Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Fourth Quarter and Full Year Fiscal Year 2017 Earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. Instructions on how to ask a question will be given at that time. If you should require assistance during the call, please press star then zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Ms. Evren Kopelman. Please go ahead.

Good morning and thank you for joining Ralph Lauren’s fourth quarter and full year fiscal 2017 conference call. With me today is Jane Nielsen, Chief Financial Officer. After prepared remarks, we will open up the call for your questions, which we ask that you limit to one per caller. During today’s call, we will be making some forward-looking statements within the meaning of the federal securities laws, including our financial outlook. Forward-looking statements are not guarantees, and our actual results may differ materially from those expressed or implied in the forward-looking statements. Our expectations contain many risks and uncertainties. Principle risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings. To find disclosures and reconciliations of non-GAAP measures that we use when discussing our financial results, you should refer to this morning’s earnings release and to our SEC filings that can be found on our Investor Relations website. Now I will turn the call over to Jane.

Thank you, Evren, and good morning everyone. I’m looking forward to reviewing our progress for the year in detail, but let me start with one of the most important developments, which I’m sure you all saw yesterday. We have appointed a new President and Chief Executive Officer, Patrice Louvet. Patrice is a highly seasoned and successful business leader. He most recently served as the Group President of Global Beauty at Procter & Gamble and has a strong track record of leading global businesses during this 25 year-plus career at P&G. He has a deep understanding of consumers and brands, a collaborative leadership style, and a passion to win in the marketplace. The team is ready to welcome him when he joins in July, and I am looking forward to partnering with him. Now let me turn to a review of our performance and future outlook. 2017 was an important year as we strengthened the foundation of the company. We created operational efficiencies by improving our cost structure, increased the productivity of our assortment, and improved quality of sales. Let me take you through some of the key achievements for the year, starting with product. We improved the productivity and profitability level of our assortment by cutting the unproductive styles. For both spring and fall 2017, we reduced the number of SKUs by 20% and focused our investments on our core iconic products. Second, we reduced our lead times. Fifty percent of our business is now on a nine-month lead time, and we are on track to get to 90% by the end of fiscal 2018. Importantly, we are driving improvements beyond the nine-month mark. For spring 2018, approximately 35% of our business will be at lead times of six months or less. Third, we have aligned inventory to demand. Inventory…

[Operator instructions] The first question comes from Omar Saad with Evercore ISI.

Morning, thanks for taking my question.

Sure, good morning, Omar.

Hi Jane. Wanted to see if you guys could talk a little bit more about Patrice’s hiring and the thought process behind it, and maybe dive into a little bit more detail around why he’s the right person for the job. Thanks.

Sure. Well you know, as you saw in the announcement yesterday, Patrice has a proven track record of leading major global consumer brands, and he’s really an operator who has had a career that’s focused on efficiency and effectiveness in the organization’s he’s run. He has transformed and grown brands like Olay and Pantene with a real focus on leveraging consumer insights. He’s a global citizen and has diverse experience across distribution channels, from ecommerce to wholesalers to retail, so he really has had a breadth of experience. Probably most importantly, he really has a collaborative leadership style, who can work in partnership with Ralph and the senior team to ensure that we can move forward on the front-facing part of our plan to get demand back to our business, so we’re all excited to welcome him. I think Patrice knows well and appreciates the steps that we’ve taken over the last year as a part of the plan to improve our business, and he’s fully supportive in continuing that work to create an effective business, to continue to focus on our value creating engines and to pivot to the consumer-facing side of our business in partnership with Ralph.

Great. Next question, please?

Thank you. The next question comes from Kate McShane with Citi Research.

Hi, good morning. It’s actually Corinna Van Der Ghinst on for Kate. Hi Jane. I was just hoping you could talk a little bit more about the quality of sales initiatives that you guys have talked about in the past. I know you’ve discussed moving away from a more promotional model. I was just wondering how you see kind of the gross margin expectations for the year and also qualitatively where have some of your bigger challenges been in getting back to that kind of fuller price selling model.

