Good day, and welcome to the Coach Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Global Head of Investor Relations and Corporate Communications at Coach, Andrea Shaw Resnick.

Good morning and thank you for joining us. With me today to discuss our quarterly results are Victor Luis, Coach's Chief Executive Officer; and Jane Nielsen, Coach's CFO. Before we begin, we must point out that this conference call will involve certain forward-looking statements, including projections for our business in the current or future quarters or fiscal years. These statements are based upon a number of continuing assumptions. Future results may differ materially from our current expectations based upon risks and uncertainties such as expected economic trends or our ability to anticipate consumer preferences. Please refer to our latest Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission for a complete list of risks and important factors. Also, please note that historical trends may not be indicative of future performance. Now, let me outline the speakers and topics for this conference call. Victor Luis will provide an overall summary of our second fiscal quarter 2015 results, and will also discuss our progress on global initiatives across markets. Jane Nielsen will conclude with details on financial and operational results for the quarter and our outlook. Following that, we will hold a question and answer session. This Q&A session will end shortly before 9:30 am. We will then conclude with some brief summary comments. I would now like to introduce Victor Luis, Coach's CEO.

Good morning. Thanks, Andrea, and welcome everyone. As noted in our press release, our second quarter results were in line with our expectation and our annual guidance, adjusted for the stronger than expected dollar. We continue to see steady progress in our results, with sequential improvement in North America, our most challenging business, as we implement our brand transformation initiatives, including greatly reduced promotional impression. International growth rates remained fairly stable in local currency terms, with China and Europe driving segment performance. Our team continued to gain traction on the strategic plan outlined last summer to reinvigorate growth and drive brand relevance. Importantly, we continue to learn as we go along fine-tuning our actions across the key pillars of product, stores and marketing. As announced just after the quarter ended, we signed a definitive agreement to buy luxury designer footwear brand Stuart Weitzman, which we believe has significant domestic and international growth potential. Stuart Weitzman is a complementary brand, with many similar core equities and characteristics to Coach. It's a brand built on offering innovation, relevance and value to a loyal customer base. It has an increasing global recognition and a presence in 70 countries and is known for its craftsmanship and quality, fusing fashion and fit in a segment where comfort is a major driver of customer loyalty. While we will develop each brand separately, over the long-term, we will learn from each other driving synergies across our respective businesses. Specifically, we will leverage Coach's international infrastructure and expertise in handbags and accessories to develop Stuart Weitzman's handbag and accessories business. In turn, Coach will benefit from the Stuart Weitzman team's expertise in footwear development, where they are proven leaders in style and comfort. We are very excited about our first acquisition and look forward to welcoming the Stuart…

Thanks, Victor. Victor was just taking you through the highlights and strategies. Let me now take you through the some of the important financial details of our second fiscal quarter results as well as our outlook for FY'15. Our quarterly revenues declined 14%, with North America down 20% and international down 1%. As noted, on a constant currency basis, revenues decreased 12% overall with international sales up 5%. Excluding transformation and other related charges, net income for the quarter totaled $200 million, with earnings per diluted share of $0.72. This compare to net income of $297 million and earnings per diluted share of $1.06 in the prior year second quarter. For the quarter, operating income totaled $299 million on a non-GAAP basis versus $436 million last year, while operating margin was 24.5% versus 30.7%. During the quarter, gross profit totaled $841 million as compared to $983 million a year ago, while gross margin was 69% versus 69.2%. As expected, gross margin benefited from a reduction in North America promotional activity, but was negatively impacted by the yen. SG&A expenses as a percent of net sales totaled 44.4% on a non-GAAP basis compared to 38.5% in the year ago quarter. Absolute SG&A expenses declined slightly reflecting a stronger dollar than expected. In addition, we repurposed last year's promotional costs, primarily associated with events into increased brand focused marketing spend this holiday. we have also captured savings related to our restructurings sooner than originally anticipated. As I turn to GAAP metrics, let me recap key transformation and other related charges. As previously announced, we expect to incur pre-tax charges of approximately $250 million to $300 million associated with our transformation plan, of which about $130 million was reflected in our fiscal fourth quarter 2014 result, with another $57 million included in our…

Thank you. [Operator Instructions] The first question is from Bob Drbul with Nomura.

