Andrea Resnick - SVP, IR and Corporate Communications Victor Luis - CEO Jane Hamilton Nielsen - CFO Francine Della Badia - President, North America Retail.

Robert Drbul - Nomura Securities David Scheck - Stifel Barbara Wyckoff - CLSA Ike Boruchow - Sterne, Agee Omar Saad - ISI Group Oliver Chen- Cowen & Co. John Morris - BMO Capital Markets Joan Payson - Barclays.

Good day, and welcome to the COACH conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Global Head of Investor Relations and Corporate Communications at COACH, Andrea Shaw Resnick..

Good morning and thank you for joining us. With me today to discuss our quarterly results are Victor Luis, COACH's Chief Executive Officer; Francine Della Badia, President, North America Retail and Jane Nielsen, COACH's 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.

Future 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 our other filings with the Securities and Exchange Commission for a complete list of risks and important factors. Also, please note that historical trends may not be indicative of future performance. Now, let me outline the speakers and topics for this conference call.

Victor Luis will provide an overall summary of our first fiscal quarter 2015 results, and will also discuss our progress on global initiatives. Francine Della Badia will speak to our North America business, product performance and review our key programs for the Holiday season.

Jane Nielsen will conclude with details on financial and operational results for the quarter and our outlook. Following that, we will hold a question-and-answer session, the Q&A session will end shortly before 9:30 AM. We will then conclude with some brief summary comments. I'd now like to introduce Victor Luis, COACH's CEO..

Good morning. Thanks Andrea and welcome everyone. As noted in our press release, our first quarter results were in line with our expectation and our annual guidance at continued international growth was offset by our North American handbag business where we have strategically reduced promotional events.

Importantly, we made progress on the transformation planned outlined during our Analyst and Investor Day this summer to address brand challenges and bring greater fashion relevance to COACH across the three pillars of product, stores, and marketing.

The launch of Stuart Vevers first collection in September was a significant milestone in this journey and we look forward to building on our early success over the upcoming seasons.

While we recognize that many of our initiatives will take time to be evident than our financial results, our performance to-date has been on plan and we are confident that we have the creative direction, team and resources to execute our brand transformation.

Before we get into the details of the quarter and as promised, I thought we would share some of the actions we have taken in just the last three months.

Starting with product, as mentioned we launched fall 2014 collection and retail stores globally on September 12th as planned with the full assortment including ready-to-wear introduced an approximately 40 global flagships also as planned. While at his early days, the fall 2014 product introductions are performing to expectations.

In addition, we held our second event, New York Fashion Week presentation in early September showing our spring 2015 collections to The Fashion Press and once again the press was overwhelmingly positive building on the response to Fall 2014 and driving fashion, credibility and buzz.

The key to elevating the brand perception in the mind of the consumer. We are also on track to launch Stuart's product in outlet stores globally this spring. And in North American department stores, we continue to grow our exclusive product program.

While we are looking forward to our first stores to open or reopen with our new modern luxury concept starting tomorrow with our flagship in Shinjuku in Tokyo. These stores represent a more complete expression of our transformation.

Over the next few weeks, we will be reopening our store at Time Warner center in New York City and our Rodeo Drive flagship in Beverly Hills. Prior to holidays, we expect to have a total of 20 stores opened globally in the new concept including two more here in the US, Fashion Valley in San Diego and Americana in Manhattan, Long Island.

And we are on track to renovate a total of 150 retail locations in FY15 and to open 60 new stores globally in this new concept. In North American department stores, we have already completed 140 projects installing open sale environments and replacing the old case lines and have seen an improvement versus the balance of doors.

We now expect to convert over 300 locations from case line presentations to open sale this fiscal year. We also successfully launched The Shop Manager program in the wholesale channel adding approximately 25 managers and key doors with the goal of adding a total of 50 shop managers in fiscal 2015.

We are in the process of finalizing negotiations to close approximately 70 retail locations with the majority of closures occurring shortly after the holiday season. And we remain on track to full 13 men's only outlet locations into existing stores leveraging the team and to cross shopping opportunity.

We expect that these will happen after holiday to minimize disruption during the busy selling season. We also expect to close the two outlet stores identified in key markets as part of our learning agenda during the second half.

On the marketing and customer experience front, we dramatically increased our print advertising pages with improved positioning notably into September fashion books. We also saw significant increases in editorial mentions and rank in all three major markets, North America, Japan, and China.

And as we increased our positive brand impressions, we also pulled back on promotional activity as announced we adopted a semi-annual sales model back in June consistent with the luxury fashion brands and had no preferred customer events in our retail stores this quarter nor any COACH days in North American department stores.

