Good day, and welcome to the Michael Kors Holdings Limited Third Quarter 2017 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Christina Coronios, Director of Investor Relations. Please go ahead.

Thank you. Good morning, and thank you for joining us for our third quarter fiscal 2017 earnings call. Presenting on today's call our 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 risk 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 2017 earnings call. For the third quarter of fiscal 2017, total revenue was $1.4 billion, and earnings per share were in line with our expectations at $1.64. We saw solid results in several areas of our business during the quarter. The new fall and holiday handbag introductions performed well, led by the Mercer, Brooklyn, and Sloan Editor collections. All of these new fashion luxury handbag groups were supported by enhanced marketing in both traditional and social media channels, which helped create strong sell-throughs across these launches. We also continued to see strong response to our new Michael Kors ACCESS line of wearable technology with sales exceeding our expectations for the season. In addition, momentum in our athletic footwear business remains strong, and our holiday women's ready-to-wear collection received favorable response. Our digital flagship in North America continued to deliver double-digit comparable sales growth, while sales in our new digital flagship in Europe exceeded expectations. We also rolled out Custom Kors on our digital flagship in North America, which featured free monogramming services as well as options to create your own personally styled Sloan Select handbag. All of these initiative, which were led by Michael and our design team demonstrate our continued commitment to delivering exciting new luxury fashion products to consumers globally. While we were pleased to see the strong performance in multiple areas of our business, we were disappointed in our North American and European comparable sales, which continued to be impacted by negative traffic trends and currency fluctuations. We also saw average unit retails negatively impacted by the highly promotional environment as well as the continued fashion trends towards cross-body and small leather goods. Additionally, the fashion watch category remained challenged, which continued to negatively…

Thank you, John. For the third quarter, total revenue was $1.35 billion compared to $1.40 billion in the prior-year quarter. In the retail segment, net sales increased 9.2%, driven primarily by the addition of 193 net new stores, since the third quarter of last year, including 143 stores associated with the recent acquisitions of Greater China and South Korea. Comparable sales decreased 6.9%, reflecting a mid-single digit decrease in North America and a mid-teens decline in Europe, partially offset by a mid-single digit increase in Asia. E-commerce comparable sales contributed approximately 340 basis points to our performance in the quarter. As John mentioned, North America remained under pressure from declining store traffic, and the aggressive promotional environment, which was partially offset by increased conversion rates and strong performance of our digital flagships. The comparable sales decline in Europe was driven by reduced store traffic and lower average unit retails as a result of shift in product mix with a portion of the decline attributable to the launch of our European digital flagships. The North American digital flagships achieved double-digit comparable sales increases in the quarter. While European digital flagships are not yet included in the comparable sales base, had they been included, the European comp would have been down in the mid-single digits on a reported basis and essentially flat on a constant currency basis. In the wholesale segment, net sales declined 17.8%, due to lower sales in the women's accessories and apparel businesses. The wholesale business in the Americas region declined in the mid-teens, as we remain disciplined with the amount of inventory we ship into that channel. European net sales decreased in the low-teens, while in Asia, the decrease in net sales largely reflects the shift of our Greater China and South Korea businesses to the retail segment…

Thank you, Joe. While we face certain challenges in the short term, we continue to believe there is meaningful long term growth ahead for the company as we focus on maintaining our luxury leadership position, while expanding the Michael Kors brand internationally. With that, I will open up the call for questions.

Thank you. And we'll take our first question from Omar Saad from Evercore ISI.

Good morning. Thanks for all the info, guys. I wanted to first ask about the wholesale business. The rate of decline improved a little bit in the third quarter, both North America and globally, European as well. When should we start to – how should we think about when that could normalize or start to form a solid base from which you can begin growing again, again specifically on wholesale?

