Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following management's discussion and analysis of financial condition and results of operations ("MD&A") should be read together with our audited consolidated financial statements and notes thereto, which are included in this Annual Report on Form 10-K. We utilize a 52-53 week fiscal year ending on the Saturday closest to March 31. As such, Fiscal 2018 ended on March 31, 2018 and was a 52-week period; Fiscal 2017 ended on April 1, 2017 and was a 52-week period; Fiscal 2016 ended on April 2, 2016 and was a 53-week period; and Fiscal 2019 will end on March 30, 2019 and will be a 52-week period.

INTRODUCTION

MD&A is provided as a supplement to the accompanying consolidated financial statements and notes thereto to help provide an understanding of our results of operations, financial condition, and liquidity. MD&A is organized as follows:

•

Overview. This section provides a general description of our business, global economic conditions and industry trends, and a summary of our financial performance for Fiscal 2018. In addition, this section includes a discussion of recent developments and transactions affecting comparability that we believe are important in understanding our results of operations and financial condition, and in anticipating future trends.

•	Results of operations. This section provides an analysis of our results of operations for Fiscal 2018 and Fiscal 2017 as compared to the respective prior fiscal year.

•

Financial condition and liquidity. This section provides a discussion of our financial condition and liquidity as of March 31, 2018, which includes (i) an analysis of our financial condition as compared to the prior fiscal year-end; (ii) an analysis of changes in our cash flows for Fiscal 2018 and Fiscal 2017 as compared to the respective prior fiscal year; (iii) an analysis of our liquidity, including the availability under our commercial paper borrowing program and credit facilities, common stock repurchases, payments of dividends, and our outstanding debt and covenant compliance; and (iv) a summary of our contractual and other obligations as of March 31, 2018.

•	Market risk management. This section discusses how we manage our risk exposures related to foreign currency exchange rates, interest rates, and our investments as of March 31, 2018.

•

Critical accounting policies. This section discusses accounting policies considered to be important to our results of operations and financial condition, which typically require significant judgment and estimation on the part of management in their application. In addition, all of our significant accounting policies, including our critical accounting policies, are summarized in Note 3 to the accompanying consolidated financial statements.

•	Recently issued accounting standards. This section discusses the potential impact on our reported results of operations and financial condition of certain accounting standards that have been recently issued or proposed.

OVERVIEW

Our Business

Our Company is a global leader in the design, marketing, and distribution of premium lifestyle products, including apparel, accessories, home furnishings, and other licensed product categories. Our long-standing reputation and distinctive image have been developed across an expanding number of products, brands, sales channels, and international markets. Our brand names include Ralph Lauren, Ralph Lauren Collection, Ralph Lauren Purple Label, Polo Ralph Lauren, Double RL, Lauren Ralph Lauren, Polo Ralph Lauren Children, Chaps, and Club Monaco, among others.

We diversify our business by geography (North America, Europe, and Asia, among other regions) and channels of distribution (wholesale, retail, and licensing). This allows us to maintain a dynamic balance as our operating results do not depend solely on the performance of any single geographic area or channel of distribution. Our wholesale sales are made principally to major department stores and specialty stores around the world. We also sell directly to consumers through our integrated retail channel, which includes our retail stores, concession-based shop-within-shops, and digital commerce operations around the world. In addition, we license to unrelated third parties for specified periods the right to operate retail stores and/or to use our various trademarks in connection with the manufacture and sale of designated products, such as certain apparel, eyewear, fragrances, and home furnishings.

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We organize our business into the following three reportable segments:

•

North America — Our North America segment, representing approximately 52% of our Fiscal 2018 net revenues, primarily consists of sales of our Ralph Lauren branded products made through our wholesale and retail businesses in the U.S. and Canada, excluding Club Monaco. In North America, our wholesale business is comprised primarily of sales to department stores, and to a lesser extent, specialty stores. Our retail business in North America is comprised of our Ralph Lauren stores, our factory stores, and our digital commerce site, www.RalphLauren.com.

•

Europe — Our Europe segment, representing approximately 26% of our Fiscal 2018 net revenues, primarily consists of sales of our Ralph Lauren branded products made through our wholesale and retail businesses in Europe and the Middle East, excluding Club Monaco. In Europe, our wholesale business is comprised of a varying mix of sales to both department stores and specialty stores, depending on the country. Our retail business in Europe is comprised of our Ralph Lauren stores, our factory stores, our concession-based shop-within-shops, and our various digital commerce sites.

•

Asia — Our Asia segment, representing approximately 15% of our Fiscal 2018 net revenues, primarily consists of sales of our Ralph Lauren branded products made through our wholesale and retail businesses in Asia, Australia, and New Zealand. Our retail business in Asia is comprised of our Ralph Lauren stores, our factory stores, and our concession-based shop-within-shops. In addition, we sell our products through various third-party digital partner commerce sites. In Asia, our wholesale business is comprised primarily of sales to department stores, with related products distributed through shop-within-shops.

In addition to these reportable segments, we also have other non-reportable segments, representing approximately 7% of our Fiscal 2018 net revenues, which primarily consist of (i) sales of Club Monaco branded products made through our retail businesses in the U.S., Canada, and Europe, and our licensing alliances in Europe and Asia, (ii) sales of Ralph Lauren branded products made through our wholesale business in Latin America, and (iii) royalty revenues earned through our global licensing alliances, excluding Club Monaco.

Approximately 45% of our Fiscal 2018 net revenues were earned outside of the U.S. See Note 19 to the accompanying consolidated financial statements for further discussion of our segment reporting structure.

Our business is typically affected by seasonal trends, with higher levels of wholesale sales in our second and fourth fiscal quarters and higher retail sales in our second and third fiscal quarters. These trends result primarily from the timing of seasonal wholesale shipments and key vacation travel, back-to-school, and holiday shopping periods impacting our retail business.

Global Economic Conditions and Industry Trends

The global economy and our industry are impacted by many different influences. Most recently, the U.S. enacted new tax legislation known as the TCJA (as defined within "Recent Developments"), which is intended to stimulate economic growth and capital investment in the U.S. by, among its other provisions, lowering tax rates for both corporations and individuals alike. Certain other worldwide events, including political unrest, acts of terrorism, monetary policy changes, and currency and commodity price changes, increase volatility in the global economy. In addition, the current domestic and international political environment, including potential changes to other U.S. policies related to global trade, immigration, and healthcare, have also resulted in uncertainty surrounding the future state of the global economy. As our international business continues to grow, and because the majority of our products are produced outside of the U.S., major changes in global tax policies or trade relations could have a material adverse effect on our business or operating results. Our results also have been, and are expected to continue to be, impacted by foreign exchange rate fluctuations.

In addition, the retail landscape in which we operate is evolving, with consumers continuing to diversify the channels in which they transact and shifting their shopping preference from physical stores to online. This, along with other factors, has resulted in many retailers, including certain of our large wholesale customers, becoming highly promotional and aggressively marking down their merchandise in an attempt to offset declines in physical store traffic. The retail industry, particularly in the U.S., has also experienced numerous bankruptcies, restructurings, and ownership changes in recent years. Certain of our operations, including our North America wholesale business, have been negatively impacted by these dynamics. The continuation of these industry trends could further impact consumer spending and consumption behavior in our industry, which could have a material adverse effect on our business or operating results. Additionally, changes in economic conditions, including those that may result from the TCJA, can further impact consumer discretionary income levels and spending. While we are optimistic that the TCJA will stimulate economic growth, it is still too early to determine the resulting impact on consumer spending and consumption behavior.

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We have implemented various operating strategies globally to help address many of these current challenges, and continue to build a foundation for long-term profitable growth centered around strengthening our consumer-facing areas of product, stores, and marketing across channels and driving a more efficient operating model. In connection with these strategies, we are taking deliberate actions to ensure promotional consistency across channels and enhance the overall brand and shopping experience, including reducing shipments to better align with underlying demand and lower inventory levels. Additionally, we are optimizing our wholesale distribution channel, and closed approximately 25% of our underperforming U.S. department store points of distribution during Fiscal 2018. Further, in October 2017, we began to shift to a more cost-effective and flexible platform for our directly operated digital businesses, which is expected to deliver a more brand-enhancing and consistent customer experience across our global digital ecosystem. See our restructuring activities as described within "Recent Developments" below for further discussion. Although the investments that we are making in our business and our quality of sales initiatives may create operating profit pressure in the near-term, we expect that these initiatives will create longer-term shareholder value.

We will continue to monitor these conditions and trends and evaluate and adjust our operating strategies and foreign currency and cost management opportunities to help mitigate the related impact on our results of operations, while remaining focused on the long-term growth of our business and protecting the value of our brand.

For a detailed discussion of significant risk factors that have the potential to cause our actual results to differ materially from our expectations, see Part I, Item 1A — "Risk Factors" included in this Annual Report on Form 10-K.

Summary of Financial Performance

Operating Results

In Fiscal 2018, we reported net revenues of $6.182 billion, net income of $162.8 million, and net income per diluted share of $1.97, as compared to net revenues of $6.653 billion, a net loss of $99.3 million, and net loss per diluted share of $1.20 in Fiscal 2017. The comparability of our operating results has been affected by TCJA enactment-related charges recorded during Fiscal 2018, as well as restructuring-related charges, impairment of assets, and certain other charges recorded during both Fiscal 2018 and Fiscal 2017, as discussed further below.

During Fiscal 2018, net revenues declined 7.1% on a reported basis and 8.4% on a constant currency basis, as defined within "Transactions and Trends Affecting Comparability of Results of Operations and Financial Condition" below. The decline in reported net revenues during Fiscal 2018 was primarily due to lower sales from our North America segment driven by the impact of our quality of distribution and sales initiatives, including lower levels of promotional activity and a strategic reduction in shipments, as well as brand discontinuances and lower consumer demand.

Our gross profit as a percentage of net revenues increased by 580 basis points to 60.7% during Fiscal 2018, primarily driven by lower non-cash inventory-related charges recorded in connection with the Way Forward Plan, lower levels of promotional activity in connection with our long-term growth strategy, favorable geographic and channel mix, and lower sourcing costs.

Selling, general, and administrative ("SG&A") expenses as a percentage of net revenues increased by 240 basis points to 50.1% during Fiscal 2018, primarily due to operating deleverage on lower net revenues and the unfavorable impact attributable to geographic and channel mix, as a greater portion of our revenue was generated by our international retail businesses (which typically carry higher operating expense margins). These increases were largely offset by our operational discipline and cost savings associated with our restructuring activities.

Net income increased by $262.1 million to $162.8 million in Fiscal 2018 as compared to Fiscal 2017, primarily due to a $590.5 million increase in operating income, partially offset by a $332.0 million increase in our income tax provision largely driven by TCJA enactment-related charges.

Net income per diluted share increased by $3.17 to $1.97 per share in Fiscal 2018 as compared to Fiscal 2017, due to higher net income and lower weighted-average diluted shares outstanding during Fiscal 2018.

Net income during Fiscal 2018 reflected TCJA enactment-related charges of $221.4 million, or $2.68 per diluted share. Our operating results during Fiscal 2018 and Fiscal 2017 were also negatively impacted by restructuring-related charges, impairment of assets, and certain other charges totaling $165.6 million and $770.3 million, respectively, which had an after-tax effect of reducing net income by $113.3 million, or $1.38 per diluted share, and $592.1 million, or $7.10 per diluted share, respectively. In addition, our net loss during Fiscal 2017 reflected the favorable impact of $15.9 million, or $0.19 per diluted share, related to the reversal of an income tax reserve resulting from a change in tax law that impacted an interest assessment on a prior year withholding tax.

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Financial Condition and Liquidity

We ended Fiscal 2018 in a net cash and investments position (cash and cash equivalents plus short-term and non-current investments, less total debt) of $1.494 billion, compared to $786.2 million as of the end of Fiscal 2017. The increase in our net cash and investments position was primarily due to our operating cash flows of $975.1 million, partially offset by our use of cash to invest in our business through $161.6 million in capital expenditures and to make cash dividend payments of $162.4 million.

We generated $975.1 million of cash from operations during Fiscal 2018, compared to $952.6 million during Fiscal 2017. The increase in our operating cash flows was due to a net favorable change related to our operating assets and liabilities, including our working capital, as compared to the prior fiscal year, partially offset by a decline in net income before non-cash charges.

Our equity increased to $3.457 billion as of March 31, 2018, compared to $3.300 billion as of April 1, 2017, primarily due to our comprehensive income and the net impact of stock-based compensation arrangements, partially offset by our dividends declared during Fiscal 2018.

Recent Developments

U.S. Tax Reform

On December 22, 2017, President Trump signed into law new tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "TCJA"), which became effective January 1, 2018. The TCJA significantly revised U.S. tax law by, among other provisions, lowering the U.S. federal statutory income tax rate from 35% to 21%, creating a territorial tax system that includes a one-time mandatory transition tax on previously deferred foreign earnings, and eliminating or reducing certain income tax deductions.

