Capri Holdings Limited 2027 Q2 Earnings Call

Please go ahead. Good morning, everyone, and thank you for joining us on Capri Holdings Limited Second Quarter Fiscal 2027 Conference Call.

With me this morning are John Idol, Capri's Chairman and Chief Executive Officer, and Tyler Reddien, Capri's Chief Financial Officer and Chief Operating Officer. 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 items associated with impairment charges, transaction-related costs, store renovation plan expenses, Capri transformation costs, as well as restructuring and other expenses. To review the corresponding GAAP measures and related reconciliation, please review our latest earnings release posted to our website earlier today at capriholdings.com. 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. We are encouraged by the momentum building at both Michael Kors and Jimmy Choo. Over the past several seasons, we have been focused on elevating brand desirability, strengthening our product assortments, creating deeper connections with consumers, and we are seeing evidence that those efforts are gaining traction globally. New fall product introductions are generating some of the strongest full-price sell-throughs we have seen in years, underscoring the strength of our innovative product designs and the positive consumer response to our collections. At both our luxury houses, the benefits of our strategic initiatives are becoming increasingly evident, reinforcing our expectation that Capri will return to revenue growth in the second half of the year. Based on our second quarter performance and our expectations for the remainder of the year, we are increasing our fiscal 2027 revenue and earnings per share guidance.

Looking ahead, we believe the progress we are making across both our luxury houses provides a strong foundation for sustainable long-term growth. Turning to our second quarter results, we are encouraged by the progress we made throughout the quarter, with trends improving sequentially each month, resulting in revenue, operating income, and earnings per share that were above our expectations. Total company revenue was $809 million, down 5.5% versus last year, while operating income increased 55%. This strong profit growth contributed to earnings per share of $0.42 versus a loss of $0.03 per share last year. Looking at second quarter performance by brand, starting with Michael Kors. Revenue decreased 8.6% year-over-year, ahead of our expectations, due primarily to a shift in wholesale shipment timing. Revenue was impacted by approximately $50 million due to inventory delays, which constrained product availability.

As fall assortments began to arrive later in the quarter, sales trends improved sequentially each month, driven by the positive consumer response to our new product arrivals. Additionally, as anticipated, revenue was impacted by our continued focus on improving quality of sale. Looking at Michael Kors revenue by channel. In our own retail channel, sales declined low double digits as anticipated. We had approximately 40% less markdown inventory available for sale and reduced promotional activity by approximately 50%, both of which created a meaningful headwind to revenue during the quarter. While these actions reduced revenue, they supported higher full-price sell-throughs, growth in AURs, and gross margin expansion. As we have previously mentioned, the majority of these actions are now behind us, giving us increased confidence in the trajectory of the business going forward. In our full-price channel, sales declined as we continued to focus on quality of sale.

With new product arriving and the impact from our quality of sale initiatives moderating, we expect the full-price channel to return to growth in the back half of the year. In our outlet channel, while revenue declined, trends improved sequentially from the first quarter, and a broader assortment of new styles began arriving. With additional newness planned throughout the season and into the spring, we anticipate further sequential revenue improvement through the back half of the year. In our wholesale channel, revenue declined mid-single digits, exceeding our expectations due in part to a timing shift from the third quarter into the second quarter. At point of sale, we were pleased to once again see positive comparable sales trends with our wholesale partners, as consumers responded favorably to our new product introductions. Turning to brand awareness and consumer engagement.

We continue to reinforce Michael Kors' modern jet set lifestyle position through our brand vision of traveling the world in style, bringing the joy of travel and the discovery of new destinations to our consumers each season. For fall, we traveled to London with brand ambassadors Suki Waterhouse, Danny Ramirez, and JCT. Set against the city's distinctive energy, the campaign highlights the season's key fashion statements, reflecting the blend of polish, individuality, and the effortless style that defines the Michael Kors aesthetic. The campaign introduced new hero handbag silhouettes, including the Hamilton Soft, a relaxed version of one of our most enduring icons. The campaign also showcased fresh interpretations of Laila and Nolita, as we evolve our iconic styles with compelling new design details.

