Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren First Quarter 2014 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. James Hurley.
Please go ahead.
Good morning, and thank you for joining us on Ralph Lauren's Q1 fiscal 2014 conference call. The agenda for this morning's call includes Roger Ferra, our President and Chief Operating Officer, who will provide an overview of the quarter Chris Peterson, our Chief Financial Officer, will provide operational and financial perspective on the Q1 in addition to reviewing our outlook for the balance of fiscal 2014. And Jackie Nemerov, our Executive Vice President, will provide merchandising highlights and comment on some broader strategic initiatives. After the company's prepared remarks, we will open the call for questions, which we ask that you limit to 1 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. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings. Now, I'd like to turn the call over to Roger.
Thank you, Jim, and good morning, everyone. The Q1 results that we are reporting today continue to demonstrate the resilience of our diversified operating model. Despite an uneven global operating environment, we plan the Bridge business prudently and continue to make significant investments in our long term growth objectives and in the infrastructure to support them. Ralph and I are proud of our team's accomplishments, especially since we made important progress on several of our key initiatives during the quarter. We expect our investments in new stores, e commerce operations and international expansion to continue to accelerate sales and profit momentum in the second half of the year.
And we are confident that the investments we are making today can support profitable sustained growth for us over the long term. Now I'd like to turn the call over to Chris, who'll provide some operational and financial perspectives on the Q1.
Thank you, Roger, and good morning, everyone. The Q1 sales and profits we're reporting today are slightly better than we expected, and I'd like to start with a recap of the financial results. Consolidated sales grew 4% in the Q1. Excluding the impact of discontinued businesses and unfavorable foreign currency translations, revenues were 6% higher than the prior year period. This was slightly better than the low single digit growth we anticipated due to better than expected wholesale revenues in North America and Europe.
The cold and late start to spring resulted in sales trends that were somewhat choppy throughout the period, with business strengthening when weather conditions were more seasonally appropriate. While traffic to brick and mortar stores was challenging, growth in e commerce continued to be very strong for both our retail and wholesale segments. Gross profit for the Q1 of fiscal 2014 increased 1% to $1,000,000,000 Gross profit margin of 60.7 percent was 160 basis points below the prior year period due to the integration of the CHAPS men's sportswear operations Q1 were 4% greater than the prior year period. The higher operating expenses primarily reflect overall business expansion, costs associated with newly transitioned operations and continued investment in the company's strategic growth initiatives and infrastructure, all of which was partially offset by disciplined operational management. We also had a $16,000,000 gain on the acquisition of the CHAPS men's sportswear license.
This one time gain was included in the Q1 and full year outlook we provided in May and will mostly be amortized in subsequent quarters. Operating expense rate of 44% was 10 basis points above the Q1 of fiscal 2013. Operating income of $276,000,000 was 5% below the prior year due to higher operating expenses related to the timing of investments in the company's strategic growth objectives, the CHAPS integration and negative FX impacts. Operating margin was 16.7%, 160 basis points below the Q1 of fiscal 2013. The operating margin results were better than the 200 basis points to 250 basis point contraction we anticipated back in May due to stronger than expected productivity gains in certain areas of the organization.
Net income for the Q4 of fiscal 2014 was $181,000,000 7 percent below the $193,000,000 achieved in the comparable period of fiscal 2013. And net income per diluted share declined 4% to $1.94 EPS of $1.94 was better than we anticipated due to higher revenue and stronger profit flow through, a testament to the operational excellence of our teams who were still contending with a relatively challenging global retail landscape during the quarter. Moving on to segment level details. Wholesale sales grew 6% to $735,000,000 in the Q1, primarily a result of the contribution from the newly transitioned CHAPS men's sportswear operations and continued growth in core North American merchandise categories, which continue to gain market share. Product wise, womenswear and accessories were the most important contributors to wholesale revenue growth in the quarter.
A planned reduction in shipments to certain European customers and the transition of certain Japanese wholesale distribution to directly operated concession shops partially mitigated wholesale revenue growth during the quarter. Wholesale operating income of $154,000,000 was in line with the prior year period as improved profitability in North America was more than offset by lower international profits and CHAPS transition costs. Retail segment sales rose 3% to $879,000,000 in the Q1, reflecting the incremental contribution from new stores and strong growth for e commerce operations. Excluding the impacts of discontinued businesses in foreign currency, retail sales increased 6% from the prior year. Consolidated comparable store sales declined 1% on a reported basis and were up 1% in constant currency during the first quarter on top of relatively challenging multi year comparisons.
