M&A Announcement

May 8, 2017

Good day, and welcome to this conference call. Today's call is being recorded. At this time, all participants are in a listen only mode and the floor will be open for your questions following the prepared remarks. At this time, for opening remarks and introductions, I would like to turn the call over to the Global Head of Investor Relations and Corporate Communications at Coach, Andrea Shaw Resnick. Good morning, and thank you for taking the time to join this call about our announcement on our agreement to acquire Kate Spade and Company. With me today are Victor Luis, Coach's Chief Executive Officer Kevin Wills, Coach's Chief Financial Officer as well as Craig Levitt, Chief Executive Officer of Kate Spade and Company. At the end of our prepared remarks, only Victor and Kevin will be available for a question and answer session. Before we begin, I would like to note that today's discussion contains forward looking statements that are subject to the risks identified in both companies' SEC filings and other written communications related to the merger announcement. You should refer to the information on Slide 2 of the presentation as well as the additional information contained in the SEC filings of both Coach, Inc. And Kate Spade and Company. With that, I am pleased to turn the call over to Victor Luis, Coach's CEO. Thank you, Andrea, and welcome, everyone. We appreciate your joining us for this call on short notice this morning, including investors, analysts, customers and employees of these 2 great companies. We are very pleased to speak to you about our definitive agreement to acquire Kate Spade and Company, which together with Coach and Stuart Weitzman will create the 1st New York based house of modern luxury lifestyle brands, defined by 1st, a customer led view of luxury that is based on inclusiveness and approachability, not exclusivity or country of origin. 2nd, authentic distinctive product that offers superior quality and value. And last, a focus on innovation and design, materials and brand experiences across channels and geographies. As we have long followed Kate Spade, we have a deep knowledge of its brand's perception and customer demographics. We know it is a strong brand with a clear and consistent positioning with leadership in the attributes of fashionable, fun and feminine and a growing share of the millennial consumer across channels. It brings important brand attitude and customer diversification to our portfolio. Importantly, Kate Spade has successfully introduced a broad range of lifestyle categories to create a well articulated brand expression. This combination is the next important step in Coach Inc. Evolution as a customer focused multi brand organization, creating a powerful global player in the attractive and growing approximately $80,000,000,000 global premium handbag and accessories, footwear and outerwear markets. It will create scale and provide the resources to invest in talent and innovation to drive long term brand relevance and sustainable long term value. We are excited to welcome Kate Spade into the Coach Inc. Family. As we are beginning to embark on this journey together, I'd like to turn the call over to Craig Levitt to say a few words. Craig? Thank you, Victor. I'm very glad to be here with you this morning and to announce that Kate Spade and Company will be joining Coach Inc. Portfolio of global brands. Coach is an iconic New York based company with a rich heritage and distinctive product offering. And we are confident that Kate Spade and Company will be able to achieve long term success and create value for our customers, employees and trading partners within the Coach portfolio of brands. At Kate Spade and Company, we have worked hard to create a clear and distinct brand identity, differentiated storytelling and great products that resonate with our customers. We have a broad demographic appeal with particular strength with millennials, positioning us well for future growth. Our team will continue to innovate and design great products with a supportive Coach. And I, along with Kate Spade and Company's leadership team, am looking forward to working with Victor and the rest of the Coach team as we begin a next chapter for Kate Spade and Company. As many of you on this call know, our company entered into a review of strategic alternatives, among which was the possibility of finding a partner who could help drive maximizing the value that could be achieved by our shareholders. In Coach, we have found the perfect partner. Today's transaction not only provides the additional scale and operational expertise to grow our business, it provides a significant premium for our shareholders. The acquisition price of $18.50 represents a 27.5% premium to the unaffected closing price of Kate shares as of December 27, 2016, the last day prior to media speculation of a transaction. Consistent with our approach throughout the review of strategic alternatives, we have not taken questions and we'll continue that policy. Now I'd like to turn the call over to Kevin Wills to discuss the other terms of the transaction. Kevin? Thanks, Craig. As you saw in our press release earlier today, under the terms of the agreement, we have agreed to acquire Kate Spade and Company for $18.50 per share in cash for a total transaction value of $2,400,000,000 subject to customary closing conditions and regulatory approval. Craig has already mentioned the premiums to Kate Spade shareholders, but just as importantly, we believe this transaction will provide significant value for Coach's shareholders over time. Assuming early July 2017 closing and on a non GAAP basis, we currently estimate the transaction will be accretive in fiscal year 2018 and plan for it to reach double digit accretion in fiscal year 2019. The level and timing of accretion will be influenced in part by the realization of synergies and we expect to be able to provide define the timing of synergies over the next few months. While the timing of synergy realization is still a work in process, we see clear and achievable synergies from this combination as we optimize the combined organization for growth and global