Ralph Lauren Corporation (RL) - Description of business

Company Description
Conduct and Ethics for all directors, officers, and employees, our Code of Ethics for Principal Executive Officers and Senior Financial Officers, and information concerning our directors, Committees of the Board, including Committee charters, and transactions in Polo securities by directors and executive officers, is available at our website under the captions “Corporate Governance” and “SEC Filings”. Paper copies of these filings and corporate governance documents are available to stockholders without charge by written request to Investor Relations, Polo Ralph Lauren Corporation, 650 Madison Avenue, New York, New York 10022. In this Form 10-K, references to “Polo,” “ourselves,” “we,” “our,” “us” and the “Company” refer to Polo Ralph Lauren Corporation and its subsidiaries, unless the context requires otherwise. Due to the collaborative and ongoing nature of our relationships with our licensees, such licensees are sometimes referred to in this Form 10-K as “licensing alliances.” Our fiscal year ends on the Saturday nearest to March 31. All references to “Fiscal 2006” represent the 52-week fiscal year ended April 1, 2006. All references to “Fiscal 2005” represent the 52-week fiscal year ended April 2, 2005. All references to “Fiscal 2004” represent the 53-week year ended April 3, 2004. PART I Item 1.    Business General Polo Ralph Lauren Corporation is a global leader in the design, marketing and distribution of premium lifestyle products. We believe that our global reach, breadth of product and multi-channel distribution is unique among luxury and apparel companies. We operate in three distinct but integrated segments: wholesale, retail and licensing. During the past five years, we have continued to develop our business model, expand our vertically integrated retail segment, reposition our wholesale segment, and maintain a strong licensing segment despite the acquisition of several of our key licensed businesses. The following tables show our net revenues and operating profit (excluding unallocated corporate expenses, legal and restructuring charges) by segment for the last three fiscal years:                               Fiscal Years Ended       April 1,     April 2,     April 3,       2006     2005     2004       (millions)     Net revenues:                         Wholesale   $ 1,942.5     $ 1,712.1     $ 1,210.4   Retail     1,558.6       1,348.6       1,170.5   Licensing     245.2       244.7       268.8                                 $ 3,746.3     $ 3,305.4     $ 2,649.7                                                           Fiscal Years Ended       April 1,     April 2,     April 3,       2006     2005     2004       (millions)     Operating Income:                         Wholesale   $ 398.3     $ 299.7     $ 143.7   Retail     140.0       82.8       55.7   Licensing     153.5       159.5       191.6                                   691.8       542.0       390.4                             Less:                         Unallocated corporate expenses     (159.1 )     (133.8 )     (99.9 ) Unallocated legal and restructuring charges     (16.1 )     (108.3 )     (19.6 )                               $ 516.6     $ 299.7     $ 270.9                             Our net revenues by geographic region for the last three years are shown in the tables below. Note 20 to our Consolidated Financial Statements included in this Annual Report on Form 10-K contains additional segment and geographic area information.                               Fiscal Year Ended       April 1,     April 2,     April 3,   Net revenues by geographic area   2006     2005     2004       (millions)     United States and Canada   $ 3,032.3     $ 2,587.2     $ 2,073.5   Europe     627.7       579.2       464.1   Other regions     86.3       139.0       112.1                             Net revenues   $ 3,746.3     $ 3,305.4     $ 2,649.7                             We continue to invest in our business. In the past five years, we have invested approximately $1.4 billion for the acquisition of several key licensed businesses and capital improvements, all fundamentally through strong operating cash flow. We intend to continue to execute our long-term strategy of expanding our accessories and other product offerings, growing our specialty retail store base, and expanding our presence internationally. Seasonality of Business Our business is affected by seasonal trends, with greater wholesale segment sales in our second and fourth quarters and greater retail segment sales in our second and third quarters. These trends result primarily from the timing of seasonal wholesale shipments and key vacation travel and holiday shopping periods in the retail segment. As a result of the growth in our retail operations and other changes in our business, historical quarterly operating trends and working capital requirements may not be indicative of future performances. In addition, fluctuations in sales and operating income in any fiscal quarter may be affected by, among other things, the timing of seasonal wholesale shipments and other events affecting retail sales. Recent Developments On March 