Okay. Thank you, Omar, and good morning. I would answer it differently for North America and Europe. In North America, as we have previously said and indicated, our revenue base will decline throughout the entire period of next fiscal year and that's as we reset with our department store partners based upon our new promotional policy, which, as we said in our prepared remarks, starts actually around February 1. So that's in place now. And many of our partners are reducing their inventory with us, and we're reducing it with them, as they have operated with a much more aggressive promotional posture. And as we said, again, our objective is to reduced promotion, increased average AUR, and position the brand in a more elevated place with our consumer. This is a very aggressive approach. We don't believe any of our competitors are taking this level of stance, as it relates to walking away from the promotional activity. We will have for a period that we do authorize a Michael Kors event during the year. And so, we think it's going to take the entire fiscal year to work our way through that. And as Joe mentioned in his prepared remarks, we kind of see that leveling off in our fiscal 2019. That being said, inside the category men's, the wholesale component inside the United States will grow, and should grow rather quickly and we're very pleased with what we've seen so far, in particular on the wholesale side, with that business both in ready-to-wear and in leather. Europe is a separate conversation. Again, many of the department stores are experiencing similar things that you're seeing here in North America. There has been a slowdown in traffic in many of the cities, and we've gone through the reasons of that, whether it was Brexit or whether it was terrorist activities, which have stopped certain people internationally on tourism basis and also locally, there are many places where people are quite frankly fearful of going into shopping malls because of incidents. So we anticipate that to continue – that level of disruption to continue through, again, the balance of this fiscal year. And in addition to that, we're very concerned about upcoming elections, and what that might do in certain of the marketplaces, and we highlighted and particularly Germany and France, where we have sizable businesses. So, again, we do not see that kind of resetting until, I would say, fiscal 2019 for us, and that's why we're really looking at company in total, Omar, to kind of rebalance our business we're going to be much more retail-focused, led by our digital flagships and then our retail stores and also that will be really driven even more heavily by our opportunities that are inside of Asia. So, thank you very much for that question.

Thanks, John. That's super helpful. And then could you make a comment on M&A strategies, especially with some assets up for sale in your categories? Obviously, have been doing a great job buying back stock using the great free cash flow for share repurchases, but just kind of want to get a temperature of where your head is on potential acquisitions.

Sure. As we've said, in terms of capital allocation, our number one priority is to continue to reduce our share base outstanding. And, again, we've said it over multiple calls, while we're disappointed with our financial results, we still think our multiple is low comparative to the total group. So we view that, myself and the management team, the board of directors, as our greatest opportunity to create value for the shareholders. So we'll continue to be aggressive with our share repurchase program. Secondly, we've said that we will look at potential acquisitions. We are actively looking at a number of different things, and if it's right for our company and our management's ability to execute and create value for our shareholders then we will take advantage of it. We certainly have the capacity to do sizable transactions or smaller transactions. But what we said to you in the past is that we probably won't do anything small. I mean, we think that would be a distraction for us and really not create the kind of value we think the shareholder is looking for from us. So, again, actively looking and we'll see what transpires.

And we'll move to the next question from Oliver Chen from Cowen & Company. Oliver Chen - Cowen & Co. LLC: Hi. Thank you. Good morning. Regarding the average unit retail, could you just help us understand the timing and how the assortment may change in terms of raising AUR over time? And as you think about the reality of store traffic, and some of the issues there, what's your long-term view on the America store footprint and where it should be right-sized, just in light of digital growing so nicely, and thinking about how to prudently engage in omni-channel? Thank you.

