Good morning and thank you all for joining us on Polo Ralph Lauren second quarter fiscal 2008 conference call. The agenda for this morning's call includes Roger Farah, our President and Chief Operating Officer, who 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 second quarter in addition to reviewing our expectations for the remainder of the year. After that we'll open up the call for your questions. As you know, we'll be making some forward-looking comments today including our financial outlook. The principal risks that could cause our results to differ materially from our current expectations are detailed in our SEC filings. Now I would like to call... turn the call over to Roger.

Thank you Jim and good morning everyone. We're pleased to be reporting strong financial results today. We met our expectations for the first half of fiscal 2008, even as we're making significant investments and long-term initiatives. In the second quarter, we delivered an 11% sales growth with solid retail comps of 4.5%, again very challenging one and two year comparisons. Internationally our wholesale and retail businesses continue to be strong across all regions of Europe and most parts of Asia. Our second 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 investments in new initiatives, whether it be emerging retail concept or new product initiatives like American Living, dresses or watches or acquisitions like Japan and small leather goods. Even as we invest for growth, our balance sheet and cash flows remain robust and we achieved a trailing 12-month ROI of 30% at the end of the second quarter. As I look at the underlying trends that drove our first half results, and that would be excluding the impact of the acquisition, I see a great deal of consistency between the first quarter and the second quarter. Our underlying wholesale revenues were up 7% in this quarter. Our retail comp maintained mid to high-single digits, and our growth margin rates were higher than last year at the same time. Our inventories have consistently been in good shape and reflect our sales growth. Of course on a reported basis, we have had a negative impact from purchase accounting relating to the recent acquisitions and a higher tax rate. I am pleased with the underlying strength and consistency we've achieved in the first half of the year. As I stated before, fiscal 2008…

Thank you Roger and good morning everyone. First, I'd like to highlight for you the drivers of our second quarter net income and earnings per share performance, then I will take you through our revised guidance for fiscal 2008. For the quarter, we achieved consolidated net revenues of $1.3 billion, an increase of 11% over the prior year’s period. When we exclude the impact of the non-comp licensee acquisitions and those are Impact 21 in Japan and New Campaign, Inc for small leather goods, second quarter net revenues still increased a healthy 7%. As a reminder, two other recent acquisitions, Ralph Lauren Media in the fourth quarter of fiscal 2007 and new Polo Japan in the first quarter of fiscal 2008 were already 50% owned by Polo prior to the acquisitions and therefore were already consolidated into our results last year. International markets continue to be important drivers of topline growth during the second quarter and especially our European business. Regarding merchandise category, our menswear product experienced strong sales globally and our Chaps product lines were also strong performers. Regarding our retail business, consolidated comps in our directory operated retail stores experienced 4.5% comps during the quarter which was achieved on top of a 9.3% comp gain in the second quarter of fiscal 2007 and a 6.2% comp gain in the second quarter of fiscal 2006. Our gross profit dollars increased 10% to $695 million and our gross profit rate declined 70 basis points to 53.5% in the second quarter compared to 54.2% during the same period last year. The decrease in our overall gross profit rate is entirely due to the effect of recent acquisitions. Excluding the full effect of recent acquisitions, our gross profit rate was 40 basis points higher than last year. Second quarter operating expenses increased…

Okay operator. I think we're ready to take the first question. Question and Answer

Great. We'll now begin the question-and-answer session [Operator Instructions]. Our first question comes from Christine Chen of Needham and Company. Miss. Chen you line is open.

Hello operator. We can't hear anything, maybe you should move to the next question.

Yes, we are going to the next question, which is Omar Saad of Credit Suisse. Omar Saad – Credit Suisse: Thanks, good morning.

Good morning. Omar Saad – Credit Suisse: Roger, hoping you could expand a little bit on the US consumer environment. How you think about it given the breadth of your business across channels and across price points. We would love to hear some of your unique insights, whether it's the outlet business and is that being impacted by the gas prices or the luxury business and some of this consumer market, stock market fears that are out there. I mean the wholesale channel, it seems like women's been weak for some time. I don’t know if you have any particular insight you could share with us on that as well. And how you think about this as we head into the holiday season, which traditionally obviously has even the biggest season for the industry?

