 million for restructuring and transformation.

In aggregate, these actions increased the Company's SG&A expenses by $48 million and cost of sales by $5 million in the period, negatively impacting net income by $33 million after tax or $0.11 per diluted share. Therefore, including these charges, reported net income for the fourth quarter of FY14 totaled $75 million with earnings per diluted share of $0.27, bringing total year net income to $781 million and earnings per share of $2.79.

This compares to FY13 fourth quarter net income of $221 million with earnings per diluted share of $0.78, bringing the total year FY13 net income to $1.03 billion and earnings per share of $3.61 on a GAAP basis. Moving to the balance sheet. Inventory levels including our inventory realignment actions last quarter end were $526 million, about even with FY13 year end. Cash and short-term investments stood at $869 million, as compared to $1.1 billion a year ago, substantially held outside the US.

As noted earlier this year, we continue to deploy international cash into high quality investments with higher yields and durations over a year, and in turn, there is a shift between cash and short-term investments into other non-current assets. As expected, we ended the fourth quarter with $140 million outstanding on our credit facility in order to cover our working capital needs in light of investments in our business and new corporate headquarters.

During FY14, we repurchased and retired over 10 million shares of common stock, at an average cost of $51.27, spending about $525 million. At the end of the year, approximately $835 million remained under the Company's current repurchase authorization.

As noted in our press release, the Board declared a quarterly cash dividend of $0.3375 per common share payable in late September, maintaining our annual rate of $1.35. We remain strongly committed to our dividend, and, as our transformation takes hold, we expect to resume increasing our dividend at least in line with net income growth. Net cash from operating activities in the fourth quarter was $316 million, compared to $375 million last year during Q4.

Free cash flow in the fourth quarter was an inflow of $254 million, versus $293 million in the same period last year. Our CapEx spending was $62 million versus $81 million in the same quarter a year ago. For the full FY14, net cash from operating activities was $985 million, compared to $1.4 billion a year ago. Free cash flow in FY14 was an inflow of $766 million versus $1.2 billion in FY13.

CapEx spending totaled $220 million for the year, compared to $241 million in the prior year. The decline from previous guidance of about $250 million to $260 million related to a further shift in the timing of retail store and wholesale remodels and conversions into FY15. We expect CapEx for FY15 to be in the area of $350 million, excluding the costs associated with the new headquarters which are now expected to be approximately $100 million in FY15, given construction timing estimates.

Turning now to our financial outlook for FY15. As our annual plan did not change from those shared during our June Analyst Day meeting, I'll be brief. First, on sales, we expect to deliver a low double-digit decline both in constant currency and on a reported basis in FY15, largely due to our reduced promotion and store closure activity. We are projecting a high teens comp decline in North America stores, with our e-outlet pressuring the aggregate North America comp by an additional 10 points.

This equates to a mid to high 20% decline in aggregate comps. Gross margin is projected to be 69% to 70% for the year, with higher sourcing costs largely offset by favorable channel mix and lower promotional activity. SG&A expenses are expected to grow at a low to mid single digit rate reflective of our increased marketing spend and transformation initiatives. When modeling the year, bear in mind that our second and third quarter compares will show the most significant creases given the prior year dollar decline and the timing of our marketing spend in FY15.

Taken together, we would expect operating margin to be in the high teens. And finally, our tax rate is expected to be in the area of 32% for the year, as we do not expect to anniversary some of the one-time tax benefits we generated in the second half of FY14. As we aggressively invest in our business, it's important to keep in mind that we are embarking on this journey from the position of financial strength. We plan to fund investment activities from current cash flows, while maintaining our dividend.

We have a strong and flexible balance sheet with about $1 billion in cash and investments and low leverage. We can continue to access the capital markets at attractive rates as needed to fund our head quarter investment. Over the next few years, our first priority is to invest in our business as we have a compelling opportunity to drive sustainable growth and value creation, and we're putting our capital against this opportunity. Our second priority, strategic acquisitions, is also about growth.

While we have nothing planned imminently, we want to have the flexibility to act if and when it's in the best interest of Coach and our shareholders. And third, capital returns. As I stated before, as our transformation takes hold we expect to resume growing our dividend at least in line with net income growth.

Underpinning all three of these priorities are our guard rails for allocating capital effectively, maintaining strategic flexibility, strong liquidity, and access to the capital markets. In closing, our transformation requires substantial investment and focused execution. We have a clear strategy and a well-articulated implementation plan for FY15. We expect to realize a positive impact on the annual financials beginning in FY16, with FY17 being the year when we return to growth in line with the category.

