Ralph Lauren Corporation (RL) Q3 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Third Quarter 2014 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. James Hurley. Please go ahead.

Good morning. Thank you for joining us on Ralph Lauren's Third Quarter Fiscal 2014 Conference Call. The agenda for today's call includes Jacki Nemerov, our President and Chief Operating Officer, who will comment on our broader strategic initiatives and provide some merchandising highlights from the quarter. Chris Peterson, our Chief Administrative Officer and Chief Financial Officer, who will provide operational and financial perspective on the third quarter, in addition to reviewing our outlook for the balance of fiscal 2014. After the company's prepared remarks, we will open the call for 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 the 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. Now I'd like to turn the call over to Jacki.

Thank you, Jim, and good morning, everyone. We are pleased to be reporting exceptional third quarter results that demonstrate an acceleration in revenue and profit growth. You'll recall that we established aggressive sales and profit plans for fall and holiday, and we are proud to have met the high expectations. Our 9% revenue growth and 11% increase in earnings per share were achieved in the face of one of the most challenging holiday seasons in recent memory. Revenue momentum was broad-based, supported by strong trends across every major geographic region and most merchandise categories. Disciplined operational management enables us to deliver robust expense leverage, even as we continued to make substantial investments in our longer-term growth initiatives. We achieved quite a lot in the first 9 months of the year, including the successful transition of our Chaps men's sportswear business from licensed to owned, the integration of the Australia/New Zealand territories, the doubling of ralphlauren.com's North American distribution center and a smooth transition to SAP for several our most critical operations. Our year-to-date results confirm that fiscal 2014 is actualizing as the tale of 2 halves that we outlined at the beginning of the year. In the back half, we are delivering accelerated revenue momentum and we're leveraging our operational -- operating expenses while continuing to invest in the future. Our financial performance not only demonstrates the operational excellence of our global team, but also confirms the tremendous scope and breadth of the World of Ralph Lauren. We continue to be uniquely capable of servicing both the discerning luxury customer and the quality seeking aspirational customer. The continued growth of our men's, women's and children's assortments, reflects Ralph's ability to consistently deliver fresh interpretations of his iconic design sensibility. Women's was particularly strong in the quarter, with momentum across sportswear, dresses, footwear and the handbag categories, and we also achieved outstanding growth for Purple Label and men's and women's Black Label. Growing our global presence is an important area of strategic focus, so I'd like to spend some time on our performance by region. Beginning with the Americas, which account for over 2/3 of our revenue and where sales accelerated to double-digit growth from mid- to high-single increase in the first half, supported by strong trends in both wholesale and retail segments. This growth is particularly noteworthy, given the decline in store traffic and highly promotional environment of the holiday season. The diversity of our operating model, which is a carefully constructed mosaic of customized product assortments for each distribution channel, enabled us to capture share. Given the scale of the Americas, this growth is clear proof that our winning combination of terrific product, thoughtful planning and merchandising, and powerful brand presentation leads to sustained market share gains. European revenues increased at a high-single-digit rate in constant currency in the third quarter, fueled by the strength of our retail business. Our European wholesale operations reached an important inflection point in shipment trends for 2014 spring/summer season, following several quarters of strategic reductions and wholesale shipments to Southern Europe, we are now returning to growth. Before the financial crisis, Europe was a substantial driver of the company's sales and profit growth. We are pleased the region's economic climate has stabilized to a point where we feel more confident about returning to our pre-recession trajectory. At 20% of our consolidated revenues, Europe remains a significant area of opportunity for the company in wholesale and retail channels throughout the region. Sales in Asia also gained momentum in the quarter, growing at a double-digit rate, supported by the contribution from our newly integrated Australia and New Zealand operations, improved trends in Japan and accelerated growth in Greater China. As many of you know, Asia is an area of substantial opportunity for our company. Today, it represents just over 10% of our total sales, with Japan and Korea accounting for 70% of the region's total. Our focus in Japan and Korea is on reinvigorating the performance of department store concession shops. We have made good progress in the last few months by implementing read-and-react merchandising strategies and customer engagement initiatives. In Greater China, our focus is on elevating the brand's image by expanding our points of distribution. Over the last 2 years, we've tested a variety of comps in the region and we've gained valuable customer insight and feedback. The investment