As a reminder, this conference is being I would now like to turn the conference over to our host, Mr. James Hurley. Please go ahead.
Good morning and thank you for joining us on Ralph Lauren's Q1 fiscal 2015 conference call. The agenda for today's call includes Jackie Nemerov, our President and Chief Operating Officer, who will provide an overview of the quarter and comment on our broader strategic initiatives Chris Peterson, Officer and Chief Financial Officer will provide operational and financial perspective in the Q1 in addition to reviewing our outlook for the balance of the year. After the company's remarks, we'll open the call up for your questions, which we ask that you please limit to 1 per caller. During today's call, we'll be making some forward looking statements within the meaning of the federal securities laws, including our financial outlook. Forward looking statements are not guarantees and our results to differ materially from our current expectations are detailed in our SEC filings.
With that, I'll turn the call over to Jackie.
Thank you, Jim, and good morning, everyone. We are pleased to report a strong start to our new fiscal year with better than expected Q1 profits. The consistent focus on our long term strategic growth objective is clearly evidenced in the results. Revenue growth of 3.4% was supported by strong retail segment performance, including double digit expansion for both international markets and e commerce. Operating margin of 14.3% was better than we anticipated in May, largely due to excellent operational discipline throughout the organization, even as we continue to make significant investments in our long range goals.
As most of you are well aware, the 1st 6 months calendar 2014 have been difficult for retailers around the world. Trends have been particularly challenging in North America where the cold and late start to spring caused many consumers to effectively sit out the springsummer season. Geopolitical tensions and macroeconomic pressures in Europe, the Middle East and parts of Asia have also had an impact on consumer spending. Despite that landscape as a backdrop, our brands and products performed very well in the Q1. We achieved double digit growth in Europe, led by continued strength in our retail operations and increased wholesale shipments for the springsummer season.
We also delivered double digit expansion in Asia including positive growth for our Japanese retail operations despite a VAT increase during the quarter. Revenues in the Americas were modestly below the prior year growth for our retail operations was more than offset by lower wholesale revenues, primarily due to a shift in timing of certain shipments between quarters. Merchandising highlights for the quarter include continued global strength in our men's assortments. The response to our expanded Purple Label offering has been very positive and is especially important as we execute our luxury strategy on an increasingly global scale. We introduced our first collection of Polo tailored clothing as a directly operated business during the quarter and the initial read is very strong with consumers taking note of how we've refined the fit and elevated the fabrications.
I also want to highlight the performance of our newest men's fragrance Polo Red, which has achieved the distinction of becoming our most successful men's fragrant launch to date. That's a noteworthy accomplishment considering our already strong position in the men's fragrance market. Turning to our women's business, customers have really responded to the more modern sensibility of our Black Label line. Dresses also continued to perform across all of our women's labels fueled by new silhouettes and fabrications across the range of casual, wear to work, social and special occasion. Women's accessories had strong momentum during the quarter with excellent growth in hand bags and footwear.
And last but not least, our Club Monaco brand continues to show strength worldwide, thanks to its distinctive contemporary styling and compelling visual presentation. Now I'd like to provide a brief update on 3 of our key areas of strategic focus product innovation, global retail development and advertising and marketing. Beginning with product innovation, we will mark an important evolution in our women's offering in just a few weeks with the introduction of women's polo. This line has been developed to complement the breadth and scope of our tremendously successful and iconic polo men's brand that commands a leadership position in the marketplace. From sophisticated tweeds and rugged outdoorsy looks to the perfect little black dress or distressed leather jacket, women's Polo brings all American style up to date with an eclectic downtown edge.
The long term global opportunity for women's polo is extremely exciting and we look forward to consumers discovering the merchandise over the next few seasons. Moving on to global retail development. We opened 12 stores during the Q1, 5 that we operate directly and 7 with international partners. We are on track to open 40 to 45 directly operated stores this fiscal year, including a few strategically important stores this fall. Our first Polo flagship will open in a few weeks on 5th Avenue and fifty 5th Street in New York City.
This three level store will present a comprehensive assortment of Polo men's and women's apparel and accessories and will also have a restaurant and cafe. This store is just the beginning of a global rollout that will take place over the next several years and will be quickly followed by an 8,000 square foot Polo store in Singapore that's scheduled to open in mid September. Later this fall, we will open our 1st Ralph Lauren Luxury Flagship in Greater China. Located in Hong Kong's Lee Gardens Shopping District, we look forward to the opportunity to showcase the brand in one of the important markets. We expect this store to have a beneficial impact on our global business as Chinese consumers are driving force in virtually every major market.
