Good morning, everyone, and thank you for joining us on Capri Holdings Limited second quarter fiscal 2021 conference call. With me this morning are Chairman and Chief Executive Officer, John Idol; and Chief Financial Officer and Chief Operating Officer, Tom Edwards. 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 these statements made today during this call will remain operative at a later time and the company undertakes no obligation to update any information discussed on the call. In addition, certain financial information discussed today will be presented on a non-GAAP basis. These non-GAAP measures exclude certain costs associated with COVID-19-related charges, long-lived asset impairments, ERP implementation costs, Capri transformation costs, restructuring and other charges. Unless otherwise noted, all financial information on today’s call will be presented on a non-GAAP basis. To view the corresponding GAAP measures and related reconciliation, please view the earnings release posted on our website earlier today at capriholdings.com. Before we begin, I would like to note that we have accompanying five posted to our website. Now, I would like to turn the call over to Mr. John Idol, Chairman and Chief Executive Officer.

Thank you, Jennifer, and good morning, everyone. The COVID-19 pandemic continues to profoundly impact the entire world. My thoughts and prayers go out to all of those who have been affected by the virus and to everyone on the frontlines who are tirelessly helping to combat this pandemic. At Capri Holdings we are prioritizing the health and safety of our employees, consumers and communities. I want to thank our teams around the world for the hard work and dedication they demonstrate every day to support each other and their communities during this unprecedented time. As we look forward we are increasingly optimistic about the outlook for the fashion luxury industry. Luxury is enduring as it creates an emotional connection with consumers inspiring excitement and passion in those who value design, innovation as well as exceptional quality. The industry has proven resilient with sales historically recovering rapidly following economic downturns and global health crisis. Current trends indicate that once again luxury sales are quickly rebounding. Additionally, we believe consumers are spending at higher rates on luxury products as there has been reduced spending on experiences due to travel restrictions. While there are many unknowns in front of us we believe the luxury market will resume a steady growth trajectory and that Capri Holdings is uniquely positioned to expand its revenue and earnings with Versace, Jimmy Choo and Michael Kors. Now I would like to turn to our second quarter results. Revenue and earnings per share significantly exceeded our expectations. While second quarter revenue declined 23% that was a substantial improvement compared to the first quarter. Sales in our retail channel decreased approximately 17%. We were particularly pleased with our robust e-commerce growth which accelerated sequentially and grew approximately 60% compared to prior year. Door performance also improved sequentially driven by local…

Thank you John and good morning everyone. Starting with second quarter results revenue of $1.1 billion decreased 23% compared to last year. These results were significantly ahead of our expectations. Retail and e-commerce performed considerably better than anticipated while wholesale was slightly ahead of our expectations. Net income was $137 million resulting in diluted earnings per share of $0.90. This was also meaningfully above our expectations reflecting better than anticipated revenue, continued gross margin expansion and the benefits of cost reduction initiatives. Looking at revenue performance by brand Versace revenue was $195 million, a 14% decrease compared to prior year. As a reminder because Versace's results are reported on a one-month lag the second quarter included June a month that was still impacted by store closures. For the July through September period global sales in our retail channel increased mid single digits turning positive well ahead of our expectations. As John mentioned e-commerce sales increased in the triple digits. Deals in mainland China increased high single digits while North America was the strongest region with sales up strong double digits. Versace ended September with a global luxury fleet of 206 retail stores a net increase of 8 from prior year. For Jimmy Choo revenue during the quarter was $122 million, a 2% decrease compared to prior year. Retail performance was better than expected and declined in the low double digits including a triple digit increase in e-commerce sales. Retail sales in mainland China increased in the high double digits and in the Americas increased low single digits. Wholesale revenue was also slightly above our expectations. Jimmy Choo ended the quarter with a global fleet of 227 retail stores a net increase of 11 from prior year. Turning to Michael Kors, total revenue of $793 million declined 27% compared to last…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Oliver Chen of Cowen. Please go ahead.

Thanks very much, good morning and nice results in a tough environment. John regarding the Michael Kors brand, what are your thoughts on wholesale versus retail execution and as you look forward the inventory snapshots and merchandise margins, will retail continue to lead wholesale in terms of performance and would love the color on thoughts around how that's evolving. Thank you.