we've made in the new distribution has increased our brand awareness among Chinese consumers, both in the region and throughout the world, and we've begun to see a greater number of Chinese tourists visiting our stores in the U.S. and Europe. Next fall, we will establish our first dual-gender flagship presence in Greater China with a 20,000 square foot Ralph Lauren store in Hong Kong's prestigious Lee Gardens' shopping district. As flagship stores offer the most elevated and comprehensive representation of the World of Ralph Lauren, this opening will mark a significant milestone for us in the region. Based on the improved awareness we've established for the Ralph Lauren brand, in fiscal 2015, we will begin a multiyear plan to open Polo stores throughout Greater China. This is an important evolution in our approach to the market as we expect Polo stores to become a powerful catalyst for our anticipated growth in Greater China. The Polo stores' strategy represents a tremendous global opportunity for the company. We are already securing several locations around the world for this exciting new concept. You've heard me speak about the Fifth Avenue flagship store we'll open in New York City this fall. And today, I'm excited to tell you we've secured a 20,000-square foot space on Regent Street in London. In addition to New York and London, we expect to open several other locations in the U.S., Europe and Asia over the next couple of years. Our decision to accelerate the rollout of these Polo stores coincides with several important product initiatives. First and foremost is the debut of women's Polo this fall, which marks a major milestone in the brand's history. We are also excited to unveil a fantastic assortment of men's polo suits, suit separates, sport jackets and trousers this fall, as a result of taking the men's clothing license in-house. The line features the more refined, dressier aspect of the Polo brand's DNA and fill the white space in both the consumers' wardrobe and our offering. E-commerce is another very important area of focus for our company. The holiday season sales data clearly validates the customers growing comfort level with the channel. In the third quarter, our global e-commerce operations achieved high-teens comp growth, with our North American operations being the most significant contributor to that increase. Our newer Ralph Lauren international e-commerce and Club Monaco businesses are expanding even faster. Our international e-commerce revenues have grown more than 50% this year, with excellent trends in both Europe and Japan and clubmonaco.com is up over 70%. In the wholesale online space, where we have focused quite a lot of our attention, our performance has also been exceptional. Given the rise of both browsing and buying with mobile devices, we are enhancing our capabilities in that area, while also continuing to strengthen the customer experience online. The importance of our consistent investment in world-class advertising, marketing and public relations is undeniable, particularly in the current environment. Consumers clearly recognize that the Ralph Lauren brand signifies style, quality and enduring value and our communication strategies provide immediate call to action that generate sales. While we support our entire portfolio with the appropriate messages, I'd like to highlight 3 of our current campaigns. First is the star of our Ralph Lauren accessories line, the Ricky handbag. On our last call, I shared the momentum we were seeing from the global campaign for our Soft Ricky handbag. This is an effort that was executed consistently across all key customer touch points and that was supported by the complete alignment of our production, merchandising, visual presentation and sales teams. I'm pleased to report that the ongoing results have been tremendous and have, in fact, exceeded our expectations. The Soft Ricky has been extremely well received in our own Ralph Lauren stores, as well as our select specialty store partners around the world. As we hoped it would, the Soft Ricky has generated awareness and interest in our complete Ricky line, and has proven our credibility in the luxury accessories arena. This strategy continues into spring season, which 3 exciting new styles will be introduced: A mini version of the original Ricky, a two-tone Soft Ricky in 8 color combinations and a new Ricky model with a chain detail on the strap. For the luxury accessories consumer, who is always in the market for something new, these 3 new styles are sure to catch her eye. Next, the Olympics. In the coming weeks, our brands will enjoy extraordinary global visibility at the Winter Games in Sochi, where we are the proud sponsors of team U.S.A. for the fourth time. We wish our athletes the very best, and we thank everyone at Ralph Lauren whose hard work and dedication allows us to support their efforts and represent our country so beautifully. And finally, our sponsorship of Downton Abbey, which provides us with a perfect environment to bring our Ralph Lauren luxury brand message to the right television audience. While year-to-date, our performance reflects the consistent operational excellence of our teams, it is also the result of many years of careful planning, strategic decisions and wise investments that at times may have had a negative short-term impact, but ultimately made us a stronger and more profitable organization. We are confident that the investments we are making today in our growth initiatives, infrastructure and communications will continue to support top line momentum and create shareholder value for the long term. And with that, I'll turn the call over to Chris.