E commerce is another critical component of our global retail development efforts. Double digit e commerce growth in the quarter was the result of a double digit increase in traffic and improved conversion, all of which reflects our continued investment in infrastructure, technology, user experience, customer service and marketing. Our focus on e commerce is of course global and we are very pleased with the momentum we are experiencing in Europe and also in Asia where we have now added ship to capability for Hong Kong, Macau, Malaysia and Singapore. World class advertising and marketing is one of the hallmarks of our company and one of our points of distinction as a brand. It is also an area of increased investment for us this year.
Our most significant campaign this fall will be a celebration of the Polo brand through a large scale 360 program that will introduce the new women's line and present the season statement for men. While still respecting the rich heritage of Polo, the imagery beautifully expresses the energy and fresh spirit of this exciting new offering and conveys a distinct and modern point of view that we believe will resonate with the target consumer. The foundational digital and social media elements of the campaign will be reinforced by in store video, magazine advertising and robust men's and women's direct mail pieces. Right now, we are in the midst of our Sports of Summer campaign, which brings together the power of the high profile partnerships we have cultivated over the years from Wimbledon and the U. S.
Open in tennis to the British Open, the U. S. Open and the Ryder Cup in golf. The quality and prestige that define these events align perfectly with the values of our brand and we are extremely proud of these associations. The same is true of our philanthropic efforts.
During the quarter, we made a donation to fund the Ralph Lauren Centre For Breast Cancer Research at London's Royal Marsden Hospital that was graciously accepted by Prince William at a spectacular gallery at Windsor Castle. Back in America, our sponsorship of the restoration of the Star Spangled banner, one of our nation's most important icons was once again recognized when Ralph was awarded the prestigious James Smithson Bicentennial Medal. We also brought visibility and support to children's literacy through our fall 2014 children's fashion show that was held at the New York Public Library. We are extremely pleased to support all of these important causes. I'm very proud of our team's ability to deliver better than expected profits while navigating challenging market conditions and continuing to build for future growth.
We're fueling the increasingly global appeal of our brands and products with prudent investments in infrastructure, best in class shopping environments and advertising and marketing. I'm pleased to report that the early fall selling is off to a good start and we have several merchandising and marketing initiatives in place to support that momentum. Our priorities are clear and we have both the talent and the financial strength to execute them. We are excited about what we expect to achieve over the next several years as we continue to focus our capital and managerial resources on the most compelling long term opportunities. And with that, I'll turn the call over to Chris.
Thank you, Jackie, and good morning, everyone. Fiscal 2015 is off to a good start with 1st quarter profits exceeding the outlook we provided in May. I'd like to begin with a brief recap of the quarter. Consolidated net revenues rose 3.4 percent to $1,700,000,000 led by strong Retail segment growth and double digit expansion in international markets. Gross profit margin of 61.0 percent was 30 basis points above the prior year period due to favorable channel and geographic mix that was partially offset by negative foreign currency effects.
Operating margin of 14.3% was 240 basis points below the prior year period. This was better than the outlook we provided in May as disciplined operational management throughout the organization mitigated the impacts of incremental investments in our long term growth strategies and infrastructure, higher restructuring charges and a one time gain on the CHAPS men's license acquisition that benefited the prior year period. Net income was $162,000,000 10% below the Q1 of fiscal 2014 and net income per diluted share declined 7% to $1.80 The effective tax rate of 31% in the Q1 was slightly below the prior year, but was higher than we expected due to a couple of minor discrete tax items. The diluted share count declined approximately 3,000,000 shares from the prior year as the company continues to return capital to shareholders through its share repurchase program. Moving on to segment highlights for the quarter.
Wholesale revenues of $708,000,000 were 4% below the prior year due to shifts in shipment cadence between quarters and higher revenues from the initial transition of CHAFS men's sportswear to a wholly owned operation in the prior year period. Wholesale revenues were slightly below our initial expectations, mostly due to a shift in the timing of certain summer and fall shipments out of the Q1 and into the Q2. Combining wholesale sales for the last two quarters, which is a good proxy for the springsummer season, revenues increased 10%, reflecting strong momentum in the Americas and a return to growth in Europe. Wholesale operating margin declined 260 basis points in the quarter to 25.5 percent due to fixed cost deleverage on lower shipment volumes and unfavorable foreign currency effects. Retail sales rose 9% to 9 $60,000,000 driven by the incremental contribution from new stores and double digit growth in international markets and e commerce operations.
