Capri Holdings Limited Stock

Good morning, and welcome to another session at the Goldman Sachs Global Retail and Consumer Conference. My name is Brooke Roach, and I cover the apparel, brands and softline sector at GS, and I'm thrilled to introduce our next session with Capri Holdings Limited.

Here with me today is John Idol, Chairman, CEO and Director; and Tyler Reddien, COO and CFO. Welcome, John and Tyler.

Thank you, Brooke. Nice to be here.

John, let's kick it off by framing the Capri story. What are the key strengths of the company? And what makes you confident in the path ahead?

So Capri, as you know, is the home to 2, I believe, incredible luxury brands. First, Michael Kors; and second, Jimmy Choo. And these brands have very strong resonance globally with consumers around the world. And we have the ability to speak to consumers and to create trends and create fashion excitement with these consumers. And so that's the starting place, and these brands have the ability to grow. We have been on a journey, particularly in the last 18 months in both Michael Kors and Jimmy Choo to reset some of the product strategies, some of the marketing initiatives and in the case of Michael Kors, in particular, some of the store presentations and formats.

And the early signs, and we call them the green shoots, are starting to really take hold, and those green shoots are turning into more tangible results for the company. So I think we're in a very good place, and in particular, to accelerate our growth in the back half of this year, which will serve as a great platform for us to grow in the future.

Very clear. John, what's your view of the luxury accessories market today? How does that outlook inform your view on the long-term growth opportunity for each of your brands?

So the luxury accessories market globally has seen some small declines over the last couple of years, mainly driven by some of the results out of Asia, although that market is starting to recover. And Europe has softened as we've talked about on our earnings calls. But North America has been incredibly strong and resilient. So we see the overall market as being roughly flat. And we do believe the market will return to growth next year. So that really positions our 2 luxury brands well.

And secondly, what we're seeing is in the luxury market, brands that have more -- first and foremost, have very strong fashion and/or trend products are doing extremely well. And secondly, brands that have a value associated with them. So whether that's a price value relationship or whether that's the quality that you're delivering at a price, and I think I'll point out examples of that as we talked with Michael Kors and Jimmy Choo, consumers are responding to that. Consumers are definitely more choiceful today. Choiceful just doesn't mean they want something that's inexpensive or cheap, but it means they want value for how they're spending their money.

Can you give us an update on the current trends that you see by geography?

Certainly. As I think most of you know, North America is a very strong market, and the consumer is very healthy in this market. We haven't benefited from that in Michael Kors because of the repositioning work we've been doing, but we can see the underlying health of that consumer is very strong. And on the flip side, we've had tremendous benefit from that in Jimmy Choo from the strength of the luxury consumer, and that resonating with our business.

In Europe, unfortunately, we've seen the business soften there. And we're not the only company. I think most companies that you hear from are talking about the softness in the EMEA market, and that's number one, led by what is happening in the Middle East, and that is impeding business on the ground there in that market. And it's also impeding travel, both into that market and into Europe. So we definitely are seeing a softening, and I think I talked about that some months ago. We don't see that really kind of strengthening at any point in the near future. So I think we would look at Europe or EMEA as a market that will continue to remain challenged.

And then lastly, in Asia and China, in particular, we're seeing a very steady return to growth in that market and the consumer is out, they're shopping. And in particular, again, brands that have a bit more value associated with them, and that's at multiple levels in the luxury spectrum, are seeing some quite interesting and strong results in the marketplace. So we're optimistic about what that market holds for us for growth over the next few years.

Great. Now that we've set the stage, let's dig into Michael Kors and the brand transformation that you've been executing there. Where is the brand in its repositioning journey today? And what aspects of the strategy are giving you the greatest confidence that the business can return to sustainable growth?

Yes. So I think we have said that we went from cautiously optimistic, and I think we stated at another conference that we spoke at, that we've become optimistic about where we are in that brand transformation. So first, Michael Kors is a brand that's 45 years old. It's a luxury brand. It's got tremendous history, and you can look across the landscape of luxury brands, and they go through moments and it's moments where brands either their communication strategy or their marketing strategies are no longer relevant. Their product gets off trend. And you lose the kind of the attention or the zeitgeist of the consumer. And I would say very much Michael Kors was in that position some 18-plus months ago.

We have been on this journey to really reset the Michael Kors brand. We started that with the brand, our halo, which is Jet Set, and we changed the strategy around that, and we are positioning that where our vision of the consumer is that she is -- she or he are traveling the world in style. You don't see them on the airplane and in the cars and on the boats anymore. You see them in hotels or they're glamping or they're having a fun experience. And people love to travel. And this is an experience economy. And we think that our marketing strategies really dovetail perfectly into that zeitgeist, in particular, of a younger consumer.

So we're pleased with what's happening there with the marketing and the storytelling that's based around that. We need to do more work on the platforms that we're communicating on, and maybe we'll talk about that later. The second thing is, I think we're borderline excited about product. And when you start with some of the introductions that we've had in our full-price business, have really resonated with the customer. We can see that. We had issues with our brand being on trend. We have gotten past most of those today. And we're seeing really solid performance out of many categories inside of our full-price business.

And in terms of our outlet business, which is really where we've had our greatest weakness over the past few years, where we were probably the most off trend. As we were talking earlier, you've seen some of the new product that's arriving. And we're getting very strong results, and those are selling results from that. And so what's been interesting is we, throughout the quarter, have seen an acceleration of our business as we had thought. We've had a delay in inventories that we talked about during our last earnings call. Inventories are starting to build. They're not back still to where we need them to be, want them to be or should be, but it's definitely happening. And as that's happening, we're watching the business start to accelerate. And as the new product is arriving, we're seeing the business getting better and healthier.

And then lastly is we're really pleased with how the stores and the new -- the renovation program is going and how the consumer is responding to the brand. So between the marketing, between the product and between the experience inside the stores, we can absolutely see the tangible results are there and happening for the business. We're still -- I'm going to call it in early innings of our complete brand repositioning, and I don't want to say that we have completely accomplished everything. But we are doing -- laying the foundation for what is going to be future growth.

And the last thing I'd like to point out as we've gone through this, we've made a very strategic decision to reduce promotional activity. We're not quite finished in full price. We -- I think I talked about it in our last call. This will be probably the most painful quarter for us in our full-price business. We ended our inventories down in Michael Kors almost 27% during last quarter, and we are -- we have 50% less clearance and markdown inventory this year than we did last year. And -- so that's a big step for us to be able to say to the consumer, we're full price, and you're not going to see as much of that other type of product for us.

We're doing almost 50% of our full-price business today on our icons and accessories, which do not go on sale. And I'm so proud of where we are today and what we've accomplished. As I said, we've got a little more cleanup work to do through the back half of the year but we'll be past the majority of it here shortly. And that's another really good sign for the business because AURs are up, full price sell-throughs are up. That means the customer is engaging with us in a different way than they were engaging with us before. So a lot of heavy lifting, a lot of hard work, and we're starting to see the beginnings of the dividends to pay off.

Great to hear. Tyler, let's bring you into the conversation. You've continued to point to a return to growth in the back half of the year for the Michael Kors brand. What evidence are you seeing today that supports that expected inflection?

Yes, sure. And thank you for the question. I think this is -- we're at a very interesting point, and we continue to be very optimistic about the second half of the year, and this really is the moment of inflection. We expect to return to growth in the second half. And that really is supported by the fact that we're getting new product in. Our inventory levels are normalizing. And the very early read that we have on that new product is that it is resonating with customers and ultimately, that we expect that, that new product will be very successful.

In addition, we are getting additional new product introductions over the course of the fall season and into holiday, which we believe will continue to support the growth trajectory that we that we're on. Also, we are investing incrementally in marketing. So we're increasing our overall marketing spend. We're approaching 10% of revenue in the back half of the year, which really can help us fuel the overall growth trajectory. So we continue to be very optimistic. And like I said, the early indications are that we should be returning to growth in the back half.

John, you mentioned a couple of times about the broader assortment of product in outlet in the back half. What gives you confidence that this product pipeline can help accelerate trends as the year progresses?

Sure. So I think maybe what I'll do is I'll start about with full price first, which is -- we've identified these 3 icons that have been in our assortments, and that's our Laila, Hamilton and Alita handbags. And Michael Kors has been famous, and it's obviously a highly recognized brand name but you need to have product that's famous too. And I think we didn't have that as much over the past few years, but we're starting to see that now. And in particular, our Hamilton collection, which is an original legacy, one of the founding bags in our company, is doing extremely well. And we've just introduced a Hamilton Slouch, and we are selling thousands of units.

And we don't even have it all in the stores, whether it's online or it's gotten to Asia first. For the first time in probably 6 or 7 years, we now have a bag that we cannot keep up with demand. And this is very early days. We saw that with our Nolita collection where we introduced that in full price as well. So these icons are starting to resonate not only with our broader consumer, but with a younger customer as well. We're attracting a lot more younger Gen Z and younger millennial into the brand. And I think there's a recognition that Michael Kors is maybe not what I thought it was from 3 and 4 and 5 and 6 and 7 years ago. So we're really pleased with that. That is starting to roll into the outlet stores right now.

We've got a new bag called Sammy, which you can see online. Again, super high sell-throughs on the bag, resonating with the customer. It's also on trend. We have a couple of other bags that are arriving as well. We refer to these as icons. So we have icons in our full price, icons in our outlet. I'd also like to point out that in our outlet business, we are selling full price bags. So we're not up to full fleet exposure yet, but we're getting there. And it's representing between 5% and 7% of the store's business. So again, it tells you about how the consumer is responding to the new product introductions in the company, in particular, that they're on trend for what the consumer wants.

The other thing is in both full price and outlet, I've talked about is our footwear and the fact that we really did suffer a quite substantial sales reduction in that category. And again, as the new product is flowing into the stores, which is much more trend-right product, we're starting to see a very fast sequential improvement, in particular, in our full-price business. That product will arrive a little bit later on for the outlet stores. And so I think between product, number one.

Number two, we're going to be lapping some of the promotional activity that we've walked away from third-party sales, I think we talked about and some of the promotional cadence that we've walked away from last year, it was over $150 million in business that we purposely said, okay, we're going to get rid of that and try and make this business healthier, higher margins, higher AURs. And so we think the majority of that, 75% of that will be in place for the back half of the year for the outlet stores, which really tees us up. We have a high level of confidence in our ability to return the Michael Kors brand to growth in the back half of the year.

Very clear. Tyler had mentioned marketing earlier in the conversation. John, I'd like to ask for your thoughts on this. Can you talk a little bit about your marketing plans for Michael Kors in the back half of this year?

Certainly. Well, first thing I'd like to do is I'd like to say that we've made an incredible hire with Tyler. He's been an outstanding partner for us. And one of the first things he said to me when he joined the company is, how do we accelerate this business? What do we need to do to grow this business faster? And Tyler knew right away that we needed to have more marketing to really compete, but also to tell the story of Michael Kors and to a different generation. And so the first thing that he and the finance teams have been able to figure out how to do -- how do we spend more money, still preserve margin. And we're doing that through some of the activities around expense reduction, which you've seen us do over the last 3 years.

We've reduced SG&A by, I think, close to $400 million, which is quite extraordinary given us going through our transition. And we're putting a significant amount of money back into marketing. And the storytelling around Jet Set traveling the world in style is very strong, and we can see that resonating with the customer. But we've got to get it on to more platforms, whether that's YouTube video or -- we're very excited about the fact that we just launched on our TikTok shop a few weeks ago. And we are 4x over what we had anticipated on the launch of TikTok. It's really extraordinary.

So that shows you that there's a younger customer out there that wants Michael Kors, maybe didn't know what Michael Kors was and has really engaging with it. And the other thing that's exciting is that part of our marketing initiatives are with influencers. They're not all for free, by the way. I want to be clear about that. And I think I've mentioned before that 1.5 years ago, we might have had 50 influencers in the world today that are associated with us. Today, we're at about 450. And those are the ones that we're assisting or have on different programs.

And then we have hundreds and hundreds more that we're now starting to see build and build and build that want to be a part of the brand. And that's another good indication of you can see this momentum starting to happen. And those influencers, especially the ones that aren't paid are -- you can now see them on TikTok and you can see what's happening with the brand. And so those marketing initiatives, we think, are another reason that we will fuel the revenues in the back half of the year.

Very clear. Let's talk about another channel where you're starting to see some momentum, which is wholesale. Last quarter, trends turned positive in POS. What's driving that improvement? And what's your long-term expectation for this channel for the Michael Kors brand?

So I would say the first thing is the product. And as we have talked about over this and I've said about 18 months journey we've been on since we reset the brand, the department store community was always behind what we were doing in our own full-price stores because that's a full-price channel. And what's happened is I'm really excited about this. I was talking to one of our key partners at our fashion show on Friday. I hope you all saw Michael's fashion show from the MoMA Garden.

But we -- that same roughly 50% of our business that's at full price on our icons is happening in the department stores as well. And that's a channel that typically leaned into certain other promotional activity. They're excited about the journey that we're on, and they want to have higher AURs to their customers. And so they're seeing the same reaction, both to product and to product that has value associated with it. And I think you know that we looked at our strategic pricing architecture about 18 months ago, and we actually lowered our prices in full price so that we would increase our full price sell-throughs, and we're absolutely seeing that.

And in particular, we're seeing that in bags that are under $200, leaning into what Gen Z and some of the younger consumers want. So the department store community and specialty store community around the world is starting to see those results come through. The second thing is, I mentioned it before, we have a number of partners in Europe, in particular, who had left the brand and who are now want the brand back, and we're going back into those stores as we speak. And then the last thing that's happening is we are seeing our shop-in-shops be rebuilt. So we literally have hundreds of shop-in-shops that are either in construction right now or under construction. And our partners wouldn't want to be building shops with Michael Kors if they didn't see the product resonating.

The last point I'd like to make is -- and I talked about value before, you know the brands. There's a number of brands that are sitting in this opening price point of luxury. And that category is doing extremely well. And so many department stores around the world are rebuilding those categories of product, and we're the beneficiary of that. But they wouldn't do that with you if your product wasn't selling.

Let's round out the discussion by channel by talking a little bit about the stores and renovations that you've made. What are you seeing so far? And what are your plans ahead?

So super excited about what's happened with our stores. And if any of you have the time over the next day or 2, please go to our Rockefeller Center store. It's our flagship here in the United States. We renovated that store almost 1 year ago, it will be October. And the traffic in that store is up double digit and sales are up even higher than very, very high double digits inside the store.

Same location, and renovated, new product. And what's so interesting is when customers come in now, they almost say, is this Michael Kors? They look at this and go, this is not the Michael Kors that I knew. Where is the white shiny store? Where is the people in the very glamorous look? No, what they're seeing is a store that has a much more residential feel to it. They're seeing product that's much more on trend. And they're seeing a vision of Michael Kors that's a little bit less polished and a little bit more relevant to where fashion is today. So all of those key components coming together are really creating strong results in these renovated stores.

We had the same example in Kenwood Mall in Ohio, where super increase in sales and high double-digit growth in traffic were in the same location. And it just shows you that the customer has a strong resonance to the brand when we get it all together right. So we're going to renovate half of our store fleet around the world. It will take us 2 to 3 years to do that. We're trying to go as fast as we possibly can. As that starts to cume, in particular, next year, where we'll have 100 stores that will have been completed by then, all of a sudden, that's going to start to build on our sales growth as well as well as hundreds of shop-in-shops in wholesale. So that is really going to be one of the foundations for our future growth inside the company.

And then lastly, I'm very proud of the fact that I don't know if we have 7 or 8 or 9 or 10 of our Jet Set Lounges open, but please go up to the store, you will get free tea and free little bite of something sweet. And those lounges inside the store are creating additional dwell time. We happen to position them typically in our shoe department. So hopefully, you'll sit and buy a pair of shoes while you're getting some wonderful tea or coffee or whatnot from us. And so that's another experience for the consumer, whether that be an Instagram moment or whether that be a moment that you're sharing with friends and shopping. So we're really trying to create experience inside the store as well. And so that has got us excited.

Tyler, let's round out the discussion on Michael Kors with a discussion on margins. What are the most important building blocks to get the brand back to that low 20% operating margin target in the future?

Yes, sure. So I think when we look at the margin improvement opportunity, we have opportunities both in terms of gross margin improvement as well as operating flow-through. What I would say in terms of gross margin, we're ultimately driving higher full price sell-throughs, higher AURs, and we're reducing the promotional cadence of the business overall. That ultimately is leading to higher gross margins overall.

In addition, we're looking for efficiencies across our distribution and logistics network, finding ways to improve our overall cost structure so that we're driving higher gross margins. On SG&A, we continue to be very disciplined in terms of our expense management, and we will continue to look for incremental opportunities to drive improvements across our SG&A base. And that, combined with sales growth creates leverage in terms of operating margin expansion overall. So we remain very confident in our long-term ability to generate substantially higher margins than we're generating today.

Let's turn to Jimmy Choo. John, what's driving the momentum? And where do you see the biggest opportunities to sustain that growth over the next several years?

So Jimmy Choo, when you just say the words, make you smile. It's such a fabulous luxury brand. As I look around the room, I'm sure that many of you have a pair of Jimmy Choos in your closet. And it was interesting because when we looked at Jimmy Choo, especially over the last 2 years, our most important vision for the brand was to not just be a brand that was about wedding and that was about party, but was to be about a full lifestyle.

And we really looked at how does a woman live today and how does she want to be perceived. And in our mind, she wants to be perceived as effortlessly alluring, and so we also looked and she wants to be more casual. So if you look at our Jimmy Choo campaign today, you're going to see this fabulous influencer who's actually in denim from head to toe, wearing a more casual shoe. That's not something you would have seen from Jimmy Choo 18 months ago. And our campaigns are really focused on this effortless look of fashion around the consumer.

So we start with the marketing, and that is really resonating with consumers. And so we're very pleased with how that has been taken up. Secondly, it's always about product. And we've been very focused on our accessories business, which is running over 20% increases as we speak. And that's going to be very important. And later, maybe Tyler will talk about the profitability of our stores, but that's a market that we can build upon. So what we see is an opportunity to grow that to 35-plus percent of the business over a period of time and really leaning into the opportunity to sell the consumer either something in addition to the shoes, but also as a way to draw them into the store.

And that's working. From a client acquisition standpoint, it's been fantastic for us. And then Jimmy Choo, it's quite interesting. Our Gen Z business is growing very fast there, mainly because of our casual footwear. So whether that be sneakers, whether that be some of the loafers we're selling, I think that had not been a place that Jimmy Choo always thought to go and because we always thought it was a VIC consumer who is -- maybe slightly older and had more money. But today, with obviously the wealth that exists around the world, age is not the issue. It's more about the attitude. And so what we're seeing is, as you know, we've experienced multiple quarters of comp store increases. And when you look at things like North America, where the numbers are just -- are really quite strong. We think that Jimmy Choo is now in a position to really kind of accelerate its growth trajectory, led by accessories and by more casual footwear.

Are there any specific initiatives on accessories or casual footwear that you'd like to highlight today?

Certainly. Well, I'll start with accessories. We really -- we've always had this one collection in the in the business called Bon Bon. It's these fabulous little evening bags that we turned into actually day bags, and we sell them anywhere from $2,000 to $6,000 or $7,000, and they're just always iconically Jimmy Choo. So that's anything from a wedding to if I want to just go out and have a fun dinner out with my friends.

Then, we came out with a second group a little over a year, about 2 years ago called Cinch. And in the accessories business, it takes a little time. And then all of a sudden, this bag started to build and build and build. And now it's become a real icon in the assortment. And what's interesting is -- well, let me go to the next 2. And then we decided, again, about 18 months ago when we were resetting the whole company, we thought that the luxury industry had walked away from the $1,500 to $795 bag range. And we introduced 2 groups there, Curve and Bar, and both of those groups have started to become very strong.

And so now we have 4 platforms, which if we went back 18 months ago, we had 1-ish, maybe 1.5. And we have our department store partners coming to us. We are opening shop-in-shops on ground floors in department stores. I'm very excited about this, right along with our other luxury competitors. Many people think of us as a luxury brand for footwear, we are. But we want to be thought of as a luxury brand for accessories. And so the momentum that we're gaining in the accessories business is really exciting for us and it's going to help our store productivity.

But not only that it's going to just give another reason for consumers to engage with Jimmy Choo. And then on the footwear side, as I said, the casual opportunity is enormous for us. It's -- we've -- our sneaker business has already become kind of 10% to 15% of the business. And a few years ago, you would never have thought about Jimmy Choo for a sneaker. But that's part of a lifestyle today. But when you look at the way kitten heels, as an example, are, that's fashion today. And so we consider that actually a casual shoe between that and loafers, et cetera. Things that you wouldn't have thought of for Jimmy Choo are now becoming much, much more commonplace.

And then the last thing I just want to say is on the footwear side, in particular, our VIC business in certain stores can be 20% to 25% of the business. And that's driven through clienteling, high net worth. And we're competing with the best luxury players in the world on the VIC product. And we're doing a very good job, and we're winning. So there's a lot of good things that are happening in Jimmy Choo, and you can really see this brand, it's starting to hit kind of another stride.

Very clear. Tyler, you've seen an improvement in Jimmy Choo margin this year. How should we be thinking about the drivers and cadence of returning that brand to a low double-digit margin?

Sure. And I think we are very encouraged by the fact that this year, we're expecting Jimmy Choo to be profitable. And so that is really being driven by the substantial revenue momentum that we've seen in the business. And so longer term, what we do expect is that we'll continue to see improvements in productivity of the stores through increased sales through the store portfolio. But we also see substantial opportunity in terms of expanding gross margin.

So we're ultimately looking at opportunities to drive gross margin up both through the sales of accessories, which tend to be higher gross margin products, but also in terms of selling more of our iconic footwear that ultimately will help to drive increased full price, increased AURs and then driving gross margin up. In addition, we manufacture about 50% of our footwear. So we're looking for efficiencies across the manufacturing base as well to ensure that we're driving towards higher gross margins.

In terms of SG&A, as I mentioned, store productivity is going to drive substantial margin improvement. But in addition, we have opportunities in terms of corporate expenses to drive synergies across the Capri platform to be able to really improve our overall SG&A level at the Jimmy Choo brand. So very comfortable and confident with the long-term trajectory of margin improvement that we expect with the brand.

Great. Before we close, I do have a couple of rapid-fire questions that we're asking all companies today, starting with the health of the consumer. What are your expectations for the environment in the second half of '26 relative to your recent results? Same, better or worse? And do you expect the health of the consumer to be better, the same or worse in calendar '27 versus '26?

And so this is an interesting question because it is a bit geographic-specific. And as John mentioned, we continue to see the North American consumer to be resilient. And so we do expect that will be the same. But clearly, we're watching closely given the volatile environment. The European consumer, we continue to see it a bit under pressure. We think that, that will -- that's likely to continue. And the Asian consumer, we're starting to see an improvement there. So we do expect that, that will continue as well.

Great. And then from a pricing perspective, do you expect your prices in AUR to be higher, lower or the same in the back half of this year relative to the rate you delivered in the first half?

Our prices are likely to be higher, but that's really more driven by the higher full price sell-throughs, lower promotional cadence generally. So we expect that generally, we'll see higher prices going forward.

Great. And I know we talked about margins for each of the brands. But one question that we're asking all companies is do you expect to see more margin headwinds or tailwinds in calendar '27 versus '26?

Yes. We -- I mean, we continue to see inflationary pressures in terms of margin. That said, we do see substantial opportunities for our brands, both in terms of sales growth as well as opportunities to drive margin improvement. So we do expect that we will be able to offset those inflationary pressures, but the general inflationary environment will continue to drive pressure and headwind on margins.

Very clear. And then on AI, do you expect a significant increase in efficiency as a result of AI in calendar '27 versus '26, yes or no? And what part of your business will change the most as a result of AI in the next year?

So the answer is, yes. We do expect to see efficiencies from AI. We're already using AI across the business in terms of customer analytics, in terms of product design as well as back-office functions to help improve the speed and decision-making capability of the business as a whole. But we do continue to see opportunities for us to deploy AI tools and AI more broadly to actually help improve our overall demand planning, allocation, et cetera. So we do expect that we're going to see continued efficiencies going forward. And our longer-term trajectory in terms of AI, we expect to continue to adopt and continue to drive efficiencies across the business.

Excellent. John, any closing thoughts or comments you'd like to share with the audience?

Yes. Well, first, thank you for having us here today. Thank you all for joining us. Capri is in a very good place. We're going to -- we're positioned well to have growth in the back half of the year. We think that our revenue expectations for the year are still solidly in place. And I think what we're also excited about is that we're going to have a 40% increase in earnings per share for the year. And so that is a foundation for us to build for our fiscal '28 and beyond. Capri is a very good company that we think has a huge future in front of it for growth.

Great. Thanks so much, John. Thank you, Tyler.

Thank you very much. Okay.

Greetings. Welcome to the Capri Holdings Limited First Quarter Fiscal 2027 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to Jennifer Davis, Vice President of Investor Relations. Thank you, Jennifer. You may begin.

Good morning, everyone, and thank you for joining us on Capri Holdings Limited First Quarter Fiscal '27 Conference Call. With me this morning are John Idol, Capri's Chairman and Chief Executive Officer; and Tyler Reddien, Capri's Chief Financial and Chief Operating Officer.

Before we begin, let me remind you that certain statements made on today's call may constitute forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those we expect. Those risks and uncertainties are described in today's press release and in the company's SEC filings, which are available on the company's website. Investors should not assume that the statements made during this call will remain operative at a later time, and the company undertakes no obligation to update any information discussed on today's call.

Unless otherwise noted, all financial information on today's call will be presented on a non-GAAP basis. These non-GAAP measures exclude certain items associated with store renovation plan costs, transaction-related costs, Capri transformation costs as well as restructuring and other charges. To view the corresponding GAAP measures and related reconciliation, please review our latest earnings release posted to our website earlier today at capriholdings.com.

Now I would like to turn the call over to Mr. John Idol, Chairman and Chief Executive Officer. John?

Thank you, Jennifer, and good morning, everyone. We are encouraged by our first quarter results, which exceeded our expectations and demonstrated the progress we are making to build a stronger and more profitable business. Our strategic initiatives across both Michael Kors and Jimmy Choo are driving deeper consumer engagement through enhanced brand storytelling and compelling product innovation.

As we look at the balance of fiscal '27, we expect to make further progress executing against our strategic initiatives. First, strengthening brand desirability through compelling storytelling that deepens emotional connections and resonates with both new and existing consumers. Second, creating exciting luxury fashion product that reflects each brand's heritage while clearly leading with design and innovation.

Third, delivering elevated and differentiated customer experiences across all touch points, including digital, stores and wholesale. Fourth, leveraging our data analytics across the consumer journey to gain deeper insights and drive more personalized interactions. And fifth, utilizing our increasing cash flow to support brand momentum, including investments in store renovations as well as ongoing investments in IT and digital enhancements while continuing to return capital to shareholders through our share repurchase program.

While we remain focused on executing against our strategic initiatives, certain headwinds, including lower-than-anticipated inventory levels at Michael Kors in the second quarter, softer trends in EMEA and updated foreign currency exchange rate assumptions are having an impact on our revenue outlook. As a result, we now anticipate fiscal '27 revenue of approximately $3.4 billion. Based on our revised revenue expectations, we are taking actions to reduce operating expenses, which are enabling us to maintain our fiscal '27 earnings per share outlook of approximately $2.15, representing a 40% growth over the prior year.

Now turning to our first quarter results. We were pleased to deliver revenue, operating income and earnings per share above our expectations. Total company revenue was $769 million, down 3.5% versus last year, while operating income increased approximately 40%. This strong profit growth drove earnings per share of $0.67, up approximately 30% compared to the prior year. Looking at first quarter performance by brand, starting with Michael Kors, revenue decreased 7% year-over-year, slightly above our expectations. More broadly, our results at Michael Kors continue to be impacted by our quality of sale initiatives as we reduced promotional activity, third-party sales and off-price shipments. While these actions are deliberate steps to strengthen the long-term foundation of the brand, they are creating near-term pressure on revenue.

Turning to Michael Kors revenue by channel. In our own retail channel, sales declined high single digits, modestly below our expectations due to softer trends in EMEA at the end of the quarter and the impact of our strategic decision to reduce markdown inventory levels. Overall, we were encouraged by continued improvement in the quality of our sales during the quarter, including higher full price sell-throughs, growth in AURs and gross margin expansion. These are important indicators of a strong business model and support our confidence in more profitable growth as sales recover.

Looking at Michael Kors retail sales by region. In the Americas, trends were similar to the prior quarter with continued positive comparable store sales in our full-price channel. In EMEA, trends declined, impacted by the ongoing conflict in the Middle East and reduced tourist traffic in Europe. While trends in Asia declined slightly, we were pleased that full price comparable sales remained positive in China. In our wholesale channel, revenue exceeded our expectations, declining low single digits. At point of sale, we were pleased to see positive comparable store trends with our wholesale partners, led by a double-digit increase in accessories.

