Greetings. Welcome to Capri Holdings Limited First Quarter Fiscal 2022 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 first quarter fiscal 2022 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 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, 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 to our website earlier today at capriholdings.com. I would also like to note that we have accompanying slides posted on 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. Last month, we shared Capri Holdings’ growth strategies and long-term outlook during our Investor Day. The initiatives that supported our growth opportunities centered around five strategic pillars, which are being executed at Versace, Jimmy Choo and Michael Kors. These pillars form the foundation that position Capri Holdings to deliver multiple years of strong revenue and earnings growth. I would like to take a moment now to review our five strategic pillars. First, we plan to maximize the full potential of our three distinct fashion luxury houses. While each brand is unique with its own heritage, they all have consistent philosophies of fashion leadership and luxury. Second, we will create the most innovative and exciting fashion luxury product, led by the design visions of Donatella Versace, Sandra Choi and Michael Kors. Third, we will create compelling communication to deepen consumer desire and engagement with each of our luxury houses. Fourth, we will leverage our seamless omnichannel capabilities to accelerate revenue growth. And fifth, we will build upon our corporate values with communities, both internally and externally. We are already successfully executing against these strategies and are encouraged on our progress. Now, turning to first quarter performance. We were pleased that revenue, gross margin, operating margin and earnings per share all significantly exceeded our expectations. These results were driven by strength across all three of our luxury houses as they continue to deepen consumer desire and engagement, adding 10 million new consumers to their databases. Total revenue in the first quarter increased 178%, reflecting robust growth across all channels and regions. Additionally, gross margin expanded 90 basis points and operating margin reached 20.8%, both meaningfully better than anticipated. As a result, earnings per share of $1.42, was well-ahead of our expectation. Moving to first quarter…

Thank you, John, and good morning, everyone. Starting with first quarter results. Revenue of $1.25 billion increased 178% versus prior year, meaningfully exceeding our expectations. Performance was driven by better-than-anticipated results across all brands and regions. Net income was $221 million, resulting in diluted earnings per share of $1.42. This was above our expectations, reflecting better-than-anticipated revenue, gross margin and operating margin. Looking at revenue trends by channel. Total company retail sales increased 135%. These results were driven by robust e-commerce sales, which increased approximately 60% as well as strong store sales. Retail store sales improved sequentially, reflecting increased traffic trends and clienteling initiatives. In the wholesale channel, revenue improved sequentially as sales rebounded compared to the initial impact of the pandemic, last year. By geography, the Americas was the strongest performing region with total revenue increasing 304% versus prior year. In EMEA, where an average of 25% of stores were closed during the quarter, revenue increased 148%. And in Asia, revenue increased 55%, despite restrictions and store closures that impacted numerous countries. Turning to revenue performance by brand. Versace revenue was $240 million, 158% increase compared to prior year and above our expectations. Global sales in our retail channel increased 141% with e-commerce sales increasing triple digits. Store sales also increased in the triple digits. By geography, the Americas was once again the best performing region with revenue increasing 480%. Revenue in EMEA increased 222% and revenue in Asia increased 29%. Versace ended June with a global luxury fleet of 208 retail stores, a net increase of four from prior year. For Jimmy Choo, revenue during the quarter increased 178% to $142 million, well above expectations as we began to benefit from our strategic growth initiatives. Global sales in our retail channel increased 153% with e-commerce sales once again…

[Operator Instructions] Our first question is from Omar Saad with Evercore ISI.

Good morning. Thank you for taking my question. Excellent job, pretty much on all fronts. Congratulations. I wanted to follow up on the Versace strength and the Choo strength. Did you guys talk about any sort of customer response, wholesale customer response or marketplace response you’re seeing on the La Greca signature print? And I was also wondering with Choo, is the strength sneakers and heels -- heel product or is it really kind of shifting back towards the heel product side? Thanks.

