Tapestry, Inc.
Q3 2014 Earnings Call Transcript

Published: 29 Apr 2014

[Operator:]

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

[Andrea Shaw Resnick:]

Good morning and thank you for joining us. With me today to discuss our quarterly results are Victor Luis, Coach’s CEO, 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 for a complete list of these risk factors. Also, please note that historical growth 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 third fiscal quarter 2014 results and will also discuss our progress on global initiatives. Jane Nielsen will conclude with details on financial and operational highlights for the quarter. Following that, we will hold a question and answer session where we will be joined by Francine Della Badia, our President, North America Retail. This Q&A session will end shortly before 9

[Victor Luis:]

Good morning. Thanks, Andrea, and welcome everyone. As noted in press release, during the third quarter, total sales declined as weakness in our North American women's bag and accessories business continued to offset strong growth in men's, footwear and robust sales in international market. Our business in North America remained challenging in the period exacerbated by the weather and shift of the Easter holiday. We experienced lower than expected traffic levels in our stores while our Internet results were impacted by our strategic decision to eliminate third party events as well as limit the access and invitations to our factory flash site. At the same time, results in China and Europe remained very strong. Importantly, we continued to advance our transformation initiatives and building the foundation to launch Stuart Vevers' first collection in September. Before getting into the financial details of the period, I want to start with key milestones in our transformation journey as I did last quarter. We will continue to provide you with these progress reports understanding that it will sometime before these changes manifest in our financial results. As you know, we're focused on the three primary aspects of the brand experience

[Jane Nielsen:]

Thanks, Victor. Victor has just taken you through the highlights and strategies; let me now take you through some of the important financial details of our third quarter results. Our revenues decreased 7% with North America declining 18% and international increasing 14% in dollar. As noted, on a constant currency basis revenues were down 5% overall, while international sales rose 20%. Net income for the quarter totaled $191 million with earnings per diluted share of $0.68. This compared to net income of $239 million and earnings per share of $0.84 in the prior year's quarter. Our operating income totaled $263 million as compared to $348 million reported last year, while operating margin was 23.9% versus 29.3%. During the quarter, gross profit totaled $781 million versus $880 million a year ago. As expected, gross margin was 71.1% versus 74.1% for the prior year. Our expense ratio in Q3 totaled 47.2% compared to 44.8% reported in the year-ago quarter. Our SG&A dollars actually declined slightly on a year-over-year basis as we manage variable cost to the lower sales level, adjusted our outlook for lower performance based compensation level and benefited from the weaker yen. We also realized the benefit of our 4Q '13 restructuring actions and sale of RK, which funded higher spending on Coach brand marketing and helped to offset the impact of taking Coach Europe in-house. Inventory levels at the end of quarter were $584 million, 13% above the $516 million reported at the end of last year's Q3. As mentioned on our last call, we plan for inventory levels to be up over the balance of fiscal year based on several key factors including distribution growth, the acquisition of Coach Europe, higher average unit cost and our expansion into lifestyle category. Clearly, sales below our expectations also contributed. We are carefully managing our open-to-buy to allow for the appropriate investments in Stuart fall collection. Cash and short-term investments stood at $775 million, as compared with $928 million a year ago with a substantial portion held outside the U.S. On the balance sheet, as noted earlier this year, we continue to deploy international cash into high quality investments with higher yields and duration over a year and, in turn, there is a shift between and cash and short-term investments into other non-current assets. As expected, we ended the third quarter with $210 million outstanding on our credit facility in order to cover our working capital needs in light of our investments in our business and our new corporate headquarters. During the third quarter, we repurchased and retired out 3.6 million shares of common stock at an average cost of $47.99, spending a total of $175 million. Year-to-date, we repurchased 525 million of common stock. At the end of the period about $835 million remained under the company's current repurchase authorization. As noted in our press release, the board declared a quarterly dividend of $0.3375 per common share payable at the end of June, maintaining our annual rate of $1.35. It is important to mention that we've modified the timing of our annual dividend rate assessment to align with the company's fiscal year end and the review of our annual operating plan. Net cash from operating activities in the third quarter was $105 million, compared to $209 million last year during Q3. Free cash flow in the third quarter was an inflow of $54 million versus an inflow of $167 million in the same period last year. Our CapEx spending was $51 million versus $43 million in the same quarter a year ago. We now expect that CapEx this year will be in the area of $250 million to $260 million, primarily due to new store openings and expansion across all geographies and investments in the technology and infrastructure necessary to enable our global expansion and transformation. The decline from previous guidance of about $280 million relates to a shift in the timing of retail store and wholesale remodel and conversions into FY'15. While many of the metrics we've guided to remain intact, including our expectations for gross margin rate and SG&A investment spend, based on our third quarter results, we've modified our outlook as follows. First on sales, we now expect to deliver a mid-single-digit decline in constant currency and a high-single-digit decrease in dollars for the full year. This includes a fourth quarter sale decline of about 10% with our North America comps in the range of our Q3 run rate. Gross margin is still projected at about 70% for the year, which includes a fourth quarter margin of about 69%, reflecting our usual seasonality between the third and fourth quarters. We now expect total SG&A dollars for the year to be roughly even with prior year, with an increased investments generally funded by the restructuring actions taken in last year's Q4, but with some deleverage on the lower sales forecast. This guidance reflects a mid-single-digit increase in SG&A dollar in Q4, reflective of marketing spend and some timing of financial adjustments compared to prior year. Taken together, and based on the lower than expected sales, we would now expect operating margins to be in the area of 25% to 26% for the year. And finally, our tax rate is expected to be around 30% for the year benefiting from certain discrete items as well as favorable geographic mix. Regarding our balance sheet cash flow and capital allocation, we continue to have a strong balance sheet and operating free cash flow. As we've noted in the past, our first priority for cash is to reinvest in our business. And of course, we remain committed to our dividend. However, given our current outlook for the business, domestic cash flow requirements, including funding our transformation initiatives to drive a long-term growth, we do not anticipate further share repurchases during the remainder of FY'14. As Victor mentioned, we look forward to sharing more of our plan to drive productivity, restore growth and create long-term shareholder value at our analyst day in June. I'd now like to open it up the Q&A. We are ready to take our first question.