During Fiscal 2018, we recorded net charges of $221.4 million within our income tax provision in connection with the TCJA, of which $209.3 million related to the mandatory transition tax, which we expect to pay over an eight-year period. These charges, which were recorded on a provisional basis as permitted by SEC Staff Accounting Bulletin No. 118 ("SAB 118"), negatively impacted our effective tax rate by 4,520 basis points and lowered our diluted earnings per share by $2.68 during Fiscal 2018. The provisional amounts were based on our present interpretations of the TCJA, current available information, and assumptions about future events, and are subject to further refinement as additional information becomes available and further analyses are completed.

Despite these enactment-related charges, we expect the TCJA will ultimately benefit our results of operations and financial condition in future periods, primarily due to the lower U.S. federal statutory income tax rate.

Additionally, we reevaluated our permanent reinvestment assertion and determined that undistributed foreign earnings that were subject to the one-time mandatory transition tax were no longer considered to be permanently reinvested, effective December 31, 2017. In connection with this decision, we repatriated $252.0 million of cash to the U.S. from certain of our foreign subsidiaries during the fourth quarter of Fiscal 2018, and we repatriated an additional $400.0 million during the first quarter of Fiscal 2019.

See Note 10 to the accompanying consolidated financial statements for additional discussion regarding the TCJA.

Change in Chief Executive Officer

Effective May 2017, Mr. Stefan Larsson departed as the Company's President and Chief Executive Officer and as a member of our Board of Directors. In connection with Mr. Larsson's departure, we recorded cumulative other charges of $17.0 million, of which $5.6 million and $11.4 million were recorded during Fiscal 2018 and Fiscal 2017, respectively. We do not expect to incur additional charges related to Mr. Larsson's departure. See Note 9 to our accompanying consolidated financial statements for further discussion of the charges recorded in connection with Mr. Larsson's departure.

Subsequent to Mr. Larsson's departure, Mr. Patrice Louvet was appointed as the Company's new President and Chief Executive Officer and as a member of our Board of Directors, effective July 2017.

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Way Forward Plan

On June 2, 2016, our Board of Directors approved a restructuring plan with the objective of delivering sustainable, profitable sales growth and long-term value creation for shareholders (the "Way Forward Plan"). We are refocusing on our core brands and evolving our product, marketing, and shopping experience to increase desirability and relevance. We are also evolving our operating model to enable sustainable, profitable sales growth by significantly improving quality of sales, reducing supply chain lead times, improving our sourcing, and executing a disciplined multi-channel distribution and expansion strategy. As part of the Way Forward Plan, we are rightsizing our cost structure and implementing a return on investment-driven financial model to free up resources to invest in the brand and drive high-quality sales. The Way Forward Plan includes strengthening our leadership team and creating a more nimble organization by moving from an average of nine to six layers of management. The Way Forward Plan also includes the discontinuance of our Denim & Supply brand and the integration of our denim product offerings into our Polo Ralph Lauren brand. Collectively, these actions, which were substantially completed during Fiscal 2017, resulted in a reduction in workforce and the closure of certain stores and shop-within-shops, as well as gross annualized expense savings of approximately $200 million.

On March 30, 2017, our Board of Directors approved the following additional restructuring-related activities associated with the Way Forward Plan: (i) the restructuring of our in-house global digital commerce platform which was in development and shifting to a more cost-effective, flexible platform through a new agreement with Salesforce's Commerce Cloud, formerly known as Demandware; (ii) the closure of our Polo store at 711 Fifth Avenue in New York City; and (iii) the further streamlining of the organization and the execution of other key corporate actions in line with the Way Forward Plan. These actions, which are expected to result in additional expense savings of approximately $140 million, are an important part of our efforts to achieve our stated objective to return to sustainable, profitable growth and invest in the future. These additional restructuring-related activities were largely completed during Fiscal 2018 and resulted in a further reduction in workforce and the closure of certain corporate office and store locations. The remaining activities, which are primarily lease-related, are expected to be completed during Fiscal 2019.

In connection with the Way Forward Plan, we currently expect to incur total estimated charges of approximately $770 million, comprised of cash-related restructuring charges of approximately $450 million and non-cash charges of approximately $320 million. Cumulative charges incurred since inception were $669.2 million, of which $102.8 million and $566.4 million were incurred during Fiscal 2018 and Fiscal 2017, respectively, and we expect to incur the remaining charges of approximately $100 million during Fiscal 2019. In addition to these charges, we also incurred an additional non-cash charge of $155.2 million during Fiscal 2017 associated with the destruction of inventory out of current liquidation channels in line with our Way Forward Plan. See Notes 8 and 9 to our accompanying consolidated financial statements for detailed discussions of the charges recorded in connection with the Way Forward Plan.

Global Reorganization Plan

On May 12, 2015, our Board of Directors approved a reorganization and restructuring plan comprised of the following major actions: (i) the reorganization of the Company's operating structure in order to streamline our business processes to better align our cost structure with our long-term growth strategy; (ii) a strategic store and shop-within-shop performance review conducted by region and brand; (iii) a targeted corporate functional area review; and (iv) the consolidation of certain of our luxury lines (collectively, the "Global Reorganization Plan"). The Global Reorganization Plan has resulted in a reduction in workforce and the closure of certain stores and shop-within-shops. Actions associated with the Global Reorganization Plan were substantially completed during Fiscal 2016 and resulted in improved operational efficiencies by reducing annual operating expenses by approximately $125 million.

Since its inception, we have recorded total cumulative charges of $147.4 million in connection with the Global Reorganization Plan, of which $4.9 million and $142.5 million were recorded during Fiscal 2017 and Fiscal 2016, respectively. Actions associated with the Global Reorganization Plan were completed by the end of the first quarter of Fiscal 2017 and no additional charges are expected to be incurred in relation to this plan. See Notes 8 and 9 to our accompanying consolidated financial statements for detailed discussions of the charges recorded in connection with the Global Reorganization Plan.

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Transactions and Trends Affecting Comparability of Results of Operations and Financial Condition

The comparability of our operating results for the three fiscal years presented herein has been affected by certain events, including:

•	charges incurred in connection with our restructuring plans, as well as certain other asset impairments and other charges, as summarized below (references to "Notes" are to the notes to the accompanying consolidated financial statements):

		Fiscal Years Ended
		March 31, 2018				April 1, 2017				April 2, 2016
		(millions)
Impairment of assets (see Note 8)		$	(50.0	)		$	(253.8	)		$	(48.8	)
Restructuring and other charges (see Note 9)		(108.0		)		(318.6		)		(142.6		)
Restructuring-related inventory charges (see Note 9)(a)		(7.6		)		(197.9		)		(20.4		)
Total charges		$	(165.6	)		$	(770.3	)		$	(211.8	)

(a)	Non-cash restructuring-related inventory charges are recorded within cost of goods sold in the consolidated statements of operations.

•	TCJA enactment-related charges of $221.4 million recorded within the income tax provision in the consolidated statements of operations during Fiscal 2018;

•	the reversal of an income tax reserve resulting from a change in tax law that impacted an interest assessment on a prior year withholding tax, which favorably impacted our income tax benefit by $15.9 million during Fiscal 2017; and

•	the inclusion of the 53rd week in Fiscal 2016, which resulted in incremental net revenues of $72.2 million and net income of $8.3 million.

Since we are a global company, the comparability of our operating results reported in U.S. Dollars is also affected by foreign currency exchange rate fluctuations because the underlying currencies in which we transact change in value over time compared to the U.S. Dollar. These rate fluctuations can have a significant effect on our reported results. As such, in addition to financial measures prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"), our discussions often contain references to constant currency measures, which are calculated by translating the current-year and prior-year reported amounts into comparable amounts using a single foreign exchange rate for each currency. We present constant currency financial information, which is a non-U.S. GAAP financial measure, as a supplement to our reported operating results. We use constant currency information to provide a framework to assess how our businesses performed excluding the effects of foreign currency exchange rate fluctuations. We believe this information is useful to investors to facilitate comparisons of operating results and better identify trends in our businesses. The constant currency performance measures should be viewed in addition to, and not in lieu of or superior to, our operating performance measures calculated in accordance with U.S. GAAP. Reconciliations between this non-U.S. GAAP financial measure and the most directly comparable U.S. GAAP measure are included in the "Results of Operations" section where applicable.

Our discussion also includes reference to comparable store sales. Comparable store sales refer to the growth of sales in stores that are open for at least one full fiscal year. Sales for stores that are closed during a fiscal year are excluded from the calculation of comparable store sales. Sales for stores that are either relocated, enlarged (as defined by gross square footage expansion of 25% or greater), or generally closed for 30 or more consecutive days for renovation are also excluded from the calculation of comparable store sales until such stores have been in their new location or in their newly renovated state for at least one full fiscal year. Sales from our digital commerce sites are included within comparable store sales for those geographies that have been serviced by the related site for at least one full fiscal year. Sales for digital commerce sites that are shut down during a fiscal year are excluded from the calculation of comparable store sales. We use an integrated omni-channel strategy to operate our retail business, in which our digital commerce operations are interdependent with our physical stores. All comparable store sales metrics were calculated on a 52-week basis.

Our "Results of Operations" discussion that follows includes the significant changes in operating results arising from these items affecting comparability. However, unusual items or transactions may occur in any period. Accordingly, investors and other financial statement users should consider the types of events and transactions that have affected operating trends.

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RESULTS OF OPERATIONS

Fiscal 2018 Compared to Fiscal 2017

The following table summarizes our results of operations and expresses the percentage relationship to net revenues of certain financial statement captions. All percentages shown in the below table and the discussion that follows have been calculated using unrounded numbers.

		Fiscal Years Ended
		March 31, 2018				April 1, 2017				$ Change				% / bps Change
		(millions, except per share data)
Net revenues		$	6,182.3			$	6,652.8			$	(470.5	)		(7.1	%)
Cost of goods sold		(2,430.6		)		(3,001.7		)		571.1				(19.0	%)
Gross profit		3,751.7				3,651.1				100.6				2.8	%
Gross profit as % of net revenues		60.7		%		54.9		%						580 bps
Selling, general, and administrative expenses		(3,095.5		)		(3,171.0		)		75.5				(2.4	%)
SG&A expenses as % of net revenues		50.1		%		47.7		%						240 bps
Impairment of assets		(50.0		)		(253.8		)		203.8				(80.3	%)
Restructuring and other charges		(108.0		)		(318.6		)		210.6				(66.1	%)
Operating income (loss)		498.2				(92.3		)		590.5				NM
Operating income (loss) as % of net revenues		8.1		%		(1.4		%)						950 bps
Interest expense		(18.2		)		(12.4		)		(5.8		)		46.8	%
Interest income		12.3				7.3				5.0				69.0	%
Other expense, net		(3.1		)		(7.5		)		4.4				(57.9	%)
Income (loss) before income taxes		489.2				(104.9		)		594.1				NM
Income tax benefit (provision)		(326.4		)		5.6				(332.0		)		NM
Effective tax rate(a)		66.7		%		5.3		%						6,140 bps
Net income (loss)		$	162.8			$	(99.3	)		$	262.1			NM
Net income (loss) per common share:
Basic		$	1.99			$	(1.20	)		$	3.19			NM
Diluted		$	1.97			$	(1.20	)		$	3.17			NM

(a)	Effective tax rate is calculated by dividing the income tax benefit (provision) by income (loss) before income taxes.

NM Not meaningful.

Net Revenues. Net revenues decreased by $470.5 million, or 7.1%, to $6.182 billion in Fiscal 2018 as compared to Fiscal 2017, including net favorable foreign currency effects of $86.5 million. On a constant currency basis, net revenues decreased by $557.0 million, or 8.4%.

The following table summarizes the percentage change in our Fiscal 2018 consolidated comparable store sales as compared to the prior fiscal year on both a reported and constant currency basis:

		As Reported			Constant Currency
Digital commerce comparable store sales		(15	%)		(16	%)
Comparable store sales excluding digital commerce		(2	%)		(3	%)
Total comparable store sales		(4	%)		(5	%)

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Our global average store count increased by two stores and concession shops during Fiscal 2018 compared with the prior fiscal year, primarily due to new openings in Asia, largely offset by global closures primarily associated with the Way Forward Plan. The following table details our retail store presence by segment as of the periods presented:

		March 31, 2018			April 1, 2017
Freestanding Stores:
North America		215			216
Europe		81			82
Asia		105			89
Other non-reportable segments		71			79
Total freestanding stores		472			466
Concession Shops:
North America		2			1
Europe		25			31
Asia		603			586
Other non-reportable segments		2			2
Total concession shops		632			620
Total stores		1,104			1,086

In addition to our stores, we sell products online in North America and Europe through our various digital commerce sites, which include www.RalphLauren.com and www.ClubMonaco.com, among others. In Asia, we sell products online through various third-party digital partner commerce sites.

Net revenues for our segments, as well as a discussion of the changes in each reportable segment's net revenues from the prior fiscal year, are provided below:

		Fiscal Years Ended								$ Change				Foreign Exchange Impact				$ Change				% Change
		March 31, 2018				April 1, 2017				As Reported					Constant Currency				As Reported			Constant Currency
		(millions)
Net Revenues:
North America		$	3,231.0			$	3,783.0			$	(552.0	)		$	3.0			$	(555.0	)		(14.6	%)		(14.7	%)
Europe		1,585.0				1,543.4				41.6				81.2				(39.6		)		2.7	%		(2.6	%)
Asia		933.7				882.5				51.2				1.9				49.3				5.8	%		5.6	%
Other non-reportable segments		432.6				443.9				(11.3		)		0.4				(11.7		)		(2.5	%)		(2.6	%)
Total net revenues		$	6,182.3			$	6,652.8			$	(470.5	)		$	86.5			$	(557.0	)		(7.1	%)		(8.4	%)

North America net revenues — Net revenues decreased by $552.0 million, or 14.6%, during Fiscal 2018 as compared to Fiscal 2017, including net favorable foreign currency effects of $3.0 million. On a constant currency basis, net revenues decreased by $555.0 million, or 14.7%.