Yes, it's the headline question for all of us I think on the macroeconomic level, and I would make sure we are really focused on the US, because the international business is a whole different set of discussion point, but domestically we saw reasonably strong July and August and then a significant slowdown in September. So, that quarter itself well… in total we delivered our plans. It had some extreme parts to it. And I think we saw the domestic customer really slowing down their discretionary spending late August and into September. How much of that was weather, hard to tell. When you look at the regional maps for our performance, the Northeast, the Midwest definitely were weaker which we do think was the primary part of the country that was impacted by weather. You know, California, Southwest, Southeast, less of a weather issue, our businesses were stronger in those markets. And then the New York business is experiencing tremendous growth given a very high level of tourist traffic and that has continued on unabated. So, the country itself has sort of different reactions over the last six, seven, eight weeks. I believe the high-end customer continues to spend. We're seeing in our business domestically and internationally, and I believe they will continue to spend through Christmas for themselves and for gift giving. I also believe that if the financial headlines and news that keeps coming out of Wall Street gets worse, that may or may not provide the psychological depressant to the consumer more than it is; they can't afford to buy a sweater or a coat, so we will have to watch that carefully. But at the moment, the high-end consumer continues to shop at a pretty high rate on a worldwide basis. I think Tracey alluded to…

It's interesting because the... what has turned into the shortest selling cycle of the year now has become fall. We ship it in July and August and hopefully it solidifies September and by October, you want to start moving out of it to make room for Holiday Cruise and Resort, which is now coming into the stores in the first week and two weeks of November. So, it used to be the largest and most profitable delivery cycle for really all manufacturers, it has now become the shortest. The Holiday Cruise which then bleeds into spring, which bleeds into summer allows you much more of a selling time to sell through goods at full price. So, when the weather doesn't come as it did in this year, there is more promotional activity late September into October to try to clear those goods to position the Holiday Cruise Resort product that comes in early November. So, we've taken some action. I think Tracey said one of the issues on the operating margin rates in retail in the second quarter reflected some aggressive attempts to move through some of that fall a little earlier than we might like. But as you commented, our inventories are in great shape. We're flowing fresh product and we think we're well positioned with a slightly more conservative point of view about sales and margin and to whatever degree we've got flexibility in our expense structure without impacting our initiatives, we'll look at that through the back half of the year, just to be cautious. Omar Saad – Credit Suisse: Great. And one last quick question. Do you think kind of this year aside with a lot of investments you are making, do you feel confident that you can get back to that 15% operating margin level next year and beyond?

We started the conference call by saying, we feel very good about those investments and there is nothing in the short-term domestic pull back that would convince me otherwise. So much of that investment is positioned around very long-term strategies including our growth internationally. And I think the European example has worked beautifully. We're rapidly approaching that $1 billion target we all talked about a couple of years ago. We think the investments in Asia over the long-term are the right things to do, direct-to-customer in these new businesses that address the discrete channels. So, I don't believe any of those have changed. I don't believe any of our operating margin rates or targets will change. But sitting here today, I don't know whether this fall… weather pattern/economic pattern will bleed into spring or not. But fundamentally our goals and our objectives and our current expectations are unchanged.

Thank you. Best of luck.

Okay. Thanks Omar.

Our next question comes from David Glick of Buckingham Research.

Good morning Roger. Just a little bit of follow-up on the Wholesale channel. Can you give us… year-over-year inventories are obviously in great shape. Can you give us some color on the inventory levels in your retail partners and the department store channel? And then your evaluation of the Q3 assortments from a fashion perspective here in men’s versus women’s versus what you're seeing in early selling on holiday. And are you seeing any pressures from your partners to go back on goods or the goods flowing smoothly into the channel?

Hey, just to be clear. Are you talking about our third quarter or their third quarter?

That's the… their third quarter.

Okay. Well, I am interested to see what's reported tomorrow with comp store sales for October myself. But absent that piece of information I think Dave, what I would say about our men’s assortment, and I said it earlier, our men’s business has held up very nicely around the world, and domestically it's been the strength of the year-to-date. I think our fall deliveries, which for us was second quarter, their third quarter, generally tend to be heavier in weight. And I think with the warmer weathers that we've experienced and the record-breaking heat, I think we didn’t move through those as well as we would have planned. Then I think the stores we're taking more aggressive actions to clear that through as we begun to receipt cruise, holiday transition product in early November. The business on that product has started to pick up. So, we're encouraged about the quality of what we are delivering, the early consumer reaction, and feel like moving through that fall product aggressively both in our stores and in Wholesale channels the right decision.

And is there any pressure on going back on goods on the retailers part, or are they getting... are the inventories under control for the most part?

Yes. I think the Retailer, Ralph Lauren product in men’s, women’s, home, kids, all of the categories is the backbone of their business. We work very hard to edit the doors we're in, build the right kind of shops, put in the right support, the right kind of selling. So, we're comfortable with the [inaudible] through our third and fourth quarter and the plans that are in place to have that product sold through.

