Greetings. Welcome to Capri Holdings Limited fourth quarter fiscal 2025 Financial Results Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please note this conference is being recorded. I will now turn the conference over to Jennifer Davis, Vice President and Investor Relations. Thank you. You may begin.

Good morning, everyone, and thank you for joining us on Capri Holdings Limited fourth quarter and full year fiscal 2025 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. The company undertakes no obligation to update any information discussed on today's call. Unless otherwise noted, all financial information on today's call will be presented on a non-GAAP basis. These non-GAAP measures exclude certain costs associated with impairment charges, restructuring and other charges, ERP implementation costs, Capri transformation costs, and transaction-related expenses. To view the corresponding GAAP measures and related reconciliation, please review our latest earnings release posted on our website earlier today at CapriHoldings.com. I would also like to note that given the pending sale of Versace, beginning in fiscal 2026, we will reclassify Versace as a discontinued operation, which means it will no longer be included in our non-GAAP results. Therefore, comments on today's call will focus only on Michael Kors and Jimmy Choo. 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. I would like to begin today's call by discussing our recent announcement regarding the pending sale of Versace to Prada Group. After careful evaluation, we concluded that the most effective way to maximize value at Capri Holdings is to focus our resources on the compelling growth opportunities within our Michael Kors and Jimmy Choo brands. This transaction also positions us to substantially reduce our debt levels and reinstate a share repurchase program in the future. Both are important steps towards enhancing shareholder returns. Additionally, a strengthened financial foundation will enable us to more aggressively invest in reinvigorating the Michael Kors brand. With our new strategic initiatives in place, our strong balance sheet, and focused senior leadership team, we are well-positioned to accelerate the growth trajectory of both Michael Kors and Jimmy Choo. Entering fiscal 2026, we are optimistic about our path forward. While the macro environment has become more challenging, with uncertainty around tariffs, we remain focused on executing against our strategic initiatives that are designed to improve current sales trends and position the company for future growth. Across our luxury houses, we are focused on building brand desirability through compelling storytelling, exciting fashion luxury product, and engaging omnichannel consumer experience. While our strategies are tailored uniquely for each brand, our overarching goals are similar. First, in terms of building brand desire, our primary objective is to engage and inspire both new and existing consumers. Second, in terms of product, we are committed to creating exciting fashion designs and further enhancing our core styles, many of which feature our iconic brand codes. Third, our retail omnichannel strategy entails leveraging our enhanced data analytics and digital capabilities to grow e-commerce revenues as well as increase store sales densities. Fourth, we are focused on stabilizing…

Thank you, John, and good morning, everyone. Starting with fourth quarter results, total company revenue of $1 billion decreased 15% versus prior year, slightly better than our expectations. We reported an operating loss of $33 million, slightly below our expectations. Our net loss was $581 million, resulting in diluted loss per share of $4.90, primarily due to a non-cash tax valuation allowance that I will discuss in more detail shortly. Now turning to fourth quarter results in more detail. Starting with revenue by channel, total company retail sales declined mid-teens, with e-commerce performing slightly better than stores. The impact of our store optimization program negatively impacted retail. In the wholesale channel, revenue declined double digits due to overall softness in the channel as well as to our prior initiatives to reduce wholesale exposure. Turning to revenue performance by geography. In the Americas, revenue decreased 13%. Revenue in EMEA declined 14%, while revenue in Asia decreased 23%. Now looking at revenue performance by brand. Given the pending sale of Versace, beginning in fiscal 2026, we will reclassify Versace as a discontinued operation, which means it will no longer be included in our non-GAAP results. Therefore, my comments will focus only on the Michael Kors and Jimmy Choo brand. At Michael Kors, revenue decreased 16% compared to the prior year. Global retail sales decreased mid-teens while wholesale declined double digits. Excluding the impact of foreign currency and store closures, retail sales declined at a similar rate in the fourth quarter versus the third quarter. By geography, sales in the Americas decreased 12%. Revenue in EMEA declined 15%, while revenue in Asia decreased 31%. At Jimmy Choo, revenue decreased 3% compared to the prior year. Global retail sales declined high single digits and wholesale increased high teens. By geography, total revenue in the…

Thank you. We will now be conducting a question and answer session. If participants are using speaker equipment, it may be necessary to pick up your We ask that you please limit yourself to one question. One moment please for your first question. Our first question comes from the line of Simeon Siegel with BMO Capital Markets. Please proceed with your question.

