Andrea Shaw Resnick - Global Head, IR & Corporate Communications Victor Luis - Chief Executive Officer, Director Jane Nielsen - Chief Financial Officer

Bob Drbul - Nomura Securities Matthew Boss - JPMorgan Barbara Wyckoff - CLSA Ike Boruchow - Sterne, Agee Oliver Chen - Cowen & Company Antoine Belge - HSBC Erinn Murphy - Piper Jaffray Omar Saad - Evercore ISI John Morris - BMO Capital Markets Joan Payson - Barclays Ed Yruma - KeyBanc Capital Markets

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 the 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; 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 second fiscal quarter 2015 results, and will also discuss our progress on global initiatives across markets. 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. This Q&A session will end shortly before 9:30 am. We will then conclude with some brief summary comments. I would now like to introduce Victor Luis, Coach's CEO.

Good morning. Thanks, Andrea, and welcome everyone. As noted in our press release, our second quarter results were in line with our expectation and our annual guidance, adjusted for the stronger than expected dollar. We continue to see steady progress in our results, with sequential improvement in North America, our most challenging business, as we implement our brand transformation initiatives, including greatly reduced promotional impression. International growth rates remained fairly stable in local currency terms, with China and Europe driving segment performance. Our team continued to gain traction on the strategic plan outlined last summer to reinvigorate growth and drive brand relevance. Importantly, we continue to learn as we go along fine-tuning our actions across the key pillars of product, stores and marketing. As announced just after the quarter ended, we signed a definitive agreement to buy luxury designer footwear brand Stuart Weitzman, which we believe has significant domestic and international growth potential. Stuart Weitzman is a complementary brand, with many similar core equities and characteristics to Coach. It's a brand built on offering innovation, relevance and value to a loyal customer base. It has an increasing global recognition and a presence in 70 countries and is known for its craftsmanship and quality, fusing fashion and fit in a segment where comfort is a major driver of customer loyalty. While we will develop each brand separately, over the long-term, we will learn from each other driving synergies across our respective businesses. Specifically, we will leverage Coach's international infrastructure and expertise in handbags and accessories to develop Stuart Weitzman's handbag and accessories business. In turn, Coach will benefit from the Stuart Weitzman team's expertise in footwear development, where they are proven leaders in style and comfort. We are very excited about our first acquisition and look forward to welcoming the Stuart Weitzman brand and organization into the Coach, Inc. family this spring. Also announced in our press release was the streamlining and reinforcement of our North American business unit and global marketing and digital teams, with the promotion of two seasoned Coach executives, Andre Cohen and David Duplantis. They are both, proven leaders and brand builders with experience across many aspects of Coach's global business and are ready to address the opportunities ahead with their creativity, tenacity and exceptional leadership qualities. Most importantly, they have consistently delivered results for our brand and company. Andre will become President, North America. He has extensive experience in managing both, developed and evolving businesses. In this expanded role, he will be responsible for all functions that drive Coach's North American retail businesses, including retail management, merchandising and planning, marketing and e-commerce. Over his seven years with Coach Andre has taken on increasingly senior roles, including President and CEO of Coach China and Coach Asia and is a highly respected Coach leader and experienced in driving growth, retail operations and brand development. Francine Della Badia, who had responsibility for North America retail management, merchandising and planning, will leave Coach next month. David Duplantis, currently Coach's President, Global Digital and Customer Experience, will expand his role to include Global Marketing and Customer Intelligence. This added responsibility will leverage his extensive Coach global brand experience and North America acumen, creating a single global center of expertise. Over nearly 15 years with the company, David has been successful in many leadership roles within merchandising and marketing. His focus during the last five years has been around global digital, developing and driving our omni-channel strategy, for which Coach has again been recognized by L2, taking the leadership position in their 2014 Digital IQ Index for Fashion. Stephanie Stahl, who previously led global marketing and strategy, will depart from the company in February. Both Fran and Stephanie have made significant contributions to Coach, with most recently in the creation and initial implementation of our brand transformation agenda. We have great admiration and respect for their accomplishments and look forward to building upon the strong foundations already established. 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 keeping with our plan as well as our learnings. The most significant takeaway from holiday was a clear inflection point in the 20 retail stores globally, which offered the modern luxury experience. The new product and new store concept and environment supported by our evolved marketing campaign. While these stores are still few in number, their performance was substantially better than the rest of the fleet and provided the most compelling evidence to-date that we are moving in the right direction. Starting with product, Stuart Vevers' designs represented about 90% of our retail stores women's offerings during holiday. We know that the editorial community and fashion press has clearly reacted positively and we now see consumer starting to take notice. In our quarterly brand tracking, we saw some positive indicators emerging, including improved perception of high quality among category driver consumers, lower perceptions of overall discounting amongst category drivers and positive movement in brand affinities among millennials. In outlet, our approach of providing value through product elevation has continued, with all of our monthly launches benefiting from new materials, branding and hardware. The positive global consumer response to our elevated outlet strategy gives us confidence in our long-term direction to drive relevance across all channels. In addition, earlier this month, we presented for the first time ever at London's Fashion Week for men's to overwhelmingly positive reviews from both, the editorial and retail community. We are excited about launching in key European and U.S. retailers in what is our first foray into men's wholesale distribution. There were several key learnings about product this holiday season from our store experience as well as pilots and ongoing consumer research. We continue to reaffirm that our fashion, when supported by marketing, drives high sell-throughs of the featured product such as the case with our Rider 33. While we continue to be pleased with customer reaction to our new product, we recognize an opportunity to increase the breadth of our offering at opening price points and to become a bolder destination for gifting in our full price retail channel. In short, we understand the need for continually evolving the function and pricing balance in our retail assortment in an increasingly competitive environment. In outlet, we are pleased with our initial product re-platforming and have executed well across price points, with our gifting assortment having been exceptionally well received. Onto stores, as planned during the quarter, we opened our first stores in the modern luxury concept, including our new flagship in Shinjuku in Tokyo and our boutique in Shin Kong Place in Beijing. These were followed by the reopening of our stores at the Time Warner Center in New York City, and a Rodeo Drive flagship in Beverly Hills. Prior to holiday, as expected, we had a total of 20 stores opened globally in the new concept, including two others here in the U.S. Fashion Valley in San Diego and the Americana in Manhattan, Long Island, with the balance in Japan, Greater China and Europe. As noted, these stores across channels such as mall and street locations and geographies, significantly outperformed