Good morning and thank you for calling the Polo Ralph Lauren first quarter fiscal year 2008 earnings conference call. As a reminder, today's conference is being recorded. All lines will be in a listen-only function during the presentation today. At the end of the presentation we will conduct a question and answer session. Instructions on how to ask a question will be given at that time. Now for opening remarks and introductions, I will turn the conference over to Mr. Jim Hurley. Please go ahead sir.

Good morning and thank you for joining us today on Polo Ralph Lauren's first quarter fiscal 2008 conference call. The agenda for the call includes Roger Farah, our President and Chief Operating Officer, will give you an overview of the quarter and comment on our broader strategic initiatives. And then Tracey Travis, our Chief Financial Officer, will provide operational and financial highlights from the first quarter in addition to reviewing our expectations for the remainder of the year. After that we will open the call up for your questions. As you know, we will be making some forward-looking comments today, including our financial outlook. The principal risks that could cause our result to differ materially from our current expectations are detailed in our SEC filings. And now I would like to turn the call over to Roger.

Thank you Jim and good morning. We are pleased to be reporting strong financial results today. We delivered 12% sales growth with a strong retail comp of 7.6% and we reported 11% diluted EPS growth during the first quarter. We are particularly pleased with our first quarter performance, both in wholesale and retail given the more challenging domestic environment. Internationally our business continues to be strong across all regions of Europe and most parts of Asia. Our first quarter results reflect underlying growth in our core Ralph Lauren businesses, the near-term dilutive impact of recent acquisitions that position us for strong long-term growth, and sustained investment in new initiatives, whether it be emerging retail concepts or new product initiatives like American Living, dresses or watches, as well as acquisitions like Japan and small leather goods. Even as we invest for growth, our balance sheet and cash flows remain robust and we achieved an LPM ROI of 32% at the end of the first quarter of fiscal '08. As I stated before, our fiscal 2008 is very much an investment year, both financially and operationally as we continue to execute on three main strategies -- one, expanding our direct-to-consumer businesses; two, growing our international businesses; and three, developing new merchandise categories with discrete channels of distribution. The expansion of our direct-to-consumer businesses is clearly paying off, evidenced by our strong same-store sales gains and the continued growth of Ralph Lauren Media. We are investing capital for new store openings and the new distribution center for Ralph Lauren Media, which should be up and running by the end of calendar 2007. On the international front, the momentum in Europe for both our wholesale and retail operations across all product categories is encouraging. Sales in France and Italy, perhaps two of the most…

Thank you Roger and good morning everyone. I know you have seen our press release, but let me just highlight for you the driver of our first quarter net income and earnings per share performance. For the quarter, we achieved consolidated net revenues of $1.07 billion, an increase of 12% over the prior year's period. As you are aware, during the quarter, we completed our Japanese business transactions and our small leather goods acquisition, and those businesses are now reflected in our GAAP reported results. Excluding the impact of these non-comp acquisitions, first quarter net revenues increased 7%. International markets continue to be important drivers of top line growth, especially in Europe. And our menswear product experienced strong sales performance globally. We also benefited from sustained momentum in our directly operated retail stores where consolidated comps were up 7.6% during the quarter. Our gross profit dollars increased 11% to $592 million and our gross profit rate declined 40 basis points to 55.3%. The decrease in the gross profit rate is due to the effect of purchase accounting related to our recent acquisitions. Excluding the impact of recent acquisitions, our gross profit rate increased slightly, primarily due to our European wholesale performance in the quarter. First quarter operating expenses increased 12% to $446 million compared to $398 million in the first quarter of fiscal 2007. As a result, operating expenses as a percent of revenues were 41.7%, relatively flat to last year. The higher operating expenses primarily reflect costs incurred in connection with our recent acquisitions, including the non-cash effect of purchase accounting. They also include startup expenses related to new products launching in the fourth quarter, as well as overall growth in the core businesses. Operating income increased 9% to $146 million. Operating margin was 13.6% compared to 14% in…

Okay. Before I take questions, I just want to thank Nancy Murray. For the last 8 years, she has been a tremendous asset for the company and a tremendous partner to both Ralph and I. She has worked extremely hard with integrity and passion, and has played an important role in the increased value of Polo Ralph Lauren. We will miss her and wish her the best in her new endeavors and we thank her for her tireless commitment. Now I will take questions. Question And Answer

Thank you. The question and answer session will be conducted electronically. [Operator instructions]. In our first question today, we will hear from Brian McGough with Morgan Stanley.

Yes, hi, thanks a lot guys

Good morning.

I just have a couple of questions. One is actually on the retail business. The comps actually looked really good, yet the sales don't seem to really represent that. And I was wondering is there anything having to do with like new store additions and where they were... or when they were opened in the quarter that would cause new store productivity to maybe come off a little bit during the quarter?

