Ralph Lauren Corporation
Q3 2018 Earnings Call Transcript

Published: 1 Feb 2018

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Third Quarter Fiscal 2018 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions on how to ask a question will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mrs. Evren Kopelman. Please go ahead.

[Evren Kopelman:]

Good morning, and thank you for joining Ralph Lauren's third quarter fiscal 2018 conference call. With me today are Patrice Louvet, the company's President and Chief Executive Officer; and Jane Nielsen, Chief Financial Officer. After prepared remarks, we will open up the call for your questions, which we ask that you limit to one per caller. During today's call, we will 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. Principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings. To find disclosures and reconciliations of non-GAAP measures that we use when discussing our financial results, you should refer to this morning's earnings release and to our SEC filings that can be found on our Investor Relations' website. And now, I will turn the call over to Patrice.

[Patrice Louvet:]

Thank you, Evren. Good morning, everyone, and thank you for joining today's call. We are pleased to report better-than-expected results for the third quarter, as we continue to execute on our key initiatives, especially during the important holiday season. We still have a lot of work to do to return to industry-leading revenue and earnings growth, but these results give us confidence that we are on the right track. If you recall from our last call, we're focused on reigniting growth, while continuing to drive productivity. And it is this balance that will create value for our stakeholders. To do so, we're executing against four key initiatives

[Jane Nielsen:]

