Now for opening remarks and introductions, I will turn the conference over to Mr. James Hurley. Please go ahead, sir.
Good morning, and thank you for joining us on Ralph Lauren's 4th quarter and full year fiscal 2013 conference call. The agenda for this morning's call includes Roger Farah, our President and Chief Operating Officer, who will give you an overview of the year and comment on our broader strategic initiatives. Jackie Nemerov, our Executive Vice President, will provide some merchandising highlights and Chris Peterson, our Chief Financial Officer, will provide operational and financial perspective on the Q4 in addition to reviewing our initial expectations for fiscal 20 14. After that, we will open up the call for your questions, which we ask that you please limit to 1 per caller. On 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 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. We're reporting excellent Q4 and full year fiscal 2013 results today. The 42% earnings per share growth that was achieved for the 4th quarter and the 14% increase for the full year excluding the rugby related charges were a function of strong product acceptance and exceptional profit flow through on sales. The double digit earnings growth was a continuation of a multi year trend that highlights the extraordinary creativity and operational excellence that characterizes our company. It also showcases the powerful diversity of our operating model across merchandise categories, channels and regions.
This is particularly true for fiscal 2013 as our global teams successfully managed through a challenging macroeconomic environment during the year. Fiscal 2013 was a year of important progress on each of our long term strategic growth objectives. With respect to our direct to customer efforts, retail segment sales increased high single digits in constant currency and that growth was mostly comp driven led by e commerce. During the year, we commenced an exciting multiyear initiative to grow our brand presence in Asia with a particular focus on Greater China. We also significantly enhanced our global e commerce capabilities.
We have built a talented team with global oversight supported by 3 strong regional teams. In addition, we extended our reach in Western Europe, launched our first Asia site in Japan and launched Club Monaco e Commerce capabilities in the United States and Canada. We are also in the final months of doubling the size of our customer fulfillment center in North Carolina. E Commerce will remain a critical area focus and investment for us over the next several years. Retail now accounts for 52% of our consolidated revenues, up from approximately 40% 5 years ago and we expect much of our future growth to be direct to led.
Our second major strategy has been our desire to expand our international presence. European revenues were up low single digits in constant currency during the year, as strength in our retail operations more than offset a proactive pullback in wholesale distribution. We're able to grow our Europe profitability at an even stronger rate as the locally based team prudently managed the business distorting resources to higher performing channels and countries. In Asia, where we are just beginning a long and exciting journey, we now have most of the major building blocks in place of our new shared service hub in Hong Kong with strong country management to focus on growth. And even as we've made outside investments in new stores and e commerce, we're able to improve the profitability of our Asian operation with disciplined management.
The increased global acceptance of our products is a validation of our sustained commitment to investing in innovation and world class supply chain capabilities and supporting those efforts further with a highly strategic merchandising initiatives, compelling advertising and marketing campaigns and extraordinary shopping environments. Continued market share gains in many of our core continued market share gains in many of our core merchandise categories in North America, which is our most developed market is a clear indication of the incredible vitality of the Ralph Lauren brand. We are making great progress with our accessories, denim and home offerings since assuming direct control of those categories. And we look forward to nurturing the recently transitioned CHAPS men's sportswear in a similar manner. Over time, we believe these emerging merchandise categories can become meaningful drivers of incremental growth in the U.
S. And around the world. During fiscal 'thirteen, we successfully completed the first phase of a multiyear implementation of an integrated global systems platform. We believe the consistent strengthening and evolution of our corporate infrastructure will boost the global information we need to run our growing business. The clarity and purpose of our company's vision and strategy is well understood throughout the organization.
Ralph and I are proud of the progress the team is making with our long term growth objectives with the company's ability to consistently invest in those long term strategies, while executing the day to day and consistently delivering annual results. We are excited about the many compelling opportunities that lie ahead of and we intend to match this excitement with an accelerated investment back into the business over the next several years. We are confident we have the right strategies and teams to execute our goals. And with $1,400,000,000 in cash and investments on our balance sheet, we certainly have the means to fund our strategies. Those of you who are familiar with our company understand that our consistent reinvestment back in the business has been an important driver of sales and profit performance.