We estimate that the earlier timing of Easter this year negatively impacted our comp growth by approximately 2%. With the exception of e commerce, customer traffic trends were soft across most retail formats during the quarter. However, strategic marketing efforts along with the investments we've made in in store technology and customer service enabled us to mitigate lower traffic levels with improved conversion and UPTs at most of our retail formats worldwide. Com store sales were stronger at directly owned Ralph Lauren factory and e commerce operations and weaker at concession shops in Asia. Retail operating income of $160,000,000 was 11% below the prior year period as costs associated with the company's global store and e commerce development efforts and foreign currency effects were only partially offset by disciplined operational management.
Licensing revenues of $39,000,000 were 8% below the prior year period as lower chaps related licensing revenues offset higher apparel and fragrance royalties for Ralph Lauren products. Licensing operating income of $29,000,000 was in line with the prior year period. Consolidated inventory was up 9% at the end of the quarter, largely due to the newly acquired Chaps business and new store openings. We spent approximately $66,000,000 on capital expenditures to support new retail stores, shop installations and infrastructure investments. Free cash flow of 2.29 $1,000,000 in the Q1 was 11% greater than the prior year period.
Company repurchased about 850,000 shares of its common stock during the Q1 for an average cost of approximately $176 utilizing $150,000,000 of authorized share repurchase programs. At the end of the quarter, the company had $427,000,000 available under previously authorized share repurchase programs for future buybacks and we ended the quarter with $1,400,000,000 in cash and investments. We made important progress on several initiatives during the Q1. We completed the pilot conversion wave of SAP. This included global product procurement and North American wholesale operations for a group of pilot brands and involved transferring millions of pieces of data including inventory, purchase orders, sales orders and accounts receivable from legacy systems to SAP.
The pilot implementation went very well with data conversion rates between 99% 100% and we are now fully on to SAP for the pilot brands. Based on the pilot success, we are proceeding with the next wave of implementation later this quarter, which transitions a more meaningful portion of the company's brands and merchandise categories. As we articulated last quarter, we are taking a staggered approach to systems conversion in order to proactively manage the risk profile of the project. Over time, we believe SAP will yield productivity improvements and procurement savings in addition to providing the company with a stronger platform for future growth. The integration of the formerly licensed Chaps men's sportswear operations has also gone smoothly.
We've worked on an accelerated basis over the last few months to take this business in house since it is an important component of the overall Chaps brand. In a short period of time, we've successfully onboarded about 50 new employees and established dedicated warehousing and distribution capabilities to support the business. We're now at a point where we are migrating from a costly transition services agreement to a wholly integrated and directly managed model. At the beginning of July, we assumed direct control of Ralph Lauren operations in Australia and New Zealand from our former licensee. As a result of the license take back, we've integrated approximately 300 new employees, 13 stores and 20 shop in shops across the two countries.
Although we have already incurred some upfront costs associated with the transition, the full financial impact of managing Australia and New Zealand will be reflected in our results beginning in the Q2 of fiscal 2014. It's clearly been a productive start to the year. Before I review our outlook for the balance of 2014, I'd like to turn the call over to Jackie.
Thank you, Chris, and good morning, everyone. Our first quarter results demonstrate that despite the formidable challenge of a cold and late start to spring around the world, we had a good springsummer season and were able to exceed our sales and profit plans for the quarter. The balance and diversity of our merchandise assortments as well as the lifestyle positioning of our brand, which tends to emphasize the total sensibility over a single item allowed us to offset softness in certain seasonal classifications such as knits and sandals with strong performance in other categories such as dresses and denim. In addition to strong performance for the Ralph Lauren brand, the Chaps brand also had a fantastic quarter across a wide range of merchandise categories. As Chris mentioned, the integration of the CHAPS men's sportswear business into our organization went smoothly as in and is in fact one of the fastest transitions we've ever executed.
Chap is a $1,000,000,000 brand at retail with representation in over 40 merchandise categories and we're excited about the growth it represents for the future. With direct control of the largest strategically important merchandise categories, we believe that we can further enhance the clarity and consistency of the brand to drive even stronger productivity gains and achieve merchandising and marketing synergies with our customers. The success of Chaps in North America over the last several years is a clear demonstration of the enduring value of trusted brands that deliver consistent quality and great value. In order to more fully leverage the power of this brand, we are building a plan to expand the distribution of Chaps around the world. I'm pleased to share with you that we have an agreement with a distribution partner in Mexico to launch Chaps around the world.