30, 2006 we opened a wholly-owned Ralph Lauren flagship store in the Omotesando shopping district in Tokyo. The Omotesando store is expected to raise our luxury image in Japan, where our products are also sold in five licensee owned specialty stores and over 300 department store shops-within-shops. On February 27, 2006, we signed a ten year license agreement with Luxottica Group, S.p.A., (“Luxottica”) effective January 1, 2007, for the design, production and worldwide distribution of prescription frames and sunglasses under the Polo Ralph Lauren brand. The agreement provides for Luxottica’s payment of approximately $200 million on the effective date, representing the discounted net present value of the guaranteed minimum royalties and design service payments over the life of the agreement. The approximate $200 million prepayment is nonrefundable, except with respect to certain breaches of the agreement by the company, in which case only the unearned portion of the prepayment would be required to be prepaid. The agreement will replace our current eyewear license with Safilo S.p.A., which expires on December 31, 2006. In Fiscal 2006, we acquired several businesses that source and sell products bearing our trademarks under license in order to control key product categories and realize the benefits of vertical integration. On February 3, 2006, we acquired all of the issued and outstanding shares of capital stock of Sun Apparel, Inc., our licensee for men’s and women’s casual apparel and sportswear in the United States and Canada (the “Polo Jeans Business”), from Jones Apparel Group, Inc. and certain of its subsidiaries (“Jones”). The acquisition cost was approximately $260 million in cash, including $5 million of transaction costs, and the purchase price is subject to certain post-closing adjustments. Note 5 to our consolidated financial statements sets forth how the purchase price has been preliminary allocated among the acquired assets. In addition, simultaneous with the transaction, we settled all claims under our litigation with Jones relating to the termination on December 31, 2003 of the United States and Canadian license and design agreements for the sale of products under the “Lauren” trademark for a cost of $100 million. Other than inventory, Jones retained the right to all working capital balances at the date of closing. We have entered into a transition services agreement with Jones to provide a variety of operational, financial and information systems services over a period of six to twelve months. We intend to expand our denim and casual sportswear business by introducing new product offerings under our Lauren brand for women and Polo brand for men while continuing to distribute Polo Jeans — branded products internationally. On July 15, 2005, we acquired from Reebok International Ltd. (“Reebok”) all of the issued and outstanding shares of capital stock of Ralph Lauren Footwear Co., Inc., our global licensee for men’s, women’s and children’s footwear, together with certain foreign assets owned by affiliates of Reebok (collectively, the “Footwear Business”). The acquisition cost was approximately $112 million in cash, including $2 million of transaction costs, and is subject to certain post-closing adjustments. The purchase price was allocated as described in Note 5 of our consolidated financial statements. In addition, Reebok and certain of its affiliates entered into a transition services agreement with the Company to provide a variety of operational, financial and information systems services over a period of twelve to eighteen months. In March 2006, we announced a five year arrangement as the first exclusive outfitter for all on-court officials at Wimbledon through 2010. This follows our four-year arrangement to be the official outfitter of all on-court officials at the U.S. Open tennis tournament, which began in 2005. Our Brands and Products Since 1967, our distinctive brand image has been consistently developed across an expanding number of products, price tiers and markets. Our Polo, Polo by Ralph Lauren, Ralph Lauren Purple Label, Ralph Lauren Black Label, RLX, Ralph Lauren, Blue Label, Lauren, RL, Rugby, Chaps and Club Monaco , brand names are one of the world’s most widely recognized families of consumer brands. We have been an innovator in aspirational lifestyle branding and believe that, under the direction of Ralph Lauren, the internationally renowned designer, we have influenced the manner in which people dress and live in contemporary society, reflecting an American perspective and lifestyle uniquely associated with Polo and Ralph Lauren. We combine our consumer insight and design, marketing and imaging skills to offer, along with our licensing alliances, broad lifestyle product collections with a unified vision:   •  Apparel — Products include extensive collections of men’s, women’s and children’s clothing;     •  Accessories — Accessories encompass a broad range of products such as footwear, eyewear, jewelry and leather goods, including handbags and luggage;     •  Home — Coordinated products for the home include bedding and bath products, furniture, fabric and wallpaper, paints, broadloom, tabletop and giftware; and     •  Fragrance — Fragrance and skin care products are sold under our Glamorous, Romance, Polo, Lauren, Safari, Blue Label and Black Label brands, among others. Domestically our Rugby, Blue Label for women and Black Label for men brands are sold only in our own retail specialty stores. Our lifestyle brand image is reinforced by our Polo.com internet site, which averaged 1.8 million unique visitors to the site each month during Fiscal 2006 and 820,000 customers during Fiscal 2006. Polo by Ralph Lauren.   