Comparable store sales increased 3% during the quarter supported by higher average unit retail prices, a modest increase in traffic to brick and mortar stores and strong e commerce growth. A focus on client engagement and more targeted marketing efforts supported positive comp growth for all of our retail concepts except concession shops. Retail operating margin was 17.5%, 130 basis points below the prior year period, reflecting costs associated with global store development and newly transitioned operations. Licensing revenue and operating income each rose 4% in the Q1 due to higher royalties from higher sales of Ralph Lauren products worldwide. Consolidated inventory was $1,200,000,000 at the end of the quarter, reflecting investments to support anticipated sales growth for existing operations and new store openings as well as incremental inventory associated with newly transitioned operations.
We spent about $85,000,000 on capital expenditures in the Q1, mostly to support new retail stores and infrastructure investments. Company also repurchased 1,200,000 shares of its common stock at an average cost of approximately $152 utilizing $180,000,000 of authorized share repurchase programs. At the end of the quarter, dollars 400,000,000 remained available for future buybacks and we had 1 point $4,000,000,000 in cash and investments on the balance sheet. We established the company's first ever commercial paper program during the Q1 and we've issued approximately $20,000,000 of the $300,000,000 program in the 2nd quarter to date period. We intend to access this very low cost financing from time to time to support the growth of the business in the most capital efficient way.
So overall, we are pleased with our Q1 results, which clearly demonstrate our ability to deliver better than expected profits despite a challenging environment, while making important progress on several of our long term objectives. The team's skill balancing near term market realities and our commitment to our long range goals is a defining characteristic of the organization. Last quarter, we spoke about how we are working to globalize the company and the changes we made to our leadership structure to achieve that goal. We've been operating in this new structure for about 3 months and I'd like to provide some early perspective on the benefits using our newly integrated supply chain organization as an example. We currently source products from over 700 factories in 40 countries and then ship those goods to over 100 countries processed through 13 global distribution centers.
While the company has done a great job optimizing its sourcing and logistics activities individually, we believed there was an opportunity to drive additional benefits through end to end integration of the supply chain. The team's holistic view enables us to determine the most time and cost effective solutions for the company. Key areas of opportunity include leveraging our logistics expertise earlier in the supply chain, taking a more seamless approach to vendor relations and customer service, optimizing inventory across channels and regions and improving speed to market. This should lead to higher revenue and lower cost of goods over time and we're excited about what it might mean for us over the long term. Now I'd like to turn to the outlook for fiscal 2015.
As we articulated to you in May, we expect to maintain strong revenue growth this year. We are increasing our investments in the business to support that momentum and long term shareholder value creation. As you'll recall, the fiscal 2015 plan calls for incremental investment in expanding our global store network and e commerce operations, including important flagship projects, implementing SAP and increased advertising and marketing to support exciting new initiatives such as the launch of women's polo and high profile store openings. As you've seen in this morning's press release, we are maintaining our financial outlook for the year. We continue to expect consolidated revenues to increase by 6% to 8% for the full year fiscal 2015 period, led by Retail segment growth.
As a reminder, this growth is primarily organic as there is no material contribution from license take backs this year and we continue to expect foreign exchange impacts to be relatively neutral. The full year 2015 operating margin is still estimated to be approximately 75 to 125 basis points below fiscal 20 fourteen level due to accelerated investment in our strategic growth initiatives and infrastructure. Excluding the impacts of the incremental investments in the company's strategic growth initiatives, underlying operating income growth would be up low double digits for the year. For the Q2 of fiscal 2015, we expect consolidated net revenues to increase by 4% to 6%, once again led by Retail segment growth. Our operating margin for the Q2 is expected to be approximately 200 to 2 50 basis points below the prior year period, primarily due to higher operating expenses related to the timing of investments to support the company's strategic growth objectives.