Thank you, Jacki, and good morning, everyone. As you've seen in this morning's press release, our third quarter performance reflects accelerated top line momentum and resilient operating profitability that were in line with the high end of our expectations. We are proud of these results, especially in the context of a shorter and highly promotional holiday environment. Consolidated net revenues in the third quarter were $2 billion, a 9% increase from the prior year period, with strong growth for both our wholesale and retail segments. Excluding the impacts of discontinued businesses and unfavorable foreign currency translation, revenues were up 11%. Revenue growth was broad-based, with the Americas, Europe and Asia all growing revenues by high-single digits or better in constant currency terms. Gross profit margin of 58.2% was 110 basis points lower than the prior year period, as unfavorable foreign currency dynamics and the mix impact from integrating the Chaps menswear operations more than offset improved profitability in our core business. Operating expense rate of 41.6% was 120 basis points below the prior year, as disciplined operational management provided strong expense leverage on accelerated revenue growth. Operating income was $334 million and operating margin was 16.6%, 10 basis points higher than the prior year, which was at the high end of our expectations. Net income for the third quarter was $237 million or 10% higher than the $216 million achieved in the comparable prior year period, and net income per diluted share increased 11% to $2.57. An effective tax rate of 27% in the third quarter was in line with the prior year period. The lower-than-expected tax rate reflects the favorable resolution of a discrete onetime item during the quarter. Moving on to segment level details. Wholesale revenues rose an impressive 14% to $840 million, driven by the strong momentum in our core North American merchandise categories, where we continue to gain market share, the addition of Chaps menswear operations and improved trends in Europe as we've annualized the rebasing of the business in Southern Europe. Wholesale operating income of $168 million was 16% above the prior year period, and wholesale operating margin increased to 20 basis points to 19.9%. The improvement in the wholesale segment margin was due to stronger profitability in core operations that was partially offset by the mix impact from the integration of the Chaps menswear operations and negative foreign currency effects. Our retail segment sales rose 6% to $1.1 billion in the third quarter, reflecting the incremental contribution from new stores, including the recently transitioned Australia/New Zealand operations and comparable store sales growth. Excluding the impacts of discontinued businesses and negative foreign currency effects, retail sales increased 10%. Consolidated comparable store sales rose 1% on a reported basis and were up 2% in constant currency during the third quarter on top of challenging multi-year comparisons. Comp growth was primarily driven by strong global e-commerce performance. We experienced lower traffic to many of our brick-and-mortar formats during the quarter, but the teams mitigated this pressure with exceptional customer service that drove improved conversion and higher units per transaction at most of our retail concepts worldwide. Retail operating income of $223 million was 11% higher than the prior year period, and retail operating margin improved 90 basis points to 19.8%. The improvement in retail segment profitability reflects the extraordinary operational discipline of our global teams and was achieved despite increased investments in new store rollouts and e-commerce expansion efforts. Licensing revenues of $45 million were 12% below the prior year period as higher licensing revenues for Ralph Lauren products were more than offset by lower Chaps and Australia/New Zealand licensing revenues as a result of recent license take-backs. Licensing operating income of $34 million was 8% below the prior year period. Consolidated inventory of $1.1 billion at the end of the quarter compares to $981 million in the prior year period, reflecting the integration of formerly licensed operations to directly controlled businesses and investment to support anticipated sales growth, including inventory for new stores and e-commerce operations. We spent approximately $81 million on capital expenditures compared to $78 million in the prior year period, primarily to support our global retail development initiatives and infrastructure investments. The company repurchased about 1.1 million shares of its common stock in the quarter, bringing year-to-date repurchase activity to 2.3 million shares or about $400 million. We ended the quarter with $1.4 billion in cash and investments and our net cash balance was approximately $1.1 billion, both of which were in line with the prior year's levels. So a fantastic quarter by any standard and even more so when we consider the challenges of the shorter and highly promotional holiday environment. At this point, I'd like to review our outlook for the balance of the year. For the fourth quarter, we expect revenue growth to accelerate and increase by 10% to 12%, with wholesale growing faster than retail. Foreign exchange and discontinued operations are estimated to negatively impact revenue growth by approximately 100 basis points in the fourth quarter, with most of that headwind affecting the retail segment. Operating margin for the fourth quarter is expected to improve 50 to 90 basis points from the 11.1% achieved in the prior year period, as a lower gross margin is more than offset by operating expense leverage even as we continue to make significant investments in the company's strategic growth objectives. The fourth quarter tax rate is expected to be approximately 30%. For the full year fiscal 2014 period, we are raising our revenue growth guidance to 7%, which is at the high end of our previous range of 5% to 7%, due to stronger-than-anticipated wholesale momentum. Our revenue guidance includes an approximate 150 to 200 basis point negative impact from foreign currency effects and discontinued operations. Our new outlook calls for the full year fiscal 2014 operating margin to be 110 to 120 basis points below the prior year's record level of 16.2% and compares to our prior expectation of a 75 basis point decline. The change in operating margin guidance is driven by 3 factors: The channel mix impact from stronger wholesale revenue growth; the higher-than-anticipated restructuring and other charges; and incremental pressure as a