We have the resources to fund our plan while maintaining our dividend during our heavy investment period. Ultimately, our objective is to restore Coach to a place of Best-in-Class profitability and sustainable growth. I'd now like to open it up to Q&A.

We will now begin the question-and-answer session.

(Operator Instructions)

The first question today is from Bob Drbul with Nomura Securities.

Good morning.

Good morning, Bob.

I just had -- I have two questions, quick questions, related questions, on the dividend and the repurchase plans. There's been just a lot of discussion about the sustainability of the dividend at the current levels, given your low level of US cash, your domestic cash flow generation and the expenditure on your New York headquarters. Can you just reaffirm whether or not you see the dividend being at risk, sort of what could lead to a change in dividend policy.

The second question I have is just more housekeeping. But it does sound like the share repurchase program is on hiatus for now. What share count should we be modeling in the FY15 numbers.

Sure. Thanks, Bob. You know, we've taken a careful look as we laid out in Analyst Day at our cash flows and our investment needs across our business, and our cash flows and strong balance sheet really allow us to fund our transformation investments and maintain our dividends at our current level. So $1.35 that the annual dividend that we talked about today with our dividend announcement was an attractive yield now at 4%.

As we've indicated, we'll fund our head quarter building, a long-term asset, with long-term debt. And at the current attractive interest rates, we expect that that's a strong capital plan. We've spent about $210 million on our headquarters and have another $540 million to fund over the next two years, and we factored that into our planning, so feel strongly about our ability to continue to support our dividend.

We're committed to our dividend, and as we said, as our transformation takes hold, we'd expect to grow our dividend with our net income growth, and that's our long-term outlook. As you think about next year, Bob, we closed the year with 277 million shares outstanding, and I would expect with options that modeling about 278 million shares will put you in good stead for FY15.

Great. Thank you very much.

Thank you. The next question is from Oliver Chen with Citigroup.

Thanks for all the detail. Regarding the road to becoming a modern luxury Company or the evolution there, your comments on the outlet opportunity in the second half, could you just share with us some details on how you see the product portfolio evolving there, and what are the biggest opportunities? And also, just as a follow-up, as you engage in the opportunity for lower promotional pressure, what's the timing on that happening? Thank you.

Hi, Oliver. It's Fran. I'll take this question. Stuart's product that he's been working on and designing is set to really launch during the second half in outlet, and as we've talked about, what you'll see very consistently is us lessening our dependence on logo product, putting more emphasis on leather and really incorporating all of the design codes from our brand DNA that will be reflected in more updated and relevant product for the outlet channel.

At the same time, that newness will allow us to create more value for customers and put that product into the market at slightly higher average unit retails than where we are today. The biggest opportunity in terms of lessening promotional strategy is really EOS. That's the most significant strategic initiative that we have, and we know we've been putting out a lot of promotional impressions in the marketplace by pulling that back. We'll really reduce the amount of promotional impressions that are out in the market.

Okay. Thank you. And Jane, on the comp guidance for FY15, is average unit retail, what's the -- how do you see average unit retail evolving? Is it higher due to the lower use of EOS?

The biggest impact in terms of AUR that we're modeling, we are going to see some movement as you've seen in our above $400 handbag, we'll see some movement in price point and then lower promotional activity both in-store and EOS will be a factor in terms of lower discount rates in terms of realizing a higher AUR.

Thanks a lot. The product in Paris in the department stores look great, so best of luck.

Thank you, Oliver.

Thank you.

(Operator Instructions)

The next he question is from Barbara Wyckoff with CLSA.

Hi, everybody.

Good morning, Barbara.

Hi. Can you talk about the sales in China versus the United States, strength by classification, men's versus women's, regular price versus outlet, and is there a significant difference between what's working in Hong Kong versus greater China? Thanks.

Sure. Thank you, Barbara. In terms of what's working between Hong Kong and greater China, is vastly driven by the very large percentage of mainland Chinese tourists. I would say there is not a dramatic difference.

The local Hong Kong consumer market is quite small, and of course we do have one or two locations which do specifically cater to that consumer where we do tweak the assortment. The consumer there tends to be a little bit more I would say fashion engaged with current trend, and certainly the team on the ground there is catering to them through assortment not only of course in our women's, but also in our men's collections as well.

