Capri Holdings Limited (CPRI) Q4 2021 Earnings Report, Transcript and Summary

Greetings. Welcome to Capri Holding Limited Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [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. You may begin.

Good morning, everyone and thank you for joining us on Capri Holdings Limited fourth quarter fiscal 2021 conference call. With me this morning are Chairman and Chief Executive Officer, John Idol; and Chief Financial 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 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 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 impairment, ERP implementation costs, Capri transformation costs, charitable donations and inventory step-up adjustments, acquisition foreign currency effects, 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 slides 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. Looking back, fiscal 2021 was a year like no other. Over this time, the COVID-19 pandemic has had a profound effect on the entire world. The unprecedented challenges tested our business and industry in ways we could never have imagined. My thoughts go out to all those affected by the virus and to everyone on the front lines who worked tirelessly helping combat this pandemic. The entire Capri team came together, not only to successfully navigate these challenging times, but also to position the Company to emerge from this global crisis even stronger. I want to thank all of our employees around the world for the hard work and dedication they demonstrate every day to support each other and their communities. It has been inspiring to see the entire organization rallied together. I'm incredibly proud of the team and what Capri Holdings has been able to accomplish during these unprecedented times. Looking at fiscal 2021, we are encouraged by the performance of all three of our luxury houses. Revenue and earnings results significantly exceeded our original expectations. Retail sales improved sequentially every quarter while e-commerce sustained strong increases across all brands with growth rates accelerating even after stores began reopening. Additionally, in line with our goals to expand margins across all our luxury houses, gross margin increased approximately 340 basis points in fiscal 2021. Furthermore, we attracted nearly 9 million new consumers across our luxury houses as evidenced by the double-digit increases in our customer databases over the last year. Our success is a testament to the strength of our brand as well as the dedication, resilience and agility of the entire Capri Holdings team. During the year, we reevaluated and refined Capri Holdings' strategic direction to ensure the Company emerges from the pandemic stronger and more profitable. For Versace chain and Jimmy Choo, we reaffirmed our long-term plans and are even more enthusiastic about the prospects of these luxury houses. For Michael Kors, we recalibrated our plans to further elevate the brand positioning and deliver higher profit margins, which we have already begun to achieve. With the strategic reset of our business, we believe Capri Holdings is well positioned to achieve our goal to grow to $7 billion in revenue. Looking forward, as the world starts to recover from the pandemic, we are confident in our growth opportunities for Versace, Jimmy Choo and Michael Kors. Consumer optimism is returning with the vaccine rollout progressing in many parts of the world. While the pace of recovery is still dependent on the vaccinations and progress, we believe, the luxury market will resume a steady growth trajectory, and Capri Holdings is well positioned to participate. Now, turning to the fourth quarter performance. We were pleased revenue, gross margin and earnings per share all significantly exceeded our expectations. The Company achieved these results despite greater than anticipated challenges in EMEA and Canada due to additional restrictions and store closures associated with COVID. Total revenue in the fourth quarter was flat compared to prior year. With strength in the retail channel in the Americas and Asia offsetting the challenged environment in EMEA. Additionally, gross margin expanded 280 basis points more than double our expectation with margin expansion across all three luxury houses. Operating margin expanded 660 basis points. As a result earnings per share of $0.38 was stronger than expected. Looking at group revenue trends, total sales for our retail channel increased 13%, significantly exceeding our expectations. The better results were driven in part by robust e-commerce sales, which increased 80% and once again accelerated relative to the prior quarter. E-commerce sales are benefiting from our increased use of data analytics to support more targeted and personalized marketing. Additionally, store performance improved significantly quarter-over-quarter, driven by local clienteling initiatives and improved traffic trends. In the wholesale channel, sales also improved sequentially. By geography, Asia remains the fastest recovering region with retail sales increasing double digits versus prior year. Once again, revenue in the region increased across all three of our luxury houses, driven primarily by strong growth in Mainland China, where sales increased triple digits. In the Americas, retail revenue also increased double digits, even though an average of 40% of our stores in Canada were closed during the quarter. On the other hand, in EMEA, revenue trends remain negative as an average of 60% of our stores in the region were closed during the quarter. Despite the increased restrictions and store closures in EMEA, retail sales trends in the region improved sequentially driven by triple-digit increases in e-commerce. Now, turning to fourth quarter performance by brand. Starting with Versace, we were pleased with the results which were significantly ahead of our expectations. Revenues increased 10% in the fourth quarter, demonstrating the strength of the brand and the success of our strategic growth initiatives. Sales in our retail channel increased double digits globally. In the Americas and Asia, we delivered double-digit growth, which more than offset declines in EMEA. E-commerce sales, once again increased triple digits year-over-year. We were encouraged with the performance of our spring collections which are resonating with consumers. We saw strength across categories reflecting enthusiastic customer responses to the brand and product. Women's accessories and footwear, our key strategic growth drivers. These categories performed exceptionally well with sales nearly doubling prior year levels during the quarter. We continue to see strong consumer response to Virtus as well as to the introduction of our new La Medusa collection, which launched in February. With Virtus and La Medusa we now have two powerful highly recognizable brand pillars to grow accessories and footwear. We will soon introduce a third pillar with the fall launch of our La Greca signature pattern. I hope you were able to watch the Versace Fashion Show in March where we debuted the new signature pattern, which combined our iconic Greek Key motif with Versace logo. We believe the introduction of the new La Greca signature pattern will significantly accelerate the trajectory of Versace's revenues as it expands the brand's portfolio of recognizable iconic pillars. Additionally, we saw strength across both women's and men's ready to wear. Seasonal offerings incorporated the Tresor de la Mer pattern, which was featured in the Versace's Spring 2021 Runway Show. We also continue to expand our core lines that incorporate iconic house codes to increase sales and broaden for Versace's reach. Another key indicator of strength of the Versace brand is our very successful fragrance collection, which is one of the largest designer fragrance businesses in the world. We were very pleased with the continued strength of our new Dylan Turquoise and the refresh of our successful Dylan Blue fragrances as sales continue to exceed our