[Operator:]

Thank you. (Operator Instructions). The first question for day is from Bob Durbil with Nomura.

[Bob Durbil:]

Victor, on the comments as you look to FY'15, I was wondering if you could just give us some insight when you think we will start to see the benefits of the transformation play out?

[Victor Luis:]

Good morning, Bob, thank you for your question. We obviously have been very consistent in saying that we're on a multi-year journey. We're really excited about the vision that we have. In fact, we just think yesterday reviewing our spring product and I could not be prouder of the work that Stuart and the team are doing. We also showed the team the new Studio Sofield design that will be the basis of our retail rollouts moving forward from the fall. We also understand, however, that our vision while clear is not yet known to all of you and we're really excited about sharing it with you and taking you on this journey with us, which we plan to do June 4 when we show you exactly what we were doing a lot on our product, work around our stores and, of course, the marketing plans that we will have around brand transformation.

[Operator:]

Thank you. The next question is from Oliver Chen with Citigroup.

[Oliver Chen:]

Hey guys, thank you. Regarding what you're seeing right now in the outlet channel, could you brief us on the promotional environment there? And also, as you undergo the transformation, could you just let us know regarding full price versus outlet in terms of what we should think about as product and marketing gets refined further? Thank you.

[Francine Della Badia:]

Hi, Oliver, it's Fran. As noted, we were more promotional during the quarter specifically in North America factory and specifically on (inaudible). So part of the cost decline was due to deceleration of the traffic in the factory channel, but we did push the business a little bit harder there. So that was our positioning in factory for the quarter. In terms of going forward, we were also less promotional on the (inaudible). So we did limit access to the site as Victor discussed in his prepared remarks.

[Victor Luis:]

Oliver, in terms of your second question in regards to brand transformation, we're of course are looking at all channel as part of our transformation not just full priced factory but also of course our wholesale channel where we made some comments in terms of the work that we need to do and replatforming that business as well. Saying that we understand that our full price business must lead and all of our attention to-date or the vast majority of our attention to-date has been on full price product stores and marketing. We expect that Stuart's focus on the factory channel will lead to rollout a product in that channel from spring summer with some initial products coming in December in a small way.

[Oliver Chen:]

Okay, thank you. And just as a quick follow up as we look to this transformation taking place which lever are you most encouraged about going forward on a long-term basis which would be kind of the leading inflection point in terms of which comp lever would we monitor?

[Victor Luis:]

Sure. We know, Oliver, that traffic is a lagging indicator. We would expect conversion to be the first sign of transformation taking hold and, of course, moving forward as well potentially from slight increases in AUR as we continue to shift our assortment.

[Oliver Chen:]

Thank you very much.

