Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Michael Kors Holdings Limited Third Quarter Fiscal 2014 Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. As a reminder, today's conference is being recorded. Now, I would like to turn the conference over to Ms. Christina Lack, Vice President and Treasurer. You may begin.

Good morning and thank you for joining us for our third quarter earnings call. Presenting on today's call are John Idol, Chairman and Chief Executive Officer; and Joe Parsons, Chief Financial and Chief Operating Officer. Before we begin, let me remind you that certain statements made on this call may constitute forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those that 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 the call will remain operative at a later time and the company undertakes no obligation to update any information discussed on the call. I will now turn the call over to Michael Kors' Chairman and Chief Executive Officer, Mr. John Idol.

Thank you, Christina. Good morning, and welcome to Michael Kors' third quarter fiscal 2014 earnings call. With me today is Joe Parsons, Chief Financial and Chief Operating Officer. I will begin with a brief overview of our third quarter performance and update you on the advances we have made and our strategic growth plans. Then I will turn it over to Joe for a detailed review of our third quarter financial results and an update on our outlook for the fourth quarter and full year. Our third quarter results were outstanding as our exceptional product offering created by Michael Kors and our designs teams, as well as our unique jet-set shopping experience made Michael Kors the go-to destination for the holiday season. Michael's fashion messaging with our customers was strong and well executed throughout the holidays. We communicated with our customers through e-mail, catalog, print, outdoor and social media, which effectively conveyed the glamour and luxury of our holiday offering, capturing the customers' attention and generating strong demand globally. During the quarter, a strong momentum continued across segments and geographies. Revenue grew 59% to $1 billion, marking our first quarter with revenue in excess of $1 billion. Gross margin expanded 100 basis points to 61%, income from operations grew 68% to $343 million and operating margin was nearly 34%. We continued to execute on our six key growth strategies in the third quarter. First, in North America, revenue grew 51% and comparable store sales increased 24%. Second, we continued to expand our retail footprint in North America opening 20 new stores. Third, we successfully converted 76 additional department store doors globally into branded shopping shops. Fourth, in Europe, we believe brand recognition further expanded and our luxury products resonated with the consumer. Revenues grew 144%, comparable store sales increased 73%…

Thank you, John. Good morning. I will begin with a review of our fiscal 2014 third-quarter financial results, followed by our outlook for the fourth quarter and the full year. During the third quarter, total revenue grew 59.0% to $1.0 billion as compared to $636.8 million in the third quarter of last year, with strong growth in each of our Retail, Wholesale and Licensing segments. Retail net sales increased 51.3% to $503.4 million as compared to $332.6 million in the third quarter last year, driven by a comp store increase of 27.8% and the opening of 98 new stores since the third quarter of last year. The comp store sales performance was driven primarily by the continued strength of our accessories line. Whole sale net sales grew 68.2% to $461.4 million in the third quarter, compared to $274.3 million in the same period last year. The increase was primarily the result of strong growth in our accessories and footwear, the continued successful conversion of existing doors to shop-in-shops and the expansion of our European operations. In our Licensing segment, revenue grew 59.0% to $47.4 million for the quarter as compared to $29.8 million last year, primarily driven by the continued strength in watches. Gross profit increased 61.6% to $619.5 million as compared to $383.5 million in last year's third quarter. Gross margin expanded 100 basis points to 61.2%, reflecting the strong year-over-year gross margin increases in both, our retail and wholesale segments. The margin increase was driven primarily by favorable product mixed shift to higher margin product in addition to the geographic mix and lower product cost in select items. Total operating expenses grew 54.7% to $276.3 million in the third quarter of fiscal 2014 as compared to $178.6 million last year. As a percent of total revenue, total operating…

Thank you, Joe. In closing, we remain focused on continuing to grow the company by driving comparable store sales growth, expanding our retail store base globally, capitalizing on our e-commerce opportunity, continuing to convert department store doors to branded shopping shops and growing our brand internationally. We are very pleased with our momentum going into the fourth quarter and expect to deliver record results for fiscal 2014. We will now open up the call for questions.

Thank you. (Operator Instructions). We'll go first to Lindsay Drucker Mann of Goldman Sachs.