The 2nd quarter tax rate is estimated at 30%. Based on our Q1 results and Q2 outlook, we expect our recent investments in new stores, e commerce operations and international expansion to contribute to accelerated sales and profit momentum in the second half of the year. We are mindful that global macroeconomic data are giving mixed signals on the health of the consumer that we remain focused on disciplined expense management, while we continue to invest in our longer term growth objectives. The diversity of our operating model across channels, regions and merchandising categories is a competitive advantage. It's enabled us to manage through an uncertain global environment effectively, while still achieving our financial goals.
We are confident that the investments we're making today will support sustainable profitable growth over the long term. At this point, we'd like to open up the call for your questions. Operator, can you assist us with that?
The first question comes from Omar Saad with ISI Group. Your line is open.
Thanks. Good morning. I wanted to ask a holistic question about the Polo brand, if you don't mind. The Singapore store, which we learned about today, obviously, you've got the one opening in New York, the Polo women's rollout. Can you tell and the plan, I think, you said in the past 15 to 20 potential openings this year.
Can you talk about what you're seeing in the marketplace that gives you the comfort level to kind of make this push around that brand in women's and in stores and store openings? What's the data that you're seeing? I know you have some Polo stores out there already. Talk to help talk us through the confidence level there that's giving you the impetus to make this push? Thanks.
Yes. I think what we're seeing is Polo the Polo brand continues to resonate very strongly with consumers on the men's side of the business. As you know, we're just launching women's Polo now and the response that we've seen from customers and from consumers to the showroom exposure that we've given has been very strong and from the fashion press has been very strong to the Polo women's lineup. We've only had the Polo women's brand in market for about 2 weeks in really a couple of stores. So the women's polo launch is really going to be more broadly distributed over the next couple of months as we get into the fall season.
But we're starting to already see very encouraging trends from the first few distribution points that we've had on the women's polo line. So I think we think with the strength of the Polo brand globally, with the launch of the flagship store in New York, with the launch of the women's Polo line, which really is a new brand introduction for us, and with some of the other exciting things that Jackie talked about on the men's tailored clothing lineup, we think we have a lot of product innovation and news behind that brand that gives us the confidence to expand the Polo distribution through freestanding retail stores worldwide.
Next question?
Thank you. The next question comes from Michael Binetti with UBS.
Hey, guys. I have two questions. One will be a little bit more near term and then one longer term for you, Chris. I think after today the focus is likely to shift to getting comfortable the annual guidance. And in particular, I think the midpoint of your guidance implies revenue growth stepping up to a run rate of about plus 9% or 10% in the back half from about plus 4% in the first half.
Obviously, we have big store openings as a catalyst, but the comparison wholesales get very tough. And just in general, you're a very big brand at this point. So those high single numbers are obviously not easy. So maybe kind of the help you could give us on some of the components that make the revenue target achievable in your eyes would be really helpful. And then on a longer term question, Chris, you guys have a lot of investments coming on this year and have mentioned they'll span multiple years and maybe the timing of the impacts of those investments may be uneven.
But if we look out 2 or even 3 years, how do you think about some of the biggest drivers of the margin leverage for the company as we get past this investment cycle? In other words, is rolling off the step up in retail openings the biggest opportunity or maybe even just some of the opportunities of different SAP modules start to come on and how big that could be as far as leverage opportunities going forward? Thank you.
Sure. So let me start with the first one on the current fiscal year. So I think if you look at the trajectory of the current fiscal year, what we're seeing is that the peak quarter for our investment spending is really the 2nd quarter that we're just about to enter here. And many of the strategic investments that we're making are going to have significant revenue impacts that impact the back half of the year. And that includes both a number of the retail stores that we're opening, whether it's the Fifth Avenue Polo Store, the Lea Garden flagship store, the Singapore store and a number of others that will have a much more significant impact in terms of revenue growth in the back half than the front half.
The second thing I would say on that is that when we look at our plan from a wholesale standpoint and from an e commerce standpoint around the world, we're anticipating from the visibility that we've had through bookings and through some of the initiatives that we have coming acceleration in those businesses as well in the back half of the year versus the front half of the year. Recall that for the springsummer season, if you look at the last two quarters combined in wholesale, we generated 10% revenue growth. So we're coming off a very successful springsummer season relative to the competitive environment. So that characterizes if you will the current fiscal year. I think if you look at the longer term perspective about the investments and how is this likely effort or other infrastructure investments that we're making, those infrastructure investments I would characterize in the short term as being primarily in the investment mode.
