Ralph Lauren Corporation (RL) Q1 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren First Quarter 2015 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, and thank you for joining us on Ralph Lauren's First Quarter Fiscal 2015 Conference Call. The agenda for today's call includes Jacki Nemerov, our President and Chief Operating Officer, who will provide an overview of the quarter and comment on our broader strategic initiatives; Chris Peterson, our Chief Administrative Officer and Chief Financial Officer, who will provide operational and financial perspective in the first quarter, in addition to reviewing our outlook for the balance of the year. [Operator Instructions] 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. With that, I'll turn the call over to Jacki.

Thank you, Jim, and good morning, everyone. We are pleased to report a strong start to our new fiscal year with better-than-expected first quarter profits. The consistent focus on our long-term strategic growth objectives is clearly evidenced in the results. Revenue growth of 3.4% was supported by strong Retail segment performance, including double-digit expansion for both international markets and e-commerce. Operating margin of 14.3% was better than we anticipated in May, largely due to excellent operational discipline throughout the organization, even as we continue to make significant investments in our long-range goals. As most of you are well aware, the first 6 months of calendar 2014 have been difficult for retailers around the world. Trends have been particularly challenging in North America where the cold and late start to spring caused many consumers to effectively sit out the spring/summer season. Geopolitical tensions and macroeconomic pressures in Europe, the Middle East and parts of Asia have also had an impact on consumer spending. Despite that landscape as a backdrop, our brands and products performed very well in the first quarter. We achieved double-digit growth in Europe, led by continued strength in our retail operations and increased hotel shipments for the spring/summer season. We also delivered double-digit expansion in Asia, including positive growth for our Japanese retail operations despite a VAT increase during the quarter. Revenues in the Americas were modestly below the prior year as growth for our retail operations was more than offset by lower wholesale revenues, primarily due to a shift in timing of certain shipments between quarters. Merchandising highlights for the quarter include continued global strength in our men's assortments. The response to our expanded Purple Label offering has been very positive and is especially important as we execute our luxury strategy on an increasingly global scale. We introduced our first collection of Polo tailored clothing as a directly operated business during the quarter, and the initial read is very strong with consumers taking note of how we've refined the fit and elevated the fabrications. I also want to highlight the performance of our newest men's fragrance, Polo Red, which has achieved the distinction of becoming our most successful men's fragrance launch to date. That's a noteworthy accomplishment considering our already strong position in the men's fragrance market. Turning to our Women's business. Customers have really responded to the more modern sensibility of our Black Label line. Dresses also continued to perform across all of our women's labels, fueled by new silhouettes and fabrications across the range of casual, wear-to-work, social and special location. Women's accessories had strong momentum during the quarter with excellent growth in handbags and footwear. And last, but not least, our Club Monaco brand continues to show strength worldwide, thanks to its distinctive contemporary styling and compelling visual presentation. Now I'd like to provide a brief update on 3 of our key areas of strategic focus: product innovation, global retail development and advertising and marketing. Beginning with product innovation, we will mark an important evolution in our women's offering in just a few weeks with the introduction of Women's Polo. This line has been developed to complement the breadth and scope of our tremendously successful and iconic Polo men's brand that commands a leadership position in the marketplace. From sophisticated tweeds and rugged outdoorsy looks to the perfect little black dress or distressed leather jacket, Women's Polo brings all-American style up-to-date with an eclectic downtown edge. The long-term global opportunity for Women's