Our Polo by Ralph Lauren menswear collection is a complete men’s wardrobe consisting of products related by theme, style, color and fabric. Polo by Ralph Lauren menswear is generally priced at a range of price points within the men’s premium ready-to-wear apparel market. We currently sell this collection through department stores, specialty stores and our Ralph Lauren and outlet stores in the United States and abroad. Blue Label.   Our Blue Label collection of womenswear reflects a modern interpretation of classic Ralph Lauren styles with a strong weekend focus. Blue Label collection is generally priced at a range of price points within the premium ready-to-wear apparel market. We currently sell the Blue Label collection domestically and internationally through Ralph Lauren stores and selected wholesale accounts in Europe and Asia. In Japan, our Blue Label line is sold under the Ralph Lauren brand name. Polo Golf.   Our Polo Golf collection of men’s and women’s apparel is targeted at the golf and resort markets. Price points are similar to those charged for products in the Polo by Ralph Lauren line. We sell the Polo Golf collection in the United States and Canada through leading golf clubs, pro shops and resorts, as well as department stores, specialty stores and Ralph Lauren stores. RLX.   Our RLX collection of menswear and womenswear consists of functional sport and outdoor apparel for running, cross-training, skiing, snowboarding and cycling. We sell RLX in our Ralph Lauren stores. Ralph Lauren Childrenswear.   We offer a comprehensive collection of both Boys and Girls apparel and accessories that are sold to better specialty and department stores. The line ranges from newborn up to size 16 in Girls and size 20 in Boys. Lauren by Ralph Lauren.   Our Lauren by Ralph Lauren women’s collection is a complete women’s lifestyle brand consisting of products related by theme, style, color and fabric. Lauren by Ralph Lauren is generally priced at a range of price points within the women’s better ready-to-wear apparel market. We currently sell this collection through department stores in the United States. Women’s Ralph Lauren Collection and Black Label.   Our Ralph Lauren Collection expresses our up-to-the-moment fashion vision for women. Ralph Lauren Black Label includes timeless versions of our most successful Collection styles as well as newly-designed classic signature styles. Collection and Black Label are offered through our Ralph Lauren stores and limited distribution to premier fashion retailers. Price points are at the upper end of the luxury range. Men’s Purple Label Collection.   Our Purple Label collection of men’s tailored clothing and sportswear brings true luxury and quality to American menswear. We sell the Purple Label collection through our Ralph Lauren stores and a limited number of premier fashion retailers at price points at the upper end of the luxury range. Men’s Black Label.   Our Ralph Lauren Black Label for men is a new, sophisticated collection, featuring razor sharp tailoring and dramatically lean silhouettes, which is at once modern and timeless. Classic suiting and sportswear is infused with a savvier attitude. We sell the Men’s Black Label collection through our Ralph Lauren stores and a limited number of premier fashion retailers at price points at the upper end of the luxury range. Rugby.   Rugby is a full lifestyle collection with a hipper, more youthful fit. Rugby is sold in a limited number of our Rugby stores. Rugby is designed for 18 to 25 year olds, and is an opportunity to better serve this demographic. Our Wholesale Segment Our wholesale segment sells our products primarily to leading upscale department stores, specialty stores and golf and pro shops, both domestically and internationally. We have focused on elevating our brand and improving productivity by reducing the number of unproductive doors within department stores in which our products are sold, improving in-store product assortment and presentation, and improving full price sell-throughs to consumers. As of April 1, 2006, the end of Fiscal 2006, our products were sold in approximately 1,950 domestic department stores, and during Fiscal 2006 we invested approximately $26 million in shops-within-shops dedicated to our products in domestic department stores. We have also effected selective price increases on basic products and introduced new fashion offerings at higher price points. Department stores are our major wholesale customers in North America and Japan. In Europe, our wholesale sales are a varying mix of sales to both department stores and specialty shops, depending on the country. Our collection brands — Women’s Ralph Lauren Collection and Black Label and men’s Purple Label Collection and Black Label — are distributed through a limited number of premier fashion retailers. In addition, we sell excess and out-of-season products through secondary distribution channels. Worldwide Distribution Channels The following table presents the approximate number of doors (excluding our own specialty stores), by channel, in which products distributed by our wholesale segment, excluding Chaps, were sold to consumers worldwide as of April 1, 2006. In addition, during fiscal 2006 our Wholesale Segment launched Chaps for women and boys product lines in approximately 750 department stores.                               