Lew Frankfort, Chairman and CEO Mike Devine, Senior VP and CFO Andrea Shaw Resnick, VP Investor Relations and Corporate Communications

Bob Drbul, Lehman Brothers Jeff Edelman, UBS Securities Margaret Mager, Goldman Sachs Dana Telsey, Telsey Advisory Group, Dana Cohen, Bank of America David Schick, Stifel Nicolaus Neely Tamminga, Piper Jaffray, Anwan Hombula, HSBC Christine Chen, Pacific Growth Equities John Rilow, Wachovia Securities Everyn Copland, JP Morgan

Welcome to the Coach Third Quarter Earnings Conference Call. This call is being recorded. At this time for opening remarks and introductions I’d like to turn the call over to the Vice President of Investor Relations at Coach, Miss Andrea Shaw Resnick, you may begin.

Good morning and thank you for joining us. With me today to discuss our quarterly results are Lew Frankfort, Coach’s Chairman and CEO and Mike Devine, Coach’s CFO. Before we begin we must point that this conference call will involve certain forward-looking statements including projections for our business in the current and 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 10K for a specific list of these risk factors. Also, please note that historical growth trends may not be indicative of future growth. We presently expect to update our estimates each quarter only; however, the failure to update this information should not be taken as Coach’s acceptance of these estimates on a continuing basis. Coach may also choose to discontinue presenting any future estimates at any time. Now let me outline this quarter’s speakers and topics for this conference call. Lew Frankfort will begin with an overall summary of our third quarter fiscal 2006 results as well as our strategies going forward. Mike Devine will then follow with details on financial and operational highlights for the quarter as well as our outlook for the fourth quarter, full fiscal year 2006 and our initial guidance for fiscal 2007. Following Mike, we will hold a question and answer session that will conclude by 9:30 a.m. I would now like to introduce Lew Frankfort, Coach’s Chairman and CEO.