expectations. In terms of brand awareness and consumer engagement, Versace's Spring-Summer 2021 campaign reflected Donatella's underwater fantasy world Versaceopolis, starring Kendall Jenner, Hailey Bieber and Precious Lee, the modern Versace end users exhibit an empowered attitude that looks to the future with optimism and hope. In addition, in China, Versace launched a dedicated campaign featuring its new celebrity ambassador, Betty Wu. The Chinese singer and actress has over 25 million followers on her social media accounts. Also Versace debuted Donatella's new collection during its Fall-Winter 2021 Fashion Show in March, which introduced our new La Greca signature pattern. The virtual show was presented in a vertical maze inspired by our iconic Greco motif and featured top fashion models, including Irina Shayk, Gigi and Bella Hadid among others. The Fashion Show generated more than 20 million views on our own channels and Versace ranked the first for engagement among all the Italian fashion brands. These initiatives among others help to drive a 22% year-over-year increase in Versace's global database. Overall Versace's results speak to the strength of the brand and reinforce our confidence in the luxury houses long-term growth potential. Versace represents the largest growth opportunity for Capri Holdings as we continue to believe revenue will increase to $2 billion. Moving to Jimmy Choo; results were also ahead of our expectations with revenue increasing 16%. Sales in our retail channel increased in the high single digits globally. In the Americas and Asia, we delivered double-digit growth, which more than offset declines in EMEA. E-commerce sales improved sequentially and increased over 50% versus prior year. We are encouraged with the performance of our spring collection, which encompasses '90s Chic and celebrates the notion of contradictory glamor. Accessory sales showed strong growth driven by our signature JC Warren and continued success of the Bon-Bon Group. In footwear, new designs by Sandra Choi blurred the lines between shoes and jewelry featuring styles adorned with crystals and pearls. As restrictions begin to ease in many parts of the world, we have seen trends improve in the dress footwear category. In our casual offerings, we saw continued success of Hawaii and the Diamond Sneaker franchise. We also saw success with our Jimmy Choo/Marine Serre collaboration, which combined Jimmy Choo's feminine esthetic with the futuristic vision and signature crescent moon print to create limited addition footwear. In terms of brand awareness and consumer engagement, Jimmy Choo's Spring 2021 campaign is a modern ode to spring time in Paris. The imagery captures model artist Sharon Alexie's vibrancy with key Parisian landmarks as backdrops. Jimmy Choo also continue to drive localized marketing. Our Asian brand ambassador, Chinese actress and singer, Victoria Song presented the Spring-Summer collection to her 15 million plus followers on social media accounts. In the first quarter alone, the dedicated hash tag for Victoria Song, as Jimmy Choo's Asia Ambassador garnered 60 million reads [ph]. Our luxurious product and engaging marketing helped contribute to a 13% year-over-year increase in Jimmy Choo's global consumer database. Overall, we are encouraged by the progress we are making towards our goal of growing revenue at Jimmy Choo to $1 billion. Turning to Michael Kors; we are pleased with the pace of the recovery revenue again improved sequentially in the fourth quarter declining 4% as compared to last year. Sales in our retail channel increased in the mid-teens globally. In the Americas and Asia, we delivered double-digit growth, which more than offset declines in EMEA. E-commerce sales once again accelerated relative to the prior quarter and increased approximately 75% benefiting from our increased use of data analytics to drive more targeted and personalized marketing. Moving to product performance; we continue to increase signature penetration across all categories by expanding our offering and developing new designs. Overall, signature represented approximately 35% of the assortment across all categories compared to 28% last year resulting in higher AURs and gross margins. We believe signature can eventually grow to approximately 50% of our overall product assortments which will drive higher margins. Accessory sales in our retail channel increased double digits globally as consumers responded to fresh updates for spring including flashes of color that energize our iconic signature styles. Sales of totes and larger bags remain strong as we continue to build upon the assortment offering a variety of new shapes and functionalities. Within footwear, we have seen a positive response to new spring updates driven by signature, shine and feminine details. Turning to men's which remained our fastest growing category in the fourth quarter, sales increased double digits driven by signature and accessories. I am excited to say that our watch sales were positive for the first quarter since 2016 with retail sales up double digits. We continue to see a resurgence in our traditional styles that are true to our DNA with bold sophisticated and distinctive designs. During the quarter, we also launched Michael Kors' newest fragrance Gorgeous. The launch was extremely successful resulting in fragrance sales significantly exceeding our expectations. The dedicated campaign stores model and actress, Sara Sampaio who fully embodies the spirit of the fragrance. She radiates confidence, optimism, joy and strategy. With respect to brand awareness and consumer engagement, Michael Spring 2021 campaign reflects the love of travel and features supermodel Bella Hadid, the quintessential jetsetter as she re-discovers iconic New York City sites. In China for the Lunar New Year, Michael Kors launched a capsule collection featuring a lux [ph] selection of our most loved accessories including the Soho shoulder bag exclusively offered in a new special addition red and black tweed. Our brand ambassadors, Gao Yuanyuan, Leo Wu, [indiscernible] continue to amplify Michael Kors' jetset brand messaging to their more than a 120 million social media followers. I'm also excited to talk about Michael Kors' 40th anniversary show that recently took place in April. Michael celebrated his eternal optimism and love of New York with the theme, Opening Night. From the heart of Broadway, the show immersed guests in the inspiration for this collection. The idea of stepping out once the world opens up again. The collection featured a selection of Michael's most iconic looks from different years over the past 40 years. Past and present supermodels including Naomi Campbell, Helena Christensen, Carolyn Murphy, Ashley Graham, Shalom Harlow and Bella Hadid all paid tribute to Michael. The show generated more than 34 million views on our own channels. These marketing initiatives continue to underpin our brand pillars of speed, energy and optimism. This helped contribute to an 18% year-over-year increase in Michael Kors global database. Overall, we were encouraged by the sequential improvement in revenue trends and continued gross margin expansion at Michael Kors. As a result, we remain confident in our ability to grow our revenue at Michael Kors to $4 billion. In total, Capri Holdings' fourth quarter and full year results significantly exceeded our expectations demonstrating the strength of our brands and the resiliency of our teams across the globe. During these unprecedented times, we have stayed focused of executing our strategic initiatives across all three luxury houses. We believe Capri Holdings will emerge a stronger and more profitable company and remain confident in the long-term opportunities for each of our unique global luxury houses. With the combined power of our three iconic founder-led fashion luxury brands Versace, Jimmy Choo and Michael Kors. Capri Holdings is positioned to accelerate revenues to $7 billion and deliver multiple years of earnings growth. Now, let me turn the call over to Tom.