Approximate Number of       Doors as of April 1, 2006       Polo     Collection             Brands     Brands     Lauren     Department Stores     4,130       150       1,002   Specialty Stores     5,411       195       —   Golf and Pro Shops     2,470       —       —   The following department store chains were the only wholesale customers whose purchases represented more than ten percent of our worldwide wholesale net sales for the year ended April 1, 2006. Although Federated Department Stores, Inc. and The May Department Stores Company are shown separately, Federated Department Stores acquired The May Department Stores by merger on August 30, 2005. Combined, Federated and May accounted for approximately 33% of our wholesale net sales in Fiscal 2006.   •  Federated Department Stores, Inc., which represented approximately 18%,     •  Dillard Department Stores, Inc., which represented 17%, and     •  The May Department Stores Company, which represented 15%. Federated has announced plans to close or divest itself of more than 79 of the combined companies’ stores in calendar 2006 and to divest itself of the approximately 50 store Lord & Taylor division, and is converting the remaining stores formerly owned by The May Department Stores to the Macy’s name plate. We do not believe that this merger and restructuring will have a material adverse effect on our business. Our product brands are sold primarily through their own sales forces. Our Wholesale Segment maintain their primary showrooms in New York City. In addition, we maintain regional showrooms in Atlanta, Chicago, Dallas, Los Angeles, Milan, Paris, London, Munich, Madrid and Stockholm. Shop-within-Shops.   As a critical element of our distribution to department stores, we and our licensing partners utilize shop-within-shops to enhance brand recognition, to permit more complete merchandising of our lines by the department stores and to differentiate the presentation of products. Shop-within-shops fixed assets primarily include items such as customized freestanding fixtures, moveable wall cases and components, decorative items and flooring. At April 1, 2006, we had approximately 9,100 shop-within-shops dedicated to our wholesale products worldwide and our licensing partners had more than 775 shop-within-shops. During Fiscal 2006, we added approximately 1,654 shop-within-shops. Excluding significantly larger shop-within-shops in key department store locations, the size of our shop-within-shops typically ranges from approximately 100 to 4,800 square feet for Polo products, from approximately 240 to 4,000 square feet for Lauren by Ralph Lauren, from approximately 100 to 600 square feet for our Collection Brands, and from approximately 300 to 900 square feet for Home Furnishings. We share in the cost of these shops-within-shops. Basic Stock Replenishment Program.   Basic products such as knit shirts, chino pants and oxford cloth shirts can be ordered at any time through our basic stock replenishment programs. We generally ship these products within one to five days of order receipt. These products accounted for approximately 7.4% of our wholesale net sales in Fiscal 2006. We have also implemented a seasonal quick response program to allow replenishment of products which can be ordered only during a portion of the year. Our Retail Segment Our retail segment consists of 137 full-price retail stores and 145 outlet stores worldwide, excluding our seven remaining Caban home stores, of which we are in the process of disposing by sale or closure. The expansion of our full-price retail store base is a primary long-term strategic goal. We opened 11 new full-price stores in Fiscal 2006, net of store closings, including the flagship store in Tokyo, and currently anticipate opening between 10 and 15 full-price stores in Fiscal 2007. Our retail operating profit rate increased from 3.0% of net sales in Fiscal 2001 to 9.0% of net sales in Fiscal 2006, reflecting improvements in productivity, gross margins, and full-margin sell-through rates. Our full price retail stores reinforce the luxury image and distinct sensibility of our brands and feature exclusive lines that are not sold in domestic department stores: Blue Label for Women, Black Label for Men and Ralph Lauren Home. We operated the following full price stores as of April 1, 2006: Full-Price Retail Stores                                   Location   Ralph Lauren     Club Monaco     Rugby     Total     United States and Canada     50       64 *     5       119   Europe     13       —       —       13   Other     5       —       —       5                                           68       64       5       137                                     *  Excludes the seven Caban Stores   •  Ralph Lauren stores feature the full-breadth of the Ralph Lauren apparel, accessory and home product assortments in an atmosphere reflecting the distinctive attitude and luxury positioning of the Ralph Lauren brand. Our seven flagship Ralph Lauren stores showcase our upper-end luxury styles and products and demonstrate our most refined merchandising techniques.     •  Club Monaco stores feature updated fashion apparel and accessories for both men and women. The brand’s clean and updated classic signature style forms the foundation of a modern wardrobe.     •  Rugby, the newest brand in the Ralph Lauren family, is a vertical retail format featuring an aspirational lifestyle collection of apparel and accessories for men and women. The brand is characterized by a youthful, preppy attitude which resonates throughout the line and the store experience. In addition to generating sales of our products, our worldwide full-price stores set, reinforce and capitalize on the image of our brands. Our stores range in size from approximately 1,000 to over 37,600 square feet. These full-price stores are situated in upscale regional malls and major upscale street locations, generally in large urban markets. We generally lease our stores for initial periods ranging from 5 to 10 years with renewal options. We extend our reach to additional consumer groups through our 123 domestic Polo Ralph Lauren outlet stores and 21 European outlet stores. During Fiscal 2006, we added 1 new Polo Ralph Lauren outlet store, net, and closed four of five Club Monaco outlet stores. We will close the remaining Club Monaco outlet store in Fiscal 2007. Our outlet stores are generally located in outlet malls.   •  Polo Ralph Lauren outlet stores offer selections of our menswear, womenswear, children’s apparel, accessories, home furnishings and fragrances. Ranging in size from 3,000 to 20,000 square feet, with an average of approximately 9,400 square feet, these stores are principally located in major outlet centers in 36 states and Puerto Rico.     •  Polo Jeans outlet stores carry all classifications within the Polo Jeans line, including denim, knit and woven tops, sweaters, outerwear, casual bottoms and accessories. Ranging in size from 3,200 to 5,000 square feet, with an average of 4,200 square feet, these stores are located in 7 states, principally in major outlet centers.     •  European outlet stores offer selections of our menswear, womenswear, children’s apparel, accessories, home furnishings and fragrances. Ranging in size from 2,400 to 13,200 square feet, with an average of approximately 6,400 square feet, these stores are located in 6 countries, principally in major outlet centers. Outlet stores obtain products directly from us, including our retail stores, our product licensing partners and our suppliers. Polo.com In addition to our stores, our retail segment sells Ralph Lauren products on-line through our e-commerce website, Polo.com (http://www.polo.com). Polo.com offers our customers access to the full breadth of Ralph Lauren apparel, accessories and home product, and allows us to reach retail customers on a multi-channel basis and reinforces the luxury image of our brands. In Fiscal 2006, Polo.com averaged 1.8 million unique visitors a month and had 820,000 customers. Polo.com is owned and operated by Ralph Lauren Media, LLC, our consolidated 50% owned joint venture with NBC Universal and ValueVision Media, Inc., which operates ShopNBC. Our Licensing Segment Through licensing alliances, we combine our consumer insight, design, and marketing skills with the specific product or geographic competencies of our licensing partners to create and build new businesses. We generally seek out licensing partners who:   •  are leaders in their respective markets,     •  contribute the majority of the product development costs,     •  provide the operational infrastructure required to support the business, and     •  own the inventory. We grant our product licensees the right to manufacture and sell at wholesale specified categories of products under one or more of our trademarks. We grant our international geographic area licensing partners exclusive rights to distribute certain brands or classes of our products and operate retail stores in specific international territories. These geographic area licensees source products from us, our product licensing partners and independent sources. Each licensing partner pays us royalties based upon its sales of our products, subject, generally, to a minimum royalty requirement. Other than our Ralph Lauren Home collection licenses, which are discussed below, these payments generally range up to 14.0% of the licensing partners’ sales of the licensed products. In addition, licensing partners may be required to allocate a portion of their sales revenues to advertise our products and share in the creative costs associated with these products. Larger allocations are required in connection with launches