Victor Luis - President of Coach Retail International Andrea Resnick - Senior Vice President of Investor Relations & Corporate Communications Lew Frankfort - Chairman and Chief Executive Officer Michael Devine - Chief Financial Officer, Chief Accounting Officer and Executive Vice President

Rick Patel - BofA Merrill Lynch Christine Chen - Needham & Company, LLC Robert Drbul - Barclays Capital Paul Lejuez - Nomura Securities Co. Ltd. David Schick Neely Tamminga - Piper Jaffray Companies Kimberly Greenberger - Morgan Stanley

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 Senior Vice President of Investor Relations and Corporate Communications at Coach, Ms. Andrea Shaw Resnick. You may begin.

Thank you. 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. Victor Luis, President, International Retail, will report on our Asia direct opportunity. 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 for a complete list of these risk factors. Also please note that historical growth trends may not be indicative of future growth. Now let me outline the speakers and topics for this conference call. Lew Frankfort will provide an overall summary of our third fiscal quarter 2011 results and will also discuss our strategies going forward. Victor Luis will speak to our Asian direct businesses, providing an update on China and other markets in the region. Mike Devine will continue with details on financial and operational results of the quarter. Following that, we will hold a question-and-answer session where we will be joined by Mike Tucci, President, North American Retail. We'll end the Q&A shortly before 9:30 a.m. Luke will then conclude with some brief summary comments. I'd now like to introduce Lew Frankfort, Coach's Chairman and CEO.

