Andrea Shaw Resnick - Senior Vice President, Investor Relations Lew Frankfort - Chairman and Chief Executive Officer Michael F. Devine - Chief Financial Officer and Executive Vice President

Robert Drbul - Lehman Brothers Michelle Clark - Morgan Stanley Jeffrey Edelman - UBS Securities LLC Christine Chen - Needham & Company, LLC Erwan Rambourg - HSBC Kimberly Greenberger - Citigroup Dana Telsey - Telsey Advisory Group Tracy Kogan - Credit Suisse

Good morning and welcome to the Coach conference call. Today's call is being recorded. At this time for opening remarks and introduction, I would like to turn the call over to Senior Vice President of Investor Relations at Coach, Ms. Andrea Shaw Resnick. You may begin.

Thank you and good morning. 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 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 10K for a complete list of these risk factors. Also, please note that historical growth trends may not be indicative of future growth. We present 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 future estimates at any time. Now let me outline the speakers and topics for this conference call. Lew Frankfort will provide an overall summary of our third fiscal quarter 2008 results and will also discuss our strategies going forward. Mike Devine will continue with details on financial and operational highlights for the quarter as well as our outlook for the fourth fiscal quarter of 2008. Following that, we will hold a question-and-answer session that will end by 9:30 a.m. I'd now like to introduce Lew Frankfort, Coach's Chairman and CEO.