Thank you, John and good morning, everyone. Starting with fourth quarter, revenue of $1.2 billion was flat to last year significantly exceeding our expectations. Performance was driven by better-than-anticipated results across all brands and regions. Net income was $59 million resulting in diluted earnings per share of $0.38 this was above our expectations reflecting better-than-anticipated revenue and gross margin along with lower operating expenses. Looking at revenue trends by channel, total company retail sales increased 13%. These results were driven in part by robust e-commerce sales which increased approximately 80% and once again accelerated relative to the prior quarter. Additionally store performance improved significantly quarter-over-quarter driven by local clienteling initiatives and improved traffic trends. In the wholesale channel, revenue also improved sequentially. By geography, in Asia, retail sales increased double digits versus prior year. Once again, revenue in the region increased across all three of our luxury houses driven primarily by stronger growth in Mainland China, where sales were up over 100%. In the Americas, retail revenue increased double digits, despite store closures in Canada. Conversely, in EMEA, retail revenue trends remained negative as an average of 60% of our stores were closed during the quarter. Despite the increased restrictions and store closures in EMEA, retail sales trend improved sequentially driven by triple-digit increase in e-commerce. Turning to revenue performance by brand. Versace revenue was $235 million, representing a 10% increase to the prior year and above our expectation. Global sales in our retail channel increased double digits with e-commerce sales once again increasing triple digits. Sales in Asia grew double-digits driven by strong double-digit growth in Mainland China. The Americas was once again the best performing region with revenue up strong double-digit. Trends in EMEA remain below prior year impacted by increased restrictions and store closures. Versace ended March with a global luxury fleet of 210 retail stores, a net increase of four from prior year. For Jimmy Choo, revenue during the quarter increased 16% to $124 million also above expectations. Retail sales in Mainland China increased triple digits resulting in double-digit sales growth in the total Asia region. In the Americas, retail revenue increased in the low double digits. While in EMEA trends remain negative, but improved sequentially despite the increased restrictions and store closures. Jimmy Choo ended the quarter with a global fleet of 227 retail stores, a net increase of 1 from prior year. At Michael Kors total revenue of $838 million declined 4% compared to last year. Overall retail sales increased in the mid-teens significantly better than expectations, e-commerce sales growth accelerated sequentially increasing approximately 75%. Retail revenue in Mainland China increased triple-digit driving double-digit retail sales growth in the total Asia region. In the Americas, retail revenue increased double digits. In EMEA trends remain negative but improve sequentially despite the increased restrictions and store closures. For our Global Wholesale business, sales at retail and shipments both improved sequentially. However, overall shipments remain below prior year. Michael Kors ended the quarter with a global fleet of 820 retail stores, a net decrease of 19 from prior year. Now, looking at total Company margin performance. We were pleased with gross margin expansion of 280 basis points, which was significantly above our expectations. As John mentioned, gross margins expanded across all three of our luxury houses. This improvement primarily reflected increased full price sell-throughs and select price increases at Jimmy Choo and Michael Kors. These gains were partially offset by higher tariffs related to the expiration of the GSP trade program as well as increased transportation costs. Operating expense as a percent of revenue was 51.5% compared to 52.3% last year. Total Company operating expenses were modestly below prior year, reflecting our expense reduction initiatives, partially offset by higher foreign currency exchange rates and variable costs associated with increased retail revenue. As a result, total Company operating margin expanded 360 basis points to 11.9% compared to 8.3% in the prior year and was well ahead of our expectation. Looking at operating margin by brands. Versace's operating margin of 12.3% was above our expectations and improved over 1,000 basis points, reflecting both gross margin expansion and expense leverage. Jimmy Choo's operating margin of negative 14.5% reflects expense deleverage partially offset by gross margin expansion. Michael Kors operating margin of 20.5% was above our expectations and expanded 460 basis points over prior year reflecting higher gross margin and lower operating expenses. Our tax rate for the quarter was 59%, driven primarily by mix of income across different tax jurisdictions. Now, turning to our balance sheet. We ended the year with cash of $232 million and debt of $1.3 billion resulting in net debt of approximately $1.1 billion. We paid down approximately $70 million of debt during the quarter and approximately $850 million during the year. Total liquidity at the end of the year was $1.5 billion. Given our strong cash flow generation, we are exiting our covenant waiver and 364 day credit facility ahead of schedule. Additionally, we are now reinstating our share repurchase authorization which has $400 million of availability remaining. Looking at inventory, we ended the quarter with $736 million, down 11% compared to prior year. We expect to build inventory to support sales growth over the year. While we are seeing delays in receiving merchandise. The current situation is incorporated in our outlook for the year and we continue to work on initiatives to further mitigate transportation challenges. Capital expenditures for the year were $111 million and were primarily spent on new store development, renovations, IT, and e-commerce enhancements. Now, turning to fiscal 2022 guidance. Though it's not our normal practice, we believe it is important to lay out our view of the quarterly progression of revenue and earnings throughout fiscal 2022. We are doing this for two reasons. First, the COVID-19 pandemic has had a significant impact on both revenue and expense comparison. Our forecast incorporates our expectations for the pieces of recovery on revenue as we move through the year as well as the amount and timing of expenses such as marketing and reopening costs. Second, as previously discussed, we have reset our business strategies and objectives. Most notably, we are planning for a smaller but more profitable Michael Kors business. As a result, we believe the most appropriate benchmark to evaluate our progress against our revised objectives is this forecast which we believe will provide a more accurate reflection of the success of our initiatives. For the full year, we forecast Capri Holdings revenue of approximately $5.1 billion. This includes approximately $75 million associated with the 53rd week and assumes Versace revenue of approximately $925 million to $975 million, Jimmy Choo revenue of approximately $500 million to $525 million and Michael Kors revenue of approximately $3.5 billion to $3.6 billion. For the first