the balance of our fleet. We remain on track to renovate a total of 150 retail locations in FY'15 and open about 50 to 60 new stores globally in this concept. As of today, we have closed 53 North American retail locations and are on track to close approximately 70 for the full year. In addition we have closed eight outlet stores, including six men's-only outlet locations, which we folded into existing stores, leveraging the team and cross-shopping opportunity. We also closed the two outlet stores identified in key markets as part of our learning agenda. As expected, we closed 9 out of 10 outlet pop-up stores we had used opportunistically to manage deleted inventory, with the last becoming permanent and will be considered an opening. In North American department stores, we have already completed nearly 200 projects over the first half, installing open cell environments and replacing the old case lines and have seen an improvement versus the balance of doors. While we still expect to convert over 300 total locations from case line presentations to open sell this fiscal year. We also expanded The Shop Manager program in the wholesale channel, with now approximately 30 managers in key doors, on target with our goal of adding a total of 50 shop managers by the end of fiscal 2015. We are taking the learnings from our successful new stores and are using them to inform the development of the modern luxury concept for other channels. Our first outlet stores will open in the second half and we are also working on both, our wholesale store and travel retail concept. Finally, we have plans underway for one warm-up of stores [ph] that are not getting the full expression of this concept. On the marketing and customer experience front, continuing with our comprehensive marketing strategy, during holiday, we presented the Dreamers' Campaign, along with advertising around our licensed categories of watches and sunwear, again, increasing our fashion advertising pages with clear improvement in our positioning. We also saw increases in editorial mentions and rank in all three major markets, North America, Japan and China. As we increased our positive brand impressions, we also continued to pull back on our North America promotional activity. Consistent with our previously announced strategy, during the years holiday quarter, we held only one invitation-only customer event around Black Friday. As planned started our semiannual sale in mid-December, which ran through January 21st, a duration matching our June-July event and in line with many other lifestyle fashion brands, many of whom went on open sell right after the Thanksgiving holiday. As you know, similar to our competitive peer group, we adopted a semiannual sales model last summer and have found it to be successful in the recruitments of new customers. We also reduced the cadence of eOS flash sales from three a week last year to less than one a week this quarter. By the end of FY'15, we expect to be down to about two events per month. In addition, there were no Coach day events in North American department stores during the holiday quarter as compared to 16 days in the second quarter of 2014. While our fashion campaign was well received and effective in repositioning the brand, we continue to evolve our Dreamers' campaign to appeal to a broader audience. This spring's campaign features actress Chloe Grace Moretz and musician Kid Cudi, with core Coach [ph]. You will see our campaigns continue to progress in the seasons ahead. While much of the journey remains in front of us, we are very pleased with what we have accomplished these last two quarters and will continue to update you on these initiatives as we move closer. Turning to the results of last quarter some key financials were, first. Net sales on a reported basis totaled $1.22 billion versus $1.42 billion a year ago, a decrease of 14%. On a constant currency basis, sales declined 12% for the quarter. Second, earnings per share totaled $0.72, excluding transformation-related charges as compared to $0.06 in the prior year's second quarter. Third international sales increased 5% on a constant currency basis and decreased 1% in dollars to $421 million from $425 million last year. China sales rose 13% in constant currency and 12% in dollars, with positive comparable store sales, while sales in our directly operated locations in Asia and Europe rose in constant currency as well. Fourth, North American sales fell 20% to $785 million from $983 million last year on a 22% comparable store sales decrease. During the quarter, looking at distribution and consistent with our annual guidance, there were little change in our global directly operated door count, in total adding two net locations worldwide, six in Greater China, two in Hong Kong and four on the mainland, three in Europe and one in Japan, while closing a net of eight locations in North America. As you know, we are primarily focused on re-platforming our stores, elevating brand perception, optimizing our stores fleet and opening new location selectively in key markets. Moving onto sales by channel and geography and starting with our domestic businesses, our total revenues in North America declined 20% for the quarter, with our directly operated businesses also down 20% as expected. As noted, total Q2 same-store sales declined 22%, with a reduction in eOS events pressuring total comp by about six percentage points. As store comps declined 16%, the sequential improvement from the 19% decrease posted into Q1. In department stores, our sales trends at POS, were similar to the company's directly operated stores, while shipments into the channel declined to a somewhat greater degree as we reduced Coach-specific promotional events consistent with our own retail stores. While we have been pleased with the relative outperformance of the locations we have converted to open sell, these were amongst the smallest doors, therefore have not provided a significant overall contribution. We expect that the second half could be more challenging at POS in this channel given the planned and even sharper decrease in year-over-year promotional activity for the spring season. Overall, we estimate that the North American premium women's handbags and accessories market continued to rise at a high single-digit rate in December 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 the global category spend or about $7 billion today, as we have discussed, we are also continuing to drive our men's business globally, primarily through new dual gender stores. As expected, in the second quarter Coach's global sales of men's bags and accessories was essentially flat, impacted by the weaker yen and the pull backup promotion and eOS in North America. As noted, we were delighted with the response of Stuart's first men's presentation during fashion week at London Collection Men's earlier this month, therefore looking ahead we remain 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, I wanted to provide some more insight into our North American business and holiday results. As I am sure you have heard, the overall market was rather promotional with increased competitor activity across all channels from the week leading up to Black Friday. From a channel perspective, traffic trends in retail malls continued their cyclical decline, with the outlet channel faring better. This holiday quarter was the first time that we were able to offer consumers the full modern luxury experience across product, environments and marketing, albeit, in only a few stores. However, it is proving to be a very powerful strategy in terms of changing consumers' perception and impacting results as these locations posted positive comps that were greatly above the performance of the fleet. We also saw relative outperformance in the 12 MSAs in North America, where we are most focused and where we are distorting our attention. In outlet stores, the overall environment continued to be very promotional, especially in our space with our competitive set incrementally more aggressive than last year's holiday season. We were especially pleased at customer over the important Black Friday weekend, and more generally to the higher value new collections we have lunched during holiday. As planned, our total store comp was down mid-teens, with ticket up and traffic pressured by overall weak traffic and lower conversion greatly impacted by the reduction in promotion days in our retail and wholesale channels. Our total comp was pressured an additional six points eOS, as we pulled back from three flash sales events a week in last year's second quarter to less than one event per week this holiday season. Over