Well, the comps, as you said Bryan, were very strong at 7.6. I think the net store count for the quarter is impacted by the closing of the Polo Jeans chain, the closing of the remainder of the Club Monaco outlets and Caban stores. So the comp number really is reflective of the business, the new stores that we opened were fine. They were just offset against last year where we were just beginning the closing process on some of those other concepts.

Okay. And then I guess on the upfront cost that you guys are putting in now, and it sounds like over the next two or three quarters. So you are front loading the costs of investment to fund the outer years, then I guess in the fourth quarter you just start to shift American Living, I think you get more of the wholesale sales from your new Japanese business relatively soon. So, is it fair to say that the costs are more front-loaded and the benefits are more back-loaded, and as the year moves forward we should see an accelerating operating profit growth?

Well, I think it's a good question. Let me separate the accounting issues from the investment side of your question. American Living, which we have been working on for the last six months and launched last week, a spectacular market week, we had over 200 people in the showroom when we unveiled it on Wednesday, it's been all day Thursday and Friday with the JC Penney folks who left their orders and then we spent the weekend, Saturday and Sunday, gathering those and putting them into work on Monday. So we've really had a well-oiled machine. The fact is that product that they saw in this market will not start shipping till our fourth quarter. While that's happening, we are also building and incurring the expense of a summer line and a fall line, all of which are being built behind it for September and November markets. So in essence, we are running multiple developments for multiple lines, all of which don't start seeing the first revenue shipments till spring. So that scenario is also pointing out the businesses like dresses and some of the others. So, yes, we are incurring the development startup costs really for the entire 12 months, and it's not just the development cost for the spring line, it's three and four lines of products that are being developed so that we can hit the timetable we need to. Once we start shipping in January, then we start shipping every month for next 12 months and for thereafter, and that plays out in dresses also. The businesses we acquired, i.e., Japan or small leather goods, are kind of a different story. Those businesses have revenues and they have got ongoing operations, but they are significantly impacted by the accounting issues with which Tracey can take you through.

And Brian, just to follow up on what Roger has said, we talked on the last call about the purchase accounting and the magnitude of what our estimate of that would be for the year. About 75% of that will occur in the second and third quarter related to the Japan acquisitions as well as Ralph Lauren Media. So that is really suppressing in particular second and third quarter results for us related to the purchase accounting.

And now just how should we think about that accounting? Is that a one-time adjustment or it is something that's going to flow through that we are going to see for ever?

Well, there are different elements to the non-cash purchase accounting related to the acquisitions. There are shorter term elements like the excess purchase price that's allocated to the license, as well as the step-up in the inventory and those tend be shorter term amortization items. In this case, it's about 6 months for Japan, which is the biggest impact that we are having this year. hen there are ongoing impacts related to purchase accounting, all of which we call out in our SEC financial results related to customer lists and -- etc. And those are amortized over longer periods of time. So, we will expect to see as we do related to some of our former acquisitions, Brian, ongoing purchase accounting, but nothing like what we are seeing this year.

Okay, great. And then I guess just one last one. When we look at the Japanese business and we can their filings out there, thy had at one point a couple of years ago, I think 4 or 5 years ago, had... I think they had their gross margins near 50, they had operating margins in the low 20s, and now they've both lived 6 or 7 points to the point where they are at trough, trough margins right now, which is exactly when you want to be buying them back. I guess my question is it seems like you are investing the capital into them now when the businesses are at trough margins. Is it a safe assumption to assume that your goal to get those margin well above where they are now and closer to, if not above, where they were when they were operated by a licensee who was presumably under-investing in them?

The answer is yes. We do expect the margins over time to come up. The margins have come down from their peak. Quite frankly, some of that was their operating results and some of that was a royalty rate that was increasing over the last couple of years that was coming to us anyway. But the investments that we plan on making time, energy, money and focus in Japan, we think is going to drive both top line and margins back or surpassing prior levels.

Okay, I appreciate it guys. Thank you so much.

Thanks.

Next we will move to David Glick with Buckingham Research.

Good morning, and Nancy, good luck to you. It's great working with you. And just Roger, moving on to just quick follow-up questions on Q1. A couple of things stood out. The top line came in a little bit late relative to your guidance, particularly in licensing income, your guidance was mid-single digits, came in at minus 8%. Retail question you answered, also looking forward to Q2, the high single-digit top line is a little bit light relative to our expectations at least and a little bit lower than your Q1 results. Just... and clearly from your commentary earlier, from Tracey's commentary, the Q4 is going to be big quarter on top line. I was wondering if you could give us some color on why the top line was a little bit short in Q1 and a little bit of deceleration in Q2, and perhaps it's the US wholesale markets, some color on that would be very, very helpful.