of new products or in new territories. Our licenses generally have 3 to 5 year terms and may grant the licensee conditional renewal options. We work closely with our licensing partners to ensure that their products are developed, marketed and distributed so as to reach the intended market opportunity and to present consistently to consumers worldwide the distinctive perspective and lifestyle associated with our brands. Virtually all aspects of the design, production quality, packaging, merchandising, distribution, advertising and promotion of Polo Ralph Lauren products are subject to our prior approval and continuing oversight. The result is a consistent identity for Polo Ralph Lauren products across product categories and international markets. Approximately 26% of our licensing revenue for Fiscal 2006 was derived from two product licensing partners: Impact21, one of the sublicensees for Japan, and WestPoint Home, Inc, accounted for 14% and 12%, respectively, of our licensing revenue in Fiscal 2006. Product Licenses The following table lists our principal product licensing agreements for men’s and women’s sportswear, men’s tailored clothing, personal wear, accessories and fragrances as of April 1, 2006. The products offered by these licensing partners are listed below. Except as noted in the table, these product licenses cover the United States or North America only.       Licensing Partner   Licensed Product Category   L’Oreal S.A./Cosmair, Inc. (global)   Men’s and Women’s Fragrances and Skin Care Products Carole Hochman Design   Women’s Sleepwear, Loungewear, Robes and Daywear Corneliani S.P.A. (includes Europe)   Men’s Polo Tailored Clothing Peerless, Inc   Men’s, Chaps and Lauren Tailored Clothing Sara Lee Corporation   Men’s Polo Ralph Lauren and Chaps Personal Wear Apparel and Chaps Hosiery for Mens and Boys Wathne Imports, Ltd.   Handbags and Luggage Hot Sox, Inc.   Men’s and Boy’s Polo Ralph Lauren and Women’s Ralph Lauren and Lauren, and Boy’s Hosiery New Campaign, Inc.    Chaps, Ralph Lauren and Lauren Belts and Other Small Leather Goods Echo Scarves, Inc.    Men’s Polo Ralph Lauren and Polo Jeans Company and Women’s Ralph Lauren and Lauren Scarves and Gloves Retail Brand Alliance, Inc. (successor to Carolee, Inc.)   Lauren Women’s Jewelry Safilo USA, Inc.* (global)   Eyewear The Warnaco Group, Inc.    Men’s Chaps Sportswear Apparel Ventures, Inc.    Women’s Swimwear Philips Van-Heusen Corporation   Men’s Chaps Dress Shirts Randa Corp   Men’s Chaps Ties Bandanco Enterprise, Inc. (Champlain)   Men’s Chaps Luggage * Effective January 1, 2007, Luxottica Group, S.p.A. will be our eyewear licensee As described above under the caption “Recent Developments,” we acquired our licensed Polo Jeans Business in February 2006 and our licensed global men’s, women’s and children’s footwear business in July 2005. International Licenses We believe that international markets offer additional opportunities for our quintessential American designs and lifestyle image. We work with our international licensing partners to facilitate international expansion. International expansion opportunities may include:   •  the roll out of new products and brands following their launch in the U.S.,     •  the introduction of additional product lines,     •  the entrance into new international markets, and     •  the addition of Ralph Lauren or Polo Ralph Lauren stores in these markets. The following table identifies our largest international area licensing partners (excluding Ralph Lauren Home licensees):       Licensing Partner   Territory   Oroton Group/PRL Australia   Australia and New Zealand Doosan Corporation   Korea P.R.L. Enterprises, S.A.    Panama, Aruba, Curacao, The Cayman Islands, Costa Rica, Nicaragua, Honduras, El Salvador, Guatemala, Belize, Colombia, Ecuador, Bolivia, Peru, Antigua, Barbados, Bonaire, Dominican Republic, St. Lucia, Trinidad and Tobago Dickson Concepts/PRL Hong Kong   Hong Kong, China, Philippines, Malaysia, Singapore, Taiwan and Thailand Polo Ralph Lauren Japan Corporation*   Japan Commercial Madison/PRL Chile   Chile * Polo Ralph Lauren Japan is our consolidated 50% owned joint venture with Onward Kashiyama Co., Ltd. Polo Ralph Lauren Japan operates principally through sublicensees, including Impact21 Co., Ltd., mens’ and womens’ apparel and accessories and Polo Jeans, Naigai, childrens and golf apparel and hosiery, and Hitomi casual wear. Our international licensing partners acquire the right to source, produce, market and/or sell various categories of our products in a given geographic area. These rights may include the right to own and operate retail stores. The economic arrangements are similar to those of our product licensing partners. We design licensed products either alone or in collaboration with our domestic licensing partners. Our product licensees whose territories do not include the international geographic area licensees’ territories generally provide our international licensing partners with product or patterns, piece goods, manufacturing locations and other information and assistance necessary to achieve product uniformity, for which they are often compensated. As of April 1, 2006, our international