execution. We estimate an approximate $50,000,000 synergy run rate by 2020. As Victor will further discuss in a moment, the synergy realization will allow and effectively offset our planned sales pullback in certain overly promotional channels. The opportunity for savings exists in both cost of goods sold and selling, general and administrative areas. Our increased scale will provide opportunities for product cost reductions and supply chain optimization and as a single public entity, we will have the ability to eliminate duplicative SG and A cost. It is, however, important to note that the timing of certain synergy assumptions is system dependent as Coach is currently in the process of implementing an enterprise wide upgrade of our financial and operational systems, which will continue over the next 12 to 18 months. Consequently, the timing of full synergy realization may be longer than is typical, but we are confident in achieving our stated targets by 2020. Now turning to the financing of the transaction. This will be an all cash transaction and is not subject to a financing condition. We anticipate using a portion of Coach's excess cash, Kate Spade's net cash and new debt financing to fund the acquisition. All of Kate Spade's existing debt will be repaid at closing. We have secured $2,100,000,000 of committed financing from BofA Merrill Lynch for this transaction. We anticipate putting in place permanent financing prior to closing and the maturities, terms and conditions of such will not be known until that time. Having said that, we are targeting to issue $1,100,000,000 of term loans consisting of an $800,000,000 6 month loan and a $300,000,000 3 year loan and $1,000,000,000 of senior unsecured notes. This level of permanent financing would allow us to eliminate the committed bridge facility. At closing of the transaction, we anticipate having total debt of $2,700,000,000 inclusive of our existing senior notes. Within 12 months of the transaction, we expect to reduce leverage from approximately 2 point 2 times at closing on a debt to EBITDA basis to about 1 turn lower by the end of fiscal year 2018, following the expected repayment of the anticipated $800,000,000 6 month term loan with excess cash. As a reminder, Coach ended its fiscal Q3 with approximately $1,900,000,000 of cash and short term investments. In addition, we plan to amend and extend our revolving credit facility, increasing size from $700,000,000 to $900,000,000 This transaction will be effectuated by way of a tender offer for all of Kate Spade and Company's outstanding shares, which will be launched in the coming weeks. The transaction does not require a vote of Coach shareholders. The Boards of Directors of both companies unanimously approved the transaction and we expect it to close in the 3rd calendar quarter of 2017. Separately, it is important to note that our strong balance sheet and cash position has enabled us to structure this deal on an all cash basis, while keeping our leverage at a relatively modest level. By not issuing equity, we are ensuring maximum accretion for our shareholders, while also not creating any incremental cash requirement to support our dividend. We remain committed to returning capital to shareholders through our dividend. And at this point in time, we are maintaining our annual dividend rate of $1.35 per share. As has been our longstanding policy, our Board of Directors will evaluate the company's performance post their fiscal year end in August and will make a determination as to the go forward dividend in the 3rd calendar quarter. Finally, I would note that we have posted a short presentation outlining these details to our Investor Relations page for your reference, should you need any additional details. With that, I will turn the call back over to Victor. Victor? Thank you, Kevin. As I mentioned earlier, today marks an exciting and pivotal moment in our evolution as a multi brand design house. This journey began approximately 3 years ago when we started implementing our transformation strategy, essentially refocusing our strategy and operations across the 3 Coach brand pillars of product, stores and marketing. We set out to transform the Coach brand from a specialty retailer and accessories brand to a true house of fashion design. Under the creative direction of Stuart Beavers, we drove brand elevation and fashion credibility by innovating our offering, introducing our 1941 runway collection and establishing our modern luxury store concept globally to further enhance our customers' experiences. Our acquisition of Stuart Weitzman in 2015 was the first real step in becoming a multi brand design house. Similar to Coach, Stuart Weitzman is a brand built on offering innovation, relevance and value to a loyal customer base and is known for its craftsmanship and quality, merging fashion and function. That business is poised to deliver double digit revenue growth through 2017 and it continues to drive global awareness and brand relevance. Finally, to better position the company to successfully integrate new brands and then develop them as a part of our portfolio, we have continued to make strategic enhancements and changes to our leadership team and management structure. Those of you that follow our company know our strategy is working in delivering results. Coach has reported EPS growth over the last 5 quarters and our strong results in Q3 2017 reflected the 4th consecutive quarter of same store sales growth in North America. We are delighted with our progress and proud of all that our team has accomplished to drive Coach's transformation. The lessons we have learned during our own brand transformation provide a blueprint for guiding our strategy with Kate Spade, protecting its strong and unique positioning. Importantly, as in the case of Stuart Weitzman, Kate Spade will continue to be operated as an independent brand, benefiting from the support of Coach's strong business acumen, financial rigor and broad based expertise in retail operations. We anticipate retaining Kate Spade talent, ensuring a smooth transition to coach ownership. Furthermore, teams dedicated to design, merchandising, marketing and sales will