In addition, we reduced the cadence of DOS flash sales from three a week last year to once a week this quarter. By the end of FY15, we expect to be down to once a two events per month. We are continuing to evolve our customer experience model to align with the evolution of the product and the new store concept.

So while there are much heavy lifting remaining in front of us, we are very pleased with what we've accomplished this quarter and would continue to update you on these initiatives as we move forward. Turning to the results of the last quarter, some key financials were.

First, net sales on a reported basis totaled $1.04 billion versus $1.15 billion a year ago, a decrease of 10%. On a constant currency basis, sales declined 9% for the quarter. Second, earnings per share totaled $0.53 excluding transformation related charges as compared to $0.77 in the prior year's first quarter.

Third, international sales increased 4% to $381 million from $365 million last year. On a constant currency basis international sales rose 6%. As expected, China sales rose 10% with positive comparable store sales. While sales in our directly operated locations in Asia and Europe rose as well.

And fourth, North American sales fell 19% to $634 million from $778 million last year, on a 24% comparable store sales decreased. During the quarter, looking at distribution and consistent with our annual guidance, there was little change in our global directly operated door count. In total, adding five net locations worldwide.

One in North America, one in Japan, two in mainland China and one in Europe. As you know, we are primarily focused on re-platforming our stores, elevating brand perception, optimizing our store fleet and opening new location selectively in key markets. Moving on to sales by channel and geography and starting with our domestic businesses.

Our total revenues in North America declined 19% for the quarter, with our directly operated businesses also down 19%. As noted, total Q1 same store sales declined 24% with the reduction in DOS events, pressuring total comp by about 5 percentage points. Fran will provide further context around our North American business shortly.

In department stores, our sales transact DOS were similar to the company directly operated stores while shipments into the channel declined to a lesser degree, reflecting receipt of new fall product at quarter end. As mentioned, consistent with our own retail stores, weak curtails promotional activity.

Overall, we estimate that the North American premium women's handbag and accessories market rose at a high single-digit rate in the September quarter in line with recent trends. As the category continues to benefit from the secular shift into accessories from apparel.

Turning to men's, which represents 18% of global categories spend or about $7 billion to-date. As we discussed, we are also continuing to drive our men's business globally. Primarily through new dual-gender stores.

As expected in the first quarter, COACH's global sales of men's bags and accessories rose slightly, impacted both by the Yen and the pullback of promotion and DOS in North America. Looking ahead, we remained bullish about the prospects for our global men's business and are continuing to target $1 billion in sales in 2017.

Before we discuss international sales Francine Della Badia has joined us today to provide some more insight into our North American business and initiatives for the season ahead.

Franc?.

Thanks Victor. The first quarter marked the implementation of many initiative we outlined to the Analyst Day, to change and elevate brand perception in the minds of our consumers. In the early days, the impact of these actions played out as expected both globally and in North America.

Domestically, we kicked off our semi-annual sales strategy at the end of Q4 and ran it through the first couple of weeks in July. Q1 was the first quarter that we curtailed preferred customer events. As forecast, this impacted conversion rate to the quarter, while traffic trends remained weak on a year-over-year basis.

Given the shift in the type and cadence of promotional activity and as anticipated, average unit retail rose as did average transaction size. Bear in mind that the new product arrived in stores in week 11 of the 13 week quarter that would had little impact on results.

In outlet stores, the overall environment was definitely more promotional especially in our space with our competitive set becoming even more aggressive, traffic levels were weak and conversion was negative while ticket was up slightly.

We did see a very positive consumer response to our new Kuwait collection which carried a higher AUR underscoring the premise that emotion can trump price even in outlets.

As planned, our store comp was down high-teens with our total comp pressured an additional five points by DOS as we pulled back from three flash sales events a week to only one event per week.

Over the year, we expect our store comp trend to improve as new product penetration growth across both channels, more stores are re-platformed and marketing intensifies. However our internet comp were worsen as we further curtail events.

As discussed, evolving brand perception is critically important in North America notably for women’s bag and accessory business where we’ve been the most challenged.

During the first quarter, we presented a more focused assortment of handbags in retail stores with SKUs down about 25% from prior year and saw handbags increased as a percent of our women’s business. Within our handbag business in retail stores, we saw absolute strength in our elevated product.

More generally, the above $400 price bucket grew in penetration saw a positive comp and represented 30% of handbag sales versus roughly 21% last year. At the same time, we maintained a balanced assortment with small bags continuing to trend well and our overall handbag AURs remaining consistent with prior year.