But I think we're going to start to see the benefits from those increase and the investment spending decrease as it plays out over the next several years. These are multi year projects, but that should lead to improved margins over the mid- to long term on that part of the spending. If you look at the marketing and advertising step up that we're doing this year, I think that marketing and advertising step up we believe is right for the long term brand equity and health of the business. And I think we expect that step up in marketing and advertising to lead to stronger consumer demand over time, certainly as we increase our awareness in countries that have low awareness today like Greater China, but also as we increase the desirability and demand for the product in our more established markets. And then if you look at the global retail store development spending step up in spending that we're doing this year, I think what you're going to see there is we're likely to be at an accelerated pace for the next several years as we begin to or as we continue to expand the retail stores around the world, particularly in international markets.
But I think the one time sort of step up is particularly in international markets. But I think the one time sort of step up of pre opening costs that's hitting us this year is likely to be more consistent year over year as we get to the outer years. And we'll start to see the benefits from some of the stores that opening today flow through from a revenue and profitability standpoint.
Next question?
Thank you. The next question comes from David Glick with Buckingham.
Yes. Good morning. Thank you. Chris, in that context, as you talk about how the year unfolds, I was just we're just looking at the U. S.
Business, obviously, was down modestly in the quarter, primarily due to shifts. But how do you think about the U. S. Or North America from a wholesale and retail perspective sort of indexed against that sort of 9% to 10% back half growth? Some investors question whether you've kind of hit a maturity level in the U.
S. And there may not be growth there. I was just wondering if you could give us some perspective on that. And then a second question for Jackie. Another question I get from investors is the relevance of the portfolio of Ralph Lauren brands to younger consumers and your strategy to address that going forward to continue to make the brand relevant to millennials for example?
Thank you.
So I think I'll take the first question and then hand over to Jackie. I think if you look at the geographic trends, I think that certainly we're expecting the international business to grow at an accelerated pace versus the U. S. Business. The U.
S. Business is our most mature business. It represents about 2 thirds of the company's revenue. And we have very strong positions leading positions in most of the categories in which we compete in the U. S.
So we do have a plan that we believe will generate market share gains in the U. S. For the balance of the year. But if the U. S.
Market broadly defined is growing sort of at a low single digit rate, I think we have a plan that allows us to grow faster than that, but likely not at the sort of high single digits is baked in. I think where we get to those types of numbers from a consolidated view is because we have a much more aggressive revenue plan, if you will, in the international markets. And that has to do with the fact that in many of these markets, we are under distributed relative to the potential size of the market. So I think we've talked a little bit in the past that 2 thirds of our business is in the U. S, but 2 thirds of the market is outside of the U.
S. So if we were able to capture the same market share outside of the U. S. That we have inside the U. S.
That would imply the international business would be 4 times as big as it is today. We're not going to get there this year, but certainly we think we've got an opportunity for accelerated growth in the international markets. And I think we've seen that play out in the Q1 with strong double digit growth in Europe and double digit growth in Asia as well.
So David on the relevance of our Ralph Lauren brands and the appeal to younger consumers, this is something that the company is highly focused on starting with Ralph and it's continuous. It's something as we looked at our Polo portfolio. Let me start with Polo women's. When you see the product, our advertising campaign, the attitude of the way the product is styled and the environment in which we've placed the consumer, you will see that this is the centerpiece of the appeal of the Polo women's brand. We've already, although it's just in the 1st couple of weeks, as the product has started to hit some of our stores, we're absolutely seeing that younger consumer responding to the brand.
And it's in attitude, it's in fit, and the overall appeal while keeping our heritage, the spirit of the brand, the fit of the brand really is driven towards this young contemporary customer. In our Polo clothing, one of the important things as we took that license plaque was really about creating a new and younger attitude both in fit and appropriate price point as an entry point to our Polo brand and our Ralph Lauren portfolio. And the early response on that has been quite favorable. In our luxury product, Black Label really speaks to a much more contemporary viewpoint and customer. And we're continually really refreshing and updating that product and that point of view and meeting with outstanding results.
We see the same thing in our WRL brand. And while it's really about heritage, it's about authenticity, which that younger consumer really relates to. And we're seeing excellent momentum in our RRL brand. Our Denim and Supplies brand speaks directly to the millennial consumer and that brand was introduced about 2 years ago and is growing at double digit rates year over year for the past couple of years. And we don't see any change in that and we have another significant door rollout beginning this fall.