continue to run independently for each of our brands, while we expect to share many core corporate functions across the portfolio. Through our own experience with brand management and distribution at Coach and Stuart Weitzman, we see clear opportunities to begin a new chapter of success for Kate Spade. We believe that our extensive experience in opening and operating specialty retail stores globally and brand building in international markets can unlock Kate Spade's largely untapped global growth potential, notably in Asia and Europe. Importantly, we intend to protect against over distribution in online flash and wholesale disposition channels and our intent on the strategic and disciplined approach to growth and the consumer centric focus, which will ensure Kate Spade's continued brand momentum and health. As I previously noted, the Kate Spade brand is healthy with a unique and differentiated positioning and exciting momentum with the millennial consumer. However, not unlike our pasta coach and many competitor brands in the fashion space, we believe the Kate Spade business has recently become too dependent on the overly promotional channels of online flash sales and wholesale disposition. These channels are profitable and can drive growth. However, they can also lead to meaningful brand deterioration over time. Consequently, we expect to deliberately and strategically reduce the sales in these channels. This action will reduce Kate Spade's historical top and bottom line. However, we believe the decreased profitability can be offset by synergies resulting in an expected relatively net neutral financial impact upon the full realization of synergies. Most importantly, these actions will maintain Kate Spade's strong brand equities and allow for sustainable long term growth and profitability. In summary, we are particularly excited to welcome Kate Spade's talented and dedicated team to Coach Inc. And to add Kate Spade's unique brand position and customer diversification to Coach's portfolio of modern luxury brands. Kate Spade boasts a growing share of the millennial customer and its fashionable and fun products will be a strong asset within our vibrant and globally relevant multi brand portfolio. We are confident that with our disciplined approach and proven leadership team, Kate Spade will be positioned to achieve continued long term brand loyalty and sustainable growth. Importantly, we are proud to join forces with Kate Spade as we established Coach Inc. As the first New York based house of modern luxury lifestyle brands. And now Kevin and I will take your questions. Operator? Our first question comes from Bob Drbul with Guggenheim Securities. Good morning. Congratulations. Thank you, Bob. Thank you. I guess the one question that I have this morning is, why Kate Spade versus other assets that are available in the marketplace today? Thank you, Bob. Well, look, 1st and foremost, it's a wonderful clean brand. It has a unique positioning in the marketplace, very strong with the millennial consumer as we mentioned in our notes. And within the wholesale distribution very clean Tier 1 distribution as well. It participates in the 3 important categories that we have over time defined and shared with all of you, which is of course the handbag and accessory space, which is an approximately $42,000,000,000 opportunity. Footwear is an opportunity for us as a company at $28,000,000,000 And as you all know, especially with Coach, we've been looking at the outerwear opportunity as well at $11,000,000,000 for a total approximately $80,000,000,000 market. What it does, of course, within our portfolio is offer a diversification of brand attitude, allows us to go after a new customer segment, and especially with its strengths with the millennial. Approximately 60% of Kate Spade's consumers are millennial for our own tracker and that's leading in our competitive set here in the U. S. And then most importantly, it allows us to leverage the strengths that we have, Bob, whether that be of course 1st and foremost in supply chain where we're leaders in the leather goods industry. It allows us to leverage our retail operation strength, not only here in the U. S, but especially in international where we have great teams that know how to build brands in global markets. And it leverages all that we do so well with consumer insights, customer intelligence and the significant investments that we have been making in our consumer database and data analytics capabilities, all to drive and continue to sustain this brand's growth over the long term. Thank you very much. Thank you, Bob. Our next question comes from Ike Boruchow with Wells Fargo. Hi, good morning everyone and let me add my congratulations to everyone as well. Thank you, Ike. I guess my question so Victor, I mean, it's very helpful you touched on it, the flash business and the wholesale business and the need to pull back to get a healthier base to operate on. Can you just help us, if you can, I know it's early, maybe just help us quantify how much needs to be pulled out of each channel before you feel that it would be at a base that would be more healthy and appropriate? And then obviously, it's going to take a year or 2 or whatever to kind of rebase the business. But longer term, is there anything structurally different with the Kate Spade business versus the Coach brand in terms of operating margin opportunities? Thank you. Thank you. In terms of the actual size of these channels, let me just say 1st and foremost, we believe the brand is incredibly healthy. As I mentioned in my speakers' notes, this has been a recent growth in those two channels. Kate Spade doesn't break those sales, so we're going to maintain that policy and we're not going to provide details on that. What I can say, Ike, is that you can get an approximation of the estimated pullback by using the approximate $50,000,000 profit decrease in their GM rate given that we're saying that it's going to be offset by the synergies that we estimate to be at approximately that $50,000,000 In terms of the long term structure, look, nothing tells us that it should be any different than what we have stated for ourselves. It's going