Polo is extremely exciting, and we look forward to consumers discovering the merchandise over the next few seasons. Moving on to global retail development. We opened 12 stores during the first quarter, 5 that we operate directly and 7 with international partners. We are on track to open 40 to 45 directly operated stores this fiscal year, including a few strategically important stores this fall. Our first Polo flagship will open in a few weeks on Fifth Avenue and 55th Street in New York City. This 3-level store will present a comprehensive assortment of Polo men's and women's apparel and accessories and will also have a restaurant and a café. This store is just the beginning of a global rollout that will take place over the next several years and will be quickly followed by an 8,000-square foot Polo store in Singapore that's scheduled to open in mid-September. Later this fall, we will open our first Ralph Lauren luxury flagship in Greater China. Located in Hong Kong's Lee Gardens shopping district, we look forward to the opportunity to showcase the brand in one of the most important markets. We expect this store to have a beneficial impact on our global business as Chinese consumers are a driving force in virtually every major market. E-commerce is another critical component of our global retail development efforts. Double-digit e-commerce growth in the quarter was the result of a double-digit increase in traffic and improved conversion, all of which reflects our continued investment in infrastructure, technology, user experience, customer service and marketing. Our focus on e-commerce is, of course, global. And we are very pleased with the momentum we are experiencing in Europe and also in Asia where we have now added ship-to capability for Hong Kong, Macau, Malaysia and Singapore. World-class advertising and marketing is one of the hallmarks of our company and one of our points of distinction as a brand. It is also an area of increased investment for us this year. Our most significant campaign this fall will be a celebration of the Polo brand through a large scale 360-program that will introduce the new women's line and present the season statement for men. While still respecting the rich heritage of Polo, the imagery beautifully expresses the energy and fresh spirit of this exciting new offering and conveys a distinctive, modern point of view that we believe will resonate with the target consumer. The foundational digital and social media elements of the campaign will be reinforced by in-store video, magazine advertising and robust men's and women's direct mail pieces. Right now, we are in the midst of our Sports of Summer campaign, which brings together the power of the high-profile partnerships we have cultivated over the years from Wimbledon and the US Open in tennis, to the British Open, the US Open and the Ryder Cup in golf. The quality and prestige that define these events align perfectly with the values of our brand and we are extremely proud of these associations. The same is true of our philanthropic efforts. During the quarter, we made a donation to fund the Ralph Lauren Center for Breast Cancer Research at London's Royal Marsden Hospital that was graciously accepted by Prince William at a spectacular gala at Windsor Castle. Back in America, our sponsorship of the restoration of the Star-Spangled Banner, one of our nation's most important icons, was once again recognized when Ralph was awarded the prestigious James Smithson Bicentennial Medal. We also brought visibility and support to children's literacy through our Fall '14 Children's Fashion Show that was held at the New York Public Library. We are extremely pleased to support all of these important causes. I'm very proud of our team's ability to deliver better-than-expected profits while navigating challenging market conditions and continuing to build for future growth. We are fueling the increasingly global appeal of our brands and products with prudent investments in infrastructure, best-in-class shopping environment and advertising and marketing. I'm pleased to report that the early fall selling is off to a good start and we have several merchandising and marketing initiatives in place to support that momentum. Our priorities are clear and we have both the talent and the financial strength to execute them. We are excited about what we expect to achieve over the next several years as we continue to focus our capital and managerial resources on the most compelling long-term opportunities. And with that, I'll turn the call over to Chris.