result of the intensified promotional tenor of the U.S. retail landscape in the post-holiday period. While we experienced strong sales and gross margin trends on our core business in the third quarter, we believe that being proactively competitive with the overall marketplace will position us well for the start of the spring selling season. As a reminder, the primary drivers of the year-over-year contraction in operating margin are the successful integration of newly assumed operations, accelerated investments in our strategic growth initiatives and foreign exchange impacts. The fiscal 2014 tax rate is now estimated at 29% compared to our prior expectation of 30%. The net impact of our updated 2014 outlook keeps us in the range of our prior expectations, although we get there in a slightly different manner with stronger revenue growth, a slightly lower operating margin and a more favorable tax rate. We remain committed to investing in the growth initiatives that have supported the company's strong financial results over the last several years, and that provide us with a more robust platform for future sales and profit growth. While we are still in the process of refining our fiscal 2015 budget, I did want to provide some qualitative insight into how we are approaching the next fiscal year. On the top line, we expect significant contributions from a number of the growth initiatives we've invested in this year, such as the Polo and Ralph Lauren flagship stores Jacki spoke about earlier, global e-commerce expansion and new product development. Specifically, we expect the continuation of our strong momentum and our planning for revenues to increase at a high-single-digit rate. Fiscal 2015's consolidated revenue growth is expected to be retail-led with international markets and e-commerce providing outsized contributions to growth. There are several areas of incremental investment in fiscal 2015 that are expected to become important contributors to our growth over the next 3- to 5-year period. These include the global expansion of the Polo brand, continued investment in our luxury business and sustained investment in IT infrastructure. With respect to the global expansion of the Polo brand, we'll be investing on several fronts. First and foremost, we plan to accelerate our global store development for Polo. In addition to the Fifth Avenue flagship and Regent Street flagship locations, we'll be actively looking for locations throughout the U.S., Europe and Asia, including China, where we think the time is right for us to reenter the market with Polo product. We're also investing in broadening the Polo product portfolio, including the launch of women's Polo and the introduction of a men's tailored clothing line that we are now directly operating. As with other product launches and license take-backs, these will require incremental resources for design, merchandising, production and sales. We'll also support the Polo expansion strategy with increased global advertising and marketing to build awareness for the new stores and merchandise categories. For our luxury business, we're increasing our advertising, marketing and PR activity to support the opening of our Lee Gardens flagship store in China and also to drive the growth of accessories based on the success we have had with our Soft Ricky campaign. We will also be investing in the product by using finer materials and higher-quality manufacturing resources. While this will result in a higher cost of goods, it will allow us to offer even more compelling value to the consumer and to support strong global momentum we are experiencing with our luxury merchandise. Regarding IT infrastructure, we will begin the next phase of SAP implementation, which is focused on our European operations. We'll be starting this phase as we are simultaneously completing the successful implementation of our North America wholesale and global supply chain operations. Over time, we believe SAP should enable appreciable productivity improvements and procurement savings. We also plan to start a multiyear project to upgrade our core e-commerce technology platform globally. Our e-commerce revenues have grown at a 25% compound annual rate over the last decade, and we expect e-commerce to remain one of our fastest-growing businesses. This fiscal year, we invested $75 million in capital in ralphlauren.com's North Carolina-based customer fulfillment center, doubling the facility in order to support a doubling of the business from current levels. The global platform upgrade we are beginning in fiscal 2015 will require a substantial investment in both capital and operating expense. We were pioneers in selling luxury products online and have made tremendous progress in the last decade. As we build the new platform out, it will allow us to improve our omni-channel capabilities and significantly enhance our online and mobile shopping experience, ensuring that ralphlauren.com remains a world-class destination for our customers. We believe a more sophisticated technological backbone is a necessary enabler of sustained revenue growth, allowing e-commerce to become a more important part of our business. The investments we're making in Polo, luxury and e-commerce are consistent with our strategy to distort resources to high-growth, high-margin opportunities. While each of these areas of investment is expected to generate returns that greatly exceed our cost of capital, the near-term impact on operating expenses means that the fiscal 2015 operating margin will likely be below 2014's level. We'll be completing the fiscal '15 planning process over the next few months and we will provide a more detailed outlook for next year when we report our fourth quarter earnings in May. We are confident that we are making the right investments to expand the Ralph Lauren brand in a manner that maximizes our global sales and profit potential over the intermediate and long term. We have consistently made outside investments in the near term with an expectation that we would achieve strong returns as high-growth merchandising categories, channels and regions evolve in the future. You can see those returns playing out in the second half of fiscal 2014, which gives us the confidence to proceed with the next wave of important investments. Our Board of Directors shares our conviction, which is evidenced by the additional $500 million share repurchase authorization we announced today, bringing our total authorizations to $730 million. And with that, I'll conclude the company's remarks and open the call up for your questions. Operator, can you assist us with that, please?