Sure. So as I step back and look at FY17, I think one of the things that we are very proud of is the work that we’ve done on quality of sales. It’s shown up in our gross margin every quarter and it’s shown up in our results in FY17. Just looking at this quarter, about half of our sales--I’m sorry, about half of our gross margin improvement was a result of reduced promotions and better sell through on higher margin product. The other half was balanced between favorable geographic and channel mix and better product costs. As we look at our efforts in quality of sales, we’ve been very effective particularly in the second half of the year of really pulling back thoughtfully in partnership with our wholesale partners on receipts to ensure that our plan and our receipt flow was designed to flow in and reflect higher margin sell through. So we purposely planned, pulled back, looked at the percentage of our business that was selling at a discount that we viewed as too heavy, pulled back on those receipts so that we could move in in wholesale into higher margin sell through. That’s starting to happen. It had to be done planfully because of the long lead times on inventory, but you’re starting to see that. Equally, ecommerce, the fourth quarter I think shows our lean into quality of sales in ecommerce. We worked through the inventory that we had ordered almost a year ago, but we really pulled back on promotion frequency and promotion depth on some key icon styles, notably in our women’s and children’s business. You’re going to see that continue as we move forward. We’ve planned our receipts to move into higher margin sell through and to move forward on a reduced promotional cadence. So what we’re starting to see is real harmony across the market, notably in North America, and a real planful pull-back that continues quality of sale.

Next question, please.

Thank you. The next question comes from Lindsay Drucker Mann with Goldman Sachs.

Hi, this is Rosalie Frazier on behalf of Lindsay Drucker Mann. We had a question on FX impact to margins. As a follow-up on that, are you taking any pricing to offset FX headwinds?

So as we look at FX headwinds, most of our--we think about pricing specifically in-market. Most of our customers internationally are local customers, so we move into currency headwinds by taking pricing largely on innovation and new styles, so we will address some of those headwinds, largely on innovation, and moving into pricing on innovation and on new styles. So it’s not--we don’t move pricing with FX, we do step back in the marketplace in which we operate, we look at the value of our product, we look at the competition in the marketplace, and then we look at some of the macro factors and price accordingly.

Next question, please.

Thank you. The next question comes from Erinn Murphy with Piper Jaffray.

Great, thanks. Good morning.

Morning Erinn.

Good morning. You talked about sales guidance throughout the year showing some steady improvement. Can you just speak a little bit more about what you see are the drives of that improvement in the back half of your fiscal year, and then just clarifying, Jane, I think you also said in the guide half of the sales declines are from brand and distribution exits. Can you just refresh the thoughts on what percentage was denim and supply off-price pull-back versus wholesale pull-back? Thanks.

Sure. Let me just--let me step back from the components of your question. As we move through the year, I expect sequential improvement in both our wholesale business as we start to overlap some of the quality of sales initiatives that we started and move into full price selling, so I expect that to improve pretty much sequentially through the year. I do expect the fourth quarter in our businesses, and largely in North America, to be better as we’ll benefit from Easter in the fourth quarter of FY18, and equally expect our retail comps and overall sales to move to be sequentially better as we move through the year. As I mentioned, most of our work in international, we’ve gone through the majority of our work, and I expect international overall to move to--to be moving into positive sales growth territory as we move through to the back of the year. Ecommerce, where we really did the bulk of our work in the fourth quarter and we have a significant amount of quality of sales work left to do in FY18, will be a pressure point as we move through the year. Then just in terms of the comment on denim and supply, we are exiting denim and supply through all four quarters of the year, as we announced. Denim and supply, we did execute spring shipments in FY17, so that pressure will be through the four quarters of the year, and it is about 200 basis points of pressure overall for FY18.

Next question, please.

Thank you. The next question comes from Laurent Vasilescu with Macquarie.

Good morning, and thank you very much for taking my question. I wanted to follow up on the wholesale channel. Jane, last quarter you provided some very helpful metrics to quantify the decline in wholesale revenues, particularly around the Way Forward plan and the reductions in the value channel. Can you provide those metrics for the fourth quarter 15% decline, and then secondly with the new reporting structure, how should we think about the changes year-over-year for North America, Europe and Asia revenues in FY18?

Laurent, could you repeat the second part of your question about Europe and Asia?

Sure, yes. With the new reporting structure, how should we think about those changes year-over-year in revenues for North America, Europe and Asia in FY18?