the year, we expect our store comp trend to improve as new product penetration grows across both channels, more stores are re-platformed and marketing intensifies. However, our Internet comp will worsen as we further curtail events. On a tighter assortment of handbags and retail, with SKUs down about 25% year-over-year, we saw absolute strength in our elevated product, more generally the above $400 price bucket grew in penetration, saw a positive and continued to represent about 30% of handbags sales versus roughly 20% last year. More broadly, leather continues to outpace logo across all channels and we continue to design into this trend. It is both, the shift that favors Coach longer-term given our heritage and leather goods and elevates our impressions in the marketplace. Outside of handbags, we continue to see relative strength in our lifestyle categories in Q2. Women's footwear significantly increased its penetration from last year's level of about 8%, growing to 12% of North American retail sales and those stores carrying a full offering. Performance was driven by boots, where we were better positioned in terms of inventory versus last year. We are also seeing a positive response to our expanded and men's and women's footwear assortment in outlet stores. In total, we saw a significant increase in footwear sales across all our directly operated channels in North America. As I have already talked to the global learnings around product, store and marketing in my opening, I will move to our spring initiatives. We are very excited about the recent arrival of Stuart's first spring collection, with Swagger, our key silhouette offered in all stores and we are now bringing in further designs into outlet, including Mickey and Ruby, building on the success of Colette, Margo and Phoebe in Q2. As discussed during Analyst Day, our approach to customer events formerly known as PCE will be far fewer events annually, about three, focusing specifically on the best customers during key holiday periods such as our Black Friday event, the only one held in the second quarter. We expect to hold one in March, and one in the fourth quarter around Mother's Day. We are being more tailored in our segmentation, selectively extending invitations. Separately, with two semiannual sales now under our belt, we will continue this practice moving forward, with our next event scheduled for the May-June period. This approach will support sustained sales growth and build our brand, reinforcing our multi-channel positioning. Overall, we are pleased with the initial steps we have taken to position Coach, notably in the North American women's business, adding more emotion and excitement to the product offering and around our brand. Turning now to our international segment, which represents about a third of Coach's business, sales rose 5% on a constant currency basis in the second quarter, but declined 1% on a reported basis, primarily impacted by the stronger dollar. As mentioned, China sales rose 13% from prior year in constant currency and 12% in dollars, with positive comparable store sales and slower distribution growth, in line with our forecast. We remain very optimistic on the prospects for this market over time as the long-term drivers that we have consistently mentioned remain intact, including a rapidly growing middle-class and overall shift from pure status to value as well as the recent anti-corruption and anti-extravagant campaigns favoring the affordable luxury segment and the evolving retail landscape, with the developments of new luxury shopping malls. However, we understand that there will likely be continued volatility in the near-term, due both to macro issues and geopolitical events which are impacting trends in China and some key tourist markets, notably Hong Kong and Southeast Asia. At this juncture, we are still targeting sales of about $600 million for FY'15 in China, primarily driven by distribution growth, but with note as many others have called out that the current conditions are limiting our ability to predict PRC consumer travel and shopping patterns, especially in Hong Kong and Macau, therefore we continue to expect ongoing performance volatility during the back half of the year. To this point, our other Asia direct businesses outside of China and Japan, South Korea, Taiwan, Malaysia and Singapore, posted positive aggregate growth in local currency though the region continued to experience a slowdown in traffic, impacted by shifting trends in PRC tourist travel as well as weak inbound travel into Malaysia, given the sustained impact from the airline disasters. As expected in Japan, we posted a 7% decrease in constant currency, due in large part to the continued overhang of the April consumption tax increase. Dollar sales decline 18%, reflecting the weaker yen. In Europe, where our brand is small, but growing rapidly, we generated significant double-digit sales growth in the quarter, driven both by distribution and comp, and we continue to believe that Europe represents a significant long-term opportunity for Coach, both, with the domestic shopper and the international tourist notably in key European cities with the affordable luxury segment is outperforming traditional luxury. Given the recent and significant strength of the dollar versus the euro, we are adjusting our sales forecast for FY'15 to about $90 million versus our prior guidance of $100 million. Turning now to our global distribution plans, as they haven't changed materially from what we outlined on the last two earnings calls, I will be brief. We continued to expect our square footage globally and across all channels will increase slightly in FY'15, reflecting our North American fleet optimization. Our overarching focus will be on renovations and remodels to drive productivity. To this point, and as guided previously in North America, our directly operated square footage will be down around 5% given the 70 retail and 15 outlet closures, offset by a number of expansions within the context of a transformation and a number of outlet store openings. In wholesale as we have noted, we are moving to more open accessible displays in rolling out a sharper manager program we expect our footprint and department stores to increase modestly in FY'15. We plan to add about 40 locations and about 3% to 4% square footage while converting more than 300 locations from case line presentations to open sell. 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 other direct Asian markets outside of China and Japan in FY'15, our portfolio approach is focused on renovating key impact doors with our modern luxury concept in order to drive our brand transformation and maximize the productivity gains with only modest growth in our footprint. Turning to Japan, in FY'15 we continue to expect the total number of locations to remain the same, with 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 FY'16, including the new flagship store in Shinjuku, which opened in October. We will also renovate key locations in important cities throughout the country and our flagship stores in Tokyo this spring. As a reminder, the next two quarters in Japan will be very unbalanced due to the pull followed of demand in last year's third quarter as the consumption tax increase was affected on April 1, 2014. Therefore, we would expect a double-digit decline in local currency sales in the third quarter, with a rebound in the fourth quarter. Of course, reported sales will be substantially lower given the yen weakness. Moving to Europe, as noted in FY'15, we are now projecting reported sales of around 90 million in dollars, given the strength of the dollar against the euro and adding 10 directly operated locations and more than 100 wholesale locations. Our goal is to achieve over $0.5 billion in sales at retail, representing a mid-single-digit share of the premium men's and women's bag and accessories market over our planning horizon. Finally, as we have expressed in the past, we also believe there is significant opportunity for the Coach brand in global travel retail, which represents the majority of our international wholesale sales. At quarter end, we had a total of 214 international wholesale locations in 28 countries, which included 110 travel locations and expect to add about 30 additional net locations by year-end. Now I will ask Jane to change to provide some additional detail on our financials and 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 the some of the important financial details of our second fiscal quarter results as well as our outlook for FY'15. Our quarterly revenues declined 14%, with North America down 20% and international down 