Good morning, and thank you for calling the Ralph Lauren's Second Quarter Fiscal 2013 Earnings Conference Call. As a reminder, today's conference is being recorded. [Operator Instructions] Now for opening remarks and introductions, I will turn the conference over to Mr. James Hurley. Please go ahead, sir.

Good morning, and thank you for joining us on Ralph Lauren's Second Quarter Fiscal 2013 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; Jacki Nemerov, our Executive Vice President, will provide some merchandising highlights; and Chris Peterson, our Chief Financial Officer, will provide operational and financial details for the second quarter, in addition to reviewing our expectations for fiscal 2013. After that, we'll open the call up to your questions, which we ask that you please limit to one per caller. During today's call, we'll be making some forward-looking statements within the meaning of the federal securities laws, including our financial outlook. Forward-looking statements are not guarantees, and our actual results may differ materially from those expressed or implied in these forward-looking statements. Our expectations contain many risks and uncertainties. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings. And now, I'd like to turn the call over to Roger.

Thank you, Jim, and good morning, everyone. I hope that those of you who were impacted by Hurricane Sandy over the past few days got through the storm safe and sound. As much as we wanted to report our second quarter and first half results, the safety of our employees was our first priority and that required that we delayed the release until today. As many of you have had a chance to see the results that we reported this morning, continue to showcase the tremendous resilience of our operating model in the context of the sustained macro headwinds. Revenues of $1.9 billion in the second quarter were modestly below the prior year, primarily due to strategic changes we decided to make in our business, including the store closures associated with our Greater China network repositioning efforts and the discontinuation of American Living. If we exclude the impact of those decisions in addition to the unfavorable foreign exchange effects, revenues increased approximately 3%. It's also important to recognize that the basis of comparison were pretty formidable. We achieved double-digit revenue growth in each of the preceding 2-year periods. Operating margins expanded 30 basis points to 18.7% in the quarter, reflecting strong improvements at both our wholesale and retail segments. The improved margin structure of our business was primarily a result of a recovery in gross profit margin that was achieved by the combination of lower input costs, thoughtful pricing strategies and operational discipline. While second quarter operating expenses were higher than the prior year, we were able to manage this through our sustained efforts of operational excellence on a global basis. As you will recall, we originally characterized fiscal '13 as the tale of 2 halves, with operating margin pressure in the first half of the year, followed by operating…

Thank you, Roger, and good morning, everyone. In the fall season, we strengthened our leadership position in our core men's, women's and children's merchandise categories and also continued the strong momentum of our newer dress and accessory businesses. As you know, the fall season is especially associated with the aesthetic and sensibility of the Ralph Lauren brand. Given the tremendous success of color in the spring and summer season, we incorporated bright into the classic autumn palette, which translated beautifully on the selling floor. Updated silhouettes and strong prints and patterns brought newness and novelty to our apparel and accessory offerings, and the consumer responded favorably. And, of course, fall coincides with the critical back-to-school selling season, where our core programs for boys and girls and our new denim fits and washes for Ralph Lauren Denim & Supply also contributed to our success. What I think is most impressive about the strong momentum in our core business is that it was achieved on top of already-robust increases over the last 2 years. As you've heard me say before, our leadership and market position start with the quality of our products, beginning with unrivaled design capabilities realized through the highest quality sourcing and manufacturing and showcased for the consumer with the most compelling merchandising initiatives and exceptional in-store and online presentations. This seamless collaboration and execution across all disciplines and departments also contributes to our gross margin performance. As you saw in this morning's press release, we experienced a very strong increase in our gross profit margin during the second quarter. Most of the increase was achieved as a result of lower cost of goods, primarily a decline in the price of cotton, but strategic and operational elements also contributed to the improvement. More upfront and coordinated efforts between our design…

Thank you, Jacki, and good morning, everyone. It's a pleasure to be speaking with you this morning on my first earnings call as the company's CFO, and I look forward to meeting many of you over the coming months. As you've seen in this morning's press release, consolidated net revenues were $1.9 billion in the second quarter, 2% below the prior year period and better than the mid-single-digit decrease we anticipated back in August. The decline in net revenues primarily reflects a planned contraction in wholesale shipments that was offset by continued retail segment expansions. Excluding the impact of strategic decisions to discontinue American Living, store closures associated with the company's Greater China repositioning efforts and the net negative impact of foreign currency translation, revenues increased 3% in the second quarter. Gross profit margin of 58.8% was 220 basis points greater than the prior year, which was slightly better than our expectations. The improvement in gross profit margin is attributable to lower input cost, higher retail segment penetration and operational discipline. Operating expenses of $747 million were 3% greater than the prior year period, driven by continued investment in our growth initiatives, higher retail channel mix and increased advertising and marketing expenses. Operating expense rate of 40.1% was 190 basis points greater than the prior year but was better than our initial expectations for the quarter, primarily due to the operational discipline of the organization. Operating income of $348 million was 1% below the prior year period. Operating margin improved 30 basis points to 18.7%, a function of the gross profit and operating expense dynamics I discussed previously. The lower-than-expected operating expense rate accounted for most of the upside to the operating margin outlook we provided in August. Net income for the second quarter was $214 million, 8% below the…

[Operator Instructions] We'll go first to Omar Saad from ISI Group.