And if you were to do that same in the Lauren assortments for fall. What kind of feedback can you give us?

Well, I would say against the backdrop of our softer women’s here in general, I think that is applied for Lauren as well. Here again the fall product which tends to be heavier, now we're working hard to sell that through and receive the holiday, cruise first two weeks of November depending on how your calendar. That product has begun to check at retail better than the fall product. I also think as we have developed the Lauren jeans line and attempted to create clarity between where one line starts and the other ends, I think we've left sort of middle range of products there that we're readdressing with the holiday product and then into spring. That I think will better capture that piece of the business, which I think may have gone lost in our attempts to bifurcate the two lines. So, we're feeling better about the go forward position there as well.

And last question. As the weather has pulled off last week, particularly in the Midwest and Northeast and into this week, are you starting to see more footsteps or are you getting color from your partners that the traffic levels are starting to rebound as the weather normalizes?

Yes, we have.

Great. Okay. Thanks and good luck.

Thank you.

We will take our next question from Brian McGough of Morgan Stanley. Brian McGough – Morgan Stanley: Yes. Thanks, this is Brian McGough. Hi, everybody.

Hi Brian.

I thought I heard this right. But when you talked about the Wholesale margins, excluding the non-cash amortization, were the margins up?

Yes. First quarter and second quarter.

How? I mean with everything that has happened out there at Retail, I mean where did you see margin strength? I mean... you guys have moved to a model over the past two, three years where you basically took your markdowns close to zero, really. I'm going to assume there has been pretty much no change there...

We have great management, what can I tell you. And I think Brian the reason we isolated the operating margins there, which are very high to begin with and really credit to Jackwyn Nemerov and her team, who have many years of experience. I think it's also a great testimony to the supply chain improvements we've made over the last four or five years. So, I think through logistics and distribution through how we deliver product to the customer. So, even with the integration of the Chaps business, which I know initially there was a concern that might dilute the profit margins of our Wholesale business. I think you've seen and will continue to see not only healthy margin rates, but the expansion I think that business can provide. So, that is one of the true examples of the integration of what's going on here even in difficult times. I think it is also fair to say, Brian, that we have had strength in our European business, where the business has not experienced any of the issues. We've just spent some time talking about domestically, and as you know that comes with a higher margin. So, the combination of all that and my hats off to really the people managing that here, Wholesale and our supply chain people. It's really quite impressive given the environment.

Okay. Great. A couple more... just I was hoping, Roger, can you just talk a bit more strategically next year? I mean you guys have a lot coming down the pipe, you've got.... Hello you there?

We're experiencing technical difficulty. Please standby by. [Technical Difficulty]

I'm sorry Brian, if you can hear me. We got cut off on this end for the last few minutes and you were in the middle of asking a follow-up question to the wholesale margins. So, if you're still there, could you repeat the question?

[Operator Instructions] Your line is open. Brian McGough – Morgan Stanley: Okay, am I on?

Sorry Brian.

Yes, don't worry about it. Actually I spent the past couple of minutes just kind of talking to the broader audience about what your plan is for the next two years?

Thank you for doing that.

Yes.

We didn't pay our bill, we got cut-off.

Question I think on the...

We had a lot on our plate and then you got cut-off.

Yes, so just next year like… from I guess more of a strategic standpoint. So, you got what you're doing on the footwear side, you have dresses, you have americanliving.com. I mean there is... would you talk a little bit more about a few of the other call options you have out there like handbags and also your other Japanese license and anything else that you are eyeing from a strategic standpoint and where you might be headed?

Okay, well again I apologize for the line going dead. The two major additional call outs that we've talked about before and we continue to look towards is the end of the long-term handbag license that runs out of the end of December [inaudible] at which point we will be able to wholesale and third party the collection handbag business that we've been doing at this point and our own stores only, as well as we are free to develop other brands and other product categories of handbags such as... which relate to our apparel businesses. So, we're definitely committed to doing that. And we'll talk in February about when that product will launch, it will not launch in spring. We will look to wholesale selectively and are negotiating hopefully, successfully for those key locations on a worldwide basis for fall of Calendar 2008. We are also looking very hard at the other licensed Japanese businesses, the bulk of which are really the Kids business and some smaller other businesses. Those licenses expire at the end of February, which is an opportune time for us to look to bring that into our Japanese business model. And so all of those will be looked at for our fiscal '09 planning and we'll talk about those in more detail in February.