[Operator Instructions] Our first question comes from Omar Saad with ISI Group.

I wanted to ask a little bit about this kind of mix. It sounds like your wholesale is accelerating, but retail has been such a big driver. Chris, your initial comments for next year sounded like retail is going to continue to be a big driver. But maybe there's some margin pressure because of the wholesale growth and it's obviously, at least, at the gross margin level. I think you made a comment about proactively -- being proactively competitive. Just help me put all this into context of what it means for margins looking out?

Yes. So I think in the fourth quarter, as we mentioned, we're expecting operating margin to be up 50 to 90 basis points, and that brings our fiscal '14 full year margin, operating margin, a little bit lower than our previous guidance. And really there's 3 factors impacting that. One is the revenue being stronger in wholesale than what we had anticipated previously, which does put a little bit of mix pressure because the wholesale business operates at a lower gross margin rate than the retail business. The second is we're going to incur a little bit higher restructuring charges than what we had originally anticipated. And then the third is although we had a very strong third quarter result in our core business, so if you looked at our gross margin in the third quarter, excluding the impact of -- the mix impact from Chaps and foreign exchange, our core business gross margin globally was actually up 50 basis points versus a year ago in the third quarter. We're just being a little bit cautious with regard to the environment we're operating, because what we're seeing from a competitive dynamic standpoint is an intensified promotional environment. And we want to make sure that in the fourth quarter, we work through our inventory plans so that we can convert in a strong fashion into the spring selling season. So that's really what's happening with regard to sort of margin dynamics this year. With regard to next year, I think we're still early in our planning phase for next year. And I would expect that next year, we'll see gross margin higher next year than we are this year. But because of the significant investments that we're making in future growth initiatives, at this point, we think it's likely that operating margin will be down next year versus this year, as I mentioned in the prepared comments.

The next question is from Kate McShane with Citigroup.