to take some time for us to get in there, of course, understand the business much more fully. And I think that at our August earnings and FY 2018 guidance call, you can expect a lot more information from us on that. Great. Our next question comes from David Schick with Consumer Edge Research. Hi, good morning. Just a question on your experience with Stuart Weitzman and how it informs your thinking through this deal. So if you could just talk about how the last period of time has informed your view, what learnings from your experience with Weitzman that are affecting this transaction as you think about forming the company over time with all the various brands? Sure. I think we touched on it in our speakers' notes, David. First and foremost, of course, is that each of these brands has its own independent positioning, its own independent customer. We expect them to be run as such to allow them to maximize the opportunities that they have and not to this isn't about bringing Kate Spade into Coach stores or Stuart Weitzman into Kate Spade stores or vice versa. Saying that, we have strong back end platforms that we can leverage to drive synergies that would normally not be there. Coach has the best in class leather goods supply chain in the space. Stuart Weitzman has an amazing footwear supply chain and best in class fit that we can leverage across brands. We have systems and processes across our back end, whether that be of course within finance, within RIS, within our logistics that we can also leverage across brands. And it is that which will allow of course the whole to be bigger and stronger than the parts could be alone. And then I think that's just as importantly, one of the key strengths that we have established within Coach 1st and foremost is our ability to manage, drive growth in international markets. This is not an easy skill to pick up. It requires tremendous investment in talent and a lot of know how and structure and organization across these markets. We have an especially strong foundation in that across Asian markets, where we have terrific teams and structures and we're growing that opportunity for us in Europe and that is something which of course provides an unbelievable platform for both of these brands to benefit from into the medium and long term. Thank you. Our next question comes from Oliver Chen with Cowen and Company. Hi, congratulations on this deal. Our question is related to the synergies and how would you contrast the revenue versus cost synergies and how we should think about what might you prioritize as the biggest value creators as you look ahead in terms of magnitude of synergies? And as we think about Kate Spade and Coach, what are the thoughts around optimization of fleet and real estate in terms of just optimizing the 2 fleets together or your approach to thinking about which locations make sense in size and making sure that product marketing in stores is where you want it for the Kate Spade brand? Thank you. This is Kevin. I'll take the synergy question and I'll let Victor address the real estate. On the synergies that we outlined, to be clear, those are expense or cost related synergies. We have not assumed any revenue synergies in the guidance that we gave. And if you think about, as we said, we believe there's opportunities in both cost of goods sold as well as SG and A. We will provide more granular detail on that on a go forward basis. But for today's call, you would think about that being split roughly fifty-fifty between COGS and SG and A. And if you do that, that represents about 4% to 5% of Kate's COGS last year and about 4% of SG and A. So again, more work to be done on that, but I think that Victor, on the real estate? Yes. In terms of the fleet, Ali, the brands are in very different positions, of course. Look, in the case of Stuart in the case of Kate Spade, approximately 35% of the Coach stores today overlap with Kate here in North America. So a very small percentage. Kate has approximately 68 full price, excuse me, outlet locations to our 170 2, 108 full price locations to our 223. There may be some slight opportunities for us to look at certain locations, but we see it as very, very minimal. And the same is true in the other major markets for Kate and Coach, which is Japan. We don't see tremendous opportunity for synergies there as well. The real opportunity for Kate, of course, is distribution. We see that being an opportunity here in the U. S. Of course still and we see that especially as an opportunity in Asian markets and in Europe where the brand is in its very, very early stages of development. And to just give you some idea on that, here in North America, Kate's unaided awareness is at 30% compared with Coach's 70. In Japan, Kate's unaided awareness is at 11% compared with our 50% and in China, their unaided awareness is at approximately 1% compared to Coach's 23%. So a lot of opportunity for growth. Thank you. And as you did the diligence process, you have a really advanced internal market research department at Coach. But what surprised you most when you got to explore Kate in more depth? And would you also articulate why was now the right time? It sounds like there's a lot of pieces that have come together in creating Coach Inc. So just curious about both of those questions. Thank you. Yes. In terms of the first question, Ali, and that would be 3 for you, by the way, we're keeping count. In terms of your third question there, in terms of what surprised us most, I think we knew that the brand had a very, very strong and unique identity, its own very clear space in the marketplace. But I think that the strength with the millennial consumer and the urban millennial, not only here in the U. S, but in very early stages in the Asian markets was what excited us most, I would have to say. And that of course leads to a very long term opportunity for growth. And I'm sorry, Ali, I forget your second question. Could you just repeat it? Context is about. Thank you. Thanks for that. It's an amazing transaction. Context for the timing in terms of why it was now the right time and how we should think you're evolving. It really feels like you're evolving to think