Continue to experience impact of strong dollar/lower tourist traffic
“While we continue to experience the negative impact of a strengthening U.S. dollar and lower tourist traffic, our product across core and emerging categories was well received and we achieved strong sell-through in most regions.”
Raising prices, negotiating lower costs in response to currency impacts
“Moving to foreign exchange, we have taken decisive actions to mitigate the negative currency impacts. First we are raising prices in certain markets that have been impacted by currency devaluation, including Japan, Canada, Australia and Europe. These pricing actions are generally in the mid-to-high single-digit range and will be effective in the back half of the fiscal year.
Second, our supply chain organization has negotiated lower cost across our manufacturing base as a result of lower raw material and oil prices as well as the strength of the U.S. dollar. These lower costs will also become effective in the back half of the fiscal year. Finally we will reduce operating cost by restructuring the organization.”
Better margin outlook for FY 17, but negative side is FX hedges rolling off
“On the second question, in terms of what does it mean for fiscal 2017, I think that there’s going to be a couple of different things happening in fiscal 2017 and it’s premature for us to give guidance that far out. But obviously we would expect to see a full year impact of the pricing action that we’re taking, which would be a positive. We would expect to see a full year impact of the cost reductions that we’re taking, which would be a positive, and we would expect to see a ramp-up of the restructuring savings, which would be a positive. And so all of those would lead to a better operating margin outlook in 2017.
On the negative side, we have hedged our FX exposure. And so as those hedges roll off, we will have a year-on-year hedge FX hurt continuing into fiscal 2017 from the portion of the business that was hedged in fiscal 2016. ”
Shared service group
“So the supply chain and the back office will continue to be operated as they are today by our shared service group. So we have a shared service group today that handles global manufacturing and supply chain, that handles finance, that handles HR, that handles real estate, that handles operational capabilities, and that will continue because we believe that those groups are better leveraged across the entire enterprise and we don’t intend to disrupt that.”