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Executives

William L. McComb - Chief Executive Officer and Executive Director

Craig A. Leavitt - Chief Executive Officer - Kate Spade

Deborah Lloyd - Co-President of Kate Spade Unit and Creative Director of Kate Spade Unit

Mary Beech

Johanna Murphy

Melissa Xides

Kyle Andrew - Senior Vice President of Marketing

Analysts

Scott D. Krasik - BB&T Capital Markets, Research Division

Mary Ross Gilbert - Imperial Capital, LLC, Research Division

Fifth & Pacific Companies, Inc. (FNP) Investor Day March 15, 2013 9:00 AM ET

Operator

Good morning, everyone, and welcome to the Fifth & Pacific Companies, Inc. 2013 Kate Spade New York Investor Day. This meeting is being webcast and is being recorded and is copyrighted material. Therefore, it cannot be recorded, transcribed or rebroadcasted without Fifth & Pacific Companies, Inc.'s permission.

Please note that there will be a slide presentation accompanying the prepared remarks. This webcast and the accompanying slide will be available at www.fifthandpacific.com in the Investor Relations section. There are separate links to the slides for webcast and phone participants.

Statements made during this conference that relate to company's future performance, including forecasted targets for net sales, adjusted brand EBITDA, adjusted EBITDA margin, store expansion and other future events are forward-looking statements within the Private Securities Litigation Reform Act. These forward-looking statements are based on current expectations and are subject to the qualifications and cautionary statements set forth in the company's annual report on Form 10-K for the fiscal year ending December 29, 2012, under the captions Item 1A Risk Factors and Statement Regarding Forward-looking Statements. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Please welcome the Chief Executive Officer of Fifth & Pacific, Bill McComb.

William L. McComb

Hey, guys. Good morning. Thank you all for joining us live here in New York, for those that were able to make the meeting. And for those that are listening by webcast, welcome as well.

Today, as you know and as I've been saying, is the first of 3 in-depth investor conferences that we're going to host. And as you know, today we're featuring kate spade.

To a large extent, this new format of an extended single brand presentation is a direct response from feedbacks from you, who told us that you're looking for more in-depth access to the brand management team, as well as a deeper level of insight on the brand science itself. And this is the year for us to do that. We believe we can give you much deeper insights and appreciation for each of the businesses separately and comprehensively.

Now I'll say right at the beginning, we have no new announcements today corporately. I told you we wouldn't when we came. Today is an immersion of the kate spade businesses.

So here's an outline of today's presentation. We're going to start with Craig Leavitt, the CEO of kate spade, who's going to lay out for you the vision that drives this highly creative and spirited team. And this is where you'll see and hear the core elements of this company's playbook, including key milestone goals. I'm then going to lead a discussion right here on the sofa with Deborah Lloyd, our President and Chief Creative Officer of kate spade, on things like design, brand equity, inspiration, vision and customers. And then you're going to see presentations from leading executives in the company covering marketing, our unique e-commerce strategy and globalization. And then, finally, we'll review 2 sub-brands in the franchise: first, Jack Spade; and then we will conclude new and exciting Kate Spade status [ph]. and then we're going to wrap up by coming back out on stage for the Q&A session.

Now while the go through this presentation, here's what I want you to get from the meeting. First and foremost, get to know the management, one of the reasons for spending time like this, their management principles, their management philosophies; learn what guides their thinking; hear how the brands are differentiated, who the target audiences are; listen for the growth and profitability targets; understand the playbook overall that's going to drive this strategic plan on the business, how the brand is going to grow, the role of line extension, of international markets and key channel strategies for the business; also, listen for important targets on the business that we'll be disclosing for the business by the end of 2016 and what we see it looking like in years later when it's even more built out. And finally, you'll understand how technology, CRM, digital marketing and an unconventional approach to omni-channel retailing is going to impact the results of this franchise for years to come.

And throughout the discussions, as I've said before, you're going to see a case study of how Fifth & Pacific has transformed the business that not very long ago was truly adrift by focusing on and implementing the 6 operating principles that fuel Fifth & Pacific Companies, all of our brands and corporate. These principles include first and foremost, embracing true brand centricity. The decision that we took back in the summer of 2007 to build these brands totally and completely around their consumer, chartering teams at the companies inside the company to lead and control all elements of growth as an operating plan. I think today, you'll see how and why that has driven the results that we have today.

You'll also notice a certain spirit on display here today, a mindset that I have from now 5 years called our turnaround and start-up energy, a team united in vision and powered by goals with great clarity and energy. You're going to also feel our consumer culture, all decisions here center on creating and fulfilling demand directly with the customer. All in an environment, by the way, that honors ethics in everything that we do, a requirement at our company and a uniting core value for our people. And although we are truly brand-centered now with believable businesses completely in place, we still care a lot about leveraging learning across the brand, across the Fifth & Pacific platform. And I'll say that the team you're going to see and meet today is both an importer and exporter of important learnings in the Fifth & Pacific family.

And while each brand operates in their own unique way, they each have their own culture, if we were to, this afternoon, come back here and see the Lucky team, you would see a lot of differences. But we embrace standardization as well in important areas for the company, like IT investment, safety, quality, financial reporting. So that said, let's go ahead and roll up our sleeves and let's dive into the kate spade story. I'll see you back in a little bit. Thanks.

Operator

Please welcome the Chief Executive Officer of kate spade New York, Craig Leavitt.

Craig A. Leavitt

Good morning. As you just saw, our brand is a story, the story of a great idea, a successful beginning, strong growth and a promising future. Today our leadership team and I will walk you through the first few chapters of our story, both those we've written and those we are currently writing. These early chapters will tell the story of a once niche brand that has grown to be an acceptable luxury player with nearly $800 million in retail footprint, on its way to $4 billion well before the end of this book.

Because we have chapters left to write and to tell, kate spade is the story that has only just begun. 20 years ago, Kate Spade, frustrated she couldn't find the fashionable yet utilitarian handbag she'd been craving for years began making nylon bags out of her apartment. She quickly discovered that she wasn't the only one with the need. And so began a revolution on the accessories market. Simple silhouette sprang to life with crisp palettes and clever details. Women and fashion editors alike fell for the design. And the company grew.

The first retail store opened in North America in 1996, and the first internationally in Japan in 1998. A second brand was launched, Jack Spade. And the company expanded beyond handbags, introducing footwear, eyewear and tabletop.

Between 2001 and 2006, kate spade continued down the path as a delightful and optimistic niche brand, with a strong foundation and a small group of loyal fans. Without new customers coming in, growth stalled. Some might say the brand had fallen asleep, unspoiled, unadulterated, but with that, asleep. But it was very much a Sleeping Beauty.

When Deborah Lloyd and I joined at the end of 2007, beginning of 2008 and started reimagining the brand, we knew we didn't need to write a new book. It was about the next chapter in the book that Kate and Andy had started. The brand had a strong DNA, and we saw a huge opportunity to work with that DNA and take it from this beautiful niche jewel into something bigger and extraordinary. And after all, that's the story behind some of the world industry greats, like Coach, even Louis Vuitton and Chanel.

We just had to take this DNA, our brand voice, and clarify and ensure its relevancy. The outcome of this is our unique and truly special brand promise. It is at the core of everything kate spade. Think of it as our guiding light. It directs all of our decisions, expansions and choices. This promise is like magic dust for our consumer, this promise that kate spade helps our customers lead a more interesting life.

We also found that we're lacking the foundation of elements on which the base of growth so we were to set our vision and mission, laid out creative guidelines, clear customer archetypes for use in the design process. We developed a strategic plan to broaden the customer base and create the roadmap towards becoming a global multichannel lifestyle brand. And we went to work on our operations, building the needed capabilities of a more seasoned direct-to-consumer retailer.

But before we had a chance to begin executing that strategic plan, the global recession hit. We had some tough choices to make. We were well into development on launches for jewelry and apparel and had to decide whether or not to proceed. We had to make choices around adjusting pricing strategy and whether it was time to initiate the planned redesign of our retail stores. Those were dark days. But we decided to continue with the product launches, reduce our level of promotional activity when everyone else was increasing it and invest in our stores.

For a few months, I'll be honest, we held our breath. But we knew we were in the clear when we started to see successful handbag, ready-to-wear and jewelry sales. Our pricing and promotional strategy worked and customers learned not to wait for our sales, and the delta in our newly redesigned stores, so meaningful increases in sales. We were able to complete our reconstruction.

Despite our niche beginnings, we were able to build on what was the clear footprint of a lifestyle brand. And thank goodness, because we know you can't turn it into one at the end of the story.

And so Part 1 comes to an end. And the next section of the kate spade novel begins, a section that requires a bit of a prologue. Today as we celebrate our 20th anniversary, the kate spade brand has traveled far from our niche beginnings. We're still anchored in the handbags that started it all, but we also have thoughtfully expanded our product offering with 11 new categories, including tabletops, legwear, watches and stationery to date, and fragrance launching in just a few weeks.

Our small beginnings with a single store on Thompson Street are long ago. At the end of 2012, we had 205 kate spade New York stores in 20 countries, both brand and partner-operated, and we're present in approximately 400 wholesale doors, as well as 12 Jack Spade stores in 4 countries and presence in 200 wholesale doors worldwide. The last 5 years have been particularly strong, with our revenues hitting $462 million in sales in 2012, a substantial 410% increase.

And during that same period, we moved from negative adjusted brand EBITDA to making $95 million. Our adjusted brand EBITDA margin in 2012 grew 675 basis points, from 14% in 2010 to 21%, as our gross profit margins grew and our SG&A as a percent of sales improved.

While still the special, exclusive and aspirational brand launched in 1993, today, kate spade has evolved with all the makings of a global multichannel lifestyle brand.

The past 5 years of growth have come as we strategically set about to secure the foundation of kate spade New York as an accessible luxury brand. We estimate that our global retail footprint, including our reported retail sales and sales from our retail partners, has grown over 200%, as we grew from 77 full-price and 14 outlet stores globally in 2007 to 171 full-price and 46 outlet stores at the end of 2012. Impressive growth, albeit landing at a still relatively small retail footprint.

The portion of those sales generated outside of the U.S. has grown from 18% to 22%, outpacing even the tremendous growth rate that we have achieved in the U.S. during this period. And while we are proud of these revenue and profit growth achievements over the past 5 years, we know that we are barely scratching the surface. Our customer database has grown 1,000% since 2005 without slowing year-over-year, showing that enormous demand remains. We continue to broaden our appeal with full permission from both our existing and new fans, having grown our customer database of women under 35 to 30% over the past 2 years. Yet still there is potential.

Our e-commerce sales show demand across the country, yet the store count still favors the Coast. And each year we take additional market share in handbags, small leather goods and ready-to-wear with much room left to grow. As I said earlier, our brand promise is our guiding light. It gives us confidence in every aspect of our potential growth in the second part of our story. And our brand remains arguably our most leverageable asset.

While our growth over the past 5 years has been strong, we have so many customers yet to bring under the kate spade tent. This morning, you'll hear from Mary Beech, our Senior Vice President and Chief Marketing Officer of kate spade. She'll tell you more about our positioning, our customer and our overall brand strategy.

Our first 20 years provided us with a strong ground foundation of vividly differentiated brands, very high awareness and proven but often unfulfilled demand. Over the last 5 years, we have re-recruited a core customer and have a solid base on which to grow. With our foundation secure, kate spade is poised for rapid growth and bursting with potential from a product, sale, channel, geography and brand perspective.

So begins part 2. Chapter 5 is in process, currently being written and covering 2013, '14 '15 and '16. We call this chapter "scaling and leveraging," as our efforts will come together to bring about a fully scaled store roll-out, scale to our global footprints and greater scale to our reported top line sales. It is also a period marked by leveraging of our strong brand equity, leveraging of our digital IQ and, of course, added leverage to our bottom line adjusted brand EBITDA margin.

This chapter has 7 subplots. Let's start with the first: new store expansion. Our kate spade New York stores remain key drivers of our distribution strategy and provide customers with a place to experience and interact with our brand in person. A typical kate spade New York store in North America averages about 2,000 square feet, and they deliver comparable sales productivity of over $1,100 per square foot. Our new stores are planned to generate on average about $700 per square foot by the end of their first year and are estimated to deliver a return on invested capital in the 40s.

In North America, we know from our e-commerce and wholesale sales that brand exists -- that the brand demand exists in numerous markets in which we don't currently have stores. The North American opportunity is significant.

This year, we'll take our kate spade New York full-price store fleet to the next level, opening approximately 30 stores in North America, with 30 to 40 more planned for 2014. Our full-price store base could grow to 130 to 170 stores in the U.S. and Canada by 2016. And we've already identified 300 potential locations to date from which to choose the openings, now already in the pipeline for 2013. Our full-price store openings in 2013 include new concept stores, as well as a flagship in May on Madison Avenue, and 1 to 2 more flagships in North America this year.