Over the last decade, we've delivered 16% compounded annual earnings per share growth on 11% compounded annual sales growth and have returned $3,000,000,000 to shareholders via repurchase or dividends. The net result of our actions have been over a 700% increase in total shareholder return, which reflects the focused execution of our global strategies. Now I'd like to turn the call over to Jackie.
Thank you, Roger, and good morning, everyone. I'd like to expand on 2 of the themes Roger touched on in his opening remarks. The first being the operational excellence that is a defining characteristic of our company and the second being the incredible market share gains of our North American wholesale business. The operational expertise of our global supply chain organization is one of the company's most significant competitive advantages. Over the years, our sourcing and logistics team have navigated through not only the growing scope of our global operations across regions, channels and product categories, but also dynamic changes in input costs all while meeting the company's high standards of innovation and quality.
Their ability to consistently execute with excellence, delivering exquisite high quality product, while still achieving cost savings and other efficiencies has been an important driver of our sales and profit growth. Much of the organization's success is a result of the steady investment in talent and capital we've made to develop these world class capabilities as our business has evolved. In fiscal 2014, supply chain organization will ensure the seamless integration of CHAPS men's sportswear and our Australia and New Zealand operations, the doubling in size of our U. S. Distribution center for ralphlauren.com and our organic business expansion.
I know that many of you have an interest in input cost dynamics, so I'll offer some perspective on our input costs for this year. Fall 2013 costing is expected to be modestly below the prior year period. This is a function of lower raw material costs that are mostly offset by higher wages and are in plans to invest back into the product whether through materials and trim or construction details in order to deliver the most compelling product to the consumer. As we look even farther ahead to springsummer 2014 season, we expect to see higher prices for our most important raw materials. But I'm confident in our team's ability to meet this challenge and find ways to mitigate that pressure.
The continued expansion of our North American wholesale business is a testament to the strong aspirational appeal of the Ralph Lauren brand. The mid single digit increase in our comparable operations during fiscal 2013 was a continuation of a multiyear trajectory that has far outpaced industry growth. Much of this growth has been achieved through our core men's, women's and children's apparel offerings, but our newer women's accessories, footwear, dresses and our denim and supply brand were also important contributors. We look forward to thoughtful wholesale distribution expansion of these categories and believe they have the potential to support our continued growth. On a related note, we just opened 2 freestanding Denim and Supply stores in the U.
S, 1 on Newbury Street in Boston and the other today on University Place in New York City. These stores are an outstanding expression of the Denim and Supply brand and I encourage you to visit them. We believe that selective retail expansion of Denim Supply worldwide will foster greater awareness for the brand and serve as a positive complement to its wholesale distribution. In addition to the strong wholesale performance of the Ralph Lauren brand in North America, CHAPS also performed very well in the Q4 and full year periods. Established 35 years ago as a men's only brand, Chap's has evolved over the last decade into a complete lifestyle offering with a robust product assortment across men's, women's, children's, accessories and our home categories.
The combination of classic style and great quality at an accessible price point has made Chaps a highly regarded and aspirational directly operated wholesale business. We have in place a transition service agreement to ensure a seamless process without disruption for our customers over the coming months. With all of the largest merchandise categories now directly managed by our company, we will further enhance the clarity and consistency of the brand. We also believe there's a consumer appetite and a compelling opportunity to develop the Chaps brand on a global scale over time. Everything sensibility and an aesthetic that are reflected across each of our merchandise categories.
The extraordinary creativity that is a hallmark and point of pride for our company is matched only by tremendous merchandising discipline that has enabled us to maximize our market share potential. I want to share with you how we've transformed a historically strong U. S.-based merchandising organization into a truly global one. Since we've assumed direct control of most of our strategically important merchandise categories and regions, we've learned that there's a great commonality to our worldwide bestsellers. This insight is a foundational principle that grounds our global merchandising organization.
Centralized in New York, in order to work in close proximity to Ralph and his design teams, we have built teams made of merchants representing our key regions around the world to work side by side in a highly collaborative manner to conduct global line reviews and plan global buys. These teams work very closely with the respective brand teams across sales, planning and marketing in order to inform their thought process with real time feedback on sales trend, product performance and marketplace dynamics. We are confident that over time greater consistency of a product story will drive both product development and production efficiencies that will allow us to leverage our global growing scale and provide opportunity for continued gross margin expansion. We believe a more centralized approach will ensure greater singularity of message and therefore global consistency of advertising, marketing and in store presentations. Creating an even more direct link between Ralph's vision and the consumer experience across all distribution channels becomes increasingly important as tourists traveling all over the world become a larger set of our customer base.