Thanks, Andrea, and welcome everyone. We've announced strong top-line and bottom-line growth of 19% respectively for the quarter just completed, in line with our expectations. We were pleased with our performance, especially in light of the worsening retail climate in the U.S. We also continue to be pleased with the strength of new stores, which are still coming online well ahead of expectations. Overall, Coach's quarterly performance reflected the strength of the Coach franchise and the continued outperformance of the U.S. handbag and accessory category as compared to overall retail sales. For the fourth quarter of the fiscal year ending in June we are projecting sales of $780 million and EPS of $0.50, both up 20% from year ago levels, taking the full year to about $3.18 billion with EPS of $2.06, each increasing 22%. It's worth mentioning that this EPS guidance has been in place throughout the fiscal year. Given the continued uncertainties in the economic backdrop, we have decided to wait until the end of our fourth quarter to provide specific guidance for the next fiscal year. At the same time, it's important to underscore the confidence we have in our ability to continue to drive significant top and bottom line growth through both distribution and productivity gains. In terms of distribution, given the compelling returns we are continuing to generate we will execute our existing distribution plans in North America, including the opening of 40 new retail stores in the coming year. Regarding productivity, our confidence stems first and foremost from our product, coupled with 1) the overall strength of the Coach proposition underscored by our key business and brand equities, 2) our broad and loyal consumer franchise, and 3) our innovative and consumer-centric nature. While I will get into further detail about current conditions and the outlook for the category in our business shortly, I first want to take the time to review our quarter. Some highlights of our third fiscal quarter were first, earnings per share rose 19% to $0.46 as compared to $0.39 in the prior year while net income rose to $162 million from $147 million. Second, net sales totaled $745 million versus $625 million a year ago, a gain of 19%. Third, direct-to-consumer sales rose 20% to $578 million from $481 million in the prior year. Fourth, North American same-store sales for the quarter rose 9%. Finally, sales in Japan rose 12% in constant currency and 25% in dollars. During the quarter, Coach opened five North American retail stores, including one new market for Coach - Macon, Georgia. We also opened two factory stores during the third quarter and expanded another. At the end of the period, there were 287 full price and 101 factory stores in operation in North America. In Japan, two new department store locations were opened while two retail stores were closed. Also, five locations were expanded. At quarter end, there were 147 total locations in Japan, with 21 full price stores including 8 flagships - 106 shopin-shops, 15 factory stores, and 5 distributor-operated locations. Indirect sales increased 15% to $166 million from $144 million in the same period last year. During the quarter, POS sales at U.S. department stores grew at 5%, while international POS sales grew by more than 25%. During the same quarter, we estimate that the premium U.S. handbag and accessory category grew between 5% and 10%. At the same time, Coach's bag sales rose 18% across all channels in North America. As mentioned, we were pleased with our overall performance in North America this quarter against very difficult comparisons across all channels. Our total revenues in North America were up 15% with our directly operated stores generating a 20% gain driven by both distribution and an overall high single-digit comp. We would note that in full price stores, our weak traffic patterns from the second quarter continued while conversion and average transaction size rose. In factory, we continued to see increases across all three metrics. As noted in our press release, beginning this quarter we're only providing aggregated comparable store sales for our North American retail and factory stores. While less detailed, this measure fully reflects our brand's retail performance in North America while still providing a consistent metric to gauge our results against prior periods and other luxury retailers. By aggregating comps, we're aligning the way we measure performance with the way we manage our Retail business. This will also provide the operational flexibility to respond to changes in market dynamics and run our business in the best long-term interests of our shareholders. Results in our full price businesses across channels continued to be driven by the monthly flow of new product. Our U.S. factory store business remained very strong throughout this quarter given the vibrancy of the Coach brand, the strength of our proposition, and continued overall sales growth in premium factory malls. In addition, our made-for-factory product continues to resonate with this dedicated consumer. I also want to highlight another excellent quarter for Coach women's footwear. Our business in department stores, where we are now sold through about 800 locations, rose about 24% at POS for the quarter. We were also very pleased with the performance at Coach Japan, where sales rose 12% in yen and 25% in dollars. Growth in Japan was fueled primarily by distribution through both new stores and expansions as our market share further expanded against a continued weak category backdrop. Mike Devine will get into more detail on our financials a bit later. Across all businesses, bags and women's accessories continued to drive our business results as the look of our assortment continues to evolve to reflect changing consumer preferences. Consumers continued to embrace our new and innovative product this spring. As part of our seasonal transition, we introduced our evolved Hamptons Collection in January, featuring the Madeline Tote. Offered in multiple sizes, this new silhouette performed very well, particularly in bold colors. In February we launched our new Heritage Strip Collection, a group of coated canvas totes and bags, and added an updated group of Signature Stripe bags and accessories later that month. In March we introduced another silhouette, the Francine Satchel, the focus of our spring advertising campaign. We were particularly pleased with the success of this $798 bag, which was available in all stores. In fact, it's worth mentioning that our over $400 handbag offerings continued to grow in importance, representing 22% of handbag sales in the quarter versus 13% last year. And at the beginning of April we brought back the popular Soho Collection in softer, more feminine styles. Later this week we will be introducing our group of pleated Ergo bags and accessories, which will be our focus for Mother's Day. In Japan, we've been conducting a pre-sale of pleated Ergo in the Millennium Department Store group and that's seen remarkable consumer response to date, so we're very optimistic about the importance of this group. Also on tap for Q4 are a new version of our popular Patchwork, a casual wash cotton tonal Signature Collection in an elegant floral appliquéd group