Roger, and, Jacki, too, I think, would you guys mind addressing this idea that we're in this -- globally, we might be in this -- consumers might be in this kind of accessories boom as we think about the accessories business versus the apparel business? Obviously, Ralph Lauren is still primarily an apparel-driven company. But especially on the women's side, do you see that happening in your consumer base, this kind of shift away from apparel or to maybe lower-priced apparel in terms of the wallet and spending towards more investment in accessories and footwear and things like that? And is that -- do you think that's having an impact on your business? How do you see that going forward? Do you think it's cyclical or structural? And your efforts around the accessories business as well, how important has that become if that's really what's happening?

Okay, Omar, I'll start and then I'll let Jacki continue. I think it's pretty common knowledge that the concept of accessories, broadly defined, has been an important growth category for the industry now for a while. And whether that's accessories at luxury prices or what's called affordable luxury or even at more moderate prices, I think the accessory category has clearly outperformed apparel and, specifically, women's apparel for a while now. I think in defining accessories, you've got to open it up to a range of products that include handbags, small leather goods, but clearly, footwear has been a strong category for the last couple of years. Watches, eyewear and, even more broadly, I think cosmetics. So with that, I think a female customer can express herself, freshen her wardrobe and accessories has fulfilled that. Interestingly enough, it's not dissimilar to the way Europe evolved over time, where a customer was more willing to buy a handful of high-quality investment pieces in apparel and then used accessories to keep them fresh. I think the other part of accessories that you all understand is that for emerging markets with new wealth, accessories, and particularly signature accessories, are a way of people showing their success, and they're arriving more easily than apparel. So whether that's been the Middle East, whether that's been Russia or whether that's now Asia, specifically China, I think the customer who's finding wealth is expressing themselves through either signature or easily identifiable high-end product. The mix of our business at Ralph Lauren, I think, uniquely includes all product categories. So we're seeing business from that customer in apparel, be it men's or women's, or even the extraordinary success of our kids' business, because I think customers, as they acquire spending capabilities, are spending it on their children, particularly…

We'll go next to Michael Binetti from UBS.

Just one modeling question, and then I have a follow-up. Just the -- I think -- I thought you said last quarter that the 3 items that you mentioned as onetime was the China store closures, FX and American Living, would be a little bit higher in this quarter, about a 700- or 800-basis-point drag to revenues. It looks like they're only about 500. I just want to see if any of that was pushed back, I mean, in the back half, or if there was any other change that I might have missed. And then -- but more importantly, Roger, as you think about all the work that you've done with the company to establish Ralph Lauren as a luxury business over the last few years, obviously, the more mainstream brands, like the Polo brand, are a huge input to the profit story for the company globally. Do you think there's an opportunity to, I guess, even boost the focus on that side of the business over the next year and refocus on some of those big profit drivers now that you're more -- I guess, more established as a luxury player?

Michael, on the modeling question, I'll address that and then turn it over to Roger. The real difference between the 3 items, the 700 to 800 basis points in the guidance and what we reported was FX, which strengthened a little bit from when we gave guidance last time. So that accounted for the difference. FX was just better than we expected when we gave guidance previously.

Yes. The known effects of the store closures and American Living are very clear, so it's really just the movement of the FX, as Chris said. Michael, I think your question is spot on. And I think we, as a company, feel that the core brands or the brands such as Polo have enormous legs on a global basis. And one of the internal discussions we're having at the very moment is how to make sure we're properly focused to capture the extraordinary appeal of some of those brands. And while we don't want to back off the incremental luxury positioning, either in retail or product developments that Jacki has alluded to, absolutely, brands such as Polo and others are bedrock for us. And we're looking at how to accelerate their position and growth now, whether it's distribution ideas or marketing and branding ideas. So I think you'll hear more to come in the next couple of quarters about strategies we hope to employ to focus on those.

We'll go next to Liz Dunn from Macquarie Capital.