More broadly, leather continues to outpace Logo across all channels and we're designing into this trend. It’s both the shift that favors COACH longer term, given our heritage in leather goods and elevates our impressions in the marketplace. In fact, Logo represented only 6% in women’s handbags in our retail business down from 8% last year.

Outside of handbags, we continue to see relative strength in our lifestyle categories in Q1. Women’s footwear held its penetration at last year’s level at about 9% of North America retail sales in those stores carrying the full offering. We are also seeing a positive response to our expanded men’s and women’s footwear assortment in outlet stores.

In total, we saw a significant increase in footwear sales across all directly operated channels in North America. Before I move on to holiday initiatives, I know that you want to hear about how the new fall 2014 product is checking since its mid-September launch and what our key learnings are.

While it’s only been six weeks, we have been pleased with the reception to the new line. Our handbag assortment represent Stuart's hip and modern take on the brand punctuating the essence of COACH’s DNA.

We have seen excellent response to novelty across all price points and are definitely seeing more new customers especially in collection doors carrying the full assortment.

Editorial product featured no marketing or picked up in the fashion press such as the Rider 33 handbag, the Apollo sweater, the shearling coat and Urban Hiker boot have all been standouts. Anecdotally, we are hearing from our store teams that these early adopters of Stuart's collection product are highly fashion engaged and new to the brand.

They are buying multiple pieces including ready-to-wear bags and shoes. In addition and importantly, we're also seeing success in the fashion execution of core products such as the Crosby Carryall, which marries great function with great style in neutral vibrant colors and animal prints.

Indie is the bestseller in the refined pebbled leather with enhanced branding and Kelsey, a great value at 228 and Signature card and 258 in leather. Turning to holidays, we continue to focus on increasing the level of distinctive newness across all product categories adding emotion while strengthening fashion credibility and relevance to the brand.

New product launched last Friday including Gramercy, our top handle satchel and Ranger a great fashion shoulder bag as well as cold weather accessories. For holiday, we also have a new shoulder bag scout at a $325 price point delivering right before Thanksgiving.

In outlet CB, last year's bestseller in retail was just introduced last week while Margo, a new carryout across multiple fabrication comes in early December.

As discussed during Analyst Day, our approach to customer events formerly known as PCE will be far fewer events annually, focusing specifically on our best customers during key holiday periods such as Black Friday. We will be more tailored in our segmentation selectively extending invitations.

This approach will support sustained sales growth and build our brand, reinforcing our full price positioning.

At the same time, we're also enhancing our store environments as Victor mentioned, we're excited about our first new retail concept stores during holiday which will represent the true manifestation of modern luxury across all aspects of the customer experience, environments, products and service.

In addition to the new architecture and furniture and fixturing, our in-store initiative include new music, updated packaging and an elevated clientele program in key flagship. In summary, we're pleased with the initial steps we've taken to reposition COACH.

Notably in the North America women's business adding more emotion and excitement to the product offering and around our brand. With that, I will turn it over to Victor for a discussion of our international business, strategies and further opportunities for growth.

Victor?.

Thanks Fran. Turning now to our international segment which represents about a third of COACH's business. Sales rose 6% on a constant currency basis in the first quarter and 4% on a reported basis primarily impacted by the weaker yen on a year-over-year basis.

As mentioned, China sales rose 10% from prior year with positive comparable store sales and slower distribution growth in line with our forecast.

We remain very optimistic on the prospects for this market overtime as long-term drivers remained intact including a rapidly growing middle class and overall shift from pure stated to value favoring the affordable luxury segment and the evolving retail landscape with the development of new luxury shopping malls.

However, we understand that there will likely be continued volatility in the near-term due to both macro issues and geopolitical events which are impacting trends in China and some key tourist markets notably Hong Kong and South East Asia.

While we are still targeting China sales of about $600 million for FY15 driven primarily by distribution growth, current conditions are limiting visibility to PRC consumer travel and shopping patterns especially in Hong Kong driving more variability on a quarterly basis.

To this point, our other Asian direct businesses outside of China and Japan, South Korea, Taiwan, Malaysia and Singapore posted positive aggregate growth though the region experienced a slowdown in traffic impacted by shifting trends in PRC consumer travel as well as weak inbound travel into Malaysia given the sustained impact from the airline investors.

As expected, in Japan we posted a 7% decrease in constant currency due in large parts to the continuing impact of the April consumption tax increase. Dollar sales declined 12% reflecting the weaker yen. In Europe, where our brand is small but growing rapidly, we generated significant sales growth and double-digit comps in the quarter.