So as I said, the momentum there has been quite good. And in our accessory opportunity, we're also appealing to that younger customer. When you have the opportunity to see the new Polo women's product, both the footwear and accessories that we're selling and seeing some early success and we're now intend on expanding those categories in Polo women's, have a very young hip attitude. And I think you'll quickly see visually as soon as you have an opportunity to see our new store opening to really identify with why in fact we feel that our brands are so relevant to the younger consumer.
Next question?
Thank you. The next question comes from Liz Dunn with Macquarie.
Hi, good morning. I guess my question, I found it really helpful that you said ex the investment spending, your operating income would be growing at sort of a low double digit rate this year. It's really helpful for us to try to figure out kind of a longer term earnings algorithm for this company and given some of the investment spending that's a little challenging. Do you think that that low double digit rate ex investment spending this year is kind of consistent with what your outlook would be for the longer term, again stripping out the investment spending? Or do you think we could see even an accelerated rate with some of these initiatives, the things that you're basically investing in?
And then also as we get beyond this year, is it fair to say that your investment spending will be more focused on some of the kind of demand creation, sales generation spending and less so on the kind of efficiency side? Sorry, I know that was a long question.
Okay. No problem. I guess I'd start by saying, our investment spending buckets we'll finish the U. S. This year, we'll be into the Europe implementation next year.
This year, we're both completing the U. S. And investing in Europe. So year over year, that investment spend would be lower next year. On the flip side, the e commerce replatforming investment that we're doing that we've just kicked off is a 2 to 3 year project in terms of investment spend before we convert to the new platform and that spending is likely to increase next year versus this year.
So each of the investment strategic investment areas have a slightly different life. That being said, if you were to step back and look at the longer term algorithm of what we're shooting for from a financial target standpoint, I think what we're shooting for is a high single digit revenue growth is what we would like to try to achieve. I've said in the past that given the macroeconomic situation in any particular given period of time, we're prepared for mid single digits, but I think we're shooting for high single digits. I also think that over the sort of 3 to 5 year time horizon, we're shooting for operating margin to be higher than where we are today, because we certainly think that we can drive leverage in the business through that type of revenue growth. It's not going to be a straight line in terms of how we get from where we are today to those targets over sort of a 3 or 5 year period, because it's going to depend on the pace and the sequencing of the investment spending.
That being said, we obviously have not given guidance for fiscal 2016 and we'll plan to do that and give a more specific update on that in our normal guidance timing where we typically give sort of some initial view on the January call and then a more specific set of guidance on the May call.
Next question?
Thank you. The next question comes from Faye Landes with Cowen and Company.
Okay. A couple of quick questions. First of all, this is just a housekeeping, but all of us have been I think all of us on the call have been chained to our desks for a while. So can you just tell us where we what stores already have Polo Women's, so we can go see it?
Sure. The stores that have Polo Women's are Short Hills in New Jersey. The East Hampton store has Polo Women's. And I think it's going to be coming over the next couple of weeks in a much broader assortment of stores.
And of course, our Fifth Avenue store opens August 28. We have gotten early reads from our business in Japan where we opened in Isoton and in our own Amontosando store. We have early reads from Korea that are also quite favorable. And these are markets that have a very young spirited customer and early reads we've had.
Okay. Just first of all, could you tell us how much the preopening is for the big stores this quarter and this year? And what we should think of going forward? And also just your comments about Denim and Supply, RRL, etcetera imply that your other businesses or some of your other businesses are negative in the U. S, which obviously holistically is not necessarily an issue, but how we should what are the facts there and how should we think about them?
The preopening cost, I think we don't disclose at that level of detail. But what we have disclosed, for example, is the rent on the Fifth Avenue Polo store, which is $25,000,000 a year. And so obviously, we're paying that rent without any revenue right now. We're also, have invested significantly in hiring staff so that we're ready to open that store, which we're paying salaries to. We're spending significant money on fit out and capital, some of which is on the balance sheet, some of which is expensed.
So it's fair to say that the peak investment in that particular store is happening in the second quarter and there was significant investment in the Q1. The same is true of the Lea Gardens flagship and the same is true of the step up in the pace that we're doing of global store rollouts around the world. So that gives you a little bit of a flavor. I think we've said in the past that if you look in total at the investment spending behind the company's strategic investments for this year, Global Infrastructure, Marketing and Advertising and Global Store Development. The Global Store Development piece of that was they were relatively evenly split between those 3 in terms of their impact on the operating margin.