Thanks, Andrea, and welcome, everyone. As noted in our release this morning, we were very pleased with our quarterly results, including store sales and earnings growth and the continuation of excellent comparable store sales in our North American Retail businesses. Our performance clearly demonstrates the brands of vitality across channels, geographies and bodes well for the future. Further, the ability to generate these results in light of the tragic events and their aftermath in Japan speaks to the diversification of our business model and the strength of our brand proposition globally. Beyond the top line, we are also very pleased with our high levels of profitability and substantial cash generation. In addition, we make continued progress against our global business initiatives, including international expansion, men's and digital media. We experienced strong response to our new collection, and our pricing and assortment strategy continued to resonate with consumers worldwide. We're well situated to build upon our leadership position and continue to gain market share. Further, the announcement today of the increased dividend reflects our financial strength and our confidence in Coach's future. Before I review the quarter and provide an outlook for the category and our business, I would be remiss not to touch on the tragedy in Japan. Of course, we have been saddened by the devastation in Japan, but we're relieved to learn within days of the earthquake and tsunami that all Coach colleagues was accounted for and safe. When I visited Japan early April, I was impressed by the resiliency of the people and the progress made in restoring more normal conditions. And I was moved by the incredible spirit and tenacity of our own Coach Japan colleagues, who rallied together during a very difficult time. Moving on to some key highlights of our third fiscal quarter. First, earnings per share rose 23% to $0.62 compared with $0.50 in the prior year. Second, quarterly net sales totaled $951 million versus $831 million a year ago, an increase of 14%. Third, Direct-to-Consumer sales rose 15% to $832 million from $726 million in the prior year. Fourth, North American same-store sales for the quarter are robust, rising 10% from prior year, while total North American Direct-to-Consumer sales rose 16%. And fifth, sales in Japan were down 9% to prior year in constant currency and rose 1% in dollars. And finally, we continued to generate very strong sales growth and significant double-digit comps in China. During the quarter, and as part of our regular real estate review, we closed 3 North American Retail stores, while we opened 5 factory stores. Thus, at the end of the period, there were 344 full price and 134 factory stores in operation in North America. Moving to Japan. 4 locations were opened and 1 was closed. At quarter end, there were 174 total locations in Japan with 19 full price stores, including 8 flagships, 119 shop-in-shops, 29 factory stores and 7 distributor-operated travel retail locations. As noted in our release, 7 stores in the Sendai area remained closed due to damage at quarter end, with 3 reopened this month. And in China, we added 4 new locations all in the mainland and closed 1 store in Hong Kong. At the end of the quarter, there were 55 Coach locations in China, including 9 in Hong Kong, 2 in Macau and 44 locations on the mainland in 18 cities. As we've discussed previously, there are nearly 120 cities in China with a population of 1 million or more, and we are building a multichannel distribution model with a focus on the mainland to leverage this opportunity. Indirect sales increased 14% to $119 million from $105 million in the same period last year. This gain reflected significant growth in shipments and to international wholesale in U.S. department stores given positive POS sales trends in both businesses. Specifically, sales for the quarter at retail in international wholesale locations was strong, driven by new distribution, while sales at POS and U.S. department stores rose 4% for the quarter. We estimate that the addressable U.S. handbag and accessory category rose at a 5% to 10% rate in the third quarter, similar to the increase it experienced in calendar year 2010. At the same time, Coach's bag and accessories sales rose about 13% across all channels in North America during the most recent quarter. In our Direct businesses in North America, handbag and accessory sales rose 17%. We continue to estimate that the category will increase to $9 billion this year, surpassing its previous peak achieved 3 years ago. Separately, it's worth noting, our customers' outlook for the economy has been stable over the last few quarters, with a third of those surveyed still believing that the U.S. economy is improving. Their intention to purchase Coach remains high with over 2/3 of consumers surveyed noting they probably or definitely would purchase a Coach product in the next 12 months. Our total revenues in North America rose 16%, with our directly operated businesses up similarly, driven by 10.3% in same-store sales increases and new distribution. Fueling these overall store and comp results were similarly strong gains in both channels with significant gains in conversion from prior year and a modest growth in average transaction size, partially offset by a decline in traffic due to the calendar shift. We were particularly pleased with the improvement in conversion rates since it's a driver that we have the most control over in product and service. We have also been delighted by our traction on the Web notably the North American coach.com business. While we view this channel primarily as a marketing vehicle, traffic and sales at our site continue to grow at a double-digit pace during the third quarter, driven by our base business, as well as our efforts in social media where we now have over 1.8 million Facebook fans. Additionally, next month, we're looking forward to the launch of mobile commerce in North America, another digital platform for