The $552.0 million net decline in North America net revenues was driven by:

•	a $435.0 million net decrease related to our North America wholesale business, largely driven by a strategic reduction of shipments (including within the off-price channel) and points of distribution in connection with our long-term growth strategy, the impact of brand discontinuances, and the continued challenging department store traffic trends;

•

a $115.0 million net decrease in comparable store sales, primarily driven by lower sales from our Ralph Lauren digital commerce operations and certain of our retail stores due in part to a decline in traffic, as well as lower levels of promotional activity and a planned reduction in inventory in connection with our long-term growth strategy. The following table summarizes the percentage change in comparable store sales related to our North America retail business on both a reported and constant currency basis:

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		As Reported			Constant Currency
Digital commerce comparable store sales		(22	%)		(22	%)
Comparable store sales excluding digital commerce		(3	%)		(3	%)
Total comparable store sales		(7	%)		(7	%)

•	a $2.0 million net decrease in non-comparable store sales.

Europe net revenues — Net revenues increased by $41.6 million, or 2.7%, during Fiscal 2018 as compared to Fiscal 2017, including net favorable foreign currency effects of $81.2 million. On a constant currency basis, net revenues decreased by $39.6 million, or 2.6%.

The $41.6 million net increase in Europe net revenues was driven by:

•	a $43.5 million net increase in non-comparable store sales, primarily driven by new store openings and net favorable foreign currency effects of $10.1 million; and

•	a $15.2 million net increase related to our Europe wholesale business, largely driven by net favorable foreign currency effects of $45.1 million, partially offset by the impact of brand discontinuances and a strategic reduction of shipments within the off-price channel in connection with our long-term growth strategy.

These increases were partially offset by:

•

a $17.1 million net decrease in comparable store sales, including net favorable foreign currency effects of $26.0 million. Our comparable store sales decreased by $43.1 million on a constant currency basis, primarily driven by lower sales from certain of our retail stores due in part to lower levels of promotional activity and a planned reduction in inventory in connection with our long-term growth strategy. The following table summarizes the percentage change in comparable store sales related to our Europe retail business on both a reported and constant currency basis:

		As Reported			Constant Currency
Digital commerce comparable store sales		4	%		(2	%)
Comparable store sales excluding digital commerce		(4	%)		(8	%)
Total comparable store sales		(3	%)		(7	%)

Asia net revenues — Net revenues increased by $51.2 million, or 5.8%, during Fiscal 2018 as compared to Fiscal 2017, including net favorable foreign currency effects of $1.9 million. On a constant currency basis, net revenues increased by $49.3 million, or 5.6%.

The $51.2 million net increase in Asia net revenues was driven by:

•	a $21.4 million net increase in non-comparable store sales, primarily driven by new store openings;

•

an $18.3 million net increase in comparable store sales, including net favorable foreign currency effects of $1.0 million. Our comparable store sales increased by $17.3 million on a constant currency basis, primarily driven by higher sales from certain of our retail locations due in part to improved conversion, partially offset by the impact of lower levels of promotional activity in connection with our long-term growth strategy. The following table summarizes the percentage change in comparable store sales related to our Asia retail business on both a reported and constant currency basis:

		As Reported			Constant Currency
Total comparable store sales(a)		3	%		3	%

(a)	Comparable store sales for our Asia segment were comprised primarily of sales made through our stores and concession shops.

•	an $11.5 million net increase related to our Asia wholesale business, largely driven by our expansion in Japan.

	46

Gross Profit. Gross profit increased by $100.6 million, or 2.8%, to $3.752 billion in Fiscal 2018. Gross profit during Fiscal 2018 and Fiscal 2017 reflected non-cash inventory-related charges of $7.6 million and $197.9 million, respectively, recorded in connection with the Way Forward Plan. The increase in gross profit also included a net favorable foreign currency effect of $64.2 million. Gross profit as a percentage of net revenues increased to 60.7% in Fiscal 2018 from 54.9% in Fiscal 2017. The 580 basis point increase was primarily driven by the lower non-cash inventory-related charges recorded in connection with the Way Forward Plan during Fiscal 2018 as compared to Fiscal 2017, lower levels of promotional activity in connection with our long-term growth strategy, favorable geographic and channel mix, and lower sourcing costs.

Gross profit as a percentage of net revenues is dependent upon a variety of factors, including changes in the relative sales mix among distribution channels, changes in the mix of products sold, the timing and level of promotional activities, foreign currency exchange rates, and fluctuations in material costs. These factors, among others, may cause gross profit as a percentage of net revenues to fluctuate from year to year.

Selling, General, and Administrative Expenses. SG&A expenses include compensation and benefits, advertising and marketing, rent and occupancy, distribution, information technology, legal, depreciation and amortization, bad debt, and other selling and administrative costs. SG&A expenses decreased by $75.5 million, or 2.4%, to $3.096 billion in Fiscal 2018. This decrease included a net unfavorable foreign currency effect of $31.8 million. SG&A expenses as a percentage of net revenues increased to 50.1% in Fiscal 2018 from 47.7% in Fiscal 2017. The 240 basis point increase was primarily due to operating deleverage on lower net revenues, as previously discussed, and the unfavorable impact attributable to geographic and channel mix, as a greater portion of our revenue was generated by our international retail businesses (which typically carry higher operating expense margins). These increases were partially offset by our operational discipline and cost savings associated with our restructuring activities.

The $75.5 million net decline in SG&A expenses was driven by:

		Fiscal 2018 Compared to Fiscal 2017
		(millions)
SG&A expense category:
Depreciation and amortization expense		$	(26.1	)
Shipping and handling costs		(18.4		)
Compensation-related expenses		(16.4		)
Non-income tax related expenses		(9.4		)
Selling-related expenses		(8.3		)
Rent and occupancy expenses		(6.9		)
Marketing and advertising expenses		21.3
Other		(11.3		)
Total decline in SG&A expenses		$	(75.5	)

In Fiscal 2019, we remain committed to spending on key strategic initiatives including marketing, digital, expanding and renovating our global retail stores and concession shops, and investing in productivity-enhancing infrastructure. We expect to make these investments while continuing to manage our cost base with discipline.

Impairment of Assets. During Fiscal 2018, we recorded non-cash impairment charges of $41.2 million to write off certain fixed assets related to our domestic and international stores, shop-within-shops, and corporate offices. Additionally, as a result of a change in the planned usage of a certain intangible asset, we recorded a non-cash impairment charge of $8.8 million during Fiscal 2018 to reduce the value of the intangible asset to its estimated fair value. During Fiscal 2017, we recorded non-cash impairment charges of $248.6 million to write off certain fixed assets related to our domestic and international stores, shop-within-shops, and corporate offices, as well as our in-house global digital commerce platform which was in development. Additionally, as a result of the realignment of our segment reporting structure, we recorded a non-cash goodwill impairment charge of $5.2 million during Fiscal 2017. See Note 8 to the accompanying consolidated financial statements.

Restructuring and Other Charges. During Fiscal 2018 and Fiscal 2017, we recorded restructuring charges of $79.2 million and $294.0 million, respectively, in connection with our restructuring plans, consisting of severance and benefits costs, lease termination and store closure costs, other cash charges, and non-cash accelerated stock-based compensation expense. In addition, during Fiscal 2018, we recorded net other charges of $28.8 million primarily related to depreciation expense associated with our

	47

former Polo store at 711 Fifth Avenue in New York City, our pending customs audit, the departure of Mr. Stefan Larsson, and the reversal of reserves associated with the settlement of certain non-income tax issues. During Fiscal 2017, we recorded other charges of $24.6 million related to the anticipated settlement of certain non-income tax issues and the departure of Mr. Stefan Larsson. See Note 9 to the accompanying consolidated financial statements.

Operating Income (Loss). During Fiscal 2018, we reported operating income of $498.2 million, as compared to an operating loss of $92.3 million during Fiscal 2017. Our operating results during Fiscal 2018 and Fiscal 2017 were negatively impacted by restructuring-related charges, impairment of assets, and certain other charges totaling $165.6 million and $770.3 million, respectively, as previously discussed. The $590.5 million increase in operating income also included a net favorable foreign currency effect of $32.4 million. Operating income as a percentage of net revenues was 8.1% during Fiscal 2018, reflecting a 950 basis point increase from the prior fiscal year. The overall increase in operating income as a percentage of net revenues was primarily driven by the net decline in restructuring-related charges, impairment of assets, and certain other charges and the increase in our gross profit margin, partially offset by the increase in SG&A expenses as a percentage of net revenues, all as previously discussed.

Operating income (loss) and margin for our segments, as well as a discussion of the changes in each reportable segment's operating margin from the prior fiscal year, are provided below:

		Fiscal Years Ended
	March 31, 2018						April 1, 2017
	Operating Income (Loss)				Operating Margin		Operating Income (Loss)				Operating Margin		$ Change				Margin Change
	(millions)						(millions)						(millions)
Segment:
North America		$	677.6			21.0%		$	666.8			17.6%		$	10.8			340 bps
Europe		356.7				22.5%		305.2				19.8%		51.5				270 bps
Asia		137.2				14.7%		(86.3		)		(9.8%)		223.5				2,450 bps
Other non-reportable segments		107.5				24.9%		81.0				18.2%		26.5				670 bps
		1,279.0						966.7						312.3
Unallocated corporate expenses		(672.8		)				(740.4		)				67.6
Unallocated restructuring and other charges		(108.0		)				(318.6		)				210.6
Total operating income (loss)		$	498.2			8.1%		$	(92.3	)		(1.4%)		$	590.5			950 bps

North America operating margin improved by 340 basis points, primarily due to the favorable impact of 100 basis points related to our retail business, largely driven by the increase in our gross profit margin. The increase also reflected the favorable impact of 240 basis points related to lower non-cash charges recorded in connection with the Way Forward Plan during Fiscal 2018 as compared to the prior fiscal year. Our wholesale business did not have a meaningful impact on the change in our North America operating margin, as the improved gross margin was offset by operating expense deleverage on lower net revenues.

Europe operating margin improved by 270 basis points, primarily due to the favorable impact of 130 basis points related to lower non-cash charges recorded in connection with the Way Forward Plan during Fiscal 2018 as compared to the prior fiscal year, as well as the favorable impact of 120 basis points related to our retail business, largely driven by the increase in our gross profit margin, partially offset by an increase in SG&A expenses as a percentage of net revenues. The increase also reflected favorable foreign currency effects of 20 basis points. Our wholesale business did not have a meaningful impact on the change in our Europe operating margin.

Asia operating margin improved by 2,450 basis points, primarily due to the favorable impact of 2,000 basis points related to lower non-cash charges recorded in connection with the Way Forward Plan during Fiscal 2018 as compared to the prior fiscal year. The increase also reflected the favorable impact of 350 basis points related to our retail business, largely driven by the increase in our gross profit margin and a decline in SG&A expenses as a percentage of net revenues. The improvement also reflected favorable foreign currency effects of 140 basis points. These increases in operating margin were partially offset by a 40 basis point decline related to our wholesale business.

	48

Unallocated corporate expenses decreased by $67.6 million to $672.8 million in Fiscal 2018, primarily due to lower impairment of asset charges of $96.3 million, lower non-income tax related expenses of $9.4 million, and lower other expenses of $10.7 million, partially offset by lower intercompany sourcing commission income of $31.9 million (which is offset at the segment level and eliminates in consolidation), higher consulting fees of $8.7 million, and higher compensation-related expenses of $8.2 million.

Unallocated restructuring and other charges decreased by $210.6 million to $108.0 million in Fiscal 2018, as previously discussed above and in Note 9 to the accompanying consolidated financial statements.

Non-operating Expense, Net. Non-operating expense, net is comprised of interest expense, interest income, and other expense, net, which includes foreign currency gains (losses), equity in losses from our equity-method investees, and other non-operating expenses. Non-operating expense, net, decreased by $3.6 million to $9.0 million in Fiscal 2018 from $12.6 million in Fiscal 2017. The decline in non-operating expense, net, was driven by:

•	a $5.0 million increase in interest income driven by the increase in our cash, cash equivalents, and investments as compared to the prior fiscal year; and

•

a $3.4 million increase in foreign currency gains, largely related to the net favorable revaluation and settlement of foreign currency-denominated intercompany receivables and payables, inclusive of the impact of forward foreign currency exchange contracts, as compared to the prior fiscal year (foreign currency gains (losses) do not result from the translation of the operating results of our foreign subsidiaries to U.S. Dollars).

These declines in non-operating expense were partially offset by:

•	a $5.8 million increase in interest expense driven by the less favorable impact of our swap contracts during Fiscal 2018 as compared to the prior fiscal year. See Note 13 to the accompanying consolidated financial statements for further discussion of our swap contracts.

