Greetings, and welcome to the Capri Holdings Limited Third Quarter Fiscal 2026 Financial Results Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, 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 Third Quarter Fiscal 2026 Conference Call. With me this morning are Chairman and Chief Executive Officer, John Idol, and Interim Chief Financial Officer, Raj Mehta. 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 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 reserve related to a wholesale customer bankruptcy, restructuring and other charges, store renovation program costs, merger and divestiture transaction-related costs, impairment charges, and Capri transformation costs. To view the core spending GAAP measures and related reconciliation, please review our latest earnings release posted to our website earlier today at capriholdings.com. Additionally, the company has classified the results of today's operations and cash flows from its Versace business as discontinued operations. Unless otherwise noted, all information on today's call relates only to continuing operations. Now I would like to turn the call over to Mr. John Idol, Chairman and Chief Executive Officer. John?

Thank you, Jennifer, and good morning, everyone. We were pleased with our third quarter performance, which exceeded our expectations. Across both Michael Kors and Jimmy Choo, we continue to execute on our strategic initiatives to position our iconic brands for long-term success. Our strategies remain anchored in strengthening brand desirability through delivering compelling storytelling and creating fashion luxury products that excite and inspire consumers. Together with our advanced data analytics and deep consumer insights, these initiatives are designed to strengthen consumer engagement and reinforce the long-term equity of our brands. We remain confident that these strategies will support a return to growth in fiscal 2027, as well as establish the groundwork for sustainable performance well into the future. Recently, we completed the sale of Versace, which was a thoughtful decision to strengthen our financial foundation, ensuring we have the flexibility to support Michael Kors and Jimmy Choo's strategic initiatives and enhance long-term shareholder value. The proceeds from the sale were used to significantly reduce debt levels. As a result, we ended the quarter with $80 million of net debt. Now turning to our third quarter results. Total company revenue exceeded our expectations, decreasing 4% versus last year to $1.025 billion. Underlying gross margins excluding the impact of tariffs, expanded 70 basis points, reflecting better than expected performance driven primarily by improved full-price sell-throughs and reduced promotional activity. Earnings per share increased approximately 30% to 81¢. Looking at results by brand, starting with Michael Kors. Third quarter revenue decreased 5.6% compared to the prior year. While some of our strategic initiatives are creating near-term pressure on revenue, they are deliberate steps towards building a stronger, more resilient foundation for our business. In our own retail channel, we saw a modest sequential improvement in trends relative to the second quarter, with sales…

Thank you, John, and good morning, everyone. Before we begin, I would like to remind you that today's financial results exclude Versace, which was reclassified as a discontinued operation. My discussion today will reflect results from continuing operations, and our financial statements have been adjusted for prior periods to exclude Versace. Now looking at third quarter results. Total company revenue of $1.025 billion decreased 4% versus prior year on a reported basis and 5.9% in constant currency. Looking at revenue by channel, total company retail sales declined mid-single digits representing a slight sequential improvement relative to the second quarter. In the wholesale channel, revenue was flat to last year. Turning to revenue performance by geography. Revenue in The Americas decreased 7%. Revenue in EMEA increased 5%. And revenue in Asia decreased 4%. Looking at revenue performance by brand, at Michael Kors, revenue decreased 5.6% compared to prior year on a reported basis, and 7.3% in constant currency. Global retail sales declined mid-single digits. Similar to prior quarters, store closures negatively impacted retail sales in the low single-digit range. Wholesale sales decreased mid-single digits. Looking at total Michael Kors revenue by geography, The Americas decreased 9%. EMEA increased 6% and Asia decreased 1%. At Jimmy Choo, revenue increased 5% compared to prior year on a reported basis and 1.9% in constant currency. Global retail sales trends improved sequentially increasing low single digits. Wholesale revenue increased double digits. Booking at total Jimmy Choo revenue by geography The Americas increased 23%. EMEA increased 3%, and Asia decreased 10%. Now looking at total company margin performance, gross margin of 60.8% declined 230 basis points. Underlying gross margin expanded by 70 basis points due primarily to better full-price sell-throughs and a reduction in promotional activity. This was offset by higher than anticipated tariffs based on…

Thank you. If you'd like to ask a question, please press 1 on your telephone keypad. You may press 2 if you'd like to remove your question from the queue. Before pressing the star keys. To allow for as many questions as possible, we ask that you each keep to one question. Our first question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.