1%. As noted, on a constant currency basis, revenues decreased 12% overall with international sales up 5%. Excluding transformation and other related charges, net income for the quarter totaled $200 million, with earnings per diluted share of $0.72. This compare to net income of $297 million and earnings per diluted share of $1.06 in the prior year second quarter. For the quarter, operating income totaled $299 million on a non-GAAP basis versus $436 million last year, while operating margin was 24.5% versus 30.7%. During the quarter, gross profit totaled $841 million as compared to $983 million a year ago, while gross margin was 69% versus 69.2%. As expected, gross margin benefited from a reduction in North America promotional activity, but was negatively impacted by the yen. SG&A expenses as a percent of net sales totaled 44.4% on a non-GAAP basis compared to 38.5% in the year ago quarter. Absolute SG&A expenses declined slightly reflecting a stronger dollar than expected. In addition, we repurposed last year's promotional costs, primarily associated with events into increased brand focused marketing spend this holiday. we have also captured savings related to our restructurings sooner than originally anticipated. As I turn to GAAP metrics, let me recap key transformation and other related charges. As previously announced, we expect to incur pre-tax charges of approximately $250 million to $300 million associated with our transformation plan, of which about $130 million was reflected in our fiscal fourth quarter 2014 result, with another $57 million included in our first half 2015 results. 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 now expect to capture over $70 million in savings related to our transformational initiative in fiscal 2015 and approximately $150 million in ongoing annual savings in fiscal year 2016. During the second quarter of FY'15, the company recorded charges of $20 million under the company's multi-year transformation plan. These charges consisted primarily of accelerated depreciation for renovations, lease termination costs related to store closures and organizational efficiency costs. These actions increased the company's SG&A expenses by $19 million and cost of sales by $1 million, negatively impacting net income by $14 million after tax or $0.05 per diluted share in the second quarter. In addition, the company recorded cost of $4 million associated with the pending acquisition of Stuart Weitzman, which impacted net income by $2 million after tax or a penny per diluted share. Therefore, during the first six months of fiscal 2015, the company reported total transformation related charges of $57 million and acquisition related costs of $4 million, increasing SG&A expenses by $56 million in total, cost of sales by $5 million and reducing net income by $43 million after tax or $0.16 per diluted share for the current six-month period. Moving onto the balance sheet, inventory levels at quarter end were $447 million, down 19% from Q2 FY'14. Cash and short-term investments stood at $1.06 billion as compared to $799 million a year ago, substantially held outside of the U.S. As expected, we ended the second quarter with only $20 million outstanding on our credit facility, but would expect our debt level to rise in order to cover our working capital needs in light of investments in our business, the acquisition of Stuart Weitzman and a new corporate headquarters. Net cash from operating activities in the second quarter was $445 million compared to $400 million last year during Q2. Free cash flow in the second quarter was an in-flow of $406 million versus $340 million in the same period last year. Our CapEx spending was $39 million versus $61 million in the same quarter a year ago. We now expect CapEx for FY'15 to be in the area of $300 million to $350 million, excluding the cost associated with the new headquarters, which are expected to be approximately $90 million in FY15. We anticipate maintaining our dividend at the annual rate of $1.35 for FY'15. Before I discuss our financial outlook, I want to touch on the pending Stuart Weitzman acquisition. Although, the Federal Trade Commission just granted us early termination of the Hart-Scott-Rodino waiting period, I can't provide too many details around the financials and the synergies beyond what Victor already noted and we do not expect to close the acquisition until May. As disclosed, we expect the Stuart Weitzman business to be accretive from the year one, exclusive of transaction related charges including anticipated purchase accounting adjustments and contingent payments related to the transaction. We expect to use our cash to fund a significant portion of the purchase price. In short, Stuart Weitzman meets the criteria we established for ourselves in an acquisition. It is a solid growth company with over $300 million in annual sales in one of our targeted lifestyle categories. The business has significant domestic and international development potential, particularly in Asia. Importantly, the size, scope and vibrancy of the Stuart Weitzman brand, along with continuity of its management team, including Stuart Weitzman himself, allows for a seamless transition to Coach ownership. We believe, it will be an enhancement to our transformation rather than a distraction, and it will continue to run as a largely standalone business. Turning now to our financial outlook for FY'15, most probably our annual guidance has not changed for FY'15, although the stronger dollar and international tourists' trends will impact reported dollar sales and SG&A growth. First on sales, we still expect to deliver a low double-digit decline in constant currency for fiscal 2015, though down slightly more on a reported basis due to the increasing strength of the dollar. Also, keeping in mind, the compares in Japan given the consumption tax increase in April 2014, we would expect their third quarter sales to be weaker than fourth quarter. Overall for FY'15, we expect continued pressure on sales, due to our reduced promotions and second half store closure activity. We are now projecting a mid-teens comp decline in our North America stores given what we actualized in the first half and our second half forecast of improvement, with eOS pressuring the aggregate North America comp by an additional 10 points. This equates to a mid-20s decline in aggregated comps. Over the course of the fiscal year, we would expect continued modest store comp improvement as the product and store initiatives roll out offset by the continued curtailment of the eOS events. Gross margin is still projected to be in the 69% to 70% range for the year, with higher sourcing costs largely offset by favorable channel mix and lower promotional activity. SG&A expenses are now expected to grow at a low single-digit rate, reflective of our increased marketing spend and transformational initiatives, but helped by currency and the faster realization of savings than anticipated. We do still expect that our second half compare will have modest increases give the prior year dollar declines and the timing of our marketing spend. Taking together, we continue to 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 though there will be some variability between quarters. We have a strong and flexible balance sheet with about $1 billion in cash and investments and low leverage. As noted during our Analyst Day and previous calls, we plan to access the capital markets as needed to fund our headquarters' investment and a portion of the cost of our recently announced acquisition of Stuart Weitzman, which will result in some interest expense in the second half of this fiscal year. In closing, I would like to reiterate Victor's earlier remarks. We laid out a very clear plan last summer and its execution is well underway. You heard this morning about our brand transformation progress around product, doors and marketing as well as our key learnings and takeaway, and I will add that we are on track from an investment and restructuring perspective. We have now taken well over half our total expected transformation related charges over the last three quarters, including rightsizing our inventory levels. We are investing in re-platforming our stores and wholesale doors and are on track to spend about $570 million over the next three years. We have begun to realize our cost savings, running a leaner, more efficient organization sooner than expected. Therefore, looking further ahead, we would expect to realize an overall annual financial improvement beginning in FY'16, 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 would 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.