Income Tax Benefit (Provision). The income tax benefit (provision) represents federal, foreign, state and local income taxes. During Fiscal 2018, we reported an income tax provision of $326.4 million and an effective tax rate of 66.7%, as compared to an income tax benefit of $5.6 million and an effective tax rate of 5.3% during Fiscal 2017. The $332.0 million increase in the income tax provision was primarily due to enactment-related charges of $221.4 million recorded during Fiscal 2018 in connection with the TCJA (as discussed within "Recent Developments"), which negatively impacted our effective tax rate by 4,520 basis points, as well as the increase in pretax income. The 66.7% effective tax rate for Fiscal 2018 was higher than our blended statutory tax rate of 31.5% primarily due to TCJA enactment-related charges, the adoption of Accounting Standards Update No. 2016-09, "Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"), and the unfavorable impact of additional income tax reserves associated with certain income tax audits, partially offset by the tax impacts of earnings in lower taxed foreign jurisdictions versus the U.S. and tax benefits associated with adjustments recorded on deferred tax assets and provision to tax return adjustments. See Note 4 to the accompanying consolidated financial statements for additional information relating to our adoption of ASU 2016-09. The 5.3% effective tax rate for Fiscal 2017 was lower than the statutory tax rate of 35.0% primarily due to the tax impact of earnings in lower taxed foreign jurisdictions versus the U.S., valuation allowances and adjustments recorded on deferred tax assets, and income tax reserves largely associated with an income tax settlement and certain income tax audits, partially offset by the reversal of an income tax reserve resulting from a change in tax law that impacted an interest assessment on a prior year withholding tax. Our effective tax rate will change from period to period based on various factors including, but not limited to, the geographic mix of earnings, the timing and amount of foreign dividends, enacted tax legislation, state and local taxes, tax audit findings and settlements, and the interaction of various global tax strategies.

Net Income (Loss). During Fiscal 2018, we reported net income of $162.8 million, as compared to a net loss of $99.3 million during Fiscal 2017. The $262.1 million increase in net income was primarily due to the $590.5 million increase in operating income, partially offset by the $332.0 million increase in our income tax provision, as previously discussed. Net income in Fiscal 2018 reflected TCJA enactment-related charges of $221.4 million. Our operating results during Fiscal 2018 and Fiscal 2017 were also negatively impacted by restructuring-related charges, impairment of assets, and certain other charges totaling $165.6 million and $770.3 million, respectively, which had an after-tax effect of reducing net income by $113.3 million and $592.1 million, respectively. In addition, our net loss during Fiscal 2017 reflected the favorable impact of $15.9 million related to the reversal of an income tax reserve resulting from a change in tax law that impacted an interest assessment on a prior year withholding tax.

	49

Net Income (Loss) per Diluted Share. During Fiscal 2018, we reported net income per diluted share of $1.97, as compared to a net loss per diluted share of $1.20 during Fiscal 2017. The $3.17 per share increase was due to the higher level of net income, as previously discussed, and lower weighted-average diluted shares outstanding during Fiscal 2018, driven by the weighted-average impact of our share repurchases during Fiscal 2017. Net income per diluted share during Fiscal 2018 was negatively impacted by $2.68 per share as a result of TCJA enactment-related charges. Net income (loss) per diluted share during Fiscal 2018 and Fiscal 2017 were also negatively impacted by $1.38 per share and $7.10 per share, respectively, as a result of restructuring-related charges, impairment of assets, and certain other charges. In addition, our net loss per diluted share during Fiscal 2017 reflected the favorable impact of $0.19 per share related to the reversal of an income tax reserve resulting from a change in tax law that impacted an interest assessment on a prior year withholding tax.

Fiscal 2017 Compared to Fiscal 2016

The following table summarizes our results of operations and expresses the percentage relationship to net revenues of certain financial statement captions. All percentages shown in the below table and the discussion that follows have been calculated using unrounded numbers.

		Fiscal Years Ended
		April 1, 2017				April 2, 2016				$ Change				% / bps Change
		(millions, except per share data)
Net revenues		$	6,652.8			$	7,405.2			$	(752.4	)		(10.2	%)
Cost of goods sold		(3,001.7		)		(3,218.5		)		216.8				(6.7	%)
Gross profit		3,651.1				4,186.7				(535.6		)		(12.8	%)
Gross profit as % of net revenues		54.9		%		56.5		%						(160 bps)
Selling, general, and administrative expenses		(3,171.0		)		(3,412.5		)		241.5				(7.1	%)
SG&A expenses as % of net revenues		47.7		%		46.1		%						160 bps
Impairment of assets		(253.8		)		(48.8		)		(205.0		)		NM
Restructuring and other charges		(318.6		)		(142.6		)		(176.0		)		123.4	%
Operating income (loss)		(92.3		)		582.8				(675.1		)		(115.8	%)
Operating income (loss) as % of net revenues		(1.4		%)		7.9		%						(930 bps)
Interest expense		(12.4		)		(21.0		)		8.6				(41.0	%)
Interest income		7.3				6.3				1.0				14.9	%
Other expense, net		(7.5		)		(16.3		)		8.8				(53.9	%)
Income (loss) before income taxes		(104.9		)		551.8				(656.7		)		(119.0	%)
Income tax benefit (provision)		5.6				(155.4		)		161.0				(103.6	%)
Effective tax rate(a)		5.3		%		28.2		%						(2,290 bps)
Net income (loss)		$	(99.3	)		$	396.4			$	(495.7	)		(125.1	%)
Net income (loss) per common share:
Basic		$	(1.20	)		$	4.65			$	(5.85	)		(125.8	%)
Diluted		$	(1.20	)		$	4.62			$	(5.82	)		(126.0	%)

(a)	Effective tax rate is calculated by dividing the income tax benefit (provision) by income (loss) before income taxes.

NM Not meaningful.

Net Revenues. Net revenues decreased by $752.4 million, or 10.2%, to $6.653 billion in Fiscal 2017. This decrease reflected net unfavorable foreign currency effects of $21.2 million, as well as the absence of the 53rd week, which resulted in incremental net revenues of $72.2 million during the prior fiscal year. On a constant currency basis, net revenues decreased by $731.2 million, or 9.9%.

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The following table summarizes the percentage change in our Fiscal 2017 consolidated comparable store sales as compared to the prior fiscal year on both a reported and constant currency basis:

		As Reported			Constant Currency
Digital commerce comparable store sales		(10	%)		(10	%)
Comparable store sales excluding digital commerce		(7	%)		(7	%)
Total comparable store sales		(7	%)		(7	%)

Our global average store count increased by 44 stores and concession shops during Fiscal 2017 compared with the prior fiscal year, due to new global store openings, primarily in Asia, partially offset by store closures, primarily associated with our Way Forward Plan. The following table details our retail store presence by segment as of the periods presented:

		April 1, 2017			April 2, 2016
Freestanding Stores:
North America		216			224
Europe		82			87
Asia		89			105
Other non-reportable segments		79			77
Total freestanding stores		466			493
Concession Shops:
North America		1			2
Europe		31			34
Asia		586			545
Other non-reportable segments		2			2
Total concession shops		620			583
Total stores		1,086			1,076

In addition to our stores, we sold products online in North America and Europe through our various digital commerce sites, which include www.RalphLauren.com and www.ClubMonaco.com, among others. In Asia, we sell products online through various third-party digital partner commerce sites.

Net revenues for our segments, as well as a discussion of the changes in each reportable segment's net revenues from the prior fiscal year, are provided below:

		Fiscal Years Ended								$ Change				Foreign Exchange Impact				$ Change				% Change
		April 1, 2017				April 2, 2016				As Reported					Constant Currency				As Reported			Constant Currency
		(millions)
Net Revenues:
North America		$	3,783.0			$	4,479.6			$	(696.6	)		$	(0.4	)		$	(696.2	)		(15.6	%)		(15.5	%)
Europe		1,543.4				1,561.7				(18.3		)		(64.3		)		46.0				(1.2	%)		2.9	%
Asia		882.5				892.4				(9.9		)		43.6				(53.5		)		(1.1	%)		(6.0	%)
Other non-reportable segments		443.9				471.5				(27.6		)		(0.1		)		(27.5		)		(5.8	%)		(5.8	%)
Total net revenues		$	6,652.8			$	7,405.2			$	(752.4	)		$	(21.2	)		$	(731.2	)		(10.2	%)		(9.9	%)

North America net revenues — Net revenues decreased by $696.6 million, or 15.6%, during Fiscal 2017 as compared to Fiscal 2016. This decrease reflected net unfavorable foreign currency effects of $0.4 million, as well as the absence of the 53rd week, which resulted in incremental net revenues of $38.2 million during the prior fiscal year. On a constant currency basis, net revenues decreased by $696.2 million, or 15.5%.

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The $696.6 million net decline in North America net revenues was driven by:

•

a $510.3 million net decrease related to our North America wholesale business, reflecting lower sales across all of our major apparel and accessories businesses, due in part to a strategic reduction of shipments in connection with our long-term growth strategy and a decline in department store traffic, which contributed to a more competitive retail environment. This decrease also reflected the absence of the 53rd week, which resulted in incremental net revenues of $10.0 million during the prior fiscal year;

•	a $165.5 million net decrease in comparable store sales, primarily driven by lower sales from certain of our retail stores and Ralph Lauren digital commerce operations due in part to a decline in traffic. The following table summarizes our comparable store sales percentages on both a reported and constant currency basis related to our North America retail business:

		As Reported			Constant Currency
Digital commerce comparable store sales		(15	%)		(15	%)
Comparable store sales excluding digital commerce		(8	%)		(8	%)
Total comparable store sales		(10	%)		(10	%)

•	a $20.8 million net decrease in non-comparable store sales, primarily driven by the absence of the 53rd week, which resulted in incremental net revenues of $28.2 million during the prior fiscal year, partially offset by new store openings during Fiscal 2017.

Europe net revenues — Net revenues decreased by $18.3 million, or 1.2%, during Fiscal 2017 as compared to Fiscal 2016. This decrease reflected net unfavorable foreign currency effects of $64.3 million, as well as the absence of the 53rd week, which resulted in incremental net revenues of $14.3 million during the prior fiscal year. On a constant currency basis, net revenues increased by $46.0 million, or 2.9%.

The $18.3 million net decline in Europe net revenues was driven by:

•

a $57.1 million net decrease in comparable store sales, including net unfavorable foreign currency effects of $26.9 million. Our comparable store sales decreased by $30.2 million on a constant currency basis, primarily driven by lower sales from certain retail stores due in part to a decline in traffic, as well as lower levels of promotional activity in connection with our long-term growth strategy, partially offset by higher sales from our Ralph Lauren digital commerce operations. The following table summarizes our comparable store sales percentages on both a reported and constant currency basis related to our Europe retail business:

		As Reported			Constant Currency
Digital commerce comparable store sales		7	%		11	%
Comparable store sales excluding digital commerce		(10	%)		(6	%)
Total comparable store sales		(8	%)		(4	%)

This decline was partially offset by:

•	a $25.4 million net increase related to our Europe wholesale business, reflecting increased sales across all of our major apparel and accessories businesses. This increase was net of unfavorable foreign currency effects of $23.0 million; and

•	a $13.4 million net increase in non-comparable store sales, primarily driven by new store openings during Fiscal 2017, partially offset by net unfavorable foreign currency effects of $14.4 million and the absence of the 53rd week, which resulted in incremental net revenues of $14.3 million during the prior fiscal year.

Asia net revenues — Net revenues decreased by $9.9 million, or 1.1%, during Fiscal 2017 as compared to Fiscal 2016, reflecting the absence of the 53rd week, which resulted in incremental net revenues of $15.4 million during the prior fiscal year. This decrease is inclusive of net favorable foreign currency effects of $43.6 million. On a constant currency basis, net revenues decreased by $53.5 million, or 6.0%.

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The $9.9 million net decline in Asia net revenues was driven by:

•

a $17.1 million net decrease in non-comparable store sales, primarily driven by the absence of the 53rd week, which resulted in incremental net revenues of $15.4 million during the prior fiscal year, as well as lower sales from certain of our stores and concession shops due in part to a decline in traffic, lower levels of promotional activity in connection with our long-term growth strategy, and the strategic closure of certain of our locations, partially offset by net favorable foreign currency effects of $11.1 million and new store openings during Fiscal 2017; and

•	a $5.1 million net decrease related to our Asia wholesale business, primarily driven by lower sales in Greater China and Southeast Asia, partially offset by net favorable foreign currency effects of $3.4 million.

These declines were partially offset by:

•

a $12.3 million net increase in comparable store sales, including net favorable foreign currency effects of $29.1 million. Our comparable store sales decreased by $16.8 million on a constant currency basis, primarily driven by lower sales from certain of our stores and concession shops due in part to a decline in traffic, and lower levels of promotional activity in connection with our long-term growth strategy. The following table summarizes our comparable store sales percentage on both a reported and constant currency basis related to our Asia retail business:

		As Reported			Constant Currency
Total comparable store sales(a)		2	%		(3	%)

(a)	Comparable store sales for our Asia segment were comprised solely of sales made through our stores and concession shops.