And with that, I'd like to turn the call over to Chris.
Thank you, Jackie, and good morning, everyone. As you've seen in this morning's press release, we're reporting strong 4th quarter profit results today. Let me start with a brief recap of the quarter. Consolidated net revenues rose 1% to $1,600,000,000 reflecting Retail segment growth that was partially offset by a decline in wholesale shipments. Excluding the impact of foreign exchange and strategic decisions to discontinue American Living and close certain stores in Greater China, revenues increased 4% in the 4th quarter.
The revenue results were below the expectations we articulated in February due to unseasonably cold weather that hurt early spring merchandise sales and foreign exchange. For the full year fiscal 2013 period, net revenues grew 1% to $6,900,000,000 and were up 5%, excluding the impact of the strategic decisions and foreign exchange. Gross profit margin of 59.3% was 2 20 basis points greater than the prior year period. The improvement in gross profit margin is primarily attributable to lower input costs, beneficial channel and product mix and operational discipline. Operating expenses of $792,000,000 were in line with the prior year as we were able to offset higher investment in our growth initiatives and approximately $15,000,000 of impairment and restructuring charges with operating expense savings through productivity gains.
Operating expense rate of 48.2 percent reflects 50 basis points of leverage compared to the prior year, which was better than our expectations due to disciplined expense management across the organization. Operating income rose an impressive 33 percent to $182,000,000 in the 4th quarter and operating margin improved 2 70 basis points to 11.1 percent. Strong profit flow through was a function of the extraordinary operational discipline of our global teams. For the full year fiscal 2013 period, operating income increased 8% to $1,100,000,000 and operating margin improved 100 basis points to 16.2%. Excluding rugby related impairment restructuring charges, the fiscal 2013 operating margin improved 130 basis points to 16.5%.
Net income for the Q4 was $127,000,000 35 percent greater than the prior year period and net income per diluted share increased 38% to 1.37 dollars Excluding rugby related charges, net income per diluted share grew 42% to $1.41 in the 4th quarter. Higher operating income was the principal driver of the substantial increases in net income and net income per share. EPS also benefited from a lower effective tax rate of 25%, which was 300 basis points below the prior year due to a favorable discrete tax item and geographic mix. For the full year fiscal 2013 period, net income rose 10% to $750,000,000 and net income per diluted share increased 12% to $8 Excluding rugby related charges, net income per diluted share grew 14% to $8.13 in fiscal 2013. Moving on to segment highlights for the quarter.
Wholesale sales of 796 $1,000,000 were 4% below the prior year period, primarily due to the discontinuation of American Living in fiscal 2013 and a proactive reduction in shipments to certain European wholesale customers. Wholesale operating income grew 16% to $175,000,000 in the 4th quarter and wholesale operating margin improved 3 80 basis points to 22%. The substantial improvement in wholesale operating margin was primarily due to higher gross profit margins as a result of lower input costs, favorable product mix and operational discipline. 4th quarter Retail segment sales rose 7% to 804,000,000 dollars supported by the contribution from new stores and e commerce operations and a 4% constant dollar comparable store sales increase. Sales trends continued to be strongest online and at factory stores worldwide.
Despite the challenges of the overall macro environment and unseasonable weather conditions, the 4th quarter's 4% constant dollar comp growth was achieved on top of difficult multiyear comparisons and was primarily a function of improved traffic and conversion. Retail segment operating income grew an impressive 73% to $74,000,000 in the 4th quarter and the retail operating margin expanded 350 basis points to 9.2%. The robust improvement in retail operating income and operating margin reflects stronger profitability in all major geographies, particularly in international markets and was achieved despite higher restructuring and impairment charges and continued investment in global e commerce development. Licensing revenues of $43,000,000 in the 4th quarter were in line with the prior year as higher apparel product licensing revenues were offset by lower home product licensing revenues. Operating income for the licensing segment declined 3% to $29,000,000 Consolidated inventory was up 6% at the end of the fiscal year and we spent approximately 2.70 $6,000,000 on capital expenditures to support new retail stores, shop installations and infrastructure investments.