Thanks. Good morning, everyone. I wanted to ask first just on holiday. Obviously, you guys have had a very, very strong results and clearly gained a whole lot of share with good performance in the quarter. Can you give us any color on things like pace of markdowns? What you saw happening through your retail partners at the wholesale level. Any detail just on how your business fared? Maybe some more color in light of the very challenging industry backdrop and understanding that you had very strong results. Then secondly, Joe, if you could just maybe clarify if in the wholesale divisions what sort of revenue or margin impact happened from the push-forward of shipments that were delayed from the September quarter. Thanks.

Good morning, Lindsay. Lindsay, we had double-digit traffic increases in our stores and we also had double-digit conversion increases in our stores, so we were very pleased with the results during the quarter. In terms of style that we had on the floor, we were about even this year versus last year in terms of the amount of SKUs that were on the floor. We were a slight bit higher in terms of dollars, in terms of markdowns this year versus last year and a amount that was driven quite frankly from some of the late deliveries we had coming out of the distribution center, but we had good deriving slightly later than we had anticipated, primarily in our wholesale distribution. All-in-all, really there wasn't anything materially different for us on a year-to-year basis from the promotional standard and cadence. Obviously, there was a tremendous amount promotion going on around us. As we typically do, we opted not to really participate in the that and our customer responded to Michael and our design team's amazing product and I think we are seeing similar response in the very beginning of our new deliveries for the spring season as well, so we think as long as we stay focused on being on trend to right product, she is excited and she is stimulated to comfort Michael Kors luxury products. I'll turn the second question over to Joe.

Yes. As John just mentioned, there was a disruption primarily related to the wholesale side, the woman's ready-to-wear. As John mentioned, we had a lot of deliveries at the same time. We have not disclosed that number and we don't consider it to be significant.

Okay. Thank you.

We'll go next to Kimberly Greenberger of Morgan Stanley.

Great. Thank you. Congratulations on a really fantastic quarter. John, I am wondering if you can step back for a second and just talk to us about how you think about investing behind the brand, to sustain the brand momentum over the longer-term. It's obviously clear coming out of this quarter that there is a tremendous amount of recurring momentum, but just talk to us about how you think about managing the brand for the longer-term and what kind of infrastructure investments are you in process of making and do you expect to need to make over the next couple of years in order to be able to build this into a real sort of global brand powerhouse?

Thanks. First off, good morning, Kimberley. Sustaining the momentum is something we obviously get up and think about every day of the week and we don't think about it just from a U.S. perspective. We think about it from a global perspective. I think, I know many of you are following on things like Facebook and Twitter and Instagram and we think that continuing to build our platform socially is one of our priorities, because it gives us one of the greatest global reaches, so I would say that's probably our number one priority. Our number two priority is development of our own website in-house. While everyone talks about the amount of sales transacted during the holiday season over the website and we certainly enjoyed that, Venezuela seeing, strong, strong, strong double-digit increases far in excess of what our comp store were, so obviously people are actively purchasing more online than they have in the past, but it is a place for people come to shop, and when you hear a lot about mall traffic being off and clearly that was the theme that you heard during the holiday season, what is happening, we believe is that people are actually shopping first online, doing the selection and then coming in, in many cases still into the store to buy and they know what they want, they are very clear about what they have seen size, color, price, everything and we see that happening not only domestically, but internationally, so we have significant amount of traffic that's coming through our website from all over the world as she is shopping for our brand. By the way, some of that shopping is even before she is traveling, so as you know the tourism business is an extremely important business for us on…

Thanks so much.

We'll go next to Brian Tunick of JPMorgan.

Thanks, guys. I'd add my congrats as well. It's pretty amazing in this environment. I guess, two questions for you guys. Number one on product mix, if you could maybe just give us some update of how the holiday shook out non-accessories versus accessories. As you look forward, what category do you think have still the biggest runway for growth? Then the second question really on the international margin side, can you remind us what size the Europe or Japan need to get to, to reach parity of your domestic EBIT margins? Thanks so much.