Turning to brand awareness and consumer engagement. We continue to reinforce Michael Kors' modern jet-set lifestyle positioning through immersive storytelling, global events and destination-driven experiences that capture the essence of our brand vision, traveling the world in style. Building on the momentum of Hotel Stories, our summer campaign captured the spirit of Saint-Tropez, featuring Suki Waterhouse, Danny Ramirez and our brand ambassador, JC-T. The campaign highlighted the season's most compelling styles while reinforcing our modern jet-set lifestyle positioning. We further extended the reach of the campaign through an immersive Saint-Tropez Hotel Stories experience, bringing together a curated group of 14 global influencers to showcase our collection. Through authentic brand storytelling, the event generated over 100 million impressions, further amplifying awareness and consumer engagement around the world.

Beyond our seasonal campaigns, an important highlight of our brand-building efforts was the Met Gala. At this year's event, a number of celebrities wore custom Michael Kors designs, including Anne Hathaway as well as brand ambassadors, Suki Waterhouse and Danny Ramirez, among others. As one of the fashion industry's most visible cultural moments, the event helped amplify brand awareness, elevate desirability and reinforce Michael Kors' authority in fashion luxury. Collectively, these activities helped drive an 8% year-over-year increase in the Michael Kors global consumer database. Through our analytics capabilities, we are leveraging the strength of our extensive database to create deeper and more personal connections with consumers.

Turning to product. Our strategy remains centered on delivering exciting fashion with standout style while celebrating our iconic brand codes. Guided by Michael's creative vision, our summer assortment blended classic French elegance with modern ease. New product designs and our broader pricing architecture are continuing to drive stronger full price sell-throughs. In accessories, consumers continue to respond positively to on-trend styles that align with our broader pricing architecture. Our core icons, Hamilton, Laila and Nolita continued to perform well with smaller silhouettes introduced for summer helping to expand consumer reach and attract younger customers.

In footwear, we are beginning to see encouraging traction from new on-trend casual styles that reflect Michael's signature blend of jet-set glamor and modern versatility Notable styles included the Nolan sneaker, Pixie jelly ballet flat and the Jacie floral embellished sandal, which resonated with consumers and helped drive improved trends across the category. Looking at ready-to-wear, consumers responded to seasonal styles that captured Michael's effortless glamor. Our summer collection balanced modern fashion designs with timeless wardrobe staples, drawing inspiration from the relaxed sophistication of the South of France.

Now I would like to discuss the progress we are making with our store renovation program as our retail locations remain an important pillar of the brand's expression and a driver of our sales recovery. Through our renovations, we are continuing to evolve the Michael Kors jet-set lifestyle with elevated and more immersive customer experiences. During the quarter, we opened 2 new flagship stores in key international markets, including Beijing, China World and Pavilion in Kuala Lumpur. These locations featured our Jet Set Lounge, an immersive experience designed to deepen customer engagement and increase store dwell time.

We see meaningful opportunity to build on this innovation and expand Jet Set lounges across flagship locations globally. We believe that our store renovation plan will further strengthen brand desirability and drive higher sales productivity. Early results are encouraging with renovated locations generating significant sales increases versus prior year. Overall, at Michael Kors, we are encouraged by our first quarter performance, which reflected our efforts to enhance brand desirability and consumer engagement.

While we are disappointed with our second quarter outlook, we expect Michael Kors revenue to return to growth in the back half of fiscal '27 driven by new product introductions, increased marketing investments, the beginning of a normalization in promotional activity and the increasing benefit from our store renovation program. Looking beyond fiscal '27, we remain excited about the long-term growth potential of Michael Kors.

By building on the brand's 45-year heritage as a global fashion luxury house and modernizing the jet-set lifestyle for today's consumer, we are strengthening brand desirability. This positioning is resonating with consumers. Our marketing investments are driving stronger customer engagement and our new product introductions are performing well. We remain confident in our ability to achieve $4 billion in revenue and low 20% operating margins over time.

Now turning to Jimmy Choo. We were pleased with the brand's continued momentum. First quarter revenue exceeded our expectations, increasing 10.5% over last year. Growth was broad-based across channels, regions and categories, driven by strong brand momentum and the continued success of our strategic initiatives. Our marketing initiatives are strengthening brand desirability, while our product initiatives are attracting new and younger consumers and creating additional purchase opportunities for existing clients. In our own retail channel, we were pleased with the sequential improvement in trends with sales increasing low double digits and growing across all regions.

Turning to wholesale. Revenue also grew low double digits. Trends at point of sale remains strong, driven by continued double-digit increases in North American department stores. The performance across both retail and wholesale gives us confidence that the momentum behind the brand is both broad-based and sustainable. Turning to brand awareness and consumer engagement. Our storytelling continued to highlight the effortlessly alluring essence of Jimmy Choo and the sense of joy and confidence the brand inspires. In the first quarter, our marketing and communication strategy remained focused on strengthening brand heat, driving client acquisition and expanding global cultural relevance.

For summer, we introduced our Natural Reflection campaign which reinforced Jimmy Choo's distinctive blend of glamor and craftsmanship set against a striking desert backdrop. The campaign highlights new hero products, including the sculptural Glace Mule, the playful Jelly Drop sandal and the continued evolution of the Cinch bag. Beyond our seasonal campaigns, regional brand ambassadors are playing an increasingly important role in expanding our global cultural relevance. Campaigns featuring our brand ambassadors, Wang Yibo and Bai Lu generated strong engagement across key markets and helped strengthen the brand's visibility with consumers in Asia.

We are also increasingly leveraging influencers and immersive brand experiences to expand Jimmy Choo's global reach and connect with consumers in a more meaningful way. A great example was our global influencer trip to Nice, where we brought together a carefully curated group of 16 content creators from around the world with a combined following of more than 36 million people. The event generated nearly 50 million impressions across key markets while showcasing Jimmy Choo through aspirational content-rich experiences. Just as importantly, it helped drive increased interest in featured products and delivered measurable sales results.

Additionally, creating distinctive experiences for our VICs remains an important part of our marketing strategy. The third installment of the From The Atelier: Bon Bon series celebrated Jimmy Choo's commitment to craftsmanship and creative collaboration through limited edition Bon Bon bags inspired by the Four Seasons. The collection served as the foundation for curated client events across key markets, pairing rich storytelling with exclusive experiences that deepened engagement among our top clients and drove a 40% increase in VIC sales. Taken together, these initiatives are driving increased desirability and deepening consumer reach, contributing to a 7% increase in Jimmy Choo's global consumer database year-over-year.

Turning to product. Jimmy Choo's product strategy remains focused on further developing accessories and expanding our casual footwear offering to support sustainable long-term revenue growth and margin expansion. Accessories continued to be an area of strength with sales increasing double digits versus last year. Our iconic Bon Bon and Cinch franchises performed exceptionally well. During the quarter, we saw outsized growth in day bags, driven by the continued success of the Cinch collection and strong consumer response to new seasonal styles. In evening bags, Bon Bon maintained its strong momentum. Additionally, newer groups such as Bar and Curve are resonating with consumers and broadening the reach of the brand. We remain encouraged by the success of our expanded pricing architecture, which is helping attract new and younger clients without compromising the luxury positioning of the brand.

Turning to footwear. Results were encouraging across both dress and casual. In dress footwear, new styles such as Faiz lace pump complemented iconic franchise styles like Sacora, underscoring our ability to balance seasonal updates with timeless designs. In casual footwear, our expanded assortment gained further momentum with strong performance from new seasonal styles, including our Margot Flat while established franchises such as our Sunny sneaker continued to perform well. We believe casual footwear represents a long-term growth opportunity, enabling us to increase purchase frequency among existing consumers while attracting new clients to the brand.

Finally, I would like to congratulate Sandra Choi for being appointed an Officer of the Order of the British Empire in recognition of her services to the fashion industry. This prestigious honor is a testament to Sandra's extraordinary creative vision, leadership and lasting contributions. She continues to embody the very best of British design while helping shape Jimmy Choo's influence on the global luxury landscape. Looking ahead, we are increasingly confident in Jimmy Choo's trajectory. The brand is strengthening its connection with consumers. Our marketing initiatives are resonating, and our product strategies are creating new avenues for growth.

Jimmy Choo is well positioned to return to profitability in fiscal 2027, driven by strong revenue growth, gross margin expansion and disciplined expense management. Longer term, we are optimistic about our growth opportunities and confident that we can increase revenue to $800 million as well as expand operating margins to the low double-digit range. In conclusion, we remain optimistic about Capri Holdings' future.

Across Michael Kors and Jimmy Choo, we have clear strategies focused on elevating brand desirability, deepening consumer engagement, strengthening product innovation and improving the quality of our sales. As we build upon the momentum generated by our strategic actions, we believe Capri Holdings is well positioned to drive sustainable growth, expand profitability and create meaningful long-term value for our shareholders. In closing, I would like to thank our approximately 11,000 employees around the world, whose dedication, focus and talent continue to drive our progress.

Now Tyler will take us through our first quarter results and guidance in more detail.

Thank you, John, and good morning, everyone. Our first quarter performance reflects the progress we are making to build a stronger and more profitable business. We improved the quality of our sales, generated gross margin and operating margin expansion and grew earnings per share while continuing to invest in our brands. We delivered revenue, operating income and earnings per share above our expectations, driven by better-than-anticipated results at both Michael Kors and Jimmy Choo. These results are beginning to position Capri Holdings for more profitable growth.

Looking at our first quarter results in more detail, total company revenue of $769 million decreased 3.5% on a reported basis and 4.1% in constant currency compared to the prior year. Looking at revenue performance by brand, Michael Kors revenue of $590 million decreased 7.1% on a reported basis and 7.6% in constant currency compared to the prior year. Revenue was above our expectation, partially due to the timing of wholesale shipments, more than offsetting modestly softer-than-anticipated retail performance.

Our retail results were impacted by softening trends in EMEA at the end of the quarter and by our continued quality of sales initiatives, including a larger-than-expected impact from our strategic decision to reduce markdown inventory levels. Additionally, store closures negatively impacted retail sales in the low single-digit range, similar to prior quarters. As a result, global retail sales declined high single digits. Looking at total Michael Kors revenue by geography, revenue in the Americas decreased 10%, reflecting a sequential improvement relative to the fourth quarter, aided by earlier-than-anticipated wholesale shipments. In EMEA, revenue declined 5% as retail trends slowed towards the end of the quarter. In Asia, trends remained positive with revenue increasing 6%.

Turning to Jimmy Choo. Revenue of $179 million increased 10.5% on a reported basis and 9.3% in constant currency compared to the prior year. Global retail sales increased low double digits versus prior year with particular strength in the Americas. Wholesale revenue also increased low double digits, reflecting strong demand for the brand. Looking at total Jimmy Choo revenue by geography, sales increased across all regions with the Americas up 26%, EMEA up 5% and Asia increasing 3%.

Now looking at total company margin performance. Gross margin of 65% increased 200 basis points versus last year, driven primarily by higher full price sell-throughs as well as lower tariff rates versus the first quarter of fiscal '26. By brand, Michael Kors gross margin of 63.9% increased 280 basis points versus last year, driven primarily by higher full price sell-throughs and lower tariff rates, partially offset by channel mix. Jimmy Choo gross margin of 68.7% compared to 70.4% last year, lower primarily due to channel mix.

Total company operating expenses decreased $10 million due primarily to cost savings initiatives more than offsetting inflationary cost pressures. As a percent of revenue, operating expense was 61.4% compared to 60.5% last year, reflecting expense deleverage on lower revenue. Total company operating income of $28 million represented operating margin expansion of 110 basis points to 3.6%, ahead of our expectations.

Looking at operating margin by brand, Michael Kors operating margin of 9.3% was slightly above our expectations. Compared to last year, operating margin declined 60 basis points with higher gross margins more than offset by expense deleverage on lower revenue. Jimmy Choo operating margin of 7.3% was above our expectations and increased 480 basis points compared to the prior year, primarily driven by expense leverage on better-than-anticipated revenue and cost containment actions. Net income was $76 million or $0.67 per diluted share.

Now turning to our balance sheet and cash flows. Our balance sheet remains strong, and we ended the quarter with cash of $114 million and debt of $338 million, resulting in net debt of $224 million, down from approximately $1.5 billion last year. During the quarter, we extended our revolving credit facility through 2031. We also executed against our commitment to return cash to shareholders, repurchasing approximately $50 million worth of shares during the quarter. We have an additional $871 million of availability remaining under our share repurchase authorization.

Inventory at quarter end was $624 million, a 20% decline year-over-year. This decrease reflected an approximately 25% decline at Michael Kors, driven by a planned reduction in markdown inventory levels as well as in-transit delays. Second quarter inventory is now expected to decline high single digits, reflecting continued delays. We are taking actions to accelerate inventory receipts, including increased use of air freight, and we expect inventory trends to normalize and build through the back half of the year to support our revenue growth.

Turning to guidance. We are taking a more conservative view of our revenue outlook for the remainder of fiscal 2027 and now anticipate revenue of approximately $3.4 billion. By brand, we now expect Michael Kors revenue of approximately $2.765 billion, impacted by $50 million from lower-than-anticipated second quarter revenue due to later-than-planned arrival of inventory receipts, $50 million from softer trends in EMEA, and $35 million from foreign currency headwinds. We still expect revenue to return to growth in the second half of the year, supported by new product introductions, increased marketing investments and as promotional level comparisons begin to normalize.

At Jimmy Choo, we anticipate revenue of approximately $635 million. For the year, we now anticipate gross margin of approximately 64% compared to 62.3% last year. Our guidance now assumes 10% to 12.5% tariff rates on product imported into the United States as of July 24, and we continue to monitor the evolving tariff situation. We now expect operating expenses of approximately $2 billion. This is a $70 million reduction versus our prior outlook, reflecting our disciplined approach to expense management. Accordingly, we now expect full year operating income to be approximately $170 million, a 40% increase over last year. By brand, we continue to anticipate Michael Kors operating margin to be in the low double-digit range and Jimmy Choo returning to profitability with operating margin in the low single-digit range.

Turning to our expectations around certain nonoperating items. We now expect net interest and other income of approximately $100 million. We continue to anticipate an effective tax rate in the low teens range with fluctuations in quarterly tax rates due to our valuation allowance position. We now anticipate weighted average shares outstanding of approximately 110 million, assuming share repurchases of $200 million during fiscal 2027. Based on these assumptions, we continue to expect to generate diluted earnings per share of approximately $2.15, representing 40% growth over the prior year.

Turning to second quarter guidance. We now expect total company revenue of approximately $780 million. By brand, we anticipate Michael Kors revenue of approximately $645 million. Our revised outlook now reflects several factors, including an estimated $50 million reduction in revenue resulting from the lower-than-anticipated inventory levels, $15 million from softer than previously anticipated trends in EMEA, $10 million from foreign currency headwinds relative to our prior expectations, and $10 million related to the timing shift of wholesale shipments that benefited the first quarter.

We anticipate Jimmy Choo revenue of approximately $135 million, driven by continued brand momentum and the early positive response to our autumn collection. We expect second quarter operating income of approximately $10 million. In terms of operating margin by brand, we anticipate Michael Kors operating margin in the high single-digit percent range and Jimmy Choo operating margin in the negative mid-single-digit percent range.

Turning to our expectations around certain nonoperating items. We expect second quarter net interest and other income of approximately $25 million. We anticipate an effective tax rate in the mid-30% range and weighted average shares outstanding of approximately 112 million. As a result, we expect to generate diluted earnings per share of approximately $0.20, significantly above last year.

In closing, we delivered meaningful progress in the first quarter, improving the quality of our sales, expanding gross margin, operating margin and earnings per share and continuing our share repurchase program. While near-term inventory delays are impacting our second quarter outlook, we expect revenue to return to growth in the second half of the year. As we move through fiscal '27, we remain focused on driving higher profitability while continuing to invest in our brands. We are confident that the actions we are taking today position us to deliver sustainable long-term value for our shareholders.

Now we will open up the line for questions.

[Operator Instructions] Our first question is from Matthew Boss with JPMorgan.

So John, could you help break down the high single-digit retail sales decline at Michael Kors this quarter? What was performance at full price versus outlet in the quarter that made up that high single-digit decline? And then I guess my question is, what should we expect for second quarter retail sales at Michael Kors versus that high single decline in the first quarter? And for the back half, has anything at all in your Michael Kors retail sales outlook changed at full price versus outlet other than your view on EMEA macro?

Thank you, Matt. So I want to first start out by saying we were pleased with the results in our first quarter. As I said in my prepared remarks, we are building a stronger and more profitable business. And I think the results indicated that. And we continue on our journey to, first and foremost, look at the quality of sale in both Jimmy Choo and at Michael Kors. And I think we're making very, very strong strides forward in that area. Our full price sell-throughs at both companies were up. Our AURs at both companies were up. And when I look at the health of the sale to the customer, it's getting better each quarter. So we're -- we think that's a very strong indicator of what the future is for Capri and for Jimmy Choo and Michael Kors.

In terms of Michael Kors, the retail sales in our full-price channel comped positively in both North America and in Asia, consistent with prior quarter. And unfortunately, in EMEA, we did see, as we move through the quarter, revenues start to be impacted by the conflict and the lack of tourism in the EMEA region. And then, of course, we do have a business, although that's licensed in the territory itself in the Middle East, which has been significantly impacted and remains significantly impacted. And that's why we've taken a more cautious view to what that's going to mean for the balance of the year.

So I would say that in our full-price channel, we were pleased with how the results came out during the quarter, consistent with the progress we're making. We've shipped new product into that channel. We realigned our pricing architecture and consumers are responding very positively to that. And I would also add that consistent with that, you heard us talk about our wholesale business turning positive at our retail partners. That's a very big moment for us. There's been 3 years, 4 years of decline in that business, and we're finally starting to see that turn.

And then the last thing I would say is while still negative, our footwear business did start to see a sequential improvement. So some of the new product has begun to arrive in the store. Some of it was there for February, March, and we're starting to see some much better sell-throughs, both in our own retail stores as well as our wholesale distribution. So we're very encouraged by what's happening with the full price part of our business and what we see -- what we think we're going to see throughout the balance of the fiscal year.

In our outlet business, I would say that trends were consistent, remain down, and we have not really seen any significant change there. And that was, as we've said before, due to the fact we really have limited new product into that channel. It's disappointing. We thought we would begin to have a little bit more. But in particular, in the second quarter, we thought we would start to flow a significant amount of new product that will be here for the third quarter. We feel very confident that we'll be, as I've said previously, around 75% in particular, in the accessories world, a little -- it's going to take us a little longer in the footwear side of things to get the product flowed into outlet. So we feel quite confident that when that new product arrives, we will have the ability to really start to see the same type of changes that we've seen in the full-price business in the outlet channel.

I want to remind you all that 2 things. Number one, and I had said this previously, in Q2, in our full-price business, we are going to take one final step back on the clearance and markdown inventory. We are at historical lows for the company. The company has never owned this less amount of inventory in clearance and markdown. And that will have an impact on retail sales, both in full price and in outlet in Q2, and that's planned. We anticipated that. And that will be somewhat amplified by the fact that we will not have the amount of inventory in new full-price product arriving as early as we had anticipated.

So that will have an impact on that side of the business. But -- so I think we -- besides the inventory issue, feel that we are tracking on plan and the consumer is responding to the new product to the new marketing initiatives, and we're getting the results that we had more or less anticipated. So we're feeling that we're on track.

Our next question is from Paul Lejuez with Citigroup.

I'm curious if you could talk a little bit more about the expense management that you're able to put in place to help hold the P&L together this year. Curious if we should think of that as more onetime adjustments or if we build that into the go-forward expense base. And then, just a little bit more detail on the interest income and other line. Can you talk about what changed on that line?

Yes, happy to, Paul. When we look at our full year SG&A, we are reducing our expectations for spend by $70 million relative to our prior guidance. We are taking targeted expense reduction actions across the SG&A pool in order to ensure that we are driving down our overall SG&A level. That said, we are protecting investments to support the business, including marketing, store refurbishments as well as digital and IT investments. So we are ensuring that we're maintaining the investment in what is for the longer-term health of the brand.

But we'll continue to evaluate opportunities to improve efficiency across the cost base in the longer term and continue to invest for the future growth. As it relates to interest income, we are just revising our interest income guidance on a full year basis, reflecting where we landed in the first quarter. And so this is just a slight change to our expectation for overall interest income for the year.

Our next question is from Simeon Siegel with Guggenheim Partners.

Tyler, can you elaborate just a little bit more on the lower-than-anticipated inventory? Maybe discuss both what happened and the why within that inventory. How much of that is reduction in markdown versus full price? How much is seasonal sales that you'll lose with the delay versus maybe sales you expect to recoup once the product comes in? And then, just higher level, John, kind of piggybacking on what you were just talking about. Any way you could just help us frame where you think you sit on that quality of sales journey? I know you mentioned there's one more, but just what percent of the business is at full price now versus where that was historically? And just really any way to help us think about that time frame?

Yes. Thanks, Simeon. So inventory at Michael Kors is lower than we anticipated. Towards the end of the first quarter, we started to see receipts be delayed with longer transit times due primarily to congestion at certain ports in Asia. We are taking action to accelerate receipts where possible, including selective use of airfreight. But ultimately, we do -- we are landing lower than we anticipated, and that is impacting sales.

This situation is temporary, and we expect inventory levels to normalize as we progress through the second quarter and at the beginning of the second half of the year, but it is going to impact our second quarter sales. We do anticipate that when we get back to the back half of the year and our inventory levels have normalized, that we will be able to deliver on our expectation of growth for both Michael Kors and Jimmy Choo.

Simeon, thanks for your question. Let me start out. You had also asked about the difference between the lower inventory level as it relates to delays in delivery and how much of that was lower markdowns. And it's about a 50-50 split, and it comes in at about $50 million in lower markdown inventory, just to give you a size of the magnitude of the reduction in markdown inventory.

And I think it's a very important thing to highlight because that is intentional. We've decided to be less promotional facing to the customer. And that's everything from the types of promotions we're doing to the amount of discount we're offering and then to the amount of product and SKUs available for the customer to see that. As you know, there have been other companies that have gone through this process. It is -- it takes time and you have to be patient. And we think it's important that we started on a journey and that we don't all of a sudden start to change that vision of where we want to be long term.

Now what I've said to you all on previous calls, we do anticipate Michael Kors to turn positive in the back half of the year. And that is both in full price and in outlet. Outlet might be up 1 or 2 points in Q3 or down 1 point or so and then proceed to get a little bit better in Q4. So in general, we think that Q3 is a pretty significant inflection point for the company. The other part about that is and I've said this to you on previous calls, around October, very early November is when we lapse certain third-party sales that we were conducting out of our outlet stores. I think we said on the last earnings call that it amounted to approximately between that and some other third-party sales, about $150 million for us. So we will start to lapse that in our -- and it's predominantly it will show up in our outlet channel.

So I think that's when I would look at the timing. We're already seeing AURs climb. We're already seeing full price sales climb. So both of those parts of what we put in place, we have the evidence that is saying that the customer is responding. And I would say, more importantly, to the design of the product and the excitement of the product. You also heard me mention in my prepared remarks that the store renovation program is going really well, and we're seeing strong double-digit increases in the stores that we're renovating. And we're trying to move as fast as we possibly can on that because that's going to be another positive for us.

I think we'll see a much bigger lift from that next fiscal year than we will this fiscal year. And hopefully, we'll be able to, in the next call, start to talk about the amount of stores that will actually get in place. It's very limited right now. But as you know, we've said we have a plan to renovate over 300 of our own stores and a significant amount of department stores. And our partners in the department stores have also been very supportive about that.

And so I think, again, very disappointed about this situation around the second quarter. But we view that as a near-term headwind. We know we're going to be able to get through it. As Tyler mentioned, we are going to use some air freight to move some of that delivery up, and we're working very closely with our freight forwarders to help us mitigate and get on faster vessels, et cetera, to get the product here. So I think we will be in a very good position in the third quarter. And based on some of the things that I've said to you, we're feeling still very, very constructive and positive on our ability to return to growth in the back half of the year.

And then, of course, I want to mention because this is a total Capri, Jimmy Choo is positive again this quarter. That's the third consecutive quarter that Jimmy Choo has been positive, including comp stores. So we feel very, very good about what's happening at Jimmy Choo and the ability for that brand to continue to grow along with Michael Kors.

Our next question is from Rick Patel with Raymond James.

You talked about headwinds at Michael Kors, including reducing markdowns and lower sales to daigou and off-price. Can you give us your updated thoughts on how long you expect those headwinds to persist as we think about Q2 versus the back half? And secondly, as we think about Michael Kors returning to growth in the back half, can you paint a picture for what that looks like from a geographic perspective given the softness you're seeing in EMEA?

Sorry, I don't know if you heard me. I'll start again. Rick, I think we addressed part of the daigou or the third-party sales in the previous question that was ran about $150 million for the company approximately last year. We do have still headwinds in the first and second quarters and a little bit of the third quarter on that. But post October, November, that should start to mitigate for us as a headwind. Additionally, we will have entered Q2 as we did in Q1 with historic lows on our markdown and clearance inventories that's planned.

There was a business there, is a business that we will not vacate and we obviously will have markdown clearance, but it will be at a much lower level than the company has had in the past. And so that will be again, hopefully lesser of a headwind as we head into the third and fourth quarters. And so I think that, that's -- and then lastly is the promotional activity where we will be lapping some of the reductions that we've taken in terms of removing events and sizes of discounts. And then the second part of your question was -- geographic.

So related to -- yes, from a geographic perspective, what the improvement could look like in the back half?

That's right. So number one, I think the change, if I can say sitting here, is we would have anticipated -- we've had a terrific run in Europe. It's been very strong for the company even during some of our more difficult periods. So that is a definitive change for us as we look at the back half of the year. We do not see that improving. And obviously, we've taken down our guidance given what we think is still happening. And hopefully, there will be some movement and some of the conflict in the region will settle down, and we'll get the benefit of that. But for right now, we can't count on that. So we've removed that from our future guidance.

I would say the area where we see the biggest increase will be in North America. We're seeing that North America full price comps are once again comp positive. We told you that our wholesale business turned positive in North America at point of sale. So -- and that's the biggest market for us. So we're feeling sufficiently confident that the initiatives that we put in place will begin to see this marketplace turn positive. And we're -- you saw that the overall Asia market did turn positive for us again this quarter and in Michael Kors. So we continue to see that market getting better in China, in particular. And so we would look to see that as a positive for us in the back half of the year. And again, EMEA is the one that we are most disappointed about, and we think we've reflected that in our guidance.

Our next question is from Brooke Roach with Goldman Sachs.

John, I was hoping you could unpack the trends that you're seeing in Michael Kors outlet in North America in a little bit more detail. What early reads are you seeing from some of the new product launches and reads that give you more confidence in that inflection to growth in that channel in the back half of the year outside of just cycling daigou? Are you seeing any change in traffic levels, consumer brand engagement or NP -- net purchase intent or Net Promoter Scores for that business?

I would say North American outlet has not changed in terms of trend. It's been fairly similar over the past few quarters. We have delivered some newer styles into the store, which are getting very, very positive results from the consumer. I think I've said to you previously, they are at higher price points. We are actually raising prices in our outlet stores, both on an individual product basis and by lowering discounts. And so that's going to take some time for the customer to adjust to and absorb and accept. We have a new product that's just landed, called Sammy, which is really getting some very, very strong traction for us.

We have 2 new hero products, one called Ashton and one called Bailey, that will be in the stores in the later part -- or in the early part of Q3. And then we have some additional styles that will be arriving throughout the fall season. And so we're very hopeful that these new products will resonate with the consumer. And at the same point in time, we're cycling out of older products, and we're kind of through that at this point in time. That's -- when I tell you that we're down in markdown and clearance, it's not just in our full-price stores, but it's also in our outlet stores as well. And again, this is part of the journey with the consumer to really position Michael Kors as a brand that has much higher perceived value with the customer.

And then the last thing I'll say is we just completed a consumer research study on our customers. And I was very pleased by the scores that came back on the brand and how the consumer perceived the brand. And we know we have more work to do on the younger consumer, in particular, in Gen Z. But you're going to see some exciting things. We launched our TikTok -- our new TikTok Shop yesterday. We are in the middle of a very, very successful launch of a back-to-school activity with Amazon. We went live with Amazon a little over a year ago on -- with a Michael Kors storefront. It's been very, very successful for us.

And we know that by being on platforms like Amazon, like TikTok, and as Tyler mentioned, we are increasing our marketing spend for the company. We're getting close to -- we're going to raise it by almost 200 basis points. We're getting close to 10% of sales, especially in the back half of the year. We're going to be able to focus a lot more initiative around the younger Gen Z consumer. We think that's also going to benefit us. And so I would say to you that a lot is going to be happening for us in Q3 and Q4. And if we've done our job right, we should be in a solid position to turn positive for the back half of the year.

Our next question is from Oliver Chen with TD Cowen.

Tyler, regarding pricing and where you are in the pricing journey on raising prices relative to the past, what's happening there by channel and interplays with quality of sales? Would be great to be briefed on.