[Operator:]

Thank you. The next question is from Ike Boruchow with Sterne Agee.

[Ike Boruchow:]

Hi, everyone. Thanks for taking my question. I guess, Victor, to your line as what changes we should be expecting to see (inaudible) to the stores in September with the new fall collection, meaning, how many stores of the days will be showcasing the newest store then? How will the department stores handle the launch and how should that rollout progress as we move in individually and then (inaudible)? Thanks.

[Victor Luis:]

Thank you. We will see of course the major shift in our full price channel with 80% to 85% of the skews transforming to Stuart new collection globally, that is, across all of our full price locations. In addition, we will start with the new Sofield and that means wholesale as well of course. In addition, we will start seeing the new Sofield concept rolled out in key flagship stores in North America in the fall. We will start with Rodeo Drive, AOL-TimeWarner and as well one international flagship with Shinjuku in Tokyo also being replatformed. And then from holiday, as I mentioned earlier to Oliver's question, we begin to see the flow in of a few skews in our factory channel which have been inspired by the new collections that we have in full price with a much broader roll out coming in spring summer as our attention turns to that channel as well.

[Ike Boruchow:]

Okay, great, and then just a quick follow up question of that be the Easter impact to your quarter that you guys has reported, just curious if you guys could quantify that maybe I missed it?

[Jane Nielsen:]

About 100 basis points.

[Ike Boruchow:]

Okay. Thanks, good luck.

[Jane Nielsen:]

And then just we have also called out weather, it was about 200 basis points.

[Ike Boruchow:]

Got it. Thank you.

[Operator:]

Thank you. The next question is from Brian Tunick with JPMC.

[Brian Tunick:]

Thanks, good morning. Wanted to talk a little about the real estate and your conversation about remodels and conversions pushing into 2015, should we, A, expect CapEx then to shift into 2015? Does that impact how you thinking about the buyback program which I think it was $1.4 billion over a two-year plan? And then on the store closing side, how many leases come up on the full price side over the next couple of years, and would you consider accelerating the store closing program if comps don't meet your plans? And then the second question is on your guidance, Victor, for next year as we try to get ahead of it. What do you mean by sales expected to moderate further? And any more color on the earnings line as well would be helpful. Thanks very much.

[Jane Nielsen:]

Brian, why don't I take the first part of your multi-part part question and then I will turn it over to Victor. So in terms of what we called out in terms of CapEx, we do expect that the remodels and wholesale renovations will roll in to FY'15. We are looking across, as a part of our business transformation, all of the needs required for brand transformation and that will certainly be a part of that we move forward in to CapEx. As it relates to our share buyback, what we have guided to was about 700 million of share buybacks. We have completed 525 million, as I mentioned. And it's really based on our current cash flow forecast, our domestic cash requirements to really invest in our business, and that's our primary focus, and we will continue to keep you to update you on that as we move forward. As we have called out in this quarter, we are very committed to our dividend as our primary means of returning capital to shareholders. And then as you step backed and asked about our store leases. As a part of our transformation and I think as Fran mentioned on the last call, we are looking critical across our entire fleet and across our entire asset base and aligning that for long-term brand growth and aligning it with our transformation.

[Victor Luis:]

Brian, in reference to your question on FY'15, we really don't have much more texture to provide at this moment. Really looking forward to sitting with all of you on June 4, sharing with you all of the details and plans and texture around the guidance that we've provided and sharing of course the vision as well as having all of you meet the talented group of individuals who are executing around our plans.

[Operator:]

Thank you. The next question is form David Scheck with Stifel.

[David Scheck:]

Hi, good morning. My one question is when you think about the 13 stores, full price stores in North America, could you take us through your thought process on culling stores, and I understand there are still stores to be opened, but just the thought process how you look at markets, the stores themselves or the future vision as it pertains to rightsizing store base? Thank you.

[Jane Nielsen:]

Hi, David. So we've been taking a look at our total fleet as undergoing a very comprehensive review first of the economics of the stores. We've also been looking at our 12 major markets and really trying to understand how penetrated as a brand we are in those markets. And obviously economics and profitability will drive most of our decision as we go forward and continue to assess the fleet. We are doing this across full price stores, factory stores and wholesale so that we have a very comprehensive understanding of the brand positioning. As I said to our most important 12 markets (inaudible) throughout the entire fleet. We are looking at a number of different metrics and evaluating it so we can continue to be opportunistic on a go forward basis.