Thank you, Patrice, and good morning, everyone. Our third quarter results, we're ahead of our expectations and show continued progress on resetting the business to a healthier base. Our quality of sales improvements are delivering higher AUR, lower discounts, expanded gross margins, higher inventory turns and significant growth in free cash flow. Our third quarter revenues declined 4% on a reported basis and 6% in constant currency. At the top end of our guidance, as our North America holiday sales we're ahead of our plans. I am proud of our teams for their strong execution this holiday season. They took our learnings from last year, worked across functions from store operations, supply chain and planning, to design merchandising and marketing. To ensure that our consumer saw enhanced product in our stores at a compelling value with inventory levels that match demand. These efforts across our teams delivered improved sell-through and higher gross margins with reduced promotions. With this holiday quarter, adjusted operating margin was 13.2%, up 40 basis points to last year on a reported basis and down 10 basis points in constant currency. This was above our guidance driven by both better growth margins and lower SG&A expenses as our quality of sales initiatives and product performance exceeded our expectations. Adjusted gross margin in the third quarter was up 250 basis points to last year and up 220 basis points in constant currency. The most significant driver of the expanded gross margin was reduced discount rates and promotions, other drivers of the expansion were favorable geographic and channel mix. We are also seeing the benefits of our sourcing initiatives. Our shorter lead time products have lower markdown rates and higher full price sell-through. We remain on track to have 90% of our products on a nine month lead time by the end of this fiscal year and plan to drive further reductions in fiscal 2019. SG&A expenses were flat to last year in the third quarter, as savings from expense initiatives and store closures, funded a 27% increase in marketing spend. The growth in marketing comes after double-digit declines in the first half of this year. Ralph and our creative teams have been working collaboratively with our new Chief Marketing Officer, who joined us in April and we're excited to invest in these campaigns with greater execution in digital and social media channel. For context, our marketing investment for fiscal 2018 is planned to be up slightly to last year. The planned 30-plus growth in the second half balances out the reductions in the first half. Moving forward our goal is to continue to increase marketing. However, our objective is to fund the majority of the increases through productivity gains in other expense areas in order to achieve our long-term goal of expanding operating margin. Let me now review our segment performance. In North America, revenue was down 11% in the third quarter. However, adjusted operating margin was up 160 basis points, reflecting substantial progress on quality of sales and distribution initiatives. In wholesale, our sales continue to be pressured by our deliberate actions to ensure the health of our brand and to set us up for long-term success. North America wholesale revenue was down 15% in the third quarter, as we continue to pull back from the off-price channel and close unproductive distribution in department stores. For FY 2018, on a year to date basis our deliberate actions such as brand exits, off-price wholesale reductions, receipt pullbacks and lower promotional levels account for approximately two-thirds of the North America wholesale declines. Notably, off-price declined in penetration to our total North America wholesale business. The encouraging news is that our Fall/Holiday season sell-out performance, while still down to last year, improved from the spring/summer season. Furthermore, retailer margins expanded to last year. Importantly, our digital wholesale business continued its momentum, posting both sales growth and market share gains to last year at our key retailers and in our core categories. While there is more work to do, especially in off-price wholesale, we expect improvements in our wholesale revenue trend as we begin to overlap some of the deliberate actions and address the weak underlying demand by evolving our product, marketing and wholesale store environments. In our retail business in North America, holiday sales were ahead of our plans. While our brick-and-mortar comps were still down year-over-year, affected by our quality of sales initiatives and weak overall traffic, the 3% comp declines represented a modest improvement in trend. E-commerce comps in North America were down 27% in the third quarter. This was in line with our expectations and was impacted by our transition to a new technology platform in the quarter and by our continued quality of sales initiatives. This quarter, we had 11 fewer promotional days versus last year and we reduced discount depth, by at least 10 percentage points. Our deepest discount message was 50% off versus 65% off last year. In addition, we were more targeted in our promotions and excluded customized products, new arrival and some of our iconic items from the promotions this year. We expect our e-commerce sales in the fourth quarter to be similar to our first half trends with more substantial improvements expected in FY 2019. Moving on to Europe, revenue increased 8% on a recorded basis and was flat to last year in constant currency in the third quarter. Our team in Europe delivered adjusted operating profit growth with margins up 270 basis points and up 220 basis points in constant currency, driven by both gross margin expansion and expense leverage. Wholesale revenue in Europe increased 8% in constant currency. The underlying trend of the wholesale business is about flat to last year. However, the quarter benefitted from an easier compare due to a shift in timing of shipments in last year's third quarter. Similar to North America, our digital wholesale business in Europe continued to post growth to last year and expanded market share. In the retail channel, constant currency comps were down 8% in Europe. We intensified our quality of sales actions and face challenging traffic trends in our outlet centers, which experience the double-digit decline in foreign traffic. While, this impacted comp growth negatively gross margin and AUR will both up and the discount rate was down. Turning to Asia, revenue was up 7% on both a reported basis and in constant currency. Adjusted operating margin was up 140 basis points, and up 10 basis points in constant currency. This quarter had a challenging operating margin comparison in Asia due to the timing of certain expenses in last year's third quarter. When you look at the year-to-date period adjusted operating margin is up 540 basis points and up 390 basis points in constant currency. As we overlap strong quality of sales actions in the second half of last year. Our operating margin expansion will continue at a more normalized pace with top line growth driving operating profit dollar growth. Our team is driving growth in the Asia region, while continuing the focus on productivity. Comps increased 3% in constant currency in the third quarter continuing the positive comp trend from the first half of the year. Comp growth was achieved in the context of strong quality of sales initiatives, and was driven by increased conversion, a higher AUR and growth in the number of transactions. We expect further comp growth in Asia, as we continue to upgrade our distribution network and marketing initiatives to amplify and elevate the brand. We delivered stronger results in China, our key growth market in the region. Total revenue for the quarter was up 28% to last year in Mainland China, leading our growth in the Greater China region. We continue to increase our digital efforts and engagement with local influencers and celebrities. Turning to our store fleet. We continued to improve our retail network through the closure of underperforming locations and opening new stores with improved adjacencies. In the third quarter, we opened 15 stand-alone stores and 10 concessions. We closed three stand-alone stores and four concessions, ending the quarter with 481 stand-alone stores and 628 concessions on a global basis. We opened 10 new points of distribution in Mainland China in the quarter. And we are on track to have 60 points of distribution on the Mainland by the end of fiscal 2018. At year-end, we expect our stand-alone store count to be up slightly to last year, and our concession network to have a net increase of approximately 10 locations, primarily in Asia. Moving onto the balance sheet. Our balance sheet is significantly stronger than last year. And it's a reflection of the operational progress we are making. We ended the third quarter with $2.1 billion in cash and investments, up from $1.5 billion at the end of last year's third quarter. Total debt at the end of the quarter was $589 million flat to last year. Inventory declined 16% to $825 million at the end of the third quarter, and inventory turns improved, we will continue to focus on inventory productivity and matching inventory flows with demand. We generated $828 million of free cash flow year-to-date, up from $625 million in the prior year period. Turning to the dynamic topic of taxes. Our adjusted tax rate for the third quarter was 22% before the impact of tax reform, restructuring and related charges, slightly below our guidance of 23% due to discrete one-time items. On a reported basis, tax reform increased our estimated tax expense with this quarter by approximately $231 million, this is primarily related to the deemed repatriation of foreign earnings and revaluation of deferred tax assets and liabilities. This is a onetime charge that will largely be paid over an 8-year period. We have excluded this from our adjusted EPS of $2.03. Going forward based on our current interpretation of tax reform, our geographic mix of profits and available information, we estimate that our ongoing effective tax rates will decline by approximately 200 basis points, which equates to an annual net reduction in tax expense of approximately $12 million or $0.15 per share. This is driven by the lower U.S. corporate tax rate which is partially offset by the non-deductibility of performance-based compensation. For tax purposes, this is based on our FY 2018 geographic mix of profits where about a quarter of our pre-tax income is based in the U.S. We will continue the process of refining these estimates as additional information becomes available. Now, I'd like to turn to guidance for the full year and the fourth quarter of fiscal 2018. As a reminder, this guidance excludes restructuring and related charges and the onetime charge in the third quarter related to tax reform. We are maintaining our constant currency revenue guidance for fiscal 2018 and raising the low-end of our operating margin guidance. We expect revenues to decline 8% to 9% for the year in constant currency. Foreign currency is now expected to have approximately 100 basis points of benefit to revenue growth in fiscal 2018 versus previous guidance of 80 basis points of positive impact, given the recent movements in foreign exchange rates. Brand and distribution exits, both in wholesale and retail account for approximately half the decline with quality of sales initiatives and challenging traffic trends representing the remainder, partially offset by new distribution and product and marketing initiatives. Based on our year-to-date performance, we now expect operating margin for fiscal 2018 to be 10% to 10.5% in constant currency, up from previous guidance of 9.5% to 10.5%. Foreign currency is now expected to have 30 basis points of benefit to operating margin for fiscal 2018 versus previous guidance for minimal impact. For the fourth quarter, we expect revenues to be down 8% to 10% in constant currency, in line with our expectations. Foreign currency is expected to have approximately 330 basis points of benefit to revenue growth. Revenue in the fourth quarter will be pressured for two reasons