These flagships will deliver a new level of product breadth and customer experience. And you should know that at kate spade New York, while we plan a flagship to be somewhat dilutive, we still expected to deliver a four-wall profitability. Flagships are not loss leaders for us.

The highly profitable outlet channel provides us the opportunity to reach a different customer, who aspires to kate spade but cannot always afford our full-price offering. She shops this channel from us almost exclusively, and we are focused on her, developing a broader product offering, such as watches, tech [ph] and fashion accessories, to support our lifestyle initiative and increase visit frequency. And this is where it's repeating. Outlets represent an incremental and non-cannibalizing opportunity for us.

We are also leading with technology, deploying mobile POS throughout our outlet store base by the end of this year to improve the number of transactions we can process per hour, increasing conversion and dollars per square foot productivity. In addition to our planned full-price openings, we plan to open 10 outlet stores this year and 30 to 50 additional in 2014 through '16, with a long-term goal of 125-plus locations.

In North America, our competitors have a much more robust outlet presence than us. In 2012, Coach had 189 outlet stores; Ralph Lauren, 143; and Michael Kors already has 77. We currently have just 31, providing this untapped potential for kate spade New York in this channel.

In the specialty and outlet channels combined, we expect to operate approximately 250 to 300 kate spade New York stores in North America by the end of 2016. Combined, we are planning this store investment to deliver $150 million to $225 million in incremental sales by the end of 2016.

International store expansion is our second key initiative for the 2013 to '16 period, delivering the growth needed to achieve that $4 billion long-term goal. And we have 3 core strategies. First, maximizing our potential and existing markets through a meaningful store growth. Secondly, extending the reach of our successful e-commerce sites around the world. And finally, having at least some equity participation in 90% of our international portfolio by 2016, thus enabling profit maximization, brand integrity and consistent consumer experience around the world. The strength of our foundation and carefully built operational structure allow us to extend our business through globalization.

Much like Ralph Lauren, kate spade is a distinctly American lifestyle brand. But unlike many of our competitors, we have experienced brand acceptance in every global market we have entered over the past 10 years. From our incredibly strong businesses in Japan and Southeast Asia, to our recent market entries in China, the Middle East, the U.K., Brazil and Germany, the kate spade New York brand is embraced and adored.

In these regions, we, along with our distribution and joint venture partners, plan to open 150 to 175 new kate spade New York stores and 50 to 60 wholesale doors by 2016. And we also have 5 to 10 flagships in development around the world in critical markets like Tokyo, Shanghai and Beijing over the next 4 years.

Now I want to take a moment to touch on Europe. There is a certain consciousness in our plan about deploying capital to build out company operated stores in Europe right now, but we are very interested in developing our wholesale business in Europe and our e-commerce reach during this chapter. We are building a small team of local merchants and digital marketers on the ground to grow our business and build a strong brand presence and foundation through brand-controlled, locally-managed e-commerce sites. We expect to start in the second half of 2013 in the U.K., and Germany in early 2014. In addition, flagship stores in key European markets are planned for the future.

Another imminent global initiative is positioned in Asia. As you may recall, in May of 2011, we announced the formation of our joint venture in China with E-Land, as well as the signed agreement to re-acquire the kate spade New York business in Hong Kong and Southeast Asia from our distribution partner, Globalluxe, in January of 2014.

Similar to the buyout of our Japanese joint venture partner in November 2012, we'll be acquiring a business that is already well established and profitable in this region. Taking 100% ownership of this business in Hong Kong and Southeast Asia will allow us full visibility and control of our brand experience in this high-profile luxury market. And although this transaction is expected to occur at the beginning of 2014, we've already begun to build a support organization locally that can integrate and operate this business post-acquisition. As we approach the acquisition in the coming months, we hope to be able to share more with you on the details of the transaction and the overall business.

The potential of our global business is clear. At only 22% of our global retail footprint, we have an enormous room for growth internationally, especially given our new brand launch of kate spade Saturday that I'll speak to you about shortly.

We estimate that our international retail footprint for the kate spade New York, Jack Spade and kate spade Saturday brands will together outpace our growth domestically and achieve over 35% penetration by 2016.

In a few moments, Ayako Yanagisawa, our President of kate spade Japan, and Taryn Laeben, our VP of International, will provide more details on our core strategies, including new market development in regions where we currently have no presence. All in all, we estimate that these incremental stores, along with comp store growth in our existing stores will add $275 million to $325 million of retail sale over the next 4 years.

Our next strategy focuses on e-commerce, where we continue to be an industry leader domestically since our launch in 2004. We over-indexed versus the industry and the competition, with over 20% of our reported net sales coming from our e-commerce channel. In addition, we have meaningful business across our sites and our partner sites such as Nordstrom.com, Amazon.com, Piperlime and Gilt, which adds to our retail footprint in North America.

In Japan, we have local kate spade New York and Jack Spade website platform. And as I just said, e-commerce in Europe is a potential strategy to build brand awareness, as opposed to old strategies of merely leveraging awareness through this channel.

To kate spade, our own digital storefronts serve 3 functions. They are an e-commerce platform, a method to further brand awareness and engagement, and a platform to drive sales to other channels. Our e-stores are, of course, our ultimate flagship, with the broadest assortment representing the world of kate spade.

So given its importance to our roadmap, our Vice President of e-commerce, Johanna Murphy, will address you this morning with more detail on our unique-to-the-industry strategic approach. But I can say that we plan to have $150 million to $200 million in incremental sales by the end of 2016, including sales across brands and regions.

The last piece of our multichannel growth strategy is our wholesale business. We have over 135 wholesale customers around the globe and have enjoyed double-digit growth over the last 5 years. Our per-door average volumes have grown 246% over the last 3 years, and this per-door productivity is an important source of planned growth over the next few years, in addition to continued door growth.

Domestically, where we currently have approximately 400 doors, we are focused both on assortment and shelf space, as well as door expansion with key partners such as Nordstrom, Neiman Marcus, Bloomingdale's and Lord & Taylor. We enjoy incredibly strong relationships as our brand continues to deliver beyond our partners' expectations.

Our accessory sales, the cornerstone of our wholesale business, have increased 225% over the past 3 years. Through growing productivity at our existing doors and some additional doors planned for distribution by 2016, we believe the wholesale channel can deliver growth to at least double our sales in this channel by the end of 2016.

Outside the U.S., we ship product to our distribution partners and joint ventures that own and operate retail locations in specific regions. We have wholesale accounts in Japan, Brazil, Germany and Australia, with plans to expand further in Europe, Latin America and the Asia Pacific region. We are estimating that we will grow retail sales at our wholesale partners globally by $300 million to $375 million in this chapter ending in 2016.

So now let's turn to some of our key product strategies. Our brand was born in handbags, and we are focused on remaining anchored there, with about 70% of our volume coming from the handbag and small leather good components.

Our handbag and small leather good categories have grown over 120% since 2010 and are planned to increase by more than 100% over the next 4 years. And our associate -- our accessories are celebrity darlings, worn in the likes of Emmy Rossum, Carrie Underwood, Emily Blunt, Pippa Middleton and Kerry Washington, just in the last season alone. And we have been pleased with this growth and recognition. But with accessories 49% of a growing $282 billion global luxury market, opportunities abound.

Despite our market research showing that we are the best-known handbag company after Coach in North America, we are #5 in terms of market share among leading national and regional department stores in the U.S., according to the NPD Group, showing the business remains much smaller than the brand. We are focused on continuing to take share in the global accessories market through 4 strategies.

While we plan our business -- Accessories business to benefit from increased distribution as we open new stores and further our e-commerce reach, the growth is also coming from new styles, new price points and new occasions. We now sell about 600 handbag styles each year, a number that has grown 22% since 2007, and we are focused on growing both the high end, a market segment experiencing huge growth, which we have just begun to tap, as well as on the more attainable end of the accessible luxury arena. This includes the introduction of bags in the $600 to $1,000 price point range in luxe materials, maybe perfect for an art opening or a champagne brunch, maybe an evening at the Met, as well as opening price points with -- in the more casual arena and increased focus on materials such as nylon, as well as styles appropriate for the beach, maybe mornings at the flea market or a stroll along the Highline. These strategies could deliver $350 million to $450 million in sales growth from handbags and accessories in North America alone before the end of this chapter in 2016.

And while we are a business firmly rooted in accessories, our brand equity allows us to flirt with ready to wear, truly the key to earning lifestyle brand status. At kate spade, our ready-to-wear customer is the most brand loyal, visiting 1/3 more times each year than our accessories customer and spending an average of 178% more on each visit. A customer purchasing ready-to-wear is 15% more likely to purchase other lifestyle categories and the most likely to shop us from an omni-channel perspective: retail, wholesale and e-commerce.

While we clearly plan to remain anchored in accessories, our long-term goal is to grow ready-to-wear to a 30% penetration. Our approach to apparel aims for the most profitable, differentiating and brand-extending components of the apparel category. This also creates a far more balanced business than some of our competitors, whose brand positioning is so tied to accessories, it curtails their permissions to enter the lifestyle brand arena.

Our ready-to-wear business is relatively new, having launched in 2009, and experiencing consistent year-over-year growth in the double digit. To achieve our penetration goals, we are currently focused on expanding our occasion readiness beyond the perfect cocktail party dress, for which we are well-known, to contributing pieces that will make the ideal work ensemble or weekend wear. Addressing these additional occasions in our growth life presents a significant opportunity to grow our ready to wear by an incremental $75 million to $125 million by the end of 2016.

Ready to wear and accessories are at the top of our product pyramid, but we are also proven in the more elastic categories that provide entry points to the brand and deliver great margins. We have proven ourselves in jewelry, eyewear, footwear and most recently, in watches, just launched in spring 2012. All these categories are poised for growth and expect to deliver meaningful profits.

While we are close to the total number of doors we should be in for our core accessories and apparel categories, these added product categories will allow us to carefully and appropriately widen our wholesale distribution, with a potential of 400-plus more doors identified in the near term for non-apparel and core accessories categories.

For some of these key categories, watches, jewelry and fragrance, specifically, we have taken them in-house, a unique approach, but one of our core strategies. Going in-house has allowed us to shorten the ramp-up time from ideation to in-store sales by 9-months and increased the long-term sales and profit potential. As an example, our incredibly successful jewelry business is 2 to 3x more profitable in-house than it would be as a licensed business.

To make our in-house strategy more effective, we plan to access global distribution, particularly important in the highly fragmented watch business, through sales distributorships. Global distribution is expected to come online in the first quarter of 2014. So with this incrementality, wholesale door expansion to 800 to 1,000 doors and the new global distribution opportunities that these more elastic categories provide, we see $75 million to $100 million in sales for kate spade.

From a product growth perspective, we know licensing is an under-leveraged portion of our business with enormous potential in untapped categories, such as home decor, beauty, intimate apparel, swimwear, luggage and active wear and the remaining room for growth in our existing strong categories of tabletop, eyewear and footwear.

You may have heard us say many times that when we think about analogues, while Coach is incredibly instructive, Ralph Lauren is equally appropriate. And it is our ability to do home decor that ultimately will skew us to be more like Ralph Lauren than Coach in reach and breadth. We believe home decor could be the biggest, single licensing category for us, generating retail sales in excess of $200 million in the long-term.

Although it won't factor materially into our financials by the end of 2016, we do plan to launch these partnerships in a more material way beginning in 2015. We know licensing is a highly profitable revenue stream, requiring little investment, and we are committed to significant growth in our now nascent licensing business. These new license categories are expected to launch and begin generating sales in the 2013 to '16 time period with an attainable $100 million to $150 million on our horizons over the next 4 years and much more in the following chapters, as home decor, this largest category for kate spade, potentially reaches that full potential.

But there are opportunities outside of the kate spade New York brand as well. We are not a new player in the global luxury marketplace. We have 20 years of heritage to build on. And during the -- this last chapter, we saw an intense focus on solidifying the equity and potential of the kate spade New York brand. With this foundation secured, the possibilities for incremental sub-brands is clear. Kate spade New York, Jack Spade and kate spade Saturday, each have a unique DNA, yet they share core values, making them, at the same time, uniquely kate spade. Jack and kate spade Saturday are a natural extension of our kate spade New York brand, yet also serve to keep kate spade New York relevant and fresh in an ever-expanding marketplace, and kate spade New York remains the aspirational brand, providing a halo to our current and future endeavors.

Jack Spade launched in 1996 as a passion project for Andy Spade and has remained a relatively small business since its inception. But with a distinct brand personality in a marketplace of sameness, a product line anchored in bags and sportswear, an avid and growing fan base and planned wholesale and direct-to-consumer growth, Jack Spade is poised for the limelight.

Our newest line, kate spade Saturday, was the result of more than 3 years of brand development and a clear consumer product and marketing strategy. Launched just 2 weeks ago, it is one of our most exciting areas of growth with its target market, international appeal and attainable price points. Of course, for the kate spade Saturday brand, this chapter is just the prologue in its story. But in the forecasted ranges we are discussing with you today, we see it growing to $225 million to $275 million by 2016.