Sure. Thank you, Oliver, and good morning. I would answer the first question regarding AUR again in two ways. First, what we did, and we announced it, I think, on the last call, we're really looking at what the average product is going out the door to the customer at. And we believe that the $300 handbag category is a very big opportunity. And so what we want to do is create value. When she walks in the door and she sees an amazing design, she doesn't have to wait for a coupon or sale or anything else. She's stimulated by what she's seeing, and we clearly saw that with our Mercer handbag collection, which was non-promotional the entire fall season, and was basically our number one selling collection. So she responded to the design. She responded to the fact that it was full price, but she also responded to the fact there was great value there in that collection. So, what we're doing is, we've kind of learned from that, and we've said, okay, why don't we expand that thought process? And one of the great, exciting collections that we're actually reintroducing a new shapes is Hamilton, which has been one of our best-selling groups for many, many years. We had decided to remove that from our retail channel, and we are reintroducing that. And again, they were just literally unpacking the boxes on that in some stores recently, and we've had excellent initial sales results. So we think that's the right thing to do to create value at the right price, so that when she walks in the door, she doesn't have to think about whether something is on sale or not. And we believe that's going to have a fairly significant impact on our AUR. And then,…

We'll take the next question from Matthew Boss with JPMorgan.

Thanks. So as we think about the EBIT margin profile going forward, so high teens now laid out for next year. That's clearly below the two-handle multi-year floor that we talked about in the past. What ultimately, I guess, has changed? And do you see high-teens as the reasonable long-term resting place or should we think about it more as a multi-year kind of trough that you'll expect to bounce off of?

Matt, I'm going to answer, take a first shot at it, and then I'm going to turn it over to Joe. Next year, we expect the following things to happen. Actually, our operating margins in retail will expand for two reasons. Number one, for geographic mix, and in particular Asia. Asia is getting more profitable for us each quarter as we're gaining velocity, and we're gaining scale, which is creating leverage. And as you know from many of the other global luxury players, Asia in some times can be the most profitable part of their business. So we believe that's going to have a very significant impact on our operating margin performance going forward in retail. We are also getting more profitable in our e-commerce business. It's still not where we want it to be in terms of against where we are in our retail stores, but it is getting more profitable. So we believe that that will have a positive impact on us next year in terms of operating margins. We will see operating margins decline slightly in our wholesale business, as we do have some deleverage in terms of the size volume coming down. And then also, there have been some significant initiatives that have gone on inside of our organization, obviously, to reduce costs, given our new revenue outlooks. So while we are disappointed that we are no longer able to for the moment say that we can carry a two-handle, we do think that we will still be one of the most significantly profitable global luxury brands in the world, and generating significant free cash flow, which will continue to give us the ability to execute on both share repurchase and then acquisition potential. And as we've said, even in the future, we might consider dividend although that's not on the immediate horizon. So, I think we are comfortable that we do not need to think about a further significant deceleration in the EBIT margins. Joe?

So, Matt, I don't have much to add to that. We clearly did think it was our obligation, since we were seeing a less than two handle for fiscal 2018, and we will provide additional guidance as we said during our normal guidance cadence, when we release fourth quarter.

Thank you.

And we'll move to the next question from Randy Konik from Jefferies.

Yeah. Thanks a lot. So a couple of things. One, I guess, John, I wanted to ask what is the impetus or thought process around acquisitions. I guess my question is why do them when the cap of the company is where it was with the IPO. The stock is significantly cheaper than peers, et cetera. I'm just kind of curious on why even do one or contemplate one. And then, secondly, just back on the operating margins. So do we think that we're towards the end of the SG&A dollar investment cycle? And then, also CapEx, I think you said $200 million. Can we get further lower from there, because the free cash flow of the company continues to pile up and the market multiple on those cash flows keeps going down? So I'm just trying to get a sense of the market wants to know where these cash flows bottom, where these expenses bottom, et cetera. So I'm just kind of thinking through those items and would love your response. Thanks.