[Operator:]

[Operator Instructions] The first question comes from Bob Drbul with Guggenheim Securities. You may ask your question.

[Robert Drbul:]

Hi, good morning.

[Jane Nielsen:]

Good morning, Bob.

[Patrice Louvet:]

Good morning, Bob.

[Robert Drbul:]

I guess, on this quarter, we've become accustomed to seeing you guys beat on the margin side, but this is the first quarter in a while that you came in at the high-end of the revenue guidance. So I was wondering if you could just elaborate a bit more on the drivers around the top-line.

[Patrice Louvet:]

Sure, I mean, as you mentioned, I think we're actually encouraged by our revenue results in the quarter. I think we're really starting to see the early benefits of our key initiatives, right, with a specific focus on elevating our brand by improving quality of sales and quality of distribution and you heard us give some examples of that. And also evolving our product and our marketing so that we can really expand our reach and appeal with new consumers, and that's starting to play out, obviously early days. We're especially pleased with the in-store executions that our teams delivered in North America during the holiday season. And we also recognized we benefitted in the whole channel from a more positive sentiment in North America, so that's part of it. So I'd say, all in all progress, but we're also very clear we still have a lot more work to do in order to get back to high quality growth and continue the productivity progress that we've done, so we can deliver the shareholder value that everyone expects from this company.

[Evren Kopelman:]

Next question, please.

[Operator:]

The next question comes from Matthew Boss with JP Morgan. You may ask your question.