My question is for Chris. What are your initial impressions of some of the opportunities there are to sort of evolve the CFO role? And I was wondering if there's any change in the scope of the role or the reporting responsibilities versus what was in place previously.

Yes. I guess I'd -- I'll start by just giving you a little bit about why I chose to come to Ralph Lauren and my initial impressions after being here for 6 weeks, which are really the same. First, I was very impressed with the iconic nature of the brand and its equity, including the ability to stretch across both price tiers and merchandise categories. The second thing that I was impressed with was the management team. I think the company has a very strong senior management team and one that I'm excited to be joining. And then, third, I would say is I think the company has significant growth opportunities, both in terms of international penetration, as well as new merchandising categories, such as accessories and footwear. In terms of the specific question on the role, the scope of the role is very similar to the scope previously that Tracey had, and the reporting relationship remains the same. I report to Roger.

Liz, are you implying you want Chris to report to somebody else?

No. I was asking about any changes in reporting up to the CFO.

I'm sorry. So no, there's no changes with regard to who reports up to the CFO.

Yes, I think I would answer that. Chris has been very impressive in 6 weeks. And I don't want to put pressure on him, but he's really a fast study and has made his presence felt. We're obviously in the early stages of thinking about next year's planning process, and Chris will really lead that. He's also going to be taking a world trip, starting next week. That will take him from Europe through all the key points in Asia and back to the U.S., sometime right before Thanksgiving. So I think Chris is going to be a very active participant with the business units, with the corporate finance people. And his impact, I believe, as a business partner to the IT function, which is critical to the future of the next part of our growth, will be felt very quickly. So no pressure, Chris. But he's off to a good start.

We'll go next to David Glick from Buckingham Research Group.

Chris, just a quick modeling question and a follow-up with Roger. What's the comp assumption embedded in that mid-single-digit increase in Q3? And then, Roger, can you update us on what's going on in the pace of store openings in China? I believe you said you're going to open 15 stores in the second half of this fiscal year. If you could give us a sense, is that still on track and how you anticipate that rolling out over the next couple of years, and also kind of the size of the stores that you're anticipating, so we can try to put some rough numbers around what these stores can produce.

Okay. I guess, on the modeling question, I think we want to stay, from a guidance standpoint, on an all-in basis. So I think we're not going to go to providing the comp guidance at the retail segment. We expect mid-single-digit growth and overall revenues for the retail segment as we reported in the press release.

Yes. I think one of the things to keep in mind is that we'll be winding down against the China repositioning in third and fourth quarter, when the bulk of the stores were closed. And clearly, the wind down of Rugby over the balance of this year will be sales drags. But we're actually seeing the business opportunity in the back half of the year against softer comps as more robust. The pace of opening in Asia is -- our original annual target was 20 stores. We've opened 7 to date, so we have 13 in the back half. That may move around by 1 or 2, depending on a variety of situations. Our strategy there is not dissimilar from Europe or the United States. We are looking for key flagship hubs in the major markets, and then we'll network around them with smaller footprints from 5,000 to 9,000 feet that will primarily be located in malls, because the markets in China are really involving into mall-based shopping experiences. The flagship opportunities are harder to come by. We have a couple in discussion. So the bulk of the 20 stores, at the moment for this year, are primarily in the 5,000- to 10,000-foot range, a combination of men's and women's luxury stores, as well as a few children's stores and a couple men's only and a couple women's only. So we should have a good read on how that first 20 stores is being reacted to by the customer by the middle of the spring, and I think that will be a good time for us to get sufficient customer feedback to make sure we're on the right path.

We'll go next to Erinn Murphy from Piper Jaffray.

I was just hoping both, Roger and Jacki, maybe you could just elaborate a little bit more on some of the prepared remarks you made on the global merchandising initiatives. Can you just speak more about what the process is, what the benefit maybe? And then how are you thinking about global queue [ph] density in that context? And then just a quick clarification, Roger, for you. You mentioned, at the very beginning of the script, talking about seeing some stabilization in Europe. Could you maybe just parse that a little bit more by region, kind of what you are seeing there? That would be very helpful.

So, Erinn, what we're really focused on is transitioning our company from a more U.S.-centric company to a global company. And what we recognize certainly is that all of our critical regional components have very important voices as to how we succeed in the future as a global company. In order to accomplish that, we have reestablished our merchandising divisions to support those global roles with key personnel involved from every regional area. So as we make our decisions, we're making them as worldwide decisions rather than U.S.-centric decisions that have bolted-on European or Asian influences. And what we are finding is that the world is, primarily, 80% the same, but those 20% variations are very important to capture the voice of our international customer. We certainly know that customer is traveling around the world. We want our footprint to look the same, but yet, there are regional nuances that we believe are very important to state in each market. And that's our approach. In doing that, we have also seen some efficiencies that have come out of that structure and regarding SKU efficiencies and being able to have more impressive quantities behind each style decision. So all in all, while we are in this for approximately a year at this point, we still believe we're in early stages, but we're very encouraged with what we see as the outcome.