Hi, good morning.

Good morning, Bob.

I just have two quick questions. I think, the first one in the press release, Victor, you talked about you are encouraged by the green shoots you are seeing. Can you provide any numbers around the relative outperformance of some of the new modern luxury doors? Then the second question that I have is just with the new product going into the outlets, can you just talk a little bit more about the strategy, the price points and sort of how you are executing that piece of it and sort of the early response that you are seeing there?

Sure. In terms of the modern luxury doors, Bob, which really represent as you said one of the most promising of the green shoots that we are seeing in our retail stores, we have approximately 20 that we have re-platformed prior to holiday and that is across a variety of different channels, street locations such as here in New York and Rodeo Drive, mall locations as well as in certain international locations and we are very, very pleased with the performance, which have in fact exceeded our own internal expectations positive comp and doing kind of better than the rest of the fleet and it is certainly very consistent with the strategies that we have consistently shared with all of you, which is that we believe that it is when the product, stores and marketing all come together that we will see the change in perception required to drive the business forward and that is exactly what we are seeing in these locations. As we expressed in our speakers' notes, we are continuing with the 150 re-platforming of current locations and then 50 to 60 new locations for the second half of the year. In terms of the outlets discussion, Bob, I think you were specifically talking about our product strategies there, very excited about what we are seeing there and very consistent with what we have shared with you in the past. First, Stuart design team have been touching all of the current products that had existed upon his arrival and we, in essence, re-platformed the product with new leathers, new materials, new hardware, new branding, adding a lot of value to that channel at increased costs, but the consumer is reacting well. We are seeing her more than willing to pay for it and that has driven an improved performance in our outlet stores year-on-year during the holiday period at increased gross margins year-on-year as well in what was an increasingly competitive environment, so we are really pleased. It really started with our terrific balance of price points across a mixture of categories, handbags, accessories, footwear and a great gifting collection from Black Friday, so very much great learnings for us that will leverage across channels as we move forward.

Great. Thank you.

Thank you. The next question is from Matthew Boss with JPMorgan.

Hi. Good morning. Can you just talk about some of the expense savings in the quarter particularly and then also visibility to the $450 million opportunity? You made some management changes and talked about streamlining in the release today, so any other potential buckets of opportunity? Finally, just any changes around the SG&A that you announced today for the full year, just if you could outline that?

Sure. What we saw in starting most in the near end, what we saw in the quarter was really two benefits as I called out. One was the stronger dollar, which had a benefit to our expense line, so that was a key driver. Then we realized stronger savings from our restructuring than we anticipated. We realized those savings sooner, largely related to organizational efficiency. We also were able to repurpose marketing spend from promotional events largely related to eOS into more brand-focused events and realized savings there, so those were the three drivers of saving. We would expect the benefit of the weaker yen primarily to continue as we move through the year, but we do expect that marketing spend related to brand-focused, brand equity building will be heavier in the second half. As we look forward to the $150 million of savings those savings will primarily be related to efficiencies related to our store closure, they will be related to organizational streamlining and efficiency. Those will be the key drivers of savings as we move forward.

Great. Then just one follow-up, can you just walk us through some of the puts and takes on the gross margin this quarter globally, and more importantly confidence longer-term with that 69% to 70% target range?

Absolutely. As I look at our gross margin, in this quarter, we really executed our strategy. We maintained our high gross margin at very stable rates that you have seen in prior year and really we executed the strategy, we invested in our products and elevated our product as Victor talked about and we reduced our promotional activity in North America and really struck that balance. We had a little bit of pressure from the yen on gross margins, but really that is our strategy and you saw it come true on the gross margin line.

Great. Nice quarter.

Thank you.

As a reminder, please limit your questions to one per person and given the lateness of the hour, we will extend our Q&A to 9:45 to answer more questions. Please go ahead, operator.

Thank you. The next question is from Barbara Wyckoff with CLSA. Ms. Wyckoff, check your mute.

Can you hear me?

Yes.

Hi, Barbara. Good morning.