Okay. Thank you, Brian. Good morning. We ran north of 85% of our business during the fourth quarter, again, in what we term accessories, so accessories for us handbags, small leather goods, footwear, watches, eyewear and fragrance and those categories are continuing to grow really right across the board I forgot to mention jewelry as well. The dominant category for us during the holiday season in terms of dollar growth and percentage growth was handbags and small leather goods, so that clearly drove the predominant amount of our business right across the board, domestically and internationally, et cetera. The second biggest category for us was watches. Again, we saw double-digit increase in our watch business and we continue to see that business moving ahead very nicely, so those two categories were really the two driving forces and that's obviously in our retail stores. On wholesale side, what we are seeing is really an extraordinary development. Our footwear businesses as we reported to you in the past is really becoming a dominant players, the same way we are dominant player in the wholesale channel in handbags, we are a dominant player in watches. We think we are reaching that same level of dominance in footwear, but with tremendous runway for growth, but I think we have reported to you in the past that we are going to install approximately 150 shop-in-shops or footwear over the next 12 months across many domestic and international retailers. I think you have been down to Macy's to see our extraordinary presentation, which is really positioning us for the future, what footwear can look like in our wholesale partner distribution and that's being embraced by our partners, so I would say to you that that's one of the real big, strong growth categories for us. Then…

Brian, as you know, we don't disclose regional either gross margin or operating margin or EBIT margins. We have talked in general consistent with the industry. Our gross margins in Europe will tend to be somewhat higher than the U.S. gross margins and the operating expenses are also going to be somewhat higher. As the business grows, we expect that business will be more profitable, but we are now clearly at and we have not disclosed what the concurrent to that is.

We'll go next to Erinn Murphy of Piper Jaffray.

Thank you. Good morning and congratulations on just a great quarter. John, just wanted you to maybe focus a little bit more on Europe. If you could just talk a bit more about the mechanics in that market? I mean, it seems like you guys are really shaking things up across the content in a very positive way. Maybe you help us understand Europe's importance strategically as you further build brand awareness in newer market even like Latin America, China, given the tourist flow there. Then just stick with the holiday quarter in Europe, could you just share some perspective on what you saw from a local versus tourist consumer there?

Sure. I'll start with Europe, first. Good morning, Erinn. Europe was an extraordinary holiday season for us. You know while there was conversation about traffic in the United States, the traffic flows in Europe were just extraordinary. I think that speaks to two things. Number one, we talked before about where we are building the business and who we are taking market share from et cetera, and I know lots of conversation has been around one of our main competitors, but in fact we think we are beginning to take market share from very large luxury companies that some of you cover. In particular, in Europe that's we have two sets of competitors. We have very large luxury players and then we have all these regional players that are across the board. We clearly are becoming the number one, and if we are not already there, the number one accessible luxury handbag company in the market, but we are also by virtue of where we are opening our retail locations on streets next to all of the very large significant and heritage luxury companies, we are starting to take market share there and we think the customer is resonating with the Michael Kors' product design. Michael has been on trend and really season-after-season, delivery-after-delivery just delivering exciting product. The European consumer, it has always been very astute at what fashion is and having the right products for the right season, so we think that's really where we are dominating. The second issue is, again just like in the United States, our jet-set in-store training programs and our sales associates, we think are [path] for churning our competitors. We are there to be a fashion consultant for our consumer and I think we think she is really responding to that, so…

Thank you. That's helpful. Could just sneak in one more for Joe? I guess, how do you think about prioritization of cash use. You said you should have about $1 billion-plus cash by the end of this year. Could you just help us think about the priorities there? Thank you, guys.

As John mentioned, we have a lot of projects that we were going - in addition to the projects that John mentioned, we will begin investigating what are the placement for our legacy system here, so we have a lot of investments to do in the company. In our minds, we will not think about utilization of cash other than investment in the company until the cash balance becomes about 10% of our market cap.

Thank you, guys and best of luck.

Thank you.

We'll go next to Omar Saad of ISI Group.

Thanks. Good morning, guys.

Good morning, Omar.

I wanted to talk about - you got all the strength going on in your business right now. Europe, North America. As you think two, three steps ahead, can I ask you about men's? How you feel the brand, obviously, men are half the population. How you feel the brand is set up with the male consumer, maybe some initial things you are working on to get the male consumer more familiar with it. Does the brand have too much of a feminine edge to it to really generate a big men's business as we started to think about that or dressing. Any color on that as you think about the next evolution of where the growth is going to come from.