I just have two quick questions. I think, the first one in the press release, Victor, you talked about you are encouraged by the green shoots you are seeing. Can you provide any numbers around the relative outperformance of some of the new modern luxury doors? Then the second question that I have is just with the new product going into the outlets, can you just talk a little bit more about the strategy, the price points and sort of how you are executing that piece of it and sort of the early response that you are seeing there?

Sure. In terms of the modern luxury doors, Bob, which really represent as you said one of the most promising of the green shoots that we are seeing in our retail stores, we have approximately 20 that we have re-platformed prior to holiday and that is across a variety of different channels, street locations such as here in New York and Rodeo Drive, mall locations as well as in certain international locations and we are very, very pleased with the performance, which have in fact exceeded our own internal expectations positive comp and doing kind of better than the rest of the fleet and it is certainly very consistent with the strategies that we have consistently shared with all of you, which is that we believe that it is when the product, stores and marketing all come together that we will see the change in perception required to drive the business forward and that is exactly what we are seeing in these locations. As we expressed in our speakers' notes, we are continuing with the 150 re-platforming of current locations and then 50 to 60 new locations for the second half of the year. In terms of the outlets discussion, Bob, I think you were specifically talking about our product strategies there, very excited about what we are seeing there and very consistent with what we have shared with you in the past. First, Stuart design team have been touching all of the current products that had existed upon his arrival and we, in essence, re-platformed the product with new leathers, new materials, new hardware, new branding, adding a lot of value to that channel at increased costs, but the consumer is reacting well. We are seeing her more than willing to pay for it and that has driven an improved performance in our outlet stores year-on-year during the holiday period at increased gross margins year-on-year as well in what was an increasingly competitive environment, so we are really pleased. It really started with our terrific balance of price points across a mixture of categories, handbags, accessories, footwear and a great gifting collection from Black Friday, so very much great learnings for us that will leverage across channels as we move forward.