Gross Profit. Gross profit decreased by $535.6 million, or 12.8%, to $3.651 billion in Fiscal 2017. Gross profit during Fiscal 2017 and Fiscal 2016 reflected non-cash inventory-related charges of $197.9 million and $20.4 million, respectively, recorded in connection with our restructuring plans. Gross profit as a percentage of net revenues declined by 160 basis points to 54.9% in Fiscal 2017 from 56.5% in Fiscal 2016. This decline was primarily driven by the higher non-cash inventory-related charges recorded in connection with our restructuring plans during Fiscal 2017 as compared to the comparable prior year period and net unfavorable foreign currency effects, partially offset by increased profitability driven by favorable geographic and channel mix and our quality of sales initiatives, including lower levels of promotional activity within our international businesses.

Selling, General, and Administrative Expenses. SG&A expenses decreased by $241.5 million, or 7.1%, to $3.171 billion in Fiscal 2017. This decrease included a net unfavorable foreign currency effect of $5.3 million. SG&A expenses as a percentage of net revenues increased by 160 basis points to 47.7% in Fiscal 2017 from 46.1% in Fiscal 2016. This increase was primarily due to operating deleverage on lower net revenues, as previously discussed, and the continued investment in, and expansion of, our retail businesses (which typically carry higher operating expense margins) through new store and concession shop openings (as previously discussed); investments in our facilities and infrastructure; and investments in new business initiatives. These increases were partially offset by our operational discipline and cost savings associated with our restructuring activities.

The $241.5 million decline in SG&A expenses was driven by:

		Fiscal 2017 Compared to Fiscal 2016
		(millions)
SG&A expense category:
Compensation-related expenses		$	(108.8	)
Marketing and advertising expenses		(60.1		)
Consulting fees		(23.0		)
Rent and occupancy expenses		(19.3		)
Shipping and handling costs		(12.9		)
Other		(17.4		)
Total decline in SG&A expenses		$	(241.5	)

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Impairment of Assets. During Fiscal 2017, we recorded non-cash impairment charges of $248.6 million to write off certain fixed assets related to our domestic and international stores, shop-within-shops, and corporate offices, as well as our in-house global digital commerce platform which was in development. Additionally, as a result of the realignment of our segment reporting structure, we recorded a non-cash goodwill impairment charge of $5.2 million during Fiscal 2017. During Fiscal 2016, we recorded non-cash impairment charges of $48.8 million, primarily to write off certain fixed assets related to our domestic and international stores and shop-within-shops. See Note 8 to the accompanying consolidated financial statements.

Restructuring and Other Charges. During Fiscal 2017 and Fiscal 2016, we recorded restructuring charges of $294.0 million and $94.9 million, respectively, in connection with our restructuring plans, consisting of severance and benefits costs, lease termination and store closure costs, other cash charges, and non-cash accelerated stock-based compensation expense. In addition, during Fiscal 2017, we recorded other charges of $24.6 million related to the anticipated settlement of certain non-income tax issues and the departure of Mr. Stefan Larsson. During Fiscal 2016, we recorded other charges of $47.7 million primarily related to our pending customs audit and the settlement of certain litigation claims. See Note 9 to the accompanying consolidated financial statements.

Operating Income (Loss). During Fiscal 2017, we reported an operating loss of $92.3 million, as compared to operating income of $582.8 million during Fiscal 2016. Our operating results during Fiscal 2017 and Fiscal 2016 were negatively impacted by restructuring-related charges, impairment of assets, and certain other charges totaling $770.3 million and $211.8 million, respectively, as previously discussed. The $675.1 million decline in operating income also included a net unfavorable foreign currency effect of $67.4 million. Operating loss as a percentage of net revenues was 1.4% during Fiscal 2017, reflecting a 930 basis point decline from the prior fiscal year. The overall decline in operating income as a percentage of net revenues was primarily driven by the decline in our gross profit margin and the increase in restructuring-related charges, impairment of assets, and certain other charges, as well as the increase in SG&A expenses as a percentage of net revenues, all as previously discussed.

Operating income (loss) and margin for our segments, as well as a discussion of the changes in each reportable segment's operating margin from the prior fiscal year, are provided below:

		Fiscal Years Ended
	April 1, 2017						April 2, 2016
	Operating Income (Loss)				Operating Margin		Operating Income (Loss)				Operating Margin		$ Change				Margin Change
	(millions)						(millions)						(millions)
Segment:
North America		$	666.8			17.6%		$	941.3			21.0%		$	(274.5	)		(340 bps)
Europe		305.2				19.8%		281.0				18.0%		24.2				180 bps
Asia		(86.3		)		(9.8%)		(1.2		)		(0.1%)		(85.1		)		(970 bps)
Other non-reportable segments		81.0				18.2%		119.3				25.3%		(38.3		)		(710 bps)
		966.7						1,340.4						(373.7		)
Unallocated corporate expenses		(740.4		)				(615.0		)				(125.4		)
Unallocated restructuring and other charges		(318.6		)				(142.6		)				(176.0		)
Total operating income (loss)		$	(92.3	)		(1.4%)		$	582.8			7.9%		$	(675.1	)		(930 bps)

North America operating margin declined by 340 basis points, primarily due to the unfavorable impact of 200 basis points related to higher non-cash charges recorded in connection with our restructuring plans during Fiscal 2017 as compared to the prior fiscal year. Our lower operating margin also reflected a 70 basis point decline related to our wholesale business, largely driven by the impact of a more competitive retail environment, and a 40 basis point decline related to our retail business, largely driven by an increase in SG&A expenses as a percentage of net revenues. The remaining 30 basis point decline was attributable to other factors, including unfavorable channel mix.

Europe operating margin increased by 180 basis points, primarily due to the favorable impact of 360 basis points and 240 basis points related to our wholesale and retail businesses, respectively, largely driven by the increase in our gross margin attributable to lower levels of promotional activity in connection with our long-term growth strategy. Our wholesale business also benefited from a decline in SG&A expenses as a percentage of net revenues. These increases in operating margin were partially offset by unfavorable foreign currency effects of 340 basis points, as well as an 80 basis point decline attributable to higher non-cash charges recorded in connection with our restructuring plans during Fiscal 2017 as compared to the prior fiscal year.

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Asia operating margin declined by 970 basis points, primarily due to the unfavorable impact of 1,720 basis points related to higher non-cash charges recorded in connection with our restructuring plans during Fiscal 2017 as compared to the prior fiscal year. This decline in operating margin was partially offset by the favorable impact of 690 basis points related to our retail business, largely driven by a decline in SG&A expenses as a percentage of net revenues, lower levels of promotional activity in connection with our long-term growth strategy, and the strategic closure of certain of our locations. Our operating margin also reflected the favorable impact of 60 basis points related to our wholesale business.

Unallocated corporate expenses increased by $125.4 million, primarily due to higher non-cash impairment charges of $117.0 million, higher depreciation and amortization expense of $13.5 million, higher non-income tax related charges of $9.3 million, and higher other operating expenses of $37.4 million. These increases were partially offset by a decline in compensation-related expenses of $33.4 million and a decline in consulting fees of $18.4 million.

Unallocated restructuring and other charges increased by $176.0 million to $318.6 million in Fiscal 2017, as previously discussed above and in Note 9 to the accompanying consolidated financial statements.

Non-operating Expense, Net. Non-operating expense, net, decreased by $18.4 million to $12.6 million in Fiscal 2017 from $31.0 million in Fiscal 2016. The decline in non-operating expense was driven by:

•

an $8.6 million decrease in interest expense driven by the net favorable impact of our swap contracts entered into during Fiscal 2016, partially offset by the inclusion of twelve months of interest expense during Fiscal 2017 related to the 2.625% unsecured senior notes issued in August 2015, as compared to approximately seven months of interest expense during the prior year period. See Note 13 to the accompanying consolidated financial statements for further discussion of our swap contracts;

•	a $5.7 million decrease in equity in losses of equity-method investees, primarily related to our share in losses from our joint venture, the Ralph Lauren Watch and Jewelry Company Sárl, which is accounted for under the equity method of accounting; and

•

a $4.9 million decrease in foreign currency losses, largely related to the net favorable revaluation and settlement of foreign currency-denominated intercompany receivables and payables, inclusive of the impact of forward foreign currency exchange contracts, as compared to the prior fiscal year (foreign currency gains (losses) do not result from the translation of the operating results of our foreign subsidiaries to U.S. Dollars).

Income Tax Benefit (Provision). During Fiscal 2017, we reported an income tax benefit of $5.6 million, as compared to an income tax provision of $155.4 million during Fiscal 2016. The $161.0 million decrease in the income tax provision was largely driven by lower pretax income resulting in a pretax loss in Fiscal 2017. The 5.3% effective tax rate for Fiscal 2017 was lower than the statutory tax rate primarily due to the tax impact of earnings in lower taxed foreign jurisdictions versus the U.S., valuation allowances and adjustments recorded on deferred tax assets, and income tax reserves largely associated with an income tax settlement and certain income tax audits, partially offset by the reversal of an income tax reserve resulting from a change in tax law that impacted an interest assessment on a prior year withholding tax. The 28.2% effective tax rate for Fiscal 2016 was lower than the statutory tax rate primarily due to the tax impact of earnings in lower taxed foreign jurisdictions versus the U.S. and a change to the assessment period associated with certain tax liabilities, partially offset by the reversal of certain deferred tax assets that were determined to not be realizable.

Net Income (Loss). During Fiscal 2017, we reported a net loss of $99.3 million, as compared to net income of $396.4 million during Fiscal 2016. The $495.7 million decrease in net income was primarily due to the decline in operating income, partially offset by the reduction in our income tax provision, as previously discussed. Our operating results during Fiscal 2017 and Fiscal 2016 were negatively impacted by restructuring-related charges, impairment of assets, and certain other charges totaling $770.3 million and $211.8 million, respectively, which had an after-tax effect of reducing net income by $592.1 million and $150.1 million, respectively. In addition, our net loss during Fiscal 2017 reflected unfavorable foreign currency impacts of $63.6 million, partially offset by the favorable impact of $15.9 million related to the reversal of an income tax reserve resulting from a change in tax law that impacted an interest assessment on a prior year withholding tax, as previously discussed. Our net income during Fiscal 2016 reflected the favorable impact of the inclusion of the 53rd week, which increased net income by $8.3 million.

Net Income (Loss) per Diluted Share. During Fiscal 2017, we reported a net loss per diluted share of $1.20, as compared to net income per diluted share of $4.62 during Fiscal 2016. The $5.82 per share decline was due to lower net income, as previously discussed, and lower weighted-average diluted shares outstanding during Fiscal 2017, driven by our share repurchases during Fiscal 2017. Net income (loss) per diluted share during Fiscal 2017 and Fiscal 2016 was negatively impacted by $7.10 per share and $1.74 per share, respectively, as a result of restructuring-related charges, impairment of assets, and certain other charges, as

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previously discussed. In addition, our net loss per diluted share during Fiscal 2017 reflected unfavorable foreign currency impacts of $0.77 per share, partially offset by the favorable impact of $0.19 per share related to the reversal of an income tax reserve resulting from a change in tax law that impacted an interest assessment on a prior year withholding tax, as previously discussed. Net income per diluted share during Fiscal 2016 reflected the favorable impact of the inclusion of the 53rd week, which increased net income per diluted share by $0.10 per share.

FINANCIAL CONDITION AND LIQUIDITY

Financial Condition

The following table presents our financial condition as of March 31, 2018 and April 1, 2017.

		March 31, 2018				April 1, 2017				$ Change
		(millions)
Cash and cash equivalents		$	1,304.6			$	668.3			$	636.3
Short-term investments		699.4				684.7				14.7
Non-current investments(a)		86.2				21.4				64.8
Short-term debt(b)		(10.1		)		—				(10.1		)
Current portion of long-term debt(b)		(298.1		)		—				(298.1		)
Long-term debt(b)		(288.0		)		(588.2		)		300.2
Net cash and investments(c)		$	1,494.0			$	786.2			$	707.8
Equity		$	3,457.4			$	3,299.6			$	157.8

(a)	Recorded within other non-current assets in our consolidated balance sheets.

(b)	See Note 11 to the accompanying consolidated financial statements for discussion of the carrying values of our debt.

(c)	"Net cash and investments" is defined as cash and cash equivalents, plus short-term and non-current investments, less total debt.

The increase in our net cash and investments position at March 31, 2018 as compared to April 1, 2017 was primarily due to our operating cash flows of $975.1 million, partially offset by our use of cash to invest in our business through $161.6 million in capital expenditures and to make dividend payments of $162.4 million.

The increase in equity was primarily attributable to our comprehensive income and the net impact of stock-based compensation arrangements, partially offset by our dividends declared during Fiscal 2018.