about yourself globally in a different way versus other global competitors, which are more exclusively natured. Yes, absolutely. I think you saw in our speakers' notes, we really look at our positioning as one that is much more approachable, much more inclusive. Our brands are not based on the idea of exclusivity and they're certainly not based in their positioning on the idea of country of origin. They're about quality. They're about great design. They're about approachability. They're about inclusiveness both here in the U. S. And globally. And that positioning has worked incredibly well for Coach. It's worked incredibly well for Stuart Weitzman and we believe is at the heart of Kate Spade as well. That doesn't preclude us to say that we are being forced to look at only American brands of course. We think that this is a global positioning and that there are brands in Europe and potentially brands in Asia that share that positioning as well. Congrats and best regards. Thank you, Ali. Again, ladies and gentlemen, in the interest of time, we Our next question comes from Erinn Murphy with Piper Jaffray. Great. Thanks. Good morning and congrats on the deal. I guess my question is just on the full price handbag pricing for Kate. Can you talk about what the AUR is today for Kate versus where your Coach full price is? And then if you clean up Kate for flash sales and some of the wholesale distribution, where do you see those 2 trending over time between the direction Coach has gone and where Kate is heading? Thanks. I wouldn't provide any details on the AURs at this point. We'll go into all of those details, of course, the deal has closed and look at that together with all of you. And sorry, Erin, could you just repeat your second question one more time? Well, it was just where would they trend over time? I can ask another one if you won't. Yes. No, we wouldn't expect look, we wouldn't expect any change in either the creative direction or brand positioning. As we've said, the brand is very strong with a very unique positioning today, a very unique customer base and that strength is something that we're here to support the current creative teams and teams in place to execute and leverage fully. Okay. Can I just ask one on Europe then? I'm just curious, I mean, it's a huge opportunity for the core Coach brand and you've done a nice job rebuilding that team. It's also some white space for Kate. Are there any thoughts about, kind of synergizing some of the, just team dynamics, the real estate dynamics over in Europe, at this point? Are you still going to keep those teams fairly separate? Thank you. Yes. Look, obviously, as we have a house of brands, if you will, Coach, Stuart Weitzman is also in its very early stages of development in Europe and in Asia and Kate Spade, we will certainly leverage the know how that we have in real estate developments. We've done that already as we have shared with you guys as it relates to Stuart Weitzman, both here in New York City and in Regent Street in London with our flagships. And I'm sure there will be opportunities for us to look at things to leverage with the 3 brands in all of our markets, not just Europe. Got it. Thank you, guys. Thank you. Our next question comes from Anna Andreeva with Oppenheimer. Good morning. This is Sam Landman on for Anna. Congrats. Just a quick follow-up on the fleet. Can you remind us how many leases overall Kate has coming due over the next several years, specifically as we think about outlets versus retail? Thank you. Thank you. We don't have that information to give you at the moment. Again, we'll get into all of the details about the future at our August call when hopefully the deal will be closed and we'll be able to provide that level of granularity. Thank you. Our next question comes from Dana Telsey with Telsey Advisory Group. Good morning, everyone, and congratulations. As you see the categories at Kate Spade, how do you see the licensing opportunities that Kate has that may or may not be helpful to Coach? And do you look at other categories that could be helpful to Kate? And does this acquisition prevent you from doing any others? Thank you. Thank you, Dana. Look, I think in terms of does it prevent us from doing any other acquisitions? I think in the short term, you could definitely say that we're not going to be looking at any major acquisitions. Certainly, I think Kevin would agree that we have the financial flexibility to look at other smaller acquisitions in the size of a Stuart Weitzman or smaller. And of course also look at opportunities for us potentially to buy back distributors across the world, whether that be for Coach or for Kate where it makes sense, and including of course for Stuart Weitzman as well, as we have done in the past with Coach across Asia. In terms of the Kate Spade and Company licensed portfolio, they have a very strong one, very broad one, a lot of opportunities. I think once we partner with the team to look at how to leverage that portfolio, I would not say that at this moment we have any strategies to broaden the Coach licensed portfolio where we've been very focused on fragrance, eyewear and watches. Certainly, longer term, there may be opportunities for us to look at how we synergize the licensed portfolio across brands with similar partners and the like. And as you know, of course, Stuart Weitzman today has no licenses and that could be an opportunity for the future. They have, I believe in the case of Stuart Weitzman only the baby shoe license and that's it. So that's an opportunity long term as that brand develops. Thank you. Thank you, Dana. Our next question comes from Ed Yarmo with KeyBanc. Hi, congrats and thanks for taking my question. Victor, given the successful repositioning of Coach, potentially kind of a more premium brand, is it your intention that you could maybe further that continuum, now that you have Kate, take it to a higher price point? And then I guess just as a quick housekeeping question, how do we think about your ability to use Kate's net operating loss? Thank you. I'm going to let Kevin touch on the NOL in a minute. In terms of Coach's positioning, we've been very clear and consistent. We