Great. Thanks, and good morning. So, John, at the Michael Kors brand, could you elaborate on the drivers of the slight sequential improvement in retail sales between the second and the third quarter? If you could break down maybe trends at full price relative to outlet? And more specifically, could you break down the low double-digit decline in The Americas that you saw in the third quarter and just walk through the progression that we should expect for Americas retail sales in the fourth quarter?

Good morning, Matt, and thank you for the question. I want to start out by saying that we really feel that our strategic initiatives are starting to take hold. I want to remind everyone that we've only been at this for literally one year almost to this week when we started to reposition the Michael Kors brand, under the new Jetset brand positioning, we've really been looking at the use of social media channels differently than we had used them previously. We've taken influencers, and we have hundreds of them now that are brand advocates. And we're seeing real progress for how they're changing the perception of the brand and the way the consumers are interacting with the brand. I think as we told you about a year ago at this time, we're really focused on what we call standout style. So unique product that feels very Michael Kors, and we've honed in on being much more consistent around what those styles are and how we talk to the consumer about that. We have restructured our pricing architecture in all areas of the business, and we're seeing excellent traction around that initiative. We reduced promotional activity in both channels in the full price and the outlet. And while that's creating some headwinds for us, I think you heard in my prepared remarks what we're seeing coming out of that is improved full-price sell-throughs. Now we're in a second quarter of seeing that in our full-price channel. We're seeing higher AURs higher gross margins. That's all related that that all points to a healthier business. And as it relates to your question, we significantly reduced the promotional activity in the full-price channel. So that has so we saw a double-digit increase in full-price selling in the full-price channel, but reduced selling…

Thanks, Matt, and thanks, John. We were you know, as John said, we were pleased with the sequential improvement, particularly in the retail trends in North America for Michael Kors. We did benefit slightly from some wholesale shipments, and that was really just due to timing. As some came in earlier than we anticipated. But as we look to Q4, we expect continued sequential improvement in retail in the fourth quarter. And most importantly, we expect to return to revenue growth in FY 2027 as we look forward. So we'll provide a bit more color on that in Q4, but we're pleased about the retail trends in North America that we're currently seeing. Thanks a lot.

Thank you. Our next question comes from the line Simeon Siegel with Guggenheim Securities. Please proceed with your question.

Roger, John, maybe just a follow-up on that last point you made. As you think about the expected revenue growth year, any way to help us think about how you're thinking about units versus price, maybe new customers versus reactivating lapsed? And then any way to just help us just elaborate thinking about those go forward gross maybe just bringing apart your thoughts on where you're setting the initial ticket pricing versus promotions. Lingering impacts of tariffs, fixed cost leverage, deleverage, just anything else we should think about for and takes on gross margin? Thanks, guys.

Okay. Good morning, Simeon. I'm not sure I followed all the questions in the one question, but we'll do the best we can. Sorry. So it's okay. So number one, as I said, we're feeling cautiously optimistic. We've been at this with Michael Kors for one year. And we're seeing very tangible results. Better full-price sell-throughs, higher AURs in the full-price area. We're not that yet there. In outlet, but on the new product, we are. We're seeing higher gross margins from all of the new product flowing through because we've reduced promotional activity. So I think those are all very, very solid, tangible results from our initiatives. The other thing that's happened that I mentioned earlier was that, you know, we've really looked at influencers and the social media channel to really to reengage the Michael Kors existing customers and newer customers. Gen Z, certain of the younger millennials, and we're seeing that start to really play through. And what we can see is brand awareness is starting to rise, and consumer desirability. So our data analytics you know, we're studying the consumer response to everything from our marketing campaigns to products. And all the indicators are positive. The other positive indicator for us is we have had three sequential quarters of traffic improvement online. And that's really quite interesting because as we drive a lot of our traffic to our website, the consumer's really responding and converting. So we like what we see there. Store traffic is still running about in line with sales declines as well. So we'd like to see that be the next, kind of step up for us to see the next leg of improvement. And as Raj mentioned before, Q4, we will see a sequential improvement in our retail channel. Which is what…