Great. Thank you, Oliver. I want to start with Jimmy Choo. I think we're extremely pleased with the results that we've seen from Jimmy Choo for the last 3 quarters, both from a revenue standpoint and as you've seen and Tyler discussed it, the brand is returning to profitability this year. We are one of the strongest brands in our department store partners here in North America. You saw the results that we delivered with Jimmy Choo in North America. They're quite exceptional. And that's really a result of 3 things. Number one, our accessories business is getting stronger and stronger by the quarter. We have now department stores who are starting to commit to building shop-in-shops for us. That is a very big hurdle for us to get over. And so I think over the next few years, you're going to be looking at Jimmy Choo as a very strong and powerful accessories business, which will help drive profitability and also growth for the company.

And when you look at our pricing architecture, as you know, we have everything from $5,000, $6,000 Bon Bon bags for the ultra-luxury VICs to our new opening price points between $1,500 and $750 on bags like Bar. And then, of course, we have our very, very strong Cinch platform as well. So we think we really have a great pricing architecture and the product is resonating with consumers. And it's also driving a new consumer into the stores, which is excellent for us. And you saw we had growth across all regions with Jimmy Choo. Our footwear business in Jimmy Choo has been also very strong. The casual part of our business is -- continues. We've had amazing success with our sneaker program and especially some of the new lace and slim styles that we've had. And our casual program has also started to really take hold.

And lastly, what's interesting is our pump business is starting to come back. There's a trend on pumps again, which is -- for us at Jimmy Choo is always puts a big smile on our face. So we feel good about what's happening there. And once again, we have a very, very broad pricing architecture. You look at things like our jellies, our trainers, our sneakers, our casual and then all the way up to our bridal product, which can be $2,000, $3,000 for shoes, and we have things that open up at $350 to $400. So that is really working quite well for us. And as I said earlier, full price sell-throughs are up at Jimmy Choo. AURs are up. So the health of the business is quite good. And Michael Kors, again, to restate what we did in spring of last year, we actually lowered prices in the full price area, and that was a result of we were taking too many markdowns, and we saw what the customer was really willing to pay for the product. So we went back to more historical prices.

And the second thing we did in accessories, in particular, we have a very, very broad range of under $200 bags today or smaller bags. And that is, first off, what is happening from a fashion trend standpoint. And secondly, it's attracting a younger Gen Z customer, in particular, into the brand. So we're really pleased with what's happening with our accessories. We see it in our full-price stores. We see it in our wholesale distribution globally as well. In footwear, just to remind you, that's the business that's actually the business that's the most difficult in our -- across the company and in particular, in our -- well, it's in both channels, full price and outlet. But in full price, we've been able to land newer, I would say, more modern product into the channel. And we saw a very big step change this quarter in terms of product and the sell-through.

Pricing was never as much of an issue in footwear for us, but it was really more of a product design. And I think our teams are doing an extraordinary job of getting on trend in that category. And as I said to you in our last call, we lowered ready-to-wear prices by almost 40%, and that's been one of the highest percentage increase businesses for us in our full price category. So -- and then lastly, I have to give a shout out to our watch business, which is now has turned positive, and we're quite pleased to see that, that business is returning to growth in our own stores.

In the outlet channel, as I mentioned before, we're actually raising prices. We had gotten too inexpensive for the value of the product that we were delivering. I'd say prices have been raised anywhere from 5% to sort of 10%. We will probably take another increase in prices sometime in the beginning of next calendar year. And we're doing that with individual product itself. And also, we're raising AUR by the reduction in promotional activity. And so -- and you're going to see a further step change in our outlet stores with percentage decline in promotional activity as well as the amount of times that we actually do that, and we'll be focused more on individual price points.

I'm also excited in our outlet channel. We're running anywhere between 5% and 6% of sales in the stores that we have our full-price product in the channel. We've put our icons in there, that's Hamilton, Nolita and Laila. And so we're really pleased with what's happening in that channel with our ability to sell full-price product. Again, we have a long way to go to show the customer that we have new and exciting product that warrants this higher price point. And I think we're just really excited about what we think is going to happen starting in September, October, November when what we think is kind of a new face on that product will be in place.

The footwear part of outlet will not come until closer to the holiday season. That is something we've, I think, said on our -- on the calls previously, but we are feeling better about what is coming now at that period of time. So we should be about 70%, 75% complete in the outlet stores with product -- new product by September, October, and that will reach a higher level, in particular, when the footwear arrives for the latter part of the calendar Q4. Thank you very much, Oliver.

Our next question is from Adrienne Yih with Barclays.

John, thanks so much for all the detail, and it's very helpful. But kind of staying on the different -- there's a lot of shifts going on between full line and outlet. So staying with that theme, as you make these minor adjustments to pricing, how are you seeing -- well, how are you messaging those, first of all? And then how are you seeing customer acquisition shifting? Are you regaining your historical customer? How are they finding you? And then I guess, number two, you're lowering initial retails at full line, raising them at outlet, but you also have the promotional kind of overlay, which is muddying, I'm assuming kind of the true demand read. Is the spread between full line and outlet now normalized? Was it just kind of extremely did it get out of whack relative to history? And are we going back to what you know to be that spread that should be?

Thank you, Adrienne. I think that's a good question to end on. Number one, in full price, in terms of the reduction in prices that we took, that was in February of last year. So I would say we've anniversaried that at this point. So that is like-for-like. In full price, as I said earlier, the one last step that we're -- well, there's 2 last steps. Number one, you will see one further step down in certain seasonal promotional activity that we have done historically for some 10-plus years, that will change in Q4. So that will be the final, kind of, step down on that.

In terms of markdown product, we have one last phase to go through in Q2, and I've said this in previous calls and conferences that we will have most likely negative comp store sales in Q2 for full price because of this very large reduction in markdown inventory that will occur in Q2. And then that should be -- that's all, kind of, behind us. In outlet, we are really not -- I would say we're at the very beginning of the price increases, even though we've taken a minor amount of them, the real full amount of product is arriving August, September into the stores.

So this is going to be the test with the consumer to say, are you going to accept this higher price from us? Again, we've had some limited test on it. The limited tests appear that, that has had little or no reaction to the customer. I do expect customers to come in and be looking for lower-priced things that they had historically seen from us, and we may lose some of that historic customer. We don't know that yet until we go through it. But we are excited. That's why we're increasing our marketing spend to go out and attract new customers into both full price and outlet, in particular, younger customers who most likely were never shopping with us previously. So we'll be very focused on our new customer acquisition.

And then, of course, you asked how are we getting that message out there. We've hired a new gentleman, Corey Moran, came to us from 10 years at Google, and he is working very diligently with our teams around all of the marketing initiatives that we're putting forth. And I would say a great deal of the spend that we're adding to Michael Kors is around really top of the funnel marketing and brand engagement. And we will actually reduce some of our more targeted performance marketing in favor of really talking about the brand story and engaging customers from a storytelling standpoint. So thank you for that question, Adrienne.

I'd like to conclude -- thank you. I'd like to conclude the call today by saying thank you for all of you joining us. We are excited about our results for the first quarter. It clearly shows that we're building a stronger and more profitable business. While we're disappointed about our revenue outlook, we are excited about our ability to maintain our $2.15 guidance for the year on earnings per share, which shows our ability to be able to take swift and decisive actions around SG&A when needed without being able -- without sacrificing any of the growth potential for the company with marketing and with capital expenditure to rebuild our stores. So we're excited about the future for Capri. We're very pleased with what's happened with Jimmy Choo and the third quarter of consecutive growth, and we look forward to the back half of the year for Michael Kors, in particular, returning to growth.

Thank you for joining us today and look forward to talking to you on our next call.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Greetings. Welcome to Capri Holdings Limited's Fourth Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] Please note that this conference is being recorded.

At this time, I'll now turn the conference over to Jennifer Davis, Vice President of Investor Relations. Thank you, Jennifer. You may now begin.

Good morning, everyone, and thank you for joining us on Capri Holdings Limited's Fourth Quarter and Full Year Fiscal 2026 Conference Call. With me this morning are John Idol, Capri's Chairman and Chief Executive Officer; Tyler Reddien, Capri's Chief Financial and Chief Operating Officer; and Raj Mehta, Michael Kors Chief Financial Officer; and Capri Former, Interim Chief Financial Officer.

Before we begin, let me remind you that certain statements made on today's call may constitute forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those we expect. Those risks and uncertainties are described in today's press release and in the company's SEC filings, which are available on the company's website. Investors should not assume that the statements made during this call will remain operative at a later time, and the company undertakes no obligation to update any information discussed on today's call.

Unless otherwise noted, all financial information on today's call will be presented on a non-GAAP basis. These non-GAAP measures exclude certain costs associated with impairment charges, store inhibition plan costs, merger and divestiture transaction-related costs, Capri transformation costs, reserves related to a wholesale customer bankruptcy as well as restructuring and other charges. To view the corresponding GAAP measures and related reconciliation, please review our latest earnings release posted to our website earlier today at capriholdings.com. Additionally, the company has classified the results of operations and cash flows of its Versace business as discontinued operations. Unless otherwise noted, all information on today's call relates only to continuing operations.

Now I would like to turn the call over to Mr. John Idol, Chairman and Chief Executive Officer. John?

Thank you, Jennifer, and good morning, everyone. I would like to begin by welcoming Tyler Reddien to Capri Holdings. As Tyler joined following the end of our fourth quarter, Raj Mehta will review our fourth quarter results and guidance on today's call. Tyler will present and review our results on [indiscernible].

I will now turn it over to Tyler for a few opening remarks.

Thank you, John, and good morning, everyone. I am thrilled to be here. Since joining Capri nearly 2 months ago, I've been impressed by the strength of our iconic luxury fashion brands. both Michael Kors and Jimmy Choo have distinct positioning, supported by their deep heritage of strong global recognition. I'm also impressed by the talent across the organization and their commitment to positioning the company for sustainable long-term success the disciplined execution of our strategic initiatives. I look forward to working closely with our teams around the world as we continue to drive sustainable growth and create long-term value for our shareholders.

Now I will turn it back over to John.

Thank you, Tyler. Looking at fiscal 2026. We were encouraged by the progress we made executing against the strategic initiatives introduced last year. to unlock the full potential of our 2 iconic fashion luxury houses. Throughout the year, we took deliberate actions to strengthen product innovation brand desirability, storytelling and consumer engagement across Michael Kors and Jimmy Choo. These actions were designed to structurally enhance the quality and sustainability of future revenue and earnings growth, and we are seeing clear evidence of that progress. Compelling new fashion offerings drove higher full price sell-throughs and AURs. While more impactful brand storytelling supported deeper consumer engagement, and attracted new customers to our brands.

These early indicators reinforce our confidence in the trajectory of both Michael Kors and Jimmy Choo, and their potential to deliver sustainable long-term growth. Our fiscal 2026 results also reflected our decision to reset the foundation of the Michael Kors business. Actions taken to improve quality of sale by reducing promotional activity, third-party sales and off-price shipments as well as the impact of our store optimization program, reduced fiscal 2026 revenue by over $150 million, with this headwind expected to moderate as fiscal 2027 progresses. Importantly, these steps have strengthened the business and position Michael Kors for improved performance in fiscal 2027 and beyond.

At Jimmy Choo, our strategic actions are driving tangible results as evidenced by our return growth in the back half of fiscal 2026. This momentum positions the business for a return to profitability in fiscal 2027. To further accelerate this trajectory, we will initiate a profit improvement program designed to optimize our cost base, creating the foundation for more substantial leverage and operating margin expansion in fiscal 2028 and beyond.

Looking at fiscal 2027, we are focused on building upon the progress we made in fiscal 2026 to accelerate results and return our fashion luxury houses to growth through a set of clearly defined strategic priorities. First, strengthening brand desirability through compelling storytelling that deepens emotional connections and resonates with both new and existing customers; second, creating exciting luxury fashion that reflects each brand's heritage, while clearly leading with design and innovation; third, delivering elevated and differentiated customer experiences, both online and in stores. Fourth, leveraging data analytics across the consumer journey to gain deeper insights and drive more personalized interactions. Fifth, utilizing our increasing cash flow to support brand momentum including investments in store renovations while continuing to return capital to shareholders through our share repurchase program.

Collectively, in fiscal 2027, these initiatives are expected to drive a low single-digit increase in revenue and gross margin expansion of approximately 200 basis points. Operating expenses are expected to increase modestly. As a result, operating income is expected to increase 60% year-over-year. Based on these assumptions, as well as $200 million in anticipated share repurchases we expect to generate diluted earnings per share of approximately $2.15, representing a 40% increase over last year.

Now turning to our fourth quarter results. The company revenue of $796 million declined approximately 4%, in line with our expectations. Gross margin expanded 490 basis points to 64.8%, inclusive of a $40 million refund receivable related to the recent Supreme Court decision regarding [ IEEPA ] tariffs. We returned to profitability in the fourth quarter with earnings per share of $0.22 and increasing significantly above last year. Additionally, we repurchased $79 million worth of shares, which was earlier than initially anticipated due to our confidence in Capri's future growth and value creation.

Looking at fourth quarter performance by brand, starting with Michael Kors, revenue decreased 5% and year-over-year, primarily impacted by our quality of sale initiatives as we reduced promotional activity, third-party sales and off-price shipments, -- as our strategic initiatives continue to take hold, we are seeing clear evidence of progress across the business. Strong consumer response to our jet set storytelling and new fashion offerings are translating into higher full price sell-throughs and AURs. Store traffic trends also improved sequentially and our consumer database continued to grow at a high single-digit rate, underscoring the strength and desirability of the Michael Kors brand.

Turning to Michael Kors revenue by channel. In our own retail channel, we were pleased with the sequential improvement in trends relative to the third quarter, with sales down mid-single digits. We were particularly encouraged by trends in our full price channel, where comparable store sales turned positive in the fourth quarter, reflecting the strong consumer reception to our new product introductions and modern jet set storytelling. Importantly, comparable store sales were positive across all regions. AURs increased low double digits, driven by higher full price sell-throughs and reduced promotional activity. Store traffic also showed a meaningful sequential improvement in the quarter.

In our outlet channel, year-over-year trends remained largely consistent with the third quarter. While actions to reduce promotional activity and third-party sales are creating near-term pressure on revenue, these deliberate steps are strengthening the long-term foundation of the brand. Additionally, while early introductions of more modern on-trend styles are beginning to resonate with consumers. We expect a more meaningful and sustained improvement in sales once a broader assortment is fully introduced in the fall season. Notably, outlet AURs turned positive during the fourth quarter, reflecting our quality of sale initiatives, select price increases and early flow of new product.

We also saw a meaningful sequential improvement in store traffic trends in our outlet stores. Now looking at total Michael Kors retail sales by region. Results improved sequentially in both Europe and Asia. In Europe, sales increased mid-single digits. And in Asia, sales returned to positive low single-digit growth. In the Americas, sales declined low double digits, similar to the prior quarter as results continued to reflect our quality of sales initiatives.

Now turning to wholesale. Revenue declined mid-single digits, primarily reflecting a reduction in off-price sales. At point of sale, trends continued to improve sequentially with sales now approximately flat to prior year. Strong consumer response to our new styles, particularly in accessories, reinforced the positive momentum that is building across the business.

Turning to brand awareness and consumer engagement. We continue to reinforce Michael Kors modern jet-set lifestyle positioning through our brand vision of trusting the world in style. Our hotel stories franchise brought the excitement of travel and the discovery of new destinations to our consumers this spring. Our focused brand positioning and compelling storytelling are generating increased brand awareness and resonating with younger consumers. For spring, we traveled to Central Pay with Suki Waterhouse [ Danimer ] and our global brand ambassador, JCT. The campaign imagery captured the laid-back glamor of the French Riviera and the joy of traveling the world in style.

The Seasons fashion blends classic French elegance with modern ease featuring fresh takes on the brand's iconic accessories groups. Hamilton, Lila and Alita. Throughout the fourth quarter, we further amplified hotel stories through immersive experiences and local activations globally that reflect the brand's Jet set spirit. To broaden the impact of our storytelling, we expanded our social media reach and continue to leverage influencers connecting with consumers through authentic voices in fashion and strengthening brand desirability. Michael Kors status as a world-renowned fashion designer is reinforced by our iconic runway shows that serve as a powerful brand halo.

In February, our fall/winter 2026 runway show marked the fifth year anniversary of Michael Kors Collection. The show celebrated the spirit of New York at the iconic Metropolitan Opera House at Lincoln Center. The event drew a global audience of celebrities and influencers and generated 4.3 billion impressions. Collectively, these activities helped drive an 8% year-over-year increase in the Michael Kors global consumer database. Through our analytics capabilities, we are leveraging the strength of our extensive database to increase store traffic as well as create deeper and more personal connections with consumers.

Turning to product. Guided by Michael's creative vision, we are delivering exciting on-trend fashion with standout style, new product designs and our broader pricing architecture are driving stronger full price sell-throughs and higher AURs. In accessories, consumers responded positively to new introductions that celebrate our iconic brand codes and align with our broader strategic pricing architecture. Our core icons, Hamilton, Lala and elite continued to perform well with smaller silhouettes introduced for spring broadening consumer reach and engaging younger consumers.

In footwear, while trends remained challenging, we are beginning to see improvement with new casual styles such as the Kiely and Nolan sneakers and Jennings [indiscernible] that embody iconic Michael Kors branding elements and heritage design details. Looking at ready-to-wear, consumers responded to seasonal styles that captured Michael's effortless glamor. The spring assortment balanced trend right designs and timeless wardrobe staples.

Now I'd like to discuss the progress we are making with our store renovation program. as our retail locations remain an important pillar of the brand's expression and a driver of our sales recovery. In March, we opened our new Beijing China World flagship store featuring the world's first Michael Kors Jet Set lounge cafe concept. An immersive experience designed to deepen consumer engagement and increase store dwell time. We see meaningful opportunity to build on this innovation and expand our jet set lounges across flagship locations globally. Across the broader fleet, our renovation program continues to advance with approximately 35 Michael Kors stores completed to date and early results showing encouraging improvements in both traffic and sales. Looking ahead, we plan to renovate and open approximately 100 stores in fiscal 2027, while also renovating approximately 150 department store doors.

As we look at fiscal 2027, we are increasingly confident and excited about the opportunities ahead. Michael Kors is leveraging its 45-year legacy as a global fashion luxury house, and we are reinvigorating that heritage with our modernized jet set storytelling that is resonating with both our core customers as well as new younger consumers. Additionally, we are creating on-trend fashion that is resonating with our consumers. As a result, we are seeing growing momentum across the business. The continued execution of our strategic initiatives positions Michael Kors to return to revenue growth while driving both gross and operating margin expansion in fiscal 2027. Long term, we remain confident in our ability to achieve $4 billion in revenue and low 20% operating margins.

Now turning to Jimmy Choo. Fourth quarter revenue exceeded our expectations, increasing 5% year-over-year driven by strong brand momentum and continued traction of our strategic initiatives. In our own retail channel, we were pleased with the sequential improvement in trends. with sales increasing mid-single digits. Importantly, performance improved sequentially across all regions, including double-digit growth in the Americas, mid-single-digit growth in Europe and a mid-single-digit decline in Asia.

Turning to wholesale. Revenue also grew mid-single digits, Trends at point of sale once again improved sequentially, led by double-digit increases in North American department stores. Turning to brand awareness and consumer engagement. Our storytelling continued to highlight the effortlessly alluring essence of Jimmy Choo. For spring, we launched La flours, which reinforced the brand's modern femininity positioning. The campaign showcased key spring styles, including a new silhouette of the bar bag, [indiscernible] pump and the Sunny sneaker.

In late February, Jimmy Choo unveiled its rules of engagement bridal campaign starting Gabriette, a fashion model and musician with strong resonance among Gen Z and millennial consumers. [indiscernible] with her own upcoming wedding the campaign featured key iconic styles, such as the Bonbon handbag and the Asia [indiscernible]. It drove strong engagement across digital and social platforms and helped attract new and younger customers to the brand. The integration of compelling storytelling global activations and clienteling initiatives further strengthened brand desirability, extended our reach and deepened consumer engagement. As a result, Jimmy Choo's global database increased 7% year-over-year.

Turning to product. Jimmy Choo's product strategy remains focused on further developing accessories and expanding our casual footwear offerings to support sustainable long-term revenue growth and margin expansion. Within accessories, momentum was encouraging as we continue to expand the category with a focus on iconic styles, innovation and a broader pricing architecture. The strength of our Bonbon and [indiscernible] groups underscored the enduring appeal of our iconic styles. We have also seen highly encouraging consumer responses to our bar and curve groups, supported by our strategy to expand our pricing architecture to include bags positioned below $1,500.

Turning to footwear. We saw strength across both dress and casual New dress styles such as the Fayez Lace pump performed well alongside iconic franchises like Asia and Sakura, underscoring our ability to balance seasonal updates with timeless design. Our expanded casual footwear assortment continued to gain traction with strong performance from new spring styles, including our Elisa Ballerina, flat and Sunny sneaker. We see significant opportunity to further expand our casual footwear offerings, increasing purchase frequency among existing consumers while attracting new clients to the brand. Looking ahead, we are increasingly confident in Jimmy Choo's trajectory. The brand is strengthening its connection with consumers.

Our marketing efforts complement a product strategy that upholds Jimmy Choo's heritage and glamor and occasion dressing while expanding into casual footwear and accessories to broaden our reach, increased versatility and drive stronger frequency. These initiatives are clearly translating into growing momentum across the business. With strong brand momentum, disciplined execution and continued focus on our strategic initiatives. Jimmy Choo is well positioned to return to revenue growth and profitability in fiscal 2027. Long term, we are optimistic about our growth opportunities and confident that we can increase revenue to $800 million as well as expand operating margins to the low double-digit range.

In closing, we are encouraged by the early validation of our strategic initiatives and the meaningful progress we have made in strengthening the foundation of our 2 iconic luxury houses. The momentum we are seeing at Michael Kors and Jimmy Choo reinforces our confidence in the trajectory of our brands and the durability of our long-term growth potential. A year ago, our priority was to stabilize the business and create a stronger foundation for growth. Today, we are building upon the improved trends resulting from the success of our strategic initiatives. In fiscal 2027, we expect to return to low single-digit revenue growth with earnings per share increasing approximately 40%.

Looking beyond fiscal 2027, we are well positioned to accelerate growth, enhance profitability and deliver sustainable long-term value for our shareholders. Lastly, I want to thank our approximately 11,000 employees around the world whose dedication, focus and talent continue to drive our progress. Now before turning the call over to Raj, I would like to thank him for serving as our interim CFO over the past year and for being a steady partner as we reposition Capri for future growth. Now Raj will take us through our fourth quarter results and guidance in more detail.

Thank you, John, and good morning, everyone. Looking at fiscal year 2026, Capri Holdings delivered several important accomplishments that strengthened our foundation for sustainable growth and profitability. First, we made meaningful progress in executing against our strategic initiatives. Second, we returned Capri to profitability. Third, we generated positive free cash flow while continuing to invest to support the long-term growth of our brands. Fourth, we successfully completed the sale of Versace, which strengthened our balance sheet and enhanced our financial flexibility to further advance our strategic priorities. Collectively, these accomplishments demonstrate our disciplined financial focus and position the company for future growth.

Now turning to our fourth quarter results. Total company revenue of $796 million decreased 3.7% versus prior year on a reported basis and 7% in constant currency. Looking at revenue by channel. Total company retail sales declined low single digits, representing a sequential improvement relative to the third quarter. In wholesale channel, revenue also declined low single digits.

Turning to revenue performance by geography, revenue increased 10% in EMEA and 5% in Asia. Revenue in the Americas decreased 12%, primarily impacted by our quality of sale initiatives at Michael Kors. Looking at revenue performance by brand and Michael Kors revenue decreased 5.5% compared to prior year on a reported basis and 8.4% in constant currency. Global retail sales declined mid-single digits. Similar to prior quarters, store closures negatively impacted retail sales in the low single-digit range. Wholesale revenue also decreased mid-single digits.

Looking at total Michael Kors revenue by geography, EMEA increased 11% and Asia increased 10%. The Revenue in the Americas declined 14%, primarily driven by our quality of sale initiatives as we reduced promotional activity third-party sales and off-price shipments. At Jimmy Choo, revenue increased 5.3% compared to prior year on a reported basis and was flat in constant currency. Global retail sales trends improved sequentially, increasing mid-single digits. Wholesale revenue increased at a similar rate.

Looking at total Jimmy Choo revenue by geography revenue increased 11% in the Americas and 8% in EMEA, while revenue in Asia decreased 6%. Trends improved sequentially compared to the prior quarter. Now looking at total company margin performance. Gross margin of 64.8% increased 490 basis points versus last year. we recorded a refund receivable for the $65 million of IEEPA tariffs we paid in fiscal 2026. Of this $65 million was reflected as a reduction to cost of goods sold in the fourth quarter. The remaining $25 million was recorded as a reduction to inventory, which will flow through cost of goods sold in the first half of fiscal 2027.

By brand, Michael Kors gross margin of 64.6% compared to 58.6% last year, including $38 million of tariff refunds, excluding the impact of new tariffs, Michael Kors gross margin expanded approximately 150 basis points. This increase was primarily driven by higher AURs and full price sell-throughs as well as a reduction in promotional activity. Jimmy True gross margin of 65.7% compared to 66.2% last year, including $2 million of tariff refunds excluding the impact of new tariffs, Jimmy Choo gross margin contracted approximately 90 basis points primarily due to lower initial markups associated with our expanded pricing architecture.

Operating expenses were higher than anticipated, increasing $7 million versus prior year, primarily due to foreign currency exchange rates. Total company operating margin expanded 170 basis points. By brand, Michael Kors operating margin of 8.7%, expanded 410 basis points versus the prior year, and Jimmy Choo operating margin of negative 14.3% compared to negative 7.5% last year impacted by foreign currency and higher selling and administrative expenses. Net income was $27 million or $0.22 per diluted share versus a loss last year.

Now turning to our balance sheet and cash flows. We ended the quarter with cash of $135 million and debt of $357 million, resulting in net debt of $222 million. This compares to net debt of approximately $1.4 billion last year. We repurchased $79 million worth of shares in the fourth quarter earlier than initially anticipated due to our confidence in Capri's future growth and value creation. We have an additional $921 million of availability remaining under our share repurchase authorization. Our share repurchase program reflects our increasing free cash flow, the strength of our balance sheet and our commitment to returning capital to shareholders. Capital expenditures for the year were $63 million and were primarily spent on store renovations as well as ongoing IT and digital investments. Inventory at quarter end was $581 million, a 17% decline year-over-year. As we move throughout fiscal 2027, we expect inventory to be down year-over-year in the first quarter then begin to throughout the year to support our revenue growth.

Now turning to our fiscal 2027 guidance, we expect revenue to increase at a low single-digit rate to approximately $3.525 billion, Retail revenue is expected to grow mid-single digits, partially offset by a planned decline in our Michael Kors wholesale channel as we continue to reduce off-price shipments. By brand, we expect Michael Kors revenue of approximately $2.9 billion and Jimmy Choo revenue of approximately $625 million. For the year, we anticipate gross margin expansion of approximately 200 basis points. Our guidance now assumes an additional 10% tariff on products coming into the United States. Operating expense dollars are expected to increase modestly relative to fiscal 2026. We expect full year operating income to be approximately $190 million, a 60% increase year-over-year. By brand, we anticipate Michael Kors operating margin in the low double-digit range and Jimmy Choo returning to profitability with operating margin in the low single-digit range.

Turning to our expectations around certain nonoperating items, we expect net interest and other income between $85 million and $90 million. We anticipate an effective tax rate in the low teens range, though quarterly rate -- tax rates will fluctuate due to our valuation allowance position. Assuming share repurchases of $200 million during fiscal 2027, we anticipate weighted average shares outstanding of approximately 112 million. Based on these assumptions, we expect to generate diluted earnings per share of approximately $2.15, a 40% increase over last year. In terms of capital ventures, we anticipate spending approximately $125 million in fiscal 2027, which includes investments in store renovations and new store openings as well as ongoing investments in IT and digital enhancements.

Now turning to our capital allocation. Our first priority is to invest in our business. Our second priority is to return capital to shareholders through share repurchases while continuing to maintain a strong and flexible balance sheet.

Now I would like to provide some perspective on the cadence of our results between the first and second half of the year. In the first half, we expect revenue to decline in the low single-digit range. We anticipate retail sales to be roughly flat overall with wholesale declining low double digits. Within retail, we anticipate continued comparable sales growth in our full-price channel at both Michael Kors and Jimmy Choo. However, the Michael Kors outlet channel will remain under pressure as we continue to execute our quality of sale initiatives through reductions in promotional activity and third-party sales. In addition, within our Michael Kors wholesale channel, we are taking deliberate actions to reduce off-price shipments.

In the first half, we anticipate approximately 300 basis points of gross margin expansion, which incorporates the negative impact of current tariffs. Operating expenses are expected to increase modestly. Taken together, we anticipate first half earnings per share of approximately $0.85, representing an increase of nearly 80% versus the prior year.