of our Signature Stripe bags. I also wanted to briefly touch on the performance of our new retail stores, which has been well ahead of our internal projections. For a number of quarters we talked about the strength that we've seen in new store opening volume. This trend has continued despite the economic backdrop, and our 25 stores opened through January are running about 25% ahead of pro formas, with an average first year annual volume of $2.3 million. We recognize that in a period of weak consumer spending, it is especially important to provide a level of newness that will quite literally wow the consumer, compelling her to purchase. We touched on some of our upcoming initiatives regarding our product, our stores and our merchandising in previous calls and conference webcasts this spring, and as we move to fiscal '09, these initiatives will become increasingly evident. First and most importantly, we will be focusing on our product, the cornerstone of our brand. We're striving to compress multiple years of innovation into FY '09 to create a particularly compelling offering to further inspire an otherwise reticent consumer to spend. Starting with our fall collections, including Bleecker, Hamptons, Legacy and the new Zoe handbag group, you will notice a shift in attitude reflecting a more sophisticated design aesthetic, including softer, drapier silhouettes, lighter-weight leathers, and new finishes such as patent, glazed and metallic - and minimal hardware in some collections. We're particularly enthusiastic about the launch of Madison, a new, comprehensive lifestyle platform this October. The design of this collection is distinctively Coach, with a pretty, more feminine and sophisticated appeal. This collection will include a broad array of lightweight handbag silhouettes, wallets and accessories crafted in soft, rich, finished leathers. As part of Madison, we will also be introducing CC, a contemporary, abstract take on our logo, providing an entirely new platform for Coach. This graph design lends the product a fresh, modern allure. Madison's design details include chic pleating, a new horse-and-carriage iconic plaque, and handbag charms which adorn most styles. Also unique to this lightweight collection, several of the handbag styles are convertible and can be worn over the shoulder or carried in hand, meeting the needs of the functional fashion consumer. Second, you will also notice a number of initiatives targeting our in-store experience. They include new store formats such as Gallery, which is essentially a larger format Coach store targeted for the best and most strategic mall locations in the country. We're currently planning to pilot the Gallery format in three upscale malls beginning with Short Hills, New Jersey in June. Gallery will create more room to showcase the entire world of Coach, including our broad assortment of handbag collections and at the same time allow for flexibility within the store for new growth opportunities, such as fragrance, scarves, men's, small leather goods and jewelry, all against an elevated residential backdrop like our legacy store on Bleecker Street. Third, we will also be implementing new merchandising strategies. And most important, we are reducing the density of our handbag assortment by about 15% to 20%. This will enable us to be more directive, offering a stronger point of view in about 40 flagship locations. We will also be introducing a feature table concept, as used in our Bleecker Street store, where we showcase the product in a less structured, approachable manner. You will also notice more presentations by color, which lends a different point of view to our assortment. And finally, we're incorporating a range of additional decorative elements to further create a residential feel, including elevated artwork, plants, mannequins and so forth. And finally, we have modified our tiered distribution strategy in order to enhance the cachet of our flagships. We have selected about 40 of our current 75 flagship locations which will be further elevated through limited edition offerings and pinnacle lifestyle product. They will also receive the enhanced merchandising fixtures and decorative elements that I just mentioned. The remaining stores will then fall into the Fashion segment. This re-tiering will be in place by July, and many of the enhancements discussed earlier will also be rolled out to these Fashion stores as well. Clearly, we continue to believe that our opportunities, both in North America and internationally, remain abundant. For perspective, we estimate the addressable handbag and accessory market in North America reached over $8 billion in calendar 2007 and is continuing to demonstrate growth despite the weakening economy. Thus, with the vibrancy of the Coach brand and the market expanding, the potential for Coach remains significant. As most of you know, we have two primary sales drivers - first is distribution as we expand our global network of store locations with an emphasis on North America, Japan and Greater China, and second is productivity, which we drive across all geographies through the introduction of innovative and relevant product in a compelling store environment. To this end we have been implementing four key strategies that focus on sustaining growth within our global framework. Clearly, our largest opportunity during our planning horizon continues to be in North America. First, we're building market share in the growing North American women's accessories market. As I already described, we're implementing a number of initiatives to accelerate the level of newness, elevate our offering, and enhance the instore experience. These plans will enable us to continue to strengthen our leadership position in the market. Our second strategy is the continued growth in North American retail. As you know, given the compelling returns we're generating, we plan to add about 40 retail stores in North America in each of the next several years, including next year, FY '09. We will also continue to relocate and expand stores where appropriate. Based on the performance of our new stores and the large number of new consumers we're attracting to the franchise, we still believe the North American total can easily support about 500 retail stores, including up to 20 in Canada. And through the multi-store portfolio deals we are making with developers, we already have virtually all locations confirmed for next year. And third, outside the U.S. we're continuing to increase market share with the Japanese consumer by driving growth in Japan primarily by opening new retail locations and by expanding existing ones. In FY '09 and in each of the next several years, we plan to add about 10 net new locations in Japan. And as has been our practice, we will continue to expand our most productive locations. Our fourth strategy is to raise brand awareness in emerging markets to build the foundation for substantial sales in the future, specifically Greater China, Korea and other such geographies are increasing in importance as the category's growing rapidly and Coach is taking hold. In FY '08, we're on target to open through distributors about 30 net new locations in total, including 8 in Greater China. A few highlights of our upcoming