We continue to believe that Europe represents a significant long-term opportunity for COACH both with domestic shoppers and the international tourists notably in key European cities with the affordable luxury segment is outperforming traditional luxury. In FY15 we expect to grow our business to around $100 million from about $60 million in FY14.

Turning now to our global distribution plans. As our plans have not changed materially from what we outlined on our August earnings call, I will be brief. We continue to expect that our square footage, globally and across all channels will increase slightly in FY15, reflecting our North American fleet optimization.

Our overarching focus will be on renovations and remodels to drive productivity.

To this point, as we guided previously in North America, our directly operated square footage will be down around 5%, given the 70 retail and 50 in outlet closures offset by a number of expansions within the context of our transformation and a number of outlet store openings.

And in wholesale as we've noted, we're moving to more open accessible displays and rolling out a shop manager program. We expect our footprint in department stores to increase modestly in FY15. We plan to add about 40 locations and about 3% to 4% square footage. While converting more than 300 locations from case line presentation to open sale.

Turning to China. We are still planning to open about 20 stores and could have about 10 closures resulting in around 10 net openings. While we expect to open a few stores in our other Asia direct markets outside of China and Japan in FY15. Our portfolio approach is focused on maximizing productivity with only modest growth of our footprint.

Turning to Japan. In FY15 we continued to expect a total number of location to remain the same, which slight square footage growth from the new flagship and expansions of a few highly productive locations.

Led by retail, our brand transformation plans in Japan focus on the renovation of key doors in Tokyo representing over 70% of the traffic by the end of FY16. Including the new flagship in Shinjuku, Tokyo set to open tomorrow as I mentioned earlier.

We will also renovate key locations in important cities throughout the country and our flagship stores in Ginza and Shibuya next spring. Most generally, we continue to expect a continuation of current trends in Japan given the ongoing drag from the consumption tax increase which won't anniversary until the next April. Moving to Europe.

In FY15 as noted, we still expect to grow our business to about 100 million. However, due to the shift in project timing, we now expect to add about 10 directly operated locations and more than 100 wholesale locations.

Our goal is to achieve over 0.5 billion in sales and retail, representing mid-single-digit share of the premium men's and women's bag and accessories market over our planning horizon.

Finally, we also believe there is a significant opportunity for the COACH brand in global travel retail which represents the majority of our international wholesale sales.

At the end of the quarter, we had a total of 204 international wholesale locations in 28 countries, which included 110 travel locations and expect to add about a net 30 additional locations by year end. Now, I'll ask Jane to provide some additional further detail on our financials and our outlook for the balance of the year.

Jane?.

Thanks, Victor. Victor was just taking you through the highlights and strategies. Let me now take you through some of the important financial details of our first fiscal quarter results as well as our outlook for FY15. Our quarter revenues declined 10% with North America down 19% and international up 4%.

As noted on a constant currency basis revenues decreased 9% overall with international sales up 6%.

Excluding transformation and other related charges, net income for the quarter totaled 146 million with earnings per diluted share of $0.53, this compared to net income of 218 million and earnings per diluted share of $0.77 in the prior year's first quarter.

For the quarter, operating income totaled 270 million on a non-GAAP basis versus 322 million last year while operating margins was 20.9% versus 27.9%. During the quarter, gross profit totaled $719 million as compared to $827 million a year ago while gross margin was 69.3% versus 71.8%.

SG&A expenses as a percentage of net sales totaled 48.4% on a non-GAAP basis compared to 43.9% in the year ago quarter. As I turn to GAAP metrics, let me recap key transformation and other related charges. As previously announced we expect to incur pretax charges of approximately $250 million to $300 million associated with our transformation plan.

A portion of which were reflected in our fiscal fourth quarter 2014 results and we expect the remainder to be largely incur during FY15. These changes are related to inventory and fleet related costs primarily in North America including impairment, accelerated depreciation and severance cost associated with store closures.

In total, we expect to capture $70 million in savings related to our transformation initiatives in fiscal 2015 and approximately $150 million in ongoing annual savings in fiscal year 2016. As you may recall, during the fourth quarter of FY14 we recorded charges of approximately $130 million for transformation and other related actions.

These charges consisted primarily of the realignment of inventory, impairment charges and a portion of the cost related to store closures. In aggregate, these actions increased our COGS by $82 million and SG&A expenses by $49 million negatively impacting net income by $88 million after tax or $0.31 per diluted share all on a GAAP basis.

During the first quarter of 2015, we recorded an additional $37 million of charges associated with the transformation plan. These charges are primarily related to our organizational efficiency initiatives notably in the elimination of over 150 jobs announced in July representing about a 6% decrease in global corporate staffing level.