Sure. Thank you, Omar. Good question. Omar, we talked if you remember all the way back to the roadshow the waterfall and we first consider the North American market our primary market and still plenty of room to grow in there, but over time the North American market will mature and that's we felt very strongly investing heavily in Europe, and as we have said, we think that's an opportunity to be $1 billion in the not too distant future and there may even be upside from there. Again, we feel that's kind of the next stage of the role of the waterfall. Then the next piece is going to be Asia. There will be some acquisitions of our work. Certain licenses will come due, so we will bring some of those things in-house. Japan is going to come on stream, which we think is going to be a very business for us on a go-forward basis, so that kind of takes us over the next few years. Then lastly, we really believe in the men's business and we have a small business today, but it's doing quite well. It's really gotten entrenched very nicely in the best retailers in the United States being Bloomingdale's and Neiman Marcus and Saks. Then in Europe, we started to roll it out. We are in about 150 specialty stores and we are doing quite well there. We had installations going on in Europe, and we would expect in the next 30 days that we will have announced a new men's president from a very successful large global men's company and we think that's going to be an important further first step. The next thing that you will see in terms of men's is, we will be launching a men's fragrance for the fall…

Excellent. Appreciate the insight.

We'll go next to Paul Lejuez of Wells Fargo.

Great. Thanks, guys. Congrats. Just want to ask you about your average price points in your handbags this holiday season versus last year. How are you thinking about that going forward? Do you think you have an opportunity to move price points higher or shift some of the mix into higher price point handbag categories? Thanks.

Good morning, Paul. Thank you. We've said this for the past three years. We have really haven't changed our pricing on almost all of our products in the company. We think our customer appreciates the fact that we are offering them incredibly high quality values that still is luxury pricing, but she knows that it's something that she can come back and access on a regular basis. Our AURs in our retail stores have not changed since 2007. Our average transaction is really quite extraordinary and that was with also the adding of jewelry, which is a lower price point as a purchase. UPTs have up slightly, but our overall average transaction remains about identical. The other thing I might point out is since the day we started in this company, we always had luxury price point, so we have everything from $10,000 Crocodile bags to $248 jet-set Tote, so we've always had a luxury offering in our accessories and we are very proud of the fact that we just recently bought our luxury footwear back in-house. It was licensed and we are producing that in-house and have an excellent response to that. We believe in luxury category, we have the Michael Kors runway collection, which will be shown here very shortly in New York, and that's where we come from as a company is from a luxury background. That is Michael's beginning of the company, so we have that in our women's ready-to-wear, we have in our handbags, we have it in our footwear and we will continue to make sure that that product is represented in basically all our lifestyle stores and handbags, to some degree in shoes and select stores with women's branded wear.

We'll go next to Randy Konik of Jefferies.

Hey. How are you? Thanks a lot. A quick question, you guys - I guess, first for John. You have given us some frame of reference of how you are thinking about the opportunity from a revenue perspective in Europe above $1 billion. I think Asia above $1 billion. How do you about the U.S. market of what you revenue opportunity is, a total market share, total revenue perspective. I guess, for Joe, how should we be thinking about the CapEx run rate of the company given these distribution center projects? Then can you just walk us through how you are going to be picking on these projects without disrupting the company? Thanks.

Thanks, Randy. Randy, first off, just one minor correction. We did not say $1 billion in Asia, I think that's what you were thinking of men's that we talked about $1 billion. We have not put revenue projection on Asia yet. The total revenue in the United States, we have not guided to the number there. I think what we have said is and you have seen our consistent commitment to double-digit comp store growth and we see that as a continuing goal for us. Obviously, we have been able to achieve that goal and we do that with a lot precision. First with product, again, led by Michael's genius design vision, but really secondly by an amazing group. We have almost 10,000 employees worldwide today led by outstanding senior management team and are very focused on planning and on having the right product in the right stores at the right time. We think we are very good at that, so again we think that the market has as a substantial opportunity for growth both, in store count and in shop counts in terms of department stores and we think that the market will continue to grow at a double-digit rate for us. Again, we will give you guidance on the fourth quarter for where we are going to be, but the market has plenty of room for us to continue to grow and I guess there has been a lot of market share information. Again, when you compare Michael Kors numbers to our competitors, remember, we do a lot of business in not just handbags, so again if you are comparing market share to market share, sometimes I see the analysis are not really done correctly, because they compare our total revenues to other competitors who are really more of a handbag company, so we feel great about that. Just one thing before I turn the second piece over to Joe, we will continue to make very significant senior hires in the company to support our growth and we are bringing on people who will help us really execute many of these large projects that we talked about.