Well, David, I will let Roger answer the US wholesale market question and I will talk to your question with respect to licensing royalties for the first quarter. I mentioned in my remarks that if you adjust out the impact of Japan, licensing revenue actually increased 11%. So when we gave our initial guidance, it included the licensing revenue associated with Impact 21 because we were able to upon the successful completion of the tender offer consolidate Impact 21 and back out the difference that we didn't own during the quarter in minority interest. We accounted for it differently. Therefore you see that pickup from the loss in... from the difference in the licensing revenue in our growth margin. So, there is just a flip between licensing revenue and gross margin actual versus our guidance. The gross margin line is actually relatively flat to the guidance that we gave. So there is no bottom line impact related to that.

Okay.

I should let Tracey answer the rest of it, but she is insisting. I actually think that the sales reflected in our comp of 7.6% and our wholesale when you strip out the acquisitions of 5 [ph], it was pretty solid quarter given the turbulence in the market and I feel very good about the core strength of our businesses, putting aside the new initiatives. But it was an interesting spring summer. For the first time in a long time really men's as a merchandise category led the charge with woman's being on a secondary role. I think woman's has led the charge for many years before that. I think there was great strength in accessories around the industry. With home probably being the weakest business across all merchandise categories, but it was really the first year in a while that our business in men's, whether it was our own stores, polo.com, ralphlauren.com, Europe or even Club Monaco where the men's increases outpaced the woman's increases. I think there was a shift in the women's business to more casual, less career. And there certainly was a growth in the dress business, both of which lead to lower average unit sales or lower outfit costs than a career purchase. So, the little bit of a shift in the paradigm of the female business. Nevertheless, we ended up with an increase in woman's anyway. So I think against the backdrop of a spotty domestic market with the shift that Tracey is talking about in licensing, we actually delivered pretty nicely our revenues for the quarter. And really expect the core businesses to continue to performance. The wholesale visibility we have into forward bookings for fall and next spring are very solid and are in line where we expected. Clearly the American Living was a home-run and exceeded expectations. And I think Penney's was just shocked by the lifestyle representation of all merchandise category being shown in one location at the same time and that's unheard of because normally those markets come at different times during the summer. So I think we feel pretty good about the underlying strength of the business and where we are and just see this year as lots of noise in the numbers, but so far so good.

Okay, great. And one last question on denim, just curious how are you progressing there and reaction of the product for spring and your hopes for fall in that category?

The denim category is an important one as it runs through really men's, women's and kids, and is now running through American Living and Rugby. It will continue to grow as a penetration in terms of our assortments. It's actually in the middle of sort of a trend change in the denim business away from some of the low rise and skinnier fits, and some of the washes are changing, and usually change in direction brings business because people's closets [ph] somewhat out of date. So we are hoping fall and into next spring begin to see the payoff for both Lauren Denim or Polo Denim, RRL at the high end, and then American Living at the new channel where we are distributing product.

Great, thanks Roger, and good luck.

Okay, thank you.

In our next question, we will hear from Virginia Genereux with Merrill Lynch.

Thank you. Maybe Tracey, just to follow up quickly on revenue guidance, and I think folks are asking about it because you gave us a... for the first quarter, you gave us a guidance at the end of May. And I think you said at that time wholesale was going to be up high teens, and understandably it sounds like all the Japan business went from licensing into wholesale, but if I back out Japan then wholesale came in a little lighter. Is that totally understandably... is wholesale coming in a little lighter given some the trends you cited, Roger? It sound like JC Penney, American Living might be an offset to that, but is that the case?

I'd have to break out the numbers and the level of details I don't have in front of me, Virginia. I don't really think the either domestic or international wholesale business came in lighter. I think the Japanese, putting that aside, or the small leather goods, putting that side, the organic 5% growth may be was... may be it's a tick light, but I don't think it's a fundamental issue, in many cases because of the 53rd week with the department store calendar has caused some havoc in the monthly cutoff of shipments, because when those 53rd weeks are now falling in their fiscal calendar versus our fiscal calendar, is causing some shipments by a week moving from one quarter to the next. I don't see it as more than some of that going on.

Geography. Okay, thank you Roger. Tracey, maybe on the purchase accounting side, I think on the last call and it was helpful giving us the flow by quarter, I think on the last call you said and I think in this release, preliminarily a $0.27 impact. And you said I think the $0.25 or so of that would fall off in fiscal '09. Is that still a fair... does that still match your best thinking

Yes it does at this point in time.

Okay, the majority of it goes away. And then if I further try to quantify that, if I take your $0.27 in purchase accounting and say, all right, that's a $47 million kind of hit to EBIT and the offsets to that by my math, as I look at the Impact 21 numbers that business did $33 million its last fiscal year, 20% of which you owned. So you guys were... that business is going to contribute an incremental $26 million assuming things are flat and my estimate of the other half of RL Media that you now own was about $11 million in profit. So --

So you are already modeling next year, Virginia. I that --

Well, no, I an just trying to figure out where you... my question, Roger, I am sorry, is going to be the purchase accounting understandably is making... is leaving these acquisitions dilutive this year. Right?

Right.