[Matthew Boss:]

Thanks. So, Patrice, last quarter you cited quality of distribution initiative. I think you said in the seventh inning and quality of sale actions is ongoing. I guess, to put this into perspective. Your guidance for this year is basically to end with roughly $6.1 billion revenue base. Are you comfortable that this is trough level or just help us to think about - do we need to think about further shrink prior to re-growing, just the best way to put into perspective, where you're at today with revenues and how best to think about going forward.

[Patrice Louvet:]

Okay, good morning, Matt. Most of the key interventions from a distribution and discounting standpoint are happening this fiscal year. So if you look at the interventions we've made in wholesale, full price on wholesale, if you look at the interventions we've made in terms of store closures, if you look at the interventions we've made online from a discounting standpoint, most of the big interventions are happening this fiscal year. So I think $6.1 billion is a good starting base. There is still for us a question mark as to our exposure in the off-price channel. So that's something that we're working through and we'll share how we're thinking about it, when we get together for the Investor Day in early June. But I'd say, in terms of key interventions of quality of sales, quality of distribution, we should be more or less complete by the end of the fiscal year.

[Evren Kopelman:]

Next question, please.

[Operator:]

The next question comes from Simeon Siegel with Nomura/Instinet. You may ask your question.

[Simeon Siegel:]

Thanks. Good morning, guys, and congrats on that ongoing margin and inventory progress.

[Jane Nielsen:]

Thank you.

[Simeon Siegel:]

Jane, any thoughts on where the gross margins can go from here and maybe the drivers there? And then, just as a reminder, on the EBIT level, the channel and geographic mix shifts are those accretive or dilutive at this point?

[Jane Nielsen:]

Can you say your EBIT question again?

[Simeon Siegel:]

Yes, I think you get the benefit with the channel and geographic mix shifts. I think it helps the margin just on the EBIT level. How does that play out?

[Jane Nielsen:]

Yeah, okay. So let's start with gross margin. I think you have seen us continuously drive gross margin. The number one driver is promotion and discount reduction. That is going to continue through next year. The sharp interventions that Patrice talked about will be over. But the quality of sales work, reducing discount rates smartly, targeting AIR increases. That work will continue and be a positive for gross margin. Our international growth is also going to be an enduring benefit to gross margin, as well as channel shift as we move into digital and as we move into our own store network, notably in Asia, those are all positive gross margin drivers. The magnitude of the benefit that we had as we shift out of wholesale and into more - strongly into direct-to-retail, that gross margin benefit will start to lessen versus what we've seen this year. But in terms of EBIT, which was the next part of your question, our direct-to-consumer EBIT margins benefit from that shift as we leverage growth. So what we're seeing is, in terms of overall EBIT accretion, we're growing operating margin in Asia, that's a net benefit. We expect that to - that margin expansion to continue over time. Europe, as it continues to grow is also EBIT enhancing and we're managing through getting better leverage on our fixed cost, notably at corporate, so that overall EBIT margin for Ralph Lauren can expand over time.

[Evren Kopelman:]

Next question, please.

[Operator:]

The next question comes from Kate McShane with Citi. You may ask your question.

[Kate McShane:]

Hi, thank you. Good morning.

[Jane Nielsen:]

Good morning, Kate.

[Patrice Louvet:]

Good morning, Kate.

[Kate McShane:]

My question was on Europe. I was wondering if you could break down in a little more detail some of the more macro impacts that impacted the quarter versus some of the company specific initiatives and factors. And in particular, when it comes to wholesale in Europe, can you help us understand what the comp growth is for that business versus what the opportunity or what growth we saw from the opening of new doors or new accounts?

[Patrice Louvet:]

Yeah, so let me break Europe into the first part of your question and then the second part of your question. So, what we saw in Europe was some challenging traffic trends, notably in our outlet stores. And we believe that relates to obviously what you saw in the strengthening euro, because we saw a significant drop in foreign tourist traffic, notably into our outlets in Europe. And that was across both our Chinese foreign tourist consumers as well as our Middle East consumers. So we saw those dynamics, again related to largely to the macro of currency dynamics. As I look at Europe wholesale business, the underlying trend for Europe wholesale is about flat. We've had some shipment timing movements that we try to call out as we move through the year, but as we step back from that, we think the underlying trend is about flat on a comp and on an ongoing basis.