Great. Thank you.

Thank you. The next question is from Matthew Boss with JPMorgan.

Hi. Good morning. Can you just talk about some of the expense savings in the quarter particularly and then also visibility to the $450 million opportunity? You made some management changes and talked about streamlining in the release today, so any other potential buckets of opportunity? Finally, just any changes around the SG&A that you announced today for the full year, just if you could outline that?

Sure. What we saw in starting most in the near end, what we saw in the quarter was really two benefits as I called out. One was the stronger dollar, which had a benefit to our expense line, so that was a key driver. Then we realized stronger savings from our restructuring than we anticipated. We realized those savings sooner, largely related to organizational efficiency. We also were able to repurpose marketing spend from promotional events largely related to eOS into more brand-focused events and realized savings there, so those were the three drivers of saving. We would expect the benefit of the weaker yen primarily to continue as we move through the year, but we do expect that marketing spend related to brand-focused, brand equity building will be heavier in the second half. As we look forward to the $150 million of savings those savings will primarily be related to efficiencies related to our store closure, they will be related to organizational streamlining and efficiency. Those will be the key drivers of savings as we move forward.

Great. Then just one follow-up, can you just walk us through some of the puts and takes on the gross margin this quarter globally, and more importantly confidence longer-term with that 69% to 70% target range?

Absolutely. As I look at our gross margin, in this quarter, we really executed our strategy. We maintained our high gross margin at very stable rates that you have seen in prior year and really we executed the strategy, we invested in our products and elevated our product as Victor talked about and we reduced our promotional activity in North America and really struck that balance. We had a little bit of pressure from the yen on gross margins, but really that is our strategy and you saw it come true on the gross margin line.

Great. Nice quarter.

Thank you.

As a reminder, please limit your questions to one per person and given the lateness of the hour, we will extend our Q&A to 9:45 to answer more questions. Please go ahead, operator.

Thank you. The next question is from Barbara Wyckoff with CLSA. Ms. Wyckoff, check your mute.

Can you hear me?

Yes.

Hi, Barbara. Good morning.

Hi, everybody. Could you talk about the leadership in Asia? How is this evolving with all the changes? Can you just also comment on sales and top-tier doors versus the lower tier doors and sort of the future of expansion there, where it is going to be concentrated? Thank you.

Specifically, Barbara, top-tier doors versus lower tier doors, you are talking about the tiers in terms of cities within mainland China?

Yes..

Okay. Thank you. In terms of the leadership in Asia, there is no change impacted by the changes we have just announced. Andre Cohen, who is taking over as our leader for North America has been playing the role of Chief of Staff for the recent past, having returned from a family leave after a year and the current leadership in Asia continues as is. In terms of our distribution strategies in China, as we have mentioned in the past Barbara and talked, we have been this year very focused on ensuring that we are prepared for the consolidation that is taking place amongst certain malls, especially in the Tier-1 and Tier-2 cities, but longer-term we still very much believe in the opportunity and the Tier-3 and Tier-4 cities, not only in what it promises for the domestic market, because it is where we are seeing the greatest growth overall in China from the GDP perspective, but also what it means for outbound tourists. As we know, there is approximately 100 million outbound tourists from China today. That numbers is expected to grow by the end of 2019 to approximately 200 million, the vast majority of that growth will come from those Tier-3 and Tier-4 cities, so we are very focused on developing our awareness, developing our brand in those cities not only could benefit domestically, but also in the international tourist markets.

Okay. Thanks.

Thank you.

Thank you. [Operator Instructions] The next question is from Ike Boruchow with Sterne, Agee.

Hi. Good morning, everyone. Congrats on a nice quarter.

Good morning, Ike.

Good morning, Ike.

Hey, Victor, could you elaborate a little bit more on the remodels? I think you said there is about 20 now and you said you are pleased with the performance. Should we read into that that the comps in those stores are actually in the positive range. Then I just want to double-check. Did you say that we should have about 150 of those remodels converted by year end with another 50 to 60 of additional stores, just want to clear that?