Thanks, John, and good morning, Simeon. Yeah. Let me start by giving you a little bit more color on what happened in Q3. We saw a little bit of a higher than anticipated tariff of approximately 50 basis points in the quarter. And that was really due to better sales of new product. That had the higher tariff rates on them. We were pleased with the underlying gross margin as it expanded 70 basis points, which is better than we anticipated. And that was really driven by the better full-price sell-throughs at both Michael Kors and Jimmy Choo. And we're really pleased with what we're seeing with the new product. As we look to the fourth quarter, you'll begin to see some of the tariff mitigation efforts continue. Regarding our sourcing efficiencies and targeted price increases. With the continued benefits of our higher full-price sell-throughs. And then as we look forward into FY 2027, we expect to offset a majority of the tariff impact of the higher tariffs. We continue to deliver on our strategic initiatives and driving higher full-price sell-throughs. So we're excited to return to gross margin expansion next year.

And, Simeon, one other thing too. What also gives us confidence in terms of revenue growth for next year, Jimmy Choo's results during the quarter were actually very, very strong. And again, the initiatives that we're putting place at Jimmy Choo to, first off, to drive the consumer desire. We are definitely seeing that working. We're same thing that we're doing in Michael Kors. We're leaning much more into social media channels. Influencers, and clienteling. That's working for us as well. We are seeing some very nice now two quarters in a row on our initiatives around accessories, and you can see that we've, are selling our existing icons. As well as the new pricing architecture that we've put around some additional product that we've introduced in the line. We're getting very strong reception to that, both at the consumer level and at the wholesale level, which gives us some very good feeling about what that what that looks like. And then we discussed in the prepared remarks that our casual business also saw a very nice sequential improvement during the quarter. So and we can I think, say to you that trends are continuing, in this quarter for Jimmy Choo in particular? That we are excited about what is happening there and the opportunity to not only return that brand to growth, but also to see some very nice operating margin expansion. For that next year. Thank you, Simeon.

Thank you. As a reminder, we ask that you please each keep to one question. 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 the question. Given the sequential strength that you're beginning to see in the green shoots at the Michael Kors brand, I was hoping you could help frame the potential operating margin expansion potential that you see as you look ahead into FY 2027. I understand it's a little too early for guidance, but given the magnitude of the gross margin headwind from tariffs the Michael Kors brand that you're seeing today, how should we be thinking about the opportunity for op margin expansion for Michael Kors and for total consolidated Capri? Thank you.

Thank you. Good morning, Brooke. I think it's we I think we've talked about this before. We believe we will return to revenue growth for the group next year. I think we've said that it's probably in the low single-digit range. We think that our SG&A will, continue. We're gonna be very focused on our expense control in the company, and we'd like to see that relatively stable. And then with gross margin expansion that Raj spoke about, we think that those will lead to leverage and create operating margin expansion for the business. And again, what we're pleased about is we're in the early signs with Michael Kors of seeing our retail business improve. One of the other things, as you may recall, Michael Kors had a substantial wholesale business. Which because of our initiatives to, really pull back on the distribution on that business, and performance related as well. That business has declined a We are forecasting for a decline for next year. I think we mentioned that our last call. That and that's really to clean up some of the off-price distribution. That's been historical for us. That being said, at POS and wholesale, we saw a substantial step up with our wholesale partners and departments who are partners. What we saw, in particular at Michael Kors, was the performance on the ICON products where I had mentioned in our last call that they had not really gotten to the same rates of success that we saw in our own stores. That is now starting to equal out. And so while we were very, pleased with that, we think long term there is an upside for us in wholesale as our partners continue to experience this very positive selling. And as you heard in Jimmy Choo, we had an outstanding quarter with our wholesale partners and the product really resonated. And that was both in accessories and in footwear. So I think that that gives us the confidence to go into next year and look at revenue growth look at margin expansion, controlling our expenses, and with some modest increase in SG&A, and that should really turn into operating margin expansion. Thank you, Brooke.