Let me just add to what John said. We have learned lessons. We are continuing to understand what our infrastructure should be like, hiring people is difficult today, but we are continuing to build up the infrastructure that we need to get these projects done and are very, very focused on that. In terms of our CapEx in the future, we as you know don't disclose anything other than one year out (Inaudible) and the fourth quarter we will disclose and we will guide you to the next year, so I cannot give you further guidance to that other than to say, one, the company's philosophy to at this to continue to invest heavily in the company. Second is, as we've indicated, we have a lot of significant projects continuing in addition to our regular program of building retail in shop-in-shops and investing in the systems, so you can expect continued significant CapEx in the future.

Randy, one last point into earlier question that Kimberley asked, you know, I have said this before and I know it always doesn't make everyone happy when I say it, but we are not as concerned about the percentage of operating margin. That is not our concern. Our concern is, revenue growth, sustainability of the brand and investment in the brand and then obviously bottom line EPS growth. If our operating margins contract, which over time I would think they would, given our investment and infrastructure yet the top line is growing and the EPS is growing, we would think that would be the appropriate thing.\ Again, we have not been able to catch up to many of the needs in the company has just because the company is growing so fast, so there will be a normalization. I talked about normalization of sales, in terms of markdowns et cetera and there will be a normalization of expense to revenue ratios. I think, we will take one more question.

We'll go next to Dana Telsey of Telsey Advisory Group. Dana, go ahead. Your line is open. You might want to check your mute function.

Operator, why don't we take one other question?

Yes, sir. We'll go next to Oliver Chen of Citi.

Hi, guys. Congratulations. Regarding the environment and your comments earlier, where are the in-store markdowns versus last year? If you could also help us understand the evolution of the SKU profile and if you could see as a number of silhouettes evolving over time. Lastly, if you could just give us some thoughts on what you saw on trends in factory versus full priced, we would appreciate it. Thank you.

First of good morning, Oliver. As I said to you earlier, we had the same amount of SKUs on the floor in total this year versus last year in terms of the markdowns, so we really didn't have a desire to become more promotional. That is not our philosophy in the company and it's not something that we think we need. We think we always need is better product, more exciting product and really giving our consumer a way to be simulated and excited to buy something new from our company, so that's our first strategy. In terms of SKUs, the company's line will grow in size because of the Internet, but we are very excited when the internet comes in-house, we don't have any place today that we can show all the products that we produce and we are super-excited about the ability to have a format to be able to present that. We also have some very large format stores that are opening, I think we have told you previously about our 22,000 square foot stores opened in Soho in September and that will be our largest globally, presenting the largest assortment of our merchandise of accessories, watches, jewelry, women's ready-to-wear footwear and men's wear. What we are also excited about in that store is, and you will see this in some new stores being built, where we are going to take our formats to approximately 4,000 to 5,000 feet in a number of locations and that is really to present additional watches and jewelry space to present additional footwear space we really are excited about having, what we call, salon approach inside of our stores. Then as I said to you before, our women's ready-to-wear is experiencing great results and we see that as an opportunity for us to be able to present properly. Again, so there are a limited amount of our own stores. Then lastly, we enjoyed double-digit comp store increases in all of our formats across the world, so again the consumer resonated with product in both of the formats. As you know, we are much more concentrated on our full priced format, because we believe that that's where the core route of the company is and we think that's the way we should be focusing our efforts.

Thank you. On the e-com side, when we work through our models, which quarter will model the revenue upside in terms that build and how might the productivity ramp?

Well, we are not going to give for the moment a range. We will probably talk about that in the fourth quarter call in terms of the size, but I assume it in August 1st, is when we will turn the switch on and please pray for us that transition goes smoothly. We certainly are praying every day, but we are excited and I just might add on that. It took us a little longer than we had anticipated, but we have built the ability to have a global platform, so once the platform is complete, we will bring up the United States and Canada simultaneously. We will then move onto Europe and Japan, and then we will then move onto other parts of the Far East. The good news for us is that we will have a global platform, so we spent a lot of money, a lot of time to get it right hopefully the first time, so that we can really roll this out and grow the platform. With that I would like to thank everyone for participating in the call this morning and we look forward to speaking to you, again, for our fourth quarter and fiscal 2014 earnings update. Thank you.

That does conclude today's conference. We thank you for your participation.