The company repurchased 3,000,000 shares of its common stock during fiscal 2013 at an average cost of $149 utilizing $450,000,000 of our authorized share repurchase programs and returned an additional $128,000,000 to shareholders via dividend payments. At the end of the Q4, the company had $577,000,000 available under previously authorized share repurchase programs for future buybacks, and we ended the year with approximately $1,400,000,000 in cash and investments. We are very pleased with the strong Q4 and full year results. The prudent planning, operational management and financial discipline that characterized the company have enabled us to maximize margin opportunities and deliver double digit earnings growth. We've achieved these results even as we've continued to make substantial reinvestments to support our longer term growth objectives.
Now I'd like to turn to fiscal 2014. As we articulated to you in February, we expect revenue growth to improve in fiscal 2014 and we are planning to increase our investments in the business to support long term shareholder value creation. Key areas of investment in fiscal 2014 include accelerated retail store development, global e commerce capabilities and upgrades to our management information systems. With respect to retail store development, we currently plan to invest particularly since our plans include a handful of large high profile stores that are scheduled to open in the next 2 years. Among these stores are new Ralph Lauren flagship stores in Asia as well as our 1st flagship store for the Polo brand in New York City.
We are in the early stages of an exciting plan to open Polo stores worldwide. Supported by more than 45 years of Ralph's extraordinary vision and commitment, Polo is one of the most recognized brands in the world. Our efforts are focused on leveraging the tremendous innovation and expertise that exists in our design and merchandising organizations to satisfy the growing global demand for our Polo and Blue Label products. We believe Polo stores will be a good complement to the important wholesale distribution that exists today in North America and parts of Europe. They will likely become the primary platform by which the brand is distributed in certain international markets, such as Asia and parts of Latin America, where the wholesale channel is less developed.
We recently opened our 1st Polo store in East Hampton, and we intend to open a 2nd Polo store at the Short Hills Mall in September. We've also committed to open a 35,000 square foot flagship store on Fifth Avenue in New York City that will be a major brand statement featuring a full assortment of Polo men's, women's and children's merchandise as well as a restaurant. Scheduled to open in the fall of next year, we believe the flagship store will really set the stage for the broader global strategy, especially since it is located in one of the world's most popular tourist destinations. We are actively engaged in and committed to finding additional Polo locations around the world, which will be a mix of flagship stores in key gateway cities and smaller formats in appropriately sized markets. We also plan to increase our investment in e commerce around the world as the consumer is clearly choosing to shop more online.
Over the last year, we've created a stronger global digital and e commerce team to capitalize on this trend and provide a more holistic approach to managing this dynamic channel of distribution. Specific plans for fiscal 2014 include a new Korean website, expanding the number of countries we can ship to in Europe and in Asia, evolving the online customer experience in existing markets and investing in expanded distribution and fulfillment capacity to support our long term growth expectations for the channel. With respect to infrastructure investment, the largest area of incremental investment for us will be in a globally integrated ERP system. As a reminder, during fiscal 2014, we plan to convert global product and our North American wholesale order to cash processes from legacy systems to SAP. After several months of testing, we go live with our pilot wave later this quarter.
While the pilot wave only represents a small part of our consolidated revenues, it allows us to test 95% of the functionality of the new system, allowing us to mitigate risk and make any necessary adjustments before rolling out to larger businesses. Over time, we believe the SAP implementation will yield productivity improvements and procurement savings in addition to providing the company with a stronger platform for future growth. We expect each of these investments to deliver a rate of return that is well in excess of our cost of capital. However, for fiscal 2014, they will represent a significant step up in spending. The combined year over year impact of these investments is estimated to affect operating profits by approximately $75,000,000 for the full year period.