Thanks Andrea and good morning everyone. I am again delighted to report that Coach continues to achieve excellent results. As we approach our 6th anniversary as a public company, it’s important to note that we have achieved double digit sales and earnings growth consistently in every quarter. This performance speaks to the sustainability of Coach’s business model, our ability to effectively execute our strategies, and most importantly, the strength and endurance of the Coach brand which rests on three core brand equities: public innovation, relevance and excellent value. This morning we reported excellent quarterly results as a 20% increase in sales, combined with an improvement in margins, continued to drive the bottom line. The highlights of our third fiscal quarter were: first, net income rose 35% to $109 million or $.28 per diluted share; this compared with $81 million or $.21 per share in the year ago period and the consensus estimate for the quarter of $.27 per share. Second, net sales totaled $498 million, up 20%. Third, direct to consumer sales, which consists primarily of sales at Coach Stores in the U.S. and Japan, rose 22% to $374 million during the third quarter. Fourth, comparable store sales in the U.S. rose 21.1% with retail stores up 11.7% and factory stores up 34%. It’s worth noting that based on our four year comp, retail stores are twice as productive as they were at FY02. Finally, Japan sales rose 23% in local currency, driven by new stores and expansions and high single digit comps. Dollar sales in Japan, impacted by the weakening Yen, rose 10%. During the quarter, we opened 3 new retail stores in the US, all in new markets for Coach: Naples, FL; Albany, NY; and Reno, NV. We also opened one new factory store in Sawgrass Mills, FL and closed one in Charleston, NC. Thus, we entered the quarter with a total of 206 retail stores and 84 factory stores. In Japan, Coach opened 3 net new retail locations and expanded 2 additional locations as well. At quarter end, there were 115 total locations in Japan. Indirect sales rose 14% to $124 million from $109 million in the same period last year. All indirect businesses, including international wholesale, special markets and US wholesale contributed to this increase. In the United States department store sales growth sales at POS continued to be excellent with comp sales running up over 20% last quarter and total sales up about 17%; after accounting for the closure of locations as a result of the Federated/May merger. As mentioned last quarter, we continue to see intensified competition in accessories as this category remains one of the few bright spots within US department stores. However, we welcome new entrants into our arena as a means to drive additional consumer interest and are confident we will continue to demonstrate our ability to outpace the competition over time. Further, as we have often discussed, US consumers are extremely loyal to their handbag brands. Thus, Coach as the US market leader with a broad and diversified consumer base, continues to be in an ideal situation to take advantage of this strong category growth. Naturally, we are very pleased by the strength demonstrated across all of our full-priced channels once again this quarter. Our excellent US retail comps reflect category growth and modest market share gains as our business was primarily driven by well received monthly new product flow, while average transaction size, traffic and conversion all rose in the period. As was the case in the holiday quarter, units per transaction contributed to the gain in our average sale reflecting the success of add-on items, such as charms, iPod covers and cell phone lanyards. In factory stores, we continue to experience exceptional comp store sales, driven by a strong merchandise offering with an increased level of factory exclusives tailored to the more classic factory consumer. In addition, our sales also benefited from the overall vibrancy of premium factory centers. As we’ve mentioned before, there is limited crossover between the full-price and factory consumer, as each is dedicated to her respective channel; focusing 80% of her Coach spend in her preferred environment. And, of course, we were delighted with the strength in Japan where we continue to grow our footprint significantly. As some of you know, I had a chance to visit Japan during this quarter and now believe that our opportunity there, notably in markets with limited outright luxury brand development, may well be larger than we originally envisioned. Throughout the quarter, consumers enthusiastically embraced our transitional and string offerings across categories and collections, as the look of our assortment continues to evolve to reflect changing consumer preferences. These included: Gallery Satchels, an updated Hampton’s Collection, including signature striped carryalls, and the novel Poppy Group of totes, demi’s and accessories. In February, our fresh interpretation of Soho sold exceptionally well as did a new group of shoulder totes, an important key item Silhouette throughout spring. Our Valentine’s Day selling results were very strong, anchored by a studded Soho signature group accented with red and pink suedes including an assortment of add-on items such as wallets, scarves, charms and key fobs. After Valentine’s Day, we introduced the new Hampton’s Weekend Collection, including a distinctive patchwork design which became an instant success. During the quarter, our limited edition offerings performed very well, including the Hampton’s Vintage Carryall at $598 and the new Legacy Leather Shoulder Tote at $798. As mentioned in our Press Release, our business in April has continued to be strong. As always, we have a strong mix of fresh and innovative products in the pipeline. In April, our