Yes. Okay. Just to remind everybody, the $0.27 was a net number. So it included the purchase accounting and it also included the impact of the business, the pickup of the business, so it's a net impact to us related to the elimination of the minority interest and the consolidation of the business. So, that was in that number. I also called out on the last call Virginia a $61 million number that was the pure purchase accounting estimate at the time. The number is still reasonably close to that. And then as I mentioned earlier in the remarks, about 75% of that purchase accounting impact, not the $0.27 net impact but the purchase accounting impact will be occurring in the second and third quarter.

Okay. Thanks, it's helpful. And then about 40... low 40s of that $61 million will follow way next year

Yes.

Based on your... okay, okay. Got that. thank you. And then back to the core... back to sort of the core operations of Japan and RL Media, what do you need to do... Roger, you mentioned we got a new DC for Polo... ralphlauren.com, how quickly can the margins expand in those businesses? I mean, can you talk about each one sort of Japan and --?

Yes well, the RL Media and again, Tracey can talk to or has covered the accounting issues. The big issue for us in RL Media is we were third party distribution in customer servicing call center. So that was an efficient, but expensive way of handling customer orders. When we decided to bring all of that function in house, call centers, customer service, and distribution, we embarked on an analysis of how to do that and how put that into play. That begins in October-November through March of next year. That begins to come online in pieces and parts. That will reduce the cost of handling a customer order significantly because we will be doing that in-house as opposed to third partying it where it was a profit center for somebody else. So we are very comfortable starting next fiscal year the RL Media piece, not only will it be 100% owned by us versus 50%, but the dramatic change in the cost of servicing a customer will add very specifically to the profit margins of that business. We've obviously also built it to service what we hope will be an ongoing compounding of the current growth rates, which have been in excess of 30%. That has the unique advantage to us and that ability to ship an individual customer order is very different the way... than the way the rest of our logistics and distribution is set up where it's designed to service large shipments to our own stores or to wholesale distribution on a worldwide basis. So that adds pretty dramatically to the profit margins of RLM and should come online in fiscal '09. The Japanese question you asked, again putting aside the purchase accounting and all of that, the integration has begun. We've realized opportunities in logistics and distribution where that was third party and over time we'll be able to bring that in-house as we work through the service agreements. The manufacturing and sourcing, we will roll into international sourcing group, today that is handled through different third parties and that should enhance the margins as well. And against that backdrop we will make investments in the right kind of shop environment, the right kind of presentation, the right kind of marketing. And then as we said in the prepared remarks, getting the sales and merchandising assortment rights is really the rocket fuel for Japan, given the very high productivities and the limited number of points of distribution. That will begin to play out in '09, but will really we think come to fruition in fiscal 2010 in a major way.

Okay, thank you, Roger. So it sounds like you would look for margin expansion from current levels in both these businesses, more maybe at RL Media in fiscal '09 and even more the bigger Japan leverage should come really in fiscal 2010. Is that --?

Yes, I think that's fair.

Okay. And I still have RL Media based on your disclosure as a very profitable business, like high-double digits. Is that fair Tracey?

Well high double-digit means 90% or 95%?

No, I am sorry, high teens.

Yes, it is very profitable.

Okay. And then just lastly, if I may, Tracey, what's still in minority interest?

Well, for the first quarter, the portion of the Japanese business that we did not own for the quarter is in minority interest. RL Media is no longer in minority interest and that is it.

So you still had two months of sort of the Japan business?

Yes.

Okay, thanks so much.

And Margaret Mager with Goldman Sachs will have our next question.

Hi, good morning.

Good morning.

A couple of questions. First of all, with regard to the men's and women's business where you commented that men's actually outpaced women's; did it actually accelerate or is it just that women's has softened and men's has kept a steady pace? And is there anything in the merchandising of your women's area and more in Ralph Lauren in particular that needs to be addressed? And then I have a couple more. Thanks.

Okay. Well, the first part of your question, it's a pretty good men's season all the way through market and there really wasn't too much movement there. I think the change in the women's business is really characterized by this. The early parts of spring historically are when people buy more career, they are setting up their wardrobes for the season and then later into the May, June, Julys, generally become more casuals spending anyway as a natural pattern to the business. I think this year because career was a bit softer and the casual side of the business, or a less expensive dress was sufficient, I think you just saw that trend picking up earlier in the season, which pulled down the average unit retails, which made for a softer spring. I think what you then have for most people is when you go to June, July clearance activities, if the product wasn't in demand early in the season, then it's some more expensive and a slower movement of that product when you get to the clearance months. I don't have the benefit of the July comp store sales, but my guess would be they are not going to be very different than the trends that were out there mid-spring on and then the real sea change becomes the middle of August with back-to-school and the fall business that runs in the middle of August through September. There's been a lot of shift in the back-to-school calendars with certain states going back later, which shifts that tax-free weeks. So the early part of August has been a harder period to read back-to-school and we really need to get into the middle of the month before we see how those trends from spring carry forward.