[Evren Kopelman:]

Next question, please.

[Operator:]

The next question comes from Omar Saad with Evercore ISI. You may ask your question.

[Omar Saad:]

Thanks. Good morning.

[Patrice Louvet:]

Good morning, Omar.

[Omar Saad:]

Actually I want to just - I just wanted to clarify, Jane, in terms of the dynamics affecting the fourth quarter revenue guidance, the planned brand and distribution exits, the ongoing quality of sales initiatives, less clearance and the wholesale shift. As we think about what's ongoing and what's kind of specific to the fourth quarter. Could you just clarify which one of those we should expect to continue? And then, I wanted to ask also about digital. What you learn - as you put your brand out there more, what you're learning about the brand? And where it's really effective and maybe where it's less effective as you put it out there more? Thanks.

[Jane Nielsen:]

Great. Why don't I take the Q4 guidance, and then I'll turn it - let Patrice answer your digital question. So as I - as we look at Q4 guidance, and we look at what's happening the denim and supply, the brand exits starts to abate in the fourth quarter. We're still heavily into the reset of our RL.com site from a pricing standpoint. So in the third quarter, we've overlapped the transition of the platform, but we expect the impact of repricing, which you saw on the first half of the year to continue on the trend basis. We'll be at the tail end of the majority of our distribution exits, so that's about a constant pressure point in Q4 in terms of our reset actions. And then just as I think about Q4, what's going on there specifically there are three things. One is that we have an Easter shift, which is a benefit of about an overall comp point in the fourth quarter. The two, other mitigating factors are wholesale timing shipments that we called out. That's worth about - that's about a pressure of - 1 to 2 comp points. And then what we called out is that, we are going to be less heavy into clearance. This fourth quarter, because we're not moving significant inventory goods into the clearance season. What you've seen is, we've raised our gross margin guidance and but it's slightly exceeding about a point of comp pressure in the fourth quarter. So those are the ongoing reset dynamics and then the specific dynamics to the fourth quarter.

[Patrice Louvet:]

Good. And then, Omar, good morning. On your digital questions, maybe let me break it down into kind of e-commerce and the brand building piece. So on the e-commerce, if you look at the three channels that we're approaching here. First of all, as far as our own site is concerned this past quarter was a reset quarter as we transition to the new platform continue to significantly reduce discounts. I don't know that we can draw any major conclusions yet from this past quarter. I think, we've got more learnings as things stabilize from the platform and discounting standpoint. As far as wholesale.com is concerned, we're actually really pleased with the progress we're making both here in North America and around the world, where we're seeing consumers respond really nicely to our presence online with our wholesale partners. As we mentioned, we're growing share and the share of that business for us is increasing as part of our total wholesale business is currently in the high-teens, I expect it to continue to grow. So very encourage there, I think, we've got nice momentum that we now need to continue to fuel. And I feel good about the partnership that we have with our key wholesale partners to drive that to leverage the consumer insights, to have joint marketing activities. The third piece is pure players, which is really honestly more or less new space for us as a company. We're more advanced in Europe and other parts of the world, but we're starting to ramp-up in Asia and here as well. And early indications are quite positive, so we're feeling very good about the consumer response we're getting on our pure play partnerships. So that's the commerce piece. Then as far as the brand building piece is concerned. We actually are seeing a number of things that give us confidence we're on the right track. We quoted in our prepared remarks, some data on how we're growing our user base or followership on Instagram. We're up 40% versus year-ago over the past year on Instagram with multimillion dollar increases. Our fan base on WeChat, obviously, China's important market for us, 50% of the past three months, so we're seeing good response and good momentum on these platforms. We started to experiment with Snapchat, which is - I think we all know on this call, appeals to a younger consumer. And the statistics on this one, we're actually pretty amazing. We achieved - so we ran a promoted story campaign around our Create-Your-Own initiative or personalization initiative. We did that the past quarter. I think one of the first brands actually to partner with Snapchat on native advertising. So we feel good about the fact that we're progressively getting into a leadership position in this space. And just a couple of data points here. We achieved 419 million impressions over that timeframe, and we had a very strong engagement 2 million swipe-ups, which is the Snapchat's version of a click, which based on what Snapchat is telling us, it's actually a very strong performance and all of that took our users into a direct e-commerce sites. So we are learning with new tools, we're making progress on existing digital platform, I think, we're encouraged by the progress. But as with everything we're doing, we know, we have more work to do, we really want to win with the broad group of consumers segments, we're targeting, obviously, millennials in part of that. We're encouraged by some recent data we've actually seen on the band penetration among millennials, and we're just continuing to drive that journey. And Omar, really in the learning more, right. I mean, I think, the mindset we have as a company here is, we want to become a digital-first company and you've seen some of the organizational changes that we've made to enable that. And we recognize that this is a very fast evolving landscape and that we need to constantly learn and really be in the leadership position in those spaces and platforms that matter most.