So let me quickly recap where we are as this important chapter of leveraging and scaling comes to a close. By the end of 2016, we expect to have 3 growing, profitable and increasingly global lifestyle businesses in our kate spade portfolio. Our retail stores across all 3 brands worldwide is expected -- is targeted to reach approximately $2 billion by this time, and over 35% of the total footprint can be generated outside of North America.

Kate spade New York is projected to be a leading global accessible luxury brand, with 475 to 550 company-owned and partner-owned stores worldwide. And Jack Spade and kate spade Saturday will benefit from 3 years of investment and brand development. That means the 7 initiatives I've described as key strategies for the next 3.5 years are designed to deliver the following growth profile: $250 million to $350 million of incremental retail sales from our kate spade New York domestic direct-to-consumer business, $250 million to $350 million of incremental retail sales from our kate spade New York domestic wholesale and licensing business, $325 million to $400 million of incremental retail sales from our kate spade New York international expansion and $300 million to $375 million of incremental retail sales from kate spade Saturday and Jack Spade.

So how will these initiatives and this retail footprint translate into our financial targets? In 2013, as Bill has previously discussed, overall adjusted brand EBITDA margin is expected to be down from our reported 2012 level. Here are the dynamics that describe dilutive and accretive effects on margin this year: diluting the margin are the full year impact of our Japan operations, which were required in the fourth quarter of 2012; preparation for the buy out of our Hong Kong operations in January of 2014; and investments in marketing for the kate spade Saturday brand. Accretive effects include improving operating margins generated from direct-to-consumer comp growth, store productivity improvement and wholesale expansion of our kate spade New York brand.

On projected sales of $700 million to $750 million, we are estimating an adjusted brand EBITDA margin of 18% to 19% for 2013, which is consistent with the adjusted brand EBITDA guidance previously provided of $130 million to $140 million. In 2014, adjusted brand EBITDA margin is forecasted to show some improvement, as kate spade Saturday and our new stores domestically and internationally ramp up. By 2015 and '16, we expect to more fully enjoy the operating leverages from these investments and strategic growth opportunities. And based on successful implementation of the strategies I outlined throughout Chapter 5, we are targeting net sales of $1.2 billion or greater by the end of 2016, with an adjusted brand EBITDA margin of 25% or greater. Those are our targets.

Chapter 6 begins after this period of intense growth and is expected to see the fruits of many of the initiatives begun in the 2013 to '16 time period. Since our forecast are less than precise beyond 2016, let's just say that Chapter 6 covers a number of years, beginning with 2017, and it is what is in the cards for our business in the long term. We plan to see the continued growth of our accessories business with ready-to-wear penetration leveling off and delivering solid sales growth as store count grows. Our more elastic categories will continue to deliver dividend. And from a licensing perspective, the fruits of our efforts in home decor, which we expect to launch in 2015, really comes into focus, and we plan to launch additional licenses for just children's wear. Our fleet of company-owned and partner-owned stores, projected to be upwards of 600, will be in full swing and generating strong sales.

These are the years of scaling and leveraging in markets that we will have just entered in Chapter 5, with the same omni-channel approach that defines our approach today in North America. Always keeping in mind our long-term goal to have an equity ownership in 90% of our international portfolio, we will seek opportunities, when appropriate, to form joint ventures or operate our own retail stores in key markets.

Lastly, Jack Spade and kate spade Saturday will have only just begun their expansion in 2016, and the next chapter sees these new brands, as well as potential others in this time period, beginning to deliver impressive metrics. In the long term, we see Jack Spade's global retail footprint reaching $150 million to $200 million. Later on this morning, you'll hear from Cuan Hanly and Melissa Xides, who head up the Jack Spade business. Kate spade Saturday is expected to be a firmly established business by 2016. But Chapter 6 is where it really explodes in its potential, reaching as much as $1 billion in retail sales. Kyle Andrew, our Senior Vice President and Brand Director of kate spade Saturday, will share more with you on this later this morning.

And that's not the end of the line for additional brands. I'm sure there's another kate spade Saturday out there for us. We see clear opportunities for additional brands that will live under the kate spade umbrella, although we're not prepared to discussed those today. But just as we began the concepting of kate spade Saturday over 3 years ago, we are planting the seeds now for the next one. We expect Chapter 6 to close with our business growing from approximately $2 billion in 2016 to $3.5 billion to $4 billion, with adjusted brand EBITDA margins reaching 30% or greater in the long term.

Few books end at Chapter 6, and ours is no different. Many chapters are intentionally blank as kate spade has chapters still unwritten. A story such as ours, especially a story still in progress, is nothing without an amazing author, and our author is our people. Kate spade has always been a special place to work because of the individuals that make up the team. It's an office where sparkly heels and multicolored tights are the norm and where uniqueness is celebrated.

From its earliest days, kate spade has set the bar high. If the bar were set any lower, well, our enormously talented team would just trip over it. Our culture is one of ideation and thought provocation, and the people who make up our ranks are type A builders, who have strong personalities and are highly collaborative.

Set in our deep-rooted company culture is proven and an experienced management team, with an average of 20 years of executive level experience from companies such as Burberry, Theory, Paul Smith, Disney, Gap Inc., Ralph Lauren and Coach. They have enormous passion for the brand, our growth and making kate spade the best place to work in the fashion industry. And our strong retention of this team shows an enviable stability of which we are enormously proud.

Right now, I have the pleasure to introduce one of the key authors of the kate spade story, our President and Chief Creative Officer, Deborah Lloyd. Since she likely won't, I'll have to be the one to tell you about Deborah's 20-plus years of industry experience, including lengthening stints during some of the most successful periods of both Burberry and Banana Republic. Deborah has been a member of the CFDA since 2009 and was named Handbag Designer of the Year by the IHDA in 2010. Since her arrival at kate spade 5 years ago, Deborah has, in her own words, helped awaken this sleeping beauty of a brand. Deborah will be joined by Bill McComb for a look behind the curtain into the magic that makes the world of kate spade so special. Thank you.

Operator

Please welcome the President and Chief Creative Officer of kate spade New York, Deborah Lloyd, and please welcome back to the stage, Bill McComb.

William L. McComb

Okay. So here she is, Dame Deborah Lloyd.

Deborah Lloyd

One day.

William L. McComb

Yes.

William L. McComb

I call Deborah my true pioneer, because she's the first of the executive management team of all the brands that joined me. And it was back in the summer of 2007, just about a month after our July 11, 2007, Investor Day where like this, we kicked off a big new strategy and I answered in the investor community on how I was going to manage the problems that I had walked into and had reported in May.

Deborah, let's flash back to that, okay? You and I met not long after that Investor Day, and we talked about you joining the company as President and Chief Creative Officer. And at the time, there were a couple dozen employees at kate spade. Kate and Andy were on their way out the door. We were a tiny little seed pod. It was a small business and the business was on decline. What was it about the brand that excited you enough to have the meeting and then actually make the big decision to leave a very successful position as Head of Design at Banana Republic?

Deborah Lloyd

I really saw it as a truly unique brand. There aren't that many of them around that hadn't been messed with. It was really pure. But also, I think it had dropped off the radar screen. As Craig said, it had fallen asleep. So I really didn't know what was going on. So I assumed nobody else did, really.

So I went down to the store and actually fell in love with the brand. I loved everything it stood for. It was inspirational. It was aspirational. I loved the art on the wall. The way they spoke to the customer. It was very quiet at the time, but I thought it was the best kept secret. And I love a challenge. I knew it was going to be hard work, but I've never shied away from that. And I had a really strong gut feeling. And I know investors love the "I have gut feelings," because the last time I had that was when I joined Burberry, and that didn't work out so badly either.

William L. McComb

No, it didn't. Thinking back on now, 5 years of incredible inflection points, what are some of your fondest memories creatively in what you have done in creating what we're seeing today?

Deborah Lloyd

There's been so many things, from the first day I remember stepping through the door and meeting the team, and I think there were maybe 80 people in the room. And I went around the room asking everybody what they did, and I have to say, 60% of them said they were interns.

William L. McComb

Right.

Deborah Lloyd

So I knew we had a long way to go. So I mean, first step...

William L. McComb

[indiscernible]

Deborah Lloyd

I know. First step was really building a team. And we have the most amazing passionate team. So that's a real highlight for me. I mean, Craig and I are not scared about bringing the best people for the jobs on board. We like people nipping at our heels, and we think it's the best way to keep us on our toes and keep on moving us up.

And we see an extraordinary thing. I mean, kate spade Saturday, our younger sister, is amazing to say that after 5 years we'll bring to life a little sister. And I'm sure she's the first of many different projects we'll bring to life. But so many different things. I mean, we're launching our fragrance -- in fragrance, our new fragrance, Live Colorfully, in a month's time. The essence of 20 years of kate spade in a bottle, which is enormously exciting. And then on the product side, I'm delighted that this fall we're launching a new bag called the bow bag, which is my favorite bag we've ever done, and that's going to be this -- the grounding of advertising campaign for fall, so.

William L. McComb

If I'm not mistaken, it's one of our most successful sell-ins from a wholesale perspective.

Deborah Lloyd

Absolutely, everybody unanimously across-the-board from our own source or wholesale partners internationally. It's one of those things that hit the sweet spot. I mean, I love a bow, and the kate spade girl loves a well-placed bow, too, so yes.

William L. McComb

When we got together and we're completing the process of the interview and you were thinking of joining, one of the things you said to me was the first thing you wanted to do was jewelry. Why did you think of jewelry first? And we did it, by the way, in the teeth of the recession. Before we launched apparel, it was launching. And, I believe, it's October 2008, we began shipping Nordstrom, and then it was a spring 2009 launch. So it was, to some, the worst possible time to launch jewelry, but in spite of what was happening around the world, it just took off.

Deborah Lloyd

It did.

William L. McComb

So why did you want to do that first?

Deborah Lloyd

It did. I think -- I thought we did it anyway when I arrived. But I actually I realized that we're just buying off different vendors. So I felt what better way to express our personality than be able to have our own jewelry line. The kate spade girl loves everything that sparkles and also large.

And also, I saw it as amazing, elastic category that really could reach the widest consumer base. You can buy into the jewelry at like $35. So it meant that we could really get our name out there into so many different places beyond our own stores, where we were, still at time, a well-kept secret. So the jewelry category has grown and grown. And from that, we built the watches as well, another great elastic category, so very, very successful. And it really got our name out there. It got its own amazing editorial. I mean, we were the cover page in Harper's Bazaar. So it really started to get us noticed.

William L. McComb

Yes. I think it's probably also fair to say, it cemented the colorful feminine part of kate spade that neither Michael Kors nor Coach, even to this day, really have.

Deborah Lloyd

No, it was really that the girls loved it. She couldn't resist it. In the recession, you need things to make you smile. And the jewelry, at the entry price, she could just buy something and sort of make her smile for the rest of the day, in those very gray times.

William L. McComb

Yes. What about apparel? Talk about what excites you about apparel and why that's important to this brand.

Deborah Lloyd

It was so important to this brand. Again, we launched apparel right in the middle of the recession. It was 2009.

William L. McComb

Fall 2009.

Deborah Lloyd

Yes, very gray times. And we had done all the hard work and we really had to taste it but we said, we've got nothing to lose. So right in the middle of the recession, we launched a bold, optimistic bright collection. While still competitive, we're showing sort of gray and murky collections that reflected the mood of the moment and we stood out from the crowd and we've continued to do so ever since. So I know we're a handbag brand, and that's where we sort of are anchored. But what apparel allowed us to do was tell a story. Suddenly everybody went, "Oh, I see what the kate spade girl looks like from head to toe." So we're all about storytelling. We could tell a very powerful story with this. So I really believe that launching the apparel was a tipping point for our success of becoming a global lifestyle brand.

William L. McComb

What about this thing that -- I know on investor calls, I've shared with this audience the term P80, which is a term that means Project 80. The group had created this notion that we had to appeal to women born in the 1980s. The down aging of the business was an important callout from you early on. Why was that so important?

Deborah Lloyd

It was very important because, I mean, when I first came on board and we started to do consumer research, and we realized everybody thought we were very suburban brand and all about working mothers or, you know. So we really wanted to attract that younger customer. And we do have customer archetypes that we work with, and the P80s girl is one of them. And it's a great way to hook her early on into the brand and we've done that with great innovations in the tech world, fun things that she can pick up. She's changing her iPhone cover like she's -- the rest of us might change our jewelry. So that was very interesting to her, and it's like entry prices as well. So she might not be quite ready for ever thinking a brand, but it was a way to hook her in.

So for the team, they're not very good with facts and figures. The design team, that is. So it's great for us to bring this information to light. So we brought our P80s girls to life, and we named somebody on our team as that P80s girl. And she's present in all of the meetings, so we can ask questions to make sure that we're covering all aspects of her lifestyle.

William L. McComb

But interestingly, you just mentioned the archetypes. Based on the success of P80, you have 3 other archetypes that are important. How did they inform and direct a design team to actually line up with business goals that are important?