Sure, got it. Thank you. So in terms of our overall wholesale business, what we saw as we moved into the fourth quarter is we continued with about a 20% pull-back in the sales of our off-price channel, and as I mentioned, that is work that we’ll continue to do and will continue throughout FY18. Our objective is to reduce the percentage of sales that off-price wholesale represents to our total wholesale business. Then as I think about the new--as we think about the new reporting segments, Europe and Asia as we move through FY18, Asia in particular should have--will be moving through store closures in the first half, but moving into growth in the second half, and about a similar shape for Europe with more pressure in the first half but moving into growth year-over-year in sales in the second half.

Next question, please.

Thank you. The next question comes from Mr. Brian Tunick with RBC.

Thanks very much, good morning.

Morning Brian.

Morning Jane. Curious on how we should be measuring inventory as we move through the year, particularly in the wholesale channel. Maybe just give us some idea of the metrics we should expect. Obviously inventory is down sharply right now, but how should we be thinking about that the next couple of quarters, and then any update on the number of remodels of shop-in-shops planned for this year inside your wholesale partners? Thanks very much.

Certainly. So as you think about inventory as we move through the year, we are continuing our work on overall inventory and you will see inventory in the first half declining about--you know, in the 20% range. As we pivot into inventory orders that are more oriented to FY19 demand, you’ll see inventory down in the low double digits in Q3 and then starting to align with overall sales in Q4. So again, inventory first half in the 20% range, second half should average out to down in the high single digit range. Then in terms of overall shop-in-shop remodels, we’re still working through the plan on remodels. You will see us targeting some high profile, high traffic doors in wholesale for overall remodels, and then in Asia you will see us doing some--and Europe, you will see us doing some of the corner refreshes in our wholesale business.

Next question, please.

Thank you. The next question comes from Michael Binetti with UBS.

Hey guys, good morning and thanks for taking my questions; and Jane, thanks for all the detail this morning, very helpful. Just two quick ones, and I apologize if I might have missed it, but the guidance for first quarter, I’m just trying to--it seems like you gave a pretty clear picture on the revenues, but it seems like the implied guidance is for the gross margins to be up pretty significantly, and I know there’s some noise from adjustments in the prior year. If you wouldn’t mind helping us just fine tune approximately where you think the gross margin versus the SG&A lands in your guidance; and apologize again if I did miss that. Then secondly, you’ve spoken a little bit about the off-price channel and continuing to pull back on it, but as you kind of just step back and, say, there aren’t many clear channels of transaction growth in the U.S. right now, one of them is obviously the Amazons of the world and maybe the e-tailers, but also off-price is going to continue to be building stores here. I mean, you’ve given us a lot of detail about how you’re pulling back on it because you were over what would be an equilibrium point, but how are you thinking, I guess strategically, about what the right amount of product is to have in that channel going forward versus having too little exposure there to growth that a lot of consumers consider to be a primary channel of retail? I guess that would be my questions, thanks.

Yes, let me answer the last part of your question first, and then I’ll give you some clarity on Q1. We do view value wholesale as a channel that is--that serves a segment of consumers, that they’re excited about the treasure hunt aspect of that channel, and we recognize that. We haven’t said we’re exiting that channel but we are rebalancing it, and we’re rebalancing it both in terms of the amount of product that we sell through that channel and the types of product that we sell through that channel, so you will see it decline as a percentage of our total wholesale business throughout FY18. Then moving forward, you’ll see a slightly different mix of product but you’ll still see us serving that consumer base, but on a less penetrated basis. Then your question in terms of overall gross profit, we do expect margin expansion, gross margin expansion in FY18 in the first quarter. We haven’t given specific guidance, but I would expect that the overall margin expansion should be about similar to what you saw as we exited the fourth quarter, similar to slightly better.

Next question, please.

Thank you. The next question comes from Matthew Boss from JP Morgan.

Great. So you’re 9% to 10.5% EBIT margin guidance implies contraction at the midpoint, versus I think in the past you talked about constant currency expansion in the forecast. I guess any changes you’re seeing in the apparel backdrop larger picture, and could you just lay out the variables that drive that 150 basis point range just between the top and the bottom of that EBIT margin guide for this year?