Okay, last very, very quick one. As far as your tax rate goes, your tax rate is really high and as I look at other multinationals, it's hard to find one that even has a tax rate over 32%, even over 30%. As you guys move forward with your plans for the next two to three years and a greater portion of your profit comes from Europe and Asia, shouldn't your tax rate start to approach 30% instead of upward… [inaudible] 40%?

That sounds great, Brian. Yes, I mean… as you know the federal tax rate is 35%. So, as we have discussed previously and as disclosed in our 10-Q filings, FIN 48 obviously is a big piece of the tax rate increase for us. And we're doing some tax planning as it relates to our Asia business as we expand there and certainly hope to do some tax planning both there as well as in the US. So it's a primary focus of the organization to over time as we expand globally, realize some of the other benefits that other multinationals realize.

Thanks.

And our next question comes from Liz Dunn of Thomas Weisel. Liz Dunn – Thomas Weisel Partners: Hi, good morning. I wanted to get an update on some of the other initiatives. What's going on with the jeans business and just as a follow-up to Brian's question, the launch of the handbags. Why are they not launching until fall, is it just so much on your plate that you wanted to give it the full attention, and so it's going to be fall, and with that do you risk potentially losing some of the existing floor space?

Okay Liz. I would say in answer to the handbags question. Your assessment is correct. We have so much on our plate. In order to organize ourselves to conduct a Wholesale handbag business, a lot of time and energy, but at the moment it is going into a lot of other subjects that we detailed here this morning in the past call. So, for us it is a matter of capacity in our effort to do it right, we think that's the right timing. The jeans business is an interesting business where we discontinued the Polo Jeans in the US market and have worked our way through that. We have been building and pushing Lauren Jeans to our comparable distribution points to the Lauren Sportswear, and I think that line in general has been well received. But I think going forward we've got some points of view about getting it more narrowly focused for that customer profile on the doors we are in for spring and beyond. I also think in the men’s business, we're doing Polo Denim under the heading of our Polo Sportswear. I think we have gone through some iterations there about fit and washes and prices, all of which has been very helpful to us in shaping where we want to go in the future with that business. So, I think both men’s and women’s as it relates to that remain big opportunities and we're pushing forward. At the same time, we've also expanded the Denim representation on our kids business in Rugby and in Blue Label. So, we've got components of Denim running through all other businesses. At the very high-end, we have got Double RL. We're at the moment… we're retailing it in vertical home stores, and we're looking to expand that, and we have it wholesaled in selective high-end specialty stores. So, from the top of the pyramid down through some of the more moderate price points, we are seeing the positive impact of the Denim business we rolled back into the company.

Okay. And then just my second question relates to Japan. Can you talk about where you are in terms of building the infrastructure and staffing and just all the things that you need to do sort of from a more qualitative standpoint? Where are you, what have you learned from, how you proceeded with Europe and when do you expect to be sort of fully staffed up and from an infrastructure perspective, where you need to be to really execute on that business?

Okay. Well, the update on Japan since the acquisition is as follows. I think we've done all the homework we need to do in terms of the current business, the points of distribution, the quality of the inventory and the way the brand is positioned. I think we have a lot of activity right now in the sourcing area and are looking at how we transition the manufacturing of those goods into our worldwide manufacturing network. We've done a lot of work and are moving quickly through the logistics and distribution of how goods come into the country, how they are processed. There are different laws in Japan in terms of inspection levels and content labels, but we're working through that. I think we're moving quickly, particularly based on what we've learned in Europe. We are moving from three distribution centers in Japan down to one, and we think we'll begin to see some efficiencies there. We've relocated our European IT head to Japan since he went through all the systems convergence that we did in Europe over the last five or six years to help jumpstart IT conversions to our global network. And now we're working on a group of people who will help integrate the merchandise strategies, buy door planning strategies that we've used affectively both in the United States and Europe to really go door by door and work on the assortments, which for the most part will impact fall of next year. So, we're using the playbook that has worked for us both in the United States and in Europe. We are looking to take learnings from our [inaudible] store which Tracey talked about and is running strong double-digit increases. And we're planning that through the rebuilding of the management team, their priorities, their focus and that will dictate the capital spending as we go forward. At the same time, we are looking to position our platform to be able to expand as these new licenses expire at the end of February as Brian asked earlier. So, lots going on in Japan. Nevertheless, it's a challenge sometimes of the language barriers to work through interpreters and all the cultural issues. But I think they're very enthusiastic in Japan about the changes, and I think we're going to play that out over the next planning period pretty aggressively.