[Victor Luis:]

David, I would only add that of course we are leveraging all of the data that we have internally in terms of name capture from all of our location to understand consumer movements across channels and within channels and, of course, looking at opportunities both from a competitive perspective as well as just mall vibrancy to understand where we can leverage, as Fran mentioned, other channels whether it be our wholesale presence, which is quite extensive, or of course more importantly and very much a topic de jure for all of us in the retail space is the power of the Internet and how we can leverage that in a transformative way as well.

[David Scheck:]

Thank you.

[Operator:]

Thank you. The next question is from Barbara Wyckoff with CLSA.

[Barbara Wyckoff:]

Hi, everybody. Given the weakening traffic at the outlet malls, why would you be opening 15 stores there? I know that's where all the action is in terms of new mall development, but it just seems like a lot? And then could you verify when the Herald Square store goes into the comp base?

[Francine Della Badia:]

Yeah, okay, hi. As you know, our factory store division is incredibly profitable. So we're taking a look at all the new store development that is happening on the factory side and looking very carefully at those opportunities and we continue to see given premium mall development with the increasing co-tenancy from European luxury players. Therefore, we are proud of our positioning in these all and centered and also deliver incredible productivity and profitability in the new stores that we plan to open. So that is contributing to our revenue or top line.

[Victor Luis:]

Harold Square is going to comp in October.

[Francine Della Badia:]

Third part, yeah, sorry.

[Victor Luis:]

Comp in October.

[Barbara Wyckoff:]

Okay. Thank you.

[Victor Luis:]

I would only add to what Fran said in reference to the factory outlet channel. As you know and we have discussed this a few times and I think you hinted too, is the vibrancy of this channel globally and it is relative. Of course, we see the full price channel in general, especially in the U.S. market suffering much more dramatically from traffic trends. Of course, Q3 is a very unique situation given the weather impact and given that all of these malls or the vast majority of them of course are outdoor malls and, therefore, would suffer more at this moment in time.

[Barbara Wyckoff:]

Okay. Thanks.

[Operator:]

Thank you. The next question is from Omar Saad with ISI Group.

[Omar Saad:]

Thanks. Good morning. Question on SG&A and kind of the philosophy. I think it is going to be roughly flat, may be down in dollar terms this year based on your guidance. Are you thinking about as you -- you have got all these different initiatives in play and transformation projects going on. When do you think about ramping up to spend in dollar terms? Are you going to wait to kind of see an inflection as a new product in a new direction under Stuart on the creative director side starts to see the sales impact of that or is it some -- is the spending really going to ramp up ahead of kind of any turn in sales? Thanks.

[Jane Nielson:]

Yeah. Omar, I think as we called a big part of our SG&A guidance for the fourth quarter is a ramp up in marketing, as we anticipate Stuart's products arriving in stores in September. So we are committed to investing in our transformation. And we are committing to investing in this now in order to drive the momentum as product arrives in stores.

[Omar Saad:]

Thanks.

[Victor Luis:]

Thank you Omar.

[Operator:]

Thank you. The next question is from Dana Telsey with Telsey Advisory Group.

[Dana Telsey:]

Hi. Can you talk little about -- if you think about full price in department stores, how would -- how did the business differ in Q3, was there any difference in terms of what sold through and what you are seeing there? And then, on the transformation. How do you see the marketing plan for both international and North America timing and cadence what you're seeing? And just lastly, inventory, as you get through the end of the year, how should we be thinking about it? Thank you.

[Victor Luis:]

I am going to let Jane in a moment to discuss inventory. In relation to the question on the wholesale channel, Dana, we have not really seen dramatic change. In trend, that channel over all was less impacted by traffic declines this past quarter obviously for many reasons and has performed generally better than the overall mall environment. In terms of marketing, we are very focused on right now with Stuart in leveraging external and internal resources in putting together a very detailed plan. We look forward to sharing that with some texture, both in terms of the visual imagery and the actual media plan with all of you along with PR and press and events in the like at our June 4, analyst day. We are really looking of course at a multiyear journey to drive consumer perception around the brand. We know that product and our store experience will be key in that but, of course, are very excited about communicating this vision to consumers. It will be a global campaign. Obviously, in terms of execution there may be some tweaks by markets around language and the like, but we do see it being very consistent and global.