So there will be more to come on future calls. Now I'd like to spend some time on exciting developments on 2 of our key strategic initiatives. The first being the evolution of our omnichannel approach to servicing the customer and the second being an update on some of our non apparel merchandise categories. With regard to the omnichannel, you already know that developing our worldwide direct to consumer presence is one of the most important long term strategic growth objectives. We've invested substantial amounts of capital and operating expense to build both retail stores and online shopping experiences that are unique to our brands and distinctive to the consumer.
During the quarter, we opened 2 high profile Ralph Lauren retail locations in China, a spectacular 10,000 square foot men's flagship store in Central Hong Kong with an impactful 6 story facade and a 5,800 Square Foot Men's and Women's Store at Lavenue in Shanghai, which is a new first class retail and office complex. Both stores will showcase our luxury apparel and accessories in a powerful way. China is one of the company's largest and most compelling long term growth opportunities. And the foundation of our strategy is a retail expansion that will require significant investment in both stores and e commerce capabilities in order for us to be properly positioned in the market. As you know from our approach in the U.
S. And Europe, our stores both physical and virtual are critical expressions of our brand. So the decisions we make in China are extremely important to the future of our luxury business. Last quarter, we spoke briefly about retail strategy for our Polo brand that would allow us to more fully represent that aesthetic across men's, women's and children's merchandise. We believe that a dedicated retail expression for the full breadth of the Polo brand will allow us to better serve a diverse customer base.
Our existing luxury retail stores offer a smaller assortment of Polo and only for men and those locations attract a customer who's really drawn to our Black Label and Purple Label products. The creation of dedicated Polo stores will provide the right environment in which to represent the sensibility of this powerful brand with a full product line across not only men's, but also women's and children's. Given the broad appeal of the Polo brand, we believe that there is potential for these stores in many locations around the world. We opened the 1st dedicated Polo store in East Hampton during the Q1 and it's off to a great start. As we embark on the first phase of a multiyear plan to leverage the tremendous global demand for our Polo brand, several more retail projects are planned around the world, including a 35,000 square foot flagship on Fifth Avenue in New York.
We are also excited about the continued global development of our Denim and Supply brand. We opened 2 Denim and Supply stores in the United States during the quarter, 1 on University Place in New York City and the other on Newberry Street in Boston. They joined a fleet of about 15 other Denim and Supply retail stores, 8 in Europe and 7 in Asia and complement our worldwide wholesale distribution. Denim and Supply is a relatively new brand that resonates with the 20 something millennial audience. The product is fresh and distinctive, but grounded in the quality and the authenticity of Ralph Lauren.
As far as the brand has come in its 1st 2 years, we believe there is considerable room for additional stores. In another aspect of our plan to fortify our omnichannel approach, we're on track to launch e commerce in South Korea later this fall, which will represent the 14th country in which we are e commerce enabled. We have invested in e commerce capable distribution centers in Italy, Hong Kong, Tokyo and Seoul to support additional ship to markets throughout Europe and Asia. We will also be opening our greatly expanded distribution center supporting our North American e commerce operations this fall. Over the last year, we've invested about $75,000,000 in capital to build a facility that can support the doubling of that business.
Because we view our retail stores and e commerce sites as not only important commercial ventures, but also valuable branding vehicles for us. We believe it is imperative that both merchandising and marketing messages be aligned. To ensure this, we've invested in the technology and the distribution and logistics capabilities that allow us to integrate and leverage the unique power of our product distribution, our inventory and our brand messages. Today a customer in one of our stores works with a well trained sales associate who uses an iPad to easily and quickly offer additional options that he or she knows are available online, that the customer is not seeing right there in that particular store. That additional option could be as simple as a size or color or it could be a style or label not sold in that location.
The combination of sales associates who are knowledgeable across the entire portfolio of our product and technology that enables easy access to a single pool of shared inventory is a winning formula. The customers' experience is richer and more dynamic and our productivity and profit margins are stronger. And of course, as technology and distribution capabilities have evolved, so too has the customer the consumer behavior and we know the customer explores, browses and shops our brand across these channels and that their expectation is one of alignment and seamlessness. We are very focused on servicing and delighting our customers wherever they choose to shop for Ralph Lauren. To that end, the investment we're making in our customer intelligence platform is focused on realizing a holistic view of customers so we can service them in a brand centric channel agnostic manner in real time.