Yes. Let me try the Europe question. Second quarter for us was a little better than first quarter in Europe, although the general statement I made, which is the northern markets are better than the southern markets, continue. In our definition of Europe, we also include the Middle East and Russia. So those 2 markets have continued to be strong, have continued to perform well, whether in their home markets or whether those customers are traveling to Europe. So that's a particular bright spot. And almost like a heat map from the Scandinavian markets moving down, the strength of the business there has continued. I think what has occurred in some of the southern markets is this -- less panic perhaps over Italy and Spain. And I'm discounting the disruption in Greece because it's a relatively minor part of our business. But I think there's a sense that those markets, while difficult, there is a pathway for recovery. And so while those markets continue to be softer than others, I think we're beginning to see the customer breathing again and being willing to function. They're very different markets. Italy is almost entirely specialty store driven, and Spain is dominated by big department stores. So the specialty store market in Italy is still being run by small mom-and-pops and is more cautious in their forward purchasing. They don't really want to buy new product until they've sold the existing product. And so we've been cautious about what we're willing to sell into that market in an effort to be responsive to their situation, also to be mindful of we want to get paid. So with that, we continue to operate cautiously, but we are seeing a bit of a comfort with the customer as financial decisions are being made that give some backstop to the consequences of the euro. So we'll see. I think the holiday season will be particularly important. We still don't have large penetrations of Chinese tourists as other brands do, and they are reporting much of their either growth or results are underpinned by 25%, 30% or 40% Chinese tourists. Our Chinese tourist penetration in Europe is still less than 2%, and I don't think it will get larger until we're better represented in China. So they know our brand, they understand our brand. And then when they travel, they'll look for our brands in capital cities. So that's still to come in the years ahead.

We'll go next to John Kernan from Cowen.

So I wanted to ask a little bit longer-term, thematic-type question. The theme of you guys taking direct control of your brand and the profitability impact that, that has, the retail operating margin has obviously been on a tremendous upward trajectory, essentially, since 2010. And with all the emerging category expansion, the e-commerce growth and the eventual China expansion, can the profitability of this business reach similar levels to what the wholesale side of the business generates now, looking multiyears out? And then, keeping on that directly-controlled theme of your brand, the Chaps license, what your plans are for potentially directly operating that business, too?

All right, John. I'm going to start with the thematic question, and I'm going to let Chris answer the specific one. We have extraordinary wholesale margins. There aren't any people I know about, who are primarily apparel driven, that run margins in the 25% range. And I think that it's unrealistic to believe that we will get there in retail without a meaningful mix of accessories, which should come with higher margins over time. So the real sign of that possibility will be determined by our ability to create store layouts that are productive with high allocations to accessories while still giving quality representation to our apparel. I think the kind of high-teens margins we're running in retail now, primarily in luxury apparel, is pretty astronomical. So I think it's going to be driven off a mix change and regional development. Because as I said before, I believe long term, the regional opportunities for retail in Asia should be high-profit contributors. And I think the fact that we've taken back these geographic territories or product categories and been able to manage them is embedded in why we've done so well over the last 5 or 10 years in good times or bad. And, Chris, do you want to try the Chaps question?

Yes, I'll try the Chaps question. So I think as most of you know, we have a license agreement with Warnaco for the men's sportswear business for Chaps. That license agreement has a change of control provision in it that gives us the option to take back the business in the event of a change of control of Warnaco. Given how recent the news is, we haven't made a decision at this point. But we are in the process of evaluating options with regard to that business, and we'll provide an update in due course once we get through that process.

We'll go next to Barbara Wyckoff from CLSA. Barbara Wyckoff - Credit Agricole Securities (USA) Inc., Research Division: My question is on Denim & Supply. What do you see as the successes and challenges when you're in -- can you talk about domestic versus international? And then as part of this, how many doors do you have by region, wholesale plus owned stores?