Soho Optics signature fabrication was introduced in a seasonal palette in several strong selling handbag styles as well as in footwear, scarves, and hats. In addition, straw totes and hobos in our important Legacy Silhouettes were also introduced. For May, we are now launching a new summer program including soft totes in Classic Signature and new seasonal Gradient Signature as well as Optical Signature shoulder totes. And, coming in June will be a new signature patchwork and tie-dye group, both perennial favorites. Clearly, we have delivered on every key metric. And while our past successes have been noteworthy, we believe that we’re only just approaching the half way mark in terms of organic growth as a monogram focused on delivering accessible, luxury accessories to a broad and loyal consumer base. While we have often discussed our four key growth strategies, they can be summarized into two primary drivers of top line growth, which are focused in achieving continued rapid growth during the years ahead, namely distribution growth and improved productivity. First on distribution, the opportunities for Coach are abundant both in our core North American and Japanese markets and in emerging markets as well; notably, the rest of Asia. We have begun to see widespread recognition of the Coach brand by Asian consumers. Today we have about 75 locations through distributors in markets such as Hong Kong, Korea, Taiwan and Thailand to name a few. By the end of this fiscal year we will have added a net total of about 55 new Coach locations globally. This includes nearly 30 in the US, consisting of 25 full-price stores and a net of 3 factory stores; 14 in Japan and 12 through international wholesale, bringing our global total to about 525 locations, excluding US department stores. In addition, we will have expanded over 20 US and Japanese Coach operating locations and 15 international wholesale locations. In FY07 we plan to open about 85 net new locations globally, increasing our US full-price openings to at least 30 along with about 5 US factory stores, 15-20 locations in Japan and an additional 30 locations through our international distributors, primarily in Asia. This will be augmented by our plans to expand about 30-35 Coach operated locations in the US and Japan and about 12 international locations. Thus by the end of next fiscal year we expect to stand at about 610 Coach locations globally, excluding US department store doors. Our square footage is expected to grow about 20% next year to nearly 1.4 million sq. feet as a result of these new openings and expansions. Beyond FY07, the potential for distribution growth remains significant. As you know, we believe we can bring our number of North American full-price stores from about 200 today to more than 350 over the next several years at an accelerated pace of at least 30 locations annually. In terms of factory stores in the US, our plans are to open 3-5 net new stores annually getting to about 105 locations from the current 84. In Japan, we have about 110 locations today and now believe that our potential is well over the 150 locations that we have cited in the past if we can realize the regional potential. We are currently assessing this opportunity given the success of our new stores in these very underdeveloped markets where during the first few months of operation half of shoppers note that they are new to the Coach brand. It’s worth mentioning that included in our Japanese openings planned for this year, 10 are in new markets for Coach and 6 of these are in what we would consider regional markets with most having no luxury brand presence. In addition to our two core markets, the US and Japan, we know that mainland China will become an important market for luxury brands during our next several years as the income and consumer spending level catch up to the retail development that already exists in this market. For now, we’re focusing our development in Hong Kong which, as you know, is the gateway to greater China. During early July we will be opening a major retail store on Canton Road, our 13th location in Hong Kong. Over the next two fiscal years we’re planning to open 4 net additional locations there. That said we are intensifying our development efforts in mainland China where we have two small stores today focused on the domestic consumer. It’s our intention to open at least 10 locations in major cities during the next 2-3 years. The other important sales driver will continue to be improving the productivity of our existing locations. We believe all three components of comp growth are still available to us. First, transaction increases through a tiered merchandise offering include higher limited edition penetration, along with driving units per transaction with a broader assortment of add-on items and potentially new flanker categories. Second, conversion through enhanced service and ensuring that we are meeting a broader array of our consumer’s accessories needs. Whether she is coming into Coach for an evening bag, a weekend carryall, a business tote, a satchel, a key fob, we will continue to offer relevance and fashion innovation at an excellent value. And finally, driving traffic, compelling presentations, excellent service, laser marketing techniques, sophisticated advertising campaigns, a dynamic website and preferred customer events such as trunk shows and pre-selling opportunities all will continue to entice her into visiting our stores. The strategies and actions I have just outlined build on the strength of our core brand and business equities. They are designed to reinforce Coach’s leadership position as an American classic lifestyle accessories brand offering accessible luxury to our consumers worldwide. Now I will turn it over to Mike Devine, our CFO. Mike?