Thanks. Hey, guys. Good morning. Tom, it's been great working with you. Best of luck on your next chapter.

Thank you, Simeon.

So great to see the slight revenue raised at Michael Kors and the discussion on returning to growth in 2027. I guess, on the other hand, the margins look lower. So can you guys speak to a little bit what gives you comfort in the troughing revenue expectations? And then maybe a little bit more color on the drivers you're baking into the margin degradation. I guess, just especially in light of what looks like healthier full price sell-through. Thanks.

Good morning, Simeon. I'll take the revenue part. I'll pass the gross margin part out to Tom because I think there's a little more color to that in terms of its actual t y, l y, and how the tariffs are impacting that. Number one on the revenue side, we are optimistic given what we see happening right now for us in Q1. We are two months into the quarter, and the first number I will give you is we were down approximately 15% comp in Michael Kors retail last quarter. And we are almost flat at this point. So there has been a significant step change in the performance of Michael Kors at retail, led by our full price business. Which is really nice to see because we have three groups that we talk about in our prepared remarks. That's Leila, Nolita, and Bryant, and then a further one called Dakota. All of which are having excellent full price sell-throughs. And they're all in the $200 to $400 range. So those are back to our historical kind of price ranges where we did where we were very successful in the past. And between the great work that Michael and the design teams have done, as well as the great price value relationship that's been put into the product, we're seeing very, very strong green shoots. So I should also mention that our JetSet storytelling, which is around traveling the world in style, is really resonating with the consumers, and we're seeing that in some of the existing data analytics in terms of the sales and the consumers that are shopping with us, as well as some of the forward-looking analysis that we've done with consumers on intent to purchase, and that has gone up again sequentially very significantly. So…

Sure. And, Simeon, on gross margins, there are a couple of points here. The first is just to kind of remind back on our prior guidance. Where we are improving gross margin for the year based on the strategic initiatives for Jimmy Choo and Michael Kors, getting the right inventory into place and do everything that we are planning and are doing to drive the brand that we are seeing the first real results in green shoots here in the first quarter. With that, increase and those initiatives, that all still is in place and we still feel very good about that. What is happening now is there is an overlay for the tariff impact in fiscal 2026. And that as I noted in the prepared remarks was about $60 million higher costs on an unmitigated basis. And if I just do the math between prior expectations of 50 bps, that tariff amount is about down 150 plus. So we get to at a midpoint down 100 bps basis points for gross margin for the year. And that is before we really get traction on the mitigation activities. Our goal is to fully mitigate over time the tariff impact. We're looking at sourcing optimization, we are looking and working with our sourcing partners to create cost efficiencies and we will be strategically evaluating select price increases. As we move through the year, we'll get more visibility on that. But our first priority in all of that is to maintain the momentum of our brand recovery, and we'll be doing that as we strategically and very carefully assess our reactions particularly on the price front. Great.

Thank you. Our next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

Good morning, and thank you for taking our question. It sounds like you have a lot of emerging momentum at Michael Kors retail. I was hoping you could discuss the wholesale outlook for the brand this year. How are your partner discussions going today versus your expectations at investor day a few months ago? Particularly in the North America business? Thank you.