That is correct and you have just confirmed everything I said. They were positive and 150 for the second half in terms of remodels, with an additional 60 new location.

Got it. Perfect. Thank you.

Thank you.

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

Congrats on a solid quarter. Regarding your statements on the product assortment and the SKU breadth, is there more to go in terms of reducing the SKUs and did you have comments on the positioning regarding core versus downtown and uptown? If you are happy with the composition of how the assortment looks with respect to that merchandising strategy. Thanks.

Thank you, Oliver. Yes. In terms of reduction of SKUs, not all. In fact, if anything from this holiday quarter, we have learned that the big opportunity for us was perhaps to have been a little bit fuller in terms of our gifting assortment, especially in retail with Stuart's initial launch, we were very focused on the fashion messaging which has of course been very well received. As we move forward, what I think you will see, Oliver, in our assortment is a continued reinforcement of our core or what we are calling Coach essentials, not only in terms of what they represent at those core price points, the $300, $400 price bucket, but also in terms of how we elevate those styles with other fabrication, other more premium leathers and alike to continue to bring texture and elevation into the store. If anything, I think you will see in the quarters ahead as we head into FY'16, a slight increase in our SKU count from the reduction that we have announced of 25% this past quarter.

Thank you..

Thank you, and best regards.

Thank you.

Thank you. The next question is from Antoine Belge with HSBC.

Yes. Hi. It is Antoine Belge, HSBC. Regarding inventories, we have seen quite a substantial decline. How do you expect inventories to trend throughout the end of the fiscal year and what is your view on the quality of those inventories? Thank you.

Yes, Antoine. As you saw in last fiscal Q4, we took the opportunity to evaluate our inventory with respect to our transformation. As we have moved forward, you have seen inventory track very closely, you are in a range in sales that is our long-term goal that inventory would be in line with sales with some puts and takes for building for certain holiday quarter in store opening, but that is the trend you should expect to continue. I feel very good about the quality of the inventory that we sit on right now.

Okay. Antoine, I would only add one thing, which as I mentioned in my notes, we had eight pop-up factory doors that we used to cleanse those inventories, which we have since closed and are no longer operating.

Thank you.

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

Great. Thank you. Good morning. You talked about pricing in your prepared remarks and needing to have a broader array of opening price points. Could you maybe elaborate on what you are learning there? It does seem, I guess, a slight deviation given your overall kind of bill to kind of elevate the brand? Thanks.

Sorry. Could you just repeat the second half of that question again you kind of fell out there.

Absolutely, so if you talked about kind of broadening the opening price points, I would love to hear kind of what you are learning there as you think about that. It just seemed a little bit of a slight deviation given your overall context to elevate the brands. We would to love to kind of hear what you are learning as you kind of delve into that? Thank you.

Sure. Yes. We have said that over and over, elevation has never been about simply increasing price points. It has been about improving the perception or elevating the perception of the brand, if you will, qualitatively in the mind of the consumer, and the most important step that we have taken there has been the pulled-back in promotions. The $300 million reduction, if you will, eOS that that we have discussed and shared with you guys openly as well as the vastly reduced number of events that we are holding in our retail channel, which is impacting our comps in that channel, especially as well as the reduced Coach days in the wholesale channel as well. In terms of the assortment, balance has always been important for us. We are very focused on continuing to refine, what we call core, which Oliver asked about earlier and there were certain silhouettes, which we are continuing to refine into one example is the taxi [ph], which is getting new shapes, getting new sizes, getting new functionality based on the additional learnings that we have had as well as other key core silhouettes and specifically a carryall, specifically the shoulder bag [ph], which will get different sizes and different materials, so what we are doing is enrichening the assortment, broadening it for that core customer to ensure a broader range of fabrications and price points.

Thank you. Our next question is from Omar Saad with Evercore ISI.

Thanks. Good morning. I wanted to ask about Stuart Weitzman a little bit. Maybe have you elaborate, I know you made some opening comments around the rationale behind the acquisition and your excitement behind both, the opportunity for that brand and maybe cross- pollinization of the uncertain capabilities, but it was interesting for me to hear you qualify it as Coach’s first acquisition and is there something specific about this asset that really kind of compels you or could this be part of the early stages of an evolution towards more of a portfolio approach to the North America global luxury market? Thanks.

Thank you, Omar. We were really excited about Stuart Weitzman. Of course, the deal does not close until May, so we are limited in what we can say, but first it is a wonderful clean brand leadership in its category not unlike ourselves at that size and larger in our earlier days, especially a brand that has history and heritage over 30 years of legacy and has extremely clean distribution and pricing top-tier department stores, one outlet door here in the U.S. and only one in Europe, proven technical know-how, a great senior management team in place and a truly differentiated supply chain with the relationships and ownership that they have of part of their production. Saying that, there is also in addition to the attractiveness of the brand itself, of course, the operational technical and know-how synergies that we feel extremely good about for ourselves. In my notes, I talked about our own footwear business and its growth this past quarter. I think some folks forget that we have to $200 million footwear business already, so combined with Stuart Weitzman, we are today or will be when the deal closes, the number two U.S. market share player in the premium shoe market following, Uggs, I believe as the number one, so there is an opportunity of course for Stuart Weitzman to share with us their know-how, and especially everything that they knows so well around and fit and comfort, they have an incredibly loyal customer base that swears by the fits and that is an opportunity for us at Coach as we look at our current shoe business, which is growing and has a lot more opportunity. Of course, they have an opportunity themselves to grow their multi-category strategy as they have a very nascent handbag and accessories business today no more than 4% to 5% of their total business and we have an opportunity to help them develop that to be something more important than I am especially excited about what is happening today with the Stuart Weitzman brands, not only here in the United States, but in Asia and especially the green shoots that we are seen for them in China, which is the market that we know well and that we know we can help them grow and support.