Turning to the second half, we expect revenue to increase at a mid-single-digit rate as our strategic initiatives gain greater traction. This acceleration will be driven by improving trends across both retail and wholesale, with retail increasing mid-single digits and the wholesale declining mid-single digits. Within retail, we expect sustained momentum in the Michael Kors and Jimmy Choo full price channels. Importantly, we also anticipate a return to growth in the Michael Kors outlet channel as we begin to lap the impact of our quality of sale actions and benefit from a broader assortment of new products in the fall season.

In addition, fiscal 2027 includes a 53rd week, which is expected to add approximately 1 point to revenue growth for the year. Gross margin in the second half is expected to expand by approximately 100 basis points, reflecting an improvement of approximately 300 basis points excluding the impact of the tariff refund in fiscal 2026. Operating expenses are again expected to increase modestly. Based on these assumptions, we anticipate second half earnings per share of approximately $1.25, representing a 20% increase versus prior year.

Now turning to first quarter guidance. We expect total company revenue to be approximately $750 million. By brand, we anticipate Michael Kors revenue of approximately $585 million, reflecting continued positive comparable sales growth in our full-price channel, and a decline in the outlet channel, driven by our ongoing quality of sales initiatives. In addition, within our wholesale channel, we are taking actions to reduce off-price shipments. Together, we estimate these actions as well as the impact of store closures will reduce first quarter revenue by approximately $30 million.

Finally, we estimate the conflict in the Middle East will negatively impact first quarter revenue by approximately $7 million. We anticipate Jimmy Choo revenue of approximately $165 million, reflecting continued growth across both our retail and wholesale channels supported by strong product momentum and brand engagement. We expect first quarter operating income of approximately $10 million. In terms of operating margin by brand, we anticipate Michael Kors operating margin in the high single-digit percent range and Jimmy Choo operating margin, the low single-digit percent range.

Turning to our expectations around certain nonoperating items. We expect first quarter net interest and other income of approximately $20 million. We anticipate an effective tax rate of approximately negative 50% and a weighted average shares outstanding of approximately 116 million. As a result, we expect to generate diluted earnings per share of approximately $0.40. Looking ahead, based on the progress we are making against our strategic initiatives, we remain confident in our ability to return to growth in fiscal 2027. We are encouraged by early signs that validate the effectiveness of our strategic initiatives and reinforce our confidence in our ability to drive sustainable long-term growth.

Now we will open up the line for questions.

[Operator Instructions] First question is from the line of Matthew Boss with JPMorgan.

So John, maybe could you speak to the drivers of the embedded Michael Kors revenue improvement of FY '27 to get to the full year growth just relative to the high single-digit decline guided for the first quarter. And then near term, could you elaborate on the progression of retail sales demand and Michael Kors that you're seeing entering the first quarter relative to the mid-single-digit decline in the fourth quarter?

Thank you, Matt. So first thing I'd like to say is that we are very optimistic about the future of Capri. And obviously, both of our fashion luxury brands. As you saw, we had a very strong quarter with Jimmy Choo with comps accelerating and positive, so we think that the storytelling that the product and our pricing architecture is having very strong residents with new and younger consumers. So we feel good about where we're going with Jimmy Choo. And we know we have work to do on the profitability of that business, but we also have confidence around some initiatives that we'll put in place at Jimmy Choo.

Secondly, on Michael Kors, again, we're very optimistic in particular. We can see what's happening with our storytelling about Michael Kors traveling the world in style and our hotel stories. Brand awareness is growing. Again, we're seeing our database grow. We're seeing consumers both existing and newer and younger consumers engage with the brand. We know engagement levels are rising. We see full price comp store sales comping positive again, which is a great indicator of our initiatives driven through a lot of great new product that's been in our stores, and I know many of you on this call have been into the stores and seen that product. We also see our new store renovations taking hold and showing strong traffic and revenue gains. So we feel great about that program as we roll that out across the globe.

So our full-price business gives us a lot of -- a lot to build on and to continue to drive. As we've talked about before, the area that we need to get going in a positive direction is our outlet channel. That channel again, remains down at about the mid-single digits. But that has to be looked at under a light of a few things. Number one, we have been focused on a quality of sale initiative that has a number of components to it. The first is we have significantly reduced and almost eliminated our third-party sales through our outlet channel. I think we said in our prepared remarks that quality of sales, both in wholesale and in retail impacted us by about $150 million last year. So that's a very significant number, and that's all on the Michael Kors business.

Secondly, we have had a reduction in just the promotional activity in total in outlet, that's reducing the amount of promotions that we've had and the actual discounts themselves. And then the third issue, which is the one that we think is going to be most helpful for us is around new product introduction and we saw some of that in the very, very tail end of Q3 and in Q4, we saw some more arriving. And as we said in our prepared remarks, we saw for the first time quite some time, AURs and full price selling actually accelerating in the outlet channel. We have 2 more quarters worth of our quality of sales initiatives that we will be going up against. And just to give you an order of magnitude, it's about $75 million that will impact us in the first half of the year, about the same as what we saw in each first and second half of last year.

And once we get past that, that will no longer be a headwind for us. And so when we get to this kind of October time period, and I think I've mentioned that to you all before, we'll have a number of things that will be really -- it would be very helpful for us. Number one, the third-party sales, we will lap that reduction. Number two, we will lap almost all, not 100% of it, but we're doing some further promotional reduction in outlet. We'll be almost completely lapping that. And we'll have about 75% of the product turned over in our outlet stores to new and what we think will be more trend right product for us.

So we think that we're on the right track. Clearly, that's what we did in the full price business. The full price business turned positive. We are doing the same exact initiatives in the outlet. With one additional caveat, outlet, we actually raised prices. I think we talked about that in some of our previous calls. And it's quite interesting, the customer is not moving away from us based on those price increases. Our conversion rates have remained the same, even after raising prices in the outlet stores. So we feel very, very positive and optimistic about how the progression is going to happen at Michael Kors. I want to remind you also that in the first half of the year, the wholesale business will be down double digits.

And actually, the retail business will be up in the first half of the year, primarily driven by full price. And so there's a lot of really good underlying trends that are happening for us. And additionally, even though the wholesale business is down double digits, the majority of that is coming from the reduction in off-price sales. You can see we entered the year with inventories down 17%. And we just don't have the inventory to sell in the off-price channel, and we actually want that to remain a consistency for us and reducing third-party sales through outlet stores and reducing off-price through our own wholesale channels. It's just going to create a better platform and a foundation for us to grow these businesses off of.

And so I think we're feeling optimistic that we've got the right building blocks in place. We're going to finish this quality of sale initiative and have the brand in a very solid position, in particular for the back half of the year. And then the last thing I'd like to point out is, you saw up our gross margins increasing during the back half of this past year, fiscal '26. And we will have about a 200 basis point increase in gross margin in fiscal year '27. And that's also another very good indicator for us. And so that's going to lead to a 60% operating margin increase, which is, we think, significant for the group and a 40% earnings per share increase. Again, a very significant number. So we believe Capri is on the right track for growth, and we think we have the right strategic initiatives in place to be able to deliver on our future goals. Thank you very much for that question.

The next question is from the line of Brooke Roach with Goldman Sachs.

I was hoping you could unpack the core drivers of gross margin expansion that you're anticipating for the year. Can you pack, how much of that is coming from some of the moving pieces with tariffs? How you're thinking about the underlying magnitude of improvement that you're expecting from the Michael Kors brand? Any cadence in your sequencing that we should be expecting throughout the year as you look to continue to drive profit improvement. And then additionally, John, I think you mentioned in your prepared remarks that you had a profit improvement program that you unveiled that you're looking to drive improved profit as you exit FY '27. Can you give a little bit more detail on what that means and what you're looking for and how you're thinking about further profit expansion beyond FY '27?

Okay. Brooke, let me make sure I've got all -- I counted 3 parts to the question. I'll take a little bit of the first, which will be some of the drivers for the gross margin improvement. I'll turn it over to Raj to talk about some of the cadence in that. And I think the improvement that you're referring to in gross profit, I think was for Jimmy Choo, is that the question? I just want to make sure I have the third part, right?

I think you talked about a profit improvement program for the company that would drive some improvement in '28?

Yes. No, that's Jimmy Choo, but we -- let's see if we're going to pack some of this stuff for you, and then we'll -- and actually Tyler is going to take that last piece. So you'll get all 3 of us. In Michael Kors, remember, I'm going to start with that from a profit improvement standpoint. Actually, both Michael Kors and Jimmy Choo. In the spring of this year around February, we took price increases in both full price and outlet channels. So that was to offset some of the tariffs that were impacting the company. We also have been working very closely with our supply chain to help us reduce costs. And so there was a positive impact that we started to see in the very beginning of the fourth quarter of this year from those initiatives.

The second thing, and again, I think we mentioned it a number of times in the script at both Jimmy Choo and Michael Kors, full-price sell-throughs are rising. AURs are rising. That means we're just selling less product on sale as well as we did have some price increase. But it's showing how the brands are resonating with the customer. And I think that's one of the lead indicators for us in terms of quality and health of the business.

And then lastly, I think that you can see that we've really done, I think, a fantastic job managing our inventories and making sure that we keep the company in a position where we're able to keep demand and inventory imbalance. And that's, again, making it so that we're having things sell out quickly inside the stores. And we've had -- last quarter, we had our best -- our second best-selling handbag in the company basically sell out on us. It's not where you always want to be, but that's a good place to be. We've had some of our new footwear introductions sellouts, and we're chasing inventory. So we like the idea that we are creating desire and demand, and we think that's an important component to our gross margin expansion.

Lastly, there will be some level of benefit is in the second half of this past year, we were operating at approximately 19% higher tariffs. And now we're operating with approximately 10% higher tariffs. And so there'll be a little bit of an offset in the back half of the year that will help us in our gross margin. But let me pass it over to Raj to talk to you a little bit about the cadence.

Thanks, Brooke. Yes. Look, we're pleased that our strategic initiatives are gaining traction. We're continuing to see higher full price sell-throughs and AURs in addition to the quality of sales initiatives that are impacting our gross margins. As I stated previously, the $25 million removal of the refund by IEEPA tariffs, it's not really a benefit in the first half. our margins will be up 300 basis points in the first half of the year. And then as we look to the second half of the year, our margins are going to be up 100 basis points, but excluding the $40 million refund, our underlying margins will be up 300 basis points. So I think there's a little bit of noise in the back half with the $40 million refund but it's best to look at our overall annual growth rate where we're expecting a 200 basis point improvement in margin for the full year as we continue to drive on better full price sell-throughs and higher AURs.

Let me turn it over to Tyler, who, as you know, only joined just a short period ago, but 1 of the interesting things, Tyler has been able to dig into is the future profitability of Jimmy Choo. So let me turn that over to Tyler.

Yes. Thanks, John. And we're obviously in the early stages of developing the overall profit improvement program for Jimmy Choo and still evaluating the full scope of opportunities and timing. That said, early analysis points to a few areas to drive sustainable margin enhancement on the path to low double-digit operating margin at Jimmy Choo. First, as John mentioned, our new product in communication are resonating with the customer, and we're seeing a return to revenue growth with -- and we expect with this revenue growth, we're going to see improved store productivity and overall profitability. That said, we will still need to evaluate the overall store fleet and close underperforming stores.

Next, we see opportunities to improve gross margin. We're going to be looking at rationalizing SKU count to improve inventory management in turn and drive operational efficiencies in our owned factories, which account for about 50% of our production. And lastly, we'll be driving efficiency across SG&A, both through disciplined expense management and also implementation of corporate opportunities to drive synergies. So as I said, we're still evaluating the full scope and timing, but we expect to have the plan more fleshed out in the coming quarters.

[Operator Instructions] Our next question is from the line of Paul Lashway of Citi Group.

It's Tracy Kogan filling in for Paul. I was hoping you could give some more color on how your business trended by months in 4Q for [indiscernible] U.S. full price and outlet channels. And how is it performing now? Is that in line with your guidance for 1Q? And then I just was wondering if you thought there was a reasonable chance that your business could inflect to growth in the retail channel for [ cores ] before kind of the October time frame.

Tracy, we don't break out by month, our revenue I think what we're we were very pleased because we came in at the top end of our guidance in terms of revenue. So we felt that we delivered both revenue and earnings per share at the high end of our guidance and actually earnings per share were slightly higher than we had anticipated. So we felt that Q4 was very strong. We saw a sequential improvement really across almost all indicators in the business, both in the regions and in the stores. Again, with the exclusion of the Michael Kors outlet business, it was roughly similar. So as far as we can see, Capri is definitely moving forward and including returning to profitability.

In terms of first quarter, we just are -- here giving you guidance. And so we -- I think we feel comfortable with what we see in terms of our ability to perform and deliver against that. The last thing I would say to you is -- and I think if you go back and listen carefully to our prepared remarks, Raj has indicated that our retail business actually will be positive in the first half of the year. So we're -- and I said that's really tilted by the full price business. and the wholesale business is the part of the business that will be down in the first half of the year.

And I might want to also point out that while wholesale is down in the first half of the year at point of sale, very important milestone for us. We turned -- we went flat in Q4, which is the first time in the last couple of years. And the trajectory of certain stores, certain of our big partner stores is actually up. So we saw some of our partner department stores have increases on a TYLY basis, which is exactly like our full-price business in our own full-price stores is trending as well.

So we're feeling, again, quite positive about our ability to deliver against our guidance. And again, $75 million impact in the first half of the year from quality of sales initiatives, I think we were -- we feel that this is the right thing to do for the long-term health of our business, and to create a very sustainable foundation to build off of and to drive second half growth in particular, in the Michael Kors retail business.

The next question is from the line of Simeon Siegel with Guggenheim.

Tyler, welcome to the call. Looking forward to working with you in the future. John, it was nice to see the longer-term goals that you mentioned. Any thoughts on how to get there. Maybe just help us think through what a $4 billion Michael Kors looks like in the future, whether it's channel geography margins, any color you think you -- you're comfortable sharing I just assume it will look different than the last version of the $4 billion Michael Kors. And then the buybacks, it was nice to see that resumption. Just any parameters for how you guys are thinking about future repurchases here?

Sure. So Simeon, I think, again, fiscal '26 was stabilizing the business. We had a lot of issues coming out of fiscal '25 that we needed to correct. I feel really good. And I think the teams feel really good about what is happening, and we do a lot of research on the consumer and the way the consumer is looking at both Jimmy Choo and Michael Kors. And we haven't seen healthy indicators like this for both brands in years. I also want to point out that at Jimmy Choo, after we kind of got through some of our issues late '24 early '25. The team is so laser focused on the growth of our accessories business, and we're starting to see some very significant trajectory.

And as Tyler mentioned, that business, we actually think can be profitable relatively quickly. It's going to be profitable this year, but we think we can accelerate that profitability relatively and in particular, now that we have accessories on a very good track inside the company, just a lot of excitement, not only from our own internal teams, but from our wholesale partners are starting to see how this part of Jimmy Choo can be a very strong business for them. And you also heard us talk about the Jimmy Choo North American retail and wholesale business up double digits. I mean that's quite extraordinary. And we're really proud of that.

So we're feeling good about that $800 million time line for Jimmy Choo. And that's going to come just from the productivity inside of our own store base and most likely a smaller store base that we have today. we've always said we could get higher sales per square foot out of the Jimmy Choo stores, and we're starting to see that happen. So feeling quite strong about that. And accessories, as we've said over time, we think that can be 30% to 40% of our business at Jimmy Choo. It's in the kind of low 20s at the mid-20s today. And that should be a pretty quick acceleration for us. And then the casual footwear business is also starting to see some very strong take by the consumers. So those strategic initiatives are really taking hold.

At Michael Kors, I think that we are #1, very, very pleased with what's happening in our full-price business. And in fact, I think I mentioned in the last call, we are going to be now opening new stores with Michael Kors wholesale -- I'm sorry, Michael Kors retail full price. We've got a number of mall owners that are coming to us. They want the brand back in malls that we closed, actually, and they see 2 things. They see number one, that the brand is resonating with younger consumers in particular; and number two, this category of accessible luxury, modern luxury, whatever you want to call it, there's 3 or 4 players who are doing extremely well in this category. And clearly, the customer has become a bit more choiceful. And there's growth that's happening at the expense of some of the higher luxury pieces of the business.

We're still all in luxury, but there's different levels of that. And I think there's a great desire. We are the #2 in this category in terms of accessories. And I think that the mall owners want to see us more present in more of their properties. So we see growth in the full price channel for us. And secondly, we are seeing a very nice expansion with wholesale, either [ Shop at Shop ] new conversions. We said we're opening -- we're renovating 150 stores. But additionally, in particular, in Europe, we've had a number of wholesale partners where we actually pulled the line out. We're now going back in. They're excited about having us back in. So as a long way of saying, we think a lot of growth is going to come from our full-price channel. A lot of growth can resume again in wholesale because we've had this decline over wholesale over the past 6 years. And we think that in fiscal '28, we will stabilize that and begin to grow wholesale again, up modestly.

And then lastly, a return to growth in our outlet channel as well. So we think to be able to shape the business in a way that's led by full price, then probably secondly, by wholesale gross and then thirdly, by outlet. is kind of how you will see that trajectory happen. But again, I think one of the things we've also done a very good job with is we've got our SG&A in line. And at this point, if we can just grow the business mid-single digits, maybe a little faster than that in the out years. The profitability and the way that, that looks is quite positive. And I think our shareholders, and I think it will be reflected in the share price, we'll see a very strong movement forward.

And then lastly, on the buyback, I'll let Raj speak to that.

We were pleased to have restarted our share repurchase program and return capital to shareholders. We've repurchased approximately $80 million in Q4, slightly earlier than we anticipated. And that's really due to our confidence in Capri's future growth. We plan to repurchase an additional $200 million in FY '27 as we continue to deliver on our strategic initiatives.

Yes. And the last thing I'd like to point out is our balance sheet is very strong at this point. So with the sale of Versace, we have a significantly reduced debt level. We also have positive cash flows in the company. And so we have the capability to put the $300 million that we've talked about into store renovation program, which will be primarily around Michael Kors, $200 million in share repurchases, probably that or more on a go-forward basis. each year. And we'll have the cash flows to support that and the balance sheet to support that. So Capri financially is in a very, very solid place.

Our next question is from the line of Rick Patel with Raymond James.

Can you unpack the AUR opportunity from a geographic perspective for Michael Kors -- given the growth that you're seeing in Europe and Asia, did it present an opportunity from a pricing perspective? And secondly, as it relates to new products at Michael Kors, which lines are driving the strongest growth that give you confidence in sustaining higher comps in full-price stores? And how are those lines doing in the wholesale channel right now?

Rick, I think you asked about the gross margins related to the geographic impact. Is that correct?

I apologize. It was the AUR pathway in international markets?

AUR, I'm sorry. So AUR, you can see has been rising. And that what's interesting is that's globally. And that's been very, very significant. And actually, the biggest AUR increases have actually been in the United States or the North American market because we really have reduced -- and this is full -- I'll start with full price. We've reduced our promotional activity in the full price. And let me also say there will be further reduction of promotional activity in the full price that you're going to actually see happening here very shortly. So we're going to take another step forward on reducing promotional activity in the full price. So that's impacting AUR, but the thing that's really helping to impact the AUR is the full price sell-throughs.

And when we decided to lean heavier in particular, into smaller handbags, which resonate with younger consumers, and it's just more trend, right? Also actually sells at a reduced price point. But you're just getting a better full price sell-through on that. It's really the AURs inside the stores. So that's really -- it's really a combination answer in that the geography while it will help slightly if we have a bigger business in Asia, in particular, we still have such a dominant business in North America. It's more -- it's almost more important that we get the higher full price sell-throughs here, et cetera in North America.

In terms of new product, accessories are doing extremely well for us. And that business is really -- is moving at a very, very solid pace forward. again, particularly in our full-price business. And we are now seeing almost not identical, but very close to the same trends in our wholesale channels. If you remember, over the last kind of year plus I kept saying the wholesale channel had not caught up to what we were seeing in full price and there now. Some of our biggest accounts in the world are now seeing almost similar and identical full price sell-throughs on the same styles from us.

So it's clearly resonating with the consumer. We need to get that same trajectory happening in outlet with accessories, but it's starting to happen now. So the accessories part of the business in outlet is -- and we've seen this in particular in the last 2 months, start to happen. Our biggest issue inside the company actually is not the accessories. It's our footwear. And we are going through a strategic repositioning of our footwear business in Michael Kors. We're leaning much more into the casual category of footwear, which is where there's quite a bit of trend happening. And so I think you're going to see that product. It's already started our full price stores. It has not hit the outlet stores, and that will be really the last component more towards the fourth calendar quarter of this year to get into the stores. But if we can get that part of the business turned around, we will get [indiscernible] store positive in our outlet stores much faster because the bag part -- the accessory part of the business is really heading to the right path.

The next question is from the line of Oliver Chen with TD. Cowen.

John, Raj and Tyler. On the outlet front, what are your thoughts regarding the renovation timing that we should understand? And also, overall, John, with pricing -- you've had experiences where prices were too elevated, but of course, having full price sales is best for the brand. But what's happening overall for Good, Better, Best and/or year-over-year pricing architecture just to continue to convey value relative to style as well as the integrity of the brand. Lastly, on the customer data platform, and loyalty and AI flywheel. Anything we should know about what you're doing there to segment the customer list and manage across channels.

Sure. Thank you, Oliver. So I'll start with the renovation plan, which, as we said, we've got 300 stores that we're going to renovate. And I'd say more of those are going to be the full-price stores than the outlet. We have approximately 700 stores. a number of stores in the fleet are in very good condition or have only been built over the last few years. And our priority is to renovate as many of the full price stores as fast as we possibly can. And so that's underway. I think we said in our prepared remarks, we renovate approximately 100 stores this year. That's 100 stores renovated and new stores included in that number.

And as we also said, we're very pleased with the results, both traffic and sales are up in the renovated stores, and some of the numbers are quite strong. So we find it very interesting how when we brought this new product together, we've got our new store format together, how we're engaging with customers -- and in those stores, quite frankly, there's a much higher percentage of new customers coming to those stores. We either didn't know what Michael Kors stood for, or I think it's almost a new brand that's arrived inside some of these shopping malls. So we're really, really excited about how that's going to play out for us over the next couple of years.

In terms of pricing, you're absolutely right. We went through a period of time where we raised the prices too far. And as you know, about a year and change ago, we went back to our historical pricing structure, and that's worked really well for us in full price. And the consumers -- we don't see any issues around the current pricing we took about a 5% pricing increase in February across the board. And there's been no noise based around that. So I don't think that that's -- our current intent is not to keep raising prices. our current intent is to keep having better full price sell-through, engagement with the consumer and then seeing an incredible value.

The other thing that's quite interesting in our ready-to-wear business where we took the largest price declines, our ready-to-wear business has been very, very strong. And on a percentage basis, it's actually the strongest percentage producing part of our business in our full-price stores in particular. And we're starting to reenter our wholesale accounts and they're having similar types of sell-through. So again, we think that we're in the right place. We've created the right value. We've got great looking product coming in. In the outlet stores, we were absolutely too inexpensive and raising the prices was the right thing for us to do. The AURs are up quite significantly in our outlet business. And I just got back from a few days recently talking to our sales associates, and none of them are seeing any resistance from the consumer. And as I said, our conversion rates are basically static. So we're not seeing any issues around that.

And it's important to position Michael Kors as a brand that offers great value but also that is not an inexpensive brand. That's not the place that we're trying to position the brand. Lastly, we've done a tremendous amount of data analytics work over the last 2 years around the consumer, and how they're engaging with us. Most importantly, we are -- we've talked about this before. We've got a very significant influencer program. with over 400 influencers now representing the brand around the globe. And that has, I think, had a very big impact for us, in particular on a younger consumer, as they see the voice of the brand expressed through someone who might be a part of their cohort.

We are now taking a step 2 in that process. and really increasing our presence on certain social media channels, which represent a younger demographic. And we'll really start that program kind of it's been started, but it's going to go in a much bigger way in the second half of this year, and we expect to see some very strong results from that. And then as I said, we weren't looking for brand awareness to rise. That wasn't one of our goals. Our goals was really just trying to activate younger and new consumers. But we saw that brand awareness started to rise as well. So the indicators that are coming through from the data analytics are really quite spectacular. And that's all on Michael Kors.

And I just also have to say that in Jimmy Choo, what we're very pleased with, and I won't say surprise, but quite interestingly, our Gen Z business in Jimmy Choo is growing very, very fast. A big part of that is through our initiatives around certain channels that we're marketing on. We've changed the marketing, if you've noticed in Jimmy Choo, it's [indiscernible] glamorous and much more. We're using the term effortlessly alluring. So a bit more natural. And that is resonating with the consumer, and in particular, the younger consumer. And our drive to try to take casual and make that a more important category in Jimmy Choo is also resonating with this younger demographic. So I think we feel good about what we're learning from the data and how we're acting on that, and we think it's going to be a big part of our success in the future.

I'd like to thank everybody for -- and thank you, [indiscernible]. I'd like to thank everybody for joining us today. We are excited about what the future holds for Capri. We're going to have -- we believe that we will deliver low single-digit growth next year, with operating margin expansion of approximately 60% and earnings per share growth of approximately 40%. We believe we are on the right trajectory to return this company to sustainable growth, and we look forward to updating you more in our upcoming first quarter call. Thank you very much.

Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.

All right. Thank you for joining us at the Consumer and Retail Conference. We are joined in the room by Capri Holdings. Take it away, Paul.

Thanks for being here, CEO, John Idol, Capri. Really appreciate your time and the support in the conference.

A lot of things going on in terms of your strategies. There's a lot to turn around. Maybe give us sort of an update on the strategic initiatives, what's working, what's not working? And maybe we'll start there and build from that.

Sure. Thank you, and thank you for having me down here today. At Capri, we feel like we're in a very good place right now. Number one, we have 2 incredible brands. We have Michael Kors, 45 years old, Jimmy Choo, 30 years old. And these are brands with -- rich with heritage. And good brands will always go through different cycles. And we feel like we've identified the opportunities for us, and we really started about a little over a year ago in particular on Michael Kors, and maybe we'll talk about that a little bit. But where we saw the opportunity was to take both of these heritage brands and to start to look at the marketplace as an opportunity to grow with younger consumers. And that's both with the Gen Z and with millennials as well. And how could we take more market share with that consumer?

So we looked at that -- both brands through that lens. Michael Kors in particular, we looked at the Jet Set and our heritage of that. And we didn't want to give that up, and we certainly saw that the consumer was responding to that. But we just looked at it through a more modern lens. With Jimmy Choo, same story, where we saw a brand that has this deep, deep engagement with consumers, how could we modernize it? Along with that, we looked at both of the brands, and we thought there was an opportunity to reset our strategic pricing architecture and to look at the product and focus a bit more on the trend that really was happening around the world in fashion and make sure that we are on top of that.

I think we've been able to do that in both brands in a very short period of time, better than we had done in the past. And then the last thing is, when we looked at both of the brands, we knew there was an opportunity to change the way that we were marketing, in particular, with both brands, we're utilizing influencers in a much more significant way. And we're also looking at the channels that we're marketing in, primarily social media channels. And we're leveraging those channels and spending a lot more of our capital, our financial marketing funds in those channels, and it's really starting to pay off for us.

And the additional -- the last piece of all of this is, and really more of a Michael Kors issue is we've reduced substantially the amount of discounting that was going on with the business. And that was a result of really having the wrong product out and much higher prices than the consumer was responding to. And I'll talk more about that later. But having us really reset that in Michael Kors has helped us dramatically with full price sell-throughs, having less markdowns. And in Jimmy Choo, it's created a really big opportunity for us, in particular, in the accessories world.

So we feel great about these 2 heritage brands, luxury brands. The consumer is responding to our new initiatives in terms of marketing, product. And then the next thing is we -- I think as you know, late November, early December, we sold Versace, which put us in a fantastic position because we ended the quarter with $80 million in debt. And for a company our size to have that very small amount of debt, our leverage has dropped almost in half and will continue to go down given our strong free cash flows in the company, gives us the opportunity to make significant investments in Michael Kors, in particular, a little less so in Jimmy Choo, talk about that shortly. And it gives us the opportunity to reinstate our share repurchase program, which I think, you might have seen that we announced a $1 billion share repurchase program, which is quite significant, shows the -- our belief in the companies that -- our Board of Directors' belief in the 2 brands that we have, and our ability to generate free cash flow and invest in the company and return capital to shareholders.

You mentioned Jimmy Choo. I'm curious if you look at that brand, we obviously saw decent results last quarter. I'm curious if you look at that brand as having turned a corner. Can we kind of look forward and think that, that brand is going to achieve consistent growth?

Yes. So we've had 2 quarters of comp store sales increases for Jimmy Choo. We are having -- we are comped up right now in this, which is our fourth quarter, but it would be our third straight quarter of comp store increases. And I would say, yes, we are on the right track with Jimmy Choo. So I'll start with, first, once again, the marketing of Jimmy Choo. We've really have a new vision of who the Jimmy Choo woman is and she is effortlessly alluring. That's slightly different than where we were before, which was runway ready and glamor, et cetera, and stuff that she's not still those things.