Thank you Lew. Lew has just taken you though the highlights and strategies. Let me now take you through some of the important financial details of our third quarter results. As Lew mentioned, our quarterly revenues increased by 20% with direct to consumer up 22% an indirect up 14%. Adjusting for the impact of the weaker yen, total sales rose 23% for the period. Net income for the quarter increased 35% to $109 million or $.28 per share as compared to $81 million or $.21 per share in the year ago period. This included option expense of about $19.1 million pre-tax or $11.4 million after tax this year and $13.5 million pre-tax or $8.4 million after tax last year. Our operating income was 25% to $165 million in the third quarter versus $132 million in Q3 last year. Operating margin in the quarter was 33.2% compared to 31.8% in the year ago quarter, a 140 basis point improvement. In the third quarter our gross profit margin expanded by 20 basis points over the comparable period of the prior year from 78.1% to 78.3% of sales as gains from product mix and supply chain initiatives more than offset the impact of channel mix. The selling, general and administrative expense ratio declined 110 basis points in the quarter and represented 45.1% of sales versus 46.2% for the year earlier period. The decline in the quarterly rate was the result of achieving leverage throughout our business. All selling units taken together saw the year over year spending rate decline and we also continued to leverage the top line volume in all of our centralized functions. It should also be mentioned that the strength of US factory stores helped reduce the expense ratio during the quarter .given the exceptional leverage of this channel and its low relative SG&A level in comparison to our full-price retail channel. In fact, the strength of factory had a net impact of 50 basis points on our operating margin during the third quarter. Inventory levels at quarter end were $210 million -- $30 million were only 16% above prior year levels. We are pleased that we were able to support the 20% increase in quarterly sales, the 24 net new US stores, 9 net new Japan locations and 13 total expansions all of which opened in the last 12 months with this modest increase in inventory. Accounts Receivable balances rose to approximately $27 million driven0 by sales gains in all channels. Base sales outstanding at quarter end actually improved by a day from 36 days last year to a day sales of 35 during Q3 of this year. We ended the third quarter with $838 million of cash and marketable securities up from $694 million a year ago and, of course, essentially no debt. The company repurchased 499,500 shares of common stock at and average cost of $36.64 during the third fiscal quarter bringing our year to date total to 3,463,700 shares repurchased at an average cost of $32.85. As of the end of Q3, approximately $136 million remain available for future repurchases under the existing program which expires in May 2007. Net cash from operating activities in the third quarter was $98 million compared to $101 million generated last year during Q3 balanced slightly year over year due to unusual inter-quarter timing of working capital. On a year to date basis, cash from operating activities was actually up nearly $60 million to $402 million. Free cash flow in the third quarter was $49 million versus $84 million in the same period last year primarily due to increased CAPX spending. However, it also was up on a year to date basis. CAPX spending primarily in investments in corporate facilities and for new stores and renovations was $49 million versus $17 million in the same quarter a year ago. We now believe our CapEx for FY06 will rise to about $140 million as we lay the groundwork and build the infrastructure to accommodate the accelerated distribution growth in the years ahead. As you know, the majority of the increase from last year’s $95 million is due to our capitalizing of some outstanding real estate opportunities both here an in Japan. We are also investing in our corporate facilities here in New York including expanding our space for the QA Lab, sample making unit and product archives, as well as in our distribution center in Jacksonville. As Lew noted, for the full fiscal year we will be opening approximately 30 new US retail and factory stores and continuing our North America expansion programs. In Japan, we will be opening 14 net new locations including a Flagship location in Kobe. Now I would like to provide you with our goals for the fourth fiscal quarter and full fiscal year as well as our initial guidance for FY07. For the fourth quarter ending July 1, 2006 we are targeting sales growth of at least 20% over $500 million with US comparable store sales gains of at least 10% in each channel and mid single digit comps in Japan, an operating margin for the quarter which will be about 300 basis points above the year ago level with grow margins increasing modestly and as expected most of the operating margins and expansion resulting from the substantially lower SG&A expense ratio versus last year’s forth quarter. These factors taken together should result in earnings per share of $.28 versus $.23 a year ago and increase of 22%. Excluding the $7 million fiscal year 05 Q4 tax benefit which impacted last year’s quarter by nearly $.02, this would equate to a gain of 32%. All of which translates for the full fiscal year to net sales growth of about 23% to about $2.1 billion. The gross margin north of 77% versus 76.6% reported in FY05, a significant improvement of over 100 basis points in SG&A expenses as a percentage of sales on a year over year basis resulting in over 200 basis point improvement on our operating margin to about 36%. Therefore, in FY06 operating income is expected to grow by about 30% over FY05, resulting in earnings per share of $1.25; a gain of 36% from the $.92 reported in FY05 and compared with consensus estimate of $1.24. Our preliminary goals for the full fiscal year 2007 are: Net sales growth of about 19% to $2.5 billion with a lead high digit comparable stores sales gain in both the US retail and factory channels and mid-single digit com location sales in Japan, and with our continued focus on profitability, pre tax income dollar growth of nearly 23% over FY06. Two factors will somewhat moderate that growth on the EPS line in 2007. First, a higher share account brought about by option exercises and secondly, a higher tax rate rising to about 38.5% due to the fact that incremental taxable income is being taxed at higher rates. All of this taken together will produce net income growth of over 21% net and earnings per share of $1.50, up 20% from the $1.25 targeted for FY06 and $.02 above the current consensus of $1.48. While these are our current goals our actual results may vary from these targets based on a number of factors including those discussed under the business of Coach and risk factors in our Annual Report on Form 10K. Coach also does not assume any obligation to update these targets as the year progresses. In summary, we’re confident that our growth strategies will enable us to continue to gain share in the large and growing global market for fine accessories. Thank you for your attention. Now Lew, Andrea and I will be happy to take some questions.