As I touched on in my prepared notes, Barbara, in terms of the categories in China, both -- I would call it greater China, mainland, Hong Kong and Macau, which we refer to as greater China at Coach, the penetration of men's and lifestyle categories together is at about a third, which compares to approximately 20% here in the US. That is driven not only by men's itself but also by very good penetrations which are increasing in our outerwear businesses as well as in our very nascent but developing footwear business as well.

And we started with those strategies very early on. We're still very small, and I would say developing brand in China in many ways. From an awareness perspective, our unaided awareness in China is only 18%, which compares with, say, 58% in Japan, 76% in the US, so the opportunity for us is truly boundless in that market.

Great. Thank you.

Thank you.

Thank you. The next question is from Brian Tunick with JPM Chase.

Good morning. I guess two questions. Hey, Victor. Was wondering from a marketing and product perspective, could you just maybe remind us sort of -- doesn't sound like this quarter obviously is going to be a big inflection. But you talk about the second quarter and third quarter.

Can you talk about when we're going to see or the customer's going to see the bulk of the marketing, Stuart's products hitting the stores, just maybe walk us through that thought process. Secondarily, on the 70 retail store closings, can you maybe remind us sort of what's the productivity of those stores that are closing versus the chain average? Are you assuming transfer? Just give us some idea of how you think the 70 retail closings are going to play out.

Should we start with the retail closures.

Fran, let's start with the retail closures.

As we said on Analyst Day, we got the number of 70 store closures because they're the least productive stores in the fleet so their impact on the overall top line from a profitability perspective will be very minimal. We expect to see a little bit of transfer to other stores, but it will have a small impact on comp improvement.

In terms of the roll-outs of our transformation initiatives across product marketing as well as our store renovations, Brian, it really does start in the second quarter. Product will commence hitting in early September in certain locations and be across the world by mid-September. Marketing will also hit at approximately the same time, and then store renovations start later in the second quarter with first locations opening here in North America as well as the flagship store in Shinjuku Japan that I mentioned earlier in the October/November time period.

I would suspect that right now our planning is showing approximately 15 to 16 locations should there not be any shift in the new concept by holiday, and then across the world we will have in FY15 60 new open doors in the new concept and approximately 150 doors that will be moved into the new concept if you will, renovated in the new concept by the end of FY15.

And just going to add one thing, Brian, there. If you remember, we actually had SG&A dollar decline in both our second quarter of FY14 and our third quarter of FY14, and so when we reference that those were going to be higher SG&A dollar growth quarters, we were looking at that versus the FY14 decline. So they'll look higher in SG&A dollar growth in Q2 and Q3 of FY15.

All right. Very helpful. Good luck. Thanks very much.

Thank you, Brian.

Thank you.

(Operator Instructions)

The next question is from Ike Boruchow with Sterne Agee.

Good morning. Thanks for taking my question.

Good morning, Ike.

Victor, you talked about the strategy to move away from the online factory sales this year. I' just wondering if you could give us a little more color to help us kind of understand the impact, maybe could you tell us what percent of US sales accounted for EOS last year, and where are you trying to lower that penetration to, and then also when does that initiative really accelerate? Because instead of a 3 point hit this quarter but you're expecting a 10 point negative hit for next year. Just kind of curious when we build out our quarterly models when would the impact start to become greater?

As mentioned, it's the decrease in the cadence of events is really being phased in throughout the year and it will start -- has started this quarter, where we're right now at approximately four events per week. That then decreases further in the second quarter, and by the second half of the year we will be at approximately one event per month. EOS or our e-outlet business was over 15% of North American sales at about $0.5 billion.

Ike, if you're thinking about comps, we expect that our in-store comps will improve moderately as we move through the year but the impact of EOS will be greater as we move through the year, so the aggregate comps will with relatively stable over the course of the year.

Ike, the number I gave you, the $0.5 billion is representative of total e-commerce sales including EOS.

Okay. Thank you.

Thank you. The next question is from Ed Yruma with KeyBanc Capital Markets.

Hi. Thanks for taking my question. I was wondering if you could delineate more specifically the inventory component of the impairment, and then more specifically I guess how do you think about when you impair inventory versus just flowing through the P&L as a normal mark down. Thank you.

Ed, the way we look at inventory was consistent with our transformation. We looked at all of our product inventory and looked at certain products that we thought were not consistent with the brand image that we were trying to move into as we moved into Stuart's design aesthetic and looked at whole product, whole SKU lines that we eliminated from inventory and took those as a write-off, rather than flowing them through the outlet channel and moving them into the market.