Thank you. Our next question comes from the line of Adrienne Yih with Barclays. Please proceed with your question.

Great. It's really nice to see the progress at full line. It's very evident. John, can you talk about kind of what the contribution of sales is outlet versus full line and where you kind of want that mix to be over time. Secondly, we did see you move through whether it's SKU count or however inventory from the beginning of the quarter and outlet to the end of the quarter, it looks like you're really clean or much cleaner in outlet. So wondering if we could potentially see a gross margin inflection inflection at outlet in this current quarter. And then just a comment on the facts reserve that you took, the $15 million. Who is selling into them? And was it to collect? Was there a little bit of Versace? And how should we think about kinda derisking that kinda on the forward twelve months? Thank you.

Thank you, Adrienne, and good morning. First of we don't break out the full price versus outlet numbers. And we think they're both opportunities for us. So we're excited about again, what we've seen in the last year. As it relates to outlets, I think we have been clearing some of the core product that was part of our more historical strategies, and that product just wasn't working as well. As it had in previous years. And so we're not quite finished with that yet. There'll be some more of that going on. Towards the first half of calendar 2026. But that's really going to start to mitigate as we get into the back half with new product coming into Outlet. I think I had mentioned to you on the last call that, you know, we've only really begun to have a small amount of product coming into the outlet channel that is new, and it's gonna continue to flow throughout the spring season, much more, trend on and trend styled product that will be coming into that channel. And that channel is because consumers just as discerning on, on what they want in terms of fashion and trend as the full price channel is today. They're excited to see great product from Michael Kors associated with some very strong value with that. So I think you'll see gross margin expansion in the outlet channel we would think more towards the second half of calendar year. But that will be included in some of our guidance that we talked to you about. In our May call where we will talk about overall gross margin expansion for both Jimmy Choo and Michael Kors because we think there's some very significant opportunity also on gross margin for Jimmy Choo. And I might remind you that Raj mentioned that both Michael Kors and Jimmy Choo we've been taking selective price increases. They're moderate or modest. But you'll start to see that flow through in our gross margin even in Q4. I'm gonna let Raj take the facts question.

Thanks. Very helpful. Yeah. Thanks, Adrian. Yeah. Regarding fax, as you mentioned, we did reserve for $15 million, which is really not too material for us. It is across all of the all the brands areas within Jimmy Choo. Michael Kors collection, as well as MMK product. As I stated, we have reserved for that, and we are encouraged that we can work with them to begin shipping. To that. And let me let me further add that we're excited about the new management team. That's leading Saks Global now. They've been through this before, with Neiman Marcus. And we have a lot of confidence in what their strategy is. We also think that a leaner Saks Global will be one that will be successful. And very focused. And so we intend on being very, very supportive of their strategies, and to help them succeed. We think that's good for the industry and ultimately good for the consumer as well. Thank you, Adrian.

That's fantastic color. Thank you.

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

Regarding the opportunity for positive growth on Michael Kors, it sounded like the back half was more likely for next year. Would love any color there. And as you look across the channels, what do you with traffic traffic levels that we should be aware of? It looks like online has been attractive. And lastly, marketing spend and marketing dollars or as a percentage of sales? What's your framework for thinking about how to leverage that? And nice job on all the new product. Thanks a lot.