customers to engage with our brand. As noted in Japan, we posted a 1% increase in dollar, a decline of 9% in constant currency. It's worth noting that prior to the events of March 11, we were on track to deliver another quarter of slight growth in yen terms. Our market share further expanded against continued contraction in the category. Once again, I want to call out China, our fastest-growing business. During the quarter, our sales continued to rise rapidly from prior year, fueled by distribution growth and significant double-digit comps. Clearly, the Coach proposition is resonating with this consumer who is participating in this category, increasing numbers. Victor will talk more about our opportunity in China shortly. Across all Full Price businesses, our robust results reflect the strength of our offering. As always, we maintained a high level of product innovation and distinctive newness. Beginning on December 24, we transitioned to spring with the introduction of the Colette collection offered across multiple fabrications and silhouettes anchored by both our hobo and tote styles. This was followed by the relaunch of Poppy in February and the new Kristin collection in March. With its distinctive hardware and soft feminine styling, Kristin is an important collection for Coach and has been the feature of our spring ad campaign. This season's product was very well received, and both handbags and women's accessories achieved strong comps in the quarter with handbag penetration in our North American retail stores rising to 60% from 59% last year, driven by unit comp sales increases and a slight increase in average unit retails. Just this month, we introduced the collection of Natalie novelty store totes along with new colors and a Dream C print and Poppy. And last week, we launched Audrey, a modern tote story featuring perforated leather, op art and print concepts. Additionally, our lead collection for Mothers' Day is Madison offered in fresh colors and patterns. For June, we're introducing new leather and pattern colors at Kristin, as well as a strong new op art print. Our Kristin hobo continues to be the key item within the collection. In addition, this July, we will launch a new Chelsea collection and evolve Poppy with updated styles, patterns and prints. On the factory side, our strong results were fueled by a powerful combination of new product introductions with key styles offered at great prices. Additionally, our inventory investment strategy enabled us to capture sales upside throughout the quarter. Our product assortment was also supported by our in-store and direct marketing campaigns. I also wanted to spend a moment [Audio Gap] Which are located next to or nearby our most productive factory locations, are performing extremely well. We believe the strong consumer response we're experiencing reflects the strength of the Coach brand and the factory consumers' focus on value and function. It confirms our belief that there is a particularly large opportunity for Men's in our factory channel. In summary, we're excited with the continued progress we've made in improving our overall full price productivity. In addition, we're very pleased with the current sales trends in both our full price and factory channels and are well positioned on Mother's Day and the balance of the spring season. Our strategies continue to be focused on expansion opportunities both here in North America and increasingly, in international markets. In addition, as always, we are focused on improving performance in existing stores by increasing Coach's share of our consumers accessories wardrobe, while continuing to attract new customers into the franchise. I just discussed our Men's initiative, which we're confident will be a significant contributor to global growth in the seasons and years ahead. Moving on to distribution growth. As mentioned in previous earnings calls, we expect that our square footage globally and across all channels will increase about 10% this year, compared to 8% last year. Starting in North America, we will open 3 stores in the fourth quarter of fiscal 2011, bringing the total to 8 new North American retail stores for the year. In addition, we will open 9 new factory stores during the balance of the year, primarily on our Men's initiative, bringing the total to 14 dedicated men's factory stores and 8 traditional factory stores for the year. In total, we expect North American square footage growth of about 8% this year. I want to finally touch on Europe, a new region of expansion for Coach. To date, we have opened 7 boutiques and Printemps department stores in France. And through our JV with Hackett, we launched the brand with 4 shop-in-shops in Spain and 1 in Lisbon, with 1 more to go before year-end, all within El Corte Ingles. Last month, we opened our first retail store in the U.K. in the Westfield White City Mall and have been very pleased with its early results. Beyond the opportunities in the Coach concept and brand, as you know, we launched Reed Krakoff in September and a few boutiques in the U.S. and Japan, as well as through prestigious international specialty retailers, While still very early days, we are pleased that the product is appealing to the targeted pinnacle luxury consumer, and we were very pleased to announce the appointment of Valérie Herman as President and CEO, Reed Krakoff, who joined us just this month from YSL. Earlier this fiscal year, we announced the creation of a new international retail organization with 3 major Asian hubs: Japan, mainland China and other Asian markets. We also announced the addition of 3 senior executives who will enable Coach to capitalize on the significant growth opportunities that exist for the brand in the region. Key to this new organization was the promotion of Victor Luis to the newly created position of President, Coach Retail International, with a responsibility for all of Coach's Directly-owned businesses outside North America. I will now and the turn the call over to Victor. Victor?