think we've hit the right level, and specifically as it relates to the handbag penetration above and pricing elevation, the handbag penetration above $400 as we've said, we believe we're in the right place and you won't see further change on that whatsoever. On the NOL asset, you'll see posted in the Investor Materials Day, we believe the NOL asset is on a gross basis approximately $475,000,000 We will be able to use that to offset cash tax liabilities in the future. It will be subject to the annual 3.82 limitations. Having said that, if you look at it on an NPV basis, we would estimate that that assets would be worth approximately 160,000,000 dollars or about $1.20 per cans or a cake share. Thank you. Our next question comes from Mark Altschwager with Robert DeMaguerre. Great. Good morning. And let me offer my congratulations as well. I wanted to ask about the outlet morning. I wanted to ask about the outlet channel. Really, it's been quite promotional impacting everyone in the space. With Coach and Kate now teamed up, do you see potential for more immediate relief on that front? I know you discussed preserving independence, but maybe just give us a sense of the opportunity you see to clean up that channel and the benefit that could have for gross margin for both brands? Thanks. Mark, as I said earlier, the brands are going to be managed across their channels independently. Kate and Coach, of course, are not alone in this space. As you know, there could be brands popping up at any time. And I'm sure there are many being invented today as we speak. There's very few barriers to entry in this space as you know. Our focus is really more on the disposition and the e flash sales as we've mentioned, the so called urban disposition channel, which we believe has the most negative impact on brand perceptions because it allows, of course, for access to discount product with ease and negative brand perception in the mind of consumers. That's the major focus for us. Thank you. Our next question comes from Michael Binetti with UBS. Good morning, guys, and congrats again. I'll add my congrats on a nice transaction. Just a couple really quick on when you think about the number of stores that you guys deliberately pull the Coach brand back to in the wholesale channel in the U. S, when you if you were to say we were starting the brand from scratch, would Kate be distributed as well in those same stores that you've identified for Coach to be distributed in? Or should we be thinking about Kate a little bit differently as far as its eventual wholesale distribution in the U. S. Versus how you distribute Coach? Yes. Good morning, Michael. Actually, Kate is in a very clean wholesale distribution. It is a strength of this brand and coaches in quite a few more doors. And as we've suggested in the past, there may be some further pullback in the number of coach doors. Stores. We see Kate maintaining distribution that it has today, which is basically very strong in the Tier 1 distribution, especially strong market share within that Tier 1 distribution and we're very, very pleased with that. In the case of Coach, we have a broader distribution. And as I've suggested, the opportunity there in the future may be for us to continue to slowly pull back. Okay. And then just a follow-up. I'm sorry for the noise by the way. As you look at you gave us some thoughts on synergy for the brand. You said it was mostly on the cost side. But if you look at Kate and say to yourself, maybe we look at it through the same 3 buckets that we put Coach through when we fixed that brand up with marketing, stores and product. Do you I know you've made a couple of comments like we'll take a look at this and get back to you later. Have you do the synergy targets you put out envision any kind of investments for Kate and similar buckets like that for Coach and some of the other touch points at least early on here sound like your approach will be a little bit similar? In principle, as I've mentioned, Michael, we see the brand having a very clear and strong positioning today. We don't see a massive change to their retail concept. We don't see a massive change to their marketing positioning and what they have been focused on. Certainly, there may be some opportunities again to move some of the dollars, for example, from the EOS to other parts of the marketing of the brands above the line. But other than that, we don't see massive changes. Our desire is for them to continue to be focused on innovating around product and driving excitement with consumers. They do a terrific job at that and we look forward to supporting them and doing that even better. Thanks a lot. Sounds like a great deal. Thank you guys. Thank you. Our next question comes from Christian Busch with Credit Suisse. Yes. Could you provide some perspective on where you are with Kate Spade in Asian markets and what the timeline looks like for introduction build out of the brand across Asia? Sorry, we're having a hard time hearing you. If you want to please speak up a bit and repeat. I was wondering if you could provide some perspective on the Asian market and how far along you are with Kate Spade in that market and where the big opportunity sets are? Sure. I mean, they're in the very early stages with the exception of Japan. The Kate Spade brand has a very strong and loyal customer base in that market and has done an amazing job with its again unique positioning and ownership of the fun fashionable attributes, the emotional attributes that matter in that market and that are for our belief also quite important within especially the most important market in Asia of course is the Greater China market and the brand there is in very, very early stages. And so, we look at as an opportunity for us to support the brand, especially within, I would say, the rest of Asia outside of Japan. Great. Thank you very much and congratulations on the acquisition. Thank you. Our next question comes from Lindsay Druckerman with Goldman Sachs. Thanks. Good morning, everyone. Just following up on Christian's question, could you talk about Kate's distribution platforms in international? In other words, where it owns the market or where it uses a distributor partner and what the nature of that partnership is and any other details on sort of timeline for those partnerships? And I'm thinking specifically in China, but other markets as well. Sure. The most significant international market is Japan. And excluding Japan and Asia, there's a JV in China. And I think that in Europe, there's a few directly operated stores, but very much in its infancy and then distributors in all other markets. So obviously a lot of opportunity. Again, we haven't had any discussions or negotiations or anything with any of these players. So that's still all very, very much ahead of us. Great. And Victor, if I could just follow-up on a statement you made earlier, which is that you still saw a lot of opportunity for Kate in terms of distribution in North America. Is that specific to opening up retail stores full price and outlet? I think we'll look at it across channels. We believe very much in a multi channel platform, as you know. That is the case with Coach. That is the case with Stuart Weitzman and it is certainly the case with Kate. We're going to look at, of course, market by market, where Kate has opportunities for growth and certainly be able to provide you with a lot more detail on that once the deal closes. I think for us strategically, what is most important of course is that we do that in a way in which we can balance the brand, protect it and manage it for sustainable long term growth and the decisions that we have taken as it relates to Coach and it's pulled back especially on the flash sales and the disposition wholesale channel as well as of course that we are now planning to take with Kate are very consistent with our strategy to allow for that. Great. Thank you very much. Thank you, Lindsey. Our next question comes from Laura Champine with Ro Equity Research. Good morning and thanks for taking my It seems clear that you don't view Kate at all as a turnaround and that you view the brand as healthy. But Kate did miss expectations for revenues in the last quarter for a lot of us. And I wonder what you'd attribute that to and what gives you confidence that that's not a sign of a potentially greater problem? Sure. Look, we have to get in there obviously and spend a lot of time with the team in the days ahead. I believe that as you have all heard on your own calls, there's been certainly some opportunities on the product side, whether that be on inventory innovation and those launches and flows. I think with our supply chain platform, there's certainly an opportunity for us to support with speed to market, with the ability of course to get back into what's selling as well as of course to support in the planning for future launches and we're excited about that. So we see the main opportunity all focused on the product side. And as a follow on to that because Coach has turned product into a strength again, does it make sense to manage design across the brands or your initial views that you would keep those functionalities totally separate? Yes. As we spoke to in our prepared remarks and have spoken consistently post the acquisition of Stuart Weitzman. And as you know, in fact, just last week, our new Creative Director for Stuart Weitzman has started. We feel very strongly that the front end of the house needs to remain independent, that each brand needs its own unique design and vision and execution to that, but there may be opportunities on the development and of course the manufacturing side, buying side that we will leverage to drive efficiencies. But design we see as very brand specific and independent. Got it. Thank you. Thank you. Our next question will come from Paul Trussell with Deutsche Bank. Hi, good morning. Good morning, guys. Thanks for taking our question. Could you just take a minute to compare and contrast the core customer of Kate versus Coach versus and the perception of the brand, both domestically and internationally? And then lastly, while you've certainly touched on it on the call, if you can maybe just elaborate maybe just a little bit further on expected operational efficiencies? Thanks. Sure. I'll let Kevin in a minute talk about the operational efficiencies. In terms of the differentiation between the two brands, I think the most significant is around the brand's positioningattitude. Kate has a positioning which is focused very clearly as we look at the emotional attributes that are important to consumers, really hits at the high, high end when it comes to fashion, when it comes to fun and when it comes to femininity, which are 3 very, very important emotional attributes that consumers look forward to globally. Coach does incredibly well on attributes related to function and quality, leather, and that which fits in very, very closely with our heritage as a brand with a history in leather goods and as America's original house of leather. So we're very, very excited about those differences. And in fact, we see through our panels that no more than 10% of consumers overlap. So that's very, very exciting for us as an opportunity for these brands to be complementary to each other, take their unique positionings and continue to drive growth globally. The most unique opportunity of course for Kate being the international markets. I'll let Kevin speak a little bit to your second question. Yes, Paul, on the operational efficiency and synergy questions, as we said during our remarks, we would estimate year 3 run rate synergies of about 50,000,000 dollars We see those again across COGS as well as SG and A and I would tell you, we see them in the normal expected areas. So, if you think about purchasing scale, leveraging infrastructure, all of the normal type areas. And while we've got more work to do, we will provide much more detail during the August call. But today, you should think about the synergies being split roughly fifty-fifty between the COGS and SG and A, and that would be the 4% to 5% range of Kate's annual COGS and SG and A. So again, feel very comfortable with that. The timing is still TBD as we talked about, but you would expect more kind of years 2 and 3 versus year 1. But again, we'll provide more detail about that in August. Thank you. Our next question comes from Adrienne Yih with Wolfe Research. Good morning. Let me add my congratulations. Thank you. You're welcome. My question is about your allocation of time. To the extent, how do you foresee over the next couple of years as you integrate the acquisition? How do you see your time being spent on that? It looks like Coach is on a nice glide path on recovery. So does the Coach brand need less attention? So if you can talk about that. And then secondly, were there other opportunities either private or public, obviously, you don't need to name them, that you also looked at? And does this preclude potential opportunities over the next couple of years? It seems like an opportunistic time in retail to be acquisitive. Thank you very much. Yes. I again would not speak to any rumors or speculation on other opportunities as has been our custom. But certainly as it relates to whether it precludes us from making another transaction. I would repeat what we said earlier, which is of course that a transaction of this size is probably not in the immediate future for us, but it certainly does not preclude us from making smaller transactions such as we have done with the Stuart Weitzman or just as importantly, transactions that we may make that could be described as take backs of our business, whether that be buying a joint venture or taking back wholesale distributor businesses in markets where any of our brands coach Stuart Weitzman or in the future Kate Spade would be active with either a partner through a JV or through a distributorship agreement. In terms of my time, look, we're blessed with a wonderful team. As you know, we've recently announced a brand president who is talented and highly experienced and Josh Schulman for the Coach brand. The Stuart Weitzman brand is a standalone brand today under the leadership of Wendy Kahn and with a great design team in house. And in the case of Kate Spade, under Craig's leadership, there's a we with our corporate team here and ensuring that we first and foremost capture the synergies and continue to drive the support that's necessary to do that and achieve that and drive best in class support, whether that be through systems, whether that be through our supply chain, whether that be of course through the other support functions as well as partner by leveraging of course our know how and our knowledge and building the brand across markets globally with each of the brand CEOs. In terms of I think Kevin wanted to touch on leverage. Yes. Just one thing I think is important to note, Adrian. Obviously, we have a tremendous amount of work to do to integrate this business over the foreseeable 12 months or so. But if you think about the leverage and we commented today, even with this transaction, we're only levered at 2.2 times on a debt to EBITDA basis. And while we're not giving guidance today, we certainly expect to be able to generate meaningful cash flow in this business going forward and to delever over time. And we've commented that maybe a year out, we would be able to knock about a turn off of our leverage. So we are committed to maintaining a healthy balance sheet to give ourselves flexibility as we go forward. And Kevin, along those lines, just my last follow-up is, what leverage would you be comfortable going up to? Would you be comfortable going up to about 3.5 times? We have not given any guidance relative to leverage. I think as we've said in the past, the company has done a tremendous job from my perspective in managing itself over the number of years. It was able to achieve investment grade rating. That's something we take very seriously here. So I would not be want to set a hard line, so what we might do in the future, but we are committed to maintaining a healthy balance sheet and an appropriate leverage and capital structure. Fair enough. Best of luck. Congrats. Thank you. Thank you. Ladies and gentlemen, we have time for one final question this morning. Our final question comes from Simeon Siegel with Nomura. Hi guys. Thanks and congrats. Sorry if I missed it, but can you just share your view on Kate's outlet exposure? I know it's been a point of pressure lately, so maybe your thoughts on the right size there or the operational opportunity you can bring to the channel. Obviously, you guys have great experience there. And then just there's been some recent license and supply chain issues put in place at Kate. Should we assume everything is under review and or the foreseeable future savings more from kind of to your point, they're moving to applicative functions, leveraging systems, etcetera? I think, the second would be the place where the synergies would be most obvious, Simeon, as you've described and as Kevin has touched on already. In terms of the outlet distribution, obviously, there's opportunity there. They're not as widely distributors as ourselves or other main competitors in the space. So we'll at that in due course with the management team and see where those opportunities lie and we'll be able to, as I have discussed at our August call, to provide further detail on that. Thank you all again for joining us this morning. That concludes our Q and A. I will now turn it over to Victor for some closing remarks. Victor? Thank you, Andrea. And thank you to all of our shareholders, our business partners, customers and of course, our team members across our brands who have joined the call this morning. I want to especially extend our thanks and congratulations to those working every day within Coach, Kate Spade and Stuart Weitzman. It's certainly their hard work and dedication that makes exciting days like this possible. We're thrilled to tell you more about Coach's acquisition of Kate Spade and we look forward of course to getting to work, continuing to build Coach's position as the 1st New York based house of modern luxury lifestyle brands. We'll talk to you post the transaction closing. And as I have shared during our fiscal Q4 earnings call, we'll provide more detailed financial information as well as our detailed plans for fiscal 2018. Thank you all. Thank you for joining today's conference call. You may now disconnect your line.