Yes. Omar, I would just jump in and say, this is entirely consistent with the capital allocation priorities we have laid out for Coach, Inc. which is to invest in our business, which you saw us do this quarter both in marketing and in capital to be highly selective about pursuing value creating acquisition that we believe have growth and profitability for the long-term, being goldilocks, if you will, has to be just right and we feel Stuart Weitzman is. Then finally, a commitment to returning capital to shareholders, which you saw us reiterate again, a commitment to maintaining our dividend.

Victor, Jane, thanks so much. Very helpful.

Thank you, Omar.

The next question is from John Morris with BMO Capital Markets.

Thanks. My congratulations as well.

Thank you, John.

Two quick questions, one, the semiannual sale that you guys just completed, did that start on time as planned or did you shift the timing all and what is the timing for the next semiannual sale? Then my other quick question was, I think there were a couple of markets where you had closed outlets to test how the closings impact the full line stores and just wanted to get an update on any of the impact during those MSAs and what you are learnings were? Thanks.

Sure. In terms of semiannual sale it was as planned, started in mid-December and through January 21st, and that was the exact same length of time as our previous semiannual sale, so absolutely no surprise or change there. In terms of the two outlets that we have closed, they have just closed a few weeks ago. It is still very early. We are putting together a learning agenda around those outlets, not only in terms, of course, cross-channel shopping, but other consumer perception changes in those two markets, one in Miami, the other in L.A., and we will share those with you in the quarters ahead.

Great. Good luck for spring.

Thank you.

Thank you. The next question is from Joan Payson with Barclays.

Hi. Good morning, everyone.

Good morning.

Good morning.

Just back on the store reformats that were comping positively, were those traffic or conversion-driven? Then also how did the business trend during the semiannual sale compared to the rest of the quarter?

The metrics in terms of the modern luxury stores were really mixed by location because of the type of format, if you will, the street locations versus mall. Overall, traffic was a driver as consumers were coming in, of course, to experience the new, but also conversion was the other key driver and I would say that is in the Street location, so our flagships, especially here in New York as well as L.A, which was consistent with the total retail piece. ADT was a driver because of the decreased promotion year-on-year, so they really benefited across all metrics relative to the other locations and as things stabilize, of course, over time, I would imagine that we will continue to see normalization where conversion and ADT will be the major drivers.

Joan, I would just add that, as a recall we close out this quarter, only about a little less than half of the semiannual sale period was included in this quarter.

Okay. Great. Thank you.

Thank you. Our final question today is from Ed Yruma with KeyBanc Capital Markets.

Hi. Good morning. Congrats on a solid quarter. I guess, turn quickly to department stores I think you said that POS could be weaker in the second half. I know that you had some small test on the open sell. I guess, how should we think about the department store channel longer-term? Are you changing the amount of footage you get and when should we expect some of the larger doors to move to the open sell format? Thank you.

Sure. Longer-term, of course, we are excited about the channel. We believe it is an absolutely vital one, where obviously the consumer has choice and where we need to compete and win effectively. The 300 doors that we have been moving to open sell, which truly represent the smallest doors that we have or the one that is still in case line, about 20% of the total fleet, but less than 15% in fact of total revenues, their financial impact is quite small, but very important to allow consumers to access product given that we are really the only brand in our space still in those cases. Longer-term, as I mentioned, we are today taking all of the learnings from our retail modern luxury concept, so the one we have opened in Rodeo here at Time Warner, and of course our mall locations, especially as well as some duty-free locations globally, we are taking those learnings and will be leveraging them across format, so in the spring you will see us leverage that in our first outlet stores as I mentioned and we will also be developing that format into both, wholesale as well as global duty-free locations, which we are very excited about.

Great. Thanks so much.

Thank you, everyone. That concludes our Q&A. I will now turn it over to Victor Luis for some concluding remarks. Victor?

Thank you. Andrea. Thank you, everybody, for being with us and for continuing to follow us on our transformation journey. As a team, we are encouraged by the positive signs that we are seeing in the execution of our strategies around the product, stores marketing as we continue to drive fashion relevance for the Coach brand and to differentiate it from the accessible luxury competition that has grown over the last 5 to 10 years, especially. I want to recognize the entire Coach team for their commitment and for continuing to have both, the courage and the discipline to stay the course with our strategies, which are very much in the long-term interest of our brand health and our business and I know that they also very much look forward to welcoming the Stuart Weitzman team to the Coach, Inc family. Thank you.

Thank you.

Thank you. This does conclude the Coach earning conference. We thank you for your participation.