Thanks, Lew. To put the opportunity in perspective, the premium bag and accessory market in Asia, including Japan, is nearly $12 billion today. And in contrast to the global market, which is about 85% women's and 15% men's, in Asia, Men's represents nearly 1/4 of the spend. Excluding Japan, the market is growing at a double-digit rate led by mainland China. In addition, Hong Kong, Korea and Southeast Asia are all expected to grow at more than 10% for the next several years, while Taiwan is projected to grow at a slightly slower pace. Overall, the region offers excellent potential where we can leverage our well-honed retail skills and international experience to drive the business, as we have done in Japan and are now doing in China. Coach is already among the top 5 brands in these markets with at least a mid-single digit share, and we have proven strategies in place to increase brand awareness and grow sales. In Japan, the overall consumer market has been challenging for some years, and the category has contracted. Our goal was and continues to be market share gains, and we have done this quite well in our core Women's business. As elsewhere, we're now also focusing on Men's where we've already seen early success. As Lew noted earlier, we do expect the continued impact from the tragedy over the next few months, primarily a function of reduced traffic as the infrastructure problems in the northern and eastern parts of the country remain, resulting in transportation and power issues. However, barring further significant aftershocks or worsening of the nuclear crisis, we expect our business to continue to show steady improvement. We expect to open 2 more stores in the fourth quarter for a total of 9 new Coach Japan locations, including 5 Men's stores for the year. In total, we expect the net square footage growth in Japan will increase by about 4% this year, similar to last year. Moving on to China, our largest geographic growth opportunity, where our sales are growing rapidly against a strong market backdrop. We will be adding 11 locations in the fourth quarter, 9 on the mainland and 2 in Hong Kong, taking us to 26 openings for the year and a total of 66 locations. As you know, we doubled sales in FY '10 to over $100 million and are now on track to generate sales of about $185 million this year, up from our estimates of $175 million shared on our last earnings call. We are targeting a 10% market share of what is projected to be over a $5 billion market or about $500 million in sales by FY '14, up from about a 5% share today. Driving this growth, we expect to add about 30 new locations per annum during our planning horizon, focused on the mainland and across a multichannel model, including flagship, stand-alone retail stores, shop-in-shops and department stores and factory stores. In addition, based on our conversion opportunity against already strong traffic trends as the consumer becomes increasingly qualified to purchase luxury accessories, we expect to continue to achieve double-digit comp rates over this planning horizon. In fact, our research indicates that the purchasing population is growing at nearly 20% annually, driven by the growth in the target segment, primarily through income gains and the increasing participation rate in the category itself. We would also note that in China, men participate heavily in the category both for self purchase and for gifting to other men and represent nearly half of the spend and up to 50% or more of our competitive set sales, yielding another opportunity for Coach. Further, as we grow awareness in China, we benefit globally from the growth in mainland China tourists as they visit and shop in key capitals around the world. In fact, we estimate that sales to mainland Chinese nationals represent as much as 25% of sales globally to our major competitors. Today, sales to Chinese nationals represents only 5% of Coach's global sales. Therefore, there is tremendous opportunity for us to take a larger share of a growing market where our proposition is clearly resonating and where building our distribution, team and awareness will lead to continued growth. As you may remember, China is the market where Coach enjoys its highest repurchase intent among existing consumers with over 90% of Coach shoppers expressing a positive intent to repurchase. In FY '12, we will make significant investments towards awareness building as we leverage a 70th anniversary campaign as a foundation to build on our positioning as the New York fashion brand grounded in heritage and history. This integrated campaign will have several key elements, including an international brand ambassador, Gwyneth Paltrow, who has proven relevancy in China and other international markets. Beyond our Directly-owned business in China, we have significant wholesale businesses throughout Asia, and Lew referred to the strong sales growth we're experiencing in this channel earlier Some months ago, we announced that we've signed an agreement to take control of our Domestic Retail businesses in Singapore and Malaysia, which, together, generate annual sales at retail of about $50 million. The agreement provides for a phase transition of the current Coach Retail businesses over the next year, beginning this July with Singapore. While the impact of the transition will be small, it is an important step towards controlling our future in Asia. We are especially excited about a new Singapore flagship on prestigious Orchard Road, which will be a directly-operated store opening in spring 2012. It will immediately raise brand awareness as Singapore is an important tourist gateway in Southeast Asia, serving the Indonesian and Indian shopper, while increasingly attracting mainland Chinese consumers as well. We also have significant and growing distributor-run businesses in Korea, the second largest market for premium leather goods after Japan and the region; and Taiwan. Together, they represent about $200 million at retail for Coach in FY '11, serving both the domestic and travel retail customer through about 80 locations, over 50 in Korea and 30 in Taiwan. Given our focus in the region during this fiscal year, of the nearly 40 targeted new international wholesale locations, more than 20 will be in Asia. Separately, it's important to note that our Asia distribution center and Asia shared services center are online, shipping globally and prepared to provide savings, while also serving as a back office backbone for Coach China, Hong Kong, Singapore, Malaysia and any future directly operated markets in the region. Simply put, it is ready to be scaled for leverage across the region. In summary, we are excited about the global opportunity for Coach, especially the emerging market potential given the rapid growth of the category and the foundation which we have begun to build in the key Asia region. At this time, I will turn it over to Mike Devine, our CFO, for further details on our financials. Mike?