Right, okay. In the department store arena, you are clearly the leading brand in both men's to women's. And then on the women's side in particular, it'd seem right now there is an opportunity to increase your market share maybe through larger footprints in the department store channel given the fall off in some of the other branded product in that channel distribution. I m just wondering what is your attitude and strategy towards increasing your footprint in that channel at this time?

Well, it's a good question, Margaret. As you know, we have been trying to grow our women's business as a percent to our total anyway, because we have been under-developed with the softness in the women's markets with some of the key competitors. We do see it as an opportunity to increase footprints square footage, not so much door count because that's not we really where we looking to expand, but really in the doors we are in, even in the Lauren business where we've added active in the last couple of years, where we have added denim in the last couple of years, where we've expanded our commitment to special sizes, we will be launching dresses next year. We are actively looking to gain share in that channel with our female business. Following on the heels of that, we just came off a very successful La Vegas Shoe Show, we are feeling good about the direction of the footwear business and hopefully next year we will begin to follow that up with other accessory categories. So yes, we are looking to expand the penetration of our women's business vis-à-vis it's historic positioning as well as the current market landscape changing.

Do you think that plays out in a noticeable way over the next 12 months or is that longer than that?

Well, I think we will see some movement in the next 12 months. Moving around department store square footage is a cumbersome process. It requires capital on both sides and even with business being soft, I don't think that always results in change the next day, but I think with our consistent strength, our unique product positioning, and as you said, our leading really each merchandise category we are in, I think it is an unusual time and opportunity for us over the next couple of years to gain share.

Okay. If I could shift to the retail piece, in our model, we were looking for something in the low to mid teens growth rate for retail for the full year, more or less in line with your fiscal year guidance. And now with the first quarter and the second quarter looking to the more in the high single-digit range, can you just talk about how the second half will accelerate in order to move towards that mid-teens guidance? I understand on the wholesale business what you are doing, but what is it in retail that's going to accelerate it into the second half? Thanks.

Okay. Well, we have talked about the first quarter net store effect. And a lot of that drops off as we get into the second half so that the new stores in the second half are more pure incremental as opposed to the sort of a net effect. We obviously feel very strongly about our direct-to-consumer polo.com, and believe where mall traffic may have been off in spring, summer we do believe online shopping will continue to accelerate through the back half of the year, and we are pretty bullish on comps. I think our first quarter, which is generally not our strongest quarter, but I think we are expecting comps to maintain themselves through the year and obviously, that's the least predictive business we have versus wholesale or licensing, but nonetheless we think the fall assortments look great, there's going to be a tremendous amount of advertising and public relations energy behind the 40th anniversary on a worldwide basis starting this fall. So we think there is going to be a lot of excitement in the marketplace. Clearly, the mid-August through September back-to-school and into fall selling will be critical and if that goes well, I think we feel very strongly about the year. If that is not as robust as we would like it to be, then it may effect the holiday shopping.

All right. And last on repurchase, just wondering can you update us on your though process around buying back stock and how you might approach that, especially given stock sell-off today?

Well, we have 198 million left on our prior Board authorization, Margaret, that we will as we had in the past opportunistically look to invest our cash in the best way and if we believe that that will be stock repurchase, then we will do that.

Okay. Thanks and good luck, talk to you soon.

Okay.

And at the request of the speakers, please limit yourself to one question only to allow others in the queue to ask their question. Next we will move on to Bob Drbul with Lehman brothers.

Hi. Good morning.

Good morning Bob.

Question that I have around inventory levels, inventory is up 15%. Can you break out or provide some granularity how much of the inventory increase was exactly associated with the Japanese business and small leather goods and can you provide your retail division inventories, full price outlet and/or your wholesale numbers, and just what the breakdown within your inventory levels?

If you just wait a second, we will give you the incremental inventory that was associated with the acquisitions. Excluding the various acquisitions inventory was up about 8.9%. So, 15% versus the 8.9% is the difference for the new businesses. I don't have it in terms of wholesale and retail, but that's about what you can work the math on.

Okay. And Roger, can you maybe give us some commentary around the inventory levels at retail on your wholesale customers, are you comfortable with what's out there right now as you go into fall selling season?

Well, I think our wholesale, retail customers were pretty aggressive about clearing inventories in general through the spring summer. Our inventory levels of our products are in line with our plan. So we are receiving fall and are comfortable with what came out of spring summer at this point.

Thank you very much.

Okay.

Next we will move onto Omar Saad with Credit Suisse.

Hi, one quick question, Roger. Wanted to get your perspective on your comfort level with the kind of that spending at the high-end luxury market, I know with some of the volatility we are seeing in the stock market, I think a lot of people just kind of take for granted the high-end spending. I just wanted to get your thoughts on that and how you feel at this point.