Thank you, Jacki, and good morning, everyone. Fiscal 2015 is off to a good start, with first quarter profit exceeding the outlook we provided in May. I'd like to begin with a brief recap of the quarter. Consolidated net revenues rose 3.4% to $1.7 billion, led by strong retail segment growth and double-digit expansion in international markets. Gross profit margin of 61.0% was 30 basis points above the prior year period due to favorable channel and geographic mix that was partially offset by negative foreign currency effects. Operating margin of 14.3% was 240 basis points below the prior year period. This was better than the outlook we provided in May as disciplined operational management throughout the organization mitigated the impacts of incremental investments in our long-term growth strategies and infrastructure, higher restructuring charges and a onetime gain on the Chaps men's license acquisition that benefited the prior year period. Net income was $162 million, 10% below the first quarter of fiscal 2014, and net income per diluted share declined 7% to $1.80. The effective tax rate of 31% in the first quarter was slightly below the prior year, but was higher than we expected due to a couple of minor discrete tax items. The diluted share count declined approximately 3 million shares from the prior year as the company continues to return capital to shareholders through its share repurchase program. Moving on to segment highlights for the quarter. Wholesale revenues of $708 million were 4% below the prior year due to shifts in shipment cadence between quarters and higher revenues from the initial transition of Chaps men's sportswear to a wholly owned operation in the prior year period. Wholesale revenues were slightly below our initial expectations mostly due to a shift in the timing of certain summer and fall shipments out of the first quarter and into the second quarter. Combining wholesale sales for the last 2 quarters, which is a good proxy for the spring/summer season, revenues increased 10%, reflecting strong momentum in the Americas and a return to growth in Europe. Wholesale operating margin declined 260 basis points in the quarter to 25.5% due to fixed cost deleverage on lower shipment volumes and unfavorable foreign currency effects. Retail sales rose 9% to $960 million driven by the incremental contribution from new stores and double-digit growth in international markets and e-commerce operations. Comparable store sales increased 3% during the quarter supported by higher average unit retail prices, a modest increase in traffic to brick-and-mortar stores and strong e-commerce growth. Our focus on client engagement and more targeted marketing efforts supported positive comp growth for all of our retail concepts except concession shops. Retail operating margin was 17.5%, 130 basis points below the prior year period, reflecting costs associated with global store development and newly transitioned operations. Licensing revenue and operating income each rose 4% in the first quarter due to higher royalties from higher sales of Ralph Lauren products worldwide. Consolidated inventory was $1.2 billion at the end of the quarter, reflecting investments to support anticipated sales growth for existing operations and new store openings, as well as incremental inventory associated with newly transitioned operations. We spent about $85 million on capital expenditures in the first quarter, mostly to support new retail stores and infrastructure investments. Company also repurchased 1.2 million shares of its common stock at an average cost of approximately $152, utilizing $180 million of authorized share repurchase programs. At the end of the quarter, $400 million remained available for future buybacks and we had $1.4 billion in cash and investments on the balance sheet. We established the company's first ever commercial paper program during the first quarter and we've issued approximately $20 million of the $300 million program in the second quarter to date period. We intend to access this very low-cost financing from time-to-time to support the growth of the business in the most capital-efficient way. So overall, we are pleased with our first quarter results, which clearly demonstrate our ability to deliver better-than-expected profits despite a challenging environment while making important progress on several of our long-term objectives. The team's skill of balancing near-term market realities and our commitment to our long-range goals is the defining characteristic of the organization. Last quarter, we spoke about how we are working to globalize the company and the changes we made to our leadership structure to achieve that goal. We've been operating in this new structure for about 3 months, and I'd like to provide some early perspective on the benefits using our newly integrated supply chain organization as an example. We currently source products from over 700 factories and 40 countries and then ship those goods to over 100 countries processed through 13 global distribution centers. While the company has done a great job optimizing its sourcing and logistics activities individually, we believe that there was an opportunity to drive additional benefits through end-to-end integration of the supply chain. The team's holistic view enables us to determine the most time- and cost-effective solutions for the company. Key areas of opportunity include leveraging our logistics expertise earlier in the supply chain, taking a more seamless approach to vendor relations and customer service, optimizing inventory across channels and regions and improving speed-to-market. This should lead to higher revenue and lower cost of goods over time and we're excited about what it might mean for us over the long term. Now I'd like to turn to the outlook for fiscal 2015. As we articulated to you in May, we expect to maintain strong revenue growth this year. We are increasing our investments in the business to support that momentum and long-term shareholder value creation. As you recall, the fiscal 2015 plan calls for incremental investment and expanding our global store network and e-commerce operations, including important flagship projects; implementing SAP; and increased advertising and marketing to support exciting new initiatives, such as the launch of Women's Polo and high-profile store openings. As you've seen in this morning's press release, we are maintaining our financial outlook for the year. We continue to expect consolidated revenues to increase by 6% to 8% for the full year fiscal 2015 period led by retail segment growth. As a reminder, this growth is primarily organic as there is no material contribution from license take-backs this year. And we continue to expect foreign exchange impacts to be relatively neutral. The full year 2015 operating margin is still estimated to be approximately 75 to 125 basis points below fiscal 2014's level due to accelerated investment in our strategic growth initiatives and infrastructure. Excluding the impacts of the incremental investments in the company's strategic growth initiatives, underlying operating income growth would be up low double digits for the year. For the second quarter of fiscal 2015, we expect consolidated net revenues to increase by 4% to 6%, once again led by retail segment growth. Our operating margin for the second quarter is expected to be approximately 200 to 250 basis points below the prior year period, primarily due to higher operating expenses related to the timing of investments to support the company's strategic growth objectives. The second quarter tax rate is estimated at 30%. Based on our first quarter results and second quarter outlook, we expect our recent investments in new stores, e-commerce operations and international expansion to contribute to accelerated sales and profit momentum in the second half of the year. We are mindful that global macroeconomic data are giving mixed signals on the health of the consumer, but we remain focused on disciplined expense management while we continue to invest in our longer-term growth objectives. The diversity of our operating model across channels, regions and merchandising categories is a competitive advantage. It's enabled us to manage through an uncertain global environment effectively while still achieving our financial goals. We are confident that the investments we're making today will support sustainable and profitable growth over the long term. At this point, we'd like to open up the call for your questions. Operator, can you assist us with that?