Our omnichannel thought process extends beyond our directly operated retail business. Over the past several years, we've architected and executed a highly successful application of this omnichannel view with our wholesale partners and it's been an important driver of our growth and success to support those endeavors with fully integrated merchandising and marketing strategies that reinforce our brand's leadership position both within their stores and on their sites. Now turning to our merchandise categories beyond apparel handbags, footwear, watches, jewelry, eyewear and fragrance. I want to update you on our continued development and investment. You've heard us talk about handbags, small leather goods and footwear, because they have been among our fastest growing categories and represented approximately 8% of our consolidated sales in fiscal 2013.
We are pleased with the credibility the Ralph Lauren brand has established in a relatively short period of time in the highest tier of the luxury leather goods market and are also focused on building a strong platform for sustainable long term success. This fall, you will see a lot of activity around our most iconic handbag, the Ricky. Launching in the next few weeks is a complete World of Ricky story built around a greatly expanded range of handbags and small leather goods products inspired by this signature bag. A high impact, multi channel, global advertising, marketing and public relations program featuring the recently introduced Soft Ricky style will be impossible to miss. The introduction of the Soft Ricky has already been a great success worldwide and we are building upon its appeal with this introduction of a broader range of sizes, colors and related items for the fall and holiday seasons.
Beyond luxury handbags, there's also momentum for other accessory categories. Building upon the World of Ricky platform in leather goods, we are leveraging some of our most iconic brand themes to develop new watches, eyewear and fragrances. This spring, we had a great success with 2 of our new watches, the Safari Chronometer and the Steel Link Stirrup. The high level of consumer interest in these new styles has increased exposure for our entire watch collection and had a beneficial impact on the business. The safari aesthetic was also the inspiration for our latest eyewear collection where both optical and sun styles were introduced into the line and were well received by the consumer.
Ralph's passion for the design of final automobiles was the inspiration for our newest men's fragrance Polo Red. The fragrance and its messaging have been huge hits with consumers and the early success of Polo Red will be supported this fall with substantial television magazine advertising. And with that, I'll turn the call over to Chris.
Thanks, Jackie. We are pleased to be starting fiscal 2014 with strong progress on several long term objectives and sales and profits that are trending slightly better than planned. As you will recall, fiscal 2014 was planned with increased investments in the business to support long term shareholder value creation. Key areas of investment this year include accelerated retail store and e commerce development worldwide, the transition of formerly licensed products and regions to directly controlled operations and upgrades to our management information systems to support our long term growth objectives. Based on the timing of our specific projects, we continue to expect fiscal 2014 to evolve as a tale of 2 halves, with the 1st part of the year characterized by lower sales growth and outsized investment spending related to the integrations of CHAPS and Australia New Zealand and by pre opening cost for new stores, we expect accelerated revenue and profit growth in the second half of the year with the benefit of revenues from new store openings, the launch of our South Korean website, expanding the number of countries we can ship to from our European e commerce operations and the transition of Australia and New Zealand as a directly operated region.
As we articulated in May, the combined year over year impact of the incremental investments we are making in new stores and e commerce platforms and in systems upgrades on our operating profits is approximately $75,000,000 for the full year period. While this step up in spending will weigh on our near term operating profits, we continue to expect each of these investments to deliver a rate of return that is well in excess of our cost of capital. For the full year fiscal 2014 period, we continue to expect consolidated revenues to increase by 4% to 7%, which includes 150 basis point negative impact from foreign currency effects and a roughly 100 basis point additional headwind from discontinued operations. Our full year fiscal 2014 operating margin is still expected to be 25 to 75 basis points below fiscal 20 thirteen's record level. The year over year contraction in the operating margin outlook is primarily due to the integration of newly assumed operations, accelerated investment in our various strategic growth initiatives and FX impacts.
Excluding the impacts of the incremental investment in the company's growth initiatives and foreign exchange, underlying operating income growth would be up low double digits for the year. We continue to expect the fiscal 2014 tax rate to be 31%. For the Q2 of fiscal 2014, we expect consolidated revenues to increase at a low single digit rate with retail segment sales growing at a mid single digit rate and relatively flat wholesale revenues due to a shift in the timing of certain wholesale shipments out of the second quarter and into the Q3 due to the SAP implementation. Foreign currency is estimated to negatively affect revenue growth by approximately 100 basis points in the second quarter and will continue to have more of an impact on our retail segment given its geographic business mix. Discontinued businesses are estimated to mitigate 2nd quarter sales growth by an additional 100 basis points.