But we think that the way the consumer is looking at brands today and how those brands fit her lifestyle, this was a bit more of a relevant positioning for Jimmy Choo. You can see that in our new marketing campaigns. And what's also exciting is the way we're marketing with the consumer with shoes in the casual category, again, you think of Jimmy Choo for a glamorous event to a party or a wedding, and we really had an opportunity to lean into her whether she was going out on the weekends with her friends just having a great time or dinner or whatnot and not being so kind of one dimensional. And that marketing has really been incredible.

That category of casual is starting to bring us a lot of new customers. So it's not just we're selling to existing customers, but our new customer acquisition is going up very nicely at Jimmy Choo. And then the second thing is after the casual shoe success that we're having is accessories. And right at the same time, we looked at the strategic architecture of Michael Kors, we decided to look at that for Jimmy Choo in accessories. And we had seen that the more pure luxury players had really gotten to almost $3,500 on handbag opening price points. We thought there was a very large category at $1,500 and below. And we introduced 2 new groups about 6 months ago, one called Bar and the other called Curve. And both of these groups are doing fantastic for us, both in our own distribution and in our wholesale partners' distribution. And we're really filling a niche where many players have kind of left.

Again, we make all of our bags in Italy, so it's all beautiful quality. And then we have other bags that are in the $1,500 and higher category, bag called Cinch, which we've had for some time, doing very, very well for us. And then lastly, our Bon Bon Group. So we now have 4 categories inside of Jimmy Choo in handbags that are really showing very strong increases. I think we said last quarter that we saw double-digit increase in all that full price category of bags, and that's quite exceptional.

So when you look at Jimmy Choo, and I've said now we're on our third quarter of comp store increases, I think we're feeling very good about that brand. We've publicly said we think it's about an $800 million business. I think if we can continue to get things moving at the current rate, it could be bigger than that. We also believe that Jimmy Choo will return to double-digit operating margins, somewhere between 10% and 15%, $700 million, $800 million business. That's a lot of money for a company like ours. I want to reiterate Jimmy Choo is not for sale. We think it's a phenomenal asset for us, and we look to continue to grow that brand.

It's great. It's great to see the inflection of that brand. And I think what everybody wants to know though is like when is the inflection coming in the Michael Kors brand? Anything you could provide in terms of how you're thinking about that inflection?

Sure. So again, we started our new strategies or new strategic initiatives in February of this past year. So we're basically only a year into this. I would say we focused primarily -- well, let me back up. First thing we did was we looked at our Jet Set heritage through a new modern lens. I think you've probably seen Suki Waterhouse as our main brand ambassador and campaign image lead, and she really embodies what the brand stands for. She's much more natural. She's, again, very, very comfortable and looks strong and powerful. And so that's a little bit different than the -- again, we had a very glamorous fast-looking image to the company. It's not that we want to lose that completely, but this is a more modern take on it.

We believe that our consumer is traveling the world in style, and that doesn't mean that she's flying off to Saint Tropez, which is our current campaign, every weekend, it means that you might be going from Miami to Palm Beach to have dinner. It might mean that you're going from New York to Disney to have a great time with your family. And so it just means that you're on the move. And when you put on Michael Kors, we want you to feel confident. We want you to feel like you have what we call standout style. So what's important about that is we have great data analytics in the company. And we are now seeing that the customer engagement rates are rising very, very rapidly. The customer is responding to the new marketing campaigns. And we can see the rise even at some of our peak campaigns that we had with Bella Hadid, some of the new campaigns are higher than that, which is really quite interesting for us to see that happen. So that's the first thing.

The second thing is, again, we had focused on our full price business about being much more focused on trend and what was happening in the marketplace. We were a bit behind on that. I think if you get a chance to see -- if you're here, go to see our Aventura Store, if you're in New York, go to see our new flagship in Rockefeller Center, et cetera, you'll see the new store concept. But the product inside of that store is much more on trend. The next thing we did is we looked at our strategic pricing architecture. Coming out of COVID, we raised prices as high as 25% in accessories. And the consumer said that, that's not the pricing that they wanted to see from us and so, therefore, we were taking too many markdowns to get back down to the pricing that we were ultimately selling the product at.

Once we changed that strategic pricing architecture in February, we have had quarter-on-quarter of full price sales increases in our full-price channel, which is really extraordinary. And I think we also quoted that last quarter we saw AUR increases, which is also pretty interesting after we lowered prices. So we're really having a strong reaction to the strategies that we've put forth from a product -- from a marketing, product and pricing standpoint? And then lastly is, as I mentioned, the new store designs. We've talked about the fact that we're going to renovate 300 stores or half of our store fleet, 300, 350 stores, and we're going to spend $300 million doing that. We have the capital to do that. We also have free cash flows to do that, and we will do about 100 of those this year. So this is the year we really get going on that.

Those new stores are seeing very solid traffic increases and very solid sales increases. So we know that it's working. We know that the new product, new marketing, new pricing architecture and store renovation program is working. And I'll wrap that all around the full-price business. And I know that you all saw us comp positive in our full price in Q2. In Q3, we did not comp positive, but that was by design, and that was because we removed a tremendous amount of promotional activity in our full-price channel. You'll see a little bit of bumpiness like that in our full-price channel. Sitting here, quarter-to-date, we're actually positive in full price. I don't know that we'll end the quarter that way or not, but we're positive right now. And that just shows you that the consumer, again, she's reacting very strongly to the activities and the way that we're positioning the brand.

In terms of outlet, that's where we need more work. We had -- when we went off on this new strategic architecture, we had to get the full price piece right first. When the consumer is responding there, they are definitely -- you'll see that trickle down into the outlet channel. The outlet channel has been an issue of the product really being off trend. And we, in Q3, had to clear a lot of that product. We're almost out of it at this point. So when you go to our outlet stores, the new floor sets have really just started to hit. We have a little bit coming in, in our fiscal Q3. And the sell-throughs on that product have been excellent. They've also been at higher AURs.

We won't get the full range of product that we need in the outlet stores until the fall season, really sort of starting in August. A couple of things to note. In outlet, we've had 2 big pullbacks in promotional activity. So that's just the amount of sale days, the amount of discount that we did. Secondly, we've had a very, very big pullback. Around October of this past year, we eliminated what was referred to as daigou sales. And this is where we sold to certain buyers. You can no longer, inside of our stores, transact on that. We do have an app that you can see. But even on that app, we reduced the discount by 50%. So that is costing millions of dollars a quarter. We know it's the right thing to do. That will no longer be a headwind from us -- for us after October. So we'll -- really, after October, a lot of the reduction in promotional activity as well as the daigou sales will be behind us. We'll have a tremendous amount of new product. I used a number of about 75% in the outlet stores, that will really happen in July and August.

So I think you're going to see similar things to what we've got happening in our full-price Michael Kors business start to happen in our outlet channel. Additionally, same thing in outlet that we're doing with Michael Kors in full price, very heavily use of influencers because the outlet channel is just like the full price channel. She wants trend. She wants to see fashion. It's no longer where you can just take an old product, bring it down after it's been a few years in full price because if you don't give it to her, someone else in these centers is going to give it to her as well as the fact that we have a lot of tourists traveling and they're looking for fashion trend.

Additionally, in the outlet stores, we are now selling our full price line, what we call icons. We have 3 groups in that, it's Hamilton, which is one of our iconic bags for the last 15-plus years. We have a new group called Laila, and then lastly, Nolita, all 3 of those, when you walk in our outlet stores, it's highly identified. It's called icons. It's representing in those stores where it has gone in about 5% of sales. We think we can grow that business inside of our channel. So we're -- I would say, we feel, in full price, we have made a turn. It's definitely in place. It's there. In outlet, we've got a little more work to do. We're very -- we've gone from cautiously optimistic, which is, I think, what I said in our third quarter earnings calls, to we are optimistic. So that's the inflection change in where we are.

The last thing is our wholesale business. Our wholesale business made -- I hope we emphasized it enough. We made a very big step change in wholesale during the holiday season. We were -- the wholesale partners were not keeping up with what we saw in our own full-price channel. That is now getting to be close to similar. Again, the assortments look good in the stores, consumers are reacting, and we have, not only in North America is our business getting much, much better in our wholesale partners, but in Europe, we have partners who we actually exited the stores who have come back to us and said, we would like you to come back in, we actually need you to come back in. And the reason for that is, many of you know, the luxury, the more top of the luxury market has slowed down, and we'll maybe talk about that a little bit later. And the more accessible part of the luxury market is actually doing quite well.

So it's not just certain brands that might be associated with our company, but you see other brands, ready-to-wear brands also doing very, very well in this kind of accessible category. So all of a sudden, a lot of our wholesale partners around the world are going, we want not only Michael Kors back, but we want you in more doors, et cetera. And so we're very positive about what's happening in our wholesale channel.

I want to remind everyone, the wholesale channel for next year, we are still planning it down. I think we've said that a number of times publicly. We are reducing our off-price business that we do today. It's predominantly a North America business. Over time, we will significantly reduce that business. We think that's right for the health of the company, which maybe is a good way for me to just give you a little color on. We believe that total Capri, we will grow low single digits next year. We think we're going to have gross margin expansion, and we'll talk, I'm sure, about tariffs and whatnot shortly. And we think our SG&A is going to be roughly flattish for the group. And we think there's going to be very significant operating margin expansion, 50%, 60%, maybe even more percent operating margin expansion. And when you look at that and you look at that where the EPS is, Capri is going to grow very quickly. Again, maybe it's off of a lower base, but it's going to grow very quickly. And I think we've got the pieces in place now to do that.

And Jimmy Choo definitely has turned the corner. Michael Kors is, I think, what we had said to you, we were looking for this year to get on solid footing, I think we feel like we're now on solid footing.

And optimistic that next year can be an inflection or more optimistic...

Yes, I think that's right. I think we went from being very cautious in all of our calls and presentations with everyone. We didn't want to get ahead of ourselves or over our skis. And you know, in our world, what happens. If you just get a little bit of fire -- if you get a little bit of momentum it turns into fire. And again, we are still the second largest accessible accessories player in the world. We have a very large footwear business. I should comment on that on Michael Kors. Actually, the area where we need a little more work is actually our footwear business and sizable to us. And we do have competitors in that world, and they have taken market share from us. Very excited about the new product that's arrived in the stores literally just in the last 30 days, and we're seeing our business start to turn there.

And so if we can get that category moving more quickly, that will also help accelerate our situation, both in our full price, outlet and in our wholesale channel. So that's kind of the next big piece that we're working on right now. And I think we'll be in a, not a perfect place by the fall season, but a better place.

Excellent. And you mentioned earlier, I think, spending a bunch of -- hundreds of millions of dollars on stores, and I think part of that is remodel programs. Maybe you can talk about what you've seen thus far in your store remodels, what you expect going forward?

That's right. Well, again, the great news is, after selling Versace, we have very little debt on the companies. And we are going to be generating much better free cash flows as we move forward. So we have the capital to be able to invest in renovating the stores. We have approximately 700 stores around the world, and our intention is to renovate half that store fleet in about 3 years. So we're a little -- we got a few of them done this past year, just a handful. And the early signs of that renovation are that traffic is up and sales are up even more than the traffic. So that's a very good result.

Now obviously, part of that's the better product, better pricing, but consumers can feel that there's a change happening. The marketing campaign is changing. The stores with our new residential feel inside them is really looking exciting. I do have to tell you, we've got 2 or 3 stores opened so far with what we call a Jet Set Lounge. We put in, and we're offering, obviously, coffees and teas, et cetera, but we have nonalcoholic champagne. I think our European stores might have alcohol, I don't know. But we -- and it's -- and we are not charging for that product when you come into the stores today. That might change over time, but it's increased dwell time significantly, and it's a great experience.

So we're going to expand that in a number of stores very rapidly and a lot of the remodels that are going to have this Jet Set Lounge. It's a wonderful Instagram opportunity, too, for consumers to come in. They have fun there. And so it's really turned into something that's a big plus, especially for our flagships. And actually, next week, I believe it is, we'll open our new flagship in Beijing, and it will actually have a full restaurant for Michael Kors inside of it as well. So we're -- in a shopping mall called China World. So we're very excited about that initiative as well.

We'll open about 100 of renovated stores, and that's both full price and outlet. So if you get a chance, if you're in the New York, New Jersey area, you can see our flagship in Rockefeller Center. You could also go out to Jersey Gardens and see the new renovated -- newly renovated with the new format outlet store as well. And we think, again, the more the customer sees this happen, the more they're going to say, I like this shopping environment with Michael Kors. I want to be a part of this experience. And our salespeople are very excited about this.

In addition to that, we've got a number of really exciting clienteling initiatives going on inside both full price and outlet. We have a tremendous amount of new technology for our sales associates to use. And so it's creating real strong momentum for the teams at the store level.

Excellent. And coming back to something you mentioned earlier, I think you said 10% to 15% on Jimmy Choo in terms of the margin. I think you also laid out a low double -- a low 20s margin for the Michael Kors brand. This was all at your Investor Day. How do you feel about hitting those targets? What are the drivers to kind of get you to where you want to be versus where you are now?

Right. So Jimmy Choo used to be a double-digit operating margin business, lot of reasons why that has come down to -- it's a small loss today. And I'd start out by first saying that Jimmy Choo, we have a store network of about 230 stores globally. We'll reduce that slightly, probably closer to 200 over time. But there, as a matter of -- as these stores increase productivity, it just drops straight to the bottom line. So for Jimmy Choo, it's about store productivity. So seeing us have 3 quarters of comp store growth, that's already going to lean into the concept of profitability. That's number one. Number two, I think you heard us talk about our wholesale sales results have been really quite powerful. In North America alone, the total brand grew over 20% in North America last quarter. A big piece of that was our wholesale business. We are we -- we occupy a very unique role in luxury with Jimmy Choo. Again, as many of our competitors have moved footwear pricing to $1,000 to $1,500, we have a lot of product, everything from sneakers that start for $550 to fun little jellies that we had at $495 to some of our opening price point, evening at $895, et cetera, et cetera, where we can be a very important part of our wholesale partners globally assortments so that they can offer their customer an opportunity to have luxury, but not everything is at this very, very high price. And consumers have gotten choiceful. And I don't care whether you're at the luxury level or the accessible luxury level, there's no question that people are a bit more careful about what they're spending. And Jimmy Choo is the beneficiary of that right now. And I mentioned before, the accessories piece, as we build the accessories category from its roughly 25% today, and we think we can get that to probably closer to 40% over time, accessories are just much more profitable than footwear.

And so that's really a positive thing for Jimmy Choo. And the last thing is that Jimmy Choo store fleet is pretty much fully renovated at this point. We'll renovate, I don't know, 10 or 15 stores a year. But there's not a heavy capital lift for us there. And so again, Jimmy Choo is in a very, very good position to get to this 10% to 15% operating income and have a very steady positioning on that.

As it relates to Michael Kors, we've been much higher than the 20% goal that we're talking about today. And for us, we first and foremost went through our fleet optimization program, which is pretty much done at this point. I think we've closed 150-plus stores, which were loss-making stores for us, a big drag on the company. And that's behind us.

As I mentioned earlier, the SG&A for Capri is going to be roughly flat on a year-on-year basis. And by the way, that will go up and down based on currency. So sometimes we'll tell you it will be up slightly, sometimes we'll tell you to be down slightly, it depends on where the dollar is on any given day. But -- and again, we're in a similar position to Jimmy Choo. As we start to lever these stores, and we're clearly starting to see that in our full price channel, we're starting to see comp store increases. Well, that's just going to flow right through. So that's the first thing, productivity.

The second thing is we are going to have gross margin expansion, and that will start next quarter. And tariffs are obviously heavily impacted us, I think, almost 300 basis points in Q3. We see that as an opportunity now to, let's hope, stabilize. We did take price increases in the first quarter, not anything huge, about 5%, 6%, and we took those globally to help offset some of the tariffs. Secondly, we've got some mitigation efforts going on with our suppliers. But that will help expand gross margin for the company. And so as you keep these SG&A fixed, the gross margin expands, and we get modest growth on the top line. You can do the math. It's going to have operating margin expansion for us.

So we think -- we feel relatively comfortable that we will get there. Again, the most important thing we're going to do in this upcoming year is we're going to see profitability expansion for both brands. But we want to make sure we keep this as our feet on the ground and not try to do something that won't be sustaining and long term in its execution.

And what kind of market do you think you're going to be playing in over the next couple of years? Like talk to us about the luxury handbag market as a whole and just sort of what the backdrop is as you kind of achieve -- try to achieve all these goals?

Well, the overall luxury accessories market is pretty, depends on who you speak to, we think it will still be down again this coming year. And that's, again, the more expensive part of the luxury market is definitely suffering today. And I think that customers are choiceful. Secondly, there are aspirational customers who just can't get into that market at this point. It's just too expensive for them. And that's why you see our more accessible part of the luxury market really starting to get some traction. There are other players than the typical ones that you might talk about that are having great success, and the brand I'll give you is [indiscernible]. [indiscernible] is doing fantastic in the marketplace.

So there's just more than us and certain other brands that are doing well. So that just says the category bodes well, which means we can take market share and market share from the overall global luxury handbag business. So even though I think the luxury handbag market will be down slightly this year again, I think we can grow market share. And I think we actually have a tailwind in that our category is fitting more into where the consumer is today and kind of what they're looking for there. And I also think that we're going to bode well with our footwear business in both Jimmy Choo and Michael Kors because of a very similar thing happening.

Got it. That's the market that you play in. How about the consumer in general, "the consumer." What's your view of the health of the consumer? I don't want to be blind to events in recent days and over the past week maybe tie into what's going on in the Middle East and your own exposure and any views on how that might impact your business?

Sure. I'll start with the Middle East first, and then I'll talk about the general consumer. We have about 50 stores in the Middle East. The majority of them have reopened. We don't know what this is going to mean in terms of our revenues there. They're all -- not all of them, the majority of them are licensed. We do own, in a joint venture, a number of Jimmy Choo stores. So we just don't know what it's going to mean for obvious reasons. And there will be an impact. I don't believe it will be material for the company. I think that's the first place to start. And for anyone who's listening to this, our hearts and souls go out to those people who are being impacted in the region as well as any of our troops and people who have lost their lives. So hopefully, you will all say a prayer for people's safety. I think that if you would have asked me this question a week ago, I would have given you a different answer. But let me start with the consumer.

The consumer that we see in North America is strong, and they continue to be involved in fashion and shopping. And I think if you have been into a shopping mall recently, shopping malls are back. They're especially with younger consumers. They find it phenomenal social experience. And so that's a really good thing for us. So not only is the e-commerce channel a great and vibrant channel, but the malls are back, and they've been back for the last couple of years. And so we see that continuing. Again, it's very social inside of malls. And many of our partners are doing even better job with restaurants and activities and whatnot. So we're very bullish on shopping malls in North America. And we also think the customer is in a good place.

What happens now given with this rapid rise in oil prices, et cetera, we hope that this will be short-lived, but I don't think, for the moment, it's going to have -- for this moment, it's going to have a significant impact on us. If things continue on, obviously, that could be something we'll have to examine very closely. But the North American consumer is healthy. Interestingly enough, the consumer in Europe has been relatively healthy, at least for us. We've, again, had 3-plus quarters of very strong growth in Europe. It's been our best performing region in the world. And so we, again, before this conversation of what's happened over the last week, would have said we remain optimistic there. Oddly enough, I think if a region was going to feel more impact than any of the ones, I would think Europe would, just from a psychological standpoint. And then lastly, Asia, there's no question, Asia is rebounding, and we see it and in particular, China. The consumer is starting to shop again. I know that they have a lot of financial issues beyond retail and fashion, but we can definitely see the consumer is engaging.

And again, this accessible category is very important. As he and she are coming back out to shop, they are probably even more choiceful than some of the North American consumers. And so we think we are setting ourselves up to be in a great place to really take advantage of that moving forward. So state of the consumer would have been pretty healthy. What happens from here, we're just not sure.

Yes. Certainly a lot of moving pieces on that front. And I guess, along those same lines, moving pieces, tariffs, obviously, we've seen some changes over the past several weeks, maybe talk about what that might mean for you, potential benefits?

Sure. So the tariffs, as many of you know, changed a couple of times. They are technically now about 15%. I think that's the global tariff coming in. And you could say, on the one hand that, well, they were 19%-ish average before, now they're 15%, shouldn't there be an advantage? We're not looking at that because we don't know what could happen in the next few months? Are there other areas where they could still get back to the additional tariffs? So we're not planning that there's any pick up. So any guidance we give you about the business will include as if it was what we thought it was before. I think the impact is about $125 million for us next year, something like that. That will stop being a headwind for us in a sense really towards the last quarter of this year. Because remember, even though we had -- we were selling more full price product, which had a bigger impact on us for tariffs in Q3, we still have a lot of carryover product that still has to move through the system.

So tariffs become a -- I'd say, a zero headwind in Q4 of next year. But as I said before, we're taking price increases. We're having better full price sell-throughs with the reduction of sale activities, promotional activities. Our suppliers are working with us to help mitigate some of those costs. There will be a headwind, which we don't know what it is, but there's going to be fuel surcharges. You'll be hearing people talk about that momentarily. So that's why I say whatever we picked up in the tariffs, I'm sure we're going to give back in fuel surcharges.

Yes. Understood. We're getting close to time. You've had new CFO, COO. Maybe talk about who he is and what he brings to the table?

Yes. Sure. Tyler Reddien is a terrific individual, had a long career at United Airlines. He's got tremendous operational experience, which I think is very important for us. He's spent a long period of time at Hertz also and some other companies in between. His last position was at the Body Shop, spent a few years there and really help reorganize them and prepare them for sale, et cetera. And I think he's going to just be a terrific addition for our company, and we're excited to have him join and he'll join at the end of the month.

That's great. Thanks so much for your time. I appreciate you doing this.

Thank you very much.

And thanks, everybody, for tuning in. Thanks. Bye.

Greetings, and welcome to the Capri Holdings Limited Third Quarter Fiscal 2026 Financial Results Call. [Operator Instructions] As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Jennifer Davis, Vice President of Investor Relations. Thank you. You may begin.

Good morning, everyone, and thank you for joining us on Capri Holdings Limited Third Quarter Fiscal 2026 Conference Call. With me this morning are Chairman and Chief Executive Officer, John Idol; and interim Chief Financial Officer, Raj Mehta.

Before we begin, let me remind you that certain statements made on today's call may constitute forward-looking statements which are subject to risks and uncertainties that could cause actual results to differ from those we expect. Those risks and uncertainties are described in today's press release and in the company's SEC filings, which are available on the company's website. Investors should not assume that the statements made during this call will remain operative at a later time, and the company undertakes no obligation to update any information discussed on today's call.

Unless otherwise noted, all financial information on today's call will be presented on a non-GAAP basis. These non-GAAP measures exclude certain costs associated with reserves related to a wholesale customer bankruptcy, restructuring and other charges, store renovation program costs, merger and divestiture transaction-related costs, impairment charges and Capri transformation costs. To view the corresponding GAAP measures and related reconciliation, please review our latest earnings release posted to our website earlier today at capriholdings.com. Additionally, the company has classified the results of today's operations and cash flows from its Versace business as discontinued operations. Unless otherwise noted, all information on today's call relate only to continuing operations.

Now I would like to turn the call over to Mr. John Idol, Chairman and Chief Executive Officer. John?

Thank you, Jennifer, and good morning, everyone. We were pleased with our third quarter performance which exceeded our expectations. Across both Michael Kors and Jimmy Choo, we continue to execute on our strategic initiatives to position our iconic brands for long-term success. Our strategies remain anchored in strengthening brand desirability through delivering compelling storytelling and creating fashion luxury products that excite and inspire consumers. Together with our advanced data analytics and deep consumer insights, these initiatives are designed to strengthen consumer engagement and reinforce the long-term equity of our brands. We remain confident that these strategies will support a return to growth in fiscal 2027, as well as establish the groundwork for sustainable performance well into the future.

Recently, we completed the sale of Versace, which was a thoughtful decision to strengthen our financial foundation, ensuring we have the flexibility to support Michael Kors and Jimmy Choo's strategic initiatives, and enhance long-term shareholder value. The proceeds from the sale were used to significantly reduce debt levels. As a result, we ended the quarter with $80 million of net debt.

Now turning to our third quarter results. Total company revenue exceeded our expectations, decreasing 4% versus last year to $1.025 billion. Underlying gross margins, excluding the impact of tariffs, expanded 70 basis points, reflecting better-than-expected performance driven primarily by improved full price sell-throughs and reduced promotional activity. Earnings per share increased approximately 30% and to $0.81.

Looking at results by brand. Starting with Michael Kors. Third quarter revenue decreased 5.6% compared to prior year. While some of our strategic initiatives are creating near-term pressure on revenue, they are deliberate steps towards building a stronger, more resilient foundation for our business. In our own retail channel, we saw a modest sequential improvement in trends relative to the second quarter, with sales down mid-single digits. Wholesale also declined mid-single digits.

In terms of total Michael Kors retail sales by channel. In our full-price channel, sales declined due to a reduction in promotional activity. However, we saw a sequential improvement in full price sales in the channel, which increased low double digits. Importantly, this resulted in a healthier sales mix with higher AURs and higher gross margins. In our outlet channel, revenue continued to be impacted by our strategy to improve our quality of sale by reducing promotional activity. In addition, product assortments throughout most of the third quarter reflected our prior design direction.

Late in the quarter, we began to introduce more modern on-trend styles, which are generating higher full price sell-throughs and higher AURs. Looking at total Michael Kors retail sales by region. Europe continued to outperform with trends increasing mid-single digits, while results declined low double digits in the Americas, and low single digits in Asia. Although retail revenue declined in both regions, we are encouraged by sequential improvements in trends.

Now turning to wholesale. Performance at point of sale exceeded our expectations with trends continuing to improve sequentially. Consumer response to our new styles, including our icons, Hamilton, Lala and Nolita was strong and drove improved full price sell-throughs in the wholesale channel.

Turning to brand awareness and consumer engagement. We continue to reinforce Michael Kors modern jet-set lifestyle positioning with our brand vision of traveling the world in style. Through our hotel stories franchise, we brought the excitement of travel and the discovery of new destinations to our consumers this holiday season. Our holiday campaign extended this narrative, journeying from the streets of New York City to the snow-covered mountains of [indiscernible] Canada, showcasing a standout winter wardrobe along the way.

Throughout the third quarter, we further amplified Hotel Stories with immersive experiences and local activations globally that reflected the brand's Jet Set spirit. We also celebrated the reopening of two of our flagship locations. [ Rockefeller ] Center in New York City and [ Regent Street ] in London, with high-profile events. Each event brought together a dynamic mix of celebrities and influencers for memorable experiences. Our new Jet Set lounge served as a focal point at both locations, reinforcing our modern, elevated in-store experience. These events generated significant social media engagement and press coverage, further extending our reach and deepening our connection with consumers.

To broaden the impact of our Hotel Stories narrative and brand moments, we expanded our social media reach and extensive influencer partnerships. Influencer-driven content grew significantly during the third quarter, with post up 100% year-over-year, contributing to a nearly 300% increase in both impressions and engagement. Collectively, these activities helped drive an 8% year-over-year increase in the Michael Kors global consumer database. With our advanced data analytics capabilities, we are leveraging the strength of our extensive database to create deeper, more personal connections with consumers.

Now turning to product. Guided by Michael's creative vision, we are delivering exciting on-trend fashion with standout style. Additionally, we refined our pricing architecture to better align with historical levels. These actions are driving stronger full price sell-throughs. As a result, we drove higher AURs and gross margin expansion across our full-price accessories, footwear and ready-to-wear businesses in the third quarter.

In accessories, consumers responded positively to new introductions that celebrate our iconic brand codes and align with our new strategic pricing architecture. For holiday, we introduced smaller silhouettes, such as the Laila extra small crossbody and the [ Nolita-Pouchetts ], which performed exceptionally well with a pricing architecture designed to appeal to Gen Z consumers. These smaller styles complemented the continued strength of our icons, Hamilton, Laila and Nolita.

In footwear, boots continued to perform well across dress and casual styles. We also saw encouraging momentum in new sneaker styles such as [ Arla ] and [ Roads ], that embody iconic Michael Kors branding elements and heritage design details. In ready-to-wear, holiday styles that captured Michael's effortless glamor drove strong demand. Jackets, [ wear ], and holiday dresses were standout categories.

Now I would like to discuss the progress we have made in our store renovation plan. We are redefining our luxury retail experience with a modern, warm residential design. Our stores remain a cornerstone of our brand and a key driver of our sales recovery, playing a pivotal role in enhancing the client experience, and revitalizing growth. Over the next 3 years, we plan to renovate approximately 50% of our store fleet and key department store locations. As a part of our ongoing investment and brand elevation and retail excellence. While still early, results are encouraging with renovated locations showing meaningful increases in traffic and sales versus last year.

Looking ahead, we are focused on leveraging Michael Kors 45-year heritage as a powerful fashion luxury brand that continues to resonate with consumers. We are building on this foundation by exciting consumers with our modern Jet Set storytelling, and delivering on-trend fashion with [indiscernible]. Combined with our advanced data analytics and deep consumer insights, we believe our strategic initiatives provide a strong foundation to return the brand to growth in fiscal 2027 and beyond.