Please note that to accommodate the most analysts during our Q&A session, we ask that you keep it one question and one directly related follow up per analyst. Thank you.

Thank you and if you do have a question, please press star followed by 1 on your touchtone phone, star 2 to remove that question. Again, star 1 if you have a question. Our first question comes from Bob Drbul from Lehman Brothers, sir your line is open.

Hi, good morning.

Good morning Bob.

Lew, can you talk a little bit more about your willingness to step up and accelerate the global distribution and sort of what that implies for the growth rate over the next few years at the top line in your expectations?

Sure. As you know, during the last several years our planned top line growth is about 20% and the wind’s been at our back and we realized our flaws in that in each of our prior years. As we look at the strength of the Coach brand, it’s obvious to us that we have the opportunity today to accelerate development both in North America as well as Japan and in emerging markets for a whole series of reasons. This year for example we’re opening about 25 Coach full price stores in the US. Approximately 12 are in new markets and they’re performing extremely well and we believe that the opportunity for us to open stores just continues to grow in the United States both in new and existing markets. In Japan as I mentioned, we have been exploring regional department store opportunities and the numbers that we’re generating from these stores are extremely strong and in many of these instances there is no other luxury brand presence and when we open we find long queues of consumers thanking us for coming to their market and that gives us great opportunity well beyond the 150 locations we have identified as a potential in Japan. Moving to the rest of Asia, as our brand continues to develop among domestic consumers, we see the opportunities as being very rich and it’s our intention to seize them.

Okay great, then just one follow up. On the quarter, the gross margin was up year over year but it was a little lower than the expectation and I was wondering if you might be able to elaborate a little bit more on that?

Bob, I’ll take that. I guess I would start by saying that we were very, very happy with our profit rate in Q3. The 33.2% op income is a record op income rate for non holiday. We beat last year’s rate by 140 basis points. We beat our guidance by 100 basis points. We just projected Q4 up nearly 300 basis points and guidance a higher rates of profitability for FY07, so we really feel pretty good about our rate of profitability improvement. As we said before, with gross margin rates now approaching 80%, as we look at opportunities for future profit improvement, most of that improvement is going to come from the SG&A line. So we’re feeling pretty good where we sit today.

Great, thank you.

Thank you. Our next question comes from Jeff Edelman with UBS Securities. Your line is open.

Thank you, good morning. Lew would you discuss the distributorship you have internationally? Are these largely airport locations or free standing and what are the dynamics of ultimately acquiring those?

Sue. First most of our international locations are located within strong urban areas and we do have a small number with an airport location, they are a combination of free standing stores and Coach shops within department stores. We have a time limited performance based arrangement with our distributors where we control the store design as well as approve location selection and play a strong role in visual merchandising, training and support. And our intention is to utilize the expertise of local distributors as we learn a particular market.

Okay, so there’s no intention ultimately by these distributors to bring some of the growth internally?

I didn’t say that.

Okay. Thank you.

Thank you. Our next question comes from Margaret Mager with Goldman Sachs, your line is open.

Hi, it’s Margaret. Congratulations on 16 consecutive terrific quarters.

Thank you.

I would like to ask about the sales growth in the full price stores, if there’s any call outs on regional differences or flagship versus fashion stores versus core stores? Like any more color on the performance of the full price stores would be appreciated, and then related to that, Lew, your customer relationship marketing program if you could talk about what you’re doing on that front as far as engaging your best customers in a more profound way and what your plan is for Mother’s Day. Thank you.

Absolutely. First in terms of regional differences, as is always the case certain regions perform better than others and what we’ve seen over the last 18-24 months is that the underdeveloped regions in the south, SE Atlanta, Florida and Texas are going to continue to out pace the rest of the country. We continue at the same time across the entire mid-west to enjoy excellent sales results. The only notable soft spot in performance is in Hawaii, where the weaker yen and a lower in-bound travel is affecting Japanese sales within this particular market. As far as preferred customers are concerned, we as you know have an incredibly loyal consumer base and it sometimes startles even us, who are very familiar with the brand every day. What we’re learning more and more is that our best customers do want to learn about when we’re going to introduce new products. They welcome previews and in fact very frequently we have queues outside of our stores the first day of a new floor set. And preferred customers with their local store managers often can get a peek a few days before we actually put the product out by going into the back room with our store staff. So preview events are very important for us. We do continue to acknowledge appreciation to our consumers in the form of thank you’s. We are successfully piloting what we call “preferred customer events” to select targeted narrow ranges of consumers. All of these activities strengthen the bond between Coach and our consumers and even today 90% of our consumers expect to repurchase Coach and 50% of active users cite Coach as the brand they use most often.