Operating margin for the Q2 is expected to be approximately 300 basis points to 3.50 basis points below the prior year period due to higher operating expenses related to the timing of investments to support the company's long term strategic objectives, the integration of formerly licensed regions and product categories and the foreign exchange impact. The 2nd quarter tax rate is estimated at 31.5%. We've established aggressive goals for the year, laying critical groundwork for the future. Our global teams continue to demonstrate strong operational discipline as they not only manage the day to day, but also support the important progress we are making on key long term initiatives, particularly our global omnichannel efforts and infrastructure upgrades. With that, we'd like to open the call for your questions.
Operator, can you assist us with that?
Our first question comes from Omar Saad with ISI Group.
Thanks. Good morning. Hoping you guys can comment on looking at
the top line overall for the company, it's been a little bit soft for the last couple of quarters. And you've obviously got all these great kind of global long term growth opportunities.
It seems like there was also a little bit of
a discrepancy wholesale top line versus retail. What gives you confidence in the kind of this reacceleration you're going to see in the back half? Are there certain elements either within the segmentation of different brands, regions, channels?
Just kind of give us
an update on your overall kind of view on this top line reacceleration that's coming? Thanks.
Okay. So Omar, I'll try that and then Jackie and Chris can chime in if they want to add. I think you're right. In the last couple of quarters for various discrete reasons, we've had the results as you commented. While we delivered the plan for the Q1, I would say that spring summer was a bit choppy in terms of overall trends in the apparel market.
On a regional basis, it was interesting because it was pretty good in the U. S. Actually better than expected in Europe with Asia being down. And that was really a combination of strong results in the early days of China and Southeast Asia, but weaker results in Japan and Korea. Some of that being FX, some of that really being the shop in shop businesses that dominate both Korea and Japan.
And I think those two markets and the department store distribution network in them experienced contractions. And so really it was a series of different results around the globe. As we head into fall and holiday, we feel good about the product, early reads and I know it's early for fall have been good. We're seeing the strengthening of key markets in Europe. We've had some good wholesale pre books in Europe beginning to flatten out and then grow the forward bookings after several seasons of contractions there.
We've got some strong product initiatives as Jackie articulated. And so we're feeling like the go forward business that we'll have less of the one offs that we've experienced, plus the addition of ChapStru Men's, plus the addition of Australia, plus the launching of some of these e commerce sites where we've been carrying the expenses and haven't gotten the revenues. And lastly, and this is true for most people with businesses here in the U. S. We're going against the effects of Sandy, which did impact part of the fall season last year.
So for lots of reasons, the underlying trends of the last quarter with the Easter shift, which is sort of unique to us because of the way it splits between March April and some of the FX. We delivered the plan perhaps not as much as we had hoped, but I think we're encouraged about fall and beyond.
The only thing I would add is that this next wave of SAP, which we're implementing toward the end of the quarter is causing us to shift a little bit of our revenue, particularly in the wholesale business out of the Q2 and into the Q3. So we're going to ship some shipments out of the last week of September and into the 1st week of October. And that's having a little bit of a split impact between the second and the third quarter revenue guidance.
Next question?
Thank you. The next question comes from Kate McShane with Citigroup. Thank you. Good morning. Roger, this is somewhat answered in the first question, but I wondered if there could be more a little bit more detail.
I know last year around the time of the Q2 you had decided to pull back some products from Europe because of the state of the world there at the time. Are those sales returning in that region?
Okay, Kate. Well, you know I love details, so I'm glad you asked. I would start by just giving you a sense of the trends in Europe. We've talked in the past about sort of a general strength in the North and a little bit softer in the South. And while that continues sort of as a headline, we actually have seen this season France get a little softer than it's been in the past.
But strength in Germany and the U. K. And the Scandinavian markets and other markets have actually encouraged us. We proactively pulled back really on 2 levels. 1, the countries that are dominated by specialty store distribution like Italy, where the specialty stores were struggling and we were very cautious about putting product into them that quite frankly we might not have gotten paid for.
So we really work to proactively reduce that. We worked with our better specialty store customers. But that was a decision to balance inflow of product and the risk of not getting paid. And quite frankly, we've managed that beautifully. In the department store channels, countries that are dominated mostly by department store distribution, which is Spain and Germany, parts of France and the U.
K. As their business has been soft excluding Chinese tourists, we've worked hard to get the inventory turns and the supply and demand in alignment. And as I briefly said in the beginning of my comments, we're beginning to see that turn. And the go forward bookings in Europe are encouraging in the places we're choosing to sell. So after several quarters or a year of contraction that was strategically applied to the wholesale channel, we're beginning to see that reverse in the go forward product categories, countries and regions.
So I think that's good news.
The next question comes from Michael Binetti with UBS.