Turning to Jimmy Choo. Third quarter revenue exceeded our expectations, increasing 5% compared to the prior year, driven by strong brand momentum and the continued traction of our strategic initiatives. Retail sales improved sequentially, increasing low single digits while wholesale revenue grew double digits.

Looking at trends in our own retail channel. Performance was driven by a mid-single-digit increase in the full price retail channel, reflecting strong consumer responses to our holiday assortments. By region, retail revenue increased high single digits in the Americas and low single digits in Europe, with a sequential improvement in comp trends in both regions. In Asia, while overall trends remained negative, high single digits, similar to the prior quarter, we are encouraged by a sequential improvement in our full-price channel. In the wholesale channel, revenue at point of sale once again improved sequentially, led by high single-digit increases in North American department stores.

Now turning to brand awareness and consumer engagement. Our storytelling continued to highlight the effortlessly alluring essence of Jimmy Choo. For holiday, we extended our campaign with Sydney Sweeney, who embodied the brand's playful daring spirit while showcasing key holiday styles, including our iconic Bon bag. The campaign generated meaningful brand awareness reaching approximately 150 million consumers across social media platforms.

Throughout the third quarter, we further amplified our storytelling with client activations and local events across key markets globally. Our Meet Me At The Bar series generated 14 million impressions and drove strong consumer engagement. Additionally, we held over 400 in-store events worldwide, helping deliver double-digit growth across our highest value consumer segments. The integration of our storytelling, global activations and clienteling initiatives continued to strengthen brand desirability, extend our reach and deepen consumer engagement. As a result, Jimmy Choo's global consumer database increased 8% year-over-year.

Turning to product. Jimmy Choo's product strategy remains focused on further developing accessories and expanding our casual footwear offering to support sustainable long-term growth. Within accessories, momentum was encouraging as we continue to expand the category with a focus on icons, innovation and a broader pricing architecture. Collectively, our core groups delivered high single-digit growth in the full price channel. The strength of our Bon and Cinch groups underscored the enduring appeal and durability of our core icons. The Bon Bon Group performed particularly well, with sales increasing double digits, supported by continued demand for elevated expressions at higher price points, as well as by the introduction of more casual materializations. At the same time, we have seen highly encouraging early consumer response to our newly introduced curve and bar groups, supported by our new strategic pricing architecture which now includes bags positioned below $1,500.

Turning to footwear. Sales increased high single digits in our full-price retail channel supported by growth in dress and casual styles. Our holiday collection performed well as crystal detailing, playful ribbons, deep tones and enriched textures resonated with the consumers. Styles, including the new [indiscernible] with [ Crystal Bos ], as well as our iconic [indiscernible] sandal performed well underscoring our ability to balance seasonal newness with timeless designs.

Importantly, our strategy to expand casual footwear continued to gain traction, driving a mid-single-digit increase in full price sales in the third quarter. We saw strength across styles, including casual boots, sneakers, loafers, and ballerina flats. We see significant opportunity to further scale casual footwear, supporting increased lifetime value among existing consumers as well as new customer acquisition. Looking forward, we are encouraged with the momentum we are seeing at Jimmy Choo and remain confident in our strategies to unlock the brand's unique potential and further strengthen its position within the world of fashion luxury.

In conclusion, we are encouraged by the early indications that our strategic initiatives are gaining traction. As we look ahead, we anticipate a sequential improvement in retail trends in the fourth quarter, and a return to growth in fiscal '27. Long term, we remain optimistic about the sustainable growth potential of both Michael Kors and Jimmy Choo.

Now Raj will review our third quarter results and guidance in more detail.

Thank you, John, and good morning, everyone. Before we begin, I would like to remind you that today's financial results exclude Versace, which was reclassified as a discontinued operation. My discussion today will reflect results from continuing operations and our financial statements have been adjusted for prior periods to exclude Versace.

Now looking at third quarter results. Total company revenue of $1.025 billion decreased 4% versus prior year on a reported basis, and 5.9% in constant currency. Looking at revenue by channel. Total company retail sales declined mid-single digits representing a slight sequential improvement relative to the second quarter. In the wholesale channel, revenue was flat to last year.

Turning to revenue performance by geography. Revenue in the Americas decreased 7%. Revenue in EMEA increased 5% and revenue in Asia decreased 4%. Looking at revenue performance by brand. At Michael Kors, revenue decreased 5.6% compared to prior year on a reported basis and 7.3% in constant currency. Global retail sales declined mid-single digits. Similar to prior quarters, store closures negatively impacted retail sales in the low single-digit range. Wholesale sales decreased mid-single digits.

Looking at total Michael Kors revenue by geography, the Americas decreased 9%. EMEA increased 6% and Asia decreased 1%. At Jimmy Choo, revenue increased 5% compared to prior year on a reported basis, and 1.9% in constant currency. Global retail sales trends improved sequentially, increasing low single digits. Wholesale revenue increased double digits. Looking at total Jimmy Choo revenue by geography, the Americas increased 23%, EMEA increased 3% and Asia decreased 10%.

Now looking at total company margin performance. Gross margin of 60.8% declined 230 basis points. Underlying gross margin expanded by 70 basis points due primarily to better full-price sell-throughs and a reduction in promotional activity. This was offset by higher-than-anticipated tariffs based on the sales mix of new product. By brand, Michael Kors gross margin of 59.7% compared to 62.6% last year. The decline versus prior year was due to higher tariff rates. Excluding the impact of tariffs, Michael Kors gross margin expanded 60 basis points. Jimmy Choo gross margin of 66.5%, compared to 66.0% last year. The improvement versus prior year was primarily driven by higher full-price sell-throughs. Excluding the impact of tariffs, Jimmy Choo gross margin expanded 80 basis points.

Operating expense decreased $32 million, resulting in 80 basis points of expense leverage. The decline versus prior year was primarily attributable to our cost reduction program. Total company operating margin of 7.7%, compared to 9.2% last year. The decline versus prior year was due to higher tariff rates. By brand, Michael Kors operating margin of 13.9%, compared to 16.2% last year. And Jimmy Choo operating margin of 1.8% compared to negative 3.8% last year.

Now turning to our balance sheet. Inventory at quarter end totaled $663 million, a 6.5% decline versus prior year. Looking ahead, we now expect year-end inventory levels to be approximately flat to prior year, with the decrease in units offset by higher tariff rates and foreign currency exchange rates. During the quarter, we completed the sale of Versace and received approximately $1.4 billion in cash. We used the proceeds from the sale to significantly reduce our debt. As a result, we ended the quarter with cash of $154 million, and debt of $234 million, resulting in net debt of approximately $80 million. This compared to net debt of approximately $1.6 billion at the end of the second quarter.

Looking at guidance. We are narrowing our range for fiscal '26. Revenue is now expected to be between $3.45 billion and $3.475 billion. By brand, we anticipate Michael Kors revenue between $2.86 billion and $2.875 billion, and Jimmy Choo revenue between $590 million and $600 million. Gross margin is now anticipated to be approximately 61%. Operating expenses are now expected to be slightly more than $2 billion primarily due to the impact of foreign currency. Operating income is anticipated to be approximately $100 million, with Michael Kors operating margin in the high single-digit range, and Jimmy Choo operating margin in the negative low single-digit range.

In terms of nonoperating items, we now anticipate full year net interest income between $85 million and $90 million, an effective tax rate in the low to mid-teens range, and weighted average shares outstanding of approximately $120 million. As a result of these factors, we now anticipate fiscal '26 diluted earnings per share between $1.30 and $1.40.

Looking ahead, based on the progress we are making against our strategic initiatives, we remain confident in our ability to return to growth in fiscal '27. We also expect gross margin expansion driven by better full-price sell-throughs, sourcing cost efficiencies and targeted price increases. In addition, we remain focused on disciplined expense management across the organization. As a result, we expect to return to both revenue and earnings growth in fiscal '27. Long term, we believe that Capri Holdings is well positioned to deliver sustainable growth while increasing shareholder value.

Now we will open up the line for questions.

[Operator Instructions] Our first question comes from the line of Matthew Boss with JPMorgan.

So John, at the Michael Kors brand, could you elaborate on the drivers of the slight sequential improvement in retail sales between the second and the third quarter? If you could break down maybe trends at full price relative to outlet? And more specifically, could you break down the low double-digit decline in the Americas that you saw in the third quarter, and just walk through the progression that we should expect for Americas retail sales in the fourth quarter?

Good morning, Matt, and thank you for the question. I want to start out by saying that we really feel that our strategic initiatives are starting to take hold. I want to remind everyone that we've only been at this for literally 1 year, almost to this week, when we started to reposition the Michael Kors brand. Under the new Jet Set brand positioning, we've really been looking at the use of social media channels differently than we had used them previously. We've taken influencers. We have hundreds of them now that are brand advocates, and we're seeing real progress for how they're changing the perception of the brand and the way the consumers are interacting with the brand.

We -- I think as we told you about a year ago at this time, we're really focused on what we call standout style. So a unique product that feels very Michael Kors and we've honed in on being much more consistent around what those styles are and how we talk to the consumer about that. We have restructured our pricing architecture in all areas of the business, and we're seeing excellent traction around that initiative. We reduced promotional activity in both channels in the full price and the outlets. And while that's creating some headwinds for us, I think you heard in my prepared remarks, what we're seeing coming out of that is improved full price sell-throughs. Now we're in our second quarter of seeing that in our full-price channel. We're seeing higher AURs, higher gross margins. That's all related -- that all points to healthier business.

And as it relates to your question, we significantly reduced the promotional activity in the full price channel. So that has -- so we saw a double-digit increase in full price selling in the full price channel, but reduced selling in the markdown channel, which we had more of previously. So therefore, that impacted the channel. And what we're seeing in the in the outlet channel is some very early indications of the -- of new product flow into that channel. And we're experiencing, again, better full price selling on that. Those products are actually at higher prices than we've been at in the last few years. The customer is responding because of the design -- and still the value related to that.

And so I think we're very comfortable with what we've seen and what's really driving that sequential improvement. It's better full price selling, better focus on icon products in the full price channel. Some very early indications in outlet with what's working in terms of new product. I would also remind you that in outlet, we've -- we're reducing millions and millions of dollars of [ daigou ] sales, which is having quite a bit of headwind for us. But again, we know that that's going to be a result in a healthier business. And we'll be kind of through that by about August, September of next year. That's -- was the beginning of when we really started to reduce that channel and consumers' ability to purchase from us for that product.

And so all in all, I would say we're very cautiously optimistic that the strategic initiatives are working. In terms of the Americas, let me turn that over to Raj, because I think you can talk to you a little bit about what we saw and why there's been that double-digit decline in North America.

Thanks, Matt, and thanks, John. We were -- as John said, we were pleased with the sequential improvement, particularly in the retail trends in North America for Michael Kors. We did benefit slightly from some anticipated wholesale shipments, and that was really just due to timing as some came in earlier than we anticipated. But as we look to Q4, we expect continued sequential improvement in retail in the fourth quarter. And most importantly, we expect to return to revenue growth in FY '27 as we look forward. So we'll provide a little bit more color on that in Q4, but we're pleased about the retail trends in North America that we're currently seeing.

Our next question comes from the line of Simeon Siegel with Guggenheim Securities.

Roger, John. Maybe just a follow up on that last point you made. As you think about the revenue growth next year. Any way to help us think about how you're thinking about units versus price, maybe new customers versus reactivating lapsed? And then any way to just help us just elaborate thinking about those go-forward gross margins? Maybe just bringing apart your thoughts on where you're setting the initial ticket pricing versus promotions, lingering impacts of tariffs, fixed cost leverage, deleverage. Is there anything else we should think about for puts and takes on gross margin?

Simeon, I'm not sure I followed all the questions in the one question, but we'll do the best we can. So number one, as I said, we're feeling cautiously optimistic. We've been at this with Michael Kors for 1 year and we're seeing very tangible results. Better full price sell-throughs, higher AURs in the full price area. We're not yet there in outlet, but on the new product we are. And we're seeing higher gross margins from all of the new product flowing through because we've reduced promotional activity. So I think those are all very solid tangible results from our initiatives.

The other thing that's happened that I mentioned earlier was that we've really looked at influencers and the social media channel to reengage the Michael Kors existing customers and newer customers. Gen Z, certain of the younger millennials, and we're seeing that start to really play through. And what we can see is brand awareness is starting to rise and consumer desirability. So our data analytics, we're studying the consumer response to everything from our marketing campaigns to products. And all the indicators are positive.

The other positive indicator for us is we have had 3 sequential quarters of traffic improvement online. And that's really quite interesting because as we drive a lot of our traffic to our website, the consumer is really responding and converting. So we like what we see there. Store traffic is still running about in line with sales declines as well. So we'd like to see that be the next kind of step up for us to see the next leg of improvement. And as Raj mentioned before, Q4, we will see a sequential improvement in our retail channel, which is what we've been seeing for the last few quarters. And then ultimately, in fiscal year '27 turning positive.

So we think that we've got a number of initiatives in place being led by our brand, which is really Michael Kors and our Jet Set strategy, with our storytelling through Hotel Stories, now with a very large group of influencers that are helping us tell that story and connect in particular, with a younger customer, and we've got product that's really resonating that's got the right price value architecture around it. So I would say we feel that, that creates the foundation for us to really build off of.

In terms of units versus price next year, units are going to be down. We are -- as Raj said in his prepared remarks, inventory will end approximately flat. And then when you put the tariffs on top of that, actually units will be down for us. And I think our inventory ends at a very, very healthy position. We ended down approximately 6.5%, and that's including the tariffs in that number. So we're in a healthy position to really go into our fiscal '27, and we are really trying to drive, as we've said a number of times, full-price business, so that should, for the year, mean that units will be down.

Let me turn it over to Raj to talk to you about gross margin.

Thanks, John and Simeon. Yes, let me start by giving you a little bit more color on what happened in Q3. We saw a little bit of a higher-than-anticipated tariff impact of approximately 50 basis points in the quarter. And that was really due to better sales of new product that had the higher tariff rates on them. We were pleased with the underlying gross margin as it expanded 70 basis points, which is better than we anticipated. And that was really driven by the better full price sell-throughs at both Michael Kors and Jimmy Choo. And we're really pleased with what we're seeing with the new product.

As we look to the fourth quarter, you'll begin to see some of the tariff mitigation efforts continue regarding our sourcing efficiencies and targeted price increases with the continued benefits of our higher full-price sell-throughs. And then as we look forward into FY '27, we expect to offset a majority of the tariff impact of the higher tariffs. We continue to deliver on our strategic initiatives and driving higher full price sell-throughs. So we're excited to return to gross margin expansion next year.

And Simeon, one other thing too, what also gives us confidence in terms of revenue growth for next year, Jimmy Choo's results during the quarter were actually very, very strong. And again, the initiatives that we're putting into place at Jimmy Choo to, first off, drive the consumer desire. We are definitely seeing that working. We're -- same thing that we're doing in Michael Kors, we're leaning much more into social media channels, influencers and clienteling, that's working for us as well.

We are seeing some very nice, now 2 quarters in a row, on our initiatives around accessories. And you can see that we are selling our existing icons as well as the new pricing architecture that we've put around some additional product that we've introduced in the line. We get very strong reception to that, both at the consumer level and at the wholesale level, which gives us some very good feeling about what that looks like.

And then we discussed in the prepared remarks that our casual business also saw a very nice sequential improvement during the quarter. So -- and we can, I think, say to you that the trends are continuing in this quarter for Jimmy Choo in particular, that we are excited about what is happening there and the opportunity to not only return that brand to growth, but also to see some very nice operating margin expansion for that next year.

[Operator Instructions] Our next question comes from the line of Brooke Roach with Goldman Sachs.

Given the sequential strength that you're beginning to see in the [ green shift ] at the Michael Kors brand, I was hoping you could help frame the potential operating margin expansion potential that you see as you look ahead into FY '27. I understand it's a little too early for guidance, but given the magnitude of the gross margin headwind from tariffs on the Michael Kors brand that you're seeing today, how should we be thinking about the opportunity for op margin expansion for Michael Kors and for total consolidated Capri?

Brooke, I think it's -- I think we've talked about this before. We believe we will return to revenue growth for the group next year. I think we've said that it's probably in the low single-digit range. We think that our SG&A will continue. We're going to be very focused on our expense control in the company, and we'd like to see that relatively stable.

And then with gross margin expansion that Raj spoke about, we think that those will lead to leverage and create operating margin expansion for the business. And again, what we're pleased about is -- we're in the early signs with Michael Kors of seeing our retail business improve.

One of the other things, as you may recall, Michael Kors had a substantial wholesale business, which because of our initiatives to really pull back on the distribution on that business, and performance related as well, that business has declined substantially. We are forecasting for a decline for next year. I think we mentioned that in our last call that -- and that's really to clean up some of the off-price distribution that's been historical for us.

That being said, at POS and wholesale, we saw a substantial step-up with our wholesale partners, and departments [indiscernible] partners. What we saw, in particular, at Michael Kors, was the performance on the icon products where I had mentioned in our last call that they had not really gotten to the same rates of success that we saw in our own stores. That is now starting to equal out. And so while we were very, very pleased with that, we think long term, there is an upside for us in wholesale as our partners continue to experience this very positive selling. And as you heard in Jimmy Choo, we had an outstanding quarter with our wholesale partners and the product really resonated, and that was both in accessories and in footwear.

So I think that, that gives us the confidence to go into next year and look at revenue growth, look at margin expansion, controlling our expenses and with some modest increase in SG&A, and that should really turn into operating margin expansion.

Our next question comes from the line of Adrienne Yih with Barclays.

Great. It's really nice to see the progress at full [ line ]. It's very evident John, can you talk about kind of what the contribution of sales is outlet versus full line? And where you kind of want that mix to be over time?

Secondly, we did see you move through, whether it's SKU count or however inventory from the beginning of the quarter and outlook to the end of the quarter. It looks like you're really clean, or much cleaner in outlet. So wondering if we could potentially see a gross margin inflection at outlet in this current quarter?

And then just a comment on the tax reserve that you took, the $15 million. Who is selling into them? And was it [indiscernible] collection? Was there a little bit of Versace? And how should we think about kind of derisking that kind of on the forward 12 months?

Thank you, Adrienne. First of all, we don't break out the full price versus outlet numbers. And we think they're both opportunities for us. So we're excited about, again, what we've seen in the last year.

As it relates to outlet, I think we have been clearing some of the core product that was part of our more historical strategies, and that product just wasn't working as well as it had in previous years. And so we're not quite finished with that yet. There'll be some more of that going on towards the first half of calendar 2026. But that's really going to start to mitigate as we get into the back half with new product coming into outlet.

I think I had mentioned to you on the last call that we've only really begun to have a small amount of product coming into the outlet channel that is new. And it's going to continue to flow throughout the spring season, much more trend on, and trend styled product, that will be coming into that channel. And that channel is because consumers just as discerning on what they want in terms of fashion and trend as the full price channel is today. They're excited to see great product from Michael Kors associated with some very strong value with that. So I think you'll see gross margin expansion in the outlet channel.

We would think more towards the second half of calendar year but that will be included in some of our guidance that we talked to you about in our May call, where we will talk about overall gross margin expansion for both Jimmy Choo and Michael Kors, because we think there's some very significant opportunity also on gross margin for Jimmy Choo.

And I might remind you that Raj mentioned that both Michael Kors and Jimmy Choo. We've been taking selective price increases. They're moderate -- are modest. But you'll start to see that flow through in our gross margin even in Q4.

I'm going to let Raj take the [indiscernible] question.

Thanks, Adrienne. Yes, regarding [indiscernible], as you mentioned, we did a reserve for $15 million, which is really not too material for us. It is across all the brands areas within Jimmy Choo, Michael Kors collection as well as MK product. But as I stated, we have reserved for that, and we are encouraged that we can work with them to begin shipping to that...

Yes. And let me further add that we're excited about the new management team that's leading [ Saks ] Global now. They've been through this before with [indiscernible] Marcus. And we have a lot of confidence in what their strategy is. We also think that a leaner [ Saks ] Global will be one that will be successful and very focused. And so we intend on being very, very supportive of their strategies and to help them succeed. We think that's good for the industry and ultimately, good for the consumer as well.

Our next question comes from the line of Oliver Chen with TD Cowen.

Regarding the opportunity for positive growth at Michael Kors, it sounded like the back half was more likely for next year? Would love any color there? And as you look across the channels, what do you [indiscernible] with traffic levels that we should be aware of? It looks like online has been attractive?

And lastly, marketing spend and marketing dollars, or as a percentage of sales, what's your framework for thinking about how to leverage that? And nice job on all the new products.

Thank you, Oliver. So I think your assessment of a little more acceleration in the back half of next year, on a [ TYLY ] basis is probably right. And when I say back half, it's more calendar back half of the year. I'll start out by saying we will, hopefully, at that point, be fully transitioned in our full price with all new product in the channel. We will not be up against this year's where we didn't anniversary the promotional activity. So that should be a positive for us. I think we will also have our full expansion in the additional social media channels in place at that point in time. A good part of that will be in place in the spring season, but I think we'll be even in a much better place in the fall season.

And then on the outlet side, we should be, again, maybe not fully transitioned, but we should be 75% transitioned at that point in time, which would put us again in a very good place for the back half of next year. And then the other thing is we will -- as I said, hope -- not hopefully, but we will be -- we will have the [ Daigou ] sales reductions behind us. So we think there will be less headwinds in the back half of next year, and quite frankly, some tailwinds that really will be driven by product and by marketing. And then the headwind will be -- we will be continuing to reduce our off-price distribution and that's primarily in New York -- I'm sorry, U.S. issue. So you'll see that in North America. But we're committed to continuing to reduce that and create a healthier place for of the consumer to see the Michael Kors brand.

Why don't I turn it over to Raj to talk about marketing because we have taken that up, but I'll let him speak to that.

Yes. Thanks, Oliver. So regarding the marketing, we're spending just north of approximately 8%, which we feel is a healthy percentage, and we're looking to where we spend those dollars regarding influencers, [ TikTok ] spend and spending a little bit more wisely. The Michael Kors number is a little bit more north of that. But overall, we feel really good about the levels that we're spending to and which will drive the growth for next year.

[Operator Instructions] Our next question comes from the line of Paul Lejuez with Citigroup.

Curious if you can talk a little bit more about performance at the Kors brand by price range, where you saw the strongest trends overall? But also, where did you see the strongest full-price selling in what bands, and then price bands. And then also curious about performance by age, what you saw during holiday?

Yes. Thank you, Paul. So what is very interesting for us is we've kind of seen two steps in the business. The first step was our -- when we looked at our strategic pricing architecture and in our full-price business, we changed that in the spring season of this past year. And we saw an immediate lift based upon that.

In the fall season, what we were able to do is we have brought in a lot more product between the $150 and $250 range. And those are just smaller bags. In particular, that is where we're seeing the Gen Z customer, in particular, lean into that product, both from a trend standpoint and a pricing standpoint. So we're definitely seeing a lift in that customer based around that product that we are delivering into the full price channel.

And as I mentioned also in our previous call, actually, in the outlet channel, we took prices up slightly in our Q3. And we're not seeing resistance in particular in the newer product that we're bringing in where she is excited because it is representing trend for the company. So we think that we're making the right decisions on product, both styling and leaning into certain price areas that are more relevant to certain cohorts. Thank you, Paul.

Our next question comes from the line of Rick Patel with Raymond James.

I'm hoping you can paint a picture with a little bit more detail about the return to growth in fiscal '27. Just curious which areas of the business you have the most confidence in? It sounds like it might be led by full price retail, but just wondering what will take a little bit longer to turn aside from wholesale? And then any thoughts on just the geographic performance as we think about variability by region?

Thank you, Rick. Well, first thing I'm going to point out is that we're excited about the growth that we're seeing with Jimmy Choo. And we continue to believe that, that business will be an $800 million business for us over the next few years. And we're excited about the fact that we think the accessories part of that business is a very big opportunity for us, and the response that we're getting from not only the consumers but from our wholesale partners around the globe, given that luxury prices have moved into certain areas where they think there's a very big opportunity for a well-loved brand like Jimmy Choo to begin to be a part of their assortments. So we're excited about that in our own stores, and we're excited about that in our wholesale distribution.

We also think that Jimmy Choo has an opportunity to significantly increase the productivity in our store fleet. I think we've told you before, we've spent a fair amount of money over the last few years rebuilding that store fleet. And so we're in a good position now to leverage what we've put in place. So we think Jimmy Choo is going to provide some very nice revenue growth for us.

In terms of Michael Kors, again, we're -- I think we said to you before, that we want to build sustainable growth for us. And we think that's about creating an exciting story for the consumer around the Jet Set positioning, which is traveling the world in style. And we think that's a very relevant concept given especially how younger consumers really embrace and love travel, and how we're doing storytelling around that. And now we're making the product the hero in that storytelling, and that's also resonating particular with the influencers and the media channels that we're targeting around social media, in particular, to tell that story to that younger consumer.

And so I think that full price will be a part of that expansion in revenues, but also return to growth in our outlet channel. There's a very strong business there. And we want to be exciting for the customer wherever they shop, whichever channel it is that they shop. So again, we are optimistic about our return to growth. We're also optimistic about our SG&A expansion next year. With modest price increases. With -- we've been working very closely with our suppliers on cost reductions. That's starting to come through, as well as better full price sell-throughs. That's all going to impact our gross margin.

And then, of course, we've, I think, done a very good job over the last 2 years, reducing our SG&A and controlling that, and we think there's opportunity for us to continue to do work in that area across the both Jimmy Choo and Michael Kors. So we think we're in a very good place with two excellent brands that are beloved by consumers and we're seeing with our database growth. I think you saw that. We've been doing this quarter after quarter, and you're also seeing the resonation in particular at Michael Kors on e-commerce with 3 quarters of traffic growth in a row, and we think that's going to also have a halo impact on our stores, and we would expect that to be coming in the not-too-distant future. So Rick, thank you very much for that.

Our next question comes from the line of Jay Sole with UBS.

My question is just about the balance sheet. Now that you've reduced net debt to just $80 million, what are your plans with free cash flow? Do you plan on using it to update the stores, or buy back stock? More other actions? If you could maybe help us with that, that'd be great.

Thank you, Jay, and good morning. Well, let me start by saying, as you stated, in December, we successfully completed the sale of Versace, which we stated was a thoughtful decision. And immediately following the close, we significantly reduced our debt to approximately $80 million net debt, which we feel it puts us in a great position to continue to invest in the business.

Our priority remains to invest in the brands through the store renovation program that we spoke about, as well as technology and digital enhancements and other brand-building initiatives. And our second priority is to return cash to shareholders via the share repurchase program. We announced last quarter that our Board of Directors have authorized a $1 billion share repurchase program, which will commence in FY '27. And it really shows the belief that the Board has in Capri Holdings. So with our strong balance sheet, it really gives us flexibility to continue to invest in the brands for future growth. Thank you, Jay.

Our next question comes from the line of Bob Drbul with BTIG.

Just on Michael Kors business, can you just tell us where the signature piece of this is, the penetration of it, and the trends that are going on with your signature offering?

Bob, thank you for that question. Yes, signature, as you know, we -- about 2 years ago, there was a very strong position to reduce that in the company. And we probably went too far on that, bringing it down significantly. It's running now approximately 40% of our sales. We think that will probably go down a little bit more.

We think that leather and [indiscernible] and some of the other materializations are much stronger from a trend standpoint than where [ Signature ] had been, traditionally had gotten up to as high as 50% of our business. So I think we always are going to see it as a balance inside the organization. It was probably also a little more prevalent in some of our ready-to-wear and some of our footwear where it's come down there as well. So I think we just have to look at it, like everything is a trend. Some companies are actually leaning back into it more strongly this as we speak, some of the big luxury houses. So we'll just watch that also with our data analytics. I think we can quickly see how the consumer feels about how much that represents of what our brand and marketing is. Thank you, Bob.

Our final question this morning comes from the line of Aneesha Sherman with Bernstein.

I have a question about long-term margins. You talked a lot about the puts and takes on margin going into next year. Historically, Michael Kors operating margins have been just over 20%. That was the number that was in your last Investor Day a year or 2 ago. As you think about long term, is there anything structural preventing an eventual return to those levels of margin?

Yes. Thank you, Aneesha. So number one, as we've said previously, we think Michael Kors over the next few years will reach approximately $4 billion of revenue. And as we see that happening, you're going to see leverage clearly take place. I think as we demonstrate the ability to -- we shrunk our cost structure in the company fairly significantly over the last couple of years. A big piece of that was our store a closure program. We're close to over 150 stores. We have a few more to go. Still going forward, we're going to look at those stores where they're not profitable, and continue to do that.

We'll also open a few stores as well. I think I talked about that we're excited about. We've had a number of mall owners come back to us. They love the new store program that we've opened a number of locations around the world. And so that's got some of our mall partners very excited about us coming back into that. So we'll look at that as well.