Hi, everybody. Could you talk about the leadership in Asia? How is this evolving with all the changes? Can you just also comment on sales and top-tier doors versus the lower tier doors and sort of the future of expansion there, where it is going to be concentrated? Thank you.

Specifically, Barbara, top-tier doors versus lower tier doors, you are talking about the tiers in terms of cities within mainland China?

Yes..

Okay. Thank you. In terms of the leadership in Asia, there is no change impacted by the changes we have just announced. Andre Cohen, who is taking over as our leader for North America has been playing the role of Chief of Staff for the recent past, having returned from a family leave after a year and the current leadership in Asia continues as is. In terms of our distribution strategies in China, as we have mentioned in the past Barbara and talked, we have been this year very focused on ensuring that we are prepared for the consolidation that is taking place amongst certain malls, especially in the Tier-1 and Tier-2 cities, but longer-term we still very much believe in the opportunity and the Tier-3 and Tier-4 cities, not only in what it promises for the domestic market, because it is where we are seeing the greatest growth overall in China from the GDP perspective, but also what it means for outbound tourists. As we know, there is approximately 100 million outbound tourists from China today. That numbers is expected to grow by the end of 2019 to approximately 200 million, the vast majority of that growth will come from those Tier-3 and Tier-4 cities, so we are very focused on developing our awareness, developing our brand in those cities not only could benefit domestically, but also in the international tourist markets.

Okay. Thanks.

Thank you.

Thank you. [Operator Instructions] The next question is from Ike Boruchow with Sterne, Agee.

Hi. Good morning, everyone. Congrats on a nice quarter.

Good morning, Ike.

Good morning, Ike.

Hey, Victor, could you elaborate a little bit more on the remodels? I think you said there is about 20 now and you said you are pleased with the performance. Should we read into that that the comps in those stores are actually in the positive range. Then I just want to double-check. Did you say that we should have about 150 of those remodels converted by year end with another 50 to 60 of additional stores, just want to clear that?

That is correct and you have just confirmed everything I said. They were positive and 150 for the second half in terms of remodels, with an additional 60 new location.

Got it. Perfect. Thank you.

Thank you.

Thank you. The next question is from Oliver Chen with Cowen & Company.

Congrats on a solid quarter. Regarding your statements on the product assortment and the SKU breadth, is there more to go in terms of reducing the SKUs and did you have comments on the positioning regarding core versus downtown and uptown? If you are happy with the composition of how the assortment looks with respect to that merchandising strategy. Thanks.

Thank you, Oliver. Yes. In terms of reduction of SKUs, not all. In fact, if anything from this holiday quarter, we have learned that the big opportunity for us was perhaps to have been a little bit fuller in terms of our gifting assortment, especially in retail with Stuart's initial launch, we were very focused on the fashion messaging which has of course been very well received. As we move forward, what I think you will see, Oliver, in our assortment is a continued reinforcement of our core or what we are calling Coach essentials, not only in terms of what they represent at those core price points, the $300, $400 price bucket, but also in terms of how we elevate those styles with other fabrication, other more premium leathers and alike to continue to bring texture and elevation into the store. If anything, I think you will see in the quarters ahead as we head into FY'16, a slight increase in our SKU count from the reduction that we have announced of 25% this past quarter.

Thank you..

Thank you, and best regards.

Thank you.

Thank you. The next question is from Antoine Belge with HSBC.

Yes. Hi. It is Antoine Belge, HSBC. Regarding inventories, we have seen quite a substantial decline. How do you expect inventories to trend throughout the end of the fiscal year and what is your view on the quality of those inventories? Thank you.

Yes, Antoine. As you saw in last fiscal Q4, we took the opportunity to evaluate our inventory with respect to our transformation. As we have moved forward, you have seen inventory track very closely, you are in a range in sales that is our long-term goal that inventory would be in line with sales with some puts and takes for building for certain holiday quarter in store opening, but that is the trend you should expect to continue. I feel very good about the quality of the inventory that we sit on right now.

Okay. Antoine, I would only add one thing, which as I mentioned in my notes, we had eight pop-up factory doors that we used to cleanse those inventories, which we have since closed and are no longer operating.