Mother’s Day?

Mother’s Day, we’re expecting to increase UPT’s that’s one of the thoughts that we expressed before the holiday season and we’re doing that through a sharp range gift items which we’re introducing into our stores now, ranging from Legacy, to shoulder totes and in smaller pieces a range of scarves, key fobs, iPods, sun wear, seasonal footwear and if I could just add, we had an incredibly strong footwear season this spring and our actual comps were up over 40% in footwear, where shoes represented over 10% of our sales. In US department stores shoes actually comped over 40%, so we now see shoes as a 10% year round business for us in stores that carry footwear and we are planning starting this fall to introduce kiosk items on the 12 month basis in all of our stores. And last quarter a key item, sneaker and flip flop represented 2% of our sales in all stores. So, we are looking at footwear as an additional way to drive Mother’s Day sales.

That’s very helpful. Thanks Lew and good luck in the next quarter.

Thank you.

Thank you. Our next question comes from Dana Telsey with Telsey Advisory Group, your line is open.

Good morning everyone and congratulations. Can you talk a little bit about pricing trends and what you expect going forward for next year and also the Special Edition and Limited Edition products which have been so successful? What are you seeing there as a percentage of the business? Thank you.

Well first Dana, Limited Edition products last quarter was over 7% of sales compared with only 4% the year before. What we’re most excited about as we indicated earlier, is the performance in all of our stores with regard to two styles that we introduced: the Legacy Shoulder Tote as well as the Daphne Satchel. The Hampton’s Vintage Carryall also did extremely well. So what we’re finding is that there’s an appetite in all of our stores for a higher end product. With regard to average ticket which was up in the high single digits last quarter, almost a third of that was due to increased units per transaction and we expect that trend to continue in FY07 where we expect average ticket to be up mid single digits.

Thank you.

Our next question comes with Dana Cohen from Bank of America, your line is open.

Hey, good morning guys. Just following up. I guess could you explain a little bit more the desire to accelerate the square footage growth, I mean I guess you’re creating magnitude for duration and I just want to understand that trade off.

I’m sorry, magnitude for duration?

Correct.

I’m not sure I know what you mean.

Well I mean you can only have X number of stores over time, so if you’re going to accelerate it (inaudible) trading years of growth and I’m just trying to understand why you want to accelerate the growth now.

The reality is that our potential has expanded dramatically. That’s really the bottom line and indeed we believe ultimately in North America, Japan and East Asia, excluding US department store locations, we can drive our store count to well north of 800. So first the category has grown dramatically which qualifies many more locations for growth. Second, our productivity within existing stores and new stores in new markets have demonstrated the capacity for Coach well beyond what we ever dreamt could be the case and these are structural changes and we expect the appetite for accessories is going to continue unabated during the future.

And then I guess my second question would be, if I think I just want to clarify. You said the operating margin impact of factory was a positive 50 basis points; was that to operating margin not SG&A?

Correct.

Through to the op income line, Dana, it was as you would expect it had a dampening impact on gross margin rate itself, but because of the leverage that you get from that channel, more than offset that and drove 50 (inaudible) to op income.

Great. Thanks so much.

Thank you and our next question comes from David Schick of Stifel Nicolaus, your line is open.

Hey good morning.

Good morning David.

I was hoping you could talk more – you were talking about the Japan business being a little bigger than you and previously expected potentially. Maybe from Mike Devine, how should we expect the operating margin of Japan to play out over multiple years as we up the size of how big that might get?