And longer term, you still feel that your business can be sort of the third Asia, a third Europe and a third US?

I do.

Okay, great. Thanks good luck.

Okay, thank you.

Our next question comes from Margaret Mager of Goldman Sachs.

Hi.

Good morning.

Good morning. A couple of questions. Let us see. As far as the outlook for the second half of the year in the adjustment in your sales guidance, can you... are you also making adjustments in how you're going to launch the American Living initiative and could you talk about that? Will there be fewer doors, less merchandising, how are you… what kind of adjustments are you making? And then second question related to that. I don't think you made any expense adjustments in your outlook. And I am just wondering what are you doing on the expense side, and what is your contingency plan if the environmental doesn't meet your revised expectations? Thanks.

All right, good question. Margaret, is this still your swan song?

Yes, this would be it. So...

I do know whether I have a drum roll or…

I think for you guys...

Emphasis into my answers here.

This is 40 consecutive quarters. So, congratulations on your ten-year anniversary.

Well, thank you. And our ten-year public anniversary and our 40th year in business has been quite a year. But let me answer the American Living question first Margaret. We are making no changes. The door counts, the merchandise plans, the merchandise presentations initiatives, the advertising and launch characteristics and the first year media plan are all unchanged. As a matter of fact, I think that Penny’s is dealing this launch even more enthusiastic given the environment has a bit of little up and down. And I think their enthusiasm has grown, particularly after we show the summer line, which back up the spring line. So, all systems go on American Living. We are obviously hard at work since this early November and a lot of that product has to be coming through the supply chain now in order to be here to deliver that February launch, and hats off to our wholesale and manufacturing people who have been able to pull that of at this point. Everything is tracking on time and looks good. The second piece of your question, which is the expense piece, I don't think we directly talked about that in terms of the back half of the year. I think what we're trying to do in terms of dealing with our concern about a softer environment perhaps is look at things that will be called discretionary or flexible spending in order to try to work against the sales and margins issues. What I don't think we're doing Margaret at this point is making any radical decisions that would cut into the muscle or the fiber of the company. I don't think a slight softening in the environment is going to cause us to do that. And as all of you have pointed out, given all the things we have on our plates and all of the resources that are being applied to that, I think that will be incredible short-term and imprudent. If the environment God forbid continued on this way for a long time, I think we'd come up with some different answers. So, at this point that's our approach.

Okay, so as far as the change in the outlook from a high teens fiscal year revenue to low teen… mid teens down to low teens in the full year, the adjustment is all from the US market, and it's not from American Living, so therefore it's all from the Wholesale department store or Channel?

Wholesale and Retail.

Yes, I think, Margaret, we have taken a view of our own Retail, taken our sales forecast down a tick and we will see what happens. We don't know from day-to-day, but we will see what happens. Our original plans were built on a comp that was in the 5% to 7% range domestically, which is consistent with what we have been running. And I think we are looking more at a 3% to 5% kind of a comp storage number domestically. And so we'll see what happens, but that's the view we've taken in terms of third and fourth quarters.

Okay.

Europe and Asia remain unchanged and American Living remains unchanged.

Okay. That's very helpful. Thanks. And if you wouldn't mind, one bigger picture question on the e-commerce strategy, which you highlighted as one of your key go-forward initiatives. The business is trending up 28% as we speak. Is it actually big enough to move the needle on the overall company topline? Is it contributing 1%, 2% to the total, say, that low teens aggregated revenue increase you're expecting? And if you could talk about just... as you see this strategy unfolding, when does it actually become big enough to become a needle mover in terms of sales? Thanks.

Okay, well that's a good question, because we made a very early commitment to the online business back in 2000, and we spent a couple of years really learning and investing in how that would operate. So, we are very proud six, seven years later of what that business has become. In terms of size, it is still only about 4% of the company's sales. So, despite the fact that it’s experiencing terrific topline growth, its impact on the overall company result at this point is relatively small. I think our desire to see that as a huge platform of the future speaks to why we bought the 50% back from our partner that we didn't own. I think it speaks to our commitment to building a state-of-the-art call center and customer service center in Greensboro, North Carolina, which has the capacity to be doubled in size in the future if we need it. All of that is because we believe it is here to stay and we've got a running head start on that business unlike any others who are now trying to get into it. We think it is an integral part of branding, communicating and doing business. There is no doubt that in future years, people are going to get their information and make their decisions more off of various online communications, whether it’s a computer or a cell phone or any other media. And I think we are positioned and believe it's going to be a big business. At the same time because of the strong foundation we've built here, we are looking at the international opportunities and studying those to better see how it reflects on our global ambitions as a company. And so with the strength of Europe and the strength of our business there and the investments we've made, we are looking hard at what role e-commerce can be in that market both for commercial sales and profit as well as promoting the brand. So, a lot of very exciting things going on there, but as you know, that keeps changing, and that business keeps evolving and we're trying to stand on top of it.