Cash Flows

Fiscal 2018 Compared to Fiscal 2017

		Fiscal Years Ended
		March 31, 2018				April 1, 2017				$ Change
		(millions)
Net cash provided by operating activities		$	975.1			$	952.6			$	22.5
Net cash used in investing activities		(189.1		)		(208.1		)		19.0
Net cash used in financing activities		(197.5		)		(518.4		)		320.9
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		55.2				(16.4		)		71.6
Net increase in cash, cash equivalents, and restricted cash		$	643.7			$	209.7			$	434.0

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Net Cash Provided by Operating Activities. Net cash provided by operating activities increased to $975.1 million during Fiscal 2018, from $952.6 million during Fiscal 2017. The $22.5 million net increase in cash provided by operating activities was due to a net favorable change related to our operating assets and liabilities, including our working capital, as compared to the prior fiscal year, partially offset by a decline in net income before non-cash charges. The decline in net income before non-cash charges reflected a net charge of $209.3 million recorded during Fiscal 2018 in connection with the TCJA's one-time mandatory transition tax. This charge, which is expected to be paid over an eight-year period net of foreign tax credits and other federal income tax activity (see "Contractual and Other Obligations" below), did not impact our cash flows from operating activities during Fiscal 2018 as reflected in the offsetting net favorable change in our income taxes payable and deferred taxes. Excluding the impact of this enactment-related charge, the net increase related to our operating assets and liabilities, including working capital, was primarily due to:

•	favorable changes in our (i) other income tax receivables and payables (excluding the impact of the one-time mandatory transition tax) and (ii) deferred income, both largely driven by the timing of cash collections and payments.

These increases related to our operating assets and liabilities were partially offset by:

•	a less favorable change related to our inventory in Fiscal 2018 as compared to Fiscal 2017, largely driven by the timing of our inventory management initiatives and the timing of inventory receipts; and

•	unfavorable changes in our (i) accounts payable and accrued liabilities and (ii) accounts receivable, largely driven by the timing of cash payments and collections, respectively.

Net Cash Used in Investing Activities. Net cash used in investing activities was $189.1 million during Fiscal 2018, as compared to $208.1 million during Fiscal 2017. The $19.0 million net decrease in cash used in investing activities was primarily driven by:

•	a $122.4 million decline in capital expenditures. During Fiscal 2018, we spent $161.6 million on capital expenditures, as compared to $284.0 million during Fiscal 2017. Our capital expenditures during Fiscal 2018 primarily related to our global retail and department store renovations, new store openings, and the continued enhancements to our global information technology systems.

This decrease in cash used in investing activities was partially offset by:

•	a $104.9 million increase in purchases of investments, less proceeds from sales and maturities of investments. During Fiscal 2018, we made net investment purchases of $22.9 million, as compared to receiving net proceeds from sales and maturities of investments of $82.0 million during Fiscal 2017.

In Fiscal 2019, we expect to spend approximately $275 million in capital expenditures, primarily on consumer-facing initiatives that have demonstrated a proof of concept and healthy rates of return, including our global store fleet and digital ecosystem.

Net Cash Used in Financing Activities. Net cash used in financing activities was $197.5 million during Fiscal 2018, as compared to $518.4 million during Fiscal 2017. The $320.9 million net decrease in cash used in financing activities was primarily driven by:

•

a $198.1 million decline in cash used to repurchase shares of our Class A common stock. During Fiscal 2018, $17.1 million in shares of Class A common stock were surrendered or withheld in satisfaction of withholding taxes in connection with the vesting of awards under our long-term stock incentive plans. On a comparative basis, during Fiscal 2017, we used $200.0 million to repurchase shares of Class A common stock pursuant to our common stock repurchase program, and an additional $15.2 million in shares of Class A common stock were surrendered or withheld for taxes; and

•	a $126.2 million decline in cash used to repay debt, less proceeds from debt issuances. During Fiscal 2018, we received $10.1 million in borrowings under our credit facilities. During Fiscal 2017, we made $90.0 million in net repayments related to our commercial paper note issuances and repayments and repaid $26.1 million of borrowings previously outstanding under our credit facilities.

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Fiscal 2017 Compared to Fiscal 2016

		Fiscal Years Ended
		April 1, 2017				April 2, 2016				$ Change
		(millions)
Net cash provided by operating activities		$	952.6			$	1,016.7			$	(64.1	)
Net cash used in investing activities		(208.1		)		(576.3		)		368.2
Net cash used in financing activities		(518.4		)		(483.0		)		(35.4		)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		(16.4		)		7.2				(23.6		)
Net increase (decrease) in cash, cash equivalents, and restricted cash		$	209.7			$	(35.4	)		$	245.1

Net Cash Provided by Operating Activities. Net cash provided by operating activities decreased to $952.6 million during Fiscal 2017, from $1.017 billion during Fiscal 2016. The $64.1 million net decrease in cash provided by operating activities was due to a decline in net income before non-cash charges, partially offset by a net favorable change related to our operating assets and liabilities, including our working capital. The net increase related to our working capital was primarily driven by:

•	a decline in our inventory levels, largely driven by our inventory management initiatives, lower sourcing costs, and the timing of inventory receipts.

This increase related to our working capital was partially offset by:

•	an unfavorable change in our accounts receivable, largely driven by the timing of cash collections; and

•	an unfavorable change in our prepaid expenses and other current assets, largely driven by the timing of payments.

Net Cash Used in Investing Activities. Net cash used in investing activities was $208.1 million during Fiscal 2017, as compared to $576.3 million during Fiscal 2016. The $368.2 million net decrease in cash used in investing activities was primarily driven by:

•	a $224.3 million increase in proceeds from sales and maturities of investments, less cash used to purchase investments. During Fiscal 2017, we received net proceeds from sales and maturities of investments of $82.0 million, as compared to making net investment purchases of $142.3 million during Fiscal 2016; and

•

a $133.7 million decline in capital expenditures. During Fiscal 2017, we spent $284.0 million on capital expenditures, as compared to $417.7 million during Fiscal 2016. Our capital expenditures during Fiscal 2017 primarily related to our global retail store openings, department store renovations, enhancements to our global information technology systems, and further development of our infrastructure.

Net Cash Used in Financing Activities. Net cash used in financing activities was $518.4 million during Fiscal 2017, as compared to $483.0 million during Fiscal 2016. The $35.4 million net increase in cash used in financing activities was primarily driven by:

•

a $296.8 million increase in cash used to repay debt, less proceeds from debt issuances. During Fiscal 2017, we made $90.0 million in net repayments related to our commercial paper note issuances and repayments and repaid $26.1 million of borrowings previously outstanding under our credit facilities. During Fiscal 2016, we received net proceeds of $299.4 million from the issuance of our 2.625% unsecured senior notes and $26.1 million in borrowings under our credit facilities, which were partially offset by net repayments of $144.8 million related to our commercial paper note issuances and repayments; and

•	a $28.2 million decline in proceeds from the exercise of stock options.

These increases in cash used in financing activities were partially offset by:

•	a $285.2 million decrease in cash used to repurchase shares of our Class A common stock. During Fiscal 2017, we used $200.0 million to repurchase shares of Class A common stock pursuant to our common stock repurchase program, and an additional $15.2 million in shares of Class A common stock were surrendered or withheld in satisfaction of

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withholding taxes in connection with the vesting of awards under our long-term stock incentive plans. On a comparative basis, during Fiscal 2016, we used $479.9 million to repurchase shares of Class A common stock pursuant to our common stock repurchase program, and an additional $20.5 million in shares of Class A common stock were surrendered or withheld for taxes.

Sources of Liquidity

Our primary sources of liquidity are the cash flows generated from our operations, our available cash and cash equivalents and short-term investments, availability under our credit facilities, our issuances of commercial paper notes, and other available financing options.

During Fiscal 2018, we generated $975.1 million of net cash flows from our operations. As of March 31, 2018, we had $2.004 billion in cash, cash equivalents, and short-term investments, of which $1.064 billion were held by our subsidiaries domiciled outside the U.S. We are not dependent on foreign cash to fund our domestic operations. Given recent changes to the taxation of undistributed foreign earnings in connection with the TCJA (as discussed within "Recent Developments"), we have reevaluated our permanent reinvestment assertion and determined that undistributed foreign earnings that were subject to the TCJA's one-time mandatory transition tax were no longer considered to be permanently reinvested, effective December 31, 2017. In connection with this decision, we repatriated $252.0 million of cash to the U.S. from certain of our foreign subsidiaries during the fourth quarter of Fiscal 2018, and we repatriated an additional $400.0 million during the first quarter of Fiscal 2019. In addition, we recorded a deferred tax liability of $7.1 million for the expected future remittance of previously taxed foreign earnings. The mandatory transition tax does not apply to undistributed foreign earnings generated after December 31, 2017, and therefore we intend to permanently reinvest any such earnings. However, if our plans change and we choose to repatriate post-2017 earnings to the U.S. in the future, we would be subject to applicable U.S. and foreign taxes.

The following table presents our total availability, borrowings outstanding, and remaining availability under our credit facilities and Commercial Paper Program as of March 31, 2018:

		March 31, 2018
Description(a)		Total Availability				Borrowings Outstanding				Remaining Availability
		(millions)
Global Credit Facility and Commercial Paper Program(b)		$	500			$	8		(c)	$	492
Pan-Asia Credit Facilities		52				10				42

(a)	As defined in Note 11 to the accompanying consolidated financial statements.

(b)	Borrowings under the Commercial Paper Program are supported by the Global Credit Facility. Accordingly, we do not expect combined borrowings outstanding under the Commercial Paper Program and the Global Credit Facility to exceed $500 million.

(c)	Represents outstanding letters of credit for which we were contingently liable under the Global Credit Facility as of March 31, 2018.

We believe that the Global Credit Facility is adequately diversified with no undue concentration in any one financial institution. In particular, as of March 31, 2018, there were nine financial institutions participating in the Global Credit Facility, with no one participant maintaining a maximum commitment percentage in excess of 20%. Borrowings under the Pan-Asia Credit Facilities are guaranteed by the parent company and are granted at the sole discretion of the participating regional branches of JPMorgan Chase (the "Banks"), subject to availability of the Banks' funds and satisfaction of certain regulatory requirements. We have no reason to believe that the participating institutions will be unable to fulfill their obligations to provide financing in accordance with the terms of the Global Credit Facility and the Pan-Asia Credit Facilities in the event of our election to draw funds in the foreseeable future.

Our sources of liquidity are used to fund our ongoing cash requirements, including working capital requirements, global retail store and digital commerce expansion, construction and renovation of shop-within-shops, investment in infrastructure, including technology, acquisitions, joint ventures, payment of dividends, debt repayments, Class A common stock repurchases, settlement of contingent liabilities (including uncertain tax positions), and other corporate activities, including our restructuring actions. We believe that our existing sources of cash, the availability under our credit facilities, and our ability to access capital markets will be sufficient to support our operating, capital, and debt service requirements for the foreseeable future, the ongoing development of our businesses, and our plans for further business expansion.

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See Note 11 to the accompanying consolidated financial statements for additional information relating to our credit facilities.

Common Stock Repurchase Program

As of March 31, 2018, the remaining availability under our Class A common stock repurchase program was approximately $100 million. Repurchases of shares of Class A common stock are subject to overall business and market conditions.

See Note 15 to the accompanying consolidated financial statements for additional information relating to our Class A common stock repurchase program.

Dividends

Since 2003, we have maintained, and intend to continue to maintain, a regular quarterly cash dividend program on our common stock. However, any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on our results of operations, cash requirements, financial condition, and other factors that the Board of Directors may deem relevant.

See Note 15 to the accompanying consolidated financial statements for additional information relating to our quarterly cash dividend program.

Debt and Covenant Compliance

In September 2013, we completed a registered public debt offering and issued $300 million aggregate principal amount of unsecured senior notes due September 26, 2018, which bear interest at a fixed rate of 2.125%, payable semi-annually (the "2.125% Senior Notes"). In August 2015, we completed a second registered public debt offering and issued an additional $300 million aggregate principal amount of unsecured senior notes due August 18, 2020, which bear interest at a fixed rate of 2.625%, payable semi-annually (the "2.625% Senior Notes").

The indenture and supplemental indentures governing the 2.125% Senior Notes and 2.625% Senior Notes (as supplemented, the "Indenture") contain certain covenants that restrict our ability, subject to specified exceptions, to incur certain liens; enter into sale and leaseback transactions; consolidate or merge with another party; or sell, lease, or convey all or substantially all of our property or assets to another party. However, the Indenture does not contain any financial covenants.

The Global Credit Facility contains a number of covenants, as described in Note 11 to the accompanying consolidated financial statements. As of March 31, 2018, no Event of Default (as such term is defined pursuant to the Global Credit Facility) has occurred under our Global Credit Facility. The Pan-Asia Credit Facilities do not contain any financial covenants.

See Note 11 to the accompanying consolidated financial statements for additional information relating to our debt and covenant compliance.

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Contractual and Other Obligations

Firm Commitments

The following table summarizes certain of our aggregate contractual obligations as of March 31, 2018, and the estimated timing and effect that such obligations are expected to have on our liquidity and cash flows in future periods. We expect to fund these firm commitments with operating cash flows generated in the normal course of business and, if necessary, through availability under our credit facilities or other accessible sources of financing.