David, it’s all good news let me tell you because as you I’m sure you are well aware, it’s our highest margin channel because of the premium that we’re able to get in Japan. We get good economics particularly these regional stores that we’re opening. These are going to largely be in department stores where we’re very much welcomed by the department store partners and the economics that we’re receiving in these regional marketplaces are very, very good. So it will help us to drive SG&A leverage through the centralized functions that occur in Japan and produce great global contributions on their own right. So over time it’s going to be a nice contributor to that continued op income expansion that I talked about earlier on the call.

Okay. With the mix shift affecting the gross margin rate of change here in the States, is there a point where we should see that inflection in Japan take over to a greater degree on the gross margin line in aggregate?

Again as I talked about in this rarified air of gross margin rate approaching 80% it’s really hard to call in quarter to quarter. Channel mix might push it one way or the other, but it’s really all for us about the operating income line which is what’s most important to drive over all profitability and the growth in Japan and in factory channel will both contribute to operating margin leverages which is the good news.

Fair enough. Thank you.

Thank you, and our next question comes from Neely Tamminga from Piper Jaffray, your line is open.

Great. Thanks and congratulations on 21 consecutive quarters of double digit growth.

Thank you.

Lew, can you talk a little bit about the Japan locations, I’m kind of dovetailing right here onto Dave’s question. Can you talk about the composition of where you are from department store to flagship and what the opportunities are in some of your expansion of those department store locations?

Sure. First, roughly speaking about 35% of our sales in Japan come from free standing retail stores and flagship stores and we expect that composition to largely remain the same over the next year or two. That is, 65% will come from major shops within department stores, particularly in the regional markets where we can achieve a center corp location on the first floor by the main entrance and many of these markets who are extremely pleased to have Coach join their ranks of brands. So we expect the mix to remain roughly the same. With regard to expansion, that’s a very key component of our strategy because our productivity has grown so dramatically over the last five years in Japan that many of our installations are substantially too small to carry the broad array of Coach and we are systematically identifying those locations that offer the greatest upside potential and are sequencing them in our expansion plan. I believe next year we are planning to expand roughly 10 or 12 locations.

Thanks Lew, good luck.

Thank you.

Thank you. Our next question comes from Uran Rombing from HSBC, your line is open

Hi, good morning, Anwan Hombula from HSBC Congratulations. I have just a question on market shares today. Where do they stand in the US and Japan? Given the good news on Japan have you updated your targets in terms of market share for the years to come?

Sure. First, in the United States we have about 24-25% on market share among our target consumers and this market share is negligibly up over the last few years because of the very strong category growth that we experienced in the United States. Last year in calendar 2005 we estimate that category growth approached 20% and in 2004 it approached 30%. So our market share hasn’t grown very dramatically in the United States, rather our opportunity has instead. With regard to Japan, our outlook continues to be to double our business in Japan over the next 4-5 years and we expect market share as a target which we’ve cited in the past to reach about 15% at that point. Today our market share is somewhere between 8-9%.

Okay, thank you. Just on the US, the difference between the comp growth at full price retail and factory, when do you expect actually the trends to reverse, i.e. full price retail having comps above the factory comps?

It’s a good question. To some extent it’s a marketplace driven to some extent, it’s something we can easily control and we expect comps to level off between factory and full price sometime in the second half of calendar 2007 or the beginning of 2008. What we are experiencing is catch up in the factory channel. We’re a few years behind where we are in the full price channel in that we enjoyed incredible growth for a number of years in the full price channel while we were only experiencing single digit growth in factory. Now that we put some focus against the factory channel in terms of merchandising or offering improved planning and greater focus overall, we’re now enjoying the benefits of that growth that we had enjoyed a few years ago in full price. So we expect it to level off probably in about 18 months.

Okay, thank you very much.

Thank you. Our next question comes from Christine Chen from Pacific Growth Equities, your line is open.

Hi, thank you. Congratulations on another fabulous quarter.

Thank you.

I wanted to ask about the jewelry business that you’ve had in stores for a little while now, how is it doing and is there a plan to grow that as a percent of the product mix?

Well first, we really don’t have a jewelry business. We sell some signature cuffs right now, which a lot of consumers do appreciate, but we do intend to develop a capsule jewelry group and we’re actively developing that group today and are looking to introduce jewelry into our full price business and on the internet sometime in Q3, perhaps we’ll introduce some items if we’re ready by the holiday season. We think it’s going to have an impact on UPTs, a great add on capabilities. These are proprietary jewelry items which we’re developing both in the area of charms as well as bracelets, earrings, necklaces.