Thank you, and good morning, Omar. By the way, I’m joining you for today’s call from Paris, France, where we have just a little over a month ago opened our brand-new world flagship for Versace, which I might say is spectacular. So, it’s quite exciting to be here to see that. Omar, to answer both of your questions, first, on Versace. As we discussed in our earlier prepared remarks, the momentum that we’re seeing in accessories is really -- it’s coming much quicker than we had anticipated. And the two new collections that we introduced, first, the Virtus, which is the Barocco V, it’s really selling across not only accessories products but really strong in footwear, belts and on some of our ready-to-wear categories. So, that real initial design, that was very early days from Donatella has been, quite frankly, a huge success for the Company. And then, she came right back with really pushing this new La Medusa collection, which obviously takes our Medusa icon and really puts it in the forefront. And that collection has far exceeded our expectations. And quite frankly, we’re having trouble keeping up with demand in the stores right now. So, that’s, I guess, to some degree, a good problem to have. And again, we’re seeing that resonate across men’s shirts and belts and other product categories. So, really quite pleased with that pillar for us. And now, before we’ve even landed La Greca, which is the overall signature pattern, the signature of La Greca on our sneakers in both Trigreca and the La Greca sneaker are -- again, we’re having trouble keeping up with demand, which is not something we ever anticipated to position to be in right now. So, the good news is, is that the pillars that we’ve kind of put…

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

Great. Thanks so much. And thanks for the great overview. My questions this morning are for Tom. Tom, I’m wondering, can you just talk about the much better gross margin performance that you’re seeing? I know wholesale is coming back, but you’ve reduced it compared to historical levels. It was a real sort of notable inflection in your guidance today and obviously the beat here in the quarter. So, can you just dive into that a little bit more? Are you sort of purposefully suppressing the exposure that you’ve got to wholesale to basically reposition the brand? And are you seeing any impact? Maybe you can just talk about some of the headwinds that you’re seeing from the shipping delays and the factory delays that you’re currently encountering. And if you’ve got any visibility on timing on those, that would be great as well. Thanks.

Sure, Kimberly. Thank you. Thank you for those questions.

Let me just say one thing before I turn it over to Tom. Kimberly, the growth in the quarter, I just want you to be really clear, was first led by the great performance at retail. So, I just want you to know that. The second thing that happened in the quarter, because I think this will add color to your -- Tom’s commentary, is the wholesale business in North America, which is the biggest piece of our wholesale business, has actually rebounded very, very positively. Still not running at the rates that we’re seeing in our full price business, but the sell-throughs are excellent. We’re seeing consumers return into the stores -- into the department stores, which I have to tell you is really exciting to see. So, I just want you to get a feel for the color that it’s not just happening in our retail stores, but people are absolutely returning to shopping in department stores. Sorry, Tom. Go ahead.

Thanks, John. And Kimberly, looking at the gross margin, it really was driven by retail. Wholesale was also above expectations. And it’s all about full price sell-through. So, we saw great performance across all brands with better full price sell-through and Michael Kors signature was a larger portion of the business, at Jimmy Choo and Versace accessories, as well as some pricing at Jimmy Choo and Michael Kors. And that was -- we’ve seen gross margin expansion despite the wholesale mix being higher and higher transportation costs. When we look at wholesale, we have already said that we want that business to be smaller than it was in the past and more profitable. And that’s really where we’re coming out. When we look at the year, we were at a 25% penetration in the prior year. We expect that to be similar. So, wholesale is going to grow off of a smaller base, but being smaller that’s more profitable. And in the first quarter, we saw off of a very low base that was impacted by COVID, we expect that growth to level off in the second half, in line with our strategy. You had asked about delays of receipts and factory closures. As noted in the prepared remarks, we are seeing delays, but that is really built into the current forecast. So, we’ve anticipated the situation will continue. We have built it into our expectations. And despite that, we’re still expecting to grow margin on the gross margin line every quarter this year.

Great color. Thank you so much.

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

Hey. Good morning. And let me add my congrats. Great job, guys. Tom, so just to stick with the gross margin, on the decline in Kors, understandable on the channel mix. Could you maybe just give us some color on where does the gross margin sit maybe relative to two years ago? Just kind of curious how much expansion you’ve seen relative to fiscal ‘20? And then, John, as a quick follow-up. You gave some details on the outlook for the business at your Analyst Day for next fiscal year. I’m just curious, I mean, such a robust start to this year. Can you say if there’s an area in the model right now where you’re already seeing the most potential upside to that $5 number for next year to come from? Thank you.

Sure. Mike, I’ll take the first part. When we look at gross margin versus a couple of years ago, Michael Kors is significantly above where it was in that pre-COVID world. And that’s really due to those initiatives that we’ve been talking about coming to fruition. It’s inventory management and lower SKUs and more tightly managing our product to drive full price sell-throughs. Signature continuing to increase and then pricing actions, particularly in the accessories line. And that will continue to occur through the year and drive margins as we look into next year. So, well ahead of where we were historically on the gross margin line.