Thank you, Victor. Lew and Victor have 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 rose 14% with Direct-to-Consumer, which represents over 3/4 of our business, up 15% and Indirect up 14%. Earnings per share for the quarter increased 23% to $0.62, as compared to $0.50 in the year-ago period, as net income rose to $186 million from $158 million. As noted in the press release, we estimate that the events in Japan impacted sales by approximately $20 million and earnings per share by about $0.025 during March and the third quarter. On a non-GAAP basis, our operating income totaled $280 million in the third quarter, up 12% from $249 million in the same period last year. Operating margin in the quarter was 29.4%, compared to 30% even in the year-ago period. In the third quarter, gross profit rose to $692 million from $616 million a year ago, and gross margin rate remained strong at 72.8%, compared with 74.1% a year ago, reflecting the impact of higher sourcing costs. Moving to expenses. We were pleased that we were able to gain 70 basis points of leverage in the quarter. Specifically, SG&A expenses as a percentage of sales, also on a non-GAAP basis, improved from prior year levels in the third quarter and represented 43.4% of sales versus 44.1%. Once again, our primary Direct businesses here in North America and in Japan provided leverage to the corporate P&L, more than offsetting the impact of our investment spending. We believe we're striking the right balance between driving future growth opportunities and operating efficiencies. As noted in our press release, we recorded certain one-time items during the third quarter, which resulted in a substantially lower tax rate of 26.5%. These included a favorable settlement of a multiyear tax return examination, which decreased Coach's provision for taxes by $16 million. In addition, the company made a $21 million contribution to the Coach Foundation and also contributed JPY 400 million or just under $5 million to the Japanese Red Cross. Together, these contributions totaled nearly $26 million pretax, impacting GAAP SG&A expenses by that amount and precisely offsetting the benefit of the tax settlement to net income and EPS. Moving on to the balance sheet. Inventories at quarter end were $391 million, up 28% from the end of last year's Q3, but up 9% on a two-year basis. Our current inventory support the strong underlying business trends and will allow us to maximize sales this spring. Generally, it's worth reminding everyone that we've been rightsizing our inventory this year, bringing it up to more appropriate levels to support our growth. Including new initiatives such as Men's, global square footage expansion, Reed Krakoff and our new distribution center in Asia. Cash and short-term investments totaled $886 million, as compared with $908 million a year ago despite repurchases of nearly $1.2 billion worth of Coach common stock in the interim 12 months. During the third quarter, we repurchased and retired 3.5 million shares of common stock at an average cost of $54.51 per share, spending a total of $192 million. At the end of the period, approximately $1.3 billion remained under our repurchase authorization. Net cash from operating activities in the third quarter was $227 million, compared to $205 million last year during Q3. Free cash flow in the third quarter was an inflow of $186 million versus $190 million in the same period last year due to higher net income, offset by working capital and fixed-asset expenditures. Our CapEx spending was $42 million versus $15 million in the same quarter a year ago. As we stated on our last 3 earnings call, based on our plans for the year, we expect that CapEx would be about $150 million, primarily for the opening of new stores across all geographies. Naturally, we were very pleased to report these strong financial results. And as Lew has said, we're well positioned for the remainder of the fiscal year. While we do not give specific guidance, as you know, I always think it's helpful for you modelers out there to keep a few things in mind when forecasting the finish of our year. First and most generally, we continue to target double-digit sales increases globally with double-digit earnings growth. And given the ongoing strength in our business, we now believe that we'll achieve high-single digit same-store sales growth in North America for the fourth quarter, even in the face of more difficult compares. Additionally, we expect the continuation of our positive POS trends in our Indirect businesses. As noted in our release, given current conditions and projections for Japan, we expect a similar impact in the full fourth quarter of about $20 million or 2% to total Coach sales and about $0.02 to $0.03 to earnings per share. However, as discussed on prior calls, our fourth quarter comparisons will be impacted by the timing of shipments in our Indirect businesses and the extra week in the prior year's fourth quarter. As you may recall, this extra week contributed $70 million of sales and $0.08 of EPS to last year's Q4. Second, we were excited that our top line sales growth drove higher levels of profitability in the first 9 months of the year. While our previous comments regarding gross margins still stand, our sales growth, coupled with controlled spending, will help offset both cost and channel mix pressures. Therefore, we're reiterating our previous guidance of a full year FY '11 operating margin at about last year's levels of about 31.5% on a 52-week basis, despite the quake-related shortfall in our very profitable Japan business. Third, our non-GAAP tax rate is likely to stay in the area achieved in the first 9 months for the balance of the year, as we further refine our international tax strategies. And fourth, I did want to update our share count guidance. We now believe that our fourth quarter average will be similar to 3Q at about $302 million on a fully diluted basis. Before we open it up for Q&A, I want to echo Lew's earliest words. This was another excellent quarter for Coach. Clearly, our results bode well for the future, and we're confident that we'll continue to deliver very strong sales and earnings gains for the foreseeable future. Thank you all for joining us on our conference call today. And now Lew, Victor, Mike Tucci, Andrea and I will take some questions, which will then be followed by a brief comment from Lew, who is, I'm sure you can tell, is suffering from a touch of laryngitis but is hanging in boldly. So now we'll open the floor up to questions. Thank you.