Well, the high-end customer, the luxury customer has continued to shop. I would say the last two or three weeks, as you all know, the markets have been very volatile in general. There are lots of business articles about the potential impact of subprime and the various chemicals of that out into the marketplace. At the moment, the luxury customer continues to shop. If their portfolios or psychological view of the world changes, I don't know that that will cause them not to spend because they don't have the money, but it may attempt to dislodge their confident view of the future. I think there's just been a lot of volatility and I don't think until it settles down and people understand how it's going to play out, how to react from a consumer point of view, but whether it's the new store in Moscow, whether it's our key markets in Europe, or whether it's our own retail where we ran a 10% comp, I think the better customer continues to spend.

Okay. And can you give us a little bit of a historical perspective the last time you saw it, the last time you saw kind of a weakness in that segment, around the 7th September 11th [ph] period or how did it play out historically if and when you saw --?

Well, the September 11 period aside, I think that had unique impact on the world and particularly the New York market when the stock market was struggling in the post-tech boom and went through a couple of tough years. We were also in a period of redoing some of our retail. And I think even in that period, the customers with money continued to spend and it's really the middle class customer or the customer at the lower end who really tightened their belt and anxious to see how that plays out in the different channel. Interesting to me is, the Kohl's and the Penneys of the world continue to produce nicely through the spring summer turbulence and we will see what happens. We are back to school in fall, selling starts cranking up in August-September, but I think the better customer is going to continue to spend money.

Very good, thank you.

Okay.

Next move on to Liz Dunn with Thomas Weisel Partners. Ms. Dunn, please go ahead, your line is open.

Hello, can you hear me?

Hi, Liz.

Hi, I am sorry about that. Okay. I guess my question is related to the global brand --

Can you speak up a little, Liz, I can barely hear you.

Okay. My question is related to the global brands team.

Right.

It's entirely in place with what you have done with American Living such that if you have another partnership, it will be... you will be in a position to leverage what you have already built fairly significantly or how should we think about that? And then I am assuming that the American Living launch is the biggest bucket of investment spending outside of what you are doing with acquisitions. Are there any others that we should be aware of? And then if I can just sneak in one quick, could we have an update on Rugby because I don't think we've heard anything about that for a while?

Okay. Well, global brands concept, which we do believe is a big idea and American Living, which is the first iteration of that, that project has had almost 400 people in all parts of the company working on it. And I think the original thinking was to make sure that we had our best and our brightest in all categories working on that. So we used a lot of our existing talent. Over time we will in fact begin to populate some of the key jobs in American Living to supplement the fact that people can't work day and night jobs on a prolonged basis. So we will build some talent around the existing group that launched those categories in order to handle other initiatives post-American Living. Our current thinking is to get American Living not only developed in the three or four lines that are underway, but really get it positioned in Penney's, get a reaction from the customers so we can learn from that, and then look at some of the numerous people who have called looking for a discussions about can they participate in global brand concepts, and then we will look to add to the business model after that. What was your second question?

I just wondered if there were other categories of the investment spending that didn't relate to acquisitions that we should be aware of, just big buckets?

Well, there is of course Japan, which we've talked about, which is acquisition, but there is a combination of transition service agreements running through, which, as you know, were more expensive, as well as our investment to try to overlay and begin to move forward. There is certainly the distribution call center investments in RL Media, which I talked about earlier. There is the start up of the watch and jewelry joint venture with Richemont, which has us splitting the cost of that. We will be shipping product in fall of calendar '08. So that's running through the pipeline as well as the early work on dresses. So those are the most significant of the initiatives going through that. In terms of Rugby, Rugby is well positioned for the start of back-to-school, which for them is an important business. As you know that customer is very oriented towards buying today so they can wear it tonight. It's not like our luxury customer who is buying today to wear it in September. So we are as that business begins open up getting immediate feedback on products and assortments. We've learned a lot about the real estate strategies that work and ones that don't. And as you know, we closed a couple stores that were in college-only towns, did not think that was a viable or economic model on a go forward basis. But have enjoyed great success in towns like Greenwich or New Canaan, which have both of the street location as well as some exposure to high-school and college kids. So we are pleased with where we are, this back-to-school and fall teach us a lot, and then we will move forward from there.

Okay, thank you.

Okay, thank you.

And next we will move on to Gabrielle Kivitz with Deutsche Bank.

Good morning. Roger, question on the retail segment. It seems to play out repeatedly with the apparel retailers that I cover that it can be tough for retailers to comp solidly positive when they begin to anniversary increasingly difficult multi-year comparisons. Seems like retailers can sometimes have some inherent cyclicality or comp growth limitation given the sales per square foot productivity constraints within the existing boxes. So, I guess my question is with that said, how can we get comfortable that the retail business and more specifically, factory and Club Monaco can sustain positive comp trends and not become victims of their own success? And in other words, can you just help us understand specifically what opportunities there are going forward within the box that could help drive increases and possibly continue to offset from the softness in just general mall traffic and traffic patterns that's been seen recently? Thanks.

