09 ralph lauren australia cheap Earnings Call Transcript Good morning and thank you for joining us on polo ralph lauren's fourth quarter and full year fiscal 2009 conference call.The agenda for the call today includes roger farah, our president and chief operating officer, who will give you an overview of the year and comment on broader strategic initiatives, and then tracey travis our chief financial officer will provide operational and financial highlights from the fourth quarter and full year in addition to reviewing some expectations for fiscal 2010.After that we will open up the call for your questions which we ask that you limit to one per caller. As you know we'll be making some forward looking comments today, including our financial outlook.The principal risks that could cause our results to differ materially from our current expectations are detailed in our sec filings.Today's discussion also includes non gaap financial measures.A reconciliation between reported gaap and adjusted non gaap financial measures can be found in our earnings release, a copy of which is available on our investor website and the sec website. Thank you jim and good morning everyone.We are pleased to be reporting strong financial results today.Our fiscal 2009 revenues rose 3% and our adjusted earnings per diluted share increased 12%.These results were in fact stronger than our initial expectation for fiscal 2009 which we articulated in november of 2007, when the world was clearly in a much different state. We achieved these results even as we absorbed dilution related to the acquisition of our children's wear and golf apparel license in japan, and as we continued to make significant investment in long term initiatives and as global economic challenges intensified to unprecedented levels in the back half of the year.Our sales and margins have held up remarkably well across channels and geographies as we gained market share around the world and took definitive action to protect our profitability. We also ended fiscal 2009 in strong financial condition, with an excellent balance sheet characterized by more than $800 million in cash as well as managed inventories appropriately.I believe our fourth quarter and full year results demonstrate that we are navigating well through tremendous uncertainty.We were able to do this as a result of the strategic diversity of our operating model, the power of our brand portfolio, the desirability of our products, and the high level of operational control we have over our businesses. Fiscal 2009 was really a year of two halves for us.In the first half of the year, we were prepared for weaker consumer demand trends thanks to the proactive measures we have taken to ship less product across our various channels of distribution after the first signs of a consumer slowdown that emerged in late 2007.As a result of our actions our sales and margin trends in the first half of fiscal 2009 were stronger than our expectations.We gained market share at our core wholesale accounts, we successfully launched the american living brand across more than 40 product categories, and we maintained our consistent mid single digit comp rate at our retail stores while preserving our profitability. The unprecedented economic challenges that emerged in september and impacted our second half of fiscal 2009 were clearly a game changer for all industries around the world.The corresponding pullback in consumer demand trends came fast and hard, and we were not immune.Interestingly it was the core luxury customer and tourists who retrenched the most.For us that meant our retail comps reversed their consistent multi year mid single digit growth rate and declined at a double digit rate as traffic levels dropped significantly and the environment became extremely promotional. The challenges at our polo ralph lauren sale uk retail store were balanced with the strength in other areas of our company. We also responded to the rapidly changing environment by implementing strong expense and inventory disciplines throughout the organization, including a company wide restructuring effort in the fourth quarter which we expect to benefit from as we move into fiscal 2010.Even as we've managed through such unsettled market conditions we continue to execute against our long term strategic objectives in fiscal 2009.The investments we make in our future growth initiatives are critical and we have the balance sheet and cash flows to continue to support them.In fact, the strategic investments we made over the last several years to expand our direct to consumer reach, grow internationally and develop new products that have helped us offset some of the impact of lower domestic shipments of our core products during fiscal 2009.The site sales grew 19% last year, approximately four times faster than total online sales and is in the ninth year of consecutive double digit growth. Europe was another area of remarkable strength for us during fiscal 2009.We maintained double digit constant currency growth throughout the year even as macro pressures intensified in the back half.Of course this growth rate is even more impressive given that we have grown our european sales more than five fold over the last seven years.We believe there is still much room for our wholesale and resale segments to expand their reach throughout europe.We are in the midst of a market redevelopment strategy in france which includes some high profile flagship store locations as well as revitalizing presentations of all our brands in many leading department stores.We just introduced lauren, our largest women's brand in terms of sales volume, into about 80 european doors.So the global potential for that brand is only just beginning. And we have only just begun to explore eastern europe, primarily through licensing partnerships.The incredible strides we've made in developing our european business has been supported by an outstanding leadership team based in geneva. We also continue to make progress building our organization in japan.The children's wear and golf integration that began in the second quarter of fiscal 2009 and that we knew would be diluted this year has gone smoothly.We are pleased to have all core apparel categories managed by our japanese leadership team.Our long term strategy to grow our sales volume in japan will be supported by elevating the brand and refining the merchandise strategies to be more in line with the approach that has worked so well for us in the united states and europe.We also intend to nurture under developed cheap ralph lauren clothing categories particular women's wear, children's wear and accessories by supporting shop refurbishments and improving our adjacencies. And we are now able to present a cohesive brand statement across many products.We are partnering with our wholesale customers to capitalize on additional collective growth opportunities. In order to support our japanese growth strategies we have begun to roll out a series of information technology upgrades that will continue through fiscal '10 and support the consolidation and integration of what was previously three different organizations.Some of the benefits we expect to realize as a result of the japanese system upgrades include better inventory allocation, improved fulfillment tracking and performance reporting as well as greater supply chain efficiency. Some of the most exciting news during the fourth quarter was that we have reached a definitive agreement to assume direct control of our wholesale and retail distribution in southeast asia beginning january 1, 2010.On that