international openings this spring are with mentioning. First, we're very excited about our global flagship store in Queen's Road Central in Hong Kong scheduled to open during late May. We're especially pleased about it because of the rapid growth we're experiencing in East Asia and Greater China and believe that this will raise awareness and enhance our brand throughout Greater China. Clearly, Greater China has the potential during the next few years to become the third major market for Coach following North America and Japan. While we have no Investor Relations activities planned for the opening, please let Andrea know if you're going to be in the region in late May so that you can join us at this occasion. In addition, we're also enthusiastic about two new international markets we're entering this quarter - Greece, with two stores in Athens, and Russia, where we're opening our first location. As we mentioned last quarter, we expect to open at least 15 Coach locations in Russia over a five-year period, initially concentrating development in Moscow and St. Petersburg. In summary, we're well positioned to continue to capitalize on the many opportunities available to us and have the strategies in place to realize our long-term growth plans irrespective of the near-term environment. At this time I will turn it over to Mike Devine, our CFO, for further detail on our financials. Mike? Michael F. Devine: Thank you, Lew. Lew has just taken you through the highlights and strategies. Let me now take you through some of the important financial details of our third quarter results. As mentioned, our quarterly revenues increased 19%, with direct to consumer up 20% and indirect up 15%. Earnings per share for the quarter increased 19% to $0.46 as compared to $0.39 in the year ago period as net income rose to $162 million from $147 million. Our operating income rose 13% to $257 million in the third quarter versus $227 million in the same period last year. Operating margin in the quarter was 34.5% compared to 36.2% in the year ago quarter. The strengthening of the yen impacted all lines of our P&L given the consolidation of CJI's income statement. Adjusting for the currency impact this quarter, we would have seen a 16% increase in sales 3 points lower than reported - but a 17% increase in operating income, 4 points higher than reported, as our operating margin would have been essentially even year to year. In the third quarter gross profit rose 15% to $558 million, up from $486 million a year ago. Gross margin was 75% flat versus 77.8% last year, impacted by the unanticipated sharp rise in the yen versus the dollar along with the expected effect of the promotional environment and channel mix. In fact, this dramatic and unanticipated move in the yen reduced our gross margin rate by over 190 basis points. SG&A expenses as a percentage of sales improved 100 basis points from prior year levels during the quarter and represented 40.5% of sales versus 41.5% as we achieve leverage in all three of our spending categories. First, we saw leverage on what we like to refer to as our semi-fixed corporate functions. Second, CJI provided leverage to both its own P&L and the corporate income statement. And finally, given the high single-digit comp rate, our North American Retail businesses were also able to provide leverage, both to its own business unit P&L and to the consolidated corporate P&L as well. Moving to the balance sheet, inventory levels at quarter end were $320 million, 28% above prior year levels. Adjusting for the impact of the stronger yen, inventories would have been up 22%. Also, looking at inventories on a twoyear basis, to smooth last year's Q3 shipment timing-related low levels our two-year inventory CAGR in actually 4 points below our sales growth. Most importantly, at quarter end our inventories were clean, allowing us to move forward in good shape for spring. It should be noted that this inventory level allows us to support 54 net new U.S. stores, 11 net new locations in Japan, and substantially increase sales levels. I'll also note accounts receivable balances rose 19%, in line with sales. Cash and short-term investments stood at $616 million as compared with $936 million a year ago despite the repurchase of nearly $1.2 billion worth of stock in the interim 12 months. Net cash from operating activities in the third quarter was $85 million compared to $97 million last year during Q3, negatively impacted by a $62 million increase in cash tax payments during the quarter versus last year. On a year-to-date basis through 3Q, net cash from operating activities was $600 million, up $78 million from 3Q year-to-date of '07. Free cash flow in the third quarter was an inflow of $52 million versus $73 million in the same period last year, also impacted by the large tax payment and Capex spending, primarily for new stores and renovation, which was $33 million versus $25 million in the same quarter a year ago. Year-to-date free cash flow at the end of the third quarter was $56 million above last year's levels. As noted in the press release, during the third quarter we repurchased and retired 11.3 million shares of our common stock at an average price of $28.85, spending a total of $327 million. At the end of the period, $333 million was available under the company's current repurchase authorization, which we put in place in November. Now I'd like to provide you with some of our updated goals for fiscal 2008. For the fourth quarter, we're targeting net sales of about $780 million, representing a year-on-year increase of about 20%. While we expect to continue to leverage our expenses, this improvement will not fully offset the projected contraction in gross margin rate, which we would expect to land at similar levels to Q3 due to the continuing promotional environment in the U.S., notably in factory, and the negative impact of channel mix, yielding an operating margin of about 35% and earnings per share of $0.50, an increase of 20%. Therefore, our goals for the full fiscal year are net sales growth of about 22% to about $3.18 billion, and we're targeting an operating margin of nearly 37%, an operating income dollar growth of about 18% above FY '07. Interest income of about $44 million will add to pre-tax income while net income will continue to be somewhat offset by a higher tax rate this year versus last at about 39% due to the fact that incremental taxable income is being taxed at higher rates. Including these factors, we expect to generate EPS growth of 22%, which will produce earnings per share of $2.06, consistent with our prior guidance. For FY '08, we are still planning to spend about $200 million on Capex, primarily for new stores and expansions, both in North America and internationally. While these are our goals, our actual results may vary from these targets based upon a number of factors, including those discussed under the Business of Coach, Inc. 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 and gifts. Thank you all for your attention, and now Lew, Andrea and I would be happy to take some questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Bob Drbul. You may ask your question. Please state your company name. Robert Drbul - Lehman Brothers: Lehman Brothers. Good morning.