licensing partners operated 13 Ralph Lauren stores, 29 Polo Ralph Lauren stores, 28 Polo Jeans stores, 2 Children’s stores and 4 Polo outlet stores. Ralph Lauren Home Together with our licensing partners, we offer an extensive collection of home products that draw upon and further the design themes of our other product lines, contributing to our complete lifestyle concept. Products are sold under the Ralph Lauren Home and Lauren Ralph Lauren brands in three primary categories: bedding and bath, home décor and home improvement. As of April 1, 2006, we had agreements with eight domestic and two international home product licensing partners. We perform a broader range of services for our Ralph Lauren Home licensing partners than we do for our other licensing partners. These services include design, operating showrooms, marketing, advertising and, in some cases, sales. As a result, we receive a higher average royalty rate from our Ralph Lauren Home collection licensing partners, typically ranging from 15.0% to 20.0%. In general, the licensing partners manufacture, own the inventory and ship the products. Our Ralph Lauren Home licensing alliances generally have 3 to 5 year terms and may grant the licensee conditional renewal options. Ralph Lauren Home products are positioned at the upper tiers of their respective markets and are offered at a range of price levels. These products are generally distributed through several channels of distribution, including department stores, specialty home furnishings stores, interior design showrooms, customer direct mail catalogs, home centers and the Internet as well as our own stores. As with our other products, the use of shop-within-shops is central to our department store distribution strategy. The Ralph Lauren Home and Lauren Ralph Lauren home products offered by us and our product licensing partners are:           Category   Product   Licensing Partner   Bedding and Bath   Sheets, bedding accessories, towels and shower curtains, blankets, down comforters, other decorative bedding and accessories   WestPoint Home, Inc. Fremaux-Delorme Ichida     Bath rugs   Lacey Mills Home Décor   Fabric and wallpaper   P. Kaufmann, Inc. Designers Guild Ltd.     Furniture   Henredon Furniture Industries, Inc.     Tabletop and giftware Table linens, placemats, tablecloths and napkins   Mikasa, Inc. Brownstone Home Improvement   Interior paints and stains Broadloom carpets and area rugs   ICI/Glidden Company Karastan, a division of Mohawk Carpet Corporation WestPoint Home, Inc. offers a basic stock replenishment program that includes bath and bedding products and accounted for approximately 81% of their net sales of Ralph Lauren Home products in Fiscal 2006. WestPoint Home, Inc. accounted for approximately 58% of total Ralph Lauren Home licensing revenue in Fiscal 2006. Product Design Our products reflect a timeless and innovative American style associated with and defined by Ralph Lauren and our design team. Our consistent emphasis on innovative and distinctive design has been an important contributor to the prominence, strength and reputation of the Ralph Lauren brands. All Ralph Lauren products are designed by, or under the direction of, Ralph Lauren and our design staff, which is divided into seven departments: Menswear, Womenswear, Lauren, Children’s, Accessories, Home and Club Monaco. We form design teams around our brands and product categories to develop concepts, themes and products for each brand and category. These teams support all three segments of our business — wholesale, retail and licensing — through close collaboration with merchandising, sales and production staff and licensing partners in order to gain market and other input. Marketing Our marketing program communicates the themes and images of our brands and is an integral feature of our product offering. Worldwide marketing is managed on a centralized basis through our advertising and public relations departments in order to ensure consistency of presentation. We create distinctive image advertising for all our products, conveying the particular message of each brand within the context of our core themes. Advertisements generally portray a lifestyle rather than a specific item and often include a variety of products offered by both ourselves and our licensing partners. Our primary advertising medium is print, with multiple page advertisements appearing regularly in a range of fashion, lifestyle and general interest magazines. Major print advertising campaigns are conducted during the fall and spring retail seasons, with additions throughout the year to coincide with product deliveries. In addition to print, some product categories have utilized television and outdoor media in their marketing programs for certain product categories. Our Polo.com e-commerce website presents the Ralph Lauren lifestyle on the internet while offering the full breadth of our apparel, accessories and home products. If our domestic licensing partners are required to spend an amount equal to a percent of their licensed product sales on advertising, we coordinate the advertising placement on their behalf. We also conduct a variety of public relations activiti