I was wondering if you could help us reconcile the rollout of Polo stores in China. It seems like most recently, the focus has been on the luxury end of Ralph Lauren in China, and now it seems there's a sooner-than-expected rollout of Polo stores in China. So can you help us understand what's changed there?

Sure. Let me start on that. So that's right. I think as we've taken the license back from the licensee that we had previously, several years ago, and we've rebased the distribution in China with closing 95 points of distribution and sort of resetting the brand image with opening our luxury store portfolio, we've been very closely monitoring the consumer reaction, both from an awareness standpoint and from a perception of the brand standpoint, not just in China through our store performance, but also outside of China as consumers are -- Chinese consumers are shopping when they travel. And so one of the things that we've been focused on is how is the Chinese consumer responding in our European business and in our U.S. business. And at least in the most recent periods, we've seen as a result of this resetting of the brand image in China, that, in the most recent period, for example, in Europe the Chinese consumer in Europe business is actually up 50% versus year ago. So we're starting to see the impact that we wanted to see from a consumer perception translate into increases outside of China when the Chinese customer travels. In the U.S., the Chinese consumer is now in the top 5 of our foreign customers that are buying in our stores as we're tracking that. And because of that, and because of the opening of the Lee Gardens flagship store that we have this fall, we think the time is now right where we've appropriately reset the brand image to begin to rollout Polo stores in that marketplace. And so that has been an active dialogue inside the company and is a decision that we've just made.

And since -- let me add to Chris' comments, we are seeing that over 55% of the consumers that are Chinese consumers are actually shopping outside of China. So many of the important statements that we've made throughout the rest of the world, whether that's in Europe or in the U.S., we're starting to really see an acceleration of that customer. What we're also seeing is an important difference in the unit transaction with the Chinese consumer versus our more standard consumer that, that transaction is actually double the size of our standard transaction. So we're seeing that also as quite a meaningful opportunity for us.

The next question comes from Michael Binetti with UBS.

Just a couple of questions for you. Could we hear a little bit more about the change in trajectory? It sounds like you saw in Japan, in the quarter, I mean, obviously, the FX exacerbated an already challenging market there over the past few quarters, but maybe we could hear about a little bit more about what caused an inflection and if those concessions were actually positive and sustainable there. And then if I could ask one other question, it will be about the Polo women's opportunity that you talked about. Maybe if we can just hear a little bit more about that as an opportunity and how big you think that is and perhaps, how you see the distribution going for that. Is that a wholesale opportunity as we get through calendar '14 after you open the store later this year?

Okay. I'll start with Japan and Asia, and then Jacki can comment on the Polo store, women's Polo plans. So in Asia, you're right, we did see an acceleration of our growth rate in Asia, specifically, and in Japan in particular. So if you look in Asia, our business was up, our revenues were up double digits in constant currency versus year ago in Asia, broadly defined. And in Japan, we went from a period where, on a constant currency basis, our sales were challenged to a period where our sales in Japan were up low-single digits on a constant currency basis. I think part of what’s happened in the Japan market is, with the significant devaluation in the Japanese yen, we decided to take pricing back in May because we thought that it was the right thing for us to do as market leaders, to try to price to recover the cost impact of the yen devaluation. It takes some time for competitors to see what we've done and then to decide, whether they want to or not, adjust their pricing in the market. We think we're at a better place now having adjusted our pricing and having seen some of the competitors adjust their pricing. And so we're now at a point where that price gap that we established when we first took pricing is narrowing and is allowing us to return to a more normalized growth rate for that market.

In addition to Chris' comments, we've put a task force in place around our Japanese opportunity. And we have solicited help from our very strong sales and merchandising teams kind of around the world to really build some of the very dynamic things that we've done in other parts of the world to help us really transition that business into what we believe is a wonderful opportunity. So whether it's the content or merchandising or store presentation, we've really worked hard to step up our game and we're starting to really see some nice results from that. In addition, on your comment about Polo women, we are actually doing a brand launch, both in retail and wholesale simultaneously. So our store will open in the fall season. And simultaneous to that, we will begin to ship Polo women in about 150 U.S. doors and then significant number of doors in Europe and in Asia, all simultaneous with this very unique launch. We previewed with many, many, many customers from all over the world, actually late December into early January, met with some very positive response to the line. And so that launch will be simultaneous in both retail and wholesale. We also intend to put an important marketing and advertising and PR strategy around that launch, around the world, doing something more similar to what we did when we launched our Soft Ricky. And so we will have a unified message around the world, around the Polo brand in general, and both Polo men's and women's.