Foreign currency exchange rates will also be a significant headwind for us in fiscal 20 14, both in terms of translational and transactional impact. The recent devaluation of the Japanese yen is expected to have the greatest impact. Comparing the current yen to dollar exchange rate to the average 83 exchange rate we experienced in fiscal 2013, the yen is down approximately 25%. To mitigate the cost impact of the yen devaluation, we instituted price increases in Japan 3 weeks ago, but those actions will not provide a complete offset to the devaluation. For the full year period at today's rates, we expect about 150 basis points of negative currency translation on the company's top line and that the combination of translational and transactional currency effects will negatively impact operating profit by about $75,000,000 With that as backdrop, I'd like to review our initial outlook for the year, which was outlined in this morning's press release.
As we've developed the plan for fiscal 2014, the year can be characterized as a tale of 2 halves, with the operating margin down in the first half. First half of the year is impacted by upfront expenses related to the integration of the Chaps business and Australia and New Zealand as well as preopening costs for new stores. The second half is expected to benefit from the integration of the new businesses as well as the new store openings. For the Q1 of fiscal 2014, we expect consolidated net revenues to increase at a low single digit rate with wholesale segment sales growing slightly faster than retail segment sales as a result of the CHOPS integration. Foreign currency effects are estimated to negatively affect revenue growth by approximately 150 basis points in the Q1 and will have more of an impact on our retail segment given its geographic business mix.
Our operating margin for the Q4 is expected to be approximately 200 basis points to 2.50 basis points below the prior year period due to higher operating expenses related to the timing of investments to support the company's strategic growth objectives, the CHAPS integration and the foreign exchange impact. 1st quarter tax rate is estimated at 32%. For the full year fiscal 2014 period, we expect consolidated revenues to increase by 4% to 7%, which includes a 150 basis point net negative impact from foreign currency. Wholesale sales are expected to grow slightly faster than retail revenues due to the disproportionate impact that currency translation has on our retail segment. We estimate that newly transitioned operations, which include Chaps Men's Sportswear in Australia and New Zealand, beginning in the Q2, account for approximately 3.50 basis points of our consolidated revenue growth.
We expect our full year fiscal 2014 operating margin to be approximately 25 to 75 basis points below fiscal 20 thirteen's record level due to the integration of newly assumed operations, accelerated investment and strategic growth initiatives across geographies, distribution channels and infrastructure and to the FX impacts I highlighted earlier. Excluding the impacts of the incremental investment in the company's strategic growth initiatives and foreign exchange, underlying operating income growth would be up low double digits for the year. Our fiscal 2014 tax rate is expected to be 31%. The higher level of investment that's flowing through the P and L is also reflected in our capital spending plans. We are planning approximately $350,000,000 to $450,000,000 in capital expenditures in fiscal 2014, primarily to support our global direct to customer and infrastructure investments.
Approximately 75% of our capital is allocated for our global direct to customer activities, including new store investments and the expansion of our dedicated distribution and fulfillment center for our North American e commerce operations. Our commitment to investing in our strategic growth initiatives and infrastructure is clear, as is our expectation for return on capital. We are excited about what we believe we can achieve over the next several years as we continue to focus our capital and managerial resources on the most compelling long term opportunities. At this point, we'd like to open up the call for your questions. Operator, can you assist us with that please?
Thank you. The question and answer session will be conducted electronically. And our first question today will come from Omar Saad with ISI Group.
Good morning. Hoping to focus a little bit on the revenue line in the quarter. I know you guys had guided to something like a mid single digit increase in the Q4. Obviously, it came in a little bit below that. I assume the yen was part of the factor there.
Could you talk through some of the other factors that led to the slight revenue disappointment? Is it are there macro things going on out there? Is it weather related? Is it broad based? Is it focused in certain areas?
And then, how as you think about the guidance the revenue guidance and the top line kind of profile for this company for 2014 and above, where do you think the kind of key factors are and the opportunities? Or do you still see just a kind of very broad based growth across geographies and categories and channels? Thanks.
Okay. Thanks, Omar. Let me start with the revenue underperformance versus our guidance. So when we provided the guidance at the beginning of February, we were coming off a month of January where we had a very strong revenue growth and we were expecting February March to be somewhat comparable conditions to the prior year. There were really two things that happened during the months of February March that led to the March that led to the revenue being slightly below our previous guidance.