To amplify our brand storytelling, we continue to enhance our social media strategy by strengthening our presence across a broader range of platforms, as well as expanding both the scale and reach of our influencer partnerships. During the quarter, we launched a Michael Kors shop on TikTok, creating a seamless path from discovery to purchase on a platform that plays an increasingly important role in how younger consumers engage with fashion. Early performance has exceeded our expectations, generating strong engagement and sales while further expanding our reach with a new generation of luxury consumers. Together, these efforts are helping to strengthen Michael Kors' relevance while fostering more authentic and meaningful connections with Gen Z consumers. Additionally, Michael Kors' iconic runway shows continue to serve as a powerful halo for the brand, reinforcing the house's leadership in fashion luxury.

The Spring 2027 show, held at the Museum of Modern Art's Sculpture Garden in New York, attracted a high-profile audience of celebrities and global influencers. The event generated significant impressions globally, extending the show's reach well beyond the runway. Collectively, these activities helped drive an 8% year-over-year increase in the Michael Kors global customer database, attracting new and younger consumers, and expanding our ability to build deeper, more personalized relationships with consumers around the world. Through our analytics capabilities, we are leveraging the strength of our extensive database and AI-driven insights to better understand evolving consumer preferences, deliver more relevant experiences, and strengthen engagement across channels. Turning to product. Guided by Michael Kors' vision, our strategy is built around delivering on-trend fashion luxury products with standout style while celebrating our brand codes.

In accessories, our focus on refreshing iconic franchises with modern design elements continue to gain traction with consumers, supporting strong full price sell-throughs and creating meaningful excitement around new product introductions. Hamilton, Laila, and Nolita anchored the assortments, underscoring the enduring appeal of our iconic styles. The launch of the Hamilton Soft during the quarter was a standout success, generating strong enthusiasm among consumers globally. It has quickly become one of the brand's best-selling styles, with demand exceeding our expectations, and our teams are actively chasing inventory to try and meet strong consumer demand. Turning to footwear. We remain focused on building enduring franchises across both casual and dress categories. We are evolving the assortment with more on-trend styles, expanding our casual offerings across categories such as loafers and flats that are resonating with consumers.

New introductions, including our Jennings loafer and Piper Flex ballet flat, are emerging as top-performing styles. By balancing proven silhouettes with modern newness, we are creating products that resonate with consumers today while laying the foundation for future icons within the category. Looking at ready-to-wear, the fall collection brought a modern urban edge to the assortment through elevated denim, on-trend wardrobing essentials, and versatile day-to-evening dressing. Consumers responded particularly well to our expanded outfitting categories, underscoring the appeal of fashion-forward styles that express Michael's distinctive point of view. Turning to men's, we are refining our sportswear assortments through a combination of established iconic styles and compelling new fashion introductions. In accessories, we are seeing increased consumer interest in the softer bag silhouettes, which are helping attract a new and younger consumer. As a result, men's sales trends improved sequentially relative to the first quarter.

Now I'd like to review our store renovation plan, a key component of our strategy to revitalize growth. In our new stores, we are creating a warmer, more residential environment that reflects the modern Michael Kors Jet Set lifestyle and provides an elevated backdrop for our luxury products. Since launching the program, we have renovated 50 stores as we advance toward our goal of renovating 300 stores. As part of this initiative, we continue to expand our Jet Set Lounge concept, an immersive retail experience designed to deepen customer engagement and increase store dwell time. Today, we have seven Jet Set Lounges across key flagship locations globally, and we are encouraged by the customer response. We believe that our renovation plan will further strengthen brand desirability, deliver an elevated consumer experience, and drive higher sales productivity. Early results remain encouraging, with renovated locations generating higher traffic and revenues.