[Francine Della Badia:]

Just on inventory level, Dana, we called out that for the balance of the year we expect our inventory level to remain high. Based on some of the factors that we called out related to our business distribution growth, higher AUCs,, the acquisition of Coach Europe and our expansion into lifestyle. Also, our inventory obviously is impacted by our sales growth that is below our expectation. As we move through, we are -- we still continue to look at our factory channels, our primary means of moving through inventory. We've always had a small portion of our product in disposition. We'd expect to increase that somewhat as we move through the balance of these.

[Operator:]

Thank you. The next question is from Liz Dunn with Macquarie.

[Liz Dunn:]

Hi. Good morning. Thank you for taking my question. I guess, I was been kind of dancing around the little bit, but I was wondering what appetite you have or tolerance you have for sort of planned reduction in your sales base to restore the company back to health? Obviously, you made this change with sort of your presence in the flash sale sites and there is the guidance -- preliminary guidance for 2015. But would you consider taking sort of a bigger planned haircut to sales to restore the company back to -- which historic health it's still quite healthy, but you know what I mean? And then also, I just had a question on the 12 markets that you identified focusing on, what percent of your stores and your sales are those 12 markets? And are you seeing some dynamic that is different in those 12 markets versus the rest of your store base? Thanks.

[Victor Luis:]

Thank you, Liz. I think in terms of planned reduction, we realize that it's obviously a delicate balance. And as you referenced, we see ourselves doing the said. Obviously, the strategic steps that we have taken in relation to all of the work with reducing partnerships with third party sites, reducing invitations to our database in terms of our flash websites, are all actions that we have taken towards protecting our long-term brand health. And we really will then look at of course driving all the positive steps that we need to take in terms of product, in terms of marketing and in terms of stores to drive relevance and to drive admiration around the brand and, of course, as mentioned earlier, conversion and eventually sales through those actions.

[Operator:]

Thank you. The next question is from Lorraine Hutchinson with Bank of America.

[Lorraine Hutchinson:]

Thank you. Good morning. How much testing of style and colors have you been able to do for this fall's launch versus prior seasons?

[Francine Della Badia:]

Hi, there. We have not tested any of Stuart's new products. As you know, Stuart joined us about six months ago. So he has been very, very busy executing to the new product development for the -- for his fall collection.

[Victor Luis:]

While we have not tested anything to-date, we will be looking up one or two style in -- later in spring, early summer which will guide our buys. But more importantly, I would add what we know and have shared, which is that the editorial reviews have been absolutely fantastic. And our first audience of course is always our internal teams and our global buying teams who have been here actually this week and last week. Last week, they were here to review our outlook products presentation for spring and this week they are reviewing the full price product. And I can tell you that the reactions have been terrific. I certainly, personally have never been more optimistic about a new collection in my seven years at Coach than what we are about to launch in the fall and what we are seeing for spring today.

[Francine Della Badia:]

I just want to go back to Luis this question because we did not answered the part two, which is how important are the 12 markets. The 12 markets represent about 50% of our overall sales. They represent more than that in traffic. And in terms of consumer perception, there are keys to really changing brand perception. And so, we are going to focus on the 12 markets first, certainly with Studio Sofield and the brand transformation effort that we have around marketing product in stores.

[Andrea Shaw Resnick:]

We'll go to the next question.

[Operator:]

Thank you. The next question is from Michael Binetti with UBS.

[Michael Binetti:]

One thing that I think is counter intuitive, I think we have talked about on past calls is how you are going to be able to go to market with price point you want in the full price stores, which I think would include raising price point. While we have seen how hard it is for both you guys and for anyone to reduce the amount of coupon, your promotionality in stores like the factory outlets, maybe you can help us just think about how we can think about pricing integrity for the brand based on where you are at today?

[Victor Luis:]

Sure. It's a terrific question, Michael, because as you suggested it is of course counterintuitive. I would just caution though that the strategy is not to increase prices across the board. The strategy is for us to continue to work on rebalancing our assortments across various price buckets. We have absolutely no intention to give up on the $300 sweet spot in our full price channel and slightly below that that exist in the wholesale channel and we are going to be developing into those price points moving forward. And we look forward to showing you side by side the current product as well as the future product in those price buckets in the increased value that we are working to provide consumers. And moving forward, value is not just about a price point. It's going to be about quality great design and of course all of the aspirational imagery that we are going to developing around the Coach brand through what we do in our store environments, customer experience in marketing. So we are really excited about that. And I think seeing that holistically, which hopefully we will be able to show all of you on June 4, will provide a little bit more clarity around the vision that we have on how we are bringing back to life.