date we will not only have the rights to control our distribution in the region which include china, hong kong, indonesia, malaysia, the philippines, singapore, taiwan, and thailand;We also will assume responsibility for approximately 43 standing locations and 100 shop in shops.Dickson concept international limited, our licensee for the region, will continue to operate the business for the next seven months.This transition of our southeast asia business marks a stride forward with respect to growing our international presence, particularly as it relates to achieving our long term goal of having approximately one third of our revenue come from the asia pacific region.While this goal is approximately double the current penetration of our asia pacific region to our total sales mix, the market growth dynamics are very compelling and among the strongest in the world. Even though we've had a presence in southeast asia with a licensing partner for more than two decades, our business in this part of the world is relatively small, approximately $150 million in retail sales across all eight countries in the region.And it is compromised of only a fraction of our various brands and ralph lauren mens shirts product categories.We believe the potential for our brands in china alone is tremendous.The chinese appetite for global luxury brands continues to grow rapidly.In fact, the chinese consumers are already among the largest customers of many european luxury brands, most of which have had direct control of their chinese operations for several years. The work we will undertake to develop southeast asia is not unlike what we've done successfully in europe and are currently doing in japan.Namely elevating the position of the brand, layering in our luxury products, further developing our women's, children, accessory categories and refining our wholesale and retail distribution.This is clearly a meaningful investment for us not only in terms of the financial resources required in the near term but also the transformational impact this investment is expected to have on our long term growth profile. And there is a tremendous amount of work to be done.We are building a world class greenfield organization in terms of people, processes and systems to support the retail and wholesale network of our stores and shops in the region.The timing of the transition allows us to begin building our hong kong based team that will manage southeast asia, and to plan for it system implementation and store development initiatives ahead of going live in the region.We expect our most significant investment spending to be concentrated in the next two to three years as we grow from a handful of dedicated employees on the ground today to a couple hundred employees over the next three years. In conjunction with our accelerated investment to pursue market share gains worldwide, we continue to refine our global operating standards.We are a complex company with respect to the breadth of products we sell, the channels through which we sell them and increasingly our global reach.Our bandwidth spans the world's premiere fashion runways with our ralph lauren brands to the main streets of america with chaps and american living brands.And we not only design the product, we are sourcing it, flowing it around the world, marketing and advertising it and often selling it directly to the customer. Now that we have considerable more direct control of the various aspects of our business worldwide, we are identifying and researching opportunities to evolve our core processes and the way we work across divisions, brands and regions.These efforts are designed to enhance our performance in a manner that will allow us to drive greater efficiencies and best leverage our considerable growth prospects. During the fourth quarter we took definitive action to reduce costs by restructuring aspects of our organization.Acts like this are often difficult, but they are consistent with the evolution of our company and the unprecedented economic challenges that have emerged over the last year.Our actions were primarily focused on our domestic resale and wholesale operations, areas where the business trends have been most negatively impacted by the slowdown in consumer spending, and resulted in the elimination of approximately 500 people from our organization.Having to reduce the workforce is a painful consequence of the external environment but i believe we made the best decision that balanced the near term market realities with our commitment to our long term growth objectives. One of the most important learning's that has come out of the experience of our industry through the last year have been that brands matter.Customers want brands they can trust, where they know they are getting high quality merchandise that has enduring value to them.This phenomena plays directly into our company's historic strength, not only for our core ralph lauren brands but also for chaps and american living.Our sustained investment in product innovation and marketing and advertising to support all of our brands differentiates our company, especially since we are leveraging our leadership in these disciplines across a wide range of target consumers. As we sit here today, the global consumer remains very tentative.While sales trends appear to have stabilized, they are at lower levels and traffic remains depressed.When consumers do shop they are doing so with a fixed amount of disposable dollars and they are not spending beyond that limit.We are also finding that demand is strongest for need now, wear now merchandise.There is very little nice to have buying or purchasing ahead of next season. As a result we, along with our retail partners, continue to be cautious with respect to sales planning, inventory planning and receipt planning throughout the next year.Regardless of the near term market dynamics, we have a clear and compelling growth plan ahead of us.Our goal is to enhance shareholder value through strategic diversification and capital allocation that is meant to yield higher returns while mitigating risk over the long term. As i highlighted earlier we are leveraging our financial and managerial strength to opportunistically accelerate our investment in the development of our international markets, and we have a track record of success.We have proven our ability to do so in europe, this work is underway in japan, and we are in the early planning stages for southeast asia.We are driving productivity from more established markets and product categories as we aggressively invest in under penetrated high growth markets and product categories.Our financial and intellectual capital will be allocated accordingly. Our fiscal 2009 results demonstrate we can take appropriate action to navigate through whatever headwinds come our way while continuing to protect our long term strategic agenda.The desirability of our brands and products around the world, the diversity of our business model across channels and geographies, and the exceptional high execution of our management team contribute to our performance this past year.Just as we took definitive action to protect our profitability in fiscal 2009, we will continue to be proactive in positioning ourselves to emerge from the near term challenges as even a stronger global brand and company. Before i turn the call over to tracey, ralph and i would like to thank all of our employees for their hard work in navigating through this difficult environment.Your talent and dedication has really made a difference.

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