Two questions. First, Chris, the 100 basis points you called out of headwind from discontinued operations, the headwind to revenues, it sounds like it's incremental just because I didn't see it when I look back at the Q4. Is that new? Maybe you could tell us a little bit about what that was? Was that in the original 4% to 7% guidance you gave last quarter?
And then secondly on the transitioning of CHAPS, I'm wondering if there were any adjustments that you made to inventories that perhaps you weren't expecting that was the gross margin impact maybe a little bit more than you thought in the quarter related to some inventories you had to clean up? If you could just help me with that. Thanks.
Sure. Yes. I think on the first question, the discontinued businesses are really primarily rugby, which we had called out previously. I think we felt like we wanted to provide a little bit more specificity in the guidance on how much that discontinuation of a additional sort of perspective on that we wanted to share with The Street. So that's the primary piece of that.
On the gross margin impact and CHAPS impact, it kind of came out as we expected. So you saw in the release that we had a $16,000,000 gain. Part of the way the accounting works is because we terminated the agreement early because of the PVH and Wernicco merger, we had to take a step up in the inventory along with a number of other items that resulted in a gain. The inventory that we shipped out in the April, May, June period, we then recorded higher cost of goods. So part of that gain wasn't really incremental.
It was a shift out of the cost of goods into the gain number. But that $16,000,000 gain wasn't all incremental. And we knew about that, because we had negotiated the contract with PVH prior to our May release. And so that was included in our guidance, but it is there is an underlying gross margin impact that's about what we expected because of that step up in inventory and then you ship out and incur higher cost of goods than what the going cost of goods level would be.
Next question?
Thank you. Our next question comes from Liz Dunn with Macquarie. Hi. Thanks for taking my question. Just questions around retail.
It looks like a lot of the Rugby stores were sort of repurposed for some of your other growth initiatives. Is that first, is that correct? How many were there? And what do you think about unit growth for this year? What should we be looking for?
And it also looks like there are quite a number of licensed stores opening under Club Monaco and some under Ralph Lauren. But to the extent that you have licensed stores opening, how do we sort of avoid some of the missteps that license partners have made in the past in terms of opening appropriate locations or not being appropriately positioned? Kind of how are you working with these guys to make sure that they get it? Thanks.
Okay, Liz. Let me try that. We repurposed probably half of the Rugby stores and those stores some of which became Polo, for instance, East Hampton and Short Hills later this fall, some of which became Denim and Supply like Newberry Street or University Place Downtown and about half we closed. The bigger news there is that while it's certainly early days and Jackie touched on this in her opening remarks, we're feeling very bullish about the opportunity for Polo as standalone retail. We've had Polo for men's in our own Ralph Lauren stores, albeit smaller as we've expanded our luxury presentations.
But standalone men's and complemented with women's polo, which will be part of our fall strategy is a very exciting concept for the customer. That will be displayed at its pinnacle on the Fifth Avenue next fall. So we have 25 stores in the pipeline for this year to open worldwide. But the probes into Polo stores and Denim and Supply give us a very good feeling about the commercial viability of high store count growth in the future, which is different than looking for luxury locations. Within our current performance this spring and heading in, the United States and really Europe had pretty strong retail results.
It was really offset by the shop in shop concession numbers in Japan and Korea, which we include in our retail comps that really dragged the business down in total. So when you put aside some of the moving parts with FX and Easter, the low single digit positive comps were really stronger in the U. S, stronger in Europe and a little bit down in total in Asia, obviously supported very strong e commerce growth. So there are levels of detail underneath the headline numbers that I think give us some confidence we're on the right path.
Next question?
Thank you. Our next question comes from Christian Busch with Credit Suisse.
Yes. Hello. Could you provide some color on the marketing plans for the China business and some color on how the stores have performed in their initial
ramp base?
Yes. We have opened a number of stores over the last year, 1.5 years. Obviously, a lot more to come. China is running about 18% ahead. So Southeast Asia is also running mid double digit mid teen double digit increases.
So we're encouraged by the early reaction there. That includes stores in Vietnam and Malaysia and some other markets. While it is still early days, we did open what we call a flagship in Hong Kong in the Princess building, which is a dramatic statement about our menswear. We had a soft opening in June. We'll have a bigger push in the fall and that's had tremendous early reaction from the customers.
And surprising to us strong sales in clothing and furnishings. I think most of you know that the China customer today and the male customer is the dominant customer is more casual and dress, but we've had very good early success in clothing. So we expect to begin to ramp up the marketing plans print as well as store activities starting in the fall, but really coming out more strongly in calendar 2014. That's when we're planning a series of large store openings in the fall of 2014 in Shanghai and in Hong Kong and it really will represent a more complete coming out party for us.