quarter, we forecast revenue of approximately $1.1 billion. We expect continued growth in the Americas and Asia region despite ongoing restrictions including store closures in Canada, Japan and Southeast Asia. In EMEA, we anticipate revenue will continue to be impacted by regional restrictions including store closure. Turning to the second quarter, we anticipate revenue of approximately $1.2 billion supported by reopening in EMEA, Canada, Japan and Southeast Asia. As we look to the second half, we are optimistic about a stronger recovery after vaccines are more widely distributed. All of our luxury houses should benefit as people begin to feel more comfortable returning to more normalized routines. In the third quarter, we expect revenue of approximately $1.4 billion. And for the fourth quarter, we anticipate revenue of approximately $1.4 billion. Now, let me talk about the remainder of the full year P&L. Starting with gross margin, for fiscal 2022, we continue to see underlying strength in our ability to expand gross margins through higher full price sell-throughs, select price increases at Jimmy Choo and Michael Kors as well as increased penetration of accessories at Versace and Jimmy Choo. As I previously noted, we are experiencing higher transportation costs. As a result, we now anticipate approximately 50 basis points of gross margin expansion year-over-year. Moving to operating expenses; we now expect operating expenses of approximately $2.6 billion. This includes the benefit of our COVID-related cost reduction initiatives. It also reflects higher variable expenses related to increased revenue, additional reinvestments in our business to accelerate growth, in particular, marketing as well as the impact of foreign currency exchange rates. Taken together, we anticipate Capri Holdings operating margin of approximately 14% reflecting year-over-year operating margin improvement across all brands. For Versace, we anticipate operating margin in the low-double-digit range. For Jimmy Choo, we expect operating margin in the negative mid-single-digit range due to continued expense deleverage. For Michael Kors, we anticipate operating margin in the low 20% range. Turning to our expectations around certain non-operating items. For fiscal 2022, we estimate net interest expense of approximately $20 million. Our effective tax rate is estimated to be approximately 15% and we forecast weighted average shares outstanding of approximately 156 million. As a result, for fiscal 2022, we expect to generate earnings per share of approximately $3.70 to $3.80. Turning to capital expenditures; we anticipate spending approximately $200 million in fiscal 2022 which includes store openings and remodel as well as IT expenditures including investments in our digital platform. Now I would like to discuss our non-GAAP charge expectations for fiscal 2022. We anticipate transformation expenses of approximately $20 million. Implementation costs for SAC of approximately $30 million and restructuring charges of approximately $70 million related to our fleet optimization program. Turning to our first quarter guidance. As I said earlier, we expect revenue of approximately $1.1 billion. This is since Versace revenue of approximately $220 million, Jimmy Choo revenue of approximately $110 million and Michael Kors revenue of approximately $770 million. For gross profit, we expect continued margin expansion in our retail channel. For the quarter, this improvement will be offset by higher wholesale penetration as shipments normalize. We expect wholesale penetration to nearly double to approximately 25% in the first quarter. Therefore we anticipate total company gross margin contraction of approximately 100 basis points in the first quarter compared to last year. Turning to operating expenses; we expect first quarter operating expenses to increase approximately $150 million year-over-year. This reflects the significant increase in revenue relative to last year, which is generating higher variable expenses. Additionally, it reflects reinvestment in our business as sales recover as well as the impact of foreign currency exchange rates. Taken together, we anticipate first quarter operating margin of approximately 12%. With Versace, we anticipate operating margin in the high single-digit range. For Jimmy Choo, we expect operating margin in the negative low to mid-teens range. For Michael Kors, we anticipate operating margin in the low 20% range. Now, looking at certain non-operating items. For the first quarter of fiscal 2022, we estimate net interest expense of approximately $5 million. Our effective tax rate is estimated to be approximately 9% and we assume weighted average shares outstanding of approximately 155 million. As a result, we anticipate first quarter earnings per share of approximately $0.75. Now, I would like to share our expectations around our quarterly earnings per share assumptions for the remainder of the year. Again, while this is not our normal practice, we thought it would be helpful to layout our view of the quarterly earnings progression through fiscal 2022 based on the impact of the COVID-19 pandemic and the reset of our business strategies and objectives. For the second quarter, we anticipate earnings per share in the range of $0.70 to $0.75. For the third quarter, we expect earnings per share in the range of $1.65 to $1.70 and for the fourth quarter, we forecast earnings per share in the range of $0.55 to $0.60. Please note, this guidance does not incorporate any additional store closures or new government restrictions that could further impact our business. In summary, we believe the progression over our initiatives throughout fiscal 2022 positions Capri to deliver on its long-term goals. As we look beyond to fiscal 2023, we continue to anticipate revenue and earnings per share will exceed pre-pandemic levels. In conclusion, we are pleased with the trajectory of our business reflecting the strength of our fashion luxury houses and the execution of our strategy. Versace's results speak to the power of the brand and reinforce our confidence in the luxury houses long-term potential. Versace represents the largest growth opportunity for Capri Holdings as we continue to believe revenue will increase to $2 billion while operating margins expand to at least the mid-teens longer term. At Jimmy Choo, we are encouraged by the progress we are making toward our goal of growing revenue to $1 billion, while expanding operating margins to the mid-teens longer term. At Michael Kors, we are encouraged by the sequential improvement in revenue trends and continued gross margin expansion. Longer term, we remain confident in our ability to position Michael Kors as a smaller, more profitable business with revenue of $4 billion and operating margins of approximately 25%. Taken together, we believe Capri Holdings is well positioned to generate $7 billion in revenue with Versace and Jimmy Choo combined accounting for approximately 40% of revenue, and approximately one-third of total company earnings. As the world emerges from the pandemic, we remain confident that our three luxury houses position Capri Holdings to deliver multiple years of revenue and earnings growth, as well as increased shareholder value. We look forward to sharing more of our future outlook with you at our upcoming Investor Day on June 29. Now, we will open up the lines for questions.