You already have a great website. So, good luck with all of that going forward and I appreciate the well wishes, Roger. And hope to see guys. Take care. Thank you.

Thank you. Good luck.

Our next question comes from Robert [inaudible] of Lehman Brothers.

Hi, good morning Roger.

Hi Robert.

The question that I have right now is, when you look at the third quarter and the fourth quarter, what is the contribution from the acquisition expected to the wholesale part of the business versus what we've seen in the last... even in the most recent quarter?

What's the organic growth and then how much on top of that?

Yes. What are the... in the high-single-digit wholesale assumption, how much is the organic versus what you're getting on the acquisition side? I think we saw 10 points of acquisition….

Yes. I think we'll have to break that out off-line and get back to you. We don't have it in front of us. You have a second question?

No. That will be it for me.

Okay.

Thank you.

Thank you.

We'll take our next question from Virginia Genereux of Merrill Lynch. Virginia Genereux – Merrill Lynch: Thank you. And good job in this difficult environment.

Hi Virginia.

How are you Roger and Tracy?

Hi.

Hey, I've got a question on owned-retail if I may. Can you guys tell us sort of how many or what percent of sales of the 303 stores or 302 stores are international? And sort of follow on to that. Roger, if you... it looks like Retail margins will be down a little bit this year, even adjusting for the acquisition noise. Yes. I know some of that is, Roger, the investment in the fulfillment center for RL Media and stuff. You're also I think opening more stores. As you look out to next year, Roger, do you think retail margins can improve from this year's level kind of weighing the dotcom falloff and investment falloff and against accelerated door growth?

Okay. Well, the first part of your question. About 10% of the doors at the moment are international retail doors, the rest are domestic. Of the 302, call it 30 to 35 in either Europe or Asia that are owned.

Thank you. Right.

And we'd look to expand that going forward. In terms of the Retail margins, when you take out the dotcom fulfillment center and you take out the accounting charges that come with the acquisition of the 50% of RL Media because that's running through the Retail P&L. And you look at some expense of real estate that we've committed to in Paris that won't open until the fall of '09, but in order to secure these unique locations, we have to commit to that at the early part of this year. And we are now going through the permitting process, because they're sort of historic buildings. If you net all that out, I think what you're seeing is a slight dip in the gross profit rate due to markdowns in the second quarter and/or depending on the customer third and fourth quarter reactions, I think we are going to see more markdowns this year than last year when we were running at 7% to 9% comps. So if our forecast of 3% to 5% comp comes true, some of that will result in product we will have a clear in the third and fourth quarter. So, there will be some margin dip. Assuming next year it doesn't have those one-offs that Ralph Lauren Media and the fulfillment center and the accounting and some of these real estates, I would like to think the margins are going to come back to more normalized levels.

That's great. Thank you. You are coming from a great year last year in terms of no door openings and stuff. And then secondly if I may Roger, if I... let's talk about business sort of pro forma. I mean I think at this year we're kind of 75% US and Canada and 25% international. And maybe next year, it's a little more international. But I have tried to include Japan. So, my question is could you segment the US business Roger. You mentioned kind of you got the middle customer who's tougher, high-end, holding up. But if I take that 70%, 75% say that's kind of US, how do you guys think about your customer exposure?

Well, I think Virginia, it's a good question. We think we are balanced in the way we are touching customers at different price points and different channels. Our own stores plus high end distribution like ASACs or Neiman or our online business all represents the best way for the high-end customer to [inaudible] to touch down. And so we continue to invest in that, because we think that's an important part of the market, and we think that's where our growth is. At the same time, you have all read about the door count expansion at Coles, the number of doors that are being talked about at the Penny's, I think between the two chains in next five years...

Please stand by. [Technical Difficulty]

Virginia, Can you hear us? We got cut off again.

[Operator Instructions]

Can you guys hear me?