Well, it's a good question. Of course, there are no guarantees that tomorrow is going to bring a positive comp. We have experience now for almost 5 years running ongoing strong comps. They go up and down a little per quarter, but generally ongoing strong comps, and really ongoing productivity gains, because we've been careful about new stores and we've seen dramatic improvements in our productivity per door. And I think you have seen that and we've talked about the Ralph Lauren concepts now being at $1000 a foot and the tremendous turnaround in comps that we've had at Club Monaco. It really comes down to do you have pricing power that allows you to appropriately raise prices for the right kind of merchandise, can you add merchandise categories that are incremental as opposed to replacement categories, are you trend right in those businesses that carry more of a trend burden, and can you do that well and sustain it? A lot of what helps that is having a consistent design, merchandising and buying teams who really know the nuances of each door and each opportunity. With all that said, there were no guarantee, but it certainly improves your odds of compounding year after year if you have got those things in place. And I think we do have all three in place. But we will see, we are not immune to macroeconomic issues, we are not immune to external issues, but the things we can control, I think we are constantly looking for ways to raise the bar on ourselves. And that's what we have been able to do. We'll see what the fall brings. There are no guarantees, but that's what we are focused on here.

Okay, thanks, and good luck for the remainder of the year.

Okay, thank you.

Christine Chen with Needham & Company will have our next question. Christine Chen - Needham & Company, LLC: Thank you. Wanted to see if you could talk a little about you held trunk shows at the end of June in your full-price retail stores; granted that's early on, it probably gives you some indication of product is going work and what isn't and what was the feedback you got from that, and historically has that been good indication for how retail performs going forward. And then for footwear, do you still expect it to be neutral on EPS this year and denim accretive? Thank you.

Okay. Christine, in terms of trunk shows, they are a good indicator of what the top customers are reacting to from a fashion and a style point of view. Also, attitudinally what they bring to a trunk show is important. As pre-lines have grown in importance, so it's both the pre-line and then it's the runway products. That business has sort of migrated into much more even 12-month-a-year business as opposed to the Crescendo that used to exist when it was just runway product. At this point, our fall product has been very well received. I think there was a lot of enthusiasm for the runway itself, and I think deliveries are on time, people like the quality and fit. So if that turns out to be an indicator, I think we'll have a strong collection year, both here and in Europe and in the beginnings of that business in Asia. In terms of the footwear and denim businesses, I think our guidance from the beginning of the year holds. The Vegas show shows, which just concluded were very encouraging for us, but that's really a next spring shipping cycle. So we will see, but we are off to a good start. Christine Chen - Needham & Company, LLC: And then denim is still expected to be accretive for this year?

Slightly, yes. Christine Chen - Needham & Company, LLC: Okay, great, good luck.

Okay, thank you.

And we will Jeff Klinefelter with Piper Jaffray.

Good morning. This is Stephanie for Jeff. And we'd echo the comments made on Nancy's departure. Roger, if you could just speak a littlie bit more to your optimism surrounding Europe. What markets rank greatest in terms of contribution, where are the key opportunities, and what have your licensing partners said about their store opening plans for the balance of the year?

Well, Europe continues to delight us because, as many of you know, we've put a lot of time and energy into reorganizing and getting that business prepared for growth over the years. And we are now reaping the benefits for that. We are seeing our strongest growth in the major markets of Italy, England, France, and really Germany really are getting distortion in growth. And our retail business there, even blended in with the comps, is outpacing the United States. So whether it's the new store opening in Milan or some of the other stores we have, it's giving us encouragement to push forward with our retail expansion. As a matter of fact, we have committed to two large pieces of real estate in Paris that we are paying rent on that won't open until next year. So those are not a drag in the short term in the order of magnitude, it's one of the things we've talked about, but they are, in fact, appropriate decisions for the long term retail strategy there and it's what you have to do when you find great real estate. So we are making and continue to make ongoing commitments to Europe. We've said before we think it could be as much as a third of the business and we continue to see the customer feeding back. It's interesting not only were the Moscow stores successful, but the Russians with money are now traveling Europe extensively and they are positively impacting business in most of the European capitals. So that's an interesting new wrinkle to the European business. And even with the high exchange rates, tourism continues to be pretty strong in Europe. So, we are excited there and we continue to reinvest, that's what we think will be great future.

That's interesting. Thank you. Actually just a follow-up, as you are looking at Japan and you've touched a bit on the assortments, the store environments etc. that you are focused on, was Impact selecting from an edited assortment as a distributor or did they have exposure to the entire assortment? Any changes there in terms of opportunity and assortment categories, non-apparels that will be helpful. Tank you.