		Fiscal 2019				Fiscal 2020-2021				Fiscal 2022-2023				Fiscal 2024 and Thereafter				Total
		(millions)
Senior Notes		$	300.0			$	300.0			$	—			$	—			$	600.0
Interest payments on Senior Notes		11.1				11.8				—				—				22.9
Operating leases		343.8				580.7				419.2				504.5				1,848.2
Capital leases		29.6				62.4				58.3				78.5				228.8
Inventory purchase commitments		741.7				—				—				—				741.7
Mandatory transition tax payments		23.0				23.2				30.8				70.8				147.8
Other commitments		40.6				55.4				11.0				—				107.0
Total		$	1,489.8			$	1,033.5			$	519.3			$	653.8			$	3,696.4

The following is a description of our material, firmly committed obligations as of March 31, 2018:

•	Senior Notes represent the principal amount of our outstanding 2.125% Senior Notes and 2.625% Senior Notes. Amounts do not include any fair value adjustments, call premiums, unamortized debt issuance costs, or interest payments (see below);

•	Interest payments on Senior Notes represent the semi-annual contractual interest payments due on our 2.125% Senior Notes and 2.625% Senior Notes. Amounts do not include the impact of potential cash flows underlying our swap contracts entered into during Fiscal 2016 (see Note 13 to the accompanying consolidated financial statements for discussion of our swap contracts);

•

Lease obligations represent the minimum rental payments due under noncancelable leases for our real estate and operating equipment. In addition to such amounts, we are normally required to pay taxes, insurance, and certain occupancy costs relating to our leased real estate properties, which are not included in the table above. Approximately 75% of these lease obligations relate to our retail operations. Information has been presented separately for operating and capital leases;

•	Inventory purchase commitments represent our legally-binding agreements to purchase fixed or minimum quantities of goods at determinable prices;

•

Mandatory transition tax payments represent our tax obligation incurred in connection with the deemed repatriation of previously deferred foreign earnings pursuant to the TCJA (see Note 10 to the accompanying consolidated financial statements for discussion of the TCJA). The expected mandatory transition tax payments have been presented net of foreign tax credits and other federal income tax activity of $61.5 million, which we expect to utilize to partially reduce this tax obligation; and

•	Other commitments primarily represent our legally-binding obligations under sponsorship, licensing, and other marketing and advertising agreements; distribution-related agreements; information technology-related service agreements; and pension-related obligations.

Excluded from the above contractual obligations table is the non-current liability for unrecognized tax benefits of $79.2 million as of March 31, 2018, as we cannot make a reliable estimate of the period in which the liability will be settled, if ever. The above table also excludes the following: (i) other than the current portion of long-term debt, capital lease obligations, and mandatory transition tax payments, amounts recorded in current liabilities in our consolidated balance sheet as of March 31, 2018, including $10.1 million in borrowings outstanding under our Pan-Asia Credit Facilities, which will be paid within one year; and (ii) non-current liabilities that have no cash outflows associated with them (e.g., deferred revenue), or the cash outflows associated with

	61

them are uncertain or do not represent a "purchase obligation" as the term is used herein (e.g., deferred taxes, derivative financial instruments, and other miscellaneous items).

We also have certain contractual arrangements that would require us to make payments if certain events or circumstances occur. See Note 14 to the accompanying consolidated financial statements for a description of our contingent commitments not included in the above table.

Off-Balance Sheet Arrangements

In addition to the commitments included in the above table, our other off-balance sheet firm commitments relating to our outstanding letters of credit amounted to $9.3 million as of March 31, 2018. We do not maintain any other off-balance sheet arrangements, transactions, obligations, or other relationships with unconsolidated entities that would be expected to have a material current or future effect on our consolidated financial statements.

MARKET RISK MANAGEMENT

As discussed in Note 13 to the accompanying consolidated financial statements, we are exposed to a variety of risks, including changes in foreign currency exchange rates relating to foreign currency-denominated balances, certain anticipated cash flows from our international operations, and possible declines in the value of reported net assets of our foreign operations, as well as changes in the fair value of our fixed-rate debt relating to changes in interest rates. Consequently, at times, in the normal course of business, we employ established policies and procedures, including the use of derivative financial instruments, to manage such risks. We do not enter into derivative transactions for speculative or trading purposes.

As a result of the use of derivative instruments, we are exposed to the risk that counterparties to our contracts will fail to meet their contractual obligations. To mitigate this counterparty credit risk, we have a policy of only entering into contracts with carefully selected financial institutions based upon an evaluation of their credit ratings and certain other factors, adhering to established limits for credit exposure. Our established policies and procedures for mitigating credit risk from derivative transactions include ongoing review and assessment of the creditworthiness of our counterparties. We also enter into master netting arrangements with counterparties, when possible, to mitigate credit risk associated with our derivative instruments. As a result of the above considerations, we do not believe that we are exposed to any undue concentration of counterparty risk with respect to our derivative contracts as of March 31, 2018. However, we do have in aggregate $1.6 million of derivative instruments in net asset positions with two creditworthy financial institutions.

Foreign Currency Risk Management

We manage our exposure to changes in foreign currency exchange rates through the use of forward foreign currency exchange and cross-currency swap contracts. Refer to Note 13 to the accompanying consolidated financial statements for a summary of the notional amounts and fair values of our forward foreign currency exchange and cross-currency swap contracts outstanding as of March 31, 2018.

Forward Foreign Currency Exchange Contracts

We enter into forward foreign currency exchange contracts as hedges to reduce our risk related to exchange rate fluctuations on inventory transactions made in an entity's non-functional currency, intercompany royalty payments made by certain of our international operations, the settlement of foreign currency-denominated balances, and the translation of certain foreign operations' net assets into U.S. Dollars. As part of our overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, primarily to changes in the value of the Euro, the Japanese Yen, the South Korean Won, the Australian Dollar, the Canadian Dollar, the British Pound Sterling, the Swiss Franc, the Swedish Krona, the Chinese Renminbi, the New Taiwan Dollar, and the Hong Kong Dollar, we hedge a portion of our foreign currency exposures anticipated over a two-year period. In doing so, we use forward foreign currency exchange contracts that generally have maturities of two months to two years to provide continuing coverage throughout the hedging period of the respective exposure.

Our foreign exchange risk management activities are governed by our Company's established policies and procedures. These policies and procedures provide a framework that allows for the management of currency exposures while ensuring the activities are conducted within our established guidelines. Our policies include guidelines for the organizational structure of our risk management function and for internal controls over foreign exchange risk management activities, including, but not limited to, authorization levels, transaction limits, and credit quality controls, as well as various measurements for monitoring compliance. We monitor foreign exchange risk using different techniques, including a periodic review of market values and sensitivity analyses.

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We record our forward foreign currency exchange contracts at fair value in our consolidated balance sheets. To the extent forward foreign currency exchange contracts are designated as cash flow hedges and are highly effective in offsetting changes in the value of the hedged items, the related gains or losses are initially deferred in equity as a component of accumulated other comprehensive income ("AOCI") and are subsequently recognized in our consolidated statements of operations as follows:

•	Forecasted Inventory Transactions — recognized as part of the cost of the inventory being hedged within cost of goods sold when the related inventory is sold to a third party.

•	Intercompany Royalties/Settlement of Foreign Currency Balances — recognized within other expense, net, during the period that the hedged balance is remeasured through earnings, generally through its settlement when the related payment occurs.

We recognized in earnings net losses on forward foreign currency exchange contracts of $8.7 million and $2.6 million during Fiscal 2018 and Fiscal 2017, respectively, and a net gain of $32.4 million during Fiscal 2016.

Cross-Currency Swap Contracts

During Fiscal 2016, we entered into two pay-floating rate, receive-floating rate cross-currency swaps, with notional amounts of €280 million and €274 million, which we designated as hedges of our net investment in certain of our European subsidiaries (the "Cross-Currency Swaps"). The Cross-Currency Swaps, which mature on September 26, 2018 and August 18, 2020, respectively, swap the U.S. Dollar-denominated variable interest rate payments based on the 3-month London Interbank Offered Rate ("LIBOR") plus a fixed spread for Euro-denominated variable interest rate payments based on the 3-month Euro Interbank Offered Rate plus a fixed spread. As a result, the Cross-Currency Swaps, in conjunction with the Interest Rate Swaps (as defined below), economically convert our $300 million fixed-rate 2.125% and $300 million fixed-rate 2.625% obligations to €280 million and €274 million floating-rate Euro-denominated liabilities, respectively.

Sensitivity

We perform a sensitivity analysis to determine the effects that market risk exposures may have on the fair values of our forward foreign currency exchange and cross-currency swap contracts. To perform the analysis, we assess the risk of loss in these contracts' fair values that would result from hypothetical changes in foreign currency exchange rates. This analysis assumes a like movement by the foreign currencies in our hedge portfolio against the U.S. Dollar. As of March 31, 2018, a 10% appreciation or depreciation of the U.S. Dollar against the exchange rates for foreign currencies under contract would result in a net increase or decrease, respectively, in the fair value of our derivative portfolio of approximately $141 million. This hypothetical net change in fair value should ultimately be largely offset by the net change in the fair values of the underlying hedged items.

Interest Rate Risk Management

During Fiscal 2016, we entered into two pay-floating rate, receive-fixed rate interest rate swap contracts which we designated as hedges against changes in the respective fair values of our fixed-rate 2.125% Senior Notes and our fixed-rate 2.625% Senior Notes attributed to changes in the benchmark interest rate (the "Interest Rate Swaps"). The Interest Rate Swaps, which mature on September 26, 2018 and August 18, 2020, respectively, both have notional amounts of $300 million and swap the fixed interest rates on our 2.125% Senior Notes and 2.625% Senior Notes for variable interest rates based on 3-month LIBOR plus a fixed spread.

Sensitivity

As of March 31, 2018, notwithstanding the aforementioned Interest Rate Swaps, we had no variable-rate debt outstanding. As such, our exposure to changes in interest rates primarily relates to a change in the fair value of our fixed-rate Senior Notes and borrowings outstanding under our credit facilities. As of March 31, 2018, the fair values of our Senior Notes and borrowings outstanding under our credit facilities were $598.1 million and $10.1 million, respectively. A 25 basis point increase or decrease in the level of interest rates would decrease or increase, respectively, the aggregate fair value of our Senior Notes and borrowings outstanding under our credit facilities by approximately $2 million. Such potential increases or decreases in the fair value of our debt would only be relevant if we were to retire all or a portion of the debt prior to its maturity, and are based on certain simplifying assumptions, including an immediate across-the-board increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the period.

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Investment Risk Management

As of March 31, 2018, we had cash and cash equivalents on-hand of $1.305 billion, consisting of deposits in interest bearing accounts, investments in money market deposit accounts, and investments in time deposits and commercial paper with original maturities of 90 days or less. Our other significant investments included $699.4 million of short-term investments, consisting of investments in time deposits and commercial paper with original maturities greater than 90 days; $50.9 million of restricted cash placed in escrow with certain banks as collateral, primarily to secure guarantees in connection with certain international tax matters; and $86.2 million of investments with maturities greater than one year, consisting of time deposits.

We actively monitor our exposure to changes in the fair value of our global investment portfolio in accordance with our established policies and procedures, which include monitoring both general and issuer-specific economic conditions, as discussed further below. Our investment objectives include capital preservation, maintaining adequate liquidity, diversification to minimize liquidity and credit risk, and achievement of maximum returns within the guidelines set forth in our investment policy. See Note 13 to the accompanying consolidated financial statements for further detail of the composition of our investment portfolio as of March 31, 2018.

We evaluate investments held in unrealized loss positions, if any, for other-than-temporary impairment on a quarterly basis. This evaluation involves a variety of considerations, including assessments of risks and uncertainties associated with general economic conditions and distinct conditions affecting specific issuers. We consider the following factors: (i) the length of time and the extent to which the fair value has been below cost, (ii) the financial condition, credit worthiness, and near-term prospects of the issuer, (iii) the length of time to maturity, (iv) anticipated future economic conditions and market forecasts, (v) our intent and ability to retain our investment for a period of time sufficient to allow for recovery of market value, and (vi) an assessment of whether it is more likely than not that we will be required to sell our investment before recovery of market value. No material realized or unrealized gains or losses on available-for-sale investments or other-than-temporary impairment charges were recorded in any of the fiscal years presented.

CRITICAL ACCOUNTING POLICIES

An accounting policy is considered to be critical if it is important to our results of operations, financial condition, and cash flows, and requires significant judgment and estimates on the part of management in its application. Our estimates are often based on complex judgments, assessments of probability, and assumptions that management believes to be reasonable, but that are inherently uncertain and unpredictable. It is also possible that other professionals, applying reasonable judgment to the same set of facts and circumstances, could develop and support a range of alternative estimated amounts. We believe that the following list represents our critical accounting policies. For a discussion of all of our significant accounting policies, including our critical accounting policies, see Note 3 to the accompanying consolidated financial statements.

Sales Reserves and Uncollectible Accounts

A significant area of judgment affecting reported revenue and net income involves estimating sales reserves, which represent the portion of gross revenues not expected to be realized. In particular, revenue related to our wholesale business is reduced by estimates of returns, discounts, end-of-season markdowns, and operational chargebacks. Revenue related to our retail business, including digital commerce sales, is also reduced by an estimate of returns.

In determining estimates of returns, discounts, end-of-season markdowns, and operational chargebacks, we analyze historical trends, seasonal results, current economic and market conditions, and retailer performance. We review and refine these estimates on a quarterly basis. Our historical estimates of these costs have not differed materially from actual results. A hypothetical 1% increase in our reserves for returns, discounts, end-of-season markdowns, and operational chargebacks as of March 31, 2018 would have decreased our Fiscal 2018 net revenues by approximately $2 million.