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

Wanted to ask a holistic question about the Polo brand, if you don't mind. The Singapore store, which we learned about today, obviously you've got the one opening in New York, the Polo Women's rollout, can you -- and the plan, I think, you said in the past, 15 to 20 potential openings this year, can you talk about what you're seeing in the marketplace that gives you the comfort level to kind of make this push around that brand in women's and in stores -- in store openings. What's the data that you're seeing? I know you have some Polo stores out there already. Talk to -- help talk us through the confidence level there that's giving you the impetus to make this push.

Yes, I think what we're seeing is Polo -- the Polo brand continues to resonate very strongly with consumers on the men's side of the business. As you know, we're just launching Women's Polo now and the response that we've seen from customers and from consumers to the showroom exposure that we've given has been very strong and from the fashion press has been very strong to the Polo Women's lineup. We've only had the Polo Women's brand and market for about 2 weeks in really a couple of stores, though the Women's Polo launch is really going to be more broadly distributed over the next couple of months as we get into the fall season. But we're starting to already see very encouraging trends from the first few distribution points that we've had on the Women's Polo line. So I think we think with the strength of the Polo brand globally, with the launch of the flagship store in New York, with the launch of the Women's Polo line, which really is a new brand introduction for us and with some of the other exciting things that Jacki talked about on the men's tailored clothing lineup, we think we have a lot of product innovation and news behind that brand that gives us the confidence to expand the Polo distribution through freestanding retail stores worldwide.

The next question comes from Michael Binetti with UBS.

I have 2 questions, one will be a little bit more near term and then one longer term for you, Chris. I think, after today, the focus is likely to shift to getting comfortable with the annual guidance. And in particular, I think the mid-point of your guidance implies revenue growth stepping up to a run rate of about plus 9% or 10% in the back half from about plus 4% in the first half. Obviously, we have big store openings as a catalyst. But the compares in wholesale get very tough, and just in general, you're a very big brand at this point, so those high-single numbers are obviously not easy. So maybe kind of the help you could give us on some of the components that make the revenue target achievable in your eyes would be really helpful. And then on a longer-term question, of course, you guys have a lot of investments coming on this year and have mentioned they'll span multiple years and maybe the timing of the impacts of those investments may be uneven. But if we look out 2 or even 3 years, how do you think about some of the biggest drivers of margin leverage for the company as we get past this investment cycle. In other words, is rolling off the step-up in retail openings is the biggest opportunity? Or maybe even just some of the opportunities, a different SAP module starts to come on and how big that could be as far as leverage opportunities going forward.

Sure. So let me start with the first one on the current fiscal year. So I think if you look at the trajectory of the current fiscal year, what we're seeing is that the peak quarter for our investment spending is really the second quarter that we're just about to enter here. And many of the strategic investments that we're making are going to have significant revenue impacts that impact the back half of the year. And that includes both a number of the retail stores that we're opening, whether it's the Fifth Avenue Polo store, the Lee Garden flagship store, the Singapore store and a number of others that will have a much more significant impact in terms of revenue growth in the back half than the front half. The second thing I would say on that is that when we look at our plan from a wholesale standpoint and from an e-commerce standpoint around the world, we're anticipating, from the visibility that we've had through bookings and through some of the initiatives that we have coming, acceleration in those businesses as well in the back half of the year versus the front half of the year. Recall that for the spring/summer season, if you look at the last 2 quarters, combined, in wholesale, we generated 10% revenue growth. So we're coming off very successful spring/summer season relative to the competitive environment. So that characterizes, if you will, the current fiscal year. I think if you look at the longer-term perspective about the investments and how is this likely to play out over the next several years, I think the thing that we're looking at is that if you look at some of the investments that we're making in infrastructure, we believe that whether it's SAP, whether it's the e-commerce replatforming effort or other infrastructure investments that we're making, those infrastructure investments I would characterize in the short term as being primarily in the investment mode. But I think we're going to start to see the benefits from those increase and the investment spending decrease as it plays out over the next several years. These are multiyear projects. But that should lead to improved margins over the mid- to long term on that part of the spending. If you look at the marketing and advertising step-up that we're doing this year, I think that marketing and advertising step-up, we believe, is right for the long-term brand equity and health of the business. And I think we expect that step-up in marketing and advertising to lead to stronger consumer demand over time, certainly as we increase our awareness in countries that have low awareness today like Greater China, but also as we increase the desirability and demand for the product in our more established markets. And then, if you look at the global retail store development spending -- step-up in spending that we're doing this year, I think what you're going to see there is we're likely to be at an accelerated pace for the next several years as we begin to -- or as we continue to expand the retail stores around the world, particularly in international markets. But I think the onetime sort of step-up of preopening costs that's hitting us this year is likely to be more consistent year-over-year as we get to the outer years. And we'll start to see the benefits from some of the stores that we're opening today flow through from a revenue and profitability standpoint.