Thank you and good morning Oliver. As we've said in the past two quarters our own retail channel performance at Michael Kors and really this is true for Versace and Jimmy Choo is better than what we're seeing with our wholesale partners. As I've said on many of these calls before we very much believe in the wholesale channel. That channel will become a smaller business for us over time. It was approximately 30% of the overall group's revenues last year. We anticipate that that over the next couple of years will go down to approximately 20% and that's because we are continuing to open stores particularly in the Versace and the Jimmy Choo brand. Also e-commerce is growing very rapidly in our own retail omni distribution channel. And then some of our department store partners are obviously reducing stores both in North America and to some degree in Europe. And we also believe there will be a prolonged recovery in the travel retail business which as I said to you before and everyone on this call many times people think of our wholesale business in the group as only being a North American and certain department stores that are channeled and that's actually not 100% accurate. We do a significant wholesale business in Europe with the travel retail channel and some limited licensed partners are in there as well but they're quite sizable in terms of their overall revenue. So we believe that the actual department store partners both here in North America and in the U.S. will continue to trail behind our own retail channel and that's really for two reasons number one, we've been more aggressive in our inventory positions in our own retail channel whereas our department store partners have been more conservative and I can…

Our next question comes from Kimberly Greenberger of Morgan Stanley. Please go ahead.

Great. Thank you so much. Really nice momentum in the business. It's obviously great to see. I'm wondering if you can it sounded John like you were saying here in October certainly you're seeing sequential improvement in your own retail business but it sounded like you were talking about also seeing sequential improvement in the wholesale channel. I'm wondering if I heard that correctly and then as we look out to understanding there is no fiscal 22 guidance out there but how would you expect your revenue mix to be balanced in a more normal world between wholesale and retail? In other words what ultimately do you expect the wholesale business to represent as a percentage of total when we return to normal? And then I just had a quick clarification for Tom if I could, the 150 basis point gross margin expansion this current year that you're seeing Tom is a piece of that I would think a piece of that benefit is likely permanent in terms of some of the manufacturing efficiencies, higher prices better full price fill through to the extent you can maintain that but maybe there is a piece of that 150 that would be more temporary based on the mixed shift between wholesale and retail. So I don't know if you have a way to help us think about what the sustainable improvement in the gross margin rate is might be for this year. Thanks so much.

Good morning Kimberly and hope this call finds you and your family healthy and safe. Yes, you heard that correctly we saw the same inflection in the wholesale channel and actually slightly even greater inflection. So again I don't know if that's just a month. I don't know we're all obviously cautious about what really December is going to bring as you know in our own retail channel both here in North America and in Europe and in Asia we have restrictions on the amount of people that we can have inside of our stores given the social distancing requirements. So that will absolutely have an impact on what our overall revenues would be especially as we move from Black Friday through the holiday period when we typically will have lines outside many of our stores around the world. So across the group we're cautious and we'll have to see how that works out but we were very encouraged about how, what we saw in our wholesale channel and again it's just only one month but it was quite powerful and I would also again highlight that in our own retail channel and what we're seeing now in our department store channel in particular in North America is the e-commerce business is really ramping up and you saw the sequential jump we had for the group where we were up 60%, we're seeing very strong increases at all of our department store partners both in luxury and in the more accessible luxury category as well. So that I think bodes well really going back to what we started the call with which is the luxury category as you know as we go through these cycles of economic change and where we've seen historical pandemics or medical crisis, the luxury business…

Sure. Thank you and Kimberly when we look at it gross margin we're really pleased with how things have gone in Q1 and Q2 with continued expansion. As John mentioned we're keeping the 150 expectation for the year and that does include an improvement in both Q3 and Q4. You're correct in that there are some what I would call fundamental drivers of margin expansion that are benefiting us through this year and we expect it to continue well beyond this year and that includes better full-price sell-throughs. We're taking selective price increases across our brands. We're seeing manufacturing efficiencies and then longer term the increase in the penetration of accessories at Versace and Jimmy Choo and growth in Asia are certainly supporters of gross margin. Now this year we did have favorable mix from lower wholesale revenues versus our retail and we saw that about 50%/50% of the gross margin driver in Q1 but in Q2 the fundamental drivers were greater and we would expect this mix benefit to be less of a tailwind in the second half and of course normalize as we get into FY 22 and beyond but we're really-really enthused about the growth and opportunities to expand gross margin longer term for the business.