Thank you. [Operator Instructions] Our first question comes from Bob Drbul with Barclays Capital. Robert Drbul - Barclays Capital: I guess I'd like to ask the team a question about China, really [indiscernible] spent a lot of time on it. Can you size the opportunity longer term? Do you think it can be bigger than your North American business? And can you address any goals or your thinking around the profitability of that region in a near term, but even longer term?

Why don't I begin, and then turn it over to Victor. First Bob, the opportunity in China is boundless. It's still early days. Our market share is only in the area of 5%. Our category is growing rapidly. We like to set our reasonable milestones. So our first challenge is for China to surpass Japan, which today is at over USD $700 million, and China this year, as we reported, will do about $185 million. On an effort to actually eclipse the U.S., we will need to become the # 1 brand in China at a time when the China accessories market is large enough to support our such sales. Is it something that might occur? Perhaps, but we in the end have a long way to go. Victor?

Sure. I would add that today, we're looking at a market in China that's approximately $3.2 billion, including travel retail, which we expect to grow to approximately $7 billion by FY '15. So already larger than Japan, which today is approximately $4 billion and where, as Lew mentioned, we today are over $700 million in sales. So we do see tremendous growth in a market where, as Lew mentioned in his remarks, we have at least 120 cities with a population of 1 million or more and truly tremendous opportunity in terms of distribution as well. China is developing as a wonderful market for multichannel distribution, both in department stores where we have tremendous opportunity. There are today approximately 600 department stores in China, of which approximately 100 of them already have luxury cosmetics, with sales approaching the top 100 department stores in Japan as another great measure, as well as the rapidly-developing shopping mall and slowly but surely developing factory outlet mall channel, which will be another terrific opportunity for us. So we're truly excited, and I would echo Lew's comments that we do feel the opportunity to truly be boundless. I'll turn it over to Mike for some comments on profitability.

Yes, Bob, as you've heard us say many times on these calls and in other forums, we're very excited about the level of profitability we feel the China business can achieve for a couple of fundamental reasons. Firstly, we do sell through at a premium to North America pricing in the region, not premiums as rich as Japan's but in the neighborhood. And so our gross margin rates in China are quite robust rivaling even that of the Japan business. In terms of store four-walls, we are already seeing four-walls nicely into the 40% range and so that's driven of course by that gross margin rate. But also as you might suspect, our store wages are lower in China than they are anywhere else in the world, contributing to a healthy four-wall. And as we gain in productivity and the brand gains awareness with landlords, we'll see our occupancy rate. The other big expense items on the store P&L begin to decline as a percentage of sales further enhancing store four-walls. Victor mentioned in his prepared remarks our approach to the region with a Asia distribution center and an Asia shared service center. So we're keyed to drive an efficient back office infrastructure to support both the China business and Pan-Asian approach. So all of those things taken together a lot of words will drive very, very healthy rates of profit and volume of profits from the region as we move into '12 and beyond.

Thank you, Mike. Robert Drbul - Barclays Capital: And Mike, I just have one quick follow up. On the $0.025 hit from Japan this quarter, can you give us an estimate on how detrimental Japan was to the gross margin that you reported this morning?

Yes, it could be helpful, Bob. Clearly, with Japan being one of our highest gross margin regions, losing that $20 million was hurtful of the gross margin rate but relatively immaterial. We certainly would've recorded a modestly higher gross margin rate, but it is a small percentage of the total company's business, and we were able to absorb it. I would add, though, I have to take this opportunity, that had we had that $20 million of sales and about $0.025 of earnings, we would have actually seen operating margin that leverage. We were -- did come up just short of Q3's op income level. Had we had the $20 million of that very profitable Japanese business, we would've seen operating margin improvement, which I have to say coming into the quarter, I do not think was going to be possible. So the business operated very efficiently across all geographies and mature businesses during the quarter. Similarly, I would just say for the fourth quarter, same dynamic. In our own projections that we've just kind of shared with you, we will see some very modest operating margin deleverage for the quarter. We would have gotten operating margin leverage had we not had the quake impact. Of course these are all forward-looking statements now to talk about fourth quarter. But I do think it demonstrates the diversity of our business model globally that we're able to absorb this profitable loss and still project that we can hit 31.5% op income for the year, kind of what we've been pointing to for a number of quarters now. So in a way I'm thinking about that as an increasing guidance, if you will, adjusted for the quake impact.

[Operator Instructions] Our next question comes from Kimberly Greenberger with Morgan Stanley. Kimberly Greenberger - Morgan Stanley: Thank you. Congratulations on a nice quarter.

Thank you, Kimberly. Kimberly Greenberger - Morgan Stanley: I'm wondering if you can talk about your outlook for sourcing cost inflation and the pricing strategies as you look into the back half of calendar 2011. And Mike, if you could just remind us about your gross margin outlook here for the remainder of the calendar year, that would be helpful.Thanks.