And we've also rationalized the overall structure of the employee base inside the company. So I think as we see revenues grow, we're going to see a leverage created for us. So I would tell you in Michael Kors, that we absolutely believe that, over time, we could reach a 20%-plus operating margin. We just want to make sure that's sustainable. So I would tell you that over the next couple of years, we're going to be focused on really making sure that the consumer is drawn to the brand, and we're not just trying to push the brand on to the consumer.

As it relates to Jimmy Choo, again, I just mentioned, we think that, that is an $800 million business. Could be bigger depending on how big the accessories portion becomes of the company. And as that accessories part of the business becomes bigger, it carries higher margins, which we think Jimmy Choo will definitely return to a double-digit margin also over the next few years.

So given the fact that we have this opportunity with Michael Kors and with Jimmy Choo, and we're seeing product resonating with the consumer, and we're seeing brand desirability increase at both brands. We're seeing our database increase. I would say we are cautiously optimistic. I think we'll become more optimistic after spring season when we've seen a longer-term consistency with the initiatives that we put in place. But we're getting close to a place where we can come back to you and say, it's fully working, and we are ready to, even possibly, invest more to accelerate the growth inside the company. But as I said, we really want the customer to come to us and we're definitely seeing that happen. So thank you very much for the question, Aneesha.

I'd like to conclude by saying thank you for spending the time with us today. We're excited to report back to you in May with our fourth quarter results, as well as our guidance for next fiscal year. I want to thank, in particular, our 11,000 employees around the world. They are really the heroes of this story. They worked incredibly hard in a very short window of time at both Michael Kors and Jimmy Choo, to really begin the turnaround for both of these companies to return to growth, and we're excited about what the future holds for us. Thank you very much.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Okay. Well, good morning, everyone. Thank you for joining on day 2. We are happy to have with us today Capri Holdings, a $3 billion market cap luxury fashion and accessory brand. Today, I'm joined by John Idol, Capri's Chief Executive Officer; and Raj Mehta, Capri's Interim Chief Financial Officer. So thank you both so much for joining us today. This will be a fireside chat format. I'll kick it off with questions. And just one housekeeping item in terms of disclosures for reference, you can visit morganstanley.com/researchdisclosures for anything you need disclosure related.

So let's kick it off. Before we dive into Q&A, I do have several for you today. I want to give you the floor and kind of give you a moment to just any messages or opening remarks that you'd like to share with the audience.

Great. Well, thank you for having us here today.

Of course.

It's wonderful to be here in New York on this very cold day. We're excited for the holiday season in front of us, and it seems to be kicking off very nicely. I think most of you have probably read that we completed the sale transaction of Versace yesterday, which gave us about approximately $1.4 billion for the brand. That's a very important event for us because that will give us tremendous financial flexibility to continue to execute on our strategic initiatives around Michael Kors in particular. We'll talk more about that, I'm sure, during the Q&A.

And it also gives us a situation where we will have a very small amount of debt on the company, which gives us, again, the opportunity to look to the future and really invest in our brands. It also gives us the ability to be more focused. So we'll be much more focused on Michael Kors in particular, and the growth opportunity that, that represents. And so we think that this is kind of a seminal moment for us to really reset and to take these 2 wonderful brands, Michael Kors with about 44 years of history and Jimmy Choo with about 29 years of history and to refocus our initiatives on growing those 2 wonderful brands.

Wonderful. So you maybe already answered my next question, but given the sale of Versace, how should we think about your portfolio optimization in your other brands going forward, particularly Jimmy Choo? Is it core? Should we think about it kind of going forward? Or would that also be something else that you might consider optimizing or selling at some point?

Yes. So Jimmy Choo is -- we publicly said it's not for sale. We think it's a great opportunity for us today. It's about a $600 million business. We feel very confident that we'll be able to grow that to approximately $800 million over the next few years. And in addition to that, the business has historically had low to mid-double-digit earnings -- operating earnings. So we think that, that is a very strong positive for us in terms of the overall operating profit for the company. And it is core to us in the sense that it is footwear, which we have a very big footwear business in the company. We own 50% of our own footwear production. Over the years that we've owned the company, we actually bought 2 factories to make sure that we have the capacity to fill our own needs.

And secondly, we have a growing handbag business, accessories business, and we've seen some very, very strong momentum in that business. And we think that will be one of the cornerstones to growth but also to operating margin expansion for Jimmy Choo. So it's a great brand. We think we can do lots with it. And hopefully, you have a lot of it in your closet.

I have a lot of everything. So 2 iconic brands, Michael Kors, Jimmy Choo. Maybe walk us through what some of the key strategic initiatives are right now to really drive growth going forward at each of them.

Sure. So Michael Kors, we've obviously had some difficult years the last few years, some of that more recently, where the company looked at a complete transformation of the Michael Kors brand. And that was a mistake that really went off the core values or the core identity DNA that Michael Kors has. Most people recognize the brand for our Jet Set image. And that is something that we are really reengaging deeply with the consumer around, but in a modern way.

The brand used to be very focused on airplanes and cars and boats and people moving around the world that way. And we've really recentered that around something that we call hotel stories, which is, I think, more modern in the sense of what people have an aspirational dream for is to travel and go away and enjoy time for yourself or your family or just relaxation. And we know that, that doesn't mean that you are flying off to Capri or Central Pay or to Aspen. That might mean going from uptown to downtown for dinner.

But we want to be the brand that you think of when you're trying to really think about your style, and we call that standout style. And Michael Kors has always had that. When you put on Michael Kors, you feel really good about yourself and you feel that you're expressing yourself in a way and hopefully, you're the fashion person in the room, but in a very kind of sophisticated positioning. So we've modernized our marketing strategy, which is still based around Jet Set, but traveling the world and style, and it's about standout style.

The second thing that we've done is we've really looked at our marketing differently. We had not engaged in the same way that we are today with influencers. And that's become a very, very big part of our marketing initiative and very successful. We have hundreds of influencers now engaging with the brand. And that's -- it's doing 2 things. Number one is bringing new customers into the brand, but it's also reengaging with existing customers who might have bought from us 3 or 4 and 5 years ago, who are now seeing the brand through a different lens and are excited about that.

So the marketing is working for us in terms of how we're marketing. Obviously, we're using a lot more social media than we had been in the past. And so that was the kind of the second leg of our strategic initiatives to reignite the Michael Kors brand. The third piece was an interesting piece in that over the 2 years or so that we were working on this other transformation, we saw our discounting rise. And while you might have thought we were doing that just because we wanted to get more business, that's actually not what happened. What happened was the product wasn't selling.

And it wasn't selling because there were a lot of initiatives around taking our signature products out of the line and going again in a direction that wasn't necessarily part of our DNA. And so at that same point in time, we had raised prices over a 3-year period of time. And we saw we were discounting was to get back to the pricing where we were originally some 3 years beforehand. So as a part of that analysis, we decided to reset our strategic pricing architecture. And we did that in accessories and footwear and very significantly in ready-to-wear.

And that has had a profound improvement in our business. And our full price sell-throughs are up dramatically. I think you also may recall that in our last earnings release and call, we said that our full-price business turned positive. We haven't comped positive in years in our full-price business. And we see that from the consumer engaging with our new marketing, the consumer engaging with our new strategic price initiatives, seeing that product through a different lens. And then lastly, us getting back to more of what Michael Kors stood for in the product which is much more of a modern glamor.

And then the last piece of our strategic initiative in the Michael Kors business is store renovations. And as I started out by saying, the Versace transaction really cleans the balance sheet for the company. We have very good free cash flow to begin with, but we'll be able to very comfortably renovate over 50% of our store fleet worldwide over the next 3 years. We're going to go faster if we can. And hopefully, if any of you have the time, please stop in and see our store at Rockefeller Center that's been recently renovated and doing phenomenal. And we have only a handful of these renovations that are open currently, but they're seeing a very, very strong traffic increase and even stronger revenue increases inside of the new renovated stores.

So we think those components will be very strong for resetting the brand, reengaging with customers and taking the brand back to a growth trajectory, which we plan on seeing next year. Do you want me to jump on to Jimmy Choo or?

I was going to ask more about the store renovations because it sounds like there's a lot going on there and especially at Michael Kors, it's always been a great way to kind of highlight that jet setting and fashion forward imaging. And so I guess with some of the renovations that you're doing, maybe just tell us a little bit more about that. What can we expect to see in the store visually and from a merchandising perspective? And then similarly, on Jimmy Choo, if there's anything from a fleet perspective to really to watch out for?

Sure. So in Michael Kors, we closed around 125 stores over the past 3 years. We have a few more to go this year. And so the majority of our fleet optimization program will be completed and it will be down to approximately 700 stores worldwide. And what is actually going to happen is we're going to start to open stores again. And as we see the renovations work, the new product work, the pricing architecture work, there's a big gap between where we were and where we are today and where we could be. So just look out for that. We will be opening stores very selectively, but over the next few years.

And the store environment is much warmer. It's -- the original store designs were very white and shiny and very, very of the period. And the new stores are much more residential, have a much warmer feel. And interestingly enough, we've added a new component. Again, I hope you get up to see our store in Rockefeller Center. We opened our first Jet Set lounge. And so we're offering coffee and Macha and nonalcoholic champagne and other wonderful little small bites and it's really increasing dwell time. And so we've opened another one in London recently. And we have about 10 of them rolling out throughout the stores. You'll also see some pop-ups going around with our Jet Set lounges.

So that's one of the first interesting changes that we've made inside the store. The second is we've really increased some of our ready-to-wear space in the stores, and it's driving enormous engagement with the customer. We have an advantage over certain of our other competitors in that we have a very strong ready-to-wear presence and history. Michael, as you know, is a runway -- true runway designer and started his business doing that. And so we think that, that's an advantage for us that we're going to continue to lean into. There's also consumers enter the store more often to buy ready-to-wear than they do handbags and shoes. So we think that's another positive for us.

And so that's -- we're feeling very good about that. We'll also be renovating our outlet stores as well. Our first one opened at Jersey Gardens recently. And so again, if you get a chance to go out and see that, that's seeing similar type of returns for us. So the goal one day is to renovate the entire fleet, but we'll start with this first 350 stores. Jimmy Choo is in very good shape. We've spent a lot of time and money over the past few years. And again, if you get a chance while you're here in New York, please visit our store on Madison Avenue. It's newly renovated about and relocated about 2 years ago and doing phenomenal for us.

But I'd say 85% of the fleet has been either touched or renovated. And so there's not much need to spend a lot of capital on the Jimmy Choo fleet today.

Understood. So you talked a lot about the strategic initiatives that you have underway at both brands. Maybe tell us a little bit about some of the KPIs that you're looking to, to kind of measure the success and follow and track your progress along the way.

Sure. So obviously, number one is traffic in stores. And I think we reported again in our last call that we've seen sequential improvement in traffic in our stores, which is #1 key indicator for us. Number two is always going to be AUR and looking at how the value transaction actually, our AURs rose in our outlet channel, went down in our full-price channel, but that was planned because we lowered our prices in our full-price channel. Full price sell-throughs went up. So we're looking at that database, which even through our ups and downs, we've been growing the database about high single digits per year, last quarter was 9%.

We've got over 90 million people in our database. It's a huge pool to pond to fish in as well as garner additional people to the brand. So we think that's a very good indicator that we continue to have people come to the brand and shop with the brand. And the other -- over the last couple of years, we've replatformed our e-commerce and all of our data analytics inside the company. And we're much closer to the customer and what the customer is saying to us about the brand. So through our consumer research, we're seeing that our marketing, in particular, with Suki Waterhouse, who's our -- the face of Michael Kors is really creating a lot of engagement with new consumers, younger consumers to the brand.

And so -- and we see the campaigns building in terms of their engagement. So we're tracking everything very carefully. And we -- as I said, we have a lot more capabilities of being able to understand what the customer is saying to us than we did just a few years ago.

As we think about the sales outlook, a lot going on, strategic initiatives, but then there's also just the macro and the category itself. I guess taking all that together, when do you think or when -- from a time line perspective, sales could start to inflect into a more positive trajectory?

Yes. We think that we will turn positive our next fiscal year, which begins April 1. We will really start to lap some of the things that we have been doing around August of next year. So I think that would be a much better inflection point for the company. We'll probably be flattish or so in the first 2 quarters of the year for us. And then by Q3 of our fiscal, we should be in a really good position to see a very nice inflection in the Michael Kors business. And as well as Jimmy Choo. Jimmy Choo is, as I said, we're very pleased with what's happening with our accessories.

We're seeing some strong, strong performance on some of the price point work that we've done there, strategic architecture on pricing in the $1,000 to $1,500 accessories business as well as we're really leaning in from a marketing standpoint into more of the casual footwear. So that should also help us turn positive with Jimmy Choo in our next fiscal year.

Great. So you talked a lot about the demand side. Maybe a little bit more on profitability. You've outlined some margin targets or long-term goals for both of the brands. Maybe talk us through just the key levers and puts and takes as we think about margin outlook for both brands.

Let me turn that over to Raj.

Yes. We still feel very confident about the previously stated margin targets that we said longer term at Investor Day. For Michael Kors, the low 20% operating margin target is achievable in the future. And we're going to do that through a couple of ways through both gross margin expansion and operating expense leverage. In terms of gross margin expansion, we will continue to deliver on our strategic initiatives, and that's really around driving higher full price sell-throughs related to better product and really our marketing initiatives to help drive that.

In addition to the quality of our sales, we are reducing the sales into our daigou business as well as the off-price channel, and they both have lower margin businesses. And as we reduce that, that will help our overall gross profit margins. The second piece of this will be our tariff mitigation efforts. We are continuing to work with our sourcing partners on costing efficiencies. We've already started to do that earlier this year, and we've made progress. We're going to continue to do that as we go next year and into the future because we have to mitigate the tariff impacts here. And then the other piece of this is taking targeted price increases.

We have to take targeted price increases across our product categories to help offset some of the tariff impact that we're seeing. And then as we look out a bit longer term, we have to look at our regional mix. we have to get Asia back to growth, and we will do that in the future. As we improve Asia and get it back to growth, our Asia business has higher gross margins, and that will naturally improve our overall gross margins as we go into the future. The second component will be operating expenses. We have to -- we will leverage our operating expenses as revenues return to growth. We continue to diligently manage our SG&A. I'm always looking for cost reductions whenever we can.

So as we look to next year, just the slightest bit in revenue increases, we're looking to hold SG&A approximately flattish as we look to next year. So if we do that and grow revenues, we will leverage our SG&A. And then as we look into the future, revenues will grow at a higher rate than SG&A. So that will continue to leverage as a percentage of sales. So all those factors combined, we're very confident that we can get Michael Kors back to a low 20% operating margin. And then turning to Jimmy Choo. We believe we can achieve the low double-digit operating margins in the future here.

Here, it's really about being confident that as the business grows, operating margins will expand. It's -- for Jimmy Choo, it's a little bit of a different story. it's more about the expense leverage here. We have to get revenues -- once revenues grow, expenses will leverage. The key -- the primary driver of this will be the revenue is growing and we have to improve the store productivity in these stores. Once we do that, the operating margins will naturally just improve. We're going to look at costs where we can to reduce where we can here, but it's really going to come down to productivity levels in these stores to improve.

And the last component related to the gross margins is getting our accessories business to approximately 30% of the overall penetration of the business. Our accessories business is a no-size business. So it has higher margins overall. So as we get this business at a minimum to 30% of the overall, it will drive the gross margins higher as well as the operating margins impacting the bottom line. So I think all these factors across both brands, we are extremely confident that Michael Kors will get back to a low 20% operating margin and Jimmy Choo will be at a low double-digit margin in the future.

Okay. That's super helpful. I want to get a chance to -- and then I'll return to some more questions, but at least ask the 3 that we've been asking all companies to attend the conference. So I'm going to get to those now, if that's all right. The first one is really on demand and recent trends. As you look over the next 12 months, do you expect consumer demand to accelerate, remain stable or decelerate?

We -- I think you have to kind of look across the globe to answer that question. Starting with North America, the consumer is relatively healthy. And I know that at the lower income levels, there's a lot of stress going on. And I think that it's not that we certainly have customers at all different income levels. But I'd say we're operating more at the middle and higher income levels. So I think there's less stress on that consumer today. That being said, they're choiceful. Everyone -- I don't care whether you're the richest person, everyone is thinking just a little bit more about how they're making their purchases.

And so I think one of the things we're excited about with our strategic pricing initiatives at both Michael Kors and Jimmy Choo is we're leaning into some white space that some of our competitors are creating for us. So -- and we're seeing consumers respond to that. And we're seeing, in particular, younger consumers respond to that. The younger the consumer is, the more price conscious they are, even at various income levels. So I think North America, we're feeling things are okay, and it's going to be okay next year. And so we're not looking for any big change in the consumer going forward here.

Europe, interestingly enough for us, the market has been very strong over the past year, 1.5 years and where there aren't the same kind of stimuluses going on with things that the government is doing to make the situation better. In many cases, the governments are making the situation worse. But the consumer seems to be leaning into our brand. I'd say we're a tiny bit more cautious in Europe. Hopefully, some energy prices come down there and people get some relief. In China, we think things are improving, and we think the consumer will start to rebound. We can see things are not necessarily positive yet, but they're leveling off. Certain brands obviously have turned positive there. But there's -- it's starting to get better.

And Japan is still a big market, and that market is still quite strong. So I think overall for us next year, we're not seeing that there's going to be some big macro economic weight. Now what happens geopolitically, that is something we can't obviously predict.

Okay. Okay. No, that's helpful. And I guess a similar question on margins, and you were talking more detail on margins earlier. But again, we're asking all companies at the conference the same kind of polling question of when you look out the next 12 months, are you expecting more tailwinds, a balance of tailwinds and headwinds or more headwinds to margins as we go forward?

I'd say it's a balance. I mean we're going to -- it changes every time. We're hoping -- we thought we were in a good spot before the tariffs came about in the beginning of this year. So we have to take it, I think, a quarter at a time as to see how -- what the macroeconomic environment looks like as we got into -- we take it in stages. But we're feeling good about the strategies, the executions that we have in place and that we're setting ourselves up for next year to really return to growth. So we're feeling good about that, and we're going to continue to deliver and execute on the strategies we have in place.

I think I'd add to that, that we do think we will have margin expansion next year. I think most companies are doing the same thing. You can't offset all the tariffs that are happening in the United States. It's not going to be possible. So as we take strategic price increases, those will be global. So we'll offset some of what's happening in North America with a more global approach to that. We're going to be very careful because we're in the early stages of a turnaround. So we don't want to all of a sudden now tell the customer something else is happening.

And I think our view is that we don't need tremendous sales growth low single digits, mid-single digits. And then if we can hold our operating -- our SG&A roughly flattish, that's just going to lever for us. And so that could be some very nice earnings per share growth for the company. So while all this other stuff is happening with the tariffs and price increases, we're going to look at it just slightly differently because we're more focused on how do we grow EPS in the company, how do we return the company to top line revenue growth. And we can -- we're getting close to feeling that we're -- there's enough things happening that we think that, that -- those components are going to come to work for us.

That's great. And so as you were looking into next year, sales start to inflect positive, potentially see some operating margin expansion. How should we think about capital allocation and maybe reinvesting back in the business or to shareholders and also specifically spend on technology, which is a big topic for everyone right now. How are you thinking about shifting your CapEx spending across tech investments, AI stores, et cetera?

I'll take the tech, you take the rest of it. Let's start with the general.

Sure. I mean in terms of our general, we are going to continue to invest in our stores, our digital and IT back-office functions. We mentioned $350 renovation program. So that is one of the priorities that we have. The second is paying down debt. which I will -- I'm waiting for a text, hopefully shortly, that we have paid down a large amount of debt, thanks to the $1.4 billion that we've received. So that will put us in a very strong position in terms of our balance sheet, investing -- we would have done the investments within the company regardless, but it just makes us a little bit able to do a lot of different things as we look forward.

And the third piece is returning shareholder value. We just got approved a $1 billion share repurchase program, which is great from the Board. There's a lot of confidence behind the company and the future, and we will begin to do that in FY '27.

Okay. Great. You guys -- go ahead.

No, just on the tech front, I just wanted to say that I think we're all going through a learning curve. I'm sure you're doing it at your company as well. And I'd say that we have a lot of partners, whether it's Microsoft or Salesforce or Workday. And so they're bringing a lot of technology to us. And we're parsing through that as to where the best places for us to invest are and how we're going to get the best return for the company. So we're definitely partaking in different new platforms and new technology as fast as we can. But we also want to be a little careful because things are starting to move around a little bit. And once you go down a path, it's a pretty big commitment.

And so I think we're comfortable that we're making the right investments, but we're not going to go out and overstep that right at this moment. We'll probably have a better picture on that towards the tail end of next year.

Makes sense. You've talked a bit about the overall -- the health of the consumer and what you're seeing in different pockets in different regions. I guess maybe zooming out and on the category specifically, there's been a lot of kind of fits and starts or puts and takes on what we're seeing in luxury overall over the last couple of years. So what's your perception or take on just the health of the kind of the luxury market and the handbag market specifically right now, the state of the union?

Well, the luxury market has historically grown some 5% a year. I think last year was a step back for the market. And I think there was a couple of resets going on. Number one, there was an aspirational consumer who was stepping up to get into the luxury market. Some of that was being funneled by the stimulus checks in the United States, et cetera. And what happened simultaneously to that was prices started going up. And so all the luxury players, including ourselves, started raising prices. And then some 24 months ago, the consumer started to, number one, particularly the aspirational consumer started to say, I can't do it anymore. I need to kind of back off a little bit.

And so you saw that in the real top tier or the bigger luxury companies. And then you also saw something interesting happen. Some of the more accessible or opening price point luxury companies actually started to jump in and take market share because that accessible consumer said, I can't afford this, but I'm comfortable with some of these other brands being there. And I think that you're seeing a slow recovery of the luxury market, in particular, in North America because people in North America have gotten quite wealthy, particularly with the stock market over the last couple of years. And I think they see that interest rates might be coming down.

So I think that you're going to see a slow recovery for the luxury market. And the accessories market, in particular, has already seen -- there's starting to be a little bit of a turn again. The other thing that happens in our business is you need a trend to happen. And with soft bags happening now, that's a trend every company is now getting a part of, and so you need that in your closet. The same way sneakers were the trend and a lot of luxury companies made very big inroads with the accessible customer with sneakers. So -- and that trend slowed down a little bit. So it's -- we need those kind of big moments to happen in the business, and you can start to see some of them are coming.

Okay. Great. Very exciting. We can all support that by getting out and shopping at the conference today. Before we wrap, I just want to end with, is there anything that we didn't cover today or any key messages that you'd like to leave the audience with?

Sure. I think that Michael Kors is a 44-year brand. It obviously had a peak sales volume of about $4.6 billion, and we're down to approximately $3 billion today. We feel very strongly that we will be able to return the company to $4 billion over a period of time. We're not looking to do that overnight. We're looking to do that in a very sustainable way. But clearly, the consumer is engaging with us. And clearly, we have the authority to be a part of this luxury consumers closet.

Jimmy Choo, again, we think we've got a brand that's got 29 years of history and people love Jimmy Choo. And we have some opportunities, which is, as I said, in accessories and in more casual footwear. And we have some work to do there to get more into the customers zeitgeist around I can come to Jimmy Choo for something more than just a pump or a party shoe or a wedding shoe. And we're working hard at that. And I think that will be one of the unlocks for Jimmy Choo. And a business, again, that can get to $800 million and have low double-digit operating margins, if you look at what Michael Kors could be with low 20s Jimmy Choo was low double digits.

This will be a very profitable company again. And I think that it will happen in a relatively short period of time. What does that mean? That means somewhere in the next 3 to 5 years. And so I think you will see a company that's going to be very strong with the consumer and hopefully very strong with the financial community.

Wonderful. Super exciting. Thank you so much. I appreciate your time.

Thank you for hosting us.

Ladies and gentlemen, greetings, and welcome to Capri Holdings Limited Second Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jennifer Davis, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us on Capri Holdings Limited Second Quarter Fiscal '26 Conference Call. With me this morning are Chairman and Chief Executive Officer, John Idol; and interim Chief Financial Officer, Raj Mehta.

Before we begin, let me remind you that certain statements made on today's call may constitute forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those we expect. Those risks and uncertainties are described in today's press release and in the company's SEC filings, which are available on the company's website. Investors should not assume that statements made during this call will remain operative at a later time, and the company undertakes no obligation to update any information discussed on today's call.

Unless otherwise noted, all financial information on today's call will be presented on a non-GAAP basis. These non-GAAP measures exclude certain costs associated with impairment charges to pre-transformation costs, restructuring and other charges, store renovation program costs and transaction-related costs. To view the corresponding GAAP measures and related reconciliation, please review our latest earnings release posted to our website earlier today at capriholdings.com.

Additionally, the company has classified the results of operations and cash flows of its Versace business as discontinued operations. Unless otherwise noted, all information on today's call relates only to continuing operations.

Now I would like to turn the call over to Mr. John Idol, Chairman and Chief Executive Officer. John?

Thank you, Jennifer, and good morning, everyone. With the Versace sale expected to close in our fiscal third quarter, we are now fully focused on the growth of our 2 iconic brands, Michael Kors and Jimmy Choo. We plan to use the proceeds of the sale to repay the majority of our debt substantially strengthening our balance sheet and providing greater financial flexibility to both invest in growth as well as return capital to our shareholders in the future.

As we stated in our press release earlier today, given our planned reduction in debt levels and the signs of stabilization across our business. Our Board of Directors has authorized a new $1 billion share repurchase program, which the company expects to begin implementing in fiscal '27. Now turning to our fashion luxury houses. We continue to advance our strategic initiatives across Michael Kors and Jimmy Choo to unlock their full potential. We are encouraged by the early signs of recovery at our fashion luxury houses and remain optimistic about the direction of the business.

However, we recognize that it will take more time for the full effect to be reflected in our results. Despite the dynamic global macro and economic environment, we are on track to stabilize our business this year while establishing a solid foundation for a return to growth in fiscal '27. Now turning to second quarter results. We are encouraged with the continued sequential improvement in trends, which resulted in revenue, gross margin and operating income exceeding our expectations.

However, our results were negatively impacted by $0.20 per share versus our original guidance due to a higher-than-anticipated effective tax rate related to our valuation allowance position. Looking at results in more detail. Total company revenue decreased 2.5% versus last year to $856 million on a reported basis. At Michael Kors, second quarter revenue decreased 2% on a reported basis compared to prior year. In our own retail can year-over-year trends were consistent with the first quarter, while wholesale trends improved sequentially, turning positive primarily due to shipment timing.

In our retail channel, we continue to see signs of momentum with a sequential improvement in trends in our full-price channel across all regions. In fact, comps in our full-price channel turned positive in the second quarter, demonstrating that our strategies are beginning to take hold. Consumers are responding to our modern jet-set lifestyle marketing standout styles and updated pricing architecture.

In the outlet channel, revenue was impacted by our strategy to improve our quality of sales. through reduced promotional activity. Additionally, the outlet channel assortment continues to reflect the previous product strategies, which emphasize core and basic styles. More modern on-trend styles will be introduced in our third quarter with a more substantial update planned for the fourth quarter. Now looking at total Michael Kors retail sales by region. In the Americas, revenue was negatively impacted by our quality of sales initiative, in our outlet channel, which we believe is an important step to strengthen brand health and increase AURs over time.

In Europe, trends remain strong. with year-over-year increases consistent with the first quarter. In Asia, trends were also similar to the first quarter, though we saw a modest sequential improvement in China. Now looking at wholesale. Revenue at point of sale, while still negative, saw a meaningful sequential improvement in trends.

Turning to brand awareness and consumer engagement. We continue to reinforce Michael Kors modern jet-set lifestyle positioning with our brand vision of traveling the world in style. Through our hotel stories franchise, we are bringing the joy of travel and the discovery of new destinations to our consumers each season. For fall, we traveled to Rome with English, actress and singer Suki Waterhouse or Logan Lerman; and our new global brand ambassador, Chinese actor and singer, JC-T.

The campaign highlights falls must have looks including new interpretations of our iconic Lalita, Laila and Hamilton groups set against the timeless background drop of Rome's historical landmarks. During the second quarter, we amplified our storytelling through local activation and immersive experiences. We also continued to enhance our social media strategy by broadening our presence across a wider range of platforms and deepening partnerships with influencers.

This is enabling us to connect with consumers through authentic relevant voices in fashion and is reigniting brand desirability. According to our consumer insights, we have continued to see a further increase in brand affinity. Additionally, Michael Kors iconic runway shows cast a powerful halo over the brand, reinforcing our leadership in fashion luxury. The spring/summer 2026 runway show in September drew a notable audience of celebrities and a powerful network of global infilters. Supported by a strong social media amplification, Michael Kors generated 5.5 billion impressions globally and was the second most engaged fashion brand during New York Fashion Week.

These activities contributed to a 9% year-over-year increase in Michael Kors global consumer database. With our advanced data analytics capabilities, we are leveraging the strength of our extensive consumer database, which now exceeds $90 million to create deeper or personal connections with consumers. Now turning to product. Guided by Michael's creative vision and enhanced by data analytics, we are delivering exciting on-trend fashion with standout style. Additionally, we have refined our pricing architecture to better align with historical levels and are seeing encouraging results from this strategy.