In terms of what we should think of what years, I mean, you're going to keep building stores?
Say that again?
How should we think about this in the out years because you're going to keep building stores? I mean is this a peaky year?
Yes. I believe I think it will be a peak year for us because although we're going to keep building stores, once you have the pre opening cost in the base financials, the year over year impact shouldn't be as great next year because we will have had peak we will have had the pre opening cost in the base for this year. And so if we maintain that level of the same level or a consistent level of global retail development going forward, we won't have a year over year impact from pre opening cost because it's already in the base once it's gotten into this year. And on the flip side, we should start to benefit from the revenue and the profitability from the accelerated pace of new store openings.
And Faye, in response to your comment regarding Denim and Supply and RRL, as I was answering David's question regarding the relevance of our Ralph Lauren brands to younger consumers, I was very specifically highlighting some of the brand concepts that are directly appealing and some new characteristics about our brands that we have now added as I talked about Polo Women's and the new Polo clothing and so forth and more recent brands like Denim and Supply. But we had a season in springsummer that outpaced the stores results and with particular strands in Polo, in our footwear business, which was spectacular, our accessory business, which is running up double digits and a nice chaps season. So I think that
never meant to imply that this was these were and
these weren't.
But Yes. Good morning. So I had a question on gross
Yeah. Good morning. So I had a question on gross margins. So as we look out this year and into next year, obviously, this year you're up against a much easier comparison you were last year. But if you kind of break down the 3 main initiative shifts that you have as you move from wholesale to retail or at least strategically you're trying to do that from apparel to accessories and then also U.
S. To non U. S. Could you talk a little bit about which of those you see as having the biggest impacts? Obviously, this quarter you called out channel and geography, But could you just talk a little bit about which of those has the biggest impacts over time?
I would assume they should all be gross margin accretive, but maybe a little color there. Thanks.
Yes. You're right. All three of those would have the tendency to be gross margin accretive because our retail segment operates at a higher gross margin than wholesale. Our international business operates at a higher gross margin than our U. S.
Business. And of course, the accessories category can be characterized with higher gross margins than the apparel category. And so as we're driving those initiatives, we do expect that. I think the reason we called out the retail or the channel mix in particular this quarter was because we had the retail segment in the Q1 growing substantially faster than the wholesale segment in the Q1. So that was clearly the biggest driver in terms of mix impact in Q1.
I think relative to this fiscal year, I think all three will be important contributors to gross margin. Probably given where we're looking, I think that the retail segment growth relative to the wholesale segment growth will probably have in this current fiscal year the biggest impact out of those 3. But I expect all three to be important contributors to gross margin over the next several years. On the flip side, obviously, the retail segment also comes with higher SG and A than the wholesale segment. And so we're working very hard to globalize much of the company's infrastructure so that we can leverage scale from the revenue growth regardless of whether it comes from the retail or the wholesale segment.
And that's part of the operational changes that we've made in management to try to leverage more capability on a global basis that can apply omnichannel.
Next question?
Thank you. The next question comes from Erinn Murphy with Piper Jaffray.
Great. Thanks. Good morning. Just a
couple of follow ups. 1 on the
gross margin, understanding that mix shift. But just curious in terms of what you're seeing from a markdown perspective either from your retail partners or in your own stores during the quarter. Was that in part an offset to the strength you saw from the geographies and the channel shift? And then what is your guidance contemplating for Q2 and the full year in terms of gross margin? And then just secondly, as it relates to Europe, I mean, clearly a very strong region for you guys.
Have you seen anything in terms of the early spring 2015 order book start to build? Thanks.
So on the markdowns actually our gross margin the Q1 came in a little better than we expected when we gave guidance in May. So we really didn't see any year over year impact in our business from incremental markdowns versus the year ago period. It was a more promotional environment, but we were able to weather through that without a significant impact on our gross margins. If you look at the consolidated gross margin of the company during the Q1, obviously, the gross margin was up and it would have been up even more than what was reported if it wasn't for a foreign currency impact on European inventory purchases where we have a hedging program in place that we had a gain in the year ago period. So that's sort of answers I think the first question.