Okay. That’s what I was referring to. The cuff bracelets which I think of as jewelry. Thank you.

You’re welcome.

Thank you and our next question comes from John Rilow from Wachovia Securities, your line is open.

Hey guys nice quarter. My question is similar to the one that was just asked on your success in shoes and some other categories. You know, it does sound like you’re expanding your product offering. Outside of jewelry, I guess there’s one other big category that you’re absent from at this point. Just wanted you to comment on your ability to perhaps continue to expand and to get into some of these newer categories?

Would you give us a glimpse, what is that big category that we’re not yet in?

Well, the fragrance category.

Ah. I thought you might have had that in mind. We’re working on that. It’s a little early to announce anything but I think you can expect that we will be in the fragrance business within the foreseeable future.

Okay. So kind of looking a shoes, fragrance, jewelry, does that keep you busy for a little while or can we expect you know other things over the next year, or couple of years to kind of (inaudible) stores as well.

Well, first, we’re very busy innovating our handbags and accessories. Key to our success continues to be our ability to anticipate consumer preferences and to evolve our product offering and we think we’ve been pretty successful there as measured by any metric that one might look at. So our focus long-term will continue to be primarily on accessories, but I would be remiss if I didn’t mention that we have a great sun wear business and you might want to stop by one of our stores and look for a pair for yourself, or a friend.

Okay, very good, thank you.

You’re welcome.

We have time for one more questions.

Thank you. The last question comes from Brian Tunick from JP Morgan, sir your line is open.

Thank you. It’s Everyn Copland for Brian. Could you talk about in the Asia markets outside of Japan where you’re planning to grow square footage? What are your marketing plans and what kind of paddock mix do you plan to put in these locations? Also what kind of operating margin do you expect and also if I can add one more, what are your plans for intermediate to longer term for your over $800 million of cash. Thank you.

Well let me ask Mike to take the cash question.

Sure. As we talked about earlier on the call, we are using the cash to reinvest in the business in a number of different ways. Most importantly, I think is in the stepping up our distribution growth by taking up the new stores for next year into the foreseeable future. Continuing of that in expansions here and in Japan and also partnering with our wholesale partners where appropriate, to invest capital to open new Coach locations globally. Of course, we’re investing also in our infrastructure both here in New York and Jacksonville and investing in our computer systems to improve our profitability by operating more efficiently. But, the other thing, of course we have out for our cash spend is our share buy back program as I mentioned we have $136 million available to us under the current program and as opportunistic buyers we’ll see us in the markets again, that’s another significant way we envision giving cash back to our shareholders.

With regard to other markets both in Asia and elsewhere, our focus in the greater China area beyond Hong Kong and as I indicated opening up at least 10 locations on mainland China during the next 2-3 years, we’re also focusing on Taiwan, where we have a growing domestic business with their emerging middle class population. Korea is an important market for us where we’re focused both on the travel consumer and on the local consumer. And other parts of South East Asia, markets such as Singapore and Malaysia and Thailand offer small to medium size opportunities. We’re also going to be developing our presence in the middle east, where we expect to increase our locations from 2-10 next year by opening 8 additional locations. We do have 2 very successful locations in Saudi Arabia today.

Thank you. If you can comment a little bit on your marketing plans in these markets, that could be helpful. Thank you.

You’re welcome. Just in closing, outside the United States we’re going to be focusing on our 65th anniversary as a company. This fall season and next spring our Heritage in Authenticity as an American in New York brand plays really well in these markets and consistent to that we’re going to be introducing some updated Heritage products in the Legacy arena. We’ve introduced some precursors Silhouettes which are doing extremely well and you’ll be seeing in these markets including Japan, campaigns that are going to be focused on reminding people both of our heritage and our relevance for a grant for tomorrow.

Thank you everyone for joining us and as the market is now open, we’re going to conclude the conference call. Of course, Mike and I will be available all day for Q&A.

Thank you.

Thank you for calling in, you may all disconnect at this time. Thank you.