Yes, thank you. I don't know why we keep getting cut off. I'm now standing 15 feet away from the phone. What I was saying when I think I got cut-off, correct me if I'm wrong, is the Coles and Penny’s announced door expansion which... if I added up right are about 750 doors over the next five years represents significant opportunities. And I think we are uniquely positioned to give them full lifestyle brands. Bigger than anybody else I can think of that can cover men's, women's, home, kids, accessories and all the pieces and parts. So, I think our opportunity to position ourselves in that channel is going to pay great dividends for the corporation. I think in the middle channel, the question is when you get done with integrations and mergers and name plate changes, I think that channel can win. I think that it has been going through a lot of people in the last couple of years. They quite frankly have Ralph Lauren well positioned in key departments. So I think to the domestic question, I think we are well positioned in the merchandise categories we want to be in, and I think we are well positioned in the channels of distribution we want to be in. We are obviously adding incremental investment to the high end of that pyramid. And we think that is the right place for us to be not only domestically, but on a worldwide basis. So, that is the strategy we've embarked on and we feel good about it.

That's great. And then just last one I think following on [inaudible]. Tracey I think your gains at least for the next quarter, I think by our math implies that the core that the ex-acquisition… that the Wholesale business will be down actually versus kind of the 6% or 7% year-to-date growth. But maybe there is some shipping dynamic going on there. Is that indicative of retailer demand… I mean are orders getting cut like that or is there... I mean should we think about that, does that have implications for the rate of growth over the next couple of quarters?

Virginia, you're right. It does… given the fact that Japan for the first three quarters is relatively the same in terms of sales volumes, it does imply that the Wholesale channel will be flat to slightly down. As Roger said, it's not a matter of cancellations on our part as it relates to the Wholesale orders. It is a more conservative outlook in terms of sell-throughs. Obviously we've some incremental markdowns in our third quarter numbers from a Wholesale standpoint, so that's really what's driving the softness.

I think Virginia the only thing I would add to Tracey's comment is that the 7% we've been running through the first six months to relatively flat third quarter and then the spike in the fourth quarter. Some of that is affected by the shipping patterns in Europe, because Europe has a very small first and third quarter and then has very large second and fourth quarters. So, the growth of Europe, which is embedded in the second quarter numbers lessens in the third quarter, because they have a very small quarter, and then it's projected to come on strong again in the fourth quarter. So, some of that is the event flow of the international businesses running against the more steady domestic business.

Thanks, that is what I was thinking. Thank you all.

Okay.

And we'll take our next question from Jeff Edelman of UBS.

Thank you, good morning.

Good morning Jeff.

Would you discuss the growth that the European business has had in the quarter, what that contributed overall, and what kind of currency impact we might have seen both at the top and bottomline?

Yes, I would say that the European wholesale business, which represented during the quarter about 30% of our business in the quarter, ran at about 11% increase. So, you can do the math on the total business, it was better than the 7% normalized number. And its contribution is growing. The currency impact, which Tracey can give you, is relatively modest. And also it's relatively modest on our bottomline, because what we get is a positive through the conversion of the profit back in the US dollars, you know, is offset by the increase in the cost of goods for all the products, whether it's raw material or finished products we make out of Europe that is going the other way in hurting us. So, the net profit impact is relatively modest in Europe at the moment.

About 2% of the growth, Jeff.

Okay. Thank you.

In the wholesale segment.

Right. Okay, thank you.

Revenue growth.

And then Tracey. Again as we think about the fourth quarter revenues, I know what you said about shift in timing of the European shipments. But it looks as if the year-over-year growth in your third quarter up about $50 million. Fourth quarter up about $200 million.

In the fourth quarter, we are shipping American Living.

You're right. Okay. So, that is still a good chunk of that in the fourth quarter?

Apples-to-apples.

Yes.

Right. Okay. Just wanted to clarify that. Thank you.

The net dresses and other products, Jeff.

Yes. The only other thing I'd say about these quarterly numbers. Because of the 53rd week at Retail, that last week in the quarter does shift meaningfully from quarter-to-quarter against prior year comparison. So, although it is certainly a number to look at, I wouldn't get too invested in it.

Okay. Great. Thank you.

Thanks Jeff. I think we are going to ask for a couple more questions since the phone line got disconnected twice. So, are there just a couple more questions operator?

There are few more questions. We'll take our next one from Christine Chen. Christine Chen – Needham and Company: Thank you. Sorry about the technical difficulties.

You're back.

I'm back, yes. I'm not sure what happened.

We got your telephone cold.

Yes, exactly. Wanted to ask if you could help clarify. There was some speculation going on in the investor base at the end of September surrounding either a change in friends and family or your employee discount policy. Just wondering if you could share what changed and when you begin to anniversary that and what impact that has for the second half of the year? And then if you could give us an update on footwear, is it still expected to be neutral for this year and then accretive next year?