Similarly, we evaluate our accounts receivable balances to determine if they will ultimately be collected. Significant judgments and estimates are involved in this evaluation, including an analysis of specific risks on a customer-by-customer basis for larger accounts and customers, and a receivables aging analysis that determines the percentage of receivables that has historically been uncollected by aged category. Based on this information, we provide a reserve for the estimated amounts believed to be uncollectible. Although we believe that we have adequately provided for those risks as part of our bad debt reserve, a severe and prolonged adverse impact on our major customers' business operations could have a corresponding material adverse effect on our net sales, cash flows, and/or financial condition.

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See "Accounts Receivable" in Note 3 to the accompanying consolidated financial statements for an analysis of the activity in our sales reserves and allowance for doubtful accounts for each of the three fiscal years presented.

Inventories

We hold inventory that is sold through wholesale distribution channels to major department stores and specialty retail stores. We also hold retail inventory that is sold in our own stores and digital commerce sites directly to consumers. Substantially all of our inventories are comprised of finished goods, which are stated at the lower of cost or estimated realizable value, with cost determined on a weighted-average cost basis.

The estimated net realizable value of inventory is determined based on an analysis of historical sales trends of our individual product lines, the impact of market trends and economic conditions, and a forecast of future demand, giving consideration to the value of current orders in-house for future sales of inventory, as well as plans to sell inventory through our factory stores, among other liquidation channels. Actual results may differ from estimates due to the quantity, quality, and mix of products in inventory, consumer and retailer preferences, and market conditions. Reserves for inventory shrinkage, representing the risk of physical loss of inventory, are estimated based on historical experience and are adjusted based upon physical inventory counts. Our historical estimates of these costs and the related provisions have not differed materially from actual results.

A hypothetical 1% increase in the level of our inventory reserves as of March 31, 2018 would have decreased our Fiscal 2018 gross profit by approximately $1 million.

Impairment of Goodwill and Other Intangible Assets

Goodwill and certain other intangible assets deemed to have indefinite useful lives are not amortized. Rather, goodwill and indefinite-lived intangible assets are assessed for impairment at least annually. Finite-lived intangible assets are amortized over their respective estimated useful lives and, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their carrying values may not be fully recoverable.

We generally perform our annual goodwill impairment assessment using a qualitative approach to determine whether it is more likely than not that the fair value of a reporting unit is less than its respective carrying value. However, in order to reassess the fair values of our reporting units, we periodically perform a quantitative impairment analysis in lieu of using the qualitative approach.

Performance of the qualitative goodwill impairment assessment requires judgment in identifying and considering the significance of relevant key factors, events, and circumstances that affect the fair values of our reporting units. This requires consideration and assessment of external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as our actual and planned financial performance. We also give consideration to the difference between each reporting unit's fair value and carrying value as of the most recent date that a fair value measurement was performed. If the results of the qualitative assessment conclude that it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, additional quantitative impairment testing is performed.

The quantitative goodwill impairment test involves comparing the fair value of a reporting unit with its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, the reporting unit's goodwill is considered not to be impaired. However, if the carrying value of a reporting unit exceeds its fair value, an impairment loss is recorded in an amount equal to that excess. Any impairment charge recognized is limited to the amount of the respective reporting unit's allocated goodwill.

Determining the fair value of a reporting unit under the quantitative goodwill impairment test requires judgment and often involves the use of significant estimates and assumptions. Similarly, estimates and assumptions are used when determining the fair values of other indefinite-lived intangible assets. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and the magnitude of any such charge. To assist management in the process of determining any potential goodwill impairment, we may review and consider appraisals from accredited independent valuation firms. Estimates of fair value are primarily determined using discounted cash flows, market comparisons, and recent transactions. These approaches use significant estimates and assumptions, including projected future cash flows (including timing), discount rates reflecting the risks inherent in future cash flows, perpetual growth rates, and determination of appropriate market comparables.

We performed our annual goodwill impairment assessment as of the beginning of the second quarter of Fiscal 2018 using the qualitative approach discussed above, while giving consideration to our most recent quantitative goodwill impairment test (the results of which indicated that the fair values of our reporting units with allocated goodwill significantly exceeded their respective

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carrying values). Based on the results of the qualitative impairment assessment performed, we concluded that it is more likely than not that the fair values of these reporting units significantly exceeded their respective carrying values and there were no reporting units at risk of impairment. Additionally, no goodwill impairment charges were recorded during any of the three fiscal years presented in connection with the Company's annual goodwill impairment assessments.

Subsequent to our Fiscal 2017 annual goodwill impairment assessment, we realigned our segment reporting structure during the fourth quarter of Fiscal 2017 as a result of significant organizational changes implemented in connection with the Way Forward Plan. As a result of the realignment of our segment reporting structure, we reallocated the carrying amount of goodwill to our new reporting units based upon each reporting unit's relative fair value as of the first day of our fourth quarter of Fiscal 2017. In connection with this reallocation, we performed an interim assessment of the recoverability of goodwill assigned to our new reporting units using the quantitative approach described above. Based on the results of the quantitative impairment assessment performed, we concluded that the fair value of one of our new reporting units was less than its carrying value. As a result, a goodwill impairment charge of $5.2 million was recorded during the fourth quarter of Fiscal 2017 to fully write off the carrying value of the reporting unit's reallocated goodwill. The fair values of the remaining new reporting units significantly exceeded their respective carrying values and were not at risk of impairment.

In evaluating finite-lived intangible assets for recoverability, we use our best estimate of future cash flows expected to result from the use of the asset and its eventual disposition where probable. To the extent that estimated future undiscounted net cash flows attributable to the asset are less than its carrying value, an impairment loss is recognized equal to the difference between the carrying value of such asset and its fair value, considering external market participant assumptions.

During Fiscal 2018, we recorded a non-cash impairment charge of $8.8 million as a result of a change in the planned usage of a certain intangible asset to reduce the value of the intangible asset to its estimated fair value. There were no other finite-lived intangible asset impairment charges recorded during any of the fiscal periods presented. See Note 8 to the accompanying consolidated financial statements for further discussion.

It is possible that our conclusions regarding impairment or recoverability of goodwill or other intangible assets could change in future periods if, for example, (i) our businesses do not perform as projected, (ii) overall economic conditions in future years vary from current assumptions, (iii) business conditions or strategies change from our current assumptions, or (iv) the identification of our reporting units change, among other factors. Such changes could result in a future impairment charge of goodwill or other intangible assets, which could have a material adverse effect on our consolidated financial position or results of operations.

Impairment of Other Long-Lived Assets

Property and equipment, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying values may not be fully recoverable. In evaluating long-lived assets for recoverability, we use our best estimate of future cash flows expected to result from the use of the asset and its eventual disposition, where applicable. To the extent that estimated future undiscounted net cash flows attributable to the asset are less than its carrying value, an impairment loss is recognized equal to the difference between the carrying value of such asset and its fair value, considering external market participant assumptions. Assets to be disposed of and for which there is a committed plan of disposal are reported at the lower of carrying value or fair value, less costs to sell.

In determining future cash flows, we take various factors into account, including changes in merchandising strategy, the emphasis on retail store cost controls, the effects of macroeconomic trends such as consumer spending, and the impacts of more experienced retail store managers and increased local advertising. Since the determination of future cash flows is an estimate of future performance, future impairments may arise in the event that future cash flows do not meet expectations.

During Fiscal 2018, Fiscal 2017, and Fiscal 2016, we recorded non-cash impairment charges of $41.2 million, $248.6 million, and $48.8 million, respectively, to fully write off the carrying values of certain long-lived assets based upon their assumed fair values of zero. See Note 8 to the accompanying consolidated financial statements for further discussion.

Income Taxes

In determining our income tax provision for financial reporting purposes, we establish a reserve for uncertain tax positions. If we consider that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, we recognize the tax benefit. We measure the tax benefit by determining the largest amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the appropriate taxing authority that has full knowledge of all relevant information. These assessments can be complex and require significant judgment, and we often obtain assistance from external advisors. To the extent that our estimates change or the final tax outcome of these matters is different

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from the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made. If the initial assessment of a position fails to result in the recognition of a tax benefit, we will recognize the tax benefit if (i) there are changes in tax law or analogous case law that sufficiently raise the likelihood of prevailing on the technical merits of the position to more likely than not; (ii) the statute of limitations expires; or (iii) there is a completion of an audit resulting in a settlement of that tax year with the appropriate agency.

Deferred income taxes reflect the tax effect of certain net operating losses, capital losses, general business credit carryforwards, and the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. Valuation allowances are established when management determines that it is more likely than not that some portion or all of a deferred tax asset will not be realized. Tax valuation allowances are analyzed periodically by assessing the adequacy of future expected taxable income, which typically involves the use of significant estimates. Such allowances are adjusted as events occur, or circumstances change, that warrant adjustments to those balances.

During Fiscal 2018, we recorded net charges of $221.4 million within our income tax provision in connection with the TCJA. These charges were recorded on a provisional basis, as permitted by SAB 118, based on our present interpretations of the TCJA, current available information, and assumptions about future events. Although we believe these provisional amounts represent a reasonable estimate of the ultimate enactment-related impact the TCJA will have on our consolidated financial statements, the amounts could be adjusted materially as additional information becomes available, including potential new or interpretative guidance issued by the Financial Accounting Standards Board or the Internal Revenue Service and other tax agencies, and as further analyses are completed.

See Note 10 to the accompanying consolidated financial statements for further discussion of income taxes.

Contingencies

We are periodically exposed to various contingencies in the ordinary course of conducting our business, including certain litigation, alleged information system security breaches, contractual disputes, employee relation matters, various tax or other governmental audits, and trademark and intellectual property matters and disputes. We record a liability for such contingencies to the extent that we conclude their occurrence is probable and the related losses are estimable. In addition, if it is reasonably possible that an unfavorable settlement of a contingency could exceed the established liability, we disclose the estimated impact on our liquidity, financial condition, and results of operations, if practicable. Management considers many factors in making these assessments. As the ultimate resolution of contingencies is inherently unpredictable, these assessments can involve a series of complex judgments about future events including, but not limited to, court rulings, negotiations between affected parties, and governmental actions. As a result, the accounting for loss contingencies relies heavily on management's judgment in developing the related estimates and assumptions.

Stock-Based Compensation

We expense all stock-based compensation awarded to employees and non-employee directors based on the grant date fair value of the awards over the requisite service period, adjusted for forfeitures which are estimated based on an analysis of historical experience and expected future trends.

Stock Options

Stock options have been granted to employees and non-employee directors with exercise prices equal to the fair market value of our Class A common stock on the date of grant. We use the Black-Scholes option-pricing model to estimate the grant date fair value of stock options, which requires the use of both subjective and objective assumptions. Certain key assumptions involve estimating future uncertain events. The key factors influencing the estimation process include the expected term of the option, expected volatility of our stock price, our expected dividend yield, and the risk-free interest rate, among others. Generally, once stock option values are determined, accounting practices do not permit them to be changed, even if the estimates used are different from actual results.

No stock options were granted during any of the three fiscal years presented. See Note 17 to the accompanying consolidated financial statements for further discussion.

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Restricted Stock and Restricted Stock Units ("RSUs")

We grant restricted shares of our Class A common stock to our non-employee directors and service-based RSUs to certain of our senior executives and other employees. In addition, we grant performance-based RSUs to such senior executives and other key executives. The fair values of restricted stock shares and RSUs are based on the fair value of our Class A common stock on the date of grant, adjusted to reflect the absence of dividends for any awards not entitled to accrue dividend equivalents while outstanding. Compensation expense for performance-based RSUs is recognized over the employees' requisite service period when attainment of the performance goals is deemed probable, which involves judgment as to achievement of certain performance metrics.

Our performance-based RSU awards with a market condition in the form of a total shareholder return ("TSR") modifier are valued based on the expected attainment of performance at the end of a three-year performance period and TSR achieved relative to the S&P 500 index over the performance period. The fair value of these awards is estimated using a Monte Carlo simulation valuation model prepared by an independent third party. This pricing model utilizes multiple input variables that determine the probability of satisfying each market condition stipulated in the terms of the award to estimate its grant date fair value. Compensation expense, net of estimated forfeitures, is updated for the Company's expected net income performance level against the related goal at the end of each reporting period. No performance-based RSUs with a TSR modifier were granted during any of the three fiscal years presented. See Note 17 to the accompanying consolidated financial statements for further discussion.

Sensitivity

The assumptions used in calculating the grant date fair values of stock-based compensation awards represent our best estimates. In addition, judgment is required in estimating the number of stock-based awards that are expected to be forfeited. If actual results differ significantly from our estimates and assumptions, if we change the assumptions used to estimate the grant date fair value for future stock-based award grants, or if there are changes in market conditions, stock-based compensation expense and, therefore, our results of operations could be materially impacted. A hypothetical 10% change in our stock-based compensation expense would have affected our Fiscal 2018 net income by approximately $5 million.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 4 to the accompanying consolidated financial statements for a description of certain recently issued or proposed accounting standards which have impacted our consolidated financial statements, or may impact our consolidated financial statements in future reporting periods.