Sure. I'll start with the CapEx piece. CapEx is going to be around the – continue to be around a level that we're at this year. It may go down a little bit, but not much. We have some additional IT initiatives that are going to go on inside the company, but the significant – whether it was our corporate headquarters in New York, whether it was our Venlo operations that we built for distribution in Europe, most of that will be finished. And then, the predominant amount of store openings will be focused in Asia. We're pretty much done with the footprint in North America, pretty much done with the footprint in Europe, there will be some capital around the men's expansion. So, we feel very comfortable kind of in that range of where today or lower – slightly lower will be where we will be on a go-forward basis. In terms of acquisitions, look I said it to you earlier, our number one capital allocation priority is to repurchase shares. Again, with our multiple being consistently below where our peer group is and us still being much more profitable than many of them, we think there's a dislocation and the board and the senior management of the team – of the company feel that that's really the best investment for us to make. And so I think that will be number one. And number two, again, if we can utilize the company – the management team's expertise and certain other of our capabilities internally to create value for our shareholders, we will look at that. But we're not going to do that at the expense of our own corporate initiatives. And again, we believe there is still very significant volume revenue opportunity for the company over the next few years. We are being impacted by a decision that we've made to kind of get out of the fray of this every, kind of, few weeks promotional activity. And I think that's the right decision for us, but that's going to take a significant amount of revenues away from the company, but I think create much better value for us long-term as a brand with the end consumer and that's the right thing for us to do. So we'll stay focused on that as our priority, and then look at our share repurchase program. And if the right acquisition comes up, we will consider, and if we don't, then we'll pass and stay focused on what we're doing. Thank you, Randy.

And we'll take the next question from Erinn Murphy with Piper Jaffray. Erinn E. Murphy - Piper Jaffray & Co.: Great. Thanks. Good morning. I wanted to focus a little bit on inventory, it seems that it's about 1,200 basis points higher than your implied sales guidance for Q4, so could you just talk a little bit about the complexion of inventory by wholesale versus retail? And then, where do you anticipate inventory to end this fiscal year?

Sure. As you know, we're very focused on inventory and controlling inventory. So as an international company, and growing differently in different areas, it's a little difficult to guide you. The reason inventory would be up somewhat from what your expectation would be, it's because we are continuing to build stores in Asia, and we need to ship inventory into those. So we're very comfortable with our inventory levels. And again, given the complexity of our business, we think we're at the right levels. Erinn E. Murphy - Piper Jaffray & Co.: Okay. And then, just following up on Omar's very first question, in North America in Q3, can you break down the sell-through versus sell-in for that 15% decline in the wholesale channel in North America? Thanks.

Yeah, Erinn, we don't go through that level of detail. Thank you.

And we'll move to the next question from Dana Telsey with Telsey Advisory Group.

Hey, everyone. As you think about the ACCESS watch, how large a piece can the ACCESS watch become? Can it become as large as the traditional watch category is? And then, John, how do you see the growth of that handbag category? What did you see and what's your outlook as we go into the balance of the year? Thank you.

Sure. Thanks, Dana. Dana, we're very excited about what happened with ACCESS watches. And I will tell you from the minute the watches hit the store, we had something happen that we haven't seen in a long time as it relates to the watch category. We had people kind of lining up for the watches. You may have seen it in some of our stores. We're still having trouble catching up with the demand that we have both in our own stores and then at many of our retail partners. So clearly, this is a category that is here, and it's a category that will grow. So we're excited about that, and both Fossil and ourselves feel that we are at the very beginning of something that could become sizable. I can't tell you whether it's going to ultimately outpace where we were with the total fashion watch business. The category of fashion watches in total continues to decline; not just us but many competitors as well are seeing the same thing. Again, both Fossil and in particular, Kosta and I believe that the fashion watch business will be completely reshaped, as we know it today, and that most watches over the next three to five years will come with some level of technology. We'll be making some exciting announcements in Basel in a few weeks about some additional things that we're doing in the wearable technology space that we think will further enhance our positioning. So, just know that, again, Fossil, and in particular, Kosta, and myself, are very committed to maintaining our leadership position in the fashion watch business. And as I said in my prepared remarks, we think we will ultimately become the second largest wearable watch business in the world. And clearly, the numbers are pointing…

And we'll take our next question from Ike Boruchow from Wells Fargo.