Deborah Lloyd

Absolutely. It's top of mind thinking when we're pulling the collections together, that in each of our categories, we're thinking about each of those archetypes. And we really only scratched the surface at the moment. We've only really started working for them, and we know the huge possibilities to look after each of those archetypes to every part of their day, their week, the evening, the occasions they attend. So really, I think, we're just at the starting point there. But we really bring them to life. So I guess again, each of these archetypes, we have brought to life on the design team or within our business, so we know the girls who represent those. So we really are designing for a real person versus an imaginary one.

William L. McComb

I think it's a really special concept. I mean, I'll elaborate for the audience that these archetypes are -- there's a marketing manifestation. There's a retail store and e-commerce manifestation. There's a manifestation for design, which is how they were originally intended, and the merchants learn and get a lot, too. And these archetypes, coming off of the success of P80, are -- they work like an intersection, if you will, a hub of the wheel for now 4 key product directions for the company. So that was a really -- an interesting effort of your P80 work.

Deborah Lloyd

Yes.

William L. McComb

So good. What -- I guess I would ask, how do you keep the innovation going?

Deborah Lloyd

Innovation. The nature of fashion has changed. So it's always moving on. I'd like to say it's an evolution versus a revolution. So the design team is constantly working to make sure that we deliver a product -- we deliver a collection every month. So in every category that we do, there'll be a new refresh in the collection every month. So you're constantly moving forward, but you have to keep an eye on the bestsellers to make sure you've got something in place, something new that's going to come through. And the way we do that is by keeping the design team fresh. We travel a lot. Wherever we go, we try and live the brand promise, which is living an interesting life and bring back those ideas and see what's going on. So always keeping your eyes open is exactly what we have to do all the time.

William L. McComb

And what about these themes? I don't know competitors that have done what you have done by bringing themes to the business, the year of living colorfully, they year of our favorite things. You did this collaboration with Florence Broadhurst, which wasn't intended to drive huge mass sales, but to color the store very differently. The year of print and pattern, talk about that. Why do you that, and how do you come up with these things?

Deborah Lloyd

It's all about big ideas. I love big ideas. And big ideas early on in the process so everybody can partake. So design and marketing work early, so it's not just coming over to marketing and saying you do something with this. We bring the ideas together.

William L. McComb

Cross-functionally.

Deborah Lloyd

Cross-functionally. And everybody feels they've got ownership then, and we do it in enough time to make sure that we can do the most with those, so big ideas, really big ideas. So we have the year of color, where every month we delivered a different major color into the store. And I could still remember which color was which month.

William L. McComb

[indiscernible], too.

Deborah Lloyd

It's ingrained in my mind. But it works so well that by March, when we were delivering yellow, I was receiving yellow cookies from fans online. So it went across platforms. Everybody was so anxious to know what the next color was going to be, and it gave us a great voice online to speak to our customers. Our windows change color every month. So it was very successful. So second year that we did this, we did the year of pattern. I love pattern. I believe it's very strong for the kate spade girl, but we wanted a really big hook. So instead of just picking random patterns, we did a little bit of research, and I'd always loved to see designer Florence Broadhurst. She's an Australian designer who did wallpapers and home furnishing, but amazingly bold patterns itself, very kate spade New York to me. So we approached the archive, and they allowed us to use 12 prints, a different one each month. And we just went to town on it. But it gave us a great story. We did this a year in advance. I went to Australia. I worked from the print tables. I really got to know what that print archive was about so I could really tell the story to our girls online.

William L. McComb

Anything up your sleeve in the big idea world that you want to share?

Deborah Lloyd

Oh, my goodness. I mean, this year, it's our 20th anniversary, so it's the year of Things We Love. So that's inspired by all the different things we love and are continued to be inspired by. So we started January with the POP of Color. February was a Well-Placed Bow. We're in March, which is Bold Bloom, so -- and the list will go on. So I have a feeling I'm traveling so much at the moment. So I think next year could be travel inspired.

William L. McComb

Nice, nice, big hook. Okay. Thank you, Deborah. Thanks for your time. We'll carry on.

Deborah Lloyd

Okay.

Unknown Executive

Please welcome the Senior Vice President and Chief Marketing Officer of kate spade New York, Mary Beech.

Mary Beech

Welcome to the world of kate spade New York. At kate spade, marketing plays a central and critical role. The brand was borne out of an ad agency mentality. Andy Spade was a renowned advertising executive, and early on, many folks called the brand an agency incubation project.

As our company has grown and evolved, marketing has remained at the forefront of everything we do. While we are most certainly a retail operation, we are also very clearly a marketing organization. Marketing is as essential to fueling our brand as our stores. Marketing runs throughout our organization, and every element of what we do from our yearly theme, on our monthly creative point of view that Deborah just spoke about, to our ad campaigns and in-store look, are threads that lead the kate spade story. Our brand is a story, and we deliver that story, truly, our content, to the consumer in every medium in which she engages.

As Craig mentioned earlier, our strong and unique brand positioning and promise has been at the core of our story. It is our voice and a voice with great clarity and distinction. It is our voice both literally and figuratively. Literally speaking, it is the kate spade girl, the personality with which we talk to our consumers, everywhere she is. And our voice is also our brand positioning and our promise.

Our brand is always optimistic, often unexpected, wonderfully original, interesting and interested. Kate spade New York helps you lead a more interesting life. What differentiates our brand is that we recognize and own the intellectual and spiritual elements of our brand promise of living a more interesting life. We know that it isn't the pursuit of materialism, like jet flames or rock stars or country mansions, that gives you that. It is books and culture and dance and cocktail parties and a great song from the '80s. Our marketing doesn't invite you to join some club to give you static. It winks at our girl and acknowledges her sense of humor, her passion for the special and her interest. Our tagline, live colorfully, sums this up in a way that our customers respond to and translate to markets around the world.

Everything that we do, from product to marketing, to store design, is done to showcase the kate spade New York girl's interesting life, whether she's heading to work, getting away for the weekend or browsing the Brooklyn Flea, we aim to inspire adventure at every turn. From our playful book clutches, editorial bangles and unexpected items that expand our brand voice, to our online global city guide of places to see the kate spade New York girl's way and our special events with an unconventional twist, to our optimistic windows and store design elements that require you to take a second look, everything we do at kate spade is guided by our brand voice.

The kate spade New York brand is a page-turner of a story told in every medium in which our customer live, and our barrier to entry is always low because of our strong voice. Our core brand values define kate spade New York and provide the shared DNA for all of our 3 sub-brands. Kate spade New York is colorful, bold, playful, clever, spirited, chic, optimistic, graphic, aspirational and timeless. These carefully chosen words are the language behind our interesting life and give us and our customer the permission to live colorfully.

I guarantee you all know someone like our kate spade girl or, perhaps, you're one yourself. In the most technical way, she is a professional woman, 25 to 44, with a household income of $100,000 a year. She is highly educated, both urban and suburban, and highly engaged with fashion, and she loves to shop, which is great for us.

But the kate spade New York girl is far more interesting than this description and expects more from us in our approach. In our marketing, we make sure to pick up on tiny little cues that capture some of the smallest facets of an interesting life and romances them in ways that reveal the complicated, adorable and endearing facets of her own life.

I want to share with you our target audience insight statement, which isn't something you take literally. It is something that inspires us creatively to find and exploit the nooks and the crannies of this target audience's aspiration of leading a more interesting life.

She is a voracious reader and a superb dancer. She has wallpapered her rental apartment. She is culturally curious, lives life to the fullest, stands out from the crowd and loves to take chances. She is afraid of nothing except of being bored. She enjoys fashion but knows its place. She has $7 in change at the bottom of her bag. She is a downtown girl with an uptown sensibility. She is quick, curious, playful and strong.

Once we had defined this, we had to figure out how on earth do you talk to a girl like that. With a clear voice, you forge a bond that is authentic and inspires loyalty. Visiting our stores are like visiting a friend's apartment with a stylish yet comfy couch, cozy nooks and bold wallpaper. Our store windows are moments of whimsical storytelling that express our core values in every venue.

Online, our true flagship, as Craig mentioned, we share our creative inspiration and things we love side by side with products, special partnerships and playful editorial features. Our website has unique and multiple ways for our girl to interact, depending on her interest beyond just shopping. Our blog is a peek behind the curtain, updated several times a month, with the latest things we love, from fashion collaborations to an early look at upcoming lines. Our girl can check out Deborah's inspirations in our From The Desk of Deborah Lloyd column. See who's wearing us this week in Hot Off the Press or glimpse the kate spade employees at 2 Park Avenue living interesting lives and wearing our fashion in their own way in our Style Spy.

Our advertising is clever and exciting, classic and irreverent and has a fashion edge but with a playful twist. Our seasonal ad campaigns combined national and regional print, outdoor, online, video content and guerrilla marketing, as well as direct mail pieces that generate 30% to 40% return from our avid customer base in an industry where 6% to 10% is the norm.

Being interested and interesting also directs our event strategy globally, whether a music-driven tour bus here in North America, an all-girl band highlighting our pop-up shop in London or a fashion show in China. And our girl loves kate spade New York to give her inspiration. So we bring her collaborations that offer a different take, entice new customers and enhance the kate spade brand promise.

Our product collaborations have included our Florence Broadhurst collection, an upcoming line with artist and blogger, Craig Redman of Darcel Disappoints and a partnership with Keds that brings us squarely into weekend wear done the kate spade New York way. We also corroborate online, such as our incredibly successful line of e-cards of Paperless Post, where our card selection drove 53% of their Valentine's Day site new traffic this past February 14.

And we collaborate with product experts, such as our successful beauty partnership with Poppy King or our deal with stylist Brad Goreski of it's a Brad, Brad World, which had its series season 2 debut last Wednesday on Bravo and which our Spring 2013 Fashion Week was featured. Brad is a tremendous brand fan, and his international store visits, Fashion Week styling and work with us on a show gives us a new outlet and tremendous exposure for our voice.

Social media is, perhaps, where we can most be ourselves and where our distinct voice gives us the greatest benefit. The world of social is a sea of opinions and options, and without a clear voice, it is a very easy to lose your way. We believe strongly in the power of social and feel our brand is uniquely positioned to take advantage of this power, and we spend to plan accordingly.

On Facebook pages around the world, we create unique content to share with our Facebook community. Here, she'll find limited-edition exclusives, such as our Things We Love coffee table book signed by Deborah Lloyd, which sold out in 2 hours in February. She'll also hear about promotional offers and events by her geolocation and get updates via katespade.com blog features. Product choices are often guided by e-commerce and buying teams to increase purchases on exclusive online product and those items that might need a little bit of extra love.

We are one of the very first brands to launch on Pinterest, where 80% of the users are women and the average user spends 1 hour and 15 minutes a day on the site. It has been an impressive medium for kate spade New York. And our regional pins versus the more-often-done repins make us incredibly popular with our fans.

Our "Live Colorfully" credo finds its outlet on Instagram, our fastest-growing channel on social media since we launched in 2009. Here, we give a behind-the-scenes look at a day in the life of the kate spade New York girl. We show the aspirational lifestyle that the brand embodies, share glimpses into our design process and interact with followers who post products and mention the brands. We were one of the first fashion brands to join Tumblr. Tumblr allows us to share the visual inspiration behind our design process, and it was the place where we started to be recognized for our visual taste outside of our own products and ad campaign.

Twitter was tailor-made for the interesting life of the kate spade New York girl, and it is here that followers can engage with the girl as she has her adventures in New York City. We also use it as a customer service tool and a personal shopper with a behind-the-scenes twist.

And our YouTube channel presents all of our in-house video content. Our engagement is incredible, with 700,000 Facebook fans, 400,000 Twitter followers, 125,000 on Pinterest, 330,000 on Instagram, 225,000 on Tumblr, and online, which we just recently launched a few weeks ago, we already have 3,584 fans as we just get started in this channel.

Our authenticity in each channel has been our followers have grown rapidly, with an average of 147% growth year-over-year in each channel. Our brand voice also gives us very high engagement with editors and influencers alike with our products featured monthly in global magazines such as Elle, InStyle, Lucky, Harper's Bazaar, Vogue, Grazia, YOU and Red, and it has allowed us to become an important fixture on New York Fashion Week's schedule each February and September, with every major editor now in attendance. And the right media darlings love kate spade, from Taylor Swift and Pippa Middleton to Emma Roberts and Reese Witherspoon. Our products are also regularly featured on hit TV shows such as Glee, the New Girl and Suburgatory.

All of these efforts are summed up in a quote from a customer in a recent research study: "You can spot a kate spade New York girl a mile away. It's the personality, the spirit, the style. It's a look no other brand can match." We conduct a brand tracking study twice a year to stay in tune with our perceived strengths and our areas of development. From our most recent study in November 2012, we know we continue to have clear leadership positioning within handbags, second only to Coach. In apparel, kate spade New York stands for femininity, quality and prestige, and we lead the pack on this dimension.