The next question comes from David Glick with Buckingham.

Chris, in that context, as you talk about how the year unfolds, I was just -- we're just looking at the U.S. business. Obviously, it was down modestly in the quarter primarily due to shifts. But how do you think about the U.S. or North America from a wholesale and retail perspective sort of indexed against that sort of 9% to 10% back half growth? Some investors question whether you've kind of hit a maturity level in the U.S. and there may not be growth there. I was just wondering if you could give us some perspective on that. And then, a second question for Jacki. Another question I get from investors is the relevance of the portfolio of Ralph Lauren brands to younger consumers and your strategy to address that going forward to continue to make the brand relevant to millennials, for example.

So I think I'll take the first question and then hand over to Jacki. I think if you look at the geographic trends, I think that, certainly, we're expecting the international business to grow at an accelerated pace versus the U.S. business. The U.S. business is our most mature business. It represents about 2/3 of the company's revenue. And we have very strong positions, leading positions, in most of the categories in which we compete in the U.S. So we do have a plan that we believe will generate market share gains in the U.S. for the balance of the year. But if the U.S. market, broadly defined as growing sort of at a low-single-digit rate, I think we have a plan that allows us to grow faster than that, but likely not at the sort of high-single-digits is baked in. I think where we get to those types of numbers from a consolidated view is because we have a much more aggressive revenue plan, if you will, in the international markets. And that has to do with the fact that in many of these markets, we are under-distributed relative to the potential size of the markets. So I think we've talked a little bit in the past that 2/3 of our business is in the U.S., but 2/3 of the market is outside of the U.S. So if we were able to capture the same market share outside of the U.S. that we have inside the U.S., it would imply the international business would be 4x as big as it is today. We're not going to get there this year. But certainly, we think we've got an opportunity for accelerated growth in the international markets and I think we've seen that play out in the first quarter with strong double-digit growth in Europe and double-digit growth in Asia as well.

So David, on the relevance of our Ralph Lauren brands and the appeal to younger consumers, this is something that the company is highly focused on, starting with Ralph, and it's continuous. The -- it's something, as we look at our Polo portfolio, let me start with Polo Women's. When you see the product, our advertising campaign, the attitude of the way the product is styled and the environment in which we have placed the consumer, you will see that this is the centerpiece of the appeal of the Polo Women's brand. We've already, although it's just in the first couple of weeks as the product has started to hit some of our stores, we're absolutely seeing that younger consumer responding to the brand. And it's in attitude, it's in fit and the overall appeal, while keeping our heritage, the spirit of the brand, the fit of the brand, really is driven towards this young contemporary customer. In our Polo clothing, one of the important things, as we took that license back, was really about creating a new and younger attitude, both in fit and appropriate price point as an entry point to our Polo brand and our Ralph Lauren portfolio. And the early response on that has been quite favorable. In our luxury product, Black Label really speaks to a much more contemporary viewpoint and customer and we're continually really refreshing and updating that product and that point of view and meeting with outstanding results. We see the same thing in RRL brand, and while it's really about heritage, it's about authenticity, which that younger consumer really relates to and we're seeing excellent momentum in our RRL brand. Our Denim & Supply brand speaks directly to the millennial consumer and that brand was introduced about 2 years ago. And it's growing at double-digit rates year-over-year for the past couple of years and we don't see any change in that. And we have another significant door rollout beginning this fall. So as I've said, the momentum there has been quite good. And in our accessory opportunity, we're also appealing to that younger customer. When you have the opportunity to see the new Polo Women's product, both the footwear and accessories, that we're selling and seeing some early success and we're now intent on expanding those categories in Polo Women's, have a very young, hip attitude. And I think you'll quickly see visually, as soon as you have an opportunity to see our new store opening, to really identify with why, in fact, we feel that our brands are so relevant to the younger consumer.