Morning.

Good morning. Robert Drbul - Lehman Brothers: Lew, I guess I have two questions for you. I understand not giving FY '09 guidance at this point, but I guess could you maybe give us a little bit of color on your expectations in terms of double-digit top line, et cetera? And the second question that I have, I'm just wondering if you could elaborate on your decision to essentially decrease the transparency of the business by not providing your normal comp breakdown which we've all found pretty helpful over the years.

Sure. Well, first, as I said just a few minutes ago, we're confident that we're going to continue in FY '09 and beyond to achieve significant top and bottom line growth. The reason we're not providing guidance at this time is because we think it would require a level of false precision. Our distribution levers are in place. We're going to be continuing to open new stores as we indicated and expand others. In addition, we also expect to achieve productivity gains around the world, including here in the United States. So we do look forward to a good year with double-digit gains on the top and bottom line. In terms of our decision to provide consolidated comps, it's really a result of our internal thinking that we need to align the way in which we run our business with the way in which we report it. As you know, we have a diversified business model. It's multi-channel and international. We're not solely dependent on any one channel and geography, and our growth is driven by both productivity and, as I said before, distribution gains. In North America, our Retail business consists of one brand with two platforms - full price and factory. And our franchise, as you know, is built on one set of brand equities that actually transcend an individual store concept of venue. And because of this, when we think about our business we first start with our retail stores. And as you know, we do not go on sale in our retail stores. And want to be able to leverage the opportunities that our dual-platform provides us, so during challenging times, focusing on one metric enables us to maximize brand building activities in our lead, full price channel while using promotional activity and other marketing levers in factory to drive very profitable overall growth. And at the end of the day, you need to judge us on our overall performance and on the strength of the brand, and this is the way we look at it. Robert Drbul - Lehman Brothers: Okay. Thank you very much, Lew. Good luck.

Thank you.

Thank you. Our next question comes from Michelle Clark. You may ask your question, and please state your company name. Michelle Clark - Morgan Stanley: Morgan Stanley. Thanks and good morning, everyone.