In aggregate, these actions increased the company's SG&A expense by $33 million and cost of sales by $4 million in the period negatively impacting net income by $27 million after tax or $0.10 per diluted share. Moving on to the balance sheet, inventory levels at quarter end were $597 million down 6% from Q1 FY14.

Cash and short-term investments stood at $907 million as compared to $855 million a year ago substantially held outside of the US. We continue to deploy international cash into high quality investments with higher yields and durations over a year. And in turn there is a shift between cash and short term investments into other non-current assets.

As expected, we ended the fourth quarter with the $170 million outstanding on our credit facility in order to cover our working capital needs in light of investments in our business and new corporate headquarters. Net cash from operating activities in the first quarter was $139 million compared to a $164 million last year during Q1.

Free cash flow in the first quarter was it inflow of $99 million versus a $118 million in the same period last year. Our CapEx spending was $14 million versus $46 million in the same quarter a year ago.

We continue to expect CapEx for FY15 to be in the area of $350 million excluding the cost associated with the new headquarters which are expected to be approximately a $100 million in FY15 as previously announced. And we anticipate maintaining our dividend at an annual rate of a $1.35 for FY15.

Turning now to our financial outlet for FY15 as our annual plans have not changed from those shared during our June Analyst Day meeting and reiterated on our 4Q '14 earnings call I'll be brief.

First on sales, we expect to deliver a low double-digit decline both in constant currency and on a reported basis in fiscal 2015 largely due to our reduced promotion and store closure activity. We are projecting a high-teens comp decline in our North American stores with DOS pressuring the aggregate North America comp by an additional 10 points.

This equates to a mid to high 20% decline in aggregate comps. Over the course of the fiscal year, we would expect store comps to improve as the product and store initiatives roll out while the pressure from DOS will intensify as we continue to reduce the cadence of events.

Gross margin is still projected to be in the 69% to 70% range for the year with higher sourcing cost largely offset by favorable channel mix and lower promotional activities. SG&A expenses are still expected to grow at a low to mid-single digit rate reflective of our increased marketing spend and transformation initiatives.

Importantly, while our first quarter SG&A expenses actualize below our expectations and we're down from prior year. This is more a function of timing than any change in our full year plan. Our 2Q and 3Q compares will show the most significant increase given the prior year dollar decline and the timing of our marketing spend in FY15.

Taking together, we would expect operating margin to be in the high-teens. Finally, our tax rate is expected to be in the area of 32% for the year as we do not expect to anniversary some of the one-time tax benefits we generated in the second half of FY14.

We have a strong and flexible balance sheet with about $1 billion in cash and investments and low leverage. We can't continue to access the capital market at attractive rates as needed to fund our headquarters’ investment. In closing, I'd like to reiterate Victor's early remarks. We laid out a very clear plan this summer and its execution is underway.

You heard this morning about our brand transformation progress around three pillars, product, stores and marketing. And I will add that we are also on track from an investment and restructuring perspective.

We've taken out -- we've taken about half our total expected transformational related charges over the last two quarters including right-sizing our inventory levels. We're investing and re-platforming our stores and wholesale doors and are on track to spend about $570 million over the next three years.

We've begun to realize our cost savings running a leaner more efficient organization. Therefore, looking further ahead, we expect to realize an overall annual financial improvement beginning in FY16 with FY'17 being the year when we return to growth in line with the category.

We have the resources to fund our plan while maintaining our dividend during our heavy investment period. Ultimately, our objective is to restore COACH to a place of best-in-class profitability and sustainable growth. I'd now like to open it up to Q&A..

Thank you. (Operator Instructions). The first question is from Bob Drbul with Nomura..

Hi. Good morning..

Good morning Bob..

Here is the question that I have is beyond Q1 how has the response to the new product been in retail stores and specifically have you seen a change in retail store comp trends?.

Good morning Bob. Thanks for your question and for being with us as usual. We have of course been following the performance very closely as Fran mentioned we have seen and are very pleased with our performance which really reflects the initial signs to product across the channel.

When we look at the performance in the first quarter it's very difficult of course to read clearly because of the shift that we have taken in our promotional activities. As we mentioned we had our semi-annual sales of first two weeks of the quarter and no promotional events for the remainder of the first quarter.

As we come into October, what we have seen is continued great performance across the new product. We as Fran mentioned have seen positive signs in performance across the new styles in fashion, novelty and core and positive comp across the above $400 performance but very difficult to see with the shift in promotion..