The next question comes from Liz Dunn with Macquarie.

I guess, my question, I found it really hopeful that you said x the investment spending, your operating income would be growing at sort of a low-double-digit rate this year. It's really helpful for us to try to figure out kind of a longer-term earnings algorithm for this company, and given some of the investment spending, that's a little challenging. Do you think that, that low-double-digit rate x investment spending this year, is kind of consistent with what your outlook would be for the longer term, again stripping out the investment spending? Or do you think we could see even an accelerated rate with some of these initiatives, the things that you're basically investing in? And then also, as we get beyond this year, is it fair to say that your investment spending will be more focused on some of the kind of demand creation, sales-generation spending and less so on the kind of efficiency side. Sorry, I know that was a long question.

Okay, no problem. I guess I'd start by saying our investment spending buckets have different lives to them. So I think we had talked that this is the peak year of the investment in SAP. Although the SAP project will continue over multiple years because we'll finish the U.S. this year, we'll been in to the Europe implementation next year. This year we're both completing the U.S. and investing in Europe. So year-over-year, that investment spend would be lower next year. On the flip side, the e-commerce replatforming investment that we're doing that we've just kicked off is a 2- to 3-year project in terms of investment spend before we convert to the new platform and that spending is likely to increase next year versus this year. So each of the investment, strategic investment areas, have a slightly different life. That being said, if you were to step back and look at the longer-term algorithm of what we're shooting for from a financial target standpoint, I think what we're shooting for is a high-single-digit revenue growth is what we would like to try to achieve. I said in the past that, given the macroeconomic situation in any given particular period of time, we're prepared for mid-single-digits, but I think we're shooting for high-single-digits. I also think that, over the sort of 3- to 5-year time horizon, we're shooting for operating margin to be higher than where we are today because we certainly think that we can drive leverage in the business through that type of revenue growth. It's not going to be a straight line in terms of how we get from where we are today to those targets over sort of a 3- or 5-year period because it's going to depend on the pace and the sequencing of the investment spending. That being said, we obviously have not given guidance for fiscal '16 and we'll plan to do that and give a more specific update on that in our normal guidance timing where we typically give sort of some initial view on the January call and then a more specific set of guidance on the May call.

The next question comes from Faye Landes with Cowen and Company.

A couple of quick questions. First of all, this is just a housekeeping, but all of us have been -- I think, since all of us in the call have been chained to our desks for a while, so can you just tell us where we -- what stores already have Polo Women's so we can go see it?

Sure. The stores that have Polo Women's are Short Hills in New Jersey. The East Hampton store has Polo Women's. And I think it's going to be coming over the next couple of weeks in a much broader assortment of stores.

And of course, our Fifth Avenue store opens August 28. We have gotten early reads from our business in Japan where we opened in Isetan and in our own Omotesando store. We have early reads from Korea that are also quite favorable. And these are markets that have a very young, spirited customer and attitude. And if it resonates there, we're quite optimistic about how it will resonate throughout the world. So those are some of the early reads we've had.

Just first of all, could you tell us how much the preopening is for the big stores this quarter and this year and what we should think of going forward? And also just your comments about Denim & Supply, RRL, et cetera, imply that your other businesses -- or some of your other businesses are negative in the U.S., which, obviously, holistically, is not necessarily an issue. But how we should -- what are the facts there and how should we think about them?

The preopening costs, I think, we don't disclose at that level of detail. But what we have disclosed, for example, is the rent on the Fifth Avenue Polo store, which is $25 million a year. And so obviously, we're paying that rent without any revenue right now. We also have invested significantly in hiring staff, so that we're ready to open the store, which we're paying salaries to. We're spending significant money on fit-out and capital, some of which is on the balance sheet, some of which is expensed. So it's fair to say that the peak investment in that particular store is happening in the second quarter and there was significant investment in the first quarter. The same is true of the Lee Gardens flagship and the same is true of the step-up in the pace that we're doing of global store rollouts around the world. So that gives you a little bit of a flavor. I think we've said in the past that, if you look in total at the investment spending behind the company's strategic investments for this year, global infrastructure, marketing and advertising and global store development, the global store development piece of that was -- they were relatively evenly split between those 3s in terms of their impact on the operating margin.