Thank you, and good morning, Brooke. I would say it's just about, you know, where we presented to you at our investor day. We've been around the world. We've met with all of our strategic wholesale partners. And I would say the response has been very consistent. In that number one, people are very much feeling positive about us returning to the focus around our JetSet heritage. They like the new storytelling, the way it's been developed, around hotel stories and traveling where we have a much associated with the Michael Kors brand. I would say that's also caused a significant inflection in that I mentioned before, Leila, Nolita, Bryant, and Dakota, all seeing very strong sell-throughs on a global basis. So we're seeing positive response from those partners. In certain cases, they've actually gone back and relooked at their commitments to us and increased those commitments. I would also say that I think you're probably aware we launched on Amazon recently. And that has been very, very successful. It has exceeded our expectations. And it's also showing the ability to communicate with a broader customer group who has a high level of engagement with us. And our full price selling on that platform has been excellent. So it's a little hard to see how that's gonna all come together when I talk about wholesale because we do, as I mentioned before, we still have some additional store closures that will happen throughout the fall season. Most of it will come to an end in September, October, November. So I think the kind of the true measurement, we will start to see fourth quarter calendar fourth quarter and then into spring of next year. So we do have a decline planned for wholesale. But as I've said, again, in my prepared remarks, our goal and our belief is that we will stabilize that part of our business and actually see some modest growth especially in fiscal year 2027 and 2028.

Great. Thanks so much. I'll pass it on.

Thank you. Our next question comes from the line of Oliver Chen with TD Cowen. Please proceed with your question.

Hi there. This is Katie on for Oliver. One thing we wanted to talk about and ask is just on sort of what's within your to help drive traffic and conversion and those strong trends that you're currently seeing in your own retail channel, given just a more volatile consumer backdrop that we're seeing. Thank you.

Yeah. Katie, so I first of all, good morning. I think we're very focused on traffic, you know, as we talked about before. We're seeing a lot of positive indicators. Our whole price AURs turn positive and see that happen really in a quarter is quite extraordinary, and we're very pleased with that. We have not seen traffic turn positive and I'll say that's more of a North America and China issue. We've got some very nice trends going in Europe for us. But the sequential declines have decelerated significantly. And, again, in full price, we're almost close to positive traffic there as well. What we're focused on is really our marketing initiatives and our storytelling. Along with the you know, we spent a lot of time and money and have the resources around our data analytics to really give us the tools to be able to engage with new and existing consumers to excite them about the brand and to re-engage with them or to drive them in our stores. And we're seeing positive results around that initiative, and as I just mentioned, also around the significantly increased influencer program that we have going on, and you're gonna see a lot more of that particular around the hotel stories that are really just starting to launch around the globe. So I think while we cannot a hundred percent control traffic, I think we can influence it. And we feel that we have the strategies and many tools within our control to be able to try to move that forward. And, of course, you know, having greater brand desirability also referred to as brand heat, will help to drive that as well. Through our stores. You know, conversion has always been something that even through all of our ups and downs, we've had very strong conversion rates at Michael Kors. So once they come in the door, converting with our customers has been less the issue for us. It's been more footfall which obviously goes back to brand desirability, which goes back to brand heat, etcetera. And I don't wanna say that we've, you know, we've called the bottom, but we've definitely seen a change in Michael Kors. And it's nice to see that in such a short window of time. We've got a long way to go to rebuild this business to the $4 billion that we're aspiring to get to. But again, we are beginning to see the results of our initiatives. And we're quite hopeful given the results. Thank you.

Very helpful. Thank you very much.

Thank you. Our next question comes from the line of Jay Sole with UBS. Please proceed with your question.

Great. Thank you so much. John, I'm just wondering if you can elaborate a little bit more on some of the strategies and things that you wanna do to improve the sales trajectory of the Michael Kors brand. I mean, you talked about initiatives when it comes to product and marketing and store experience. I think you mentioned the pricing that some of the newer bags are selling for is within that traditional area where you've had a lot of success. But if you look back over the history of the brand, you know, at some moments, you've had a lot of momentum, some probably less momentum than you've wanted. What are some of the core things that, like, you know, work consistently to drive the brand for that maybe had fallen away a little bit in the last couple of years that, you know, you can get back to to get to that positive sales growth rate on a sustainable basis that you know you can do. Thank you.