[Evren Kopelman:]

Next question, please.

[Operator:]

The next question comes from Ike Boruchow with Wells Fargo. You may ask your question.

[Ike Boruchow:]

Hi, good morning, everyone. Thanks for taking my question.

[Jane Nielsen:]

Good morning, Ike.

[Ike Boruchow:]

You guys mentioned several times on the call regarding your off-price business. I guess, either Patrice or Jane, just could you maybe give us a little bit more color there. Maybe how much of that business plan to be down this fiscal year? Should those declines accelerate or maintain that rate into next fiscal year? Just trying to get a sense of maybe what your off-price penetration today is versus peak and really where you ultimately want that penetration to go.

[Jane Nielsen:]

Yeah. So as I look at the progress we've made to date, our off-price business is down in the mid-20% range. It's declining as a percent of penetration to our wholesale business. And we know that we want right now that trend, that penetration decline to continue into next year. I think, we'll discuss, as Patrice mentioned, more of the magnitude of that as we move into Investor Day, but we know we want this penetration into our whole - full price wholesale business to decline. And it's really about getting back in balance with the role of that channel. It has a very loyal large consumer base that loves to shop sort of the treasure hunt. And it can be a very powerful [indiscernible] for us to liquidate inventory. That's not where we're at today. But that is the role that we like the channel to play within our business, of course, our partners and we have to make that that inventory attractive for them to merchandise and sell, and make sure they don't have broken sizing. But that's really the balance that we like to get back in that channel. But good progress this year, we expect continued progress as we close out the year, and it's certainly one of our points of focus as we move forward into next year.

[Evren Kopelman:]

Next question, please.

[Operator:]

The next question comes from Lindsay Drucker Mann with Goldman Sachs. You may ask your question.

[Lindsay Drucker Mann:]

Thanks. Good morning, everyone.

[Jane Nielsen:]

Good morning, Lindsay.

[Patrice Louvet:]

Good morning, Lindsay.

[Lindsay Drucker Mann:]

Jane, I wanted to just first clarify something that you had said in your prepared remarks, which I believe was that two-thirds of the decline, I think, in North American wholesale was related to deliberate actions. So does that imply that, excluding your deliberate actions that business is running - has been running down around in the mid-single-digits, and then, as we think about North American operating profit for the region overall. At what point should we be looking for operating profit to stabilize before then kind of pivoting to growth, so is that an early fiscal 2019 event? It seems like with some of the things that you're beginning to lap. Thank you.

[Jane Nielsen:]

Yes, Lindsay. So you're exactly right. In terms of what we can measure in our North America wholesale, we know that brand exits, distribution exits, receipt pullback, coupled with lessening promotional levels and frequencies are accounting for about two-third of the decline. The remainder gets us to sort of an underlying trend of about mid-single-digit decline in our full price wholesale business. And that's based on traffic. And right now we're targeting gaining share as we move forward in that channel, knowing that there is - there are some secular challenges in that channel. In terms of North American operating margin, we do expect as we come out of these deliberate and intentional pullback that we'll see improved top-line trends. And of course, in June we'll give you more specifics in terms of our expectations on overall operating margin and specifically for what we expect by country.