Thank you.

Thank you. The next question is from Erinn Murphy with Piper Jaffray.

Great. Thank you. Good morning. You talked about pricing in your prepared remarks and needing to have a broader array of opening price points. Could you maybe elaborate on what you are learning there? It does seem, I guess, a slight deviation given your overall kind of bill to kind of elevate the brand? Thanks.

Sorry. Could you just repeat the second half of that question again you kind of fell out there.

Absolutely, so if you talked about kind of broadening the opening price points, I would love to hear kind of what you are learning there as you think about that. It just seemed a little bit of a slight deviation given your overall context to elevate the brands. We would to love to kind of hear what you are learning as you kind of delve into that? Thank you.

Sure. Yes. We have said that over and over, elevation has never been about simply increasing price points. It has been about improving the perception or elevating the perception of the brand, if you will, qualitatively in the mind of the consumer, and the most important step that we have taken there has been the pulled-back in promotions. The $300 million reduction, if you will, eOS that that we have discussed and shared with you guys openly as well as the vastly reduced number of events that we are holding in our retail channel, which is impacting our comps in that channel, especially as well as the reduced Coach days in the wholesale channel as well. In terms of the assortment, balance has always been important for us. We are very focused on continuing to refine, what we call core, which Oliver asked about earlier and there were certain silhouettes, which we are continuing to refine into one example is the taxi [ph], which is getting new shapes, getting new sizes, getting new functionality based on the additional learnings that we have had as well as other key core silhouettes and specifically a carryall, specifically the shoulder bag [ph], which will get different sizes and different materials, so what we are doing is enrichening the assortment, broadening it for that core customer to ensure a broader range of fabrications and price points.

Thank you. Our next question is from Omar Saad with Evercore ISI.

Thanks. Good morning. I wanted to ask about Stuart Weitzman a little bit. Maybe have you elaborate, I know you made some opening comments around the rationale behind the acquisition and your excitement behind both, the opportunity for that brand and maybe cross- pollinization of the uncertain capabilities, but it was interesting for me to hear you qualify it as Coach’s first acquisition and is there something specific about this asset that really kind of compels you or could this be part of the early stages of an evolution towards more of a portfolio approach to the North America global luxury market? Thanks.

Thank you, Omar. We were really excited about Stuart Weitzman. Of course, the deal does not close until May, so we are limited in what we can say, but first it is a wonderful clean brand leadership in its category not unlike ourselves at that size and larger in our earlier days, especially a brand that has history and heritage over 30 years of legacy and has extremely clean distribution and pricing top-tier department stores, one outlet door here in the U.S. and only one in Europe, proven technical know-how, a great senior management team in place and a truly differentiated supply chain with the relationships and ownership that they have of part of their production. Saying that, there is also in addition to the attractiveness of the brand itself, of course, the operational technical and know-how synergies that we feel extremely good about for ourselves. In my notes, I talked about our own footwear business and its growth this past quarter. I think some folks forget that we have to $200 million footwear business already, so combined with Stuart Weitzman, we are today or will be when the deal closes, the number two U.S. market share player in the premium shoe market following, Uggs, I believe as the number one, so there is an opportunity of course for Stuart Weitzman to share with us their know-how, and especially everything that they knows so well around and fit and comfort, they have an incredibly loyal customer base that swears by the fits and that is an opportunity for us at Coach as we look at our current shoe business, which is growing and has a lot more opportunity. Of course, they have an opportunity themselves to grow their multi-category strategy as they have a very nascent handbag and accessories business today no more than 4% to 5% of their total business and we have an opportunity to help them develop that to be something more important than I am especially excited about what is happening today with the Stuart Weitzman brands, not only here in the United States, but in Asia and especially the green shoots that we are seen for them in China, which is the market that we know well and that we know we can help them grow and support.

Yes. Omar, I would just jump in and say, this is entirely consistent with the capital allocation priorities we have laid out for Coach, Inc. which is to invest in our business, which you saw us do this quarter both in marketing and in capital to be highly selective about pursuing value creating acquisition that we believe have growth and profitability for the long-term, being goldilocks, if you will, has to be just right and we feel Stuart Weitzman is. Then finally, a commitment to returning capital to shareholders, which you saw us reiterate again, a commitment to maintaining our dividend.