Sure. Kimberly, we're essentially in the same place on gross margin as we have been in terms of our guidance for the balance of FY '11. You'll recall that we were one of the first companies to talk about inflationary pressures well over a year ago, and that's holding. That being said, there are a number of positive things going on within gross margin to help offset these pressures. And we're guardedly optimistic that we'll see some modest sequential improvement actually in the first half of our FY '12, the back half of this calendar year versus the second half of our FY '11. It's because of counter-sourcing efforts, material inflation will not hit us as hard as others. The other thing that will be helpful is we'll also begin to anniversary those higher input costs from early last year's fiscal '11. Wage inflation is our biggest issue and we're battling that by moving products into lower-cost countries. We're ahead of schedule on this initiative, but it is still very early days there. And so while we are protecting our opening price points, we are also surgically taking advantage of pricing power, and we're doing this in both channels, both in our full price and our factory channel. The other thing we'll start to see which will be very helpful, is channel mix will actually begin to help us, we believe, as we move into FY '12, which will be a nice thing as growth in the Asian region that Victor spoke to helps channel mix there. And also just the underlying trends in our Full Price business in our mature markets of North America and Japan will also help channel mix. So we still are feeling good about our previous guidance gross margin in the boundary of 72% to 73%, going forward. We feel it very achievable. Kimberly Greenberger - Morgan Stanley: Thanks, Mike. Is it helpful at all that global automobile production is expected to fall short, this year, of the prior expectation? I think that the auto industry is one of the largest consumers of leather.

It's a very good point, Kimberly. It's a supply and demand equation of course, as you would imagine. And so if demand is down, that will certainly help buyers of leather. Our team has done an amazing job counter-sourcing, and leather is not a big driver of our inflationary cost pressure, especially year-over-year. So the issue you bring up will be helpful to us but somewhat immaterial to the total reported gross margin with all the other factors that impact it.

Our next question comes from Neely Tamminga with Piper Jaffray. Neely Tamminga - Piper Jaffray Companies: Let me also add my congratulations on a great quarter. Victor, thanks for joining the call. And I'm just wondering if you can walk us through a little bit more on some of the evolution of this company as you go from just being primarily 2 geographies to multi-geography? Clearly, you spoke to the back office aspect as in the shared services but could you give us a sense again and just let us know how you guys are designing for the different geographies and buying from designs? Are you doing a good global design and then having regional people purchase towards the preferences of each individual consumer? Just help us understand that a little bit more as the company continues to clearly grow globally.

Sure, as you all know of course, we have 1 design team, which is based here in New York, and that design team does design globally. In each of our geographies, we have in-market merchants who, constantly, with the support of our consumer insights team, are looking to understand the consumer and provide the design team with some logic to add to the magic that they of course do in designing the product. We have a very strong merchant team in Japan. We have today a merchant team in Shanghai, as well as Hong Kong, that is developing. And those teams provide the inputs into New York and then we'll buy from a global assortment, which occasionally, of course, is tweaked to meet local needs. On the whole, though, I would say that our assortments are rather global. In Japan, China, collections such as Madison, Poppy and Kristin, which are today the main drivers in the North American business, are also main drivers for us in the region. There may be some functional areas that we have to tweak, whether it be in smaller goods or in handbags. As an example, for example, in handbags across Asia, across body bags, given the amount of commuting that takes place, do tend to have a higher penetration than say here in North America. That is something that we simply input into our buys locally. And I think one of the most important differences, as I've mentioned in my remarks, is the Men's opportunity. In Japan, the Men's market of that $4 billion size today, represents approximately 20%. In mainland China, it can represent 50% to more for most of our competitor brands, and it's approaching about 50% of the market, again. In Hong Kong, Macau and the rest of the region, and we're looking at 25% to 30% as well. And so our, in-market merchant teams are working very, very closely with our central merchandising teams and our design team to ensure that those very specific needs of that specific Asian male consumer are met. And so it's a highly collaborative effort with a tremendous amount of consumer insights, as well as, of course, the design talent, which is very much focused on presenting 1 New York Coach aesthetic to the world based here in New York. Neely Tamminga - Piper Jaffray Companies: That's really helpful, Victor, thanks. And good luck and feel better, Lew

Thank you.

Our next question comes from Lorraine Hutchinson, Bank of America Merrill Lynch. Rick Patel - BofA Merrill Lynch: Rick Patel in for Lorraine. Can you just update us on your mix of handbags priced below $300? Do you feel this mix is appropriate today, given what you're seeing in the marketplace? And how should we expect that to change over time?