Yes. And I’d just like to add one thing for everyone on this call. I think we mentioned this some time ago. With Michael Kors, we are not focused on LLY, and really because we’ve reset the business and what our expectations are for the business. So, it’s going to be hard comparing it when we’re trying to have a smaller wholesale business. And I also might add that even when we’re looking at LLY, there’s still situations in Japan and Southeast Asia and Australia and Europe, which are -- we are not back by any stretch of the imagination to full prior year levels. And unfortunately, many of you on this call know that the Delta virus is spreading the variant. And so, I think that will probably slow down some of our expectations around Europe rebounding as quickly as we would have liked to have seen. But on the other hand, we see North America going much quicker than we’ve seen. And we see strength in China, where again we’ve had strong double-digit growth across the entire group. So, there’s going to just be puts and takes as we go through this. But again, I want to remind you, Michael Kors, we’re kind of not focused on where we were two years ago. We’re only focused on our expectations, more profitable business, growing in a way that’s really focused on full price sell-throughs and growing categories, not just accessories as we talked about in our long-term strategies, where we see opportunity to grow some of our ready-to-wear businesses, men’s accessories. So, the complexion of Michael Kors is going to feel different from that standpoint. And Ike, as it relates to fiscal year 2023, I think that’s too early for us to point to that. Obviously, the first quarter was well ahead of our expectations. Tom mentioned in his prepared remarks, we’re seeing continued strength in the second quarter. On the back half of the year, we’ve just got to see how some closures look or restrictions, as this Delta kind of moves through some of the economies around the world. We feel quite optimistic that even if there are bumps over the next 3, 4, 5 months, that we think the world is on its way to recovery. And again, we think that our products are resonating with the consumers and we think our brand strategies are really quite clear. And as you know, we talked about -- we did not change our brand strategies as we went through COVID. We did decide with Michael Kors to make things a bit more smaller and more focused. But at Versace and Jimmy Choo, we never feared from what we were trying to achieve. So, I think it all bodes well for the future. And I think the results are kind of speaking for themselves. So, thank you for the question, Ike.

Our next question is from Matthew Boss with JP Morgan.

Thanks and congrats on a great quarter. So, maybe two-part question. On operating margin, Tom, as we think about the bridge between today’s 16% operating margin forecast for the year relative to the 14% prior, have you changed back half assumptions at all really today, or is this really first and second quarter? And then, John, on the continued digital strength and then the sequential improvement that we’re seeing at brick-and-mortar as the world reopens, I guess, maybe larger picture, where are you most optimistic across the brand portfolio as we think about changes in customer behavior after the pandemic relative to before?

Matt, thanks for the question. And looking at the operating margin going from our prior guidance of 14%, we’re really pleased to increase it to 16%, and it’s really a combination of factors. It is the over delivery in Q1 and Q2 as we look at that quarter. When we look at the back half of the year, I would say we’re reinvesting some of the benefits that we saw in lower spending, lower expenses in the first quarter into the back part of the year. So that’s about $25 million to $30 million that we want to reinvest in order to drive the business and continue to position us and further build momentum into fiscal year ‘23. So, I think that this is a balance. We’re very pleased to be increasing the guidance, but also want to make sure we’re doing the right things to support our business to achieve that longer-term growth. We’re expected to deliver double-digit revenue growth and mid-teens earnings per share growth over a longer period of time.

Good morning, Matt. So, great question you asked, by the way, which really dovetails into Tom’s remarks just now. Obviously, the e-commerce business for us is growing rapidly, basically in every region of the world. And we want to continue to spend the money to fuel that business. And what’s great about that is we get a few things. First off, we drive customer engagement. Secondly, we build our databases. And we think we’ve got a fairly sophisticated team that’s working with our data analytics and the way that we’re working to drive customer growth and engagement, as I said. All of that is something that, I think, we have a pretty good idea on how we can do and we’ve got a good feeling for that. And all three of the brands really were able to -- and Versace, we can grow these accessories too, as I said in my prepared remarks, $1 billion. And that’s a very realistic number. And if we look at the penetration of where that is, even in our e-commerce channel today from Versace, we have so much room to grow. So, we can drive that business. And at Jimmy Choo, same thing, accessories and our footwear and our casual footwear capabilities. At Michael Kors, we have really a huge opportunity in our ready-to-wear categories online, in particular, where those could be much bigger percentages of our business and also very profitable for us. So, I think we feel good about our capabilities from a digital standpoint. We feel good about our capabilities from an omni standpoint and we’ve made those investments over the last few years. We’re continuing to make a lot of investments around that. On brick-and-mortar, we’re pleased with what we see happening in North America in terms of traffic, also happy with what we see happening in China. Again, Europe, we all wish things would go a little faster. We’re just going to be -- that’s going to depend on how countries open up and how the new green passport for Europe really works and allowing people to move country to country. So, I’d say, we’re optimistic but cautiously optimistic on the actual brick-and-mortar traffic part of the business. Hopefully, we’ll see Europe have that same kind of lift we’re seeing in North America. Thanks, Matt.