So we really looked at where are we headed, where is the inventory not consistent with that direction, and we took the opportunity to write off that inventory at the end of the fourth quarter. We will destroy that inventory, consistent with the write-off charge.

Great. Thanks so much.

Just as a reminder, the inventory charge was foreshadowed both in analyst day and previewed in our 8-K filing prior to today.

Thank you. The next question is from Dana Telsey with Telsey Advisory Group.

Good morning, everyone.

Good morning, Dana.

Hi. Can you give us an update on the first ever sale that you had in the full line stores in June, how did that do? What were the learnings? How would it be different when you look to the January sale? And any update on the outlet performance versus the prior quarter. Thank you.

Hi, Dana. Good morning. The semiannual sale met our expectations. As you know, our strategy has to be -- is to be more surgical and strategic with how we're promoting in our retail stores, and in the past we've done special preferred customer events.

We really curtailed those events in the fourth quarter to set us up for the semiannual sale. So it's a different strategy that really aligns us with kind of the fashion industry and other luxury brands. So it met our expectations in terms of performance, and the goal of the semiannual sale really is to liquidate at end of season, fashion, colors, things that were very specific to the season.

We're not looking at it as an overall liquidation strategy, and one of the most important things that we learned this season in our first ever is that it really brought new customers into the store. So we did have a high percentage of our sales that came from new customers into the brand, and we did market to it in our windows, in stores, and in print advertising. So we were very pleased with the results.

Thank you. And then on the outlets, any update there?

More specifically, Dana, in terms of --?

How are promotions tracking versus how they had been in the prior quarter, how are you thinking of pricing in outlets versus the past?

Okay. So we continued to promote heavily in clearance in outlet during this past quarter, which has been consistent with the quarters before. That put a little bit of pressure on our margins. So we were promotional during the quarter.

What we've been doing now is really tapering off that heavy level of promoting, and as we talked about also, obviously taking into consideration our online business, the US business, pulling that back. What we're doing is emphasizing units in outlets, positioning ourselves at higher average unit retail prices going out with new product launches, and we're finding that strategy to be very, very successful.

So it is allowing us to lessen our dependence on clearance. We also have a number of pilots and testing in the market right now with different constructs to again, reduce the level of promotional activity while maintaining good levels of conversion.

Thank you.

Thank you. Our final question today is from John Morris with BMO Capital Markets.

Thanks. Good morning everybody.

Good morning, John.

Following up on the -- I guess the outlets a little bit, I think back on the Analyst Day you talked about experimenting or maybe piloting a program where you might close a couple of outlets, and then see what happens in full price stores in similar proximity. Can you give us, just remind us the numbers that you're looking at, if there's any change there. Was it just a couple?

When the timing of that might be and any changes to your thoughts on that. And then just a quick comment about the launch of the men's footwear line, when that might be happening and is it across all stores? Thanks.

We are still planning on closing two outlets, consistent with what we said on Analyst Day. Those two outlet stores will be closing in the second half, and we really picked the two that we chose, they're part of the 12 MSAs, our metropolitan statistical areas that we're focusing on in terms of our transformation strategy, and there are retail and outlet stores within a 30-mile radius. It's going to with these closures allow us to measure the channel shift and in these stores there's also a competitive presence.

And what we're going to be able to measure is will the consumer shift to another Coach channel, can we influence her or guide her to shift through targeted and strategic communication strategy? So that will happen in the second half, and we're still on target for that. In terms of men's footwear, we're launching men's footwear in the fall, and it will be a small launch, but we plan to bring footwear to our men's locations and in about -- in retail specifically, in about 50 locations for the fall house.

Great. Good luck, guys. Thanks.

Thank you, John.

Thank you. That concludes our Q&A. I'll now turn it back to Victor for some concluding remarks.

Thank you, Andrea. Let me start by thanking all of you who did attend our Analyst Day and as well of course for being with us today. I would just like to close by expressing my confidence in our plan, our brand, and most importantly in our people.

As a Company, this team has an amazing track record of transformation, business success and driving shareholder value, and our management team has clearly understood and embraced the need for change, the need to innovate, and to evolve in what is a rapidly changing market. Our plan is bold, and I certainly could not be prouder of the steps we've already taken in bringing Coach, the creative talent to innovate and to bring excitement and resonance to our brand across all of the consumer touch points that we have been sharing with you.

As we look to FY15 it's a year of change, and we all look forward to keeping you informed of our progress. Thank you.

Thanks everyone.

Thank you. This does conclude the Coach earnings conference. We thank you for your participation.