Thank you. [Operator Instructions] Our first question is from Omar Saad with Evercore ISI. Please proceed.

Good morning, thanks for taking my question and great job in the quarter, pretty exciting stuff. I guess I'll use my one question to ask about how sticky some of these margin gains are that you guys are generating, especially around the Kors brand, I think it's up 400 bps gross margin, up 400 bps versus kind of pre-pandemic and less promos more pricing power, and I'm wondering if we should think about longer-term as supply and demand normalize. Do you think some of that promotionality will go away. I'm sorry, could return and, or should we think about Kors as kind of like a smaller, a little bit smaller, leaner, more profitable brands, steadier grower in terms of long-term algorithm. Thanks.

Thank you, Omar, and good morning. I'll pick part of it and I'll let Tom pick part of it as well. To begin with, I think we're extraordinarily pleased with what happened in the quarter for all three of our luxury houses and really the margin expansion we saw which was -- which was I think really important, because we've been focused on reducing the SKU counts across all three of the companies and really putting a laser focus on full price sell-throughs and that's gone up right across the Group and so I think we're seeing the impact of that. Also, I just might add that the performance of accessories at Versace is really extraordinary and far ahead of what we had, where we had expected to be at this point in time. And when you look at this brand having about a 10% increase in the quarter and remember two years ago we dropped almost $150 million when we bought the company from its -- from its revenue base to really clean it up and set it as a luxury company where we eliminated two of the lines. So that whole strategy is working in place and I think we're also seeing at the Jimmy Choo the power of two things happening again, reducing our SKUs. We are seeing better full price sell-through in the dress shoe business which is returning and our active business in particular, the -- our Hawaii and DIAMOND platforms are having a great sell-throughs. So really good things happening there. Again, that's helping to improve margin. And then at Michael Kors, there's a number of things going on. Again, SKU reduction is part of the story. Clearly, the price increases that we've taken and we will take more I think we talked about that on our previous calls, more will happen of this fall season and we will probably take more even further in Spring of 2022. Our feeling is as we've stated a number of times we want the Michael Kors brand to be higher positioning from a luxury standpoint. We want to reduce the amount of promotional activity in the way we do that is to really curtail the amount of supply. And then the biggest part of the story is quite frankly our focus on our signature business and the designs that Michael and his team have been putting forth on our marketing campaigns. We are resonating with the customer. There is no question what's happening. And I think that kind of the cool and interesting thing that we found is that this new customer who in many cases is or early on was the latter part of the millennial, the Michael Kors brand is new to them. And that's what's so exciting and we find that in the watch business too. And we've talked about our first quarter of seeing watch comps up and it's for many years and this is because the new customer finding our brands. So we're super excited that we can see that happening. So I do believe that this is going to be to use your term sticky. And I think we're going to see a continued expanded gross margin at Michael Kors, really again based around price increases that we're going to take. Again we talked, I think we talked about signature across the total Group this time where normally we only talked about it in accessories and what you're finding is more total number and we're seeing that this could really be 50% across the entire all categories of business in the company. So that's quite exciting and that gives us better full price sell-throughs and more sustained product lifecycle, which is another very important thing as we look at profitability. So, I'll let Tom talk to the actual numbers himself.

Sure. And thanks, again, Omar. As John noted, we did exceed expectations all this year and was really through fundamental actions and initiatives, the business is taking. And more importantly there are initiatives that are going to continue and expand upon in fiscal '22 and into '23, but we forecasted 50 basis points of expansion for margin in '22 and that includes all of these initiatives plus a little headwinds related to transportation costs and particularly in Q1, the wholesale mix. But if you look at the quarterly progression which we provided, you can see we'll be getting stronger as we move through the year as these initiatives take hold and we move past the wholesale normalization. And then, for fiscal '23 we continue to expect 100 basis points of expansion. So when we look at the total Company, we'll be expanding and then we look at Michael Kors in particular we'll be on a path to the 25% margins, which -- operating margins, which is well ahead of where we have been historically.

And Omar, I'll just add one last point as well in terms of the KPI. When you look at the fact that we've been raising prices in Michael Kors, really there has been less promotional merchandise available. Our inventories are down as less for the customer to find, and remember, that's more of a North America situation, when you go outside of North America, we don't have that cadence in the business, we follow a much similar cadence to the luxury industry. But we grew our database 18% in the last quarter, and that means two things, as the customer is responding to our marketing and Michaels' phenomenal designs, and it also means that the price increases are not stopping that customer from crossing the line and purchasing products. So thanks a lot for that question, Omar.

Great color. Thank you.

Our next question is from Kimberly Greenberger with Morgan Stanley. Please proceed.

Okay, great. Thanks so much. Really, really nice numbers here in fourth quarter. Thank you so much for the rundown. John, it sounds like just an answer to Omar's question that you might be sort of rethinking your view on long-term margins given maybe to higher margin rates that you guys are delivering right here with the ongoing opportunity. So I'm just wondering, am I reading you correctly? Do you think that longer-term operating margins both in aggregate and by brand could in fact be higher than the targets you established several years ago. And if you could just, and Tom, can you just help us understand how margins change over time through international growth and e-commerce growth? Thank you so much.

Kimberly, great question and good morning. I would answer that in two ways. First off, I think you saw in our press release today, we've announced an Investor Day. We're going to lay out some of those longer-term strategic goals and some more detailed timing around them, because we're, again we don't have crystal clear vision as you can only imagine. We're still coming out of the pandemic, and the business in Greater China has been the lead, the business in North America has had strong growth, especially this last quarter. And I might add, it's continuing on into this quarter. And one of the things we're really pleased about is the department store business in North America is quite strong. So we're really pleased to see that. And again this is on significantly reduced inventories. So the sell-through, turn and margins, it's all really in a great place. I might add, you will still see depressed wholesale numbers for two reasons; number one, Europe is not back by any stretch of the imagination. We're going to be well into latter part of Q3, I think until we see something get healthier there. And when I want to talk about, I'm talking about calendar Q3. And then, hopefully into calendar Q4, as the vaccines get rolled out there and you get more borders opened. And then lastly, while I think we've all been reading about the return of domestic air travel and we're all excited about how many people are going to travel this week. And from an international duty free business that we've talked about which is the third component of our wholesale business, that's still is basically shut down, but we think that will return in '22. So that's going to be a nice addition for us when that business does come back. We will basically have been out of that business for all intensive purposes for two years, besides duty free business has been strong in China. But again, that can offset what we were doing globally. So answering your question about long-term margins, I think we feel very good about the targets that we set for Michael Kors. I think this is closer to a 25% range over a period of time is and that hopefully won't take too long is definitely within our window. We see it, and we feel great about that. I think that, now moving to Versace, clearly the mid-teens operating margin that we've given is our -- let's call that our first step. Over time as we get to more sizable volumes, I think we have loftier goals. I think we've said that to you all in the past, again we don't want to get in front of ourselves, because we're going to make investments. Versace is doing really well right now. And as I said a moment ago, we are pleasantly surprised at how quickly our accessories business, and quite successful when business grow. But our accessories business is growing. We've got the two strong pillars. We've got La Greca which is off to just a really phenomenal stock store, which is a very, very strong, a group for us. And now we have La Greca coming and that's going to take time, even though we have a tremendous amount of confidence in that new collection and pillar for us. It's going to take time. But if those things work, I think we have goals that would be substantially higher than what we've presented to date. You're not going to probably see us change off of that today. We need to get that leverage, we need to get that volume, but we are, without question on the right track, the consumer is absolutely responding to us. And again remember, Michael Kors and Versace, when you look at the volumes today, I think quite like Jimmy Choo, we've got a big hole in terms of Europe, not being turned on. For all intensive purposes, that business is still not back and yes, we've had sequential improvement because of the digital part of the business. But we, our stores are not really producing today. Again, we're very hopeful that by calendar third quarter, calendar fourth quarter be back. But when you get a full year of that under your belt, that's going to create some very nice leverage for the company. And then lastly, Jimmy Choo which is going to take us a little more time than we probably had originally thought in particular, because of what happened during the pandemic, with these dress footwear business being really hurt badly. But I think that, again, we're talking about mid-teens and that will be reliant also on us getting our accessories business developed. And again we're in early days with that and I think we've said in the past, it's going to take us a little longer with Jimmy Choo and we probably had hoped for two years ago, but still very, very confident we've got the right pieces in place. And we should be able to deliver on our objectives.

And Kimberly, there were two other items you'd asked that on international e-commerce and how they impact our margins longer term. They're actually both positives for our margins and would support additional growth and expansion. When we look at international and I'm speaking about Asia in particular, it grew this year to over 20% of our total revenue and all three of our brands are growing and performing well in the region. And that is a region that structurally has higher margins. Historically, and we anticipate that to continue in the future. So as we increase our penetration in Asia and China in particular that will help the overall Company margin base. The second item is e-commerce. And now for all three brands, our commerce margins are positive for Jimmy Choo and Versace, they always were in line with or better than stores. And now for Michael Kors with the growth that we saw this year and the leverage that we've seen in e-commerce, our margins are at or above store levels. So as we increase penetration and by the way, e-commerce penetration about doubled in fiscal '21 and we'll be growing off a much larger base. As we move forward that will also be accretive to margins, we'll be making investments to help support that growth across the business as part of our CapEx plans and we're really excited about it.

And I might add, lastly, but on the part of the Greater China in particular, our competitors across the Group are running in the -- in the almost $1 billion to $2.5 billion just in Greater China in terms of revenues. So you think about the opportunity we have and those are single branded basis and think about the opportunities that we have for Versace and Michael Kors probably more able to get into those types of ranges, Jimmy Choo little less, but still a lot of opportunity. And it's, there is a very big runway of growth for this company with our brands. Thank you very much, Kimberly.

Great, guys. Thank you so much.

Our next question is from Ike Boruchow with Wells Fargo. Please proceed.

Hey, everyone. Let me add my congrats. Just wanted to dig into the gross margin real quick. I guess on the outlook, can you talk about, especially in the near term the pressures you're seeing on supply chain and fulfillment, just any detail there would be kind of interesting this year. And then maybe, Tom, on GSP just to be clear, are you assuming the GSP is not renewed in your guidance. And then if you are, if you're not what would, what would the benefit be if something retroactively does go through at some point this year. Thank you.

Thanks, Ike. With regard to supply chain and fulfillment, we are seeing delays as I noted and costs are higher. We're seeing challenges for instance just getting container space and our port delays coming out of Asia in particular, and then more delays in Long Beach and LA. However, as I noted, we have built that into our forecast and we have incorporated the higher costs. Our teams are doing an amazing job working to mitigate that both what they have done and additional plans that we're putting in place. So we do anticipate it will continue, ultimately normalize but it's incorporated in our forecast right now. With regard to GSP, we do assume that ultimately it will be renewed. There is actually some legislation put forward in the Senate that was introduced to start that process. And, but overall when you look at the GM impact, I think you have to look at the total puts and takes as to where this would fall if for instance it were not done, it's really too early to tell the impact of GSPs since we don't know the timing and the form of renewal. And as John mentioned, and I also noted, we have a number of other actual base business initiatives, full price sell through and increasing signature our pricing activities as well as those other items like Asia growth in e-commerce that we've over delivered on in the past. So with all the puts and takes, I think it's a little too early to talk about the overall impact, and net impact to our gross margins right now. We're very comfortable with the 50% or 50 basis point increase this year and 100 next.

Got it, thank you.

Thank you, Ike.

Our next question is from Matthew Boss with JP Morgan. Please proceed.

Thanks and congrats on the improvement. So maybe John, it's a little bit larger picture, but I know we've talked about it at length in the past. As we exit the pandemic hopefully sooner than later. I guess how would you re-frame the relative growth rates and opportunity as we think about first the accessible luxury market at Michael Kors operate them. And then second, maybe trends in the forward-looking really to have on core luxury, that would be more Versace and Jimmy Choo on a go-forward basis.

Thank you and good morning, Matt. So Matt a couple of things. Number one, in terms of the growth trajectory. We've really reevaluated and refined our vision for this company. I think that's been a quite a seminal moment for us is to say profitability is going to be one of the things that is absolutely critical in terms of growth and also gross margin expansion and full price sell-throughs. So as we did that and looked at that strategy, we thought that our business, and it gives around -- could somebody mute their phone by the way. There is a beeping noise. So, we really looked at around our business strategies and how we could execute against those in light of our goals and I think we came away saying Versace for sure we're on the right track. We know what we're doing, the company is really I think been cleaned up more importantly, has a very clear product strategy and vision and that's resonating with the consumers. So we're looking for a 32% increase in growth in Versace this year and by the way, again, that's really without having Europe, we will be lucky if Europe is in a healthy place by the second half of our fiscal year. And again, I'm not trying to be negative. I'm just trying to say it just takes time. And remember Europe doesn't have the same levels of stimulus being provided as North America does. So again, we're just cautious about what we see happening there. With Jimmy Choo, I think we feel much more comfortable today with reopenings and how we see the world moving forward and that business with our estimated $500 million to $525 million is a 23% growth year-on-year, which is again a very healthy increase and getting us back to historic levels. And then Michael Kors where we've reset the business and in that particular case, we think we're going to have a healthier business, we think it's going to be a business that will be a very consumer led and not led around again in North America promotional activity. We don't take that same posture outside of North America, in Europe and in Asia. So, we think we're going to have a much healthier business, and that's going to be a 21% growth, again not back to its historic levels, but we think that's the right thing to do from a structure standpoint and the consumer seems to be responding, resonating with those strategy. As it relates to the market and I know Matt, you and I've talked about this offline. We don't really view the, I guess you refer to it as the accessible luxury market or whatnot as dramatically different from the luxury market in terms of the accessories business. I would say it is more in the ready-to-wear world and to a lesser degree in the footwear world, but in particular in accessories, we see consumers cross shopping with what you would consider the more pure play of luxury brands and us as well. And what you saw during the pandemic is both markets growing very, very nicely and of course we saw tremendous growth in our fourth quarter, as we pointed out in our own retail channel, where revenues were up double-digit in accessories and also revenues are climbing above LY levels in the department store world as well. And you've heard of -- talk about the category. So the category in general we think is growing, not only in North America but clearly is growing very rapidly, in China in particular. It's a little hard to tell where things are in Japan and Southeast Asia, because again there is still some are coming out of lockdown and I'm sure you understand that in Japan, there's still very, very little vaccine that's been distributed and in Europe we again, we can't tell until the travel retail business comes back, etc. But we're assuming growth there as well. So we think we're in a category of business that is going to grow just naturally and once again we think all three of our luxury houses will benefit from that, but we're not trying to chase the revenue. We're trying to do it very methodically, design and marketing driven again Donatella has done an amazing job with these new accessories platforms and pillars that we've launched. Sandra is doing a terrific job. We've got some new hires that we've made at Jimmy Choo which we think it's going to really improve our accessories product and then Michael, my hats off to him and everything that he did during the last two years to really make signature and new shapes be -- have a customer desirability and that's really what we think shows the health of the business. So, we think we're in a growing market. I think we've got three really excellent, excellent luxury houses to be able to grow and someone asked me, do you think it will take market share? I think the market is going to grow 5%, 6%, 7%. So whether we take market share or whether we're just getting part of the market growth. I think that's in case of each of the brands will be looked at slightly differently, but there's plenty of opportunity for us to execute against our initiatives based on what's happening in the luxury accessories market. Thank you, Matt.

Great color. Best of luck.

Our next question is from Erinn Murphy with Piper Sandler. Please proceed.

Great, thanks, good morning. John, my question is for you on Versace, the logo product, that you recently unveiled back at the end of March. Can you talk about what distribution will look like this fall and then into next spring? And then Tom, if I can just follow-up on the gross margin, what is embedded in the outlook for any raw material cost price increases that you're seeing? Thanks so much.

Good morning and thank you, Erinn. Erinn, the La Greca, which is what you saw in the show in March, I hope you all got excited about that. Again I take my hat off to Donatella and the design team under the leadership of our CEO Jonathan Akeroyd. And this was -- this is a very important moment for the Company. The Company while we've had our iconic Medusa emblem, it really is not a full signature logo strategy. And the Company has never really had this it its history. And also what is so exciting about what's happening in Versace, when you think about Italian luxury-goods companies you typically think about leather goods. And this company, while it's been in the business never used it as its lead obviously, we were always about runway and fashion and ready to wear. And the customer has just absolutely accepted our entry into this market. And as I said, much quicker than we had anticipated or maybe even dreamed. And again, we're not even fully put our foot on the accelerator, we're just kind of mapping this very tight and strategically. So the distribution for La Greca will be obviously our own digital channels, our own retail stores and then limited our department store luxury partners. Again, we're going to go slow. This takes time. This is not going to, just all of a sudden hit and be a huge take off. But what I really, and pleased about is we now, and this is in two years, we have three pillars, we have La Medusa, La Versace [ph] and coming La Greca. And honestly we don't need anymore. We've got what we need, and now we can build upon this with our marketing strategies, our storytelling. And I think, if Versace can't tell a story, then I don't know who can. And we're so really excited about how that's going to look. And the last thing you should know for Versace and the same thing really holds true to Jimmy Choo. We have some of the best store locations in the world. We're about 40% plus renovated in the stores. We will hopefully be maybe 60-ish by the end of the year and then over the next couple of years, we will 100% renovate fleet. And as we do more business in these stores, they either go from a low level of profitability to very significant levels of profitability or some stores might have been losing money that will become profitable. So you will see quite a bit of a step change with Versace in its own retail network. So again that's what you're going to see happen. And as what I mentioned earlier to Kimberly about aspirations, as we see those step change happen, we think we're not exactly sure, 100% what volume levels, but there is opportunity to go above even our stated goals on operating margin. I'll turn it over to Tom.

And Erinn, with regard to raw material costs. We have seen increases in raw material costs and input costs and specifically leather, for instance. That is embedded in our outlook for our gross margin levels and 50 basis point increase for the year as well as the progression through the year. So if you look at the puts and takes, the takes being transportation and then the input costs and wholesale in the beginning of the year, overall which will be more than offset by the positive. So the full price sell-through, our pricing actions and growing the accessories business among other activities. So that's how we see it playing out. And then progression-wise, the first half is a little more impacted in particular Q1 by the wholesale mix as that normalizes and we get into the second half, then the benefits and the strength of those initiatives can shine through. They're there the whole time, but that's when you'll see them picking up in terms of gross margin expansion.

Thank you, Erinn.

Thank you.

Our next question is from Paul Lejuez with Citigroup. Please proceed.

Thanks, guys. The Michael Kors brand within North America, just curious what your assumptions are for this year on the wholesale side. And what percent of that brand sales in the US department stores. And then how does that compare to pre-pandemic levels? And also just curious if you could talk about performance of urban stores, malls, first outlet. Thanks, guys.

Thank you, Paul. So Paul, as I've, I think I've pointed out over the last two years. So we tried to make a very specific point in this that we look at the wholesale business at Michael Kors in three buckets. We look at the North American department store business, which I'll talk to in a moment, we look at the European business, which is a combination of both department stores and specialty stores. And by the way, there is also some regional licenses, which we don't even talk about, and there which, it could be our licenses in Russia or the Middle East, etc., all reside in that category. And then lastly is the travel retail business, which is a -- was a sizable wholesale business for us. So let me go back and start from the beginning. The North American business, will probably be more dominant of the wholesale business really because these other two categories, Europe or EMEA and travel retail is, as we've talked about is really been shut down. So, when you look at our next fiscal year, those businesses will be back in place, our fiscal year 2023. And so, the North American wholesale business will be less weighted to the total that it is today. But in North America as we've said, what we did was, we reduced the amount of sell-in of product to really push up the sell-through and to reduce the markdowns. And I have to tell you our partners here in North America have been really thrilled with this strategy. They're on board with the strategy. And they're really executing on the strategy. And if anything right now, we're a little lean on inventory. Their sell-throughs are so high in some of these stores. And that's a great place to be right now. So again, North American Michael Kors wholesale will be more heavily weighted than it has been in the future only because these other two marketplaces are suffer -- they continue to suffer. But we do expect, as I said before, really in the fourth quarter of this year, Europe to be back probably to 80% plus of its normalized volume rates, but we are expecting second quarter and third quarter to still be pretty sluggish and kind of bouncing around. And we do not expect the wholesale business to return in travel retail until, I'm going to call it calendar 2022 and that's where you're going to see a lot more international flights being accepted at airports and it will just flow a lot a lot easier. And then we think, there's going to be a very nice rebound as a result of that. In terms of the regional stores versus the Metropolitan or the big cities, it's still, the larger cities in North America and Europe have not returned. We're seeing some small return, but they're not where, anywhere close to where they were before. Conversely some of the regional or suburban mall locations in, I have to always speak to the US, because Europe is only recently reopening, is showing very strong sides and in many cases are showing even increases back to 2019 levels. So we're quite excited and pleased about that. And so, when we are seeing traffic really improve every single week, the mall traffic is getting better and better every single week. Again we're still not back to pre-pandemic levels, but it's, you can see the consumers getting more comfortable in shopping. I might add one other thing too. You will definitely see, across the group, because the retail store trend is improving, there will be some deceleration in terms of the e-commerce, we're all percentages. And that's really, a, it's coming off of a much bigger base given what's happened over the past 18 months, and b, people are shopping in stores and that's kind of exciting for us to see people coming back out and getting excited about being in there. So, still going to see very nice increases in e-commerce, but they won't be quite, the dramatic levels that we've seen over the past just given the fact that stores are reopening and consumers are shopping. Thanks a lot, Paul.

That's helpful, John. Thank you.

Our next question is from Jay Sole with UBS. Please proceed.

Great, thank you so much. My question is just on the balance sheet and free cash flow. John, if you could sort of elaborate what your priorities are for the free cash the company is going to generate this year and M&A is something that's rising in terms of the priorities that would be super helpful. Thank you.

Jay, thank you. I'm going to let Tom answer that, just before I want to make sure everyone knows as you're looking at here, developing your thoughts around our company. But we intend to spend into this year. So our objective is to really engage with our consumer and get them back into stores. Stores are critical that we see them return to ultimately pre-pandemic levels and so -- and so we will be using our upside in many cases to spend into great marketing initiatives and in particular at something like Versace when if we see La Greca happening, we're going to spend into it and we're going to really develop that communication with our consumer. So please make sure you keep that in your mind. And we think that's the right thing for us to do, continue to build brand equity and in certain cases in certain regions of the world where we are under-developed and Asia would be that in particular, we want to try to ride the wave and/or take market share and we think to do that we'll need to spend to those activities. Tom?

Sure. Jay, when you look at the free cash flow this year is a little over $0.5 billion is pretty close to where we were pre-COVID at over $600 million. So we're really pleased with how the business performed based on all the different initiatives we put in place and as we look forward, I think that the operating income being up at guidance levels over 60% and that's really going to help build back up our cash flow profile. And just a testament to the fundamental strength of the businesses. As John mentioned, we will be investing this year in really two areas, little higher capital expenditures as we renovate stores and build out, particularly in Asia and also investing in inventory to support the higher sales growth, but feel like we're very much on the path to continue to generate strong free cash flow. From an allocation perspective, we'll be investing in the business and this includes areas like digital. We'll be paying down debt. We have paid down significant amounts for this year, $850 million. But we will continue to do that and further strengthen our balance sheet. And that does give us capacity in the future to return cash to shareholders, and our balance sheet is very strong with leverage under 3 times at this point. And at some point in the future we may look at additional acquisitions, but we're really focused on our business right now.

Got it. Thank you so much.

Our next question is from Dana Telsey with Telsey Advisory Group. Please proceed.

Good morning, everyone and nice to see the progress. As you talked about the digital margins and the retail margins, what are the opportunities and where do you see the digital margin getting to given that it is surpassing retail margins. And is there a difference by region or by brand? Thank you.

Good morning, Dana. And thank you for that question. Dana, look our digital business is exciting. We're using data analytics to support more targeted and personalized marketing. And we're really seeing all three of our brands excel under this strategy and it's great to see the teams get together and talk about what's happening in each one of the business units and share learnings. So we find our expertise growing every day in this area. I want to also make sure everyone knows that we really believe in an omni experience and we think that as exciting as the growth is in digital and e-commerce and we want that and we're going to make sure that we continue to empower that. We're going to be equally is focused on stores. Stores will still be the predominant part of our business and we think also that we're seeing consumers moving between stores, moving between online and requiring the new thing from us, which is, which is in home experience and our clienteling initiatives that you've heard us talk about over the past few calls have really been extraordinary by all three of the groups. We're helping people by having an in home experience whether that's virtually whether that's something that we're sending products to the consumer and we're seeing excellent results from that. So we view our initiatives to be very omni based and our data analytics to be very omni based. That being said, there is clearly huge opportunity for us to continue to grow our digital pieces of the business and what we're excited about I'll just give you a good example of that is that Michael Kors, we have something called MK Go really kind of a more sporty side of the business and that business is running at triple-digit growth rates and that's predominantly being driven by online only, almost there are some limited representation of that in the stores. But what we see is the opportunity to build out other categories that that really haven't been distorted on a retail basis and Versace, our underwear business is significant, predominantly driven by online activity. So, there is other areas inside the company where we're going to be able to categories and we'll talk to you more about some initiatives that we have with Jimmy Choo coming up they are really exciting where we can build businesses that we might not be able to actually house in our stores or the traffic as it related to those categories in our stores, and that can expand both revenues and margin because many of those businesses again, in the case of MK Go for Michael Kors, that's a business that we're going to run more as an annual product offering and then not even to have the seasonal markdowns in the majority of that business, it's very high margin business for us, it's engaging with the consumer and a part of their wardrobe that they're excited about and it's an addition to our very dominant active footwear business. So we see these opportunities as well as our existing, whether it's in Michael Kors or accessories or watch or footwear, ready to wear, those are existing businesses that will not have in retail. But there is a real opportunity to drive other things online. And the reason why we also like this is again it takes away the positioning that you only have to rely sometimes on promotional activity to generate revenues and we don't want to be in that business, that's a business that we think long-term, it doesn't really help the health of the brand. So we'll have a piece of that. But we'll certainly have other activities that will drive additional revenues and high profit margins. I'll let Tom speak to them, other part of your question.

Sure. And when you ask about upside being, I think there is upside we thought this year just by building scale for instance in Michael Kors and the impact that had on the e-commerce margins being very, very positive. So as we continue to grow the size. The absolute size of that business. I think that that will certainly help. Also we're going to be making investments in our digital platforms and continue to expand our analytics capabilities, which will help improve our returns as we're investing in that business to generate sales. So that's also an efficiency I think we can apply against all three of our brands. Finally, when you look across the business is just due to the price points for Jimmy Choo and Versace have a higher structural e-commerce margins and Michael Kors, but again that Michael Kors business is improving rapidly.

Thank you, Dana. I'd like to take this time to thank everyone for joining us this morning. I know this was a little longer than normal, but it is our year-end call. And I think we also wanted to take the time to really provide some more detailed guidance. It's not our normal practice, but we felt that given the fact that we had reevaluated and refined Capri's strategic direction and that we've got a little better insight into how that flows, that it was important to share that information with you. And we look forward to giving you further updates in calls ahead and of course we'll hopefully see and talk to most of you at the upcoming Investor Day. Thank you very much, and nice speaking with you all.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.