Our next question is from Lorraine Hutchinson with Bank of America. Please proceed.

I just wanted to ask -- to follow up a little bit on the reinvestments. You’ve spoken a lot at the Analyst Day about reinvesting any sales upside into marketing. And it sounds like you’re doing that for some of it. But, as we think about the rest of the year, should we continue to think about any further upside being reinvested or do you feel like you have a good enough base in terms of the store openings, the marketing, the campaigns that you have planned for the remainder of the year.

Well, Lorraine, I think we’re obviously very pleased with our revenue growth and our earnings per share growth, operating margin growth, et cetera. So, I don’t think we have a absolute desperate need to see the operating margin expand beyond this new 16% guidance. And truthfully, if we saw significant revenue upside again over the next few quarters, I don’t know that we would 100% flow it all through. We might spend more on overall marketing and brand building and other initiatives for the Company. I think that what we want to do is to continue to build for 2023, 2024, which I’ve said to you at our Investor Day, we’re going to do over $7 billion with this Company, and there’s more to come even beyond that. When you look at -- Versace is going to do over $1 billion this year. And when we look at our projections, things are looking really good for that luxury house. Things are picking up at Jimmy Choo. So, in our business, you need to invest to continue to grow your business. And I think that’s the smart thing for us to do. And hopefully, if we continue to see the type of sell-throughs that we’ve seen across the group, hopefully, you’ll see some of that also flow to the bottom line. But, I don’t think that’s our absolute priority right now. Our absolute priority is to continue to make sure that all three of these luxury houses are building stronger and stronger bases, so that as we look out into the future, we’ll be looking at a much bigger number than $7 billion in terms of revenue. And as we’ve said, long-term operating margins that will hopefully have something, the two plus in front of it. Thank you, Lorraine.

Our next question is from Paul Lejuez with Citigroup.

It’s Tracy Kogan filling in for Paul. I was wondering what you’re currently seeing in 2Q. You mentioned revenues were strong, but you are guiding the quarter two I think down 13% versus two years ago, which is a pretty big deceleration versus what you saw in 1Q. So just wondering if what you’re seeing now is what you’re guiding to, or if you’re just assuming that things moderate as the quarter progresses? Thanks.

Tracy, I’m going to let Tom touch on that. But remember, you can’t go by what happened in Q1. Q1, most of the world was completely shut down. So, I think while we’re extremely proud, and I think we’ve had one of the best performances of a luxury group globally by the results, I think that we were up against some major closures. Again, Q2, we have to be cautious. Europe is not open. Japan is closed. Most of Southeast Asia is either under lockdown or -- while, stores may be open, there’s very little business transacting there. Australia is starting lockdowns. We have big international businesses. And while North America is really robust, as we’ve said in our remarks, and China is moving ahead very nicely, we’ve got some other issues still to deal with. And so, I think we need to be very cautious. But, at the same point in time, as we said, we’re off to a good start in the quarter, and we like the way the consumer is responding to our product from all three of the luxury houses. But Tom, do you want to comment?

Sure. And Tracy, I’d just refer and reiterate something that John mentioned a little earlier that having reset our business strategies and objectives and in particular, for Michael Kors, we really do believe the forecast is the more appropriate benchmark to evaluate our progress. And with Michael Kors, we’re planning for a smaller but more profitable business. And these quarterly fluctuations versus LLY are really hard to look at because of wholesale already planning to be lower. And wholesale, of course, was up a lot in Q1. So, the variations are really wholesale driven. When we look at retail, it continues to improve on a sequential basis across our houses, and we expect that trend in retail to continue in Q2.