In terms of what we should think of. [Audio Gap] years, I mean, you're going to keep building stores?

Say that again?

How should we think about this in the out years? Because you're going to keep building stores. I mean, is this a peak-y year?

Yes, I believe -- I think it will be a peak year for us because although we're going to keep building stores, once you have the preopening costs in the base financials, the year-over-year impact shouldn't be as great next year because we will have had peak -- we will have had just the preopening costs in the base for this year. And so if we maintain that level of -- the same level or consistent level of global retail development going forward, we won't have a year-over-year impact from preopening costs because it's already in the base once it's gotten into this year. And on the flip side, we should start to benefit from the revenue and the profitability from the accelerated pace of new store openings.

Faye, in response to your comment regarding Denim & Supply and RRL, as I was answering David's question regarding the relevance of our Ralph Lauren brands to younger consumers, I was very specifically highlighting some of the brand concepts that are directly appealing and some new characteristics about our brands that we have now added as I talked about Polo Women's and the new Polo clothing and so forth and more recent brands like Denim & Supply. But we had a season in spring/summer that outpaced the stores' results and with particular strengths in Polo; in our footwear business, which was spectacular; our accessory business, which is running up double-digits; and a nice Chaps season. So I think that never meant to imply that these were and these weren't, but just to give you a little broader view.

The next question comes from Dave Weiner with Deutsche Bank.

So I had a question on gross margins. So as we look out this year and into next year, obviously this year you're up against a much easier comparison you were last year. But if you kind of break down the 3 main initiative shifts that you have, as you move from wholesale to retail, or at least strategically, you're trying to do that, from apparel to accessories and then also U.S. to non-U.S., could you talk a little bit about which of those you see as having the biggest impacts? Obviously, this quarter, you called out channel and geography. But could you just call -- talk a little bit about which of those has the biggest impacts over time? I would assume they should all be gross margin accretive, but maybe a little color there.

Yes, you're right. All 3 of those would have a tendency to be gross margin accretive because our retail segment operates at a higher gross margin than wholesale. Our international business operates at a higher gross margin than our U.S. business. And of course, the accessories category can be characterized with higher gross margins than the apparel category. And so as we're driving those initiatives, we do expect that. I think the reason we called out the retail -- or the channel mix, in particular this quarter, was because we had the retail segment in the first quarter growing substantially faster than the wholesale segment in the first quarter. So that was clearly the biggest driver in terms of mix impact in Q1. I think relative to this fiscal year, I think all 3 will be important contributors to gross margin. Probably, given where we're looking, I think that the retail segment growth relative to the wholesale segment growth will probably have, in this current fiscal year, the biggest impact out of those 3. But I expect all 3 to be important contributors to gross margin over the next several years. On the flip side, obviously, the retail segment also comes with higher SG&A than the wholesale segment, and so we're working very hard to globalize much of the company's infrastructure so that we can leverage scale from the revenue growth regardless of whether it comes from the retail or the wholesale segment. And that's part of the operational changes that we've made in management to try to leverage more capability on a global basis that can apply omni-channel.

The next question comes from Erinn Murphy with Piper Jaffray.

Just a couple of follow-ups, one on the gross margin, understanding that mix shift. But just curious in terms of what you're seeing from a markdown perspective, either from your retail partners or in your own stores during the quarter. Was that, in part, an offset to the strength you saw from the geographies and the channel shift? And then what is your guidance contemplating for Q2 and the full year in terms of gross margin? And then, just secondly, as it relates to Europe, I mean, clearly, a very strong region for you guys. Have you seen anything in terms of the early spring 2015 order book start to build?