On the Q2 and full year in terms of gross margin, I think we expect we don't give guidance specifically on gross margin, but I expect our gross margin trends that we saw in the Q1 to roughly continue for the balance of the year. So I think we're looking at a year that has gross margin improvement throughout the balance of the year relatively consistent with the Q1. And then in terms of the early spring order books from wholesale from Europe in particular, I think Europe we were very encouraged by the results from Europe in the quarter and we talked a little bit about this. It really started to we've had continued strong growth in our retail stores over really the last year. We had a period where we pulled back on wholesale shipments and we were annualizing that, which we annualized last October, November type period.
And so we started to see a return to growth in the wholesale channel in Europe and that trend started in the Q4 of last year continued in the Q1 of this year. And I think we expect that strength in the wholesale channel to continue for the balance of the year and we're seeing that in the order books.
Next question?
Thank you. The next question comes from Joan Pason with Barclays.
Good morning. Could you speak a little bit to the margin profile of the Asian and e commerce businesses given they're some of your highest growth segments? And also maybe just what the margin potential is for those longer term versus where they are today?
Yes. So I'll start on e commerce. So e commerce we're at sort of a different place by region. So in the U. S.
We have a very strong and well developed e commerce business that's at scale that has margins in the U. S. E commerce business that are at or above the balance of our U. S. Business.
So in the U. S. When if a consumer moves from a brick and mortar sale to an e commerce sale, it is a good thing for us from a profitability standpoint. In Europe, because we started it later in Europe on e commerce, we're just getting to scale. So this is the 1st year in e commerce that we're going to turn from being in investment mode to being in profitability.
And so as the scale builds in Europe, which we're seeing very strong trends, we expect the profitability in Europe e commerce to increase significantly as that business begins to scale. And in Asia, where we've just launched e commerce for the first time about a year or 2 ago, we started with Japan and then we came with Korea and we're working on Greater China and Southeast Asia, we're still in investment mode. So we're still not profitable, but it's because we're investing in getting the business up and running. And we certainly expect over time that business to a strong margin profile.
Next question?
Thank you. The next question comes from Christian Busch with Credit Suisse. Your line is open.
Thank you very much. I was wondering if we could talk a little bit about the push out of shipments into 2Q. How much did that hold back the wholesale revenue growth in the Q1?
Yes. I think it was a relatively minor amount. I think when we gave guidance at the beginning of the quarter, we thought that wholesale revenues overall would be relatively flat. And I think what we reported was down about 4%. And so I think the primary driver of that difference was in the wholesale receipt plans, particularly related to the summer and fall shipments where some of the shipments moved from the Q1 to the Q2.
So I think that was really the driver of that change, if you will.
We have time for one last question.
Thank you. The final question comes from Barbara Wyckoff with CLSA.
Hi, everybody. I saw the Polo Women's in East Hampton. I think
it looks great. Store was busy.
Could you go over the door count denim supply this year versus last year owned stores and wholesale? And then is there an opportunity to accelerate the growth of Club Monaco stores?
Yes. So denim and supply we've opened a number of doors around the world. I think we have 10 to 15 stores. We have 2 in the U. S.
We have a number in Asia and a number in Europe. And I think what we're doing with Denim and Supply is we're working on optimizing the merchandising and assortment plans of those retail formats in a way that gives us confidence to accelerate the pace of further store rollouts. We're still very early in the Denim and Supply brand. I think we've launched the Denim and Supply brand 2 or 3 years ago. We're encouraged by the progress that we're seeing from the stores that we've opened to date, but we want to optimize given that we've got 10 or 15 open before we really accelerate.
And then on Club Monaco, we have accelerated the pace of store openings. And so if you look at Club Monaco, I think that not only with the Fifth Avenue flagship in Manhattan, some of the refurbishments of some of the other stores, but we're opening a significant pace of stores in Asia as well. We have 2 new stores that are about to open in London, 1 in Sloane Square, 1 in Redchurch that we're very excited about that will open in the next few months. And so that business is really resonating with the consumer. And we see an opportunity there to go a little faster.
It's actually our largest business in China with licensed partners who've accelerated another 20 stores this year and have plans for even greater growth next year as it's one of their top performing brands within their portfolio. I believe it's the top performing brand. So thank you for your continued interest in the company. And we are as you can see, working on many exciting initiatives and there's a lot of important progress planned over our next few months and we look forward to updating you on that. Thanks everyone.
Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.