Thank you, Oliver. So I think your assessment of a little more acceleration in the back half of next year on a TYL basis is probably right. And when I say back half, it's more calendar back half. Of the year. I'll start out by saying we will hopefully, at that point, be fully transitioned in our full price with all new product in the channel. We will not be up against this year where we didn't anniversary the promotional activity. So that should be a positive for us. I think we will also have our full expansion in the additional social media channels in place at that point in time. A good part of that will be in place in the spring season, but I think we'll be in a much better place in the fall season. And then on the outlet side, we should be again, maybe not fully transitioned, but we should be 75% transitioned at that point in time, which would put us again in a very good place for the back half of next year. And then the other thing is we want we will as I said, hope not hopefully, but we will we will be we will have the Daigou sales reductions behind us. So we think there will be less headwinds in the back half of next year. And, quite frankly, some tailwinds that really will be driven by product and by marketing. And then the headwind will be we will be continuing to reduce our off-price distribution and that's primarily in New York I'm sorry. United US issue. You'll see that in North America. But we're committed to continuing to reduce that. And create a healthier place for the consumer to see the Michael Kors brand. Why don't I turn it over to Raj to talk about marketing because we have taken that up but I'll let him speak to that.

Yeah. Thanks, Oliver. Regarding the marketing, you know, we're spending just north of approximately 8%. Which we feel is a healthy percentage. And we're looking to where we spend those dollars regarding influencers, TikTok spend, and spending a little bit more wisely. The Michael Kors number is a little bit more north of that. But overall, we feel really good about the levels that we're spending to. And which will drive the growth for next year. Thank you, Oliver.

Thank you. Once again, we ask that you each keep to one question. Our next question comes from the line of Paul Lejuez with Citigroup. Please proceed with your question.

Curious if you can talk a little bit more about performance at the Kors brand by price range where you saw the strongest trends overall, but also where did you see the strongest full-price selling and what bands? And then price bands. And then also curious about performance by age, what you saw during holiday. Thanks.

Yeah. Thank you, Paul. So what is very interesting for us is we kind of seen two steps in the business. The first step was our when we looked at our strategic pricing architecture and in our full-price business, we changed that in the spring season. Of this past year. And we saw an immediate lift based upon that. In the fall season, what we were able to do is we have brought in a lot more product between the $150-$250 range, and those are just smaller bags. In particular, that is where we're seeing the Gen Z customer in particular lean into that product both from a trend standpoint and a pricing standpoint. So we're definitely seeing a lift in that customer. Based around that product that we are delivering into the full-price channel. And as I mentioned also in our previous call, actually, in the outlet channel, we took prices up slightly in our Q3. And we're not seeing resistance in particular in the newer product that we're bringing in. Where she's excited because it is representing trend in you know, for the company. So we think that we're making the right decisions on product both styling and leaning into certain price areas that are more relevant to certain cohorts. Thank you, Paul.

Thank you. Our next question comes from the line of Rick Patel with Raymond James.

Thank you. Good morning. I'm hoping you can paint a picture with a little bit more detail about the return to growth in fiscal 2027. Just curious which areas of the business you have the most confidence in. It sounds like it might be led by full-price retail, but just wondering what will take a little bit longer to turn, aside from wholesale. And then any thoughts on just the geographic performance as we think about variability by region?

Thank you, Rick, and good morning. Well, first thing I'm gonna point out is that we're excited about the growth that we're seeing with Jimmy Choo. And we continue to believe that that business will be an $800 million business for us over the next few years. And we're excited about the fact that, we think the accessories part of that business is a very big opportunity for us. And the response that we're getting to from not only the consumers, but from our wholesale partners around the globe given that luxury prices have moved into certain areas where they think there's a very big opportunity for a well-loved brand like Jimmy Choo to begin to be a part of their assortments. So we're excited about that in our own stores, and we're excited about that in our wholesale distribution. We also think that Jimmy Choo has an opportunity to significantly increase the productivity in our store fleet. Like we've told you before, we've spent a fair amount of money over the last few years building rebuilding that store fleet. And so we're in a good position now to leverage what we've put in place. So we think Jimmy Choo's gonna provide some very nice revenue growth for us. In terms of Michael Kors, again, we're I think we said to you before, that we wanna build sustainable growth for us. And we think that's about creating an exciting story for the consumer around the jet set positioning, which is traveling the world in style. We think that's a very relevant concept given especially how younger consumers, really embrace and love travel. And how we're doing storytelling around that. And now we're making the product the hero in that storytelling, and that's also resonating particular with the influencers and the…

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

My question is just about balance sheet. Now that you've reduced net debt to just $80 million what are your plans with free cash flow? Do you plan on using it to update the stores or buy back stock? You know, more other actions? You know, if you could maybe help us with that, that'd be great. Thank you.