The first was we had an incredible weather pattern this year with much colder conditions in both North America and Europe as well as Northeast Asia that led to a tough February March for seasonal spring product. The second was to your point on foreign exchange was foreign exchange. The yen continued to devalue during the quarter and Japan for perspective is our 2nd largest country from a revenue standpoint. So those were really the two factors that drove the revenue versus guidance the quarter. You
want to take the second part? Go
ahead. So, Omar, in terms of the go forward, I think we would identify the following as the key growth engines that would provide the distortion. Obviously, e commerce and retail, we've talked about it others have customers making a clear choice to shop online whether that's through our wholesale partners where we're experiencing strong growth with our wholesale partners online or whether it's in our own direct to consumer, whether it's Ralph Lauren or Club Monaco. We've seen an extraordinary response to the Club Monaco website in the 1st 9 months it's been open. And so on and on and on around the world, the customers indicating to us they're comfortable shopping or getting product information buying in the stores.
And a lot of that interest is shifting to mobile. So the growth in mobile that you're seeing in the industry in general continues for us. I would say the other headline is the Asia Pac region with all the puts and takes should provide distorted growth over the next couple of years. The bolt on of Australia is relatively small, but completes the region for us in terms of owned territories plugged into our shared service hub network through a lot of the infrastructure I think will be a nice positive addition. And then I think the new product categories that we danced through quickly in the script that we brought back in house over the last 3 or 4 years that have gone through some form of rehab are now beginning to show their future potential whether it's Denim and Supply which Jackie talked about or some of the accessory categories or even some of the changes we've made in the home business.
And we think those will provide future growth. I think we're viewing Europe cautiously. The trends there continue with strength in the northern part of Europe and it's softer in the southern part. I think our team did an outstanding job managing through that to deliver a top line and even a better bottom line performance in the year. But I think we're planning that a little more cautiously going forward.
Next question?
And next we'll move on to Kate McShane with Citi Research.
Kate, are you there?
Yes, I'm here. Sorry. Thank you. Good morning.
Good morning. In your guidance you highlighted
it was a tale that you have with the operating margin. However, can you give
a little bit more detail around the cadence of spend throughout the year and how we should think about gross margins for the year as well?
Yes. So I think on that I would say the investments in the strategic growth initiatives are really going to be spread relatively evenly throughout the year. But if you look at the licensed businesses that we're taking back in CHAPS in Australia and New Zealand, we're spending a disproportionate amount of money transitioning those businesses to be wholly owned in the first half of the year and we expect them to be significantly more profitable in the second half of the year. We also FX is relatively evenly spread throughout the period. And so I think it's really a function of the take back of the license businesses that result in the operating margin improvement in the back half versus the front half.
I guess the other thing I would add to what Chris said is that there are subjects like the Fifth Avenue store that we've talked about that we're planning to open next fall September or October that are very expensive and carry a lot of rent and we'll be carrying that for over a year without the benefit of any sales. So there are some of these big projects in Asia here in New York on Fifth Avenue that we think are extraordinary opportunities for us long term. We'll establish the brand. Asia will be Ralph Lauren. Here will be Polo.
And there's a cost of carrying those for 12 months until they come online with sales. So that's feathered in. I remember this time last year we talked about fiscal 2013 being a tale of 2 halves. And I think there was some concern that we had anticipated more of the profit to come in the back half of the year. We pleased to have delivered on that.
And for different reasons, we're facing a similar situation as really our profit profile is being rebalanced more to a fifty-fifty split than what it had been for many years, which was a heavier orientation on 1st and second quarter and a little bit lighter in the 3rd and Q4. Some of that's also coming from the growing retail business where we get some distortion in the back half of the year versus the first half.
Next question?
Next we'll move to Liz Dunn with Macquarie.
Hi. Am I hearing you okay? Yes.
A little echo.
Sorry about that.
Yes. We'll move on to the next question. Ms. Dunn, your line they cannot hear you. We'll move to Christian Bus with Credit Suisse.
Yes. Hello. I was wondering if you could provide some perspective on what's embedded in your expectations for the European business for fiscal 2014? And if you could provide some color on when we start lapping the distribution closures or some of the trimming of distribution?