Our awareness scores are high, 67%, but lead enormous opportunity to grow this number and, therefore, our sales. We know we have an avid fan base, an enormous untapped potential to expand our awareness and familiarity. It is our voice that will take us here. Our voice gives us possibilities beyond those we have explored, with opportunities to broaden our customer base through innovative marketing strategies. Our social media efforts have barely scratched the surface, and our brand personality makes this channel a natural for kate spade and a place we can clearly stand out from the competition. We will be spending more here, not less.

Our relationship with our girl is at an early stage from a conversation point of view, and the opportunities via CRM are untapped. And our PR efforts to date have been incredible but lead enormous potential from partnership, editorial and storytelling perspective.

The marketplace is crowded and noisy, but our voice is loud and clear. Welcome to the world of kate spade New York. Thank you.

Operator

Please welcome the Vice President of E-Commerce for kate spade New York, Johanna Murphy.

Johanna Murphy

Good morning. So there's a little concern backstage that the microphone might interfere a little bit with my necklace. So if there's a little bit of clanking, the microphone is coming off, the necklace is going to stay. So e-commerce is more than just a channel to us here at kate spade. We understand that consumers are increasingly digital. If you were to ask a 20-something how often they go online, they're not going to have any idea what you're talking about because they don't go online, they live online. This understanding led us to experiment with emerging digital channels very early on.

We were considered pioneers when we took a bold step a few years ago and made our blog 50% of our homepage. We were one of very first brands to experiment with Pinterest, which Mary recently told you, and we've experimented with f-commerce by launching exclusive products to our Facebook fans. We've also figured out a way to capture those Facebook fans into our CRM database through an innovative use of flash sales. And that pioneering spirit continues today. Our digital team is viewed as an innovation lab within our company. We're encouraged to take risks and experiment with technologies and companies that are often considered off the beaten path for luxury brands like ourselves.

For example, we're partnering with eBay Inc. in ways that will blaze trails in omni-channel retailing. We understand that eBay is much more than just an auction site. We recognize the potential in the portfolio of service companies and technologies they have assembled. Their expertise in mobile, their best-in-class fulfillment services and, of course, their innovations with PayPal and digital wallet have made them one of our most strategic partners. We saw this potential very early on, and with Fifth & Pacific's support, we asked them to work with us on some pretty amazing proofs of concept that will eventually roll out into our stores.

And of course, all of this has led to some great accolades. LII, the digital innovation think tank at NYU Stern, awarded kate spade New York a designation of genius 2 years in a row. The style council brings together the top social media influencers in the industry. They awarded kate spade New York the top innovator at the Fashion 2.0 Awards in 2012, and we're a nominee again this year. And while these accolades have been really nice, our focus on digital has led to more people engaging with the brand, all of which has helped the business grow.

So in and of itself as a channel, e-commerce is important here. It's a very healthy and a very large business that continues to grow year over year, well above the average -- the industry average. And while we're very proud that e-commerce is growing, thanks to a carefully plotted digital marketing investment, our extraordinary company-wide emphasis on store-to-web and web-to-store cross development for both our full-price and for our outlet stores, this approach has made it almost impossible and irrelevant to read the comp growth of one channel without the other.

But we continue to make healthy investments in e-commerce, and all of the metrics are strong. But we aren't just investing in our website. The days of propping up just a pretty website and focusing solely on web design are over. Customers' expectation of online shopping are getting higher and higher, so our brands are constantly focused on improving our customer experience, everything from the length of time it takes for customers to get a package to how delighted they are when they open that box. The post-purchase experience is increasingly important as a point of differentiation, especially for premium brands, and it's an area which we strive to be the very best. We worked really hard behind the scenes to speed package delivery. We're using direct line hauls to cut transit time, and we tightly manage our freight cost, so we can offer both free shipping and return all year round with no threshold. We have one of the latest cutoff times in the industry for next-day delivery. You can actually order from our site up until 9:00 p.m. and have your package delivered the very next day. All of these factors have contributed to the sustained, healthy growth of the channel.

But we understand the financial impact of our e-commerce sites go well beyond the direct sales they generate. Forrester Research says that by 2016, more than half of the dollars spent in U.S. retail will either be conducted online or will be influenced by the Web. So it's obviously one of our top strategic initiatives as a company and as a leadership team. We're using e-commerce strategies and technologies to grow sales outside of just the dot com channel. Enterprise commerce is where the power of digital can be leveraged across channels to reach, win and engage customers while extending our brands to new geographies, categories and sub-brands.

We strive to satisfy every customer every time he or she wants to make a purchase, either online or in one of our stores. We've implemented online technologies, like an associate ordering system, to limit out of stocks. And efforts are underway to improve our inventory management system, all part of our evolving omni-channel strategy.

We're upgrading our CRM technology, so we can take our understanding of the needs and differences between our off-line and online customers to a whole new level. This will help us understand the relative value and specific needs of different customers within and across our different channels. This allows us to utilize those insights to deploy more sophisticated marketing efforts that target look-alike high-value customers.

We're using digital technologies to bring the full breadth of our assortment to life in every context. We're focused on telling a complete and robust product story online, explaining the why and the how of each product, showing all product options. We're using animation to present product information, like you see here, instead of just using boring one-dimensional photography. And we're leveraging that content in our stores to help our store associates.

We've developed an international playbook, which allows us to execute standardized expansion plans. This covers everything from international shipping to online-only efforts and advance our physical stores to fully-integrated multichannel effort. We expect to launch e-commerce in Europe later this year, and in China, we're working on an e-commerce launch in that market where today, we only have a marketing site.

Online also provides a way to test or refine new categories, especially given limited store square footage. This is ideal for our larger items not easily carried in stores, like home and outdoor, and it opens the door to personalized, even custom-made products, like the kate spade Saturday weekender bag. You can design your own bag. Everything from the handle to the pockets to the body of the bag can be your very own creation.

Online also plays an integral part in launching new brands or sub-brands by initially launching as an online pure play. This minimizes risk and allows for rapid iteration and refinement, which is exactly what we're doing with kate spade Saturday. Plus we'll be testing a shoppable retail window concept this spring for kate spade Saturday that will merge the online and off-line world through a really cool, innovative consumer app. And Kyle is going to share more details about that later.

A lot of brands that are moving to a direct focus are borrowing constructs and conventions from traditional retailers, but many of those retailers today remain tied to outdated thinking and have not evolved to stay abreast with the needs of today's consumer -- digital consumer. But that's not us. We have the attributes of an online progressive. There's our strong C-level support for online, access to investment, strong digital talent, tight integration with the rest of the company and a data-driven culture that pushes for innovation. Leading brands will choose this path and will push their organizations into this new era of enterprise commerce, and we are already there. Thank you so much.

[Presentation]

Operator

Please welcome the Vice President of International for kate spade New York, Teren Ladin [ph].

Unknown Executive

Thank you, Ayako. Nice to see our colleagues in Japan on a Friday morning. kate spade has been present outside of the U.S. for over 16 years. Our first international store opened in 1998 in Tokyo, and we ended 2012 with 127 stores, including concessions outside of North America.

Our 16-year history in Japan and our decade-long presence in other parts of Asia have helped us foster an unusually high brand awareness there relative to our size. As a result, we have a strong foundation of international acceptance on which to build a much more significant global footprint.

While we are a distinctly American brand, the inspirational idea of living the interesting life is a common aspiration around the world. So unlike many companies which have experienced roadblocks as they tried to expand internationally, we have found a warm reception by our international customer as we begin to enter new markets across diverse cultures and taste clusters.

The first phase of this global expansion has given us an early indicator of success in the international space, meaningfully increasing our year-over-year growth and our penetration in the kate spade retail footprint. This momentum gives us the confidence to expect that the international business will continue and accelerate.

We have 5 key pillars in our approach to global strategy. Pillar 1, brand consistency. We utilize a brand-comes-first strategy, privileging brand over short-term growth and ensuring that we have consistent positioning across all of our markets. We also manage all of our international business as if it were in our own backyard, providing the same support to the entire fleet, whether it be a visual directive or a marketing event. Our brand tools can be found at the same quality and level of execution across the world.

Pillar 2, growth in existing markets. We are laser-focused on increasing the penetration of the kate spade New York brand in existing territory through additional door rollouts, comp growth, building market share and launching new categories, like watches.

Pillar 3, product. We're really good at focusing on our goal around the world, prioritizing initiatives, like our Asian fashion fit, and creating products to celebrate holidays that mean something to her, like Chinese New Year, in a kate spade way.

Pillar 4 is business development. We're also aggressively pursuing strategic business development into new regions where the brand has not yet had a presence, like India, Russia and Mexico. We're also excited about rolling out both kate spade Saturday and the Jack Spade brand in select territories in Asia and Latin America.

Pillar 5 is business model. We do extensive analysis to ensure that we enter new markets with the right business models into the right regions to maximize profit and brand rate growth. We therefore operate in a variety of different business models around the world, from wholly-owned subsidiaries to long-term distribution agreements, joint ventures and wholesale.

As Craig discussed, we're focused on continuing to build our global ownership positions around the world where appropriate through acquisitions like kate spade Japan and infrastructure build-out in places like the U.K. in Brazil, where we have wholly-owned subsidiary.

So now let's take a little trip around the world. Japan is our second largest market to the U.S. Despite its relative penetration, we still believe there's an enormous market share opportunity there for kate spade. As you saw on the video, our brand is extremely well positioned and great local stewardship by the team will continue to ensure we stay relevant. Began as a distribution arrangement, which migrated to a joint venture in 2009 and then to a wholly-owned subsidiary in November of 2012. This evolution aligns with our strategy to fully or partially own all of our Asia-based businesses.

Our current ownership position enables us to maximize our growth opportunity through aggressive management of operations, strategic investments in real estate and a focus on comp store productivity. This holds true for the kate spade New York brand as well as the launch of new brands, kate spade Saturday and Jack Spade.

For the kate spade New York brand, there remains meaningful expansion opportunity in the e-commerce and in the outlet channel. We also have an opportunity to continue to expand our full-price presence there by opening ready-to-wear shop-in-shops in department stores where we already have strongly performing accessories businesses.

So now moving on to other parts of Asia. Our brand has been present in Hong Kong for over 10 years already. Southeast Asia is another strong region for us with great brand positioning and stores that are some of the most productive in our entire fleet. In 2012, our sales grew there by 48%, and comp store sales were up 33%.

As we've already disclosed and as Craig discussed, we expect to buy out our long-time Hong Kong Southeast Asia distributor in January of 2014. This is a major acquisition and critical in establishing our Asia hub outside of Japan. This buyout allows us to simultaneously leverage the Hong Kong team to service this territory, as well as the rest of Asia, critical markets like Singapore, Malaysia and Indonesia.

In subsequent years, we expect to be meaningfully evolving our real estate portfolio in these territories, opening larger-format, higher-profile kate spade New York stores, and launching Saturday in markets like Hong Kong and Singapore. These stores will not only drive business in this region but create a halo effect for Chinese tourists and indeed, for tourists from around the world.

So now onto China. As you all know, in our segment, this is a region with very strong possibilities. In 2011, we commenced operations on a joint venture with the E.Land Group. Joining up with a local partner with such strong local infrastructure has allowed us to expand and leverage their knowledge into every province.

On the brand side, our Chinese customer loves us. She loves our quirkiness and color and the interesting spirit we bring to her life. This creates a major opportunity for kate spade New York in China as the Chinese consumer becomes more interested in an individualized taste experience as opposed to just pure branded luxury goods. The JV closed 2012 with 13 stores, and we're very pleased with the out-of-the-gate sales performance in our first year of operations at kate spade China. We will continue to focus on major store expansion there, and we expect to open 80 doors over the next 5 years, first in A and then B-tier cities.

This year, the JV is expected to open 12 additional stores, including 2 flagships. As Johanna previously discussed, we also believe e-comm is an enormous opportunity in China. We expect to launch a monobrand site in 2014 and in the meantime, continue to foster our already high engagement online there through vendors -- vendor partnerships with people -- with vendors like Neiman Marcus China and Shangpin.

We also strongly believe in the kate spade Saturday and Jack Spade brand opportunities in China. Longer term, we expect to open 100 kate spade Saturday stores, appealing to a younger consumer while focusing Jack Spade in key fashion neighborhoods in Shanghai and Beijing.

So now, onto the desert. We launched last year a strategic partnership in the Middle East. There, we opened 3 stores and 2 concessions across Dubai, Kuwait and Bahrain, all of which are in key regional malls, which will help us continue to build great brand awareness. Our first year of operations saw a strong appetite for the brand. Jewelry and ready-to-wear far exceeded our expectations. The customer naturally loves the boldness of color and is drawn to our higher-price fashion handbags.