The next question comes from Erinn Murphy with Piper Jaffrey.

I just had a question on Europe. I mean, very encouraging that you see some of that strength return to that market. Could you just elaborate a little bit more on some of the regional nuances during the quarter and just how the local versus the tourist customer responded? And then secondly, if we think about the fiscal '15 top line guidance in the high-single-digit range, maybe could you just help us prioritize the rank of the potential sales growth rates from the key regions, so between Asia, Europe and North America.

Okay. So I'll start with Europe. So in Europe, about half of our business is wholesale and about half of our business in retail -- is retail. And what has been sort of happening in Europe over the last 18 months as we made this decision, as we talked about 12 or 18 months ago, to proactively pull back on shipments in the wholesale channel in Southern Europe, particularly to the specialty wholesale customer which was, in our view, more at risk from a credit macroeconomic standpoint. During that period, we continue to see strong growth in our retail segment, but the decline in the wholesale business from the pullback proactively in shipments sort of mitigated that trend of European revenue growth over the last several quarters. In the third quarter that we've just reported, we've now annualized that. And so if you look at the wholesale business in Europe, we actually were up low-single digits in wholesale across the European region, and we were up double digits in the retail segment. And the combination of those businesses resulted in Europe on a constant currency basis being up high-single digits as the strength in the retail business is now coming through. So that's a little bit about what's been going on in Europe. If you continue to look at, geographically, at the strength of the business and the strength of the consumer holistically, I think we continue to be in a period where Northern Europe continues to be stronger than Southern Europe. But our view is that Southern Europe has stabilized now, so it's not in as tough a situation compared to year ago, as what we are facing 12 to 18 months ago. But certainly, the Northern European business continues to be stronger than the Southern European business. The other thing that we're excited about in Europe is that when you look out on the wholesale business at future bookings, the future bookings are stronger and auger for continued growth in the wholesale business going forward. I think the fiscal '15 in terms of the high-single-digit range was the other part of the question. So I think it's a little bit premature to talk about the specifics between Europe, Asia and North America. Certainly, we expect Asia to represent disproportionate growth, as a region, as we've opened some of our new stores that we've had in the pipelines like Lee Gardens and continue the momentum in that business. We continue to expect to grow market share with the plans that we have in place in the U.S. marketplace. And I think -- we think Europe is going to be strong because we think we're starting from a base now where we no longer have to sort of rebase the business. But we'll provide more specifics on the next call.

The next question comes from Liz Dunn with Macquarie.

I'm interested in whether or not you see any potential for channel conflict as you rollout these Polo stores. As well as, longer term, what percentage of retail do you think will be achieved in the mix and what kind of store growth are you targeting?

I think we don't see a significant channel conflict risk in the Polo store rollout strategy. And part of the reason for that is, I think, where you'll see us go with the Polo stores is we believe we'll have the flagship store on Fifth Avenue, which really sets the tone and the aesthetic of the brand globally, which we think will strengthen the Polo brand. But when you look at a lot of the other Polo stores that we're going to be looking at, they're going to really be focused on areas that are more whitespace to us. So if you think about China or if you think about parts of Europe or parts of the Southeast Asia, Eastern Europe, really, a lot of the locations that we're going to be going into are locations and geographies where there isn't a strong Polo distribution to begin with. And so it's not so much a conflict as it is an opportunity to fill out whitespace, I think, going forward.

The next question comes from Christian Buss with Credit Suisse. Christian Buss - Crédit Suisse AG, Research Division: I was wondering if you could provide some color on the performance of your e-commerce business in the quarter? And how should we be thinking about the return on those incremental investments? It would really be helpful for me if you could talk about that e-commerce penetration you've gotten where the targets are longer term.