So on the markdowns, actually our gross margin for the first quarter came in a little better than we expected when we gave guidance in May. So we really didn't see any year-over-year impact in our business from incremental markdowns versus the year ago period. It was a more promotional environment, but we are able to weather through that without a significant impact on our gross margins. If you look at the consolidated gross margin of the company during the first quarter, obviously, the gross margin was up and it would have been up even more than what was reported if it wasn't for foreign currency impact on European inventory purchases where we have a hedging program in place that we had a gain in that year ago period. So that sort of answers, I think, the first question. On the second quarter and full year in terms of gross margin, I think we expect -- we don't give guidance specifically on gross margin, but I expect our gross margin trends that we saw in the first quarter to roughly continue for the balance of the year. But I think we're looking at a year that has gross margin improvement throughout the balance of the year, relatively consistent with the first quarter. And then in terms of the early spring order books from wholesale, from Europe, in particular, I think Europe, we were very encouraged by the results from Europe in the first quarter and we talked a little bit about that. It really started to -- we've had continued strong growth in our retail stores over, really, the last year. We had a period where we pulled back on wholesale shipments and we were annualizing that, which we annualized last October-November type period. And so we started to see a return to growth in the wholesale channel in Europe and that trend started in the fourth quarter of last year, continued in the first quarter of this year and I think we expect that strength in the wholesale channel to continue for the balance of the year. And we're seeing that in the order books.

The next question comes from Joan Payson with Barclays.

Could you speak a little bit to the margin profile of the Asian and e-commerce businesses given they're some of your highest growth segments. And also maybe just what the margin potential is for those longer term versus where they are today?

Yes, so I'll start on e-commerce. So e-commerce, we're at sort of a different place by region. So in the U.S., we have a very strong and well-developed e-commerce business that's at scale, that has margins in the U.S. e-commerce business that are at or above the balance of our U.S. business. So in the U.S., when -- if a consumer moves from a brick-and-mortar sale to an e-commerce sale, it is a good thing for us from a profitability standpoint. In Europe, because we started it later in Europe on e-commerce, we're just getting to scale. So this is the first year in e-commerce that we're going to turn from being in investment mode to being in profitability. And so as the scale builds in Europe, which we're seeing very strong trends, we expect the profitability in Europe e-commerce to increase significantly as that business begins to scale. And in Asia where we've just launched e-commerce for the first about a year or 2 ago, we started with Japan and then we came with Korea and we're working on Greater China and Southeast Asia, we're still in investment mode. So we're still not profitable, but it's because we're investing in getting the business up and running and we certainly expect, over time, that business to have a strong margin profile.

The next question comes from Christian Buss with Credit Suisse. Christian Buss - Crédit Suisse AG, Research Division: I was wondering if we can talk a little bit about the pushout of shipments into 2Q. How much did that hold back the wholesale revenue growth in the first quarter?

I think it was a relatively minor amount. I think when we gave guidance at the beginning of the quarter, we thought that wholesale revenues, overall, would be relatively flat. And I think what we reported was down about 4%. And so I think the primary driver of that difference was in the wholesale receipt plans, particularly related to the summer and fall shipments where some of the shipments moved from the first quarter to the second quarter. So I think that was really the driver of that change, if you will.

The final question comes from Barbara Wyckoff with CLSA.

I saw the Polo Women's in East Hampton, I think it looks great. Store was busy. Could you go over the door count, Denim & Supply, this year from -- versus last year, owned stores and wholesale? And then is there an opportunity to accelerate the growth of Club Monaco stores?

Yes, so Denim & Supply, we've opened a number of doors around the world. I think we have 10 to 15 stores. We have 2 in the U.S. We have a number in Asia and a number in Europe. And I think what we're doing with Denim & Supply is we're working on optimizing the merchandising and assortment plans of those retail formats in a way that gives us confidence to accelerate the pace of further store rollouts. We're still very early in the Denim & Supply brand. I think we've launched the Denim & Supply brand 2 or 3 years ago. We're encouraged by the progress that we're seeing from the stores that we've opened to date. But we want to optimize, given that we've got 10 or 15 open, before we really accelerate. And then on Club Monaco, we have accelerated the pace of store openings. And so if you look at Club Monaco, I think that, not only with the Fifth Avenue flagship in Manhattan, some of the refurbishments of some of the other stores, but we're opening a significant pace of stores in Asia as well. We have 2 new stores that are about to open in London, one in Sloane Square, one in Redchurch that we're very excited about that we'll open in the next few months. And so that business is really resonating with the consumer. And we see an opportunity there to go a little faster.

It's actually our largest business in China with license partners who accelerated another 20 stores this year and have plans for even greater growth next year as it's one of their top performing brands within their portfolio. I believe, it's the top brand -- performing brand. So thank you for your continued interest in the company. And we're, as you can see, working on many exciting initiatives. And there's a lot of important progress planned over our next few months and we look forward to updating you on that. Thanks, everyone.

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