Good morning. Michelle Clark - Morgan Stanley: Two questions for Mike Devine. Mike, the first is on the gross margin, the hit to gross margin, if you can detail the basis point impact 1), from promotional activity, and 2) from the channel mix shift. And then the second question relates to inventories. Your inventory per square foot rose close to 24% year-over-year. Can you just detail for me one more time the impact of the timing shift that you discussed on the call? Thank you. Michael F. Devine: Sure. So let me go to gross margin first, Michelle. Let me say that other than the unanticipated movement of the yen, generally we're pleased with where gross margin landed for the quarter. In other words, it basically did hit the expectation in the guidance that we had. In fact, we slightly exceeded our expectation. And I do just want to point out initially that the supply chain, we really feel, has done a terrific job. Our design teams, merchandising, sourcing, et cetera, have continued to drive organic gross margin rate improvement. In fact, our indirect channels actually were up modestly during the quarter from the year ago period. So there are a number of good things going on and happening within the gross margin line. Unfortunately, those organic improvements were not enough to offset both the channel mix and promotional activities. So the two of those combined - channel mix and promotional - offset by some sourcing good news came to about a 90 basis point decline year-over-year. And you may recall on our last call we guided down about 100 to 110, so ever so slightly better than that. And then unfortunately, with the dramatic change in the yen - the yen hasn't moved this much in a single quarter since 1999, and we didn't see it coming - that whacked us almost 200 basis points through the gross margin rate line. So that's kind of the gross margin story. In terms of the inventories, the yen got us there as well, Michelle, as, of course, in Japan we hold our inventories in yen and then when we consolidate our financial statements, it's a pure translation back. And that accounted for about 6 points of growth on the inventory year-over-year. In other words, if we went back and restated our inventory at last year's FX rate, Q3 ending FX rate, the growth would have declined about 600 basis points. And then last year we had a shipment timing issue where we were very light on receipts right at the end of March and reported a bit of an artificially low ending balance at the end of Q3. So if you actually went back and smoothed it over two years, what we would have seen is an inventory CAGR building off of '06 to Q3 '08 of just over 20%. During that time, our sales CAGR has approached 25, so we still feel very good. And most importantly, as I said in the prepared remarks, what really matters is our inventories are clean and we're in good shape going into the spring, and we think the compares at June will fall back in line as we don't have so much noise. Michelle Clark - Morgan Stanley: Great. Thanks and best of luck in the fourth quarter.

Thank you.

Thank you.

Thank you. Our next question comes from Jeff Edelman. You may ask your question. Please state your company name. Jeffrey Edelman - UBS Securities LLC: Thank you. Good morning. Lew, my first question is for you. If we think about the initiatives you mentioned - product, store environment, a more elevated and sophisticated look - are we seeing somewhat of a shift in strategy and maybe that's why we're not - that might also be contributing to the decision [in comp] since you're apparently maybe moving your retail stores further upscale and then looking for the big volume growth to come from the factory stores with a different mix of merchandise?

It's not the case, Jeff. I mean, even though my remarks focused on innovative newness, you're going to see actually a greater proportion of our mix this fall and holiday at sharper price points, both in bags and accessories. And we believe that critical balance is essential, and we're not looking to focus in a distorted way on any particular consumer group. What is occurring in reality is that women, whether they're aspiration consumers who are trading up into Coach or fashion consumers, their tastes are evolving rapidly. And during challenging economic times, we need to have a particularly compelling offering for her to purchase, and that's really the intention. Further, in terms of America - and we can use Short Hills as an example of a very upscale mall in North America where we compete directly with the European luxury brands - we do need to showcase our store in a manner that is appropriate for the consumer who shops in Short Hills. Conversely, in a more mainstream mall, you will continue to see a prototype yet more advanced but that is more in keeping with the shopper in that mall. So no change in strategy, no de-focus away from full price. Jeffrey Edelman - UBS Securities LLC: Okay, just a short follow before I go to Mike. The sharper price point, is this dialing into and designing into a sharper price point or is this reflecting a lower gross margin?

It's designing into a sharper price point. Jeffrey Edelman - UBS Securities LLC: Okay, great. Thanks. And Mike, the FX impact, I understand how it hits the inventory given the fact that the profit sits on the CJI balance sheet. Is that lost profit or does this come around and help you further down the road? Could you sort of give us a sense how this plays out? Michael F. Devine: Sure. Good question, Jeff. The piece that really whipsawed us this quarter is really driven by the FX, and so the FX rate - the yen, in other words - will have to weaken again to have the opposite impact on the gross margin impact. So just to give you a sense, we had anticipated and I think the banks were calling for yen to be at about 112 for the balance of the calendar year when we gave our projections on our last call and it closed the quarter at 99.3, so a 13% swing. And so what happens there is that we need to mark the yen inventory up based on the stronger yen. And that inventory in Japan includes our wholesale [ship-in] margin, and as a result that margin is left on the balance sheet and doesn't come back to the P&L. So the FX would have to move to have that come back to us. What I will say, though, is it is creating some good news for us in the coming months and quarters in that the product that CJI is buying from Coach New York now they're paying for with a much stronger yen. And as that product sells through, it will have a positive impact on our gross margin rates going forward. Jeffrey Edelman - UBS Securities LLC: Great. Thank you.