Sure. We have -- we've been very dedicated to this overarching $300 price positioning. Our handbag under $300 penetration and offer is right at about 50%. We see that as being a really important level for us, and we also see some trend growth happening in leather, which is impacting price point, gives us an opportunity to nuance some of our pricing in a positive way. There's some margin opportunity there. And we had very, very nice growth incidentally in handbags over $400. With that penetration, it went to about 18% versus 10% in the prior year. That's a big deal and driven very much by this leather trend that we're seeing. I think just to add a sense or two on factory, very similar trends there, strong leather trends. And we had a very nice AUR increase in handbag in the Factory business, while maintaining what we think is the competitive positioning in that channel. Rick Patel - BofA Merrill Lynch: That's helpful. Thank you very much.

Our next question comes from Christine Chen, Needham & Company. Christine Chen - Needham & Company, LLC: Thank you and congratulations on a good quarter.

Thank you, Christine. Christine Chen - Needham & Company, LLC: I wanted to ask about your Factory business. Your factory channel seems to be really clean of full price inventory. Wondering what the percentage of factory, specific factory exclusive it was in the quarter versus last year? And then wondering about footwear, what is it as a percentage of your total? And is it driving the increases at the department store level? Or is it pretty equal between bags and footwear there?

Christine, I think you're breaking up a little bit, but the essence of your question was around mix of product in Factory. Christine Chen - Needham & Company, LLC: Yes.

Where we saw again a very, very strong contribution from factory exclusives, terrific response to newness there. The level there was 86%, and that's been a running average for us, in about that zone. Again, a forward [indiscernible] pricing and margin flexibility there, and we see that continuing. Our Footwear business is very good, stable. We don't have a significant Footwear business in our factory channel but on the Full Price side, our Footwear business continues to be positive. Christine Chen - Needham & Company, LLC: What about at the department store level?

On the department store side, our Footwear business has also been healthy. We haven't seen account growth there, but we're very much focused on what we see as an assortment productivity opportunity in the wholesale channel, and that has been very successful for it this spring.

We enjoyed that 5% market share in that channel. Christine Chen - Needham & Company, LLC: And have you been able to pull back on some of the promotions at Factory? [Technical Difficulty] Christine Chen - Needham & Company, LLC: I'm sorry, I said were you less promotional at the factory channel?

In fact, our margins in Factory were slightly better, and our promotional levels were pretty much even with the year prior. Christine Chen - Needham & Company, LLC: Great. Thank you, and good luck.

Our next question comes from David Schick, Stifel Nicolaus.

When we hear about 40%-plus I think you said four-wall contribution in China and that's the fastest-growing business you have, and it feels like Men's is partially what Coach is doing around Men's but also maybe a growing global marketplace for Men's or demand for Men's. And we look back at what you've done margin-wise. How should see operating margin-wise? What should we think about ,for operating margin 5 or 7 -- not in the immediate planning future but 5 or 7 years out, should it be higher than what you've achieved in the past? Given those new businesses growing at higher margins?

It's a provocative question, David. There are so many factors that go into determining operating margins including, of course, our raw material cost. Our general view is that operating margins should continue at the 30%-plus level and could very well approach the mid-30s over the next few years.

You've done better than that. Beyond that given the growth [indiscernible]

Think boldly, David.

Very good. Thank you.

Our final question comes from Paul Lejuez with Nomura. Paul Lejuez - Nomura Securities Co. Ltd.: Thanks, guys. Just wondering as you think about the European expansion how much of your store growth will be centered on tourist-type destinations versus stores that are more likely to attract a more local customer? Thanks.

Good question. And initially, a good portion of our business will be focused on tourists because we're opening major locations in major cities where tourist accounts for a majority of business within those markets. As we develop awareness and interest on the brand among locals and expand our fleet to the secondary cities as well as the suburbs, we will see that mix change. Paul Lejuez - Nomura Securities Co. Ltd.: Thanks, and good luck.

Thank you for your attention, and now I'll turn it back to Lew for a few closing words. Lew?

Just a few. I wasn't sure whether my voice was going to last through the call. Of course, we posted an excellent quarter. As you well know, I think all of you are familiar with our track record. We feel very good about where we're positioned for the rest of the spring season and for the fall and do look forward to double-digit top line and bottom line growth and would like you along for the journey. Have a good day.

Thank you everyone for your attention. Have a great day.

Thank you. And this does conclude the Coach earnings conference call. We thank you for your participation. You may now disconnect your line.