I'll answer the footwear question first. We are very excited about the results coming back from the Las Vegas show and I think your assessment of that is correct. So, we are feeling good about next year's impact. Two points on the employee discount on the friends and family. One, we added an employee discount to every full-time employee in the company. So that they can now shop in our stores to make sure that all the benefits and perks of the company are even across all levels of the organization, and that was a change we've been studying for several years. Up until that point, we had a discount policy but at a very limited basis, partly because of the number of employees we have and the relatively small number of stores we have that they could shop in. We were afraid that the large New York population all in discounts could swamp and blow holes in our inventory in a handful of stores. We don't have Macys Herald square or Bloomingdales 59th Street for employees to shop at. But we think we got to the point where that would be an appropriate decision, and so we made that. And that is a change that we have contemplated for a long time. Separately, we did put friends and family back into the end of September that we had dropped last year when the business was running so strongly. And we did it in an effort to move through some of the fall goods that based on weather we are not selling as well, and we continue to look at that as an occasional way to move through goods if necessary.

And then Rugby, can you comment on how Rugby performed during the quarter, we were very excited to get one in San Francisco?

Oh, boy. Have you been in that store yet?

Yes. We spent money.

Good. We like that. The store we opened in San Francisco has done very well, it's sort of central casting for a Rugby location and we've had strong results since that store has been open. I think Rugby performed well given the same weather issues and the fact that the bulk of the stores are kind of a Northeast and Midwest in nature. But we continue to be very positive and enthusiastic about where that business can go and the reaction to the San Francisco store is encouraging.

Would you ever consider breaking out same-store sales for Rugby separately?

Yes, I think when the comp number gets big enough to mean something. I think in its embryonic stage, it's not that meaningful given the small store count, but eventually will, sure.

Okay, great. Well, thank you. Good luck.

Thank you very much.

And we'll go now to Kate McShane of Citigroup.

Hi good morning.

Good morning, Kate.

Just one quick question. Most of them have been answered already. There were a few comments about the second quarter retail gross margins... second quarter retail gross margins being down?

Yes.

It was mentioned before that markdowns is the reason for the outlook for the rest of the year, but was it markdowns in the second quarter or was it more a product mix that weigh down gross margins for this category?

The gross margin or the operating profit? Gross margin?

Gross margin. Yes.

It was slightly related to markdowns. And again as Roger said before, with the more conservative comp outlook for retail from the back half of the year, if that materializes and obviously with that will become a greater level of markdown. So, that is what you are saying in the actual... for the second quarter as well as forecast.

Okay. Thank you.

Right operator. We will take one more question, if there is one.

Yes. Your last question comes from Jeff Klinefelter of Piper Jaffray.

Yes, good morning, thank you for this one last question. Just very briefly, Roger on your European and Asian businesses. Any quick thoughts on the pace of growth, the structure of that growth? We know it's very different in the mall based environment and even some of the street real estate here in the US. Are you looking at your own stores, are you looking at shop and department stores, any franchise opportunities to accelerate the real estate strategy a little bit in either or both of those global markets?

Yes, it's a great question to ask and end on, because one of the realities is, each of those markets is different and they are different from each other. So, we are trying to operate with the philosophy that where we can own and control and run it ourselves, we will. And where we think we need partners, which we thought we did in Moscow, there are other parts of Eastern Europe, Istanbul and places like that we are looking at or made any partners, then we will look to work with somebody who has got a unique local expertise that can add value. And I think given the nature of the distribution in Europe being more specialty store, there are definitely high end specialty stores in markets [inaudible]. They have the real estate, they have the customer contacts, they've got the selling associates. And so we will look to do that in a way to accelerate our business since we've been so well received by the European market. Where you're talking about major commitments in markets like Paris, I think those are ones that we want to own and operate ourselves. I think in Asia, Asia is also a complex part of the world. The issues in Japan are quite different than China, which are quite different than Australia. So, each market brings with it a different strategy, but the headline is where we can own and operate it and think we can deliver the value to the customer and our shareholders, we will do it. If not we'll look to accelerate with the right kind of more creative business model. And so, with that thank you all for staying on the call a little longer. I'm sorry we got cut off twice. I am not quite sure why that happened. Hope everybody goes out to the stores and shops aggressively. So, look forward to talking to you at the end of the third quarter in February. Thanks.

We appreciate your joining us for today's Polo Ralph Lauren second quarter fiscal year 2008 earnings conference call. Have a great day.