Thank you, Jay, and good morning. Jay, I think we've talked about this in the past and know, we clearly have made missteps. Over the past few years and I won't go back into some of the causes of that. Some were self-inflicted, etcetera. But I think what happened is in November, December, we got clarity in this company what you know, this business was built by Michael. Originally, plus years ago. And he really had a vision for the way a consumer wanted to look and an exciting lifestyle that they wanted to live. And that's still a very relevant positioning. And we I think lost our way and decided that various points in time that either wasn't the right thing for us or, you know, there were other trends happening that maybe were more exciting. And what again, our consumer research really told us was the customer likes our positioning, and they really yes. They wanted it maybe a little more modern and certain products need to be a bit more relevant. But you know, when you build a brand over that period of time, to try to either completely reset its or to run away from your history, those weren't the right things for us to do. So I think that we look at that as a first starting point and the entire management team and all of our store managers are excited. Our retail partners are excited. So think we're onto something when it comes to that. Secondly, you know, we had aspirations of, quote, elevating the brand. And while that worked at certain moments, certainly coming out of COVID, we raised prices considerably. It worked for a while. But then the customer came back and said, that's not exactly what we expect from Michael Kors.…

Great. Thank you.

Thank you. Our next question comes from the line of Anisha Sherman with Bernstein. Please proceed with your question.

Thank you so much. My question is around your pricing strategy. So, you know, you've talked a few times now, including on this call, about the need to offer those better value price points to the consumer, and you're seeing some success there. When do you expect to be at steady state there on where you wanna be on pricing? And then you also made a comment, I think, Tom, earlier on strategically evaluating price increases to mitigate some of that tariff risk. Can you talk about how that fits into your broader pricing strategy? And could there be some risk around blurring the positioning of the brand there? Thank you.

So first of all, good morning, Anisha. Number one, we should be where we need to be by the fall season with the Michael Kors brand. I'm guessing right now, but let's say we're 60 or 70% of the way now. You know, we made a lot of changes quickly. That also impacted some of our margin as well. We just lowered certain prices because we knew it was the right place to be. And by the way, those are historical prices, so I wanna be very clear that we're not going to levels that we're where we haven't been before. So that put a little pressure on us on margin, and we'll see a bit of that in the first quarter as well as we slowly start to work with our supply base, etcetera, on some of those changes that we needed to make. But we should be in a very good place by the fall season. I might also say to you that conversely, also, one of the things that's gonna help impact AUR in our outlet channel, we've actually raised some prices. Where we found that some of our pricing was not commensurate with what we think the brand offered as value. Nothing overly significant, but enough to that will hopefully help us impact our margins on a go-forward basis. But also that help us raise our AUR and selling. We're also, in particular, in our outlet channel, we are reducing a significant level of promotional activity, and that is actually that started already in the fourth quarter. That did impact some of our revenues in that channel, but that's what we wanted to do. We thought that was the right thing for us to do. So, again, there's a little bit of, you know, puts and…

Thank you, John. And, Anisha, I just wanna reiterate what John said. Our first priority is really brand momentum. Is the primary goal, and it's the primary really, basis for future success. So we will proceed extremely carefully on assessing any pricing actions. When ultimate tariff levels are better known, we'll certainly assess the market reaction. And look at this on a very granular basis. But our efforts now are really focused on the sourcing side working with our sourcing partners and sourcing optimization.

Thank you. And, thank you, everyone, for joining us today. I'd like to remind everyone before we conclude the call that we are awaiting approval from various jurisdictions around the world on the Versace transaction. We are very optimistic that that transaction will be completed sometime in the fall season. And as a result of that, the company will have very, very low net debt which puts us in a very strong position to be able to invest in the future of both Michael Kors and Jimmy Choo. It additionally has a very strong EPS impact for the company as our carry forward interest go down significantly. So we're very pleased about the results of that transaction and hopeful that it will conclude in the fall season. Which will set us up for another very positive positioning for Capri Holdings. Thank you for joining us today, and look forward to updating you on our next call.

Thank you. This does conclude today's teleconference.