Sure. So I think as Roger mentioned in the prepared remarks, the underlying business in Europe this year was up low single digits on a comparable basis. We're expecting that to actually accelerate a little bit as we get into next year from low single digits to a little bit faster than that, mid single digits type of range. Part of the reason for that is because we have a plan to enter some of the underpenetrated geographies of Central Europe and the Middle East that we expect to contribute to the sales. Relative to the proactive reduction in shipments that we've made in the wholesale channel in Southern Europe, which you saw generate strong profit results in the European numbers that we just reported, will largely be through that from an annualization standpoint after the end of this Q1 of fiscal 2014.
So when we get to the Q2, we feel like we will have appropriately rebased that business.
Next
we'll move to David Click with Buckingham Research Group.
Yes. Thank you. Good morning. Just two questions. 1, Chris, if you could help us understand what the constant currency direct consumer comp guidance is for FY 'fourteen?
And then secondly, Roger, any early learnings from your new store openings in China? And it sounds like you're potentially accelerating some those openings. We're talking about a flagship, which obviously is an important investment and presence for you in China. So some of your early learnings and the pace of expansion in China. Thank you.
Yes. I guess, we've shied away from giving, as I mentioned, I think on the last call or the call before, constant currency comp guidance. But what I would point you to on the first question is, our guidance for the year is 4% to 7% revenue growth. Within that, there's 150 basis points of negative foreign exchange. So that would get you to 5.5% to 8.5% sort of all in growth.
And included in that is this 3 50 basis point improvement from the result of the CHAPS in Australia business. So I think you can sort of back into the range that we're shooting for the year, which is sort of an underlying growth rate in the mid single digits type of range.
And I would respond to the second part of your question as follows. We've had a very interesting year learning about the Chinese consumer. And while the first profile is how do they perform in China, they're obviously a big part of the shopping trends in Korea, other parts of Southeast Asia, Europe and the United States. So we're learning about that customer through the really global footprint we have. But fundamentally and I think Jackie touched on this, the best products sell worldwide.
And so with our orientation towards apparel, we have to be mindful of the geographic and climate range in China. The northern part of China is almost similar to the coast of Maine in terms of its weather and it goes all the way down.
Please stand by. Please continue, Mr. Hurley. Mr. Hurley, please go ahead.
Please continue to stand by as we do reconnect Mr. Hurley's line. Please continue to stand by as we reconnect Mr. Hurley's line. Mr.
Hurley, please go ahead.
Did we get dropped off the line operator?
Yes, you are connected again. Please go ahead.
I'm now connected.
Yes, please continue. We were on David Klick's Buckingham Research Group question.
David, I'm not sure where I dropped off. Apparently, we lost the line.
Yes. It was early in your answer on China. Sorry about that.
Let me
go back. We're pleased to announce 4th quarter earnings today. In case nobody heard it, we were up 42% in EPS. I don't know that that got through. Maybe I'll start again.
I was talking about China. I'll quickly summarize. We've learned a lot about the Chinese business. We've gotten a lot of feedback from the customers both in China and Southeast Asia, in Europe, United States. The good news is they are gravitating towards the same looks and categories and items.
They clearly want luxury. We created some unique product that responds to that market they've really bought that well. And so every day we're learning. We know we have a long way to go to tell the Ralph Lauren story in that market. We are investing and committing to key flagships, but in the key cities.
I think one of the things we'll try to avoid is chasing the 2nd and third tier cities too early on in our development of that market. I think we have to be important in Hong Kong and Beijing and Shanghai and some of the key markets before we start going out to the 2nd and third tier cities. I'd also expanded my answer to include Denim and Supply and in fact the Polo stores, because while we're in the early stages there, we think those are key high growth brand specific high margin stores and the early reads on a more classified approach in East Hampton has been very strong with color multiplier selling. Denim and supply stores that we've opened internationally about a dozen, 1 and today 2 in the U. S.
Are really selling denim. And the key to that customer is getting a fit on the denim bottoms that resonates with them and then you can build the top business. The early trends there are reflecting a 30% penetration of denim bottoms, which is very high in that world. So I think the direct to customer business whether it's flagships in Asia or more classified smaller locations, we're beginning to feel confident about the path we're on.
Next question?
Next we'll move to Erinn Murphy with Piper Jaffray.