Hi, everyone. This is Nancy Hilliker on for Ike. Just a couple of small questions. When you think about the European retail trends in the fourth quarter, do you expect them to, kind of, stay consistent with this quarter or decelerate? And then, if you could talk about margin puts and takes within each segment in the fourth quarter as well?

Okay. Thank you very much. The second question, we're not going to have time to do so I'm only going to answer the first question for you. The European trends – again, I think there was an interesting note that you heard in my prepared remarks, and you heard in Joe's prepared remarks, which were that if you added back in our e-commerce business, on a constant currency basis, actually our business in Europe was flat. So we far exceeded our expectations when we turned on our e-commerce sites, what we refer to as our digital flagships, which we believe had a significant impact on our business in the marketplace. While traffic was down in Europe, it was down in kind of the mid-single digits, which was lower than what we had anticipated. But again, it was – we believe a lot of that volume went directly to our own website during the period. So we're going to continue to watch that. We saw the exact same thing happen in North America. The minute we turned on our e-commerce, our comp store sales were impacted pretty dramatically quickly. And again, that's just consumers changing their shopping behavior. And as we've seen in many countries, they want to go to the official website. We certainly had other partners having e-commerce in the territories, but now there is the Michael Kors website, which you are able to see the full range of our product, you're able to engage with many of our social activities and styling tips. And as you know, we said, in North America, we're launching specialized product offerings under Kors Custom. We're going to roll that out in Europe as well, but there's a lot that's going on our website. We also talked about the fact that our dress shop (57:26) launch in the early part of fall, maybe even as early as late Spring. So we think that this is only going to get bigger. And again, that's why I've said in my prepared remarks we're spending more money to help fuel that. And we think Europe in particular will see that trend continue. So there's a long-winded way of me saying that we think actual store comps will remain down kind of in the same trend, maybe even a little worse than they've been, and we'll get what that total mix is wrapped up with our e-commerce business to see how that's impacting our trends. I think we'll take one last question.

We'll take the next question from Mark Altschwager from Robert W. Baird. Mark R. Altschwager - Robert W. Baird & Co.: Great. Good morning. Thanks for taking the question. Could you just talk about how you're thinking about full price versus off-price exposure within the North American wholesale channel? Where does that mix sit today and what would be your goal as the recalibration unfolds? And then, along those lines, you talked about AUR strategy and full price, just any sense on what's happening in the outlet channel and how you see AUR progressing there? Thank you.

Yeah, good morning, Mark. Mark, we don't break out full price versus off-price in the various channels, but what I can say to you is the following is that, many of our department store partners have been offering promotions, if it's not every two weeks, it's every third week, so there's something going on all the time. And as I said to you, we're going to have – we're going to really consolidate that down to four times a year. So we believe that's going to significantly reduce the amount of off-price business that we're doing, hence the reason for the significant reduction in the inventory going into the channel. So I think that that's something we're going to just have to see how it plays out over time. But we are focused on making sure that, along with that, we provide great value. And that value doesn't only mean $298 or $228. That value could also be in one of our very successful our Mercer bag, which the grab bag with the grommets, and the consumer saw that at $498. While this is an amazing design and tremendous amount of workmanship in detail and design that went into that at what we thought was a very, very exciting and compelling value for the consumer. So we look at those things and really balance them. And again, we're trying to make sure that she sees the Michael Kors as an elevated brand, not something that's on promotion on a regular basis. And in the outlet channel, I would say AUR did decline during the quarter, and has declined over the last few quarters as the channel has become also extremely promotional. Our competitors are in many cases much deeper in discount than we are, and so that's becoming something that we've had to really compete with. The good news in that channel is, there is less of a traffic issue. And so that kind of has helped us balance off the AUR piece, and our conversions are up in that channel as well.

Thank you very much. That's going to conclude our call for today, and we look forward to updating you on our future guidance in our fourth quarter earnings call. And thank you very much for taking the time to be with us today.

And that will conclude today's conference. We appreciate your participation. You may now disconnect.