Now we'll travel south of the equator to Brazil. We entered this market in 2010 before any of our direct competitors and currently operate 4 stores in São Paulo and Rio, as well as in the e-commerce space. We have plans to open 3 additional doors in 2013, including one outlet. The brand reception there has been incredibly strong given Brazilian's natural affinity for fashion, humor and femininity and our unique positioning unlike anything else in the marketplace. Between 2011 and 2012, we saw a retail sales footprint increase by 42%. Long term, we plan to leverage our São Paulo-based team to expand into other key markets in Latin America.

In 2011, we also hopped upon to London, opening 2 stores in August of that year. Opening stores in London allowed us to establish our team there and begin to learn the market, which we see as a critical entry point to the rest of Europe. Let's take a look.

[Presentation]

Unknown Executive

Looks like fun, right? Currently, we have 5 stores in the U.K., including 3 kate spade New York stores, 1 kate spade outlet and 1 Jack Spade store, and great learnings to apply to the rest of our European roll-out. We believe there's future potential for additional stores in London, as well as expansion with select brand building major department stores.

Beyond the U.K., Europe remains an essential luxury market for kate spade's global expansion strategy. Seeing a brand in Europe legitimizes it to tourist from newer luxury markets like China and India. A study by Nielsen found on average that a Chinese tourist in Europe purchases $1,359 of goods per trip, more than any other nationality. Therefore, leveraging our success in other regions around the world, the international tourist is a critical component to our European expansion strategy.

As Craig mentioned, we have a disciplined e-comm led approach to market entry into Europe. We're establishing a team of merchants and digital marketers to serve the local markets via our European e-comm site. We are also partnering with highly selective major department stores in a capital-light model while we learn the region. Thereafter, we'll open flagships in key cities.

We launched in Germany in 2012 with premium retailers, [indiscernible] and Alster House [ph]. Strong sell-throughs added at the gate indicate a very bright future there. We're also excited to be launching in Paris with Galeries Lafayette later this year.

By 2016, kate spade expects to be present in over 35 countries with over 400 stores and concessions around the world, including world-class flagships in key fashion cities across Asia and Europe. We plan to partially or wholly own 90% of our international portfolio, and leveraging this infrastructure continues to ensure the same levels of brand excellence are found around the world.

We will have brought the kate spade New York brand, as well as the kate spade Saturday and Jack Spade brands, to numerous countries and cities globally. And while the past several years have seen meaningful growth from kate spade outside of North America, the majority of our international growth is yet to come.

We are well on our way to making this a truly global story. Thank you.

Operator

Please welcome the Vice President of Global Sales and Retail for Jack Spade, Melissa Xides.

Melissa Xides

Good morning, everyone. I see a lot of men in the audience, so we finally got a chance to talk about men's product. I'd like to start off with a video narrated by Cuan Hanly, our Vice President, Creative Director. It really captures the essence of the Jack Spade brand.

[Presentation]

Melissa Xides

You see the potential this brand has to offer. It inspires a deep affection and loyalty. We know this because our customers are engaged with our brand, our product and our stores. As Craig mentioned, after years of focusing on building the foundation of the kate spade New York brand, we are now redoubling our efforts to grow Jack Spade.

When we began our work in earnest, we found that Jack Spade had a lot of similarities to kate spade. The brand had a lot of potential and a strong foundation. We see the opportunity as an American Paul Smith, a men's premium accessory brand, truly lifestyle, aesthetically different. We had become known among our loyal customers to the quality, classic design, interesting stores and creativity. However, the brand was bigger than the business.

2012 was about discovering key learnings about our product, our core values and our market opportunities. 2013 will be all about executing against our key strategies so we can begin to grow our brand in a more meaningful way. One of these key objectives is broadening our customer base.

This February, we launched our first ad campaign in GQ, Esquire and Fast Company, reaching an audience of 3.2 million people, we featured an independent filmmaker from New York City, Josh Safdie. We have since seen an 18-point swing in traffic in our retail stores and are optimistic these efforts will continue to pay off.

We launched our first watch collection just last week and have received a lot of great editorial around them. The early selling is exciting, and the collection looks great. Our brand has also been spotted on celebrities like Ben Affleck, John Krasinski, Paul Rudd, and the list continues to grow.

So who is the Jack Spade customer? He's in his 30s to mid-40s, lives in an urban area, well educated and makes a living in the business world, but he has a creative twist. He embodies the idea of the balance between art and commerce. As you can see, he could vary in age. But what he has in common is a sense of individuality, passion for a long-lasting product and he is not afraid to wear a little humor and color in his wardrobe.

Jack Spade started with bags and wallets in 1996 and had maintain ourselves as an accessory-only brand for many years. Along with our emphasis to grow our business came our emphasis to expand ourselves into a lifestyle brand. From in-house categories, like sportswear, swim, watches and furnishings, most of which have only been introduced this year, to licensing opportunities, like tech accessories, eyewear, socks, underwear, that we continuously explore to help broaden our brand footprint, we have only scratched the surface with some of these newer categories and we are well on our way to becoming the lifestyle brand we set out to be.

Our average price point is $165 for sportswear and $375 for bags. We sit in between the more mass-market players and niche designer brands. That whitespace in the middle is opportunity. We benchmark ourselves with brands like Paul Smith, Ralph Lauren, Hugo Boss, more from a business model perspective than in aesthetic.

Our current portfolio is made up of our own stores, e-comm and wholesale partnership. Let's start with our stores. We currently have 11 full-price stores and 1 outlet store worldwide, up from 1 in 2007. Internationally, we opened stores in London, Tokyo and Bangkok last year, and all 3 are off to a great start. In all cases, we strive to create unique store environments that engage our local customers and encourage them to visit us frequently.

For example, our lending library located in every retail store creates a sense of community. Our customers can check books out for free and shop all-in-one visit. Our store in Venice Beach has a ping-pong table on the lawn where our customers have tournaments.

This fall, we plan to open our first store in San Francisco in the Mission District. San Francisco is actually one of our leading e-commerce markets, a metric we use to help inform our real estate decisions. So we're excited to finally open a store there. It will also have our biggest lending library inside the store, where customers can relax and take a load off. Our customers love us not only because of these unique environments but because we also staff them with interesting service-driven associates that are wild about our product and love telling our customers about it.

What does all this translate to? Great retail productivity per square foot. And we're on track to pace with kate spade New York. Our conversion rates and margins give us a good indication for growth, and we expect to double our fleet of stores over the next few years.

Onto e-commerce. As Johanna mentioned, e-commerce is a leading channel within our brand community. Since we launched our stores in 2010, our business has seen triple-digit growth year-over-year and is projected to keep that momentum over the next few years. Our e-mail database tripled in the last 8 months, and our unique visits are up 60% year-over-year. With our website relaunch happening this spring, you can expect several key differences on our sites, one of which is how we integrate social media with shopping.

We have an extremely engaged customer base that connects with us on Instagram. We are becoming popular for our photos, led by Cuan and his adventures through travel and product discovery. We'll have an auto feed of these photos streaming onto the homepage. We know this will help to increase the time our customer spending on our site and his engagement levels with us. With the expertise of Johanna's team optimizing our site functionality, coupled with the creativity of the Jack Spade team, we will have a winning website experience.

Last but not least, our wholesale doors have also seen double-digit growth year-over-year. We're currently in 200 wholesale doors across multiple partners and geographies. Some of our key partnerships include Nordstrom, Barneys, Bloomingdale's, Saks, Holt Renfrew in Canada and United Arrows in Japan, just to name a few. This is our highest volume shop-in-shop located in the men's department of Bloomingdale's 59th Street, all of our categories showcased at one place.

So you could see why we're so excited about Jack Spade and our product. Our customers love us, and we are poised for growth. We are well on our way to achieving $150 million to $200 million in global retail sales and firmly establishing ourselves as a leading menswear brand. Thank you all for your time today.

Operator

Please welcome the Senior Vice President and Brand Director of kate spade Saturday, Kyle Andrew.

Kyle Andrew

Good morning, everyone, I'm very excited to introduce you to kate spade Saturday. So why launch a new brand now? We've grown the kate spade New York brand over the last 5 years, took position of great strength and momentum. The brand DNA is strong and widely accepted. The customer believes in and wants to be part of the kate spade New York lifestyle. The brand is universally recognized for its digital ability. The brand is growing globally, and there's a solid infrastructure at kate spade New York to build on.

So why kate spade Saturday? Well first, because we saw a clear opportunity with the millennium customer. Many girls, 25 to 35, love the idea of kate spade New York but aren't quite ready for it yet. There are girls out there looking for something more casual, more versatile, more bar worthy than cocktail party ready.

We saw how she is shopping, especially online. As Johanna said, it's where she lives and is increasingly spending her time. We saw how she is living. She is addicted to social media. We heard what she needs. She wants to feel unique and individual. By directly speaking to her, we will show her that we truly understand her.

We also saw a clear opportunity with the concept by tapping into a universal feeling about Saturday and weekends, the best day of the week, right? It's a concept that resonates globally. Then we realized that there was an opportunity to play up the functional or utilitarian part of the brand that would be attractive to this customer.

Finally, we saw a clear opportunity with key markets. No one else is doing a modern lifestyle brand for this customer. In certain international markets, we will have first-mover advantage as there's no real international player in our direct competitive set, only local brands.

In Japan, there's a specific real estate opportunity for this target. Fashion buildings. They're built over transport hubs, so there's a huge amount of daily traffic. kate spade Saturday will be casual, cool and playful, a younger sister to the mainline brand. Think Stellar 12 [ph] versus Champagne [ph]. We carry ready-to-wear, bags, accessories and lifestyle items for the home. The target customers are women in their 20s and 30s who love fashion and expressing their individuality but have a more casual lifestyle and less money to spend.

It's a vertical concept, no licensing or wholesale. The price points will be approximately half of kate spade New York. We are confident that this brand will be incremental to the kate spade New York brand. It is not a watered-down version of kate spade New York. It is a brand that can stand on its own merit.

It channels the spirit of Saturday 7 days a week. Saturday, the day, will be a filter for everything we do, product, marketing, the store and the site. We share our core value to kate spade New York but expressed in a different way: colorful, playful, optimistic, chic, aspirational and bold. We also added new values to kate spade Saturday to attract the younger customer: innovative, cool and casual.

So let's talk about what we're doing to be innovative. First, launching with e-comm only in the U.S. We know that's where she lives. It will send a strong signal about the brand. By creating an innovative new site with a focus on functionality and ease of shopping. A focus on social integration, on the product pages and through our loyalty programs, one of the first brands to reward customers through social activities on the site. Creating unique content and not separating it from e-commerce, making the experience as personalized as possible. We then brought that innovation to the store to integrate it with the online experience, making it easy and inspirational. Mobile checkout, iPad signage, shop from windows. And we currently have one product, as Johanna said, that we can direct that customers can personalize.

We deliver new product every Saturday, not just online, but in the stores as well. We launched internationally in Japan before the U.S., so we're not just a U.S. brand with stores in other countries but a truly global brand. And as a Johanna already mentioned, we're working on innovative top-up shops with eBay, including a mobile app that will allow you to shop our windows 24/7.

We gave our customers a sneak peak via an online pop-up with fab.com, and we sold out of 6 key items in the first couple of days. And we're creating product that is multifunctional, as well as aspirational, and embodies the perfect Saturday: the best friend cardigan, the go anywhere dress, beautiful utility and pockets with purpose.

Moving on to the second attribute that we added, cool. Creating beautiful product with a clean, modern aesthetic, designing stores that uniquely embodies the spirit of Saturday, designing the website to be both useful and beautiful and to integrate social and unique content. That content brings to life the kate spade Saturday lifestyle for our customer.

And finally, casual. Designing product that's easy to wear and live with. Simple shapes, easy silhouettes, honest materials, like elastic and cotton, nothing too structural or embellished or hard to wear. Developing lifestyle product, a big component of the brand that helps her with a perfect way to live her life and entertain on the weekend. Creating a casual American food concept in our flagship stores to help reinforce the lifestyle component of the brand, developing a unique brand voice that is both friendly and funny and developing marketing messages and images that reflect the casual lifestyle of the brand.

We see tremendous opportunity in the marketplace and as well as real opportunity presented by lower price point brand, particularly in emerging markets where there is a quickly growing middle class. We believe kate spade Saturday has the potential to grow to be $1 billion brand. That growth is planned to come to from e-commerce, of course, an increase in doors in markets internationally, an increase in our lifestyle categories and rapid store growth domestically. But don't just take our word for it. So far, our customers love us, and our database is growing rapidly. And the press loves us. And we've already seen strong selling on key products in Japan, and we've only been open for 2 weeks, and we're significantly ahead of plan.

In 20 years, we'll know we've been successful when we've created a cultural shift that values playtime over work time. Thank you.

Craig A. Leavitt

Well, we are only a few chapters into our story with much more left to write. It is a story that began with a delightful and optimistic niche brand and as we execute the strategies laid out from Chapter 5, we are still running part of the story that builds to a $4 billion global retail footprint.