Our next question comes from Matthew Boss of JPMorgan. Please go ahead.

Great and congrats on the improvement. So John maybe can you help quantify and walk through the driver of the higher AURs more specifically and maybe larger picture? Do you see this as a cycle inflection for the accessories category as a whole and then for Capri how would you rank the multi-year AUR opportunity if we were thinking by brand across the portfolio just in terms of magnitude?

Good morning, Matt. Thank you. I'll start with Capri first and so as Tom said before we see a number of things that are going to impact our gross margin across the company and probably one of the larger drivers will be our mix shift where retail will become more important than wholesale. So that will be as you know as I mentioned to Kimberly a moment ago as you see wholesale become smaller part of our mix. That will have an impact. Secondly you're going to see one of the interesting things that has happened during the pandemic and I don't think we're the only company, we're reducing our skew count dramatically across all three of the houses and that's leading to is better full-price sell-throughs, less need for markdown. We're shipping a lot less product inside of each of the deliveries and in certain cases we're maybe dropping a whole a delivery from each of the quarters which really has not, we've not seen any impact to the consumer engagement. And then price increases. So the biggest impact from a price increase standpoint will be the Michael Kors house -- a position that we've taken that quite frankly, I think we have underpriced our product over the past probably three years and we've seen no resistance. We've been quietly taking price increases. This happens, this all started well before the pandemic and so we will consistently continue to take price increases over the next three - four quarters. And we think that the consumer is remaining completely engaged with us and I want to highlight the fact that in the Michael Kors brand our database grew by 16% on a year-on-year basis. That's six million people. I want to say that again that's six million consumers we've added…

Our next question comes from Bob Greenblatt of Guggenheim Securities. Please go ahead.

Hi and good morning. Just a couple questions. I think on the inventory improvement that you've had has in terms of the changes in the product by the brands has a lot of it just sort of been sold through, sold in? I just wondered if you could maybe give us some commentary around where the inventory stands and sort of the progress that you've made by channel and what you think is the status in the channel really on your categories? Thanks.

Good morning Bob. Thank you. Bob I'll take part of it and then I'll turn it over to Tom. Again what I said earlier one of the things that's, if there can be a bright light out of this we're all and I think as an industry we're seeing, we need less product to do the same amount of business and clearly many times whether that's Versace, Jimmy Choo or Michael Kors, we're shipping too broad of assortments in that creates markdowns at the end of the season which takes time to move through, creates unnecessary inventory buildup and it's a margin drain. So as we continue to really focus our inventory and once again I'll talk about how data really helps us do that because obviously we're getting a much quicker reads on product sell through. We are also able to more agilely be able to target our consumers with the products that we think that they have a great interest in or that we might think that they, if they bought a handbag from us we might serve them up a shoe afterwards and we're seeing terrific engagement and I'll talk about Versace I mentioned that the Berroco V has been doing extremely well for us. We're seeing bags sell. We're seeing shoes sell. We're seeing belt sell and many of those are the same customer repeat customer. So that really is giving us a lot of courage to operate on lower size inventories and I would say that's right across all the channels but I'll let Tom talk to the flow of that.

Sure. When you look at the overall inventory as John mentioned and then we talked about in the call we took aggressive action early to align inventory with demand. So for the quarter we're down 13% in inventory compared to revenue down 23% but at the same time we had repurposed some spring summer 2020 for later seasons and that's being held in the quarter. So if you'd excluded this our sales trends inventory and sales trends would even be more aligned closely in Q2 but broadly speaking we believe our inventory is well-positioned for the year. There may be some select areas for products that are outperforming well that we may not have as much inventory into the holiday season but overall I believe we're well-positioned as John said we'll be working at a lower overall inventory level in the future based on the SKU reduction approach.

Thank you.

Our next question comes from Simeon Siegel of BMO Capital Markets. Please go ahead.