Victor, Jane, thanks so much. Very helpful.

Thank you, Omar.

The next question is from John Morris with BMO Capital Markets.

Thanks. My congratulations as well.

Thank you, John.

Two quick questions, one, the semiannual sale that you guys just completed, did that start on time as planned or did you shift the timing all and what is the timing for the next semiannual sale? Then my other quick question was, I think there were a couple of markets where you had closed outlets to test how the closings impact the full line stores and just wanted to get an update on any of the impact during those MSAs and what you are learnings were? Thanks.

Sure. In terms of semiannual sale it was as planned, started in mid-December and through January 21st, and that was the exact same length of time as our previous semiannual sale, so absolutely no surprise or change there. In terms of the two outlets that we have closed, they have just closed a few weeks ago. It is still very early. We are putting together a learning agenda around those outlets, not only in terms, of course, cross-channel shopping, but other consumer perception changes in those two markets, one in Miami, the other in L.A., and we will share those with you in the quarters ahead.

Great. Good luck for spring.

Thank you.

Thank you. The next question is from Joan Payson with Barclays.

Hi. Good morning, everyone.

Good morning.

Good morning.

Just back on the store reformats that were comping positively, were those traffic or conversion-driven? Then also how did the business trend during the semiannual sale compared to the rest of the quarter?

The metrics in terms of the modern luxury stores were really mixed by location because of the type of format, if you will, the street locations versus mall. Overall, traffic was a driver as consumers were coming in, of course, to experience the new, but also conversion was the other key driver and I would say that is in the Street location, so our flagships, especially here in New York as well as L.A, which was consistent with the total retail piece. ADT was a driver because of the decreased promotion year-on-year, so they really benefited across all metrics relative to the other locations and as things stabilize, of course, over time, I would imagine that we will continue to see normalization where conversion and ADT will be the major drivers.

Joan, I would just add that, as a recall we close out this quarter, only about a little less than half of the semiannual sale period was included in this quarter.

Okay. Great. Thank you.

Thank you. Our final question today is from Ed Yruma with KeyBanc Capital Markets.

Hi. Good morning. Congrats on a solid quarter. I guess, turn quickly to department stores I think you said that POS could be weaker in the second half. I know that you had some small test on the open sell. I guess, how should we think about the department store channel longer-term? Are you changing the amount of footage you get and when should we expect some of the larger doors to move to the open sell format? Thank you.

Sure. Longer-term, of course, we are excited about the channel. We believe it is an absolutely vital one, where obviously the consumer has choice and where we need to compete and win effectively. The 300 doors that we have been moving to open sell, which truly represent the smallest doors that we have or the one that is still in case line, about 20% of the total fleet, but less than 15% in fact of total revenues, their financial impact is quite small, but very important to allow consumers to access product given that we are really the only brand in our space still in those cases. Longer-term, as I mentioned, we are today taking all of the learnings from our retail modern luxury concept, so the one we have opened in Rodeo here at Time Warner, and of course our mall locations, especially as well as some duty-free locations globally, we are taking those learnings and will be leveraging them across format, so in the spring you will see us leverage that in our first outlet stores as I mentioned and we will also be developing that format into both, wholesale as well as global duty-free locations, which we are very excited about.

Great. Thanks so much.

Thank you, everyone. That concludes our Q&A. I will now turn it over to Victor Luis for some concluding remarks. Victor?

Thank you. Andrea. Thank you, everybody, for being with us and for continuing to follow us on our transformation journey. As a team, we are encouraged by the positive signs that we are seeing in the execution of our strategies around the product, stores marketing as we continue to drive fashion relevance for the Coach brand and to differentiate it from the accessible luxury competition that has grown over the last 5 to 10 years, especially. I want to recognize the entire Coach team for their commitment and for continuing to have both, the courage and the discipline to stay the course with our strategies, which are very much in the long-term interest of our brand health and our business and I know that they also very much look forward to welcoming the Stuart Weitzman team to the Coach, Inc family. Thank you.

Thank you.