Okay, thank you..

Thank you. The next question is from David Scheck with Stifel..

Hi, good morning. I just need to say that there is a lot of moving parts in answer to Bob's question, but any estimation of the impact on tails or comp from the reduction of the COACH days and the DOS in North America..

In terms of the reduction of DOS as Jane mentioned the impact was 5 comp points. The COACH days were only in our wholesale channel, David..

I'm sorry in wholesale..

Yeah, which really was an impact of depending on the chain anywhere from 20 to 25 days that we reduced.

So approximately one-third of almost one-third of total days where we had promotion last year that we didn't have this year and in general as we mentioned in our speakers notes, the performance was pretty much in line with what we saw in our own stores where we also reduced all of the PCE events from last year..

Okay. You mentioned the comp positive above 400.

Could you talk about how that looked a year ago and over the last year and how much of it change in trend you're seeing in the above 400?.

Sure, Fran..

Hi, good morning. As we said on the call, the above 400 is about 30% of our sales this year versus 21% last year. So we are seeing a great response to the elevated product and the forecast that will continue to see the trend rate in this category going forward..

I guess my question is, was the above 400 price point. If you could talk about over the last... the prior 12 months not the last quarter but the prior 12 months. How was that trending as a contributor or a drag to comp? Now that it's obviously comping positive in your comping, were your comping it's a huge, it's usually different to the positive sides.

So where was that $400 and above comp over the prior year or so?.

Yeah, so we've actually been talking about the positive response that we've been having through products above 400 for the past year. What we are seeing now is even stronger performance in that category so it has been above 400 a category that has been performing well for us over the past year and we saw...

as we mentioned in the positive comp trend this quarter which we wanted to call out as a response to the new product that we launched with Stuart's first collection..

Right, any sense of the magnitude in the difference between the prior and the now updated positive comp. That's what I'm really trying to get to..

Yeah, we are calling it a positive comp. So without any more specific surrounded. We are very pleased with the performance in that location..

Okay, thank you..

Thank you. The next question is from Barbara Wyckoff with CLSA..

Hi, everybody.

Could you talk about the performance in the outlet stores in first quarter as the product has been cleaned up? Can you talk about the comps excluding DOS and then secondly can you talk about China the impact on stores in the Hong Kong area with a demonstrations and have you seen any transfer of business outside of Hong Kong and could you recap the number of stores by city tier in China..

Thanks for your multiple questions Barbara as usual. Let me start with China and then I'll hand off to Fran on North American factory and what we are seeing there. In terms of China and Asia overall, what we're seeing is very much, what we're all reading in terms of the geopolitical and macroeconomic situation.

We continue to target positive comps and about $600 million in sales for this fiscal year as we said during our notes.

But we are seeing tremendous variability and performance and that of course is especially true in Hong Kong where we did have a couple of closures of a few key locations at certain points during the demonstrations, but the biggest impact of course has been in tourists flows across the region.

What we're seeing is a fewer tourists into Hong Kong and Macau as well as continued decreases into South East Asia some of that again due to some geopolitical events in that region and of course in Malaysia due to still some impact from the airline disasters.

We are seeing some uptick in tourist flows into Taiwan and into Korea but truly not enough to mitigate the -- not at the same level as the decreases that we're seeing especially in the key markets of Hong Kong.

Saying all of that Barbara as you know it's very resilient economies I think that while there maybe this short term variability our confidence in the long-term opportunities of China and especially of the Chinese consumer globally is very, very strong. We continue to see incredible growth in the middle class there.

We continue of course to see very, very good development of the retail infrastructure which offers a lot of opportunities. I am constantly reminded of the fact that we bought our business back in 2008 at the peak of the economic crisis and made very important decisions to invest.

China will also benefit from all of the great work that we're doing in brand transformation and we're very much taking the same position of looking to invest and drive our brand relevance further in that market. I'll now pass on to Fran I think you had Barbara one more question on distribution by tiers.

We today have a 136 locations on the mainland, the vast majority of our doors are in tier 1 and tier 2 cities with 37 locations in tier 3 and 4, the remainder in tier 1 and 2..

Thanks..

Barbara to answer the questions about outlet just first as a reminder we don't disaggregate comp performance in North America direct so I'll just go right to the product performance last month.

We launched new product collection called Collect which was largely a leather based full price inspired product which performed extremely well at the higher end of our AUR offering in outlet and last week we just launched CB again a very strong leather based collection in a ray of color.

And we're seeing very, very strong performance in that product over through this past weekend. In terms of stores impact on factory, we had focused first on full price, Stuart design for outlet products will arrive in a small way right before holiday. And then we will launch more Stuart designed product for outlet beginning in the spring..