This footprint consists of multiple brands all supported by the strong DNA from the kate spade New York brand. We have stated that by the end of 2016, we are targeting total retail sales of approximately $2 billion, reported net sales of $1.2 billion or greater and an adjusted brand EBITDA margin at or above 25%.

After 2016, we will continue to grow the brand with additional store expansions while seeing maturing productivity in the stores opened during Chapter 5. Moreover, we believe the development of the new international markets will generate returns on our investments as well. We expect the category launches, such as fragrance and beauty, watches, home and kids, to all realize full potential. And kate spade Saturday and Jack Spade, along with new potential brands, will continue to engage new customers and bring them under the kate spade tent.

All told, we envision a $4 billion brand retail business with adjusted brand EBITDA margins over 30%. Our story may be 20 years in the making, but it is a story that is far from over with many chapters left to share.

In a moment, Deborah and Bill and George and I will reassemble for a Q&A session. In the meantime, we couldn't let you leave without a moment of fun the kate spade way. Enjoy.

[Presentation]

Question-and-Answer Session

William L. McComb

Okay. Time for that all-important question-and-answer session if you're all still there with us and primed for some questions. So we've got some microphones here. Let's start right here.

Is that you, Ed?

Scott D. Krasik - BB&T Capital Markets, Research Division

Hey, Bill, no, it's Scott Krasik. The sales targets that you put in there for 2016, does that include taking China back in-house to include the actual sales?

William L. McComb

Well, no, it does not include China coming back in-house. It includes China scaled with our JV partner, E-land, to the level that Craig talked about in 2016. There isn't an assumption of PRC. Separately, there's a separate initiative in Southeast Asia, which is what takes place next year, which is bringing that back in-house. That is all assumed. So Craig, you may want to elaborate. All of the assumptions he laid out were spelled out. But I just want to clarify, the PRC is separate from Southeast Asia.

Craig A. Leavitt

That is exactly right.

William L. McComb

And that is not anticipated to be a joint venture that is bought out any time in our horizon.

Scott D. Krasik - BB&T Capital Markets, Research Division

In your horizon?

William L. McComb

In our planning horizon. I'll remind you that at the joint venture that we established in 2009 with our distribution partner in Japan, we had some optionality built into the contract based on certain triggers. Those triggers were met, and we bought back Japan probably 1 or 2 years earlier than we would have planned to do so before. So it would be wrong for us, ex-ante, to assume triggers were taking place. So there -- that -- I envision someday, as Craig said, that one of the benefits of forming JVs is that they can lead to full ownership, but there is no time horizon in our planning. However, China, scaled with E-Land, in 2016, just as Craig said, are in those numbers.

Anything else to add to that?

Craig A. Leavitt

No, I think that's exactly right. So the -- what you will find included in those numbers are the wholesale sales that are to the joint -- to our joint venture partner through our international sales division. But in terms of talking about those retail sales, they would not be included.

William L. McComb

Okay. Ed now.

Unknown Attendee

So you kind of characterized '13 as something of an investment year or, at least from a margin perspective, the margins, they come in a little bit. Should we expect margins to step up in '14 and '15 as you try to attack your 25% plus EBITDA target?

William L. McComb

Well, yes. I mean, you covered it actually. Want to repeat what you said about '14, '15 and '16.

Craig A. Leavitt

Yes. So we do see the beginnings of improvement in 2014 as we begin to see the first tranches of our new store openings coming fully into line and the normalization of investment in the marketing for the kate spade Saturday that's taking place specifically in 2013. So as those things begin to normalize, we'll begin to see that opportunity increase. And as we move into '15 and '16, that's when you'll really see the leveraging begin to take place in a more meaningful way.

William L. McComb

Back into the mid-20s and then to at or above 25%. I think you'll all be able to go back and have a good hard look at some of those charts. The one that says 2013 outlook, Ed, is the one that lifts the 3 dilutive impacts versus the 2012 year-end adjusted EBITDA margin, and then the fact that there are 4 accretive effects. So on an apples-to-apples basis, the operating margin on an adjusted brand EBITDA basis is actually accretive. But the investments that we have chosen to make, one of them is just an accounting or reporting one, which is the reported dilutive effect of adding the Japan sales in. And the second most important one that we called out on that chart was the impact of launching kate spade Saturday. Something that we're so confident in that we actually felt now is the appropriate time to do it as opposed to gaiting or waiting until we hit 25% or 30%.

Craig A. Leavitt

And as we said before, those 2 items are a few hundred basis points.

William L. McComb

Yes, yes. One last question, Ed?

Unknown Attendee

Yes, maybe one more follow-up. You had less success when you tried the diffusion brand with Bird within Juicy. I guess, what learnings did you have there as you try to launch Saturday successfully?

William L. McComb

Well, we cringe when we hear the word diffusion brand. Because diffusion, just to clarify, in this industry, refers usually to going down to a much lower audience. This is what we're talking about tiering the pricing here. And it being a younger extension, we don't think of it as a diffusion, we think of it as a line extension. And since I sit on the house of Fifth & Pacific and have worked on Bird, I will tell you there isn't anything remotely similar here. First of all, Bird is a great idea. I will tell you that. And it's a great idea for very similar but opposite reasons. Juicy has the opportunity to address a customer that has aged out of the franchise into, what I'll call, a more sophisticated fashion taste. And this had a parallel there. But what makes them very different is we would never be doing kate spade Saturday now unless the fundamental base business didn't have the momentum and trajectory that it has. So I think that one of the problems that we have had, as we have gotten into -- Juicy was always a much, much, much more complicated, if I could call it, restart or turnaround in case. The fact that these guys walked in and the brand was -- sales were declining to the $65 million or $70 million level, it made it a lot easier to change all 4 tires on the car. Juicy has so many components of its business and so many spokes that we never really got the core team right. You see here an unbelievably successful talent platform in merchandising and marketing and design and ops to be able to pull off the kate spade Saturday. So just -- I just -- I shudder at the comparison. Even though I will say, in a lot of ways from what its intention was, Bird was successful with that target audience and, more importantly, very successful in Asia and Europe. And I have said, "Thank God, we actually did that because the elevated taste profile of that customer over there has required a more sophisticated end of Juicy, even now while we haven't really righted the ship yet. But I certainly feel great about what Paul is doing already at Juicy at Day 95.

We'll take a question right here, Janet.

Unknown Attendee

With respect to Saturday, I know you expect it to be $1 billion brand. But are we to assume that perhaps the EBITDA margins would be lower because if the prices are lower, therefore perhaps the margins will be lower than that of the higher-tiered kate spade brand. And if you could just clarify the growth plan or the growth program for Saturday for me, I believe, in Japan, it's going to be a retail store and E-commerce-based business. And the United States E-commerce-only or will stores follow?

William L. McComb

Let's chunk that down into 2. I'm going to take the first part of it and Craig will give you the footprint questions that you're asking about, the channel mix in both regions. This is what I would tell you you need to know. While on one hand, the gross margin profile of kate spade Saturday would be lower than that of kate spade New York, the channel margin, because of the enriched mix of E-commerce and the significantly lower fixed-cost profile of a fully fitted retail fleet, it actually ends up driving a margin mix that's richer than what you might assume it to be. One of the important reasons that we've made the decision to have the U.S. be predominantly E-commerce is it's just that. It's point number one. Johanna said very well, it's where that customer lives. We actually think that the halo of being an E-commerce-only brand, and Craig will say e-comm-primarily brand in the U.S. because he is going to do pop-up stores and we are going to have a few what I'll call flagships that are small in the U.S. But those decisions together, came together to say that -- and I'm not going to give you the actual math on the Saturday business. I think what you need to know is that with Saturday scaling to that $1 billion level in what he called Chapter 6, the period post 2016, it would be scaling in '15 and '16 and contributing to an overall adjusted brand EBITDA margin of 25% or greater at the end of 2016.

Now why don't you answer the question first about the mix of retail and E-comm in Japan and then the U.S.

Craig A. Leavitt

So in Japan, you're correct. We launched simultaneously both our E-comm site and our first stores. And so we could see both of those channels continuing to grow. And as you know, overall, the E-commerce channel is not quite as buoyant as it is in the U.S. And so we felt it was particularly important in that market to have a 2-channel approach to the business launch there.

William L. McComb

Not to mention, you're inside on the fashion malls that sit above these transport. It's a phenomenon we don't have. Describe them, Craig. We don't have them here.

Craig A. Leavitt

Yes, we've been struggling to find an analog for them here, and they don't really exist. You could talk about places like the stores and the shops in Grand Central Station, but that really doesn't properly describe it. These are really integrated into the daily lives of the commuter in these major transportation hubs in Tokyo. And they visit, they walk through these shops often twice a day. And so they are really, really important. And as the department stores have begun to decline in their influence over the overall retail marketplace in Japan, these have really become an even more important vehicle, and they are growing rapidly in terms of their number. And it's a big focus for developers in Japan.

William L. McComb

So it's like a mall -- no, it's like a department store that sits on top of a huge transit hub, but it's not a department store. The department store box itself is a mall and they -- you rent out little trading spaces. It's how to describe it.

Craig A. Leavitt

Yes, it's like concessions in a large box that sits over these transportation centers. So in the U.S., Bill is exactly right, so we plan to have a predominantly E-comm-based business in the U.S. But we know the importance of being able to show the product and how the product touch and feel. And I think one of the things, and Johanna said this, we know that over time more than half of all the decisions about buying, whether they're actually physically bought online or bought in the shop, are going to be based on an online experience. But the importance of having what we like to call the showrooms for our products which where they may buy, they might not buy but they are going to be able to live and be immersed in the lifestyle in these free-standing stores is going to be important to the growth through both channels. So we intend to have a mix. And early on, these pop-up shops that Bill alluded to are going to really help us become more educated about what our consumer is looking for and how they interact with the product.

Unknown Attendee

[indiscernible] business scale between the United States and in Japan, or is that [indiscernible].

William L. McComb

So the question that -- she didn't have the microphone. Janet just asked, is it fair to expect the business in the U.S. to scale as rapidly as it would in the U.S. Let's all wait and see. I will just tell you that this team's command of digital marketing to build an E-comm business, to drive traffic, to build the database, to harness into CRM capabilities is stunning. And I will tell you that we are all eyes on ASOs [ph] in the U.K. as a why not? And I really do believe, I think that it's a -- I think it's the wrong way to think about it to ask the question from a doubting perspective. We look at it and say, "There's at -- if you're 100% focused on it, I got news for you. I think this could be -- this could change how we in the industry look at launching things. And it could be the new model. So we've courageously embraced it. And I would say, it all does go back though to the actual lurking drama inherent in this target audience. It's where she lives. So -- and the product mix, the price points are -- they are perfect to be merchandised online. So we're sort of unapologetically embracing E-comm. Brian?

Unknown Attendee

So just a point of clarification, the Southeast Asia business that comes back in 2014 is how many stores now? And what do you envision in growth over time in the stores that you framed out for [indiscernible]?

William L. McComb

Yes, and that may have been what you guys were asking in the beginning.

Unknown Attendee

Yes, that was a little confusing that... [indiscernible]

William L. McComb

Yes, yes, we'll go through that again because that's sort of new. So Craig, discuss that.

Craig A. Leavitt

So we have about 20 stores. And so the market that we're talking about to be more specific is Hong Kong, Macau, Taiwan, Singapore, Malaysia and Thailand and Indonesia. So that's the specific submarkets that we're referring to.

Unknown Attendee

And how do you think about store growth there, Craig?

Craig A. Leavitt

We think there's still meaningful growth in that -- in those markets. We have very, very strong brand engagement, and we know this from things like our Facebook fans where they're coming from, how they engage with the brand digitally. So we think there is very meaningful growth opportunities. We have a bit of a somewhat more mature business in Hong Kong where we've been for about 10 years. But in those other markets which were a lot newer, they -- as Karen mentioned in her presentation, they are among our most productive stores globally, and we think that there's a lot more opportunity for growth in this.

William L. McComb

But that presence in Hong Kong is kind of like having the strong presence in London as it relates to Western Europe and the U.K. It really has installed a very strong awareness base with that wealthy traveler that is going intra-region between Taiwan and Singapore. So the Hong Kong base is very much like the Japan base.

Craig A. Leavitt

And importantly, the consumer in the PRC is definitely looking to what they're seeing in places like Hong Kong especially, but also in Singapore as well. And so we think there's definitely a domino effect into their growth in that market.

Unknown Attendee

So Craig, my second question is, as you think about wholesale, both domestically and internationally, and I think you said 400 doors in the U.S. I misread you on the target longer-term. I guess my question is both here in the U.S. and abroad, as you think about wholesale number of doors, what's the opportunity in each geography? And as you compare yourself to your peers that talk about shop-in-shop penetration in the wholesale channel, where do you sit today among those doors? Where can you get to, just big picture? How much square footage could you add to productivity, if you could add some color on that, I would really appreciate it.