Thank you. Our next question comes from Christine Chen. You may ask you question, and please state your company name. Christine Chen - Needham & Company, LLC: Needham & Company. Thank you very much. Good morning.

Good morning, Christine.

Good morning, Christine. Christine Chen - Needham & Company, LLC: I had two questions. I'm wondering if you've seen any patterns in performance across your different store types flagship, fashion and core - as well as geography? And then the second question is, as you continue to grow your own store base, is there a thought to maybe cut back on the number of doors in the department stores? Thank you.

First, Christine, our performance across store type has not changed, the pattern continues. Where we continue to see fluctuations is geographically. So in North America, consistent with the holiday quarter, our business in California and Southern Florida has been very soft. Conversely, our business in the Midwest and Texas, as examples, continue very strong. With regard to department stores, we actually several years ago rationalized the number of locations when we went down from about 1,500 locations to about 900 today. And we're actually opening new locations now selectively, partnering with the leadership of Macy's in particular, to do so. Christine Chen - Needham & Company, LLC: Okay. Thank you and good luck for the first quarter.

Thank you.

Thank you. Our next question comes from Erwan Rambourg. You may ask question, and please state your company name. Erwan Rambourg - HSBC: Hi. It's HSBC. Good morning.

Good morning. Erwan Rambourg - HSBC: Just three questions, if I can. Several of the European countries we cover have mentioned that traffic in the U.S. was okay in January and February but was quite severely down in March. Is this an evolution that you've seen in the quarter in the U.S. concerning your businesses? Then maybe I'll ask the other two. The second question is on Japan. We've seen a run rate of 16%, 17%. You're still growing significantly at a faster pace than the European players at 12%, however going from 17% to 12%, is this linked to a sudden sluggish of the Japanese market or can it be linked to the fact that some of the European brands are now addressing a sort of entry price point in that market? And then finally looking at combined comps in the U.S., you've had 7% in Q2, where I think you spoke of an emotional recession. Now in Q3 you have a 9% combined comp with what some people consider as being a real recession. How do you think about the macro resistance of the brand, and do you see the macro environment worsening or is it reasonable to factor in sort of mid to high single-digit combined comps going forward? Thank you.

Obviously I'll take them one at a time. Concerning traffic in the United States for Coach was consistent throughout the quarter. We didn't see a fall off during March. And again, year-on-year traffic in same stores has been weak; our overall traffic, because we've opened up many new locations, obviously has been higher than prior years. In terms of the 12% growth in Japan versus 17%, that's within noise level. We're aware our business is very strong in Japan. We see no signs of slowdown whatsoever for Coach. We actually welcome the entry price points from the European luxury brands that are closer to ours because we're hopeful it's going to stimulate more interest in the category, so the overall category will begin to grow. In terms of the macro environment, it's a very tough call. Clearly, the environment has weakened. Consumers are more pessimistic. And our response to that is to be more nimble and to compress several years of innovation into one year and to utilize our factory channel, which is a promotional channel, to help us drive very profitable sales until the economy stabilizes. We think it's going to be a rough go throughout the entire calendar year on a macro basis. Erwan Rambourg - HSBC: Right. Okay. And just going back to Japan, can you give us an idea of where your market share stands on a sort of calendar '07 basis if you have that?

It's about 12%. Erwan Rambourg - HSBC: Okay. Thank you very much.

You're welcome.

Our next question comes from Kimberly Greenberger. You may ask your question. Please state your company name. Kimberly Greenberger - Citigroup: Great. Thank you. Good morning. Citigroup.

Good morning, Kimberly. Michael F. Devine: Kimberly. Kimberly Greenberger - Citigroup: Lew, I was hoping if not providing quantitative measures maybe you could just qualitatively address the improvement in your total consolidated comp. It was plus 7% in the second quarter. Here you're looking at plus 9%. Can we assume that both full price and factory saw improvement sequentially?