In accessories, Consumers continue to respond positively to new introductions that celebrate our iconic brand codes and aligned with our new strategic pricing architecture. For fall 2025, we introduced new accessories groups, including the Hamilton Modern, a reinterpretation of the brand's iconic 2009 it bag along with exciting updates to our successful Laila and [indiscernible] styles. These groups are experiencing strong full price sell-throughs driving growth in accessories in the full-price channel.

In footwear, trends improved sequentially in our full-price channel. We saw strong performance in new fashion boots, while casual footwear gained momentum. Consumers responded positively to new sneaker styles that represent modern trend-right evolutions of proven historical bestsellers as we blend timeless appeal with modern style. Looking at ready-to-wear. Revenue and our own retail channel increased driven by the strong consumer response to seasonal styles that captured Michael's effortless glamor.

The fall assortment, balance trend right designs and tiles wardrobes with dresses and outerwear performing exceptionally well. Turning to me. Revenue in our own retail channel was approximately flat. Men's Sportswear styles performed well as we continue to focus on timeless essentials with a modern edge. Next, I'd like to review our store renovation plan, where we are redefining our luxury retail experience with a warm residential design. Our stores remain a cornerstone of our brand and a key driver of our sales recovery, playing a pivotal role in enhancing the client experience and revitalizing growth.

Over the next 3 years, we plan to renovate approximately 50% of our store fleet and key departure store locations as part of our ongoing investment in brand elevation and retail excellence. We recently reopened our London and New York flagship locations. Michael Kors signature jet-set lifestyle is evident throughout these stores. transporting consumers to the feature destination of the season and further enhancing the immersive shopping experience.

At the heart, of our New York flagship store is our new Jet Set lounge, the brand's first in-store cafe. A lounge embodies a new dimension of the brand's lifestyle experience and is the first of a planned rollout to flagship stores around the world, including Paris, Beijing, Tokyo and Las Vegas.

We believe that our store renovation plan will further strengthen the brand's desirability and drive higher sales productivity. Early results are encouraging with locations showing significant increases in traffic and sales versus last year. We look forward to sharing our progress and results with you in the future. Looking ahead, Michael Kors is a powerful fashion luxury brand with a 44-year heritage that continues to resonate with consumers.

We are building on this foundation by delivering exciting on-trend fashion with standout style combined with advanced data analytics and consumer insights, we believe we have the right strategies underway to return the brand to growth. Now moving to Jimmy Choo. Second quarter revenue decreased 6% and on a reported basis compared to prior year. Retail sales improved sequentially, declining low single digits.

Wholesale revenue declined mid-teens due to shipment timing that negatively impacted the second quarter. Looking at trends in our own retail channel. While still negative, second quarter improved sequentially and driven by comp growth in our full-price channel. We saw a sequential improvement in Jimmy Choo revenue year-over-year across all regions. In the wholesale channel, revenue at point of sale, once again improved sequentially, increasing low single digits in North American department stores. Turning to brand awareness and consumer engagement.

Our storytelling continued to highlight the playful daring spirit of the house, combined with a relaxed modern sense of glamor. For autumn, we welcome back Sydney Sweeney, who embodies the modern glamor that defines Jimmy Choo. She perfectly encapsulated the brand's playful daring Spirit while showcasing new fall fashion styles, including our newest bar hobo handbag and Tyler [indiscernible] . In Asia Pacific, brand ambassador, [indiscernible] unveiled the bar [indiscernible] , further amplifying its launch across the region.

We also continue to extend our reach and deepen consumer engagement through localized immersive brand experiences. These were amplified with high-impact influencer partnerships that authentically express our modern glamor and daring spirit. These initiatives helped expand our reach, enhanced by our data analytics capabilities, these efforts contributed to a 9% year-over-year increase in Jimmy Choo's global consumer database. Turning to product. Jimmy Choo's product strategy remains focused on further developing accessories and expanding our casual footwear offering.

In accessories, revenue increased in our full-price channel, driven by the continued strength of the Bonbon and Sinch groups, our recently introduced Curve Group launched last quarter also continued to perform well with prices designed to appeal to a broader segment of luxury consumers. Additionally, during the second quarter, we introduced the Bar Hobo Group, which also features price points under $1,500. While still early, we are encouraged by the strong initial consumer response to the modern you have timeless styles and the new strategic pricing architecture.

Over time, we expect this initiative to drive significant growth in our accessories business. Turning to footwear. Our autumn collection has performed well with versatile styling using timeless silhouettes, with cultural forms and ocular textures, E-styles, including our iconic Drop Heel families, Scarlet and Ixia performed exceptionally well underscoring our ability to deliver both innovation and timeless design. Jimmy Choo's strategy to expand day and casual footwear continued to gain traction in the second quarter with an increase in full price sales. Flats and low heels grew in our full-price channel, driven by the strong response to new styles, including our Scarlet [indiscernible] and Jelly Ballerina [indiscernible] . Diamond Flex sneaker also continued to perform well.

We see significant opportunity to further scale casual footwear not only to deepen engagement with existing consumers, but also to attract new clients. Looking forward, we believe we are on the right path to unlock Jimmy Choo's unique potential to expand its position within the world of fashion luxury. In conclusion, we are pleased to see early indications that our strategic initiatives are beginning to work. Looking ahead, we continue to expect retail trends to improve in the back half of fiscal '26, positioning us to return to growth in fiscal '27. Long term, we remain optimistic about the sustainable growth potential of both Michael Kors and Jimmy Choo.

Now Raj will review our second quarter results and guidance in more detail.

Thank you, John, and good morning, everyone. Before we begin, I would like to remind you that today's financial results exclude Versace, which was reclassified as a discontinued operation. My discussion today will reflect results from continuing operations, and our financial statements have been adjusted for prior periods to exclude Versace. Now looking at our second quarter results.

Revenue, gross margin and operating income exceeded our expectations, driven by better-than-anticipated performance at Michael Kors as our strategic initiatives begin to take hold as well as a wholesale timing shift. However, a higher-than-anticipated effective tax rate versus our original guidance due to our valuation allowance position impacted net income by $24 million and earnings per share by $0.20.

Turning to our second quarter results in more detail. total company revenue of $856 million decreased 2.5% versus prior year on a reported basis and 4.2% in constant currency, representing a sequential year-over-year improvement relative to the first quarter. Looking at revenue by channel. Total company retail sales declined mid-single digits, in the wholesale channel, revenue increased high single digits, primarily due to shipment timing.

Turning to revenue performance by geography. In the Americas, revenue decreased 7% revenue in EMEA increased 1% and revenue in Asia increased 12%. Looking at revenue performance by brand. At Michael Kors, revenue decreased 1.8% compared to prior year on a reported basis and 3.3% in constant currency. Global retail sales declined at a similar rate to the first quarter. Similar to prior quarters, store closures negatively impacted retail sales in this low single-digit range.

Wholesale sales increased low double digits due primarily to shipment timing. By geography, sales in the Americas decreased 7%. Revenue in EMEA increased 4% and revenue in Asia increased 25% due to higher wholesale shipments. At Jimmy Choo, revenue decreased 6.4% compared to prior year on a reported basis and 9.3% in constant currency. Global retail sales trends improved sequentially, declining low single digits. Wholesale revenue decreased mid-teens negatively impacted by the timing of shipments out of the second quarter and into the third quarter.

By geography, total Jimmy Choo revenue in the Americas decreased 3% and Revenue in EMEA declined 6% and revenue in Asia decreased 12%. Now looking at total company margin performance. gross margin of 61% declined 130 basis points. Higher tariff rates negatively impacted gross margin by approximately 120 basis points. By brand, Michael Kors gross margin of 59.3% compared to 61.1% last year. The decline versus prior year was predominantly driven by the impact of tariffs. Assuming true gross margin of 70.2% compared to 68.6% last year. The increase versus prior year was primarily driven by channel mix and higher full-price sell-throughs.

Operating expense decreased $8 million the decline versus prior year was primarily attributable to our cost reduction program. As a percentage of revenue, operating expense was 58.6% compared to 58.1% last year, primarily reflecting expense deleverage on lower revenue. Total company operating margin was 2.3% compared to 4.2% last year. By brand, Michael Kors operating margin of 10.1% compared to 11.8% last year and Jimmy Choo operating margin of negative 6.9% compared to negative 3.6% last year.

Our tax rate for the quarter was 112%. As a result of being an evaluation allowance position, we are revising our global tax structure. The implementation of this change took longer than anticipated, resulting in a higher-than-expected tax rate during the second quarter. Importantly, we continue to forecast a full year tax rate in the mid-teens range. Now turning to our balance sheet. Looking at inventory. At quarter end, inventory totaled $766 million, a 2.8% decline versus prior year.

Looking ahead, we continue to expect year-end inventory levels to be up slightly, primarily due to higher tariff rates and foreign currency exchange rates. We ended the quarter with cash of $120 million and debt of $1.8 billion, resulting in net debt of approximately $1.6 billion. Now turning to guidance. We are reiterating our prior full year guidance of revenue between $3.375 billion and $3.45 billion, with Michael Kors revenue between $2.8 million and $2.875 billion and Jimmy Choo revenue between $565 million and $575 million.

We continue to anticipate full year gross margin of approximately 60.5% to 61%. Excluding the impact of tariffs, full year gross margins would have expanded driven by the benefits of our strategic initiatives. We expect year-over-year gross margin declines to moderate through the remainder of the year, reflecting continued traction from our strategic initiatives, ongoing sourcing cost efficiencies and targeted price increases.

We continue to expect full year operating expense of approximately $2 billion, and operating income of approximately $100 million, with Michael Kors operating margin in the high single-digit range and Jimmy Choo operating margin in the negative mid-single-digit range. In terms of nonoperating items, we anticipate full year net interest income between $85 million and $95 million, an effective tax rate in the mid-teens range and weighted average shares outstanding of approximately $120 million, resulting in diluted earnings per share between $1.20 and $1.40.

Turning to capital allocation. Our priorities remain the same. Our first priority is to invest in our brands to ensure renovations technology and digital enhancements as well as other brand-building initiatives. As previously stated, we plan to invest approximately $350 million over the next 3 years to execute our store renovation plan. Our second priority is to strengthen our balance sheet. Upon the anticipated completion of the Versace sale, we plan to use the proceeds to significantly reduce debt. And our third priority is to return cash to shareholders via a share repurchase program in the future.

Given the encouraging signs of stabilization across our business and our planned reduction in debt levels, our Board of Directors has authorized a new $1 billion share repurchase program which the company expects to begin implementing in fiscal '27. Now turning to third quarter guidance. We expect total company revenue to be between $975 million and $1 billion with Michael Kors revenue between $825 million and $845 million impacted by an approximate $20 million shift in wholesale shipments out of the third quarter and into the second quarter.

And Jimmy Choo revenue between $150 million and $155 million. Looking at gross margin, we expect the third quarter gross margin rate to decline approximately 200 to 250 basis points versus 63.2% last year. impacted by greater tariff headwinds. In terms of operating margin, we expect third quarter operating margin to be approximately 7% to 8%. By brand, we anticipate Michael Kors operating margin in the low teens range and Jimmy Choo operating margin in the negative low to mid-single-digit range.

Turning to our expectations around certain nonoperating items. We anticipate third quarter net interest income of approximately $20 million. We forecast an effective tax rate in the low to mid-single-digit range in the third quarter due to the expected shifts in the geographic mix of earnings and the related valuation allowance impacts. We anticipate weighted average shares outstanding of approximately $120 million. As a result, we expect to generate diluted earnings per share of approximately $0.70 to $0.80.

In closing, we are encouraged by the early signs that our strategic initiatives are working. We anticipate retail trends will improve in the back half of fiscal 2026 and as our strategic initiatives gain traction. Looking ahead to fiscal '27, we expect to return to revenue and earnings growth we anticipate gross margin expansion as we mitigate the majority of the impact from higher tariffs, and we continue to benefit from our strategic initiatives.

Additionally, we anticipate operating expense leverage on higher revenue as we diligently manage expenses, Longer term, we remain confident that Capri Holdings is well positioned to deliver sustainable growth while increasing shareholder value.

Now we will open up the line for questions.

[Operator Instructions] Our first question comes from the line of Matthew Boss with JPMorgan Chase.

So John, could you speak to global reception that you're seeing to the Michael Kors full-price retail repositioning elaborate on drivers of full-price channel comps turning positive in the second quarter? And then just any change in momentum in October or opportunity you see for the brand versus a year ago during holiday?

Number one, I think we are pleased with the fact that the business we're starting to see stabilization in the Michael Kors business. As you know, our full price comps turned positive during the quarter. And we believe that's a response the consumer response to our strategic initiatives. That starts first with our branding. And we think that the way the consumer is seeing the modern debt set marketing based around the traveling the world in styles and really we're doing that from a story telling point of view through our hotel stories delivered with a large group of influencers is really helping consumers engage with the brand and the storytelling of the brand.

So that's the first very positive sign. And as I said in my prepared remarks, we're seeing consumer sentiment really increased very nicely and brand awareness. The second area is our product. And as our real kind of focus is on standout style we want to make sure that when we're delivering product, it's first on trend. But secondly, Michael has a very, very strong point of view on style and styling. And as we've reinterpreted that for a more modern point of view, the consumer is really engaging with us on that.

And so again, we're very pleased. And as we've said in our previous calls, we've spent the majority of our initiatives around the full price initiatives in the company because we think that's where the consumer will first see us lean into us and we saw that really globally in terms of the increases in comp. And what was also very exciting for us really, when you said the drivers, the biggest driver was actually our accessories business, which turned positive during the quarter. And that's being driven from 3 iconic groups that we have today.

First, [indiscernible] , which we introduced in the spring of last year or this past year, sorry. Then we have [indiscernible] , which was actually introduced the tail end of last year. And we've brought modern interpretations to both of those. They're also arriving in the stores as we speak for the holiday season as well, fall and holiday and that we're really excited about our new Hamilton modern introduction, which is far exceeding our expectations to take on our original 2009 it bag and the consumer is giving us a very positive reception to all 3 of those very strong full price sell-throughs.

Some of those bags are actually not even included in our are 4x a year sale inside the full-price stores. We've removed those styles from that. And the sell-throughs are not being impacted. So customers responding to product. They're also responding to our strategic price architecture, which is really helping our full price sell-throughs across the group.

And what's also happening is we are seeing stronger engagement with millennials and Zs, both on dialing and on the strategic pricing architecture. We're seeing things like watches also start to really see sequential improvement inside the stores. Our ready-to-wear business is also very strong inside the stores. So when I look across the landscape and how the consumer is responding to the marketing initiatives, the storytelling, the product.

And then lastly, we talked about how while it's only a handful of stores, we've renovated so far, and I hope many of you on this call get a chance to see our New York flagship, which is located at Rockefeller Center or our London, a store on Regent Street. We've got some other stores around the world that are opening. I think the new store design really speaks to where the brand is going forward and how we're really communicating with the consumer.

And inside of that, we're really excited about our new jet set lounge. Again, it's very early days where you'll be able to have coffee and tea and select small bites of food but it's really increasing dwell time inside the stores. So we feel like we've got a very solid strategy in place in full price. And of course, we have a lot of work to do on the outlet side, but we wanted to really put all of our efforts behind the full price the outlet side of things really in Q3, we'll start to see some new product roll into the stores.

We'll actually start to see some of our at least 1 of our new store renovations take place during the quarter, and that's going to happen at Jersey Gardens, and we've got more coming behind that, a similar concept to our full price store and really more in our fourth quarter where the product will be more significantly impacted by some of the initiatives that we're putting in place.

So from a trend standpoint, we feel good about where we're going to be for the holiday season and product is flowing. Consumers are responding. The only, I would say, if those are all the puts the take would be that we are reducing our promotional activity, in particular in the outlet stores. We've had significant pullbacks as we talked about last quarter, we're doing more of that this quarter. That will have an impact. But we are focused on the quality of sale. We're focused on increasing AURs we saw sequential improvement in AURs in the outlet stores.

And so again, we have to go through this work to be able to put ourselves in a position to return to revenue and what we think will be some pretty positive operating income growth for next year as well. So again, we don't want to be overly confident, but we're feeling very positive about these last 2 quarters and most importantly, how the consumer is responding to us.

Our next question comes from Brooke Roach with Goldman Sachs.

John, I wanted to dive a little bit deeper into the outlet business as you reposition promotionality and product what's the profile of the consumer that's engaging with you in North America today? Are you seeing any signs of price sensitivity or stronger or weaker engagement in any particular income or age cohort as you execute the outlet repositioning and how should we be thinking about the time line and path to improvement for total North America given the green shoots that you're seeing in the full-price channel today?

Thank you, Brooke. I would first say that we anticipate a sequential improvement in our retail channel for both Michael Kors and Jimmy Choo in the back half of the year. As I said, in the full price, we're feeling very good about what we see happen. We feel the same way about Jimmy Choo a very nice performance in our full price in Jimmy Choo as well. And I think we're going to see the same type of sequential improvement.

In terms of the outlet well, let me answer let me first answer the other part of your question. There's no question that the Gen Z customer and consumer, in particular, is more price sensitive. And we've seen that. And actually, some of our strategic pricing architecture, we didn't really understand this in the beginning, but it's really leaning into and helping us get more Gen Z consumers.

They are more price sensitive than millennials and access and boomers. So we think that our strategy of making sure that we're at really focused strategic price points across all products, not just accessories but in footwear and ready-to-wear because remember, we significantly reduced our prices in ready-to-wear even much more than we did in our handbag business, and that's working really well for us. And in fact, our wholesale partners are starting to roll out our ready-to-wear again after we kind of repositioned the pricing without touching any of the quality or anything in the product.

So that's really working well for us. We are as I've said to you before, 2 things or 3 things are happening in the outlets. Number one, we are actually strategically raising prices in the outlet business. And that's both from actual price increases and from the reduction in our promotional activity. And so it's we have seen a rise in AUR. I think we're going to have some bumps as we go along with that because the consumer has got to become reeducated that Michael Kors is a brand that will sell at a slightly higher price than what they've seen today. And we're doing that for AUR purposes.

We're also doing that to offset some of the tariff implications. The second thing, as I've said, is we are going to be introducing a significant amount of new product into the outlet stores. That comes a little bit in Q3, a lot more in Q4 and then throughout fiscal '27. We have been too focused on core product inside of our outlet stores and consumers want fashion. It doesn't matter what channel they're shopping in, whether it's our e-commerce or full price or outlet channel, they want fashion. And we were not in a strong enough position that in our outlet so as I said, we really feel like that's going to be coming more in the back half of the year through next year.

And then lastly, we had a daigou business, which was a product that was being purchased in our outlet store shipped to multiple places around the world. sold predominantly on online channels, and we're really shrinking that business significantly. So over 60% of the decline that we're having in our outlet business is coming from that real shutdown of a business for us that we think will provide a much healthier company for the long term and actually improved AURs as well. So that's a long-winded way for me to say that really we won't see North America return to positive growth in our retail channel in Michael Kors until next year. And probably more in the second quarter of next year. And then we should be in a pretty good trajectory after that point in time. Thank you for that question, Brooke.

Our next question comes from Ike Boruchow with Wells Fargo.

Two for me. Just first on the tariffs. So I think you said 120 basis points headwind in the second quarter. Could you just let us know what's baked in on tariffs for both 3Q and 4Q? And then the follow-up is for John. Maybe just on the wholesale, up low double digits, but you mentioned there's a $20 million shift in there. Could you just comment roughly what's the growth rate for MK Wholesale ex the shift? I mean my math is flattish, but I'd love to get that clarified.

And then, John, how are you viewing that channel just organically at shifts in the 3Q and 4Q from a revenue standpoint?

Thanks, Mike. Our expectations around the tariff headwinds for the full year remain largely unchanged, we still expect the unmitigated tariff impact to be approximately $85 million for the full year. And as you said, in the second quarter, our gross margin was down 130 basis points and 120 basis points of that was related to the tariffs. We saw the tariff headwinds a little bit less than anticipated. And that's really due to the timing of sell-throughs of tariff impacted inventory. As we look at Q3, we're expecting gross margins to be down 200 to 250 basis points and there's a greater weight of inventory that has the full amount of tariffs.

So you're going to see a larger impact of that build in Q3 and then further into Q4. But more importantly, as we look forward, we expect to see continued benefits from our strategic initiatives and tariff mitigation efforts. So looking to fiscal '27, we anticipate to offset a majority of tariff impact. And that, coupled with our strategic initiatives around driving higher full-price sell-throughs and higher AURs will lead to gross margin expansion next year.

Wholesale offset shipment-wise, and I'll take the retail part of it.

Yes. So we did see in the second quarter there were $20 million of Michael Kors wholesale shipments that ended up going out in Q2 where we were forecasting them to go out in Q3. So that's really just a timing shift between the quarters. What we're really proud of and John spoke to earlier is the retail sequential improvement that we'll see into Q3 as well as Q4 coming out.

Yes. And I think I said in my prepared remarks that we actually saw quite a step change in the wholesale point of sale sales. We're starting to get that business turned around. So it's no longer double digits. It's single-digit decline. Again, we're not calling a victory at this point in time, but there's no question things are starting to get better.

We have our partners, as I said on the last call, are very excited about doing shop renovations with us. So that's we've got a pretty significant program rollout going on there. I've been out visiting with our teams to all of our major partners, and we'll conclude some more actually next week in Europe. And there's absolutely positive sentiment for our strategic initiatives and for the brand in general. And as you know, the I think there's been obviously a very, very significant move by many stores to the higher side of the luxury business.

That business has definitely seen a slowdown. And so the more entry levels of luxury where Michael Kors plays in particular, and some other competitors I think there's a very strong renewed interest in that category as customers are more choiceful. There's no question that they're looking at price value relationship and what's so interesting is in all 3 of our companies in Michael Kors and Jimmy Choo and Versace, all 3 of our full-price businesses are actually significantly better than they were a year and even 2 years ago.

And it's a bit more in the off-price channels where the customer is they're really being selective on pricing. So we think that we're seeing our wholesale partners look and want to lean into this strategy with ourselves and other people who are in this same category of more opening price point luxury. So I think for next year, I wouldn't say there's going to be an improvement in the wholesale revenues because, again, we're going to do some cleanup work around off-price where we are not only cleaning up our daigou business in the outlet business in the outlet channel, but we're also doing some pretty significant cleanup work around some other areas of off-price inside the company. And again, this all translates back to quality of sale. We're focused on that. We want to raise AURs, we want to raise full price sell-throughs.

And as Raj said, we're excited about the gross margin expansion we will finally get to next year after we kind of lapse where we are in the tariffs. Again, we're working with inventory that does not have tariffs on it, and we're working with inventories that has tariffs on it, we'll probably feel the hardest effect of those in fourth quarter and probably first quarter of next year.

And then we'll start to lap that. And our strategic initiatives will take hold. And I think you'll see some very positive results on that. One other thing just to note when you look at our gross margins today and as Raj pointed out, the majority of the impact came from tariffs. We also are without those tariffs, more or less holding our gross margins with, if you recall, lowering our prices in our full-price channel and clearing some other products, as we talked about in our prepared remarks, in the outlet channel. So I'm really happy about that because it shows you what our sell-throughs are starting to look like. They're looking good our inventories are really tight inside the company. So we're in a good position now to move forward on our retail channel and our [indiscernible] .

Our next question comes from Aneesha Sherman with Bernstein.

John, last quarter, you commented that in the full price channel, you've kind of stabilized the assortment in terms of price points and selection. Are you still seeing AUR increases in full price? Can you comment a little bit on volume versus AUR that's driving that positive full price comp? And then in the guidance for the back half of kind of minus high single digits for Michael Kors. What's embedded in that? You said earlier that about 2% of it is from the timing shift. For the remainder, are you assuming continued positive full price comps with the wholesale and outlet being negative? A little bit more color on that would be helpful.

Okay. I'll take the full price part. I think there might be a misunderstanding on the guidance on the back half, which Raj will walk you through. On the full-price AURs, they're actually down slightly. And again, remember, that's because we lowered our price points. So full price sell-throughs are up significantly, price points are down or AURs down slightly. We knew that would be the case given the fact that we took some fairly significant price adjustments in our strategic pricing architecture. I would also point out to you that when we end the year, our inventories, while they will be up slightly dollars, that's an impact of the foreign exchange rates and the tariffs. .

Our units are going to be down very significantly. So again, quality of sale, we feel super good about that and think that will continue on. I'll let Raj speak to you about the guidance.

Yes. And as far as the guidance in the back half of the year, I think we were referring to it sequentially improving, not turning positive. So I think we're pleased with what we're currently seeing in the business and the trends. And as John mentioned, it's going to take time to inflect to positive in the retail channel and be positive, and we won't see that until next year. in our overall retail channel. So we'll see sequential improvement continue into Q3 and Q4.

Sorry, just a clarification, Raj. My question was specifically on full price. So you're seeing positive comps in the full price business. Are you assuming continued positive comps in full price for the second half with wholesale and outlet than driving the total into negative territory?

Yes, that's correct. That's correct. .

Our next question comes from Rick Patel with Raymond James.

Congrats on the progress. Can you help us with your expectations for revenue by geography as we think about the back half? What's the right way to think about the progress being made in the Americas and EMEA and Asia did quite well in Q2 for Michael Kors [indiscernible] . What would you attribute that to? And how sustainable do you think that growth is?

Rick, so we kind of don't guide by geography on a go-forward basis. What I will comment to is the following. Number one, in on cores, Europe is clearly the best performing part of our business, and we anticipate that to continue. And again, Europe never had the kind of declines that we had in North America and it's interesting, even without store renovations, et cetera, the product and the consumer reception to the new product introductions has been very, very strong, very quickly.

And so we're super pleased with that. Also, the outlet business over there is actually relatively stable versus the North American outlet business. And we definitely are seeing let me break out Asia into 2 parts. Japan remains flattish, but still has been positive coming out of last year. And that's there's some currency issues going on there.

So we still feel very good about our business in Japan. China is definitely seeing an improvement. It's modest, moderate but we are seeing some very significant consumer engagement. Our storytelling is resonating. There is no question that the consumer is now our best-selling products in the United States and in Europe are now the best-selling products in Asia.

That wasn't always the case over the last couple of years. And some of that was self-inflicted. And so we're definitely feeling like we are going to get some momentum continued momentum in our business in China and in Southeast Asia. In Jimmy Choo, I would say that North America is very, very strong for us and getting stronger. And it's interesting in Jimmy Choo also our retail partners are really leaning into us, are the again, the higher some of the luxury competitors have raised prices very, very significantly.

And while we have raised prices as well, we represent an area where I think that our very core partners, not only in North America but around the world, want to protect and then our new handbag strategy is also off to a great start, both in our own retail stores and at the wholesale level. So North America for Jimmy Choo represents a very exciting opportunity for the company.

Europe has been stable and kind of growing. We've got some work to do in both Japan and in China. And that is more of an issue for us than I'd say the trend that we see happening in the regions.

Our next question comes from Bob Drbul with BTIG.

Just 2 questions for me. The first one, John, in terms of your team, what team do you need in place as you continue to move the company forward from where we are? I know that Roger is still interim? And I guess the second question is for Raj, which is, can you expand a bit on sort of the net interest income, our currency hedging as you look into the future and how the company is positioned from that. Sometimes those numbers are a little confusing to us.

We have a great team in place. We'll start out with at Michael Kors. We have a man called Michael Kors he's been here for 44 years. He's been here since the start, and he continues to be our kind of visionary for the brand. And I think the product that he and our design tech teams are putting out now is some of the best that I've ever been associated with the company.

So I'm really proud and happy with what's happening there. We've got strong teams around the world who are helping us implement our strategies. And then we've got great teams in place for everything from our worldwide logistics to our production to our finance teams. And yes, Raj is the interim CFO, but we've got great people who are here working with Raj and so I'm really proud and our teams are, I think, doing a great job.

And to also say to you, our previous situation was quite disruptive for the company when we went through an 18-plus month period of time where people were exactly clear about what was happening. And now they are and I think their resolute in getting our company back in a positive direction. And so we're excited about finishing up fiscal '26 on a well, will be down. I'll call that a positive note because we're going to stabilize this business. And really, we're looking forward to fiscal '27 when we think we're returning to revenue growth and some very strong operating income growth, which I think will be very important for our shareholders, but also important for our teams inside the company.

Thanks, Bob, so we continue to receive income from our net investment hedges, as you mentioned. And the hedge is really related to intercompany investments in our European subsidiaries. We pay out interest rates in euros, and we received interest payments in USD. So that's sort of the pickup that you're seeing. And then on the other side, when we receive the proceeds from the sale of Versace, we expect to substantially reduce our debt levels, which will result in lower interest expense, and we'll have minimal debt on our balance sheet. So you'll see a lot of the interest expense go away and really the interest income continue with our net investment hedges.

I'd like to thank everyone for joining us today, and we look forward to continued exciting news about Capri and how we are moving forward. And we thank you for your opportunity to spend time with us today and look forward to updating you more in the future. Thank you all.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.