Next question?
Thank you. Our next question comes from David Glick with Buckingham Research.
Yes. Just a couple of quick questions. Just a follow-up, Chris. If you could quantify the net impact on the gross margin from CHAPS. I know you mentioned 2 moving parts there.
And then secondly, Roger, you called out women's as one of the stronger businesses, women's and accessories. Accessories not a surprise women's sounds like it's getting stronger. Just wondering if you can comment on what you're seeing in the women's business? And was men's not called out because it was weaker or just it wasn't as strong as women's?
Yes. So I'll take the CHAPS. The total impact to the gross margin on CHAPS was about 120 basis points of the in the quarter.
I'm going to ask Jackie to maybe touch on some of the product initiatives that you asked about David and then we'll go from there.
David, we have seen a strengthening across our entire women's business starting with our collection and black label business, where they are starting off with quite a good fall at this point year over year. Our Lauren business had a very, very strong season, up high single digits off of a very substantial base. As you know, we are the number one brand in the department stores and continue to grow in that position and in that floor space. Our accessory business, I commented on in the script, as our luxury accessory business with the centerpiece as the Ricky of the Ricky, which has done extremely well for spring and we pretty much had sellouts. We're redelivering now all of our fall colors.
And I don't know if you noticed in the Sunday Times, but we had a fabulous soft Ricky ad this Sunday. And that is now just the beginning of what we expect to see around that product for the fall right through the holiday season, we're putting a heavy emphasis on our accessory opportunity. Our Lauren accessory business had a very, very strong spring season and it looks like a good lead into fall. And because of that, we're seeing additional store rollouts. And as I said, real nice double digit increases in our Lauren brand as well.
For anyone who wants a real treat, take a trip down to Macy's Herald Square to see our new men's polo shop, which was just opened on Friday. And it has it is a 10,000 square foot shop opened off of the new Seventh Avenue men's door coming up into the shop on the 2nd floor escalator right into the men's shop. A dramatic presentation of all of the styles that we see in our Polo customer and from the most casual to clothing and dress furnishings and new accessory area that we installed in this Polo shop. And I think that speaks to how we feel about the opportunity, the continued opportunity in our men's business. We had a very nice season off of our obviously very large based business and in most stores ran a mid to high single digit comp over prior year.
Next question?
Thank you. The next question comes from Erinn Murphy with Piper Jaffray.
Great. Thank you. Good morning.
I just wanted to on from
an investment perspective as it relates to SAP and recognizing the staged approach you're taking, are there more front end loading of the investments particularly in Q2 than maybe were previously implied? And then just from the remaining investment as we think about it for the balance of the year, how should we think of that kind of progressing as we get through the next two quarters in the back half? And then just a second question kind of on some of the longer term growth opportunities particularly in Denim and Supply. As this brand has gone more into retail and as that continues to grow, can you speak a little bit more about what you're learning about that consumer in particular? Thank you.
Sure. I'll take the SAP question. So the year over year spending on SAP is a significantly higher spending that's in fiscal 2014 versus what we did in fiscal 2013. I think we've said the combination of the investment in SAP, the new stores and the e commerce platform is $75,000,000 increase versus last year from those things combined and SAP is a significant portion of that $75,000,000 If you look at the SAP spending, the SAP spending is a little bit more front half loaded in the fiscal year than back half loaded, because of the timing of the waves that we're going through implementation. This wave that we're going to do at the end of September is really the largest wave that we've got sort of remaining for this scope of the project that we're looking at.
And so there will be it will be spread out throughout the quarters, but it will be a little bit more front half loaded.
On the denim and supply consumer, Erin, what we are really seeing is that the department store customer our customers are focused on really driving this millennial customer into their stores. What we're seeing is a very strong and early reaction. For instance, in Macy's and Denim and Supply, we are in the impulse department, which is the focus on that millennial customer. In men's, we're in the young men's area sitting next to Levi. Both of those businesses have been tracking very, very strongly men's and women's in the department stores.
We opened 2 locations in this quarter, 1 in Boston and 1 in New York 4 Denim in supply and off to a very good start and we believe that there will be many stores following that. We have stores that have opened in Europe and in Asia also performing very well. So what we're seeing is that certainly within the Ralph Lauren brand in the Denim and Supply aesthetic, we've really been able to engage with this customer. And as I said, the sell throughs, the product mix, the nature of and the exciting look of that product is clearly engaging that customer. We have a very interesting marketing campaign with the DJ Avicii, who is a very hot DJ in that market.