Well, in Japan, as many of you know, we had a master license that for many years stayed with department stores. They in turn sub-licensed out the merchandise categories that they thought were appropriate for Japan, to different sub-licensees. Impact 21 over the course of time ended up with men's, women's, denim and accessories, and then we had other sub-licensees for our merchandise categories. So their interpretation of what was right for the market, what they brought over there in terms of lines and/or merchandise assortments within the line, were their best judgments of what would sell. I think our view and what we've learned through the Omotesando store opening, which we have now anniversaried and is performing well, is what we think the customer is willing to receive from us. We believe that should not only based on what we are seeing in the Japanese market, but what we are seeing with Japanese buyers in other world-wide markets that we are servicing. So we are going to add to what they brought over. We are going to alter the assortment, we are certainly going to alter the distribution and planning expertise and we expect that that will pay out positively for us. I think we have one more question. Two more questions, Nancy says, okay. Operator, two more question.

Okay, we will move to Jeff Edelman with UBS.

Thank you, good morning.

Good morning, Jeff.

How are you? This question is for Tracey. After the last conference call, you talked about these investment expenses, which as I remember, roughly 100 basis points hit your earnings this year and the influence was that that would go away in fiscal '09, but now as you talk about starting to cover some of those expenses in the fourth quarter, it seems to me it's going to be more withdrawn out period and then you would obviously have ongoing investment for new initiatives for '10?

Okay. There are... good question Jeff. There are a couple of different types of investments that we are making this year. Let's talk about the acquisitions, which are the ones that are the most extreme this year as it relates to the non-cash amortization, which is short-term non-cash amortization, the bulk of it. Some of that amortization will continue forward into 2009, but as I said earlier on the call in response to Virginia's question, much of that will go away after this year. So, we will some non-cash amortization and we disclosed it in our financial statements what the amortization line is, but not to the level that we are seeing this year. So there will be a $40 million pickup roughly year-over-year as it relate to... and again, purchase price allocation is preliminary right now. So that piece will go away. As it relates to American Living, that's the other investment that we talked about American Living and dresses. We have Richemont, the watch joint venture that we also entered into this year. And those investments will be ongoing. The sales related to dresses and American Living, we will ship in the fourth quarter. So we will see... start seeing sales revenue against those expenses in the fourth and certainly continuing forward into 2009.

Okay. So... but the level of expenses is not going to go away, it's just the question of levering those with the incremental sales?

Yes, not on the... on the new product initiatives, yes.

Right, okay, great, thank you.

And our final question, we'll hear from Jennifer Black with Jennifer Black & Associates. Jennifer Black - Jennifer Black & Associates: Good morning and congratulations. You have done an amazing job.

Thank you. Jennifer Black - Jennifer Black & Associates: I wanted to know... just I have two questions. Are you happy with how the retailers are displaying or merchandising your products as a whole and are there opportunities such as dual exposure where it's not being done? That's my first question.

Well, the ongoing dialog between us and every point of distribution around the world is heavily focused on assortments and presentations. As you know, we as the company put a lot of time and energy into merchandise presentations, whether it's our own stores, polo.com, or our wholesale distributions, we spend a lot of money on shop build-out, we spend a lot of money on coordinators, we spend a lot of money on propping. But with thousands of distribution points around the world, Jennifer, I think there is always opportunity to improve, and as we travel and we do aggressively travel, when we see those opportunities, we work with the customers to improve that. Properly presenting our product is a big part of our success. So we never underestimate what we can impact when we get it right and/or when it's not right, the drag it can have on the sales. Jennifer Black - Jennifer Black & Associates: Are any of the retailers today, but excluding your stores, do they have accessories, handbags, shoes, in the apparel departments?

Well, the whole accessory opportunity, whether even in our own stores where I don't think we are yet presenting it to its fullest potential, but certainly at the wholesale distribution points, whether it's classification presentations, i.e., in the accessory departments or footwear departments or in the shops, that's a tremendous opportunity for us to improve. In Asia, they do put the handbags in the shops, shops are highly productive, but I think we are in our infancy in getting that right on a worldwide basis. Jennifer Black - Jennifer Black & Associates: Okay, so that's a great opportunity.

Yes. Jennifer Black - Jennifer Black & Associates: And as far as accessories as a whole for each of the brands, what further opportunities do you feel exits?

Well, there's really with the small leather goods and belts coming in-house and footwear in-house, with the expiration of the handbag license at the end of this year, with the repositioning of eyewear and a long-term relationship with L'Oreal, I think we've got most of the merchandise areas covered and positioned the way we want in terms of the go forward. We really sell with Richemont as a partner in fine watches and jewelry. We needed that expertise and that partnership is off to good start in terms of product development. So, I think we have sort of thought out and strategized and now executed the key components of accessories. We just have to get it executed on a worldwide basis. Jennifer Black - Jennifer Black & Associates: All right. Thanks very much and good look.

Okay. Thanks Jennifer, and thank you all for your interest. I know it's been a long call. There's obviously a lot of noise in the numbers offsetting what I think is very strong organic business, both at retail and wholesale. We look forward to talking to you at the end of the second quarter when we have more back-to-school and fall selling to report, but we are very excited about the new initiatives at this point and think you will see the benefits of that in '09 and beyond. Thanks again. Bye.

And that will conclude today's call. We thank you for your participation.