Kimberly, I wish we could do that but we made a decision that we're only going to provide consolidated comps and at the same time provide some texture. And as I indicated before, traffic in full price continued weak while conversion and average ticket rose. The factory business continued very strong. Kimberly Greenberger - Citigroup: Okay. Lew, there was something you mentioned in the press release about striving to compress several years of product evolution into fiscal '09. I was wondering if you could talk to us about the opportunities with doing that and also are there any challenges with the way that your product development cycle works that you might see? Thanks.

Sure. First, the initiatives that we're talking about were actually conceived last spring and last summer, so we've been thinking now for more than a year that we wanted to compress several years of innovation within one year. And our supply chain from our design group through our merchants, our sourcing group, raw materials procurement group, and our operations and quality control people have been basically gearing up for a major change in the way in which our products are manufactured. And when you see our product in our stores - and I think you got a preview of some of the new collections when you visited here - you're going to find, as I said before, that they're softer, drapier, lots of new materials, and this has been in the works for a long time. So our supply chain management group has been able to do a remarkable job in meeting the requirements, and we're actually on track. We measure deliveries every month and we got a preview of what July and August looks like, and we've been assured the quality is consistent with Coach standards and second, that 99% of the product will be on time. Kimberly Greenberger - Citigroup: Terrific. Thanks, Lew, and good luck here.

Thank you.

Thank you. Our next question comes from Dana Telsey. You may ask your question. Please state your company name. Dana Telsey - Telsey Advisory Group: Good morning, everyone - TAG. Can you talk a little bit about the average ticket improvement in the quarter, provide some color on it. Is there an improvement in the core customer? Is there less trading down? And in regard to the promotional environment, I think last quarter some factory customers were incentivized to shop at full price. Did you see that at all this quarter? And just lastly, on the progress on the realignment of the product development organization that you mentioned last quarter, how is that moving along? Thank you.

Okay. I'll take them in order. Our average ticket rose modestly during the quarter. What we discussed during the holiday quarter remains largely the same although our handbag mix increased relative to the holiday quarter and even though it was lower than last year due to the arrival of jewelry primarily. So we haven't really seen any shift in consumers. With regard to our promotional activities focused on driving factory consumers into full price, that pilot was very successful. And we do know that our factory consumer loves the Coach brand, but she's a value shopper. She only wants to buy it on sale. Right now we're monitoring the performance of the factory consumer who purchased through one of our loyalty programs at full price to see whether we're able to attract her without a discount at full price. Our general view is that we will not be very successful, that she will need to be promoted to come to - our product will need to be promoted for her to come to full price. Our margins are so good that we're very comfortable with the profitability from those promotions, and we are actually conducting another loyalty event - I believe it's going to be next month - focused on the factory store consumer purchasing in full price. Dana Telsey - Telsey Advisory Group: Okay. Great. Thank you.

You're welcome.

Thank you. And our final question comes from Paul Lejuez. You may ask your question, and please state your company name. Tracy Kogan - Credit Suisse: Thanks. It's actually Tracy Kogan filling in for Paul from Credit Suisse. Two questions just to follow up on the last question about promotions. Do you expect to have to increase your level of promotions over the next couple of quarters? And then secondly, can you give us a sense of what you're expecting for Capex for next year and how that breaks out between new stores, remodels and IT? Thanks.

First, with regard to promotional activities, we don't think that's going to be necessary at all. We expect promotional activities to remain at this level or decline over the next few quarters. Michael F. Devine: In terms of Capex, Tracy, I think we'll hold that guidance along with our fully FY '09 guidance for our next call, but I would just say directionally we don't anticipate anything materially different. We're continuing our store expansion programs, investing in technology where it makes sense to drive earnings growth. So for the modelers out there, I would anticipate '09 being similar to '08. Tracy Kogan - Credit Suisse: Thank you. Good luck.

Thank you.

Thank you. It is now just after 9:30. The market is open, and we're going to conclude this conference call. We look forward to taking your questions throughout the day and this week. Thanks, everyone, for joining us.

Thanks and this does conclude the Coach earnings conference. We thank you for your participation.