And one last thing, Tracy, we promised some time ago that in fiscal ‘23, we would be above pre-pandemic revenue and above pre-pandemic earnings per share. On the earnings per share side, we’re going to be ahead of our original expectations. So, we’re really pleased with our profitability. Obviously, we’ve got a lot more runway to go with profitability, and you can understand that because as we -- as our revenues increase, we’re going to create leverage. Yes, we’re going to spend some of that on marketing. But as we get into ‘23 and whatnot, we’re going to create a lot of leverage. And we think that’s going to be exciting for the group and for our shareholders. Thank you, Tracy.

Our next question is from Simeon Siegel with BMO Capital Markets. Please proceed.

Congrats on really nice results. Hey John, did you say how was AUR this quarter? Could you share your perspective on maybe just the broader promotional landscape now and how do you think that will look into holiday? And then to the point about the lack in jewelry strength, just any color you can talk to us about broader licensing over the quarter and then where you see that going over the year? Thank you.

Sure. Thanks, Simeon and good morning. Simeon, we made a decision really just going back kind of almost two years ago that we were going to walk away from trying to chase every competitive environment situation around promotional activity. And we’ve stayed firm to that commitment. And I think -- well, we know, I don’t think, I know that what you’re seeing in the gross margin performance is not only full price sell-through, but it’s just -- we’ve got considerably less activity around certain discounting that we did. Really it was more of a North American situation. Second, which is a huge issue. We don’t have the inventory to do that. And so, I can answer the question for everyone right now, because I keep hearing this question come up. It’s not going to -- I don’t care if our competitors do it. It doesn’t matter. We don’t have the inventory to do it. So, it won’t happen. And not only that, we just don’t want to do it anymore. And we’re going the opposite direction. As you’ve heard, we’re raising prices on Michael Kors. And by the way, I mentioned on our previous call, we’re going to raise prices again for spring season next year, prices are going to go up considerably. And also in Jimmy Choo, we’ve talked about that as well. So, we’re going the opposite direction. And I hope I can kind of close the door on that conversation because I don’t think it’s -- I don’t think -- I know everyone is waiting for that to happen again. That won’t happen for us, given the way we’ve purchased product, where product is flowing today and given where we think our brand is positioned. We’re going up, not down. So, that’s really our clarity on that…

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

I wanted to follow up on Versace and specifically just on the margin profile. June historically is not the biggest quarter, but you’re already at 20% EBIT, John. So, curious if there’s any changes of how you’re thinking about the long-term 20% guide, particularly given how robust the demand has been across accessories. I know it’s early days, but you’re clearly building a pretty robust platform there. Thanks so much.

Well, Erinn, I’m not surprised you asked that question because we were prepared for it. We knew everyone would be asking that question, and we kind of ask ourselves that question, obviously. I just left our CEO, Jonathan Akeroyd, here in Paris. And, look, we know what our competition does. And we know the really strong competitors are between 25% and 40% operating margin. As I’ve mentioned on our Investor Day, I believe, one of the biggest things that will create leverage at Versace is higher revenues in our flagship stores. We have the right locations, we have the right amount of space, we don’t need to build bigger. We could literally do 4 times more business in every one of our stores and still not be probably half the dollars per square foot of our competition. That shows you how much runway we have to really go at Versace. And you know the numbers of our competitors. And so again, we have a very tight store base today, a little over 200. We’ll get to 300 over time, but that’s going to be super tight. We’re looking at productivity. And as we drive that productivity, we will drive profitability. And again, I don’t want to say we’re surprised, we’re presently -- we’re pleased that we’re moving much quicker on the accessories than we thought. So, if that continues on like this, the obvious answer is yes, we’re going to move quicker than what we thought and that we presented at our Investor Day. But, I think, we’ve got to, again, be cautious. We’re still not out of the woods. Versace is a very big business in Europe, and we’ve got to get consumers back into the stores in Europe. Well, that’s not the case here. And when we see that, you’re going to see a very, very big lift again in operating margins for Versace. So, I think it’s a great question you asked. And we’re definitely seeing a path to that 20% operating margin for Versace. I can’t say whether it’s going to be quicker or not, but I think we’re much, much more confident over the last 90 days. And again, we need to see La Greca get into the stores, see how that does. But if it does and it gets in and it clicks, then we’ll really -- we’ll be off to the races. Thank you, Erinn.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

I want to thank you all for joining us today on our first quarter earnings call. I would like to most importantly say thank you to all of our management and employees around the world. Our results are a direct reflection of all of the hard work and energy that they’ve put forth. And without them, we would not be achieving the success that we’re having today. So, I want to thank them in particular. And I’d like to thank everyone else for joining us today. Stay safe. End of Q&A:

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