Thanks. Good morning everyone. Really nice results. The AUR was great to see. Did you or could you quantify what the AUR lift was this quarter and then John anything you could elaborate on a larger handbag strength that was great and anything on the licensing business? Thanks.

Sure. Good morning Simeon and again I hope you and everyone else who's on this call are remaining healthy and safe during these unique times that we're all facing. Simeon, we're not going to give the actual AUR overall leverage increase because it's in a lot of different places so but the greatest AUR increase we've seen is in accessories and I'd say that's driven probably half and half Simeon, half by the trend of totes. We are starting to see certain satchel sales pick up. We have our new Hamilton group that's that's been wildly successful and again it's really nice to see big handbags selling again and we've seen backpacks as we've talked about and we're seeing a similar thing at Jimmy Choo as you heard me talk about and at Versace as well. So it's definitely a trend across the industry. Again small bags are still very-very strong and we have some incredibly strong new sellers that we've delivered for the holiday season that are probably some of the strongest sell-throughs that we've had in some time. And so I think and you're going to also see some additional AUR lift in our footwear. I think across all Versace, Jimmy Choo and Michael Kors in particular Jimmy Choo, Jimmy Choo I talked about the sell through on Timberland, the $5,000 boot with all of our Swarovski crystals literally sold out almost to the piece and so we've seen that. We've seen a number of shoes in Jimmy Choo at the $1,200 to kind of $1,500 price range that have been very strong sellers. So we're encouraged and emboldened in a sense to sell more fashion product at higher price points. Again some of the quantities are limited but it's definitely what the customer is reacting to and again we don't have to put that product into a whole swath of our stores because with our digital prowess and our ability to use the data and to really reflect on who the customer is, we're able to do these things and really get high sell-throughs. So I think we're going to continue to use more of that and again I also want to point out one of the other AUR benefits for us is also in Asia where our Asia business has been very strong in particular mainland China and the price points are considerably higher there versus North America and EMEA. Thank you Simeon.

Our next question comes from Mark Altschwager of Baird. Please go ahead.

Good morning. Thanks for taking my question and congrats on the progress so far. I was hoping you could give us a sense of where you are in terms of digital penetration by brand? Where you think that this will normalize given some of the structural changes in the wholesale channel and changes you're making to the store fleet and then separately nice to see the continued sequential improvement in retail. I was hoping you could give us a sense of the current run rate of store productivity versus where you were last year at each brand. Thank you.

Good morning Mark. Mark as you know, we don't break out the actual digital performance for the company or by brand but what I can tell you is the following. You saw our digital business grow 60% for the group. You saw it grow triple digit at Versace and at Jimmy Choo and very-very strong double-digit growth at Michael Kors. What I would say is the following is as we've talked about in the past, in North America all three brands are really at our full capacity in terms of store development. There will be a handful of stores additionally that will open at Jimmy Choo and at Versace. And in Michael Kors we're going to close a significant amount of stores. Our feeling is that in North America digital will represent at a point in time over the next couple of years between 40% and 50% of the overall revenues for the brands in North America. We can see that, we could see ourselves getting to that point and again it's going to take a few years to get there but the trends are definitely leaning in that direction. Europe we don't see that type of trajectory. We see something that would probably get us to a 30% level over the next few years and in Asia as you know it's a much smaller piece of the business today low single digits but we do think that that will kind of be in that 10% to 15% range again over the next few years. We are extremely pleased with our development of the digital business. I will first start with Japan which is for the group been excellent across all three of our luxury houses and as you know or may know we've gone on to a team all…

Our next question comes from Paul Trussell of Deutsche Bank. Please go ahead.

Good morning and congrats on the successful and improving quarter. I wanted to ask a question on margins Tom maybe just a little bit more detail about the full year view and the puts and takes as we think about the 150 basis point guidance for gross margins and on OpEx how we should think about kind of the reinvestment into the business and support for marketing versus the cost savings that's flowing to the bottom line and then quickly John also if you can just maybe chime in a little bit more about where you stand today in terms of your kind of medium-term outlook for growth at both Versace and Choo? Thank you.