And what's happening is we actually just launched this amazing video that has gotten millions and millions of consumer reaction to it. And it's extremely well done. And Avicii will be part of our fall campaign with special appearances and special concert. So we're putting a tremendous amount of focus on the opportunity that we see with this millennial customer. Next question?
Thank you. The next question comes from Faye Lambiez with Cowen Company.
Yes. Hi. Thanks for taking my question. A couple of things. Can you first of all, you mentioned the impact of FX on gross margin.
I'm trying to figure out what the exact number is. And also more perhaps more crucially, can you define or sort of outline when you expect return when you expect to return to higher core top line growth rates post the anniversarying of China, American Living, etcetera, and what it's going to take to get there?
Sure. So let me start with gross margin. So gross foreign exchange had about a 50 basis point approximate impact on gross margin. So, if you looked at the gross margin, we talked about the CHAPS impact and the FX impact. If you looked at the gross margin excluding those two impacts, we would have been flat to slightly up in gross margin on the core business in the quarter.
I think, Faye, in terms of the top line growth, you know all the macroeconomic factors going on in the world today. So I'm not going to rattle those off. Our focus is on a very underdeveloped Asia business for us. We've talked consistently for years about seeing Asia as potentially a third of our business in the future with Europe being a third and the United States being a third. So at 63% U.
S, we've got a long way to go in the international markets, whether that's emerging markets like Brazil or other parts of Europe or really the more scalable opportunities in China. So we will continue to look at the distribution strategies, the brand strategies, the marketing strategies that will drive an acceleration in the international growth rates. Within product categories, which is the other focus for us, Jackie touched on several of them. They are the luxury businesses. They are the accessory businesses.
And we feel very bullish about the size and opportunity of Polo for women's as well as the denim business. So we have product category opportunities as well as geographic opportunities. And the last leg of that stool is really the ongoing opportunity in e commerce on a global basis. We're running significant increases in Europe in e commerce in our 2nd year. We'll be breakeven or profitable.
We're making big investments in Asia, 1st in Japan, Korea, but after that China. We think we have a compelling product. We have the brand integrity and the product integrity that allows customers to comfortably buy our products online with low return rates. So these are very profitable ways to reach customers, particularly in new markets. It's a much more efficient way to talk to customers than trying to build a very big network of retail only brick and mortar stores in these countries.
So those are the headlines of growth. We're very committed to them. We've talked about the investments necessary to make. We think we're being prudent about balancing that and delivering ongoing shareholder value. But at this point, those opportunities remain unchanged and unshakable in our mind in terms of where we want to put our management time, energy and our money.
We'll take our last question.
Thank you. The final question comes from Barbara Wyckoff with CLSA.
Hi, everybody. Can you talk about the number of the points of sale that you have in Greater China now versus last year? How many could you break out how many concessions you have versus owned retail? Are we likely to see Polo stores increasing in China versus concessions in the future? And then just sort of thoughts on flagships.
After these flagships open next spring, is that going to be pretty much it for China? And then you'll focus on other stores like the Blue Label?
Okay, Barbara. Let me see if I can summarize and this will be more directional than absolute specifics. We took back the license distribution in China, which was heavily focused on department stores and partners, multiple partners in multiple cities around China. And when we made the decision to shut that down, it wasn't because they weren't doing business or there wasn't an appetite for the product or it wasn't making money. We just thought it did not lay the foundation for the kind of brand we wanted to build long term.
So as we've said about 95 points of sale were closed in China over the last 5 quarters. Some of that dribbled into the Q1 of this year when Chris talked about discontinued ops, but it wasn't meaningful. So in essence, we shut the network. We have been rebuilding really at this But the flagship we just opened in Hong Kong men's only and the flagships we're opening next fall is part of a strategy to have key important flagships in Shanghai, Beijing and Hong Kong. We are not at this point looking to go into 2nd or 3rd tier cities in any meaningful way until we establish the full complement of the brand in those flagship locations.
Once we've done that and we begin to raise the brand visibility and knowledge, which today only 7% of the population really knows us there, which is in stark contrast to our recognition in the United States or Europe. But we'll begin to cascade strategies, distribution points and brands in those markets. We also are looking to overlay that with a thoughtful e commerce strategy, which will give broader access to the product than we can reach in a reasonable time frame with brick and mortar. So with that, I'd like to thank you all for listening. We continue to remain very committed to our long term growth initiatives and think we've managed the short term as a team very well.
Look forward to talking to you in November.
Ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect.