Earnings Call: Q4 2013

Jul 30, 2013

Good day, and welcome to the Coach Conference Call. Today's call is being recorded. I would like to turn the call over to Senior Vice President of Investor Relations and Corporate Communications at Coach, Ms. Andrea Shaw Resnick. You may begin. Thank you. Good morning and thank you for joining us. With me today to discuss our quarterly and fiscal year end are Lee Franklin, Coaches' Chairman and CEO, Richard Reed, Coaches' President and Chief Commercial Officer and Jay Nielsen, Coaches' CFO. Before we begin, we must point out that this conference call will involve certain forward looking statements, including projections for our business in the current or future quarters or fiscal years. These statements are based upon a number of continuing assumptions. These results may differ materially from our current expectations based upon risks and uncertainties such as expected economic trends or our ability to anticipate consumer preferences, please refer to our latest annual report on Form 10 K and complete list of these risk factors. Also, please note that historical growth trends may not be indicative of the growth. Now, let me outline the speakers and topics for this conference call. Lou Frankfort and Victor Luis will provide an overall summary of our 4th fiscal quarter and annual 20 13 results and will also discuss our overarching strategy. Jay Nielsen will continue with details on financial and operational for the quarter and the year along with our outlook for FY 'fourteen. Following that, we will hold a question and answer session. This Q and A session will end shortly before 9:30 am. We will then conclude with some brief summary comments. I'd now like to introduce Lou Francis, Coach's Chairman and CEO. Thanks, Andrea, and welcome, everyone. We shared a lot of news in our press release this morning, and we understand it will take some time to digest. This year has obviously been unique and we have recognized that it has not been business as usual. Most importantly, we have taken significant steps to help reposition the company to return to superior growth rates, while maintaining outstanding profitability levels. Our focus and priority is on the brand and driving its relevance to reinforce our customers' emotional connection to Coach, notably in North America. We have a proven group of Coach leaders to execute our transformation strategy. This is a multi year journey we're excited about the future, building upon our strong brand and business equities with an exceptional team at the helm. I also want to take this opportunity to thank Mike and Jerry for their important contributions in building Coach into a leading international accessories brand. The entire Coach team has great admiration and respect for their significant During the Q4, we approached double digit growth in constant currency and continued to gain overall traction on our key strategies supporting our transformation. We generated strong international results, leveraged the men's opportunity globally, strengthened our digital capabilities and drove excellent results in the relaunch of footwear. While we maintained our outstanding profitability levels, we were not satisfied with our performance in the women's handbag and accessories category in North America. Moving on to some key highlights of our quarter and fiscal year. Our performance in FY twenty thirteen was highlighted by increases of 7% in revenues, a 2% rise in operating income and 6% in earnings per share. It was a year of many milestones. First, we continue to leverage the international opportunity for Coach, growing organically through distribution and productivity, while accelerating the acquisition of international retail businesses to our direct control. In China, coat sales exceeded $430,000,000 up 40%, ending the year with about 125 locations, including over 100 on the Mainland. 2nd, our men's business grew almost 50% in FY2013 to about $600,000,000 as we continued to open dedicated stand alone and dual gender locations globally, while also rolling out a broader expression of men's to additional North American retail stores. 3rd, we successfully expanded our digital initiatives driving double digit online sales growth, while also exploring new ways to engage with our consumer and grow our database, reflecting shifting shopping preferences. 4th, we increased our quarterly dividend by 13%, demonstrating our financial strength, cash flow generation and our commitment to shareholder return and confidence in the future. And 5th and most importantly, we embarked on our journey to transform Coach into a global luxury lifestyle brand, building upon our leadership position in accessories. Some key 4th quarter metrics were: 1st, net sales totaled $1,220,000,000 an increase of 6%. On a constant currency basis, sales rose 9% for the quarter. 2nd, earnings per share totaled $0.89 up 3% from the 0.86 dollars in the prior year. 3rd, North American sales increased 6% to $825,000,000 from $781,000,000 last year, with direct sales up 5% and comparable store sales down 1.7%. And 4th, international sales increased 7% to $386,000,000 from $362,000,000 last year, driven in part by a 35% gain in sales in China with a continuation of double digit comps. On a constant currency basis, international sales rose 17%. Most broadly, we were also very pleased with profitability levels in both the quarter year. Turning to global distribution. During the Q4, we opened 3 new North American retail stores and closed 4 others. We also opened 2 factory stores, including 1 dedicated men's store. At the end of FY 11% for the year. Moving to China, during the quarter, we added 8 new locations on the Mainland, bringing the total to 126 Coach locations in China, including 108 locations on the Mainland in 47 cities. In aggregate, there was an increase of 30 net new locations for the fiscal year or a square footage increase of 33%. In Japan, 7 locations were added during the quarter, bringing the total to 198 with 24 stand alone full price stores, including 9 flagships, 124 shop in shops, 43 factory stores and 7 distributor operated wholesale locations. In total, a net of 11 locations were added in Japan during FY2013, yielding total square footage growth of about 9%. We also directly operate 92 locations in Asia, comprised of 48 in Korea, 27 in Taiwan, 10 in Malaysia and 7 in Singapore. Moving on to sales and productivity. Starting in North America, our total revenues rose 6% for the quarter with our directly operated businesses up 5% on a 1.7% comparable store sales decrease due in part to the Easter shift, which we called out as a benefit to last quarter. While men's and our newly relaunched footwear categories performed well. As I mentioned, we were disappointed by our overall performance in women's bags. More generally, Internet sales and traffic continued up double digit consistent with consumers shifting shopping preferences, while in store trends, notably traffic, were weak. On these lower traffic levels, in store conversion was up and transaction size held. In department stores, sales trends at POS was slightly above last year, while shipments into this channel also rose. Overall, we estimate that growth in the addressable women's North American handbag and accessory category remains strong, rising low double digits in fiscal 2013 to about $12,000,000,000 as bags and accessories continue to represent a growing portion of our wardrobe spend. The combined North American premium women's and men's market grows about 15% in FY 'thirteen to about $11,000,000,000 Coach continued to participate in the market growth with our own direct channels posting solid gains for the year, up 6% as mentioned, with a combined market share of about 30%. As we've discussed, we're also continuing to drive our men's business globally through standalone and dual gender or side by side stores and by dedicating more space for a broader men's assortment in existing retail stores. In FY 'thirteen, Coach's sales of men's bags and accessories increased 50% in North America, driving the overall men's premium category, which grew 25% to about $1,000,000,000 Looking ahead, we remain excited about the prospects for our global men's business, where we believe we can reach $1,000,000,000 in sales in 3 years from the $600,000,000 achieved last year. I'd now like to turn it over to Victor to discuss international sales, product performance this quarter as well as to give you an update on our progress on transformation and what you can expect in FY 2014. Victor? Thanks, Luke. Starting with international, which today represents about a third of Coach's business, sales rose 7% in the 4th quarter or 17% on a constant currency basis, consistent with prior quarter and full year trends. During the quarter, China sales rose about 35% from prior year, fueled by distribution and double digit same store sales. As Lou noted upfront, this took our full year sales to over $430,000,000 up 40%. Clearly, the Chinese consumer continues to embrace Coach as repurchase intent has remained high at over 80% among existing consumers. This is also evidenced by the increasing contribution of the Chinese to our global sales. Our other Asia direct businesses outside of Japan and China, Korea, Taiwan, Malaysia and Singapore also posted strong aggregate growth in the quarter and the year. In total, they benefited from the retail step up from the prior year for Malaysia and Korea, which were acquired in early FY twenty thirteen. It's important to note that their combined POS sales also rose at a high single digit rate for the quarter and a double digit rate for the year. As noted for the quarter, we posted a 4% increase in local currency in Japan despite the tough compare, while dollar sales declined 15%, reflecting the weaker yen. Similarly, for the year, sales were essentially even with prior year on a constant currency basis and down 9% in dollars. Moving on to product. Legacy and Madison remained our key collections in the Q4 with new silhouettes and on trend colors introduced throughout the period. The Madison Phoebe shoulder bag launched at the end of March in North America and later globally was particularly successful. We also featured a new group of satchels and totes across multiple collections in June. Looking forward, we're excited about the re launch of Madison this quarter, which follows the same design aesthetic as Phoebe with clean sophisticated lines, feminine details, rich leathers and understated branding. More generally, we saw a continuation of trends favoring leather handbags across all price segments. In particular, we enjoyed healthy year over year sales increases in small bags and the above 400 segments continued to perform well at about 16% of handbags. Our overall handbag penetration was even to last year. And I'd be remiss not to mention the distinctive newness in our factory channel, where new designs are beginning to arrive in stores and online. Metro, a great tote group was a winner late this spring and Park, a fashionable leather based collection has just hit the stores and has been very well received. In fact, by the end of Q1, about 80% to 85% of our factory handbags will be new innovative factory exclusives. Turning to North America's department stores. We are committed to growing this business and positioning Coach to win. We're focused on improving performance with an emphasis on growing our leather handbag significant rollout this year. We are also looking with significant rollout this year. We are also looking at incremental new door distribution opportunities with current partners. I will now give you an update on our footwear business, which as you know we relaunched this spring in over 170 retail stores in North America with the objective of elevating our product proposition, supporting Coach as a lifestyle brand and reinforcing our fashion credibility. The collection featuring great ballet flats, driving moccasins, fashion wedges, heels and on trend casual styles has been very well received by consumers. In fact, footwear in these locations went to almost 12% of the business immediately and stayed at the level for the 4th quarter versus about 7% in the year ago quarter, positively impacting productivity in these stores. We're focused on building our market share within this fragmented $20,000,000,000 global category. This fall will include more dominant fashion footwear assortments in our international and wholesale locations and continue to focus on building our key items. We're evolving our mix and growing both AURs and overall penetration levels across all of our businesses. Over the next few quarters, the level of innovation across all product categories will continue to increase, adding emotion while strengthening fashion credibility and relevance for the brand. This will be most notable in the holiday quarter with the arrival of what we're calling capsule, a curated product assortment across categories focused on key items in bags, footwear and outerwear. This capsule collection will support our lifestyle imagery and be available in select locations globally. At the same time, we're enhancing our store environments across all channels and developing innovative marketing campaigns to communicate a more aspirational and consistent brand story, reinforcing the bond with our existing consumers, while driving new customer engagement globally. Our intent is to drive brand relevance, building on our leadership position in accessories. Moving on to e commerce. As mentioned, our North America online business was strong again this quarter with sales and traffic growing at a double digit pace with an increasing penetration coming from mobile and tablet. Additionally, we have been extremely pleased with our website evolution earlier this month as we improved the functionality and upgraded the look and feel of coach.com across all devices. Earlier this year, we talked about our brand transformation into a global lifestyle brand anchored in accessories. As we have built out our strategic plan, we have focused on 3 key elements product, stores and marketing. To this end, we've made several important hires to strengthen our team and enhance the Coach experience. Importantly and most recently, we announced that Stuart Vivers will be joining Coach as Executive Creative Director and will be responsible for leading all creative aspects of the Coach brand, including women's and men's design, brand imagery and store environments. Stuart's appointment marks an important milestone in our transformation and we're extremely pleased that he will be leading our strong creative team already in place. His depth and breadth of experience will be an invaluable asset to the business in general and the design team in particular as we continue to evolve. I am confident that his creative expertise with some of the world's leading leather goods brands will enable him to draw upon Coach's rich heritage to create innovative product and brand imagery, elevating the customer experience and creating a fuller expression of the brand. And today, we announced the reorganization primarily within the North America leadership team to enhance focus and drive execution in the company's largest market. Most of you know Coach veteran, Francine de la Badia, who is currently the EVP responsible for all North America retail merchandising, planning and allocation as well as Coach's Global Men's and Factory Merchandising. She is succeeding Mike as is taking on the new role as President of Global Digital and Customer Experience. David Bunch, SVP of Licensing, who has spearheaded our footwear relaunch will assume the expanded role of SVP and President, North America Wholesale and Licensed Categories, reporting in to Todd Kahn, our General Counsel in his expanded role as Executive Vice President, Corporate Affairs. In addition, Ian Bickley, President's Coach International is expanding his role to take on responsibility to include all and Consumer Insights is taking on an expanded role as Executive Vice President, Marketing and Strategy. Fran, David, Todd, Ian and Stephanie will report to me in their expanded roles. As Lou mentioned, during the Q4, we took significant steps to set the foundation for return to strong growth by streamlining the business, committing to additional brand investments and forging the next group of coach leaders to drive our transformation. As we enter FY 2014, our strategic focus remains on the 4 pillars of growth we have previously shared. 1st and most broadly, growing our business in North America and globally by transforming into a global lifestyle brand. 2nd, leveraging the global opportunity by aggressively growing our international businesses 3rd, tapping into the large and growing men's accessory category, which I've already touched on. And 4th, harnessing the growing power of the digital world. Starting with distribution. We expect that our square footage globally and across all channels will increase about 9% in FY 2014 compared to 11% in FY 2013. Beginning in North America. As noted, we are primarily focused on elevating our retail environments and replatforming our stores to showcase the full breadth of Coach's lifestyle categories. In Full Price, where we have a significant number of leases coming due, we're taking the opportunity to streamline our store base and reposition, while at the same time reviewing expansion and relocation opportunities to capture the men's footwear and outerwear businesses. In the North America factory channel, where there is an enormous amount of new real estate development, we're focused on select new market entry as well as capitalizing men's opportunity with some repositioning in smaller stores. Balancing these factors, we will open about 20 new stores in FY 2014, including 2 new full price locations and at least 15 factory outlets, most of which will be dual gender stores with 1 freestanding men's store planned as well. In addition, we plan to close 16 full price locations as we streamline our store base by closing less productive units. Importantly, we are also expanding about 20 locations, 7 full price and about 13 factory to accommodate the full build out of our dual gender presentation by adding men's to our existing stores. In total, we expect North American square footage growth of about 7% this year, driven by the net of these activities versus about 10% in FY2013. Turning to China. In FY 2014, we again expect to open about 30 new stores, all dual gender, bringing the total to about 150 5 at the end of the year. In total, square footage in China is expected to grow about 25% in FY 2014. We expect sales to total about $530,000,000 driven by both distribution and double digit comparable location sales. In terms of our other direct Asia markets of Korea, Taiwan, Malaysia and Singapore, remains productivity as we've invested in training, merchandising, store environments and systems, creating a brand right experience. In Japan, during FY 2014, we expect to open about 5 to 10 net new locations, most of them dedicated men's doors. In total, we expect net square footage growth in Japan will increase by about 2% this year. As discussed in our release, in early July, we completed the repurchase of our partner's 50% interest in our European JV. In addition, also in July, we transitioned the 2 Prontin Hausmann locations to our direct control. Therefore, today, we operate 20 locations across the U. K, France, Ireland, Spain, Portugal and Germany. As a reminder, Coach's annual sales at retail in Europe are approximately $40,000,000 with the vast majority represented by the stores that are now directly operated as retail businesses. As you know, Europe is a large market for women's and men's luxury accessories, representing about 20% of the global category sales. We believe the region has significant long term potential for Coach, attracting both domestic shoppers and the international tourists. It's important to note that within bags and accessories, accessible luxury is growing rapidly. And as we have proven with our other directly operated businesses, we plan to play a leadership role in the development of this market segment. Further, Coach's heritage linked to New York fashion is appealing for many Europeans and creates a differentiated positioning compared to the traditional luxury brands. Moving forward, we expect to swiftly increase our distribution, primarily through wholesale locations and key retail stores. Altogether, we expect to open approximately 70 wholesale and 10 retail locations across the UK and Europe in FY 2014. Finally, beyond our directly owned international businesses, we have significant and growing distributor run businesses in other countries. We're focusing on expanding through partners in these other regions. 1st, Latin America, including Mexico, Brazil, Venezuela, Colombia, Panama, Chile and Peru 2nd and other Asia Pacific markets such as Australia, Thailand and Indonesia and 3rd in the Middle East. These are in addition to the significant global travel retail opportunity that Lou mentioned earlier and continues to exist for Coach as the brand's recognition continues to grow globally. I've just reviewed our strategies to drive growth, while taking steps to streamline our fleet and maximize productivity in North America. At this time, I will turn it over to Jane Nielsen, our CFO for further details on our financials. Jane? Thanks, Victor. Lou and Victor have just taken you through the highlights and strategies. Let me now take you through some of the important financial details of our Q4 and fiscal year results. Our quarterly revenues increased 6% with North America up 6% and international up 7%. As noted, on a constant currency basis, revenues rose 9% overall with international sales up 17%. For the fiscal year, sales rose 7%, totaling $5,080,000,000 with North America up 5% and international up 10%. On a constant currency basis, total sales rose 8% for the year with international sales up 15%. Excluding unusual items, net income for the quarter totaled $254,000,000 up 1% with earnings per diluted share of $0.89 up 3%. This compared to net income of $251,000,000 and earnings per diluted share of $0.86 in the prior year's 4th quarter. For the quarter, operating income totaled 3.71 even with the year ago period on a non GAAP basis, while operating margin was 30.3% versus 32.1%. During the quarter, gross profit rose 6% to $892,000,000 from $838,000,000 reported a year ago, while gross margin was 73%, an increase of 40 basis points versus year ago, primarily due to sourcing cost improvements. SG and A expenses as a percentage of net sales totaled 42.6% compared to the 40.5% reported in the year ago quarter. For the full year FY 'thirteen, operating income totaled $1,580,000,000 on a non GAAP basis, 2% above the $1,550,000,000 reported in the year ago period. Also on a non GAAP basis, operating margin was 31.1% versus 32.6 percent last year. During the year, gross profit rose 7% to 3.7 $1,000,000,000 a year ago. The gross margin rate was 33% up 20 basis points versus a year ago and in line with our guidance. SG and A expense as a percentage of net sales totaled 41.9% compared to 40.2% reported in fiscal FY 'twelve. As I turn to GAAP metrics, let me recap key unusual items. In the second and fourth quarters of fiscal 2012, we recorded favorable tax settlements and made charitable contributions, which precisely offset the benefit of the tax settlements to net income and earnings per share in both these periods. As noted in our press release, during the Q4 of FY 'thirteen, we recorded charges of $53,000,000 for unusual items. These consisted primarily of corporate restructuring severance related expenses, impairment charges related to retail stores as well as a write down of a small amount of inventory. These steps include a reduction in corporate staffing levels with an elimination of over 200 jobs globally. And in aggregate, these actions increased our SG and A expenses by $48,000,000 and cost of sales by $5,000,000 in the period, negatively impacting impacting earnings by $33,000,000 after tax or $0.11 per diluted share. Separately, as you saw in the press release this morning, we did announce that we've entered into a binding agreement to sell the Reed Cracoff business to a group led by Reed. The sale is anticipated to close in the Q1 of FY 2014 and Reed will depart the company upon the sale of the business. Including charges, net income for the Q4 totaled $221,000,000 with earnings per diluted share of $0.78 bringing total year net income to $1,030,000,000 and earnings per share of $3.61 Taken together, these restructuring actions will streamline our business, efficiencies and leverage drive efficiencies and leverage our technology and global capabilities. In addition, these savings will fund key initiatives related to our European acquisition and our transformation, notably an increase in marketing spend around brand development. Importantly, we believe they will have a 1 year payback and result in a savings of over $50,000,000 annually. Moving to the balance sheet. Inventory levels at quarter end were $525,000,000 up 4% from FY 2012 year end. Cash and short term investments stood at 1 point above the $917,000,000 a year ago. During fiscal year 2013, we repurchased and retired over 7,000,000 shares of common stock at an average cost of $56.61 spending a total of 400,000,000 dollars At the end of the year, approximately $1,400,000,000 remained under the company's current repurchase authorization. As noted last quarter, we increased our cash dividend by 13%, raising it to an annual rate of $1.35 per share, reflecting our commitment to return capital to shareholders, balanced with our investment in growth of the business. Net cash from operating activities in the 4th quarter was $375,000,000 compared to $283,000,000 compared last year during Q4. Free cash flow in the Q4 was an inflow of 2 $93,000,000 versus $210,000,000 in the same period last year. Our CapEx spending was $81,000,000 versus $73,000,000 in the same quarter a year ago. For the full fiscal year 2013, net cash from operating activities was $1,400,000,000 compared to 1 point 2013 was an inflow of $1,200,000,000 versus $1,000,000,000 in fiscal year 2012. Capital spending totaled $241,000,000 for the year compared to $184,000,000 in the prior year. It's important to note that based on our current plans for FY 'fourteen, we expect CapEx for the next year to be up in the area of 2 $80,000,000 primarily due to new store openings and expansions across all our geographies, elevating our store environment within our existing stores and investments in the technology and infrastructure necessary to enable global expansion. Consistent with our practice over the past several years, we will not be giving specific guidance for FY 2014. As you know, we are focused on driving sustainable long term growth against a healthy and attractive brand proposition. The restructuring charges we reported today will allow us to align our resources for maximum impact while effectively managing our expense ratio. As you think about 2014, keep the following in mind. While we are enthusiastic about early holiday season, we recognize that a full reflection of this positioning is part of a multiyear journey. Therefore, we are not building in an improvement from the negative low single digit Q4 North American comp run rate into our FY 2014 plans at this time. We expect to deliver mid single digit sales growth in constant currency. Assuming the yen at close to 100, this would equate to lowtomidsingledigits in dollars with currency being a factor in the first half. Gross margin is projected at 71% to 72% for the year. The expected decline versus prior year primarily reflects currency, notably the weaker yen, rising labor costs, especially in the second half as well as inventory amortization from the JV acquisition in Coach Europe. SG and A expenses are expected to grow in line with sales. Increased investments in Europe, marketing and other brand transformation initiatives are expected to be funded by the restructuring actions. Taken together, we would expect operating margin to remain high at about 30%. And finally, our tax rate is expected to be in the area of 33% for the year. In terms of how the quarters lay out, there will be puts and takes through the year. Looking at overall top line growth, the first half and especially the Q1 will be most impacted by the yen. Regarding our balance sheet, cash flow and capital allocation, we continue to have a strong balance sheet and very healthy operating free cash flow of over $1,000,000,000 annually. We will continue to prudently invest in the growth of our business, while also returning cash to shareholders through dividends and share repurchases. We expect that dividend growth over time will be at least in line with net income growth and that share repurchases will be executed opportunistically based on our outlook on the capital needs of the business and liquidity. Our current FY 'fourteen outlook reflects approximately $700,000,000 in share repurchases, approximately equivalent to our prior 3 year average. Most importantly, our long term commitment to growth and shareholder value are unchanged. We have a business model that generates significant cash flow and we are in a position to invest in our brand while continuing to return capital to shareholders. I'd now like to open it up to Q and A. Thank The first question today is from Bob Drbul with Barclays. Hi, good morning. Good morning. I guess Victor, I have a question for you. In terms of all of the management appointments and some of the departures this morning, is the team now complete? Are there any other major hirings that you think you need to do? How should we think about it from that perspective? Thanks, Bob. I would say that certainly the majority of the team is complete. And as you have heard this morning, it really is leveraging the very deep bench that we have. We are at the moment looking for and recruiting for a replacement for Jerry COO and that is the major appointment outstanding. Okay. And then I just have one follow-up question is can you talk a little bit about the capital allocation, I mean Jane and whether the company would consider an acquisition at this point to drive growth? Sure, Bob. As I just said, our long term and long standing commitment is to growth and creating shareholder value. We've got a strong balance sheet and a great cash flow in our business. But our priorities for cash are 1st and foremost to invest in the growth of our business. Our strong ROIC and discipline in deploying capital creates significant value for our shareholders. I would say, secondly, we are open on a selective and opportunistic basis to making value creating acquisitions that would build platforms for long term growth. We would be open to a deal that would create leverage for our global infrastructure, our organization capabilities and our operating strengths. And then finally, as always, we're committed to returning capital to shareholders through both dividends and share repurchases. As I just mentioned, we'd expect our dividends to grow at least in line with net income growth And we'll execute share repurchases opportunistically this year expecting to return to that $700,000,000 level where we've been for the last 3 years or so. Thank you. Thank you. Our next question is from Ike Boruchow with Stern AG. Hello, you guys there? Yes. Sorry about that. Thanks for taking my question. I guess my question is about the store streamlining the full price store streamlining in the U. S. The 16 doors you plan to close in North America this year, were any of those doors losing money? Is there anything specific about those locations? And maybe could you comment on the margin implications there as well as you streamline that part of the business? Okay. Well, first, colon stores from our fleet is routine, because populations migrate, people move. The second, each of the stores that we selected, stores in catchment areas where another Coach store is in immediate proximity. And these stores were at the bottom of our performance hurdle with only modest four wall contribution. Yes. I just one other comment on that. The stores that we closed were at the end of their lease. And so we chose opportunistically to close those stores at the end of the lease action. Okay, great. And then a quick follow-up. Could you maybe comment a little more on the wholesale opportunity that you mentioned here in North America? Maybe how many door how many U. S. Doors are you currently in? How many shop transformations have you identified? And maybe could you size that opportunity? Well, first for context, we're in about 1,000 locations. There are a substantial additional number of locations that we think are appropriate for Coach where our consumer does shop. We're contemplating opening about 100 additional locations this year. In terms of our wholesale business, overall, it's a very sharp focus for us. We are looking to open about 20 shops or rather I should say we're renovating about 20 shops before the holiday and another 30 after Christmas. Beyond that, we're moving to open case line, where we have about, I believe, about 20 locations today with open case line and we're moving to about 300 locations in open case line. We're excited about the appointment of Javen Bunch as noted. He has spearheaded the relaunch of our footwear, proven merchant and very versatile in that channel. So overall, we're very enthusiastic. So when we talk about our Caseline, we're moving to actually open cell from Caseline to be more precise. Okay, great. Good luck. Thank you. Thank you. Due to the number of questions in queue, we do ask that you limit your request to one question per request. The next question is from Oliver Chen with Citigroup. Hi, guys. Thanks. Regarding your plans and your stated plans to intensify North America and your performance in women's handbags. Could you just articulate your average unit retail strategy and where you feel comfortable with the price points in the future Thanks. Sure. First, for context, when we talk about our women's handbag and accessory business in North America, It should be noted that we've been challenged in the logo portion of our business only. Our leather business is extremely healthy and robust. And as we move into this fiscal year, as Victor mentioned, both on the factory side and on the full price side, we're focusing primarily on leather based collections. Capsule is also going to provide us with an additional group of what we would call aspirational and more sophisticated products. Overall, our ADT is expected to be about the same and the average handbag, we're looking to be slightly up in the neighborhood of $300 perhaps somewhat higher. Thank you. Good luck. Thank you. Thank you. The next question is from David Schick with Stifel. Mr. Schick, please check your mute button. Hi, good morning. Thank you. Good morning, Kevin. I just wrapped up with the mute button on. Could you talk about the online trends, both the business you're seeing and the engagement, any engagement stats that you'd care to share before and since the replatforming that you've done? Thank you. Sure. Actually, we're just beginning our 2nd month. So everything we say is based on pretty much the last 30 days and we're pleased with the improvements. We've made changes in a variety of areas. First, we have moved to horizontal navigation. We have elevated photography, which does include on bigger handbag shots, stronger product pages and the alike. And what we're finding is an overall increase in demand. We do have a reduced bounce rate and improved conversion rate. And we're also finding that a greater portion of people are engaging with mobile and tablets just because it's easier to navigate. So net net, we're very pleased. And as you know, data, the digital world is one of constant evolution. Thank you. Our next question is from Barbara Wyckoff with CLSA. Hi, everybody. Could you talk about actually on the digital subject, your digital efforts outside the United States? And then elaborate a little bit on the travel retail opportunity? And then lastly, just could you talk about the performance of footwear in stores that had product both in North America and Asia? Sure. How are you Barbara? Thank you for your continued interest in our international businesses. We can always count on you. In terms of first, I'll start with your last section, which is footwear. We have been very pleased with the initial rollout this past quarter here in North America, where as I mentioned in our speakers' notes, we're seeing penetration really from the start of the launch at 12% compared to 7% last year. Some great news and a little bit more a fashion based collection from the traditional sneaker and moccasin based business that we were in the past. So that points to really promising news moving forward. In addition, internationally, really the launch is taking place from the month of September as we've been gearing up with the international last. And so we're really excited about that. Some initial tests in Japan and in China and very select doors points to also very promising as we've discussed in the past, a pretty robust business in Japan and that is one of our leading doors as it is here in North America and we're really leveraging a lot of the learnings that our North American digital team has been taking into the channel here and leveraging them in Japan quite effectively. As you know in China, very young business. We're just about to comp our 1st year. And there we're very excited because we're seeing distribution whereas today we have doors in 47 cities. We're seeing distribution in I believe now over 110 cities. It's giving us very good indication of the opportunities outside of locations where we exist today. We're seeing a consumer that is a little bit more youthful, younger than the traditional consumer in our stores and even seeing categories such as jewelry doing better online that we have not seen in our stores. So a lot of learning that we're leveraging in the quarters ahead. I'm especially excited about a lot of the work that we're doing internationally and engaging with the consumer through social media, whether it's in Japan, Korea through Facebook where we've just started and in China, especially through Sina Weibo where we have consistently been the number one international fashion brand there, approaching now 700,000 fans online, which is a very strong point of engagement between ourselves and our consumers. In terms of the international tourists, there is a lot of puts and takes there. Of course, as our awareness grows globally, we begin to see different tourist opportunities. I would say that the most recent trends point of course to the continued very strong growth of the Chinese tourist, which is a very major part of our We have seen a little bit of a downshift in the Japanese We have seen a little bit of a downshift in the Japanese tourist. This, of course, driven more by the impact of the yen as the Japanese consumer has decided to shop more at home. And now we're seeing the most recent trends are very promising and pointing to increasing flows of tourists from Indonesia and Thailand, where we are growing our businesses through very good domestic partners and slowly but surely beginning to see our Brazilian tourist business also pick up, especially in the Miami area and here in New York City. Okay, great. Thank you. Thank you. Thank you. The next question is from Brian Tunick with JPMorgan. Thanks and good morning. Good morning, Brian. Guys, just hoping we could tie back the negative comp guidance for the upcoming year with some of the comments you guys have been making about the enthusiasm around the product launches, the impact of comp on men's and footwear, the increased marketing spend. So just hoping you guys could talk about what kind of comp maybe differential you saw between the factory channel and full price? And are you expecting both channels to be negative low singles in the upcoming year? Well, first, Brian, as you know, we do not disaggregate comps. We can tell you that the trends are similar in terms of improved conversions in both channels on lower traffic. The reality is that we do see this as a multi year journey and while we're very sensitive to quarter to quarter trends, we're taking the point of view that until we actually experience traction within our stores, we're not going to forecast it. And that's our position. Anything else, Brian? Thank you. The next question is from Liz Sutton with Macquarie. Hi. Thanks for taking my question. My question relates to sort of the North American stores plans. What is the sort of optimal footprint that includes footwear? Like how much square footage do you have to add to the stores? And what else might your plans entail in moving from kind of a what I think of as a sort of pristine box that's very efficient at selling handbags to something that maybe draws the customer in a bit more and keeps her engaged in the store and in the lifestyle? Thanks. Well, first, fortunately, we're moving to a system where we will no longer need care traps. So we're going to be able to eliminate the cash trap stations and use that additional space for productivity. And in terms of driving productivity in our stores, our overall footprint is adequate. What's critical is for us to create more surprise, more moments, more unexpected. And you're going to see as we move forward, which we've already begun within our stores, a merchandising configuration that does encourage exploration and will tell a much more complete story that we believe it's going to resonate very well with Thank you all for joining us today on our conference call. As Jay noted, I'd now like to turn it back to the team for a few closing words. First, let me begin by saying that we've been doing this for a long time. We have a strong and seasoned management team and a strong bench. I know some of you are concerned. We do expect this to be a seamless transition and we're committed to delivering strong top and bottom line growth over our planning horizon. We have a great brand. We have excellent business equities and we have an exceptional group of people working at Coach. So as I said before, stay tuned. And have a good day everybody. Thank you. Thank you. This does conclude the Coach earnings conference. We thank you for your participation.