Absolutely. So as we look--you know, as we look into FY18, there are a lot of factors in play next year. Clearly we’ve got a rapidly changing consumer environment and we have some significant change internally, so we’ve chosen, number one, to continue to work on building the foundation and right-sizing our business to a healthier base, notably in ecommerce. We need to have a coherent price strategy across the region. We can’t be leading pricing down, and so we are leaning into that price coherency in our ecommerce business, notably in North America. With that said, we still have a consumer-facing strategy. This is still evolving, and we’ve left ourselves some flexibility to roll out product, marketing and store concepts notably in the second half, which would imply a wider range of guidance on overall SG&A growth, notably in the second half. Also in the second half, we begin to lap some of the aggressive SG&A cuts that we took in FY17, and that’s part of that variability as you look through the year. So I’d say we’ve got-overall we are leaning in to some of the pull-back in ecommerce. That’s causing some sales volatility relative to our previous guidance, and we are leaving ourselves the flexibility on the SG&A line to plant important investment seeds for growth. Those are the two areas that give us a guidance range for FY18.

Next question, please.

Thank you. The next question comes from Ike Boruchow with Wells Fargo.

Hi, good morning. Jane, thanks for the detail.

Morning Ike.

Just real quick, so the $370 million in charges, just curious how much of that is cash, and then embedded in your fiscal year top line guide, can you just give us a little bit more color in terms of what’s embedded on comp - I’m sorry if I missed it, and then within that, your digital expectation as well as the store comp expectation. Thank you.

Sure, okay. So why don’t I start with our expectations in terms of guidance. We expect mid to high single digit global retail sales and comp decline. We expect wholesale to decline in the mid teens globally, and we expect ecomm comps to decline in the mid teens globally.

Cash?

Oh sorry, yes. In restructuring, of the $370 million of Q4 restructuring charges, approximately $120 million was cash.

Next question, please.

Thank you. The next question comes from Jay Sole with Morgan Stanley.

Great, thank you. Jane, you talked about why Patrice is the right person for the job. Can you just talk about how the decision making process will take place as a company going forward between Mr. Lauren, Patrice and yourself?

Sure. So first of all, I’d step back and say that we have a very capable and seasoned senior team, so it’s not just Ralph, Patrice and I, it’s an operating committee of seasoned executives that we all play a role from the regions to the functions, and we have operating committee meetings weekly where we address the performance of the business and develop strategy. We also work in--Patrice will work closely, as will the operating team, in concert with Ralph as we put in place the strategy for the consumer-facing part of our transformation, and that would be specific to marketing, to products, and to store design.

Next question, please.

Thank you. Our final question comes from John Kernan with Cowen and Company.

Good morning Jane, Evren. Thanks for taking my questions. Jane, you talked a lot about efforts with some of the pure plays internationally - Zalando, Asos. Just wondering what your strategy is with Amazon? The brand’s distributed fairly heavily through third party distributors right now on Amazon, just wondering if there’s an opportunity to take it more direct. Then my follow-up question is there’s obviously a lot of pressure on all the global apparel brands from a margin perspective. I’m just wondering if you’re still comfortable with the long term mid teens operating margin target for the company. Thank you.

Yes, let me start with the last part of your question. Clearly improving operating margin and getting to a mid teens operating margin is still our goal, and we are working tirelessly on that Given the change that we have in the environment and the changes that are occurring internally, the big question for us is timing. I think it’s the question for everyone. But certainly getting back to higher operating margin and doing that as quickly as possible is Patrice’s goal, it’s my goal, and it’s the goal of the company, so we’ll give you more visibility and timing as we move through and as we look through these initiatives and see their performance. Then the first part of your question in terms of Amazon and other pure players, this is a dynamic marketplace. The consumer is changing, the digital ecosystem is changing, and as you’ve seen with our efforts that have been very successful on sites like Zalando, we’re looking at all opportunities and that will be a big part of what Patrice will do when he comes in, in concert with the senior team. So we’re open, we’re looking, but these are big strategic issues and we’ll want to do them in partnership with our new chief executive officer. So with that, I want to thank you for joining our call today. I look forward to speaking with many of you later on today and throughout this quarter, and I especially look forward to talking with you next quarter when Patrice will join me on this call. Thank you.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.