[Michael Binetti:]

Okay. And then, Jane, if I could just follow with one question as for as the share repurchases, any way you can give us some early thinking on how you would look ahead and say potentially this is what would cause us to restart share repurchases? Thank you.

[Jane Nielson:]

As we look up back, our priority for cash remain the same. Our first priority is we have always said the best thing we can do for our shareholder is to invest in the growth of our business. Our second priority is we'll look to make value accretive acquisitions, and then our third priority is to return capital shareholders. As we said today, we are committed to dividend and we really view repurchases as what we would do with excess cash flow. So those are the priorities and that's our view on the purchases, and so it's really about our investment need and our outlook as we move forward.

[Operator:]

Thank you. The next question is from Randy Konik with Jefferies.

[Randy Konik:]

Hey great. Thanks a lot. I guess, my question is regarding the fiscal fourth quarter comp guidance. I think you said it was going to be similar to the third quarter. How do we think about that given you said the third quarter was negatively impacted I think by 300 basis points because of the Easter shift and weather? And then can you kind of talk to us about on one hand it sounds like you are trying to elevate the brand which is kind of and you spoke about the penetration with the increase of higher price points, but yet you are continuing to expand the outlet channel distribution. How are we supposed to think about that balancing act or what's the vision long-term for how the outlet sits in this business model, the price point sit in the business model and then how the logo sits in this business model? Thanks.

[Jane Nielsen:]

Yeah, so Randy as we think about our fourth quarter comp I think we have been clear that we are not going to call a change in trend in the business until we have seen it. As we give you guidance in any quarter, we give you our best estimate based on what we are seeing in the business at that time. And obviously as we called out clearly, traffic deterioration in our business was the key factor that led to the change in comp. We clearly had Easter overlap, we had a weather impact, but traffic was the real challenge relative to our expectation.

[Victor Luis:]

In terms of your second question which is indeed, as you suggested, a really important balancing act, I would just say that this is not a change in our business model. The word elevation is not about transforming Coach into what we perceive or what may be perceived as a traditional luxury brand. Indeed, while some may believe that affordable and luxury are two word that don't go together, this brand has been created and has as its purpose affordable luxury as its positioning, and that’s what we will do moving forward. Indeed, we are really excited as I mentioned earlier about providing extreme value to the consumers at really great price points. Quality, great design, great materials, craftsmanship are all a part of what has made Coach great and what differentiates us from many of our traditional competitors and especially the new accessible luxury competitors that have arisen in the market space. and that's part of our mantra and what we are going to reclaim. As it comes to the factory channel, there are some who believe that there is may be a magic formula to full price doors to a factory door or 3

[Operator:]

Thank you. The last question today is from Faye Landes, Cowen and Company.

[Faye Landes:]

Hi, thanks for taking my question. First of all I may -- two things. First of all, I may have missed this but Brian questioned earlier about the cadence message here of sales like it should be model -- its preliminary, but how we should be modeling next year. And also, if you could just talk about some of your staffing like you had a couple of people leave Jeffery Hill and Bunch Javan, if its correct pronunciation, but who is in that job now? Are there roles that you need to fill?

[Victor Luis:]

With respect to the team, we have obviously a very experienced senior management team. We're very happy for Jeffery and his own move in his career. What I can share with you is that Stuart has a tremendous amount of experience in the men's space. Just yesterday we've seen the new men's collection which has continued to evolve and look absolutely great, and we're excited to show that you on June 4 as well and you'll be able to see it live.

[Jane Nielsen:]

Yes, just in terms of FY'15 I think Victor called out that our expectation at this point is that sales will moderate further. And we're not giving anymore specific shape as to FY'15.

[Faye Landes:]

To moderate further that means more negative?

[Jane Nielsen:]

Correct.

[Victor Luis:]

Correct.

[Andrea Shaw Resnick:]

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

[Victor Luis:]

Thank you everybody for joining us. Of course, we're disappointed by our North American performance especially as it relates our women's handbag and accessories business, but we are incredibly excited and happy to be and what is -- and continues to be a very vibrant category. Our international business, our men's business, our footwear all point into the positive direction. And as I mentioned earlier, unfortunate that you all can't see what we're seeing and experiencing in the last six months with the steps that we've taken forward towards brand transformation. I am more optimistic than at any point during my seven years at Coach in terms of the clarity of our vision and how the actions that we are taking move in a very position direction toward bringing that vision to life and very excited about sharing that with all of you when we're together June 4. Thank you.

[Operator:]

Thank you. This does conclude the Coach earnings conference. We thank you for your participation.