E-commerce in the quarter grew high-teens, which we feel very good about. It continues to be a channel where consumers are choosing to shop. I think the convenience of e-commerce and the brand experience that we have on our e-commerce site are really resonating with consumers. We believe that trend is likely going to continue. And so we're planning for e-commerce to continue to be a disproportionate driver of growth. It is a high-profit business in the U.S., where we have scale. So in the U.S., our e-commerce business is about 10% of our overall U.S. business today from a penetration standpoint. And the operating margin of the e-commerce business in the U.S. is at or above the balance of the U.S. business. And so we feel very good about where we are there. In Europe, we're at an earlier stage, so we're not yet as penetrated in e-commerce in the European business because we didn't start as early as we did in the U.S. This year, we're expecting the e-commerce business in Europe to turn profitable, but we still aren't yet at going operating margins because we are not yet at full scale. And in Asia, where we have just started e-commerce with really just a launch just in 2 countries, Japan and Korea, we're off to a strong start. But we're still in investment mode in those markets because we haven't yet reached scale. The other thing that may be worth talking a little bit about is we have a technology platform that underpins our e-commerce operation that the company put in about 8 or 10 years ago. And that technology platform has served the company very well. But as the e-commerce channel and shopping experience continues to involve, we believe there's an opportunity to upgrade that e-commerce technology platform to better service the consumer, improve the shopping experience. And so that's a multiyear project that we're going to be starting shortly here, that we'll talk more about over the upcoming calls.

The next question comes from Barbara Wyckoff with CLSA.

Could you talk about Denim & Supply performance U.S. and overall? Also can you comment on Club Monaco and what's going on there?

Yes. Our Denim & Supply performance has been very strong, both internationally in Europe and Asia, and in the U.S. as well. We're rolling out both wholesale and retail points of distribution for the brand. And we're very encouraged as we continue to be a top performer in this space. It's a new business and there's an interesting learning curve. But the Denim penetration, which was something that we were very focused on has -- it's been quite impressive. And I think what we do in the tops and sweater area and outerwear area of the business are quite unique to this space. So we've really had a great acceleration in this brand that we expect to see continue. In Club Monaco, our businesses have been quite good. And we just, as you know, opened a new store in Fifth Avenue, which has been very exciting and a top performer in the company. And then a week ago, we opened our new store in SoHo, which is also off to a very, very strong start. So with the strength in the U.S., strong Asia business and a growing Europe Denim & Supply business -- I'm sorry, Club Monaco business, we're very, very excited. The business in Asia is a license business and we're over 100 stores in Club Monaco today. And we have similar plans for Europe, while we're in early and beginning stages as an owned and operated business in Europe.

The final question comes from Robbie Ohmes with Bank of America Merrill Lynch.

Jacki, can I get you to talk a little more about the Polo women's business? And how that will be positioned globally relative to -- well, I guess, in the U.S., relative to the Lauren business? You were talking about Denim & Supply maybe relative to the Denim & Supply growth on the women's side. And just help us understand how these different women's apparel, wholesale businesses you're doing will be differentiated globally.

Absolutely. Let me start with our Lauren brand, which is foundational today and the backbone of the department stores better business, and has had quite a strong year. And we're very pleased with where Lauren is and where it's positioned. While Lauren serves a broad customer, the foundation of that business is a customer who is essentially in the 35-plus area and who really looks for our brand and our style to supply her broad wardrobe, whether it's her daywear, her evening wear with a great success in our dress business. But again, very broad-based and it tends to be sort of the backbone customer in the department store. In Denim & Supply, it's a new space that's defined under the millennial umbrella. And in that space, as I said, we've really accelerated with our strengths. And in most cases, in that competitive space we're, now, kind of in a #1, 2 or 3 position. In our new Polo women's business, we tend to really see our competition there as a Burberry, as a Tory Burch in that of more contemporary sensibility. And while the line is defined through the iconic Ralph Lauren perspective, it is really appealing to what we see as a younger customer. It has a slimmer fit and the expression of the brand is very eclectic in the way we mix our pieces together and make it very fresh looking, and we think something unique in the marketplace.

Great. Thanks very much.

Thank you, all, very much.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.