[Evren Kopelman:]

Next question, please.

[Operator:]

The next question comes from Rick Patel with Needham & Company. You may ask your question.

[Rick Patel:]

Thank you. Good morning, everyone, and congrats on the progress. It sounds like you're accelerating focus on pure-play e-commerce sites here in the U.S. Can you share your thoughts on product segmentation? Maybe you can talk about your strategy in Europe if that's a good roadmap. I'm just curious that as we think about the U.S. in the coming quarters, are your new pure-play partners going to have access to the same products as department stores do today or will that product be differentiated? Thank you.

[Patrice Louvet:]

So you're right. We are accelerating our focus on pure-plays around the world and probably North America is the region where we are least developed, so where the - where we have the greatest opportunity. We are going to approach the overall product lineup with a very broad lens, because we have presence across multiple segments including home. Right, so you've probably seen us enter One Kings Lane. We're actually encouraged by the early results on that. So broad - that's a broad portfolio. We are keen to make sure we have the right level of differentiation across channels. So we are catering to the specific consumer that's shopping in that specific channel. So we'll have the balance of common products across channels and differentiated offerings. But that's not just true for pure-players. That's also true for the way we approach our factory outlets and the way we approach our own stores relative to wholesale.

[Evren Kopelman:]

Okay. We'll take one last question, please.

[Operator:]

The last question comes from Erinn Murphy with Piper Jaffray. You may ask your question.

[Erinn Murphy:]

Great. Thanks, good morning.

[Patrice Louvet:]

Good morning, Erinn.

[Erinn Murphy:]

I guess, I got a question for - on the North American outlet business, can you just talk about, from a traffic perspective, how that trended during the holiday quarter. And then just with the stronger euro, are you seeing a return to tourism yet here in the United States. And then, I guess, Patrice, for you on China. If you deepen your growth efforts in this market, where is brand awareness, just remind us from an aided or an unaided perspective today. Thanks.

[Jane Nielsen:]

Sure. Erinn, let me just start with the North America outlet trends and what we're seeing in traffic. We're still seeing - for the third quarter, we saw traffic declines. Although, no real significant change to what we've been seeing in the previous quarters. And then, overall, we were really proud in our North America outlet stores that we saw greater conversion with - even though we were less promotional and had less discount rates in our North America stores and that's what drove a portion of the outperformance that we saw in North America outlet, so really a tribute to the team. Traffic relatively stable, and still slightly down mid-single-digit. As you look at foreign tourists, what we did see in this quarter was that our foreign tourist traffic was - in North America specifically was down. It was down in that high-single-digit range, where we had come off this second quarter and saw foreign tourist traffic down low-single-digits. So foreign tourist traffic was more challenged in the third quarter than in the second quarter and a little bit better than what we saw in the third quarter of last year.

[Patrice Louvet:]

And as we talk China and brand awareness, so actually we've been surprised by the high level of brand awareness in China given, honestly, our limited store footprint and limited e-commerce presence until recently. We've just completed a pretty broad global analysis actually on where the brand stands. So we'll follow-up with you on the specific number. But if I remember correctly, we're in the 70s in terms of brand awareness, relative to 90% in the U.S. So there is still a 20% gap for - relative to the market like the U.S., UK or Japan where we've obviously been for a much, much longer time. But I think a good starting point to drive the growth of business. And obviously, as we increase our investments, as we increase our activities with influencers, as we increase our overall presence there, we're quite confident that we can get that number up significantly.

[Patrice Louvet:]

Okay, very good. Listen, we're going to call it a day. Thank you, all of you for joining us this morning. We look forward to talking to you in our next call in May. And then, importantly, we look forward to seeing many of you in our Investor Day on June 7 in New York City. So please capture that date in your calendars. And at that point, we'll be in a position to share our perspective, not only on fiscal year 2019, but also how we see the roadmap for the company over the following years. So thanks for calling in and have a great day.

[Operator:]

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