Thank you..

Thank you. The next question is from Ike Boruchow with Sterne, Agee..

Good morning..

Hi. How are you doing good morning everyone? Thanks for taking my question. I just have my question was on the gross margin lines. So you guys are doing a very good job pulling back from the promotions at the private client events and the outlet DOS.

So my question is the core gross margin is still down 250 basis points so this clearly got to be an offset to the benefits you're getting from being less promotional. Is that sourcing, is that off price sales I mean can you just help us understand exactly what's going on in a gross profit. Thank you..

Yes Ike. So what you saw is about the 260 point decline in our gross margin. Importantly while we are pulling back in promotion activities we did versus last year about a 100 points of pressure from North America outlet in higher product and sourcing cost accounted for the other half.

As we said in Analyst Day we're continuing to invest in our products and innovation, quality and putting value in our product for our consumer and then FX was the remainder..

Got it. Thank you..

Thank you. The next question is from Omar Saad with ISI Group..

Hi. Thanks. Good morning guys.

Wanted to ask about the new product and how we should think about its flow through into that outlet channel and that consumer base going forward whether it's next year and then how we think about the impact there?.

Sure, Omar I think in reference to Bob's first question as well the good news is that our product is basically performance truly per our plan.

And so our plan was of course to take core style such as the ED such as Crosby which are really core styles that will be multi-seasonal and bringing newness and novelty to off the season and then that seasonal product will then flow into outlet through following being in our semi-annual sale first and for most which is the new part of our strategy compared to prior seasonal.

So then what we are not doing through the PCE events of course will lead to some promotional activity through the open sale which we will have at the end of each season. The first event of which we had at the end of fourth quarter beginning of the first quarter where we've had a lot of learning that we're now leveraging of course into our next event.

One of the key learnings that I might add was the recruitment of new consumers that we saw coming in through the open sale which really bodes well of course for how that seasonal product tend serve as a recruitment tool for that more value conscious consumer as well in key metropolitan areas..

That's very helpful. Thanks Victor..

Thank you. The next question is from Oliver Chen with Cowen. .

Hi, thanks a lot. Regarding Stuart and the opportunity you had an outlet. What are your thoughts on how he's going to evolve product with respect to pricing and on your candid comments about the competitives what we've noticed is a lot of competitors competing really strongly on price.

So what are your thoughts on the big opportunity in terms of the comp lever you've seen in this environment and in outlet?.

Thank you Oliver. Glad to hear from you. We of course a very conscious of bringing value to the consumer and that will happen through not only sharp price points but of course by bringing them value as well through quality.

As think you heard Fran mentioned one of the wonderful collections that we've launched this past quarter Collette where we've seen truly great consumer reaction to has been at a much higher AUR than our other collections.

But of course we also are very focused in and as a theme not only in the outlet but also in retail and meeting the needs of our core consumer.

In the case of outlet, we have increased newness coming through Fran mentioned Margo which launches in December that will be followed by a series of other collections throughout the spring and that will be at various price points from the shoppers one at a 100 and below right on up through suggested retails or I should say AURs at approximately 200 to 300 as well..

Thank you. And we're pretty excited about where the men's product looks. Could you just remind us about how you feel about the long-term percentage of mix and where that can go? Thank you..

Sure so for us we're in the 14% to 15% range today, the total market for men's represents approximately 18% of the $40 billion premium handbag and accessories markets. We see ourselves of course getting to that and a targeting as I mentioned in my notes Oliver by the end of '17, a $1 billion in sales..

Thank you very much. Best regards for the holiday season..

Thank you Oliver..

Thank you. The next question is from John Morris with BMO..

Thanks and my congratulations on your hard work and progress so far..

Thank you John..

Question I think for Jane on the SG&A just to go back and touch base on that. It looks like it was coming in below your expectations and below where the Street had modeling it and when I heard was it was a lot of that have to do with timing.

And so why what was the behind the timing was it that you decided or the company decided to hold off on some of the marketing plans so far, yeah just kind of what were the attributes that help the SG&A come in a little bit lower than expectations..

John as you step back from it a lot of it is about what was in the base last year. So RK was in the base last year and we're able to re-purpose. We're able to re-purpose some of those RK expenditures to marketing in this quarter.

Additionally C COACH Europe, in the back half increased our expense level as we move through FY14 and it was not in our base in the first quarter..

Wouldn't you planning, wouldn't you all have taken that into account. So just wondering kind of why would it come in little bit below your expectations that. The SG&A....