Craig A. Leavitt

Yes, I mean, directionally we think that, and I mentioned this in my remarks, in our core handbag, small leather goods and apparel, we are beginning to near where we think we should be in the long term. Getting close. There's certainly some opportunity, but we're getting close. The big opportunity for us is what we call the [indiscernible].

William L. McComb

In which market are you speaking?

Craig A. Leavitt

I'm sorry, I'm talking about North America, of course.

William L. McComb

Were you talking North America?

Unknown Attendee

Both.

Craig A. Leavitt

Both.

William L. McComb

But split it out because...

Craig A. Leavitt

Yes. So speaking with North America, the opportunity really in terms of the door growth that I was talking about, getting to perhaps 800 to 1,000, really speaks to a lot of the elastic categories. And we believe that particularly, things like watches, jewelry, fragrance, those are real opportunities for growing our brand footprint or brand equity in additional doors through that channel of distribution. On the international side, as you know, certain markets, the wholesale model is very small. In places like Japan and China, as examples, there's very modest opportunities because there -- it's nearly entirely driven by concession models and free-standing stores. So those are...

William L. McComb

We're not big on those shop-in shops in Japan. So that's why I wanted you to go opine on that for me, particularly in Asia. How big do you think the whitespace of shop-in shops is?

Craig A. Leavitt

Of concessed shop-in shops, there's still very meaningful opportunity. And we think, as in places like the PRC that are beginning to reflect the model like Japan and, to a lesser extent, other parts of Southeast Asia, that there is very meaningful opportunity, not only in the -- initially, in the tier 1 cities, tier A cities, but over time, in other cities as the developers are really beginning to move and major department stores are moving into those markets. But most of that is on a concessed basis. And I think we talked about probably around 60 doors in that region from a real wholesale, a pure wholesale model. So it's mainly a retail concessed model in those -- in that region.

William L. McComb

And again, his slides, if you go through it again, you'll actually see some of the distinctions. This is a -- there's an X, Y and Z axis on this question because when you talk about wholesale and to the domestic channels, as he said in the core categories, we're pretty happy with the door count. But when we widen out the pyramid to these elastic categories, we're going to go where our competitors go. So as an example, the fragrance business, as you know, if you look at -- if you follow the Juicy fragrance business, which is well over $200 million in retail sales, a very big piece of the business, it follows the highly fragmented and multichannel approach of the fragrance industry in the competitive set that we're in. You get to watches. He said that an important bolt-on to the do-it-yourself in-house strategy is in Asia, where everywhere Michael Kors is selling watches, we're going to sell watches. And we're going to be signing up sales distributorships to be able to get us into that. And in Asia, it's small watch and jewelry shops that are -- in big quantities.

Craig A. Leavitt

That's right.

William L. McComb

So that -- talking about doors is a difficult thing because you have to go...

Craig A. Leavitt

Category by category.

William L. McComb

Category by category.

Craig A. Leavitt

And I think the other point going back...

William L. McComb

And country-by-country.

Craig A. Leavitt

Going back to North America for a second, even though we're talking about nearing where we think we need to be in the door bases in our core categories, we still think there's enormous opportunity for growth based on productivity, which has been a really important metric for us. We have really meaningful year-over-year growth, and that is the most important metric that we look at. It's not about door growth. It's about productivity growth as we look at our wholesale distribution in North America.

Unknown Attendee

The final quick piece was in the domestic doors, out of the 400 and how many of those do you have the full shop-in shop elevated presence?

William L. McComb

Not a lot.

Craig A. Leavitt

No, I don't have that exact number. But I would say it's...

Unknown Attendee

It was a big opportunity?

Craig A. Leavitt

About 1/3 of those.

William L. McComb

Yes, okay. Question back here. We're going to take 3 more questions. This is the first of 3.

Unknown Attendee

Clearly, your growth targets are exciting. I guess the question I had though is that some of that's going to come from category growth. But it seems like there's going to have to be a big chunk that comes from share shift. There are a lot of people, not to overuse the term that you guys used a lot today, but there are a lot of other companies that are aspiring to lifestyle brands today as well. Where do you think the share shifts come from? You guys have done a good job of analyzing your core kate spade girl, what she buys, who she is. I'm curious, where do you think you're getting the wallet share shift from in order to meet the kind of goals that you guys put up on the slides today.

William L. McComb

You want to take that?

Craig A. Leavitt

Yes. I mean, I think there is -- we look at all of our competitors. And I think that for us, it's about the points of differentiations. So in terms of -- it's a small group of similarly placed, similarly situated brands, there are -- whether it's the coaches of the world that have obviously had very high market share historically, and as well as some of the newer brands that have had more recent growth, whether that's the Marc by Marcs, the Tory Burches and of course, Michael Kors. So I think when you look at that set, each of those businesses is at various place in their curve of maturity and the ability to take market share from that varies depending on where that level of maturity is. But we think that there's opportunity amongst all of those. And it's really driven by through great product points of differentiation in a marketplace that are drawing and inspiring the customer. So that's really -- and so it's across on our core product areas of handbags and small leather goods. I think that's the set we look at. And again, this is one of those things that we have to look at category by category because we, in the end, don't have, and we think this is a whitespace for us, not so many direct competitors when you look cross category. We have different competitors often in different product categories. And so that answers a little bit different by product category.

William L. McComb

But -- so I came out of markets where we had very clear source of volume and market share dynamic reports monthly. It's -- no such thing exists in this category. The data that we have in terms of a simple and clear answer probably more from Coach on the handbag business than any other single player. And that's like you said, it's because -- I mean, they said what this week at the Bank of America conference, that they went for a lot of years without a real competitor in the category. And so they stand to lose more as with specific brands. But the source of volume on a business like this is coming from a lot of different places.

Okay. Yes, Mary Gilbert.

Mary Ross Gilbert - Imperial Capital, LLC, Research Division

Yes, can you talk about the productivity of -- when you're looking at [indiscernible] the sales per square foot at kate spade Saturday. And if you could talk about the mix of business. So if we're looking at kate spade, and we're talking about 20% E-comm, if we look at kate spade Saturday, would that be 80% E-comm? Can you talk about where you envision that?

William L. McComb

Well, the first thing is we have to blow your measure out of the water because we're not going to talk about productivity on a per-square-foot basis on a business that fundamentally has 0 square feet. And I'm kidding, it's going to have some square feet, but we joked about sales per cubic foot. We've talked -- you're going to hear a completely different language of metrics, which is one of the -- in the house of Fifth & Pacific, this is one of the great exciting things. I think Johanna made a great point when she said the challenge, and this is not just about Saturday, the challenge of what we're doing in general is these guys have moved beyond E-commerce. They've moved to enterprise commerce. And I think that the big breakthrough that this team had, like I haven't seen in other companies, this team got the idea that the web had to direct traffic to our stores and the stores had to direct traffic to the web. We're going to recreate compensation systems even out in the channel P&L so that that happens even more. And not long into our future, we're not going to talk about sales per square foot, which makes you even in the kate spade New York business, because it makes you only think that way. Comp is even a dangerous measure if you don't measure it as DTC, total direct-to-consumer, which we've done. So you'll hear us use different metrics. We'll talk about traffic. We'll talk about average transaction size. We'll talk about the tiers of customers, what a heavy user is worth, what a new user is worth. We'll talk about composition of sales and those kind of things when we talk about Saturday. And yes, I think that you can anticipate that when we talk about the channel mixes, probably even with Japan factored in, in the early years, we'll be looking at a base that's as skewed as much as 70%, 80%, would you say, George?

Mary Ross Gilbert - Imperial Capital, LLC, Research Division

Okay, that's very helpful. And then I wondered in talking about the points of presence, let's say, in China, where you can get to ultimately beyond 2016. And that at a point in 2016, as you pointed out, you haven't factored in acquiring that JV. Will you be a year or 2 away in 2016 from being able to exercise your acquisition like you said.

William L. McComb

Because we love our partner, I mean, it's to me, like saying with my mother in the room, when is your mother going to die? You know what I'm saying? So I will not answer it. And my mother has a brain tumor, and so that's on my mind. So no, seriously. So we're not going to -- I mean, that's why we're saying back there, we can't do that. But the good news is it is a partnership that has incentives that in no way require us to run out of the marriage in order for it to be delivering really meaningful, meaningful profit. So Craig, why don't you speak to out in Chapter 6, which is really what Mary's getting at, how high is up, if you will, without regard to any given single year in terms of your current thinking and your LRP on that business.

Craig A. Leavitt

Yes, I mean, I think when we look long-term, we think that there's probably, in our space, the opportunity for 200 or more doors in that marketplace. And so that's really meaningful. And we think, one of the things that has attracted us to our joint venture partner is that they have capabilities, not only strong capabilities in the key markets of Shanghai and Beijing, but have capabilities really across the country. And so as you move into other tier A and tier B cities, they have the infrastructure to be able to support that in a really brand-appropriate way, giving really consistent experience to customers around the market.

William L. McComb

Is there any question for Deborah?

Deborah Lloyd

Be brave.

William L. McComb

Yes, we have a question right here. Just 3 rows behind Mary.

Unknown Attendee

Maybe we can talk a little bit about the productivity of the current store base. And Deborah, if you can elaborate and help us understand how large the percentage and mix of the higher-priced handbags that you talked about within the -- in the presentation, how large could that be?

Deborah Lloyd

Well, somebody else can talk about how large it can be. It's something that we are incredibly passionate about. And I have to say, with the launch of ready-to-wear, it's something that drove us even higher because when we did the ready to wear, we realized another customer was coming into the store who love the ready-to-wear, and she's shopping more often. And she's more about splurging. So we definitely feel there's an appetite for that. We have our Madison Avenue store opening in the next couple of months, and that's going to be a playground for us to try things out before the flagships open all over the world. So we definitely feel that scale is there. So we're designing into that. But it's a proportion of the range, and we're tracking it and we'll watch it. But also that keeps the design team incredibly inspired. It often creates big ideas, but then you can filter down through and make a lot of money off when they hit the lower parts of the assortment. You saw the pyramid that we have, the ideas come from the top and then they come through. Well, if we sort of engineer for price and different things, and also we get a read on how well those things are selling. So it's a great way to inspire all of us. We love the fashion show. You saw that. That's often where the big ideas come from.

Craig A. Leavitt

And so we're going to watch that business. The current situation is that we are basically bleeding that business to other competitors because we just don't have product in those price points. And we know, as Deborah said, that there's definitely that enthusiast for our brand that wants to splurge on our product with these incredible designs and raw materials. So rather than have her walk to someone else, we're going to own that business now. So we're going to watch and we're going to wait for her to say no. And so far we've been saying no, so we're going to now wait for her to say no.

William L. McComb

That's right. I mean, the interesting thing is this is now the third time that I remember since, let's say, since we launched jewelry in early 2009. It's the third time I remember you all following the consumer to a higher and somewhat unpredictable place in the pricing and merchandising architecture. So the fact that they're following the customers suggest there really isn't a good answer to the question, and we shouldn't have a paradigm that says our rule is blank. So we'll see.

Unknown Attendee

And then just following up on the square footage productivity of the current store base, can you give us any color on what gives you confidence that you can continue to drive those solid comps?

William L. McComb

Well, these guys are comfortable -- they're comfortable with this year's forecast, and you've seen in it what our comp assumption is. It's double-digit comps. That said, I will throw myself in front of the question to say these are -- they're not -- these stores aren't 7,000 square feet. They're 2,200 square feet. And so you do reach -- on a same store basis, you reach, at some point, a level where taking one thing out and adding one more thing in doesn't get you to more productivity. Remarkably, this overworked little fleet of stores that has produced comps in this -- from 30% to 70% month after month after month for 3 years, is definitely going to reach a peak productivity level. It's above where we ever would have thought it would have been. And I have said that ideally we would have gotten to the store expansion much more carefully. While our competitors are willingly letting all of the string on the kite out all in one scoop, knowing or hoping that a big wind is going to come, we have been very thoughtful and plotting about how we have been deploying capital, maybe too cautiously. And so this year's 40-plus door opening between full-price and Outlet and kate and Jack and maybe 1 or 2 Saturday stores, it -- a year from now, we're going to get to the point where comp is going to, more than not, be driven by stores that are coming into the comp base at year one. And then the year after that, the fleet opening is sized similarly. So -- but he has said that, Craig, your year one productivity assumption for a new store opening is...

Craig A. Leavitt

About $700 per square foot.

William L. McComb

Yes. So that was a question a lot of you asked Bob and I on the road. You should know that. And so we expect that then to scale to the heights of what the fleet average is, with some, because of the nature of some of the stores, really stretching the bounds on what the per-square-foot metric can be. And again, I hope very soon that we make extinct that metric because as the business takes on even greater and greater and greater E-commerce penetration to total, it -- I think that there would be more metrics and it will have to do with measuring the value of a user and how many of them there are. So we're going to be bringing direct marketing metrics more to the table as an enterprise retailer here.

Okay. That's it, guys.

Craig A. Leavitt

Thank you all.

William L. McComb

Thank you very much for your time and attention.

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