Thank you for taking my question. I appreciate the detail Chris on kind of the key investment areas for this year. I wanted to focus just on the SAP in
the 2nd phase. You're in
a few now. I beg your pardon?
Operator, are you there?
Can you hear me?
Yes. Please go ahead.
Can you hear me?
Okay. Ms. Murphy, I can hear you. Go ahead and Mr. Hurley, can you hear Ms.
Murphy?
We can, yes.
Thank you very much. So, yes, I appreciate the kind of key detail on the investments for the year. And I wanted to focus on the 2nd phase of the SAP implementation. I guess just given the global complexity of your business model, once this phase has been tested and implemented, could you just maybe provide a little more context or some of the key applications of this kind of second phase of the system? And how we should think about kind of the meaningful margin leverage going forward in the model as we kind of exit fiscal 2014 and get into fiscal 2015?
Thank you.
Sure. So the phase of the SAP implementation that we're in right now really focuses on the global product procurement and the North America wholesale order to cash, which is a significant part of our global systems infrastructure. And as background, just to step back, because in the history of the company, the company started by licensing a lot of the geographies and a lot of the product categories. As the company brought those businesses back in, those businesses came back in with each on a different legacy system. And so the company's starting point from a systems infrastructure is a large number of systems that are not integrated and not as connected as they could be.
And so we believe the implementation of SAP will allow us to get to an integrated global system that will drive significant productivity because, for example, we'll be able to put in a style once and that style will be consistent around the world, whereas today we have to do that multiple times around the world with multiple different coatings and with manual interfaces from one system to the next. That process will all become automated. The second thing is it will increase our visibility to data. So today where it's very difficult to understand for example how many of a specific item we're selling around the world, once we get to sort of common nomenclature and common systems that will become much easier. And we believe we will be able to leverage that information to drive procurement savings.
The other point I would make on this is that, because it's a fairly significant endeavor, we've broken up the implementation into 3 waves, because we didn't
want to go with an approach where we try to implement everything
at once. And so the first wave, as I mentioned in my prepared remarks, is
that
first wave, as I mentioned in my prepared remarks, will be a wave that tests the majority of the functionality, but on a limited percent of the revenue from a branding standpoint. And then we'll go to a second wave and a third wave. We expect most of this implementation to be completed during fiscal 2014 and we expect the benefits to start to really kick in starting in fiscal 2015.
We'll take our last question now please.
And our last question we'll hear from Barbara Weingopf with CLSA.
Hi, everyone. I guess for Roger and Jack, can you talk about efforts to modernize the blue label in Lauren women's product obviously staying within the brand aesthetic? And then secondly, can you talk about your plans to accelerate growth and penetration of key accessories? I know it's been growing, but there have been such categories as handbags and footwear have been so strong across the industry. How are you going to be accelerating that growth?
We've put a lot of focus on the development and the continued monetization of our Loring brand. And we've had a very successful fall holiday season followed by what is a great beginning of spring into summer. Whereas the women's business over the last few years has been very challenging, we are finding over this past year with a lot of increased efforts from our design team to excite the customer and from our merchandising team to focus on the right strengths of the line and the presentation of product. As I said, the results of that have been fantastic. In the most recent NPD, of course, Lauren stands ahead.
We're 12% above plan for the against last year for the season. And the results of that keep us in that number one position, distance way above our competition. We have been as we have the focus of our Lauren brand, we have a Lauren footwear and accessory business that we've seen very, very nice momentum in. And then of course, our luxury accessory business is also moving along nicely. We have our leather good business there, our shoe business.
And as a penetration to our company, we're moving into the mid to high single digit range at this point in our revenues. It's a higher percent of our business in the Ralph Lauren stores, where we have beautiful and dedicated space to present our merchandise. And certainly, our longer term growth for plans and goal for accessories is it for it to be a more substantial part of our business over time. We have introduced a bag called which we call the Soft Ricky and it's a new interpretation of our most iconic bag and it's tremendous results within the fall season. And as you know, tremendous results within the fall season.
And as you know, the accessory business tends to be an item business focused on the centerpiece of the Ricky, we believe we can develop a very strong accessory business with that as our centerpiece going forward.
Okay. With that, I'll thank you all for your listening and your patience with the audio communications. Appreciate your support. We'll look forward to talking to you in August.