So obviously we're right in track with our guidance for full year for SG&A in terms of SG&A growth as we look at the pushes and pulls in that, it is we are continuing to have an outlook of spending $25 million in marketing and we'll have some expenditures related to occupancy as we open up new international doors and some compensation related expenses as we look at performance based comp back on target which we took down in the second quarter of the last year..

Okay, great and then just one another quick one if I may.

Can you give us a feel for the performance in the full assortment stores relative to your expectations versus the performance in the rest of the fleet in another words you are seeing, a divergence in terms of the performance as you would measure in this 40 full assortment stores?.

Yeah, I think overall as we mentioned the total collection and total newness is really performing to our expectations and very much in our plan, where we have seen truly great signs as we talked about it is in that above 400. We've seen terrific signs in the full collection doors as well.

There is no doubt that we have a new consumer engaging with COACH across the more elevated, more fashioned product and that is globally. We are also seeing better performance in the doors that received the full remodel.

Not yet the full concept because as I mentioned in my remarks today actually this evening tomorrow in Japan our Shinjuku flagship is the first full store that is opening in the new concept followed by Rodeo and AOL, Time Warner.

But we did significantly touch up our stores that Bleecker Streets, South Coast Plaza with some of you have seen in the past is not yet the full new concept but has an inspiration of it as well as lower fifth, all of those stores are performing much better than the rest of the fleet.

And as I mentioned as well still very early days but the over 100 locations in wholesale where we moved to open sale we're seeing better performance as well as the locations again very early days release at the store managers in wholesale. So where we are making the fullest expression of transformation visible. We are seeing the greatest impact.

We are pleased with the reaction to fashion and we are also very pleased with the two key core silhouettes that are out there which I really our first core introductions ED and Crosby with more to follow, Fran mentioned Scout which follows in December and then we also have a [town carton] which comes in late January early February which are two other key silhouettes chopper pricing that we believe will resonate with our core consumer..

Perfect. Thank you..

Thank you..

Thank you. Our final question today is from Joan Payson with Barclays..

Hi, good morning. Thank you for taking my question. So I focusing I guess on Japan, how do you think about that business for the rest of the year and when there might be a potential for rebound there? And then also I think you mentioned the logo mix for the full price stores being at 6% today.

But what has that evolved to in the outlet business and is there a target in mind for the factory stores compared to full price?.

Sure, let me first touch on Japan and then I'll let Fran to touch on outlet. Overall in the case of Japan results are very much consistent with our expectations and our annual guidance.

Our planning was very much done both in the context of the environments that we've been seeing post the consumption tax is of course as well as our own brand transformation strategy with a lot of work being done in key flagships stores across Tokyo and other key cities and product there as well performing to expectations with certain really nice highlights especially across the more fashioned product where we have seen higher penetrations in Japan across Rider and a few of the fashion bags that we have in other markets.

And now I'll turn to Fran on outlet..

Hi, in terms of the logo business in outlet much more significant than it is in our retail business. It's running right now at about 40% of total sales that's across all categories, handbag specifically it's about 26% of the business in bags. So it's still an important category for us in outlet..

Great, thank you..

And what's great there that I will just add we are doing a tremendous amounts of work in iterating across Signature platforms so you will see new Signature platforms penetrating across both our full price channels which we've launched and outlet moving forward as well as the wholesale channel.

So we've recognized that while Signature and Logo in general is down trending globally for all players. We see it as a key part of our strategy moving forward and a key part for Stuart and the team to innovate and drive further relevant..

Thank you everyone. That concludes our Q&A. as you know we like to conclude prior to the markets openings. I will turn it back to Victor Luis for some closing remarks. Victor..

Thank you Andrea. I want to thank all of you for being with us today and we've outlined very clear and comprehensive strategies and plant this past summit to address all of COACH's brand challenges. We're in the very early execution of our journey and very confident in laying the foundation for our long-term vibrancy and growth.

In this first quarter, I could not be proud of our team and the steps that we have taken across all of the consumer touch points. And at this moment I would also like to take the opportunity to recognize the retirement of our executive Chairman Lue Frankfort, who truly has been a legend in all that he has achieved in his career at COACH.

I and the team wish him a tremendous inherited legacy and we wish him a tremendous amount of success as he moves forward in his next chapter.

And of course I sit here incredibly proud of what we've accomplished in these early stages of our transformation book more importantly very confidence as we move forward as the team in our next chapter and I thank you all for being with us and look forward to seeing you during the course of holiday. Thank you..

This does conclude the COACH's earnings conference. We thank you for your participation..