Paul thanks for the question and I'll start with gross margin and then move to the cost piece but overall we're excited about the gross margin opportunities and we continue to expect to see gross margin expansion 150 basis points for the year and in the second half in Q3 and Q4 again a little less of a tailwind from the wholesale channel mix but still expect the fundamental drivers a better full price sell through, selective price increases and manufacturing efficiencies to continue to drive gross margin expansion across the company and really across brands. So that piece we would then expect to continue into the next year. When we look at the cost savings we updated our guidance on that and we are excited about doing better and we're spending back as the business is recovering at a quicker rate. The first half did benefit from a few factors that weren't really applicable to the second half like savings from furloughs and store closures and some other activities around rent and significant reductions in support for the business while it was closed but now as we're building back up we have a lot more confidence in the growth trajectory and we're spending as of course to support the brand on marketing as sales are increasing. We're spending on higher costs on a variable basis. We notice the compensation reductions and of course it wasn't anticipated at the time but the dollar has weakened and that's impacted us by about $50 million. So that's a little bit of the back half second half. If you look at the longer term of the 500 million that we had initially indicated we were saving we expected about half of that to flow through the future and we're still seeing underlying savings but there is just a few considerations for you on that for the ultimate flow through. The first is better than expected revenue or recovery and as revenue is higher than what we initially anticipated at that 500 level of course would be higher variable expenses and the second is the weaker dollar we expect to continue into next year. So there will be some a bit of a headwind there but overall we expected robustly or rigorously controlled costs going into the year and still expect savings in that area. Thank you.

Good morning Paul. So paul as we've talked about before Versace we think is one of the most important acquisitions that this company has made. There are not many luxury houses that first off come to the market and secondly we have this type of global brand recognition and again a lot of the initiatives that we started with Donatella and with Jonathan Aykroyd, our CEO who I've commented about on previous calls as a terrific leader for this luxury house have we put these in place before the pandemic started and we're really seeing, we're starting to bear a lot of the fruit from that. We've shut down multiple lines. We've closed stores. We've continuing to renovate the fleet because we know this will be hopefully behind us in the next 12 to 24 months. So we continue to invest in repositioning of this brand for what we firmly believe is a dollar opportunity and to see this brand and this luxury house perform in this environment increasing in our own retail stores in mid single digits is really extraordinary and I put that right in as I said earlier in the competition competitive mode with our with other luxury appears around the world and as you know the luxury category is really performing quite strongly during the pandemic and you've seen that through some of the other reports that come out. So in the medium term we continue to believe that Versace is going to grow at the kind of levels that you've seen in the previous earnings calls. So again we're well on our way and we know what once we get through these difficult times this acquisition we've made is going to really turn on and again we've said we believe we'll have mid-teens operating margins…

Our next question comes from Dana Telsey of Telsey Advisory Group. Please go ahead.

Good morning everyone and congratulations on the progress. That's very nice to see. John as you think of the physical footprint, you've given out updated targets. How you thinking about the closures? What are you thinking about regionally in terms of what the physical footprint should look like and are rent reductions helping drive the SG&A long term cost efficiencies going forward? Thank you.

Thank you Dana. Good morning. Dana, first I want to thank all of our real estate partners around the globe. I would say 90 plus percent of them were absolute partners during the darkest moments of this pandemic and really our biggest partners came to the table and it's not easy for them to do that but I have to really give a big thanks to all of them and we worked collaboratively together to do that. We're not necessarily at the moment seeing any long-term rent reductions. We're going to honor our leases and be good partners and if we've got term on those leases we're going to pay those leases as stated. So I wouldn't say that's where we're going to see leverage. Maybe over time rents will come down. I don't know it's like most of our leases are in place for some duration. So I think it's too early to judge that but what clearly we're doing is we are reducing our overall store count and it's really a Michael Kors initiative and it's I would say probably 80%, 20%, 80% North America and 20% in Europe and those stores have fallen below a profitability or actually are no longer profitable. So the more we shed those stores or close those doors the more profitable the company will actually be. I'd say the short term concern is that the major cities again this is not something that you're not aware of whether it's New York, Chicago, San Francisco, certain parts of Los Angeles, Paris, London, Milan, Madrid these are all high tourist level cities and again there is many more some even in Asia whether it's in Tokyo or in Korea we need tourism to return to get these doors back up to a level. Traffic…

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.