Great. Thank you, Jay. Good morning. Well, let me start by saying, as you stated, in December, we successfully completed the sale of Versace. Which we stated was a thoughtful decision. And immediately following close, we significantly reduced our debt to approximately $80 million net debt, which we feel puts us in a great position to continue to invest in the business. Our priority remains to invest in the brands, through the store renovation program that we spoke about. As well as technology and digital enhancements and other brand building initiatives. And our second priority is to return cash to shareholders via the share repurchase program, We announced last quarter that our Board of Directors have authorized a $1 billion share repurchase program, which will commence in FY '27. It really shows the belief that the board has in Capri Holdings. So with our strong balance sheet, it really gives us flexibility to continue to invest in the brands. For future growth. Thank you, Jay.

Thank you. Our next question comes from the line of Bob Drbul with BTIG. Please proceed with your question.

Hi, good morning. Just on Michael Kors business, can you just tell us where the signature piece of this is, the penetration of it and the trends that going on with your signature offering? Thanks.

Good morning, Bob. And thank you for that question. Yeah. Signature, as you know, we about two years ago, there was a very strong position to reduce that in the company. And we probably went too far. On that, bringing it down significantly. It's running now approximately 40% of our sales. We think that'll probably go down a little bit more. You know, we think that leather and suede and some of the other materializations are much stronger from a trend standpoint. Than where signature had been traditionally had gotten up to as high as 50% of our business. So I think I think we always are gonna see it as a balance, inside the organization. It was probably also a little more prevalent in some of our ready-to-wear and some of our footwear where it's come down there as well. So I think we just have to look at it like everything. It's a trend. You know, some companies are actually leaning back into it more. Strongly this as we speak, some of the big luxury houses. So we'll just watch that. We'll also with our data analytics, I think we can quickly see how the consumer feels about how much that represents of what our brand and marketing is. Thank you, Bob.

Thank you. Our final question this morning comes from the line Anisha Sherman with Bernstein. Please proceed with your question.

Thank you for taking my question. I have a question about long-term margins. You talked a lot about the puts and takes on margin. Going into next year. Historically, Michael Kors' operating margins have been just over 20%. That was the number that was in your last Investor Day. A year or two ago. As you think about long term, is there anything structural preventing an eventual return to those levels? Of margin? Thank you.

Yeah. Thank you, Anisha. So like, number one, as we've said, previously, we think Michael Kors over the next few years, will reach approximately $4 billion in revenue. And as we see that happening, you're going to see leverage clearly take place. I think as we demonstrate ability to we we, you know, we shrunk our cost structure in the company fairly significantly over the last couple of years. A big piece of that was our store closure program. We closed over 150 stores. We have a few more to go. Still going forward, we're gonna look at those stores where they're not profitable. And continue to do that. We'll also open a few stores as well. I think I talked about that. We're excited about we've had a number of mall owners come back to us. They're They love the new, store program that we've that we've opened in a number of locations around the world. And so that's got some of our mall partners very excited about us coming back into that, so we'll look at that as well. And we've also rationalized the overall structure of the employee base inside the company. So I think, as we see revenues grow, we're going to see, a leverage created for us. So I would tell you in Michael Kors, that we absolutely believe that over time we could reach a 20% plus operating margin. We just wanna make sure that's sustainable. So I would tell you that over the next couple of years, we're gonna be focused on really making sure that the consumer is drawn to the brand and we're not just trying to push the brand onto the consumer. As it relates to Jimmy Choo, again, I just mentioned we think that that is an $800 million…

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.