Well, we're very pleased with the initial response over our first year in Denim & Supply. As you know, this is our second fall season. And as you develop a brand, because of the cadence of purchase and sales, you literally can't make any changes and tweak a brand for the first 9 months or so. So following our initial launch with what we thought were positive results and what we thought would be things that we needed to change, one of the biggest standouts to us was how positive the jeans business is as we presented Denim & Supply as a lifestyle brand. So we are working diligently now having identified what those key products are, and now we're putting in a BFR programs in both men's and women's in our core Denim to be able to drive that opportunity to be a minimum of 30% of the business; highly successful and highly predictable. The attitude of the brand, driven by the gritty nature and unusual presentation in our marketing context, both in print and online, has been extremely successful. We partnered with Avicii, and he has created a very interesting draw for the brand. He is a highly successful entertainer, and he has really created tremendous crowd draw to this brand and to its success. We've had a very positive fall season. And while we continue to tweak a little more of this and a little less of that, we're very optimistic. As you know, the brand in the U.S. is exclusively in Macy's. That will be rolling out to additional 100 doors starting next fall, and to Hudson Bay in Canada, where we're also experiencing some very positive results. And at this point, we've confined the brand to those 2 key customers. As I said, we're very optimistic on our position for the millennial customer, which is a high focus area for our department store customers, and one that we believe will be, with this Denim & Supply brand, a strong reach towards that customer and driving additional opportunities into our department stores. We also have launched our Denim & Supply brand internationally, beginning with freestanding stores in both Asia and in Europe, and those also have performed extremely well. In that environment, instead of having men's separate from women's, which is sort of the requirement of the nature of a department store, there, we're able to merchandise the brand together and with a very exciting impact, where the consumer really, it's the place to be. So the customer is shopping with significant other in the store and it has a tremendous pulse and a great result. And as I said, we're very pleased with where the first few stores are at this point, and I think we have plans for many stores to follow.

We'll take our last question from Robby Ohmes from Bank of America Merrill Lynch.

Two very quick questions. Roger, I wanted to ask you, actually, on Rugby as a follow-up. You mentioned, I think, in your comments that it was a tough decision. Is there anything you can tell us just -- was there a strategic decision behind that? Or what pushed you over the edge? And is it a commentary on how you see smaller brands out there or brands that are too U.S.-centric, maybe just your thoughts on that? And then just a quick follow-up for Jacki would be could you maybe give us a little more detail on the approach in North America for holiday this year versus last year, in terms of where you see pushing by channel and inventory investment versus last year?

Okay, Robbie. It was a tough decision because we've put a lot of time, energy and money into this brand over a number of years, and I think that comes with a lot of heart and a lot of personal effort by a lot of people in the company. Our decision, at this point, was really based on our desire to focus on opportunities that we have in front of us. And I think Michael talked about this a little earlier in terms of Polo and some of the other brands. I think our conclusion was to take our energies and our resources and apply them against existing brands that have a global footprint as opposed to the ongoing efforts to build something from scratch. I think to build a brand from scratch organically, in a brick-and-mortal retail environment, takes a lot of time and money and energy. And I think the company's decision really just reflects the numerous choices we have to expand some of our other initiatives, one of which Jacki talked about, Denim & Supply, or Polo, or children's, or even at RRL. And I think in the past, many of you have talked to us about focus and are we focusing on the right issues. And I think in our decision making, it was relative weights of opportunities and the expected returns we anticipate getting. So that was all part of our decision. The second part of your question, I think, is directed to Jacki?

Yes, on our approach to holiday. So in our retail stores, where sort of our thoughts start, we had a very crisp approach to a very strong and bright statement in our holiday accessory business. It's what do you want to buy for yourself and what do you want to buy as a gift. So that starts off our first question to ourselves. And I think we've put together a very exciting presentation of product that begins to roll out into the stores, this -- between November and, of course, early December, that speaks to that. That is -- that story is really supported by a fabulous holiday mailer, which speaks directly to our VIP clientele for our Ralph Lauren stores. Our holiday approach in department stores is a very crisp and very direct approach to what we want that customer to buy. So we're crystal clear when we determine what we want to set it up -- set up, how many colors do we want to set up, where does it sit on the floor, how do we speak to the customer with that specific item. We try to create a lot of ease of shopping and, at the same time, a lot of excitement as to what we're presenting. We back that up with all of our strategic partners with critical marketing that speaks both in-store and online to those special items and those key purchases for the holiday season. And I think we've put together an extremely appealing assortment as we enter into this critical holiday period. We're armed and dangerous.

Okay. With that, I would just like to, again, reinforce my thanks for the hard work that everybody within our corporation has extended to those affected by this unfortunate hurricane. I'd also like to, again, welcome Chris and know that as he and Jim plan the next couple of months of a listening tour, I think you'll all get to know him and enjoy him as much as we have already. And with that, I hope you and your families are safe and warm and dry. So thank you very much. I appreciate your attention.

That does conclude today's conference. We thank you for your participation.