Capri Holdings Limited 2027 Q1 Earnings Call

Good morning, everyone, thank you for joining us on Capri Holdings Limited first 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 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 store renovation plan costs, transaction-related costs, Capri transformation costs, as well as restructuring and other charges. To view the corresponding GAAP measures and related reconciliation, please review our latest earnings release posted to our website earlier today at capriholdings.com. I would like to turn the call over to Mr. John Idol, Chairman and Chief Executive Officer.

John? Thank you, Jennifer, good morning, everyone.

We are encouraged by our first quarter results, which exceeded our expectations and demonstrated the progress we are making to build a stronger and more profitable business. Our strategic initiatives across both Michael Kors and Jimmy Choo are driving deeper consumer engagement through enhanced brand storytelling and compelling product innovation. As we look at the balance of fiscal 2027, we expect to make further progress executing against our strategic initiatives. First, strengthening brand desirability through compelling storytelling that deepens emotional connections and resonates with both new and existing consumers. Second, creating exciting luxury fashion product that reflects each brand's heritage while clearly leading with design and innovation. Third, delivering elevated and differentiated customer experiences across all touchpoints, including digital, stores, and wholesale. Fourth, leveraging our data analytics across the consumer journey to gain deeper insights and drive more personalized interactions.

Fifth, utilizing our increasing cash flow to support brand momentum, including investments in store renovations, as well as ongoing investment in IT and digital enhancements while continuing to return capital to shareholders through our share repurchase program. While we remain focused on executing against our strategic initiatives, certain headwinds, including lower than anticipated inventory levels at Michael Kors in the second quarter, softer trends in EMEA, and updated foreign currency exchange rate assumptions, are having an impact on our revenue outlook. As a result, we now anticipate fiscal 2027 revenue of approximately $3.4 billion. Based on our revised revenue expectations, we are taking actions to reduce operating expenses, which are enabling us to maintain our fiscal 2027 earnings per share outlook of approximately $2.15, representing a 40% growth over the prior year. Now, turning to our first quarter results.

We were pleased to deliver revenue, operating income, and earnings per share above our expectations. Total company revenue was $769 million, down 3.5% versus last year, while operating income increased approximately 40%. This strong profit growth drove earnings per share of $0.67, up approximately 30% compared to the prior year. Looking at first quarter performance by brand, starting with Michael Kors, revenue decreased 7% year-over-year, slightly above our expectations. More broadly, our results at Michael Kors continue to be impacted by our quality of sale initiatives as we reduced promotional activity third-party sales, and off-price shipments. While these actions are deliberate steps to strengthen the long-term foundation of the brand, they are creating near-term pressure on revenue. Turning to Michael Kors revenue by channel.

In our own retail channel, sales declined high single digits, modestly below our expectations due to softer trends in EMEA at the end of the quarter, and the impact of our strategic decision to reduce markdown inventory levels. Overall, we were encouraged by continued improvement in the quality of our sales during the quarter, including higher full price sell-throughs, growth in AURs, and gross margin expansion. These are important indicators of a strong business model and support our confidence in more profitable growth as sales recover. Looking at Michael Kors retail sales by region. In the Americas, trends were similar to the prior quarter, with continued positive comparable store sales in our full price channel. In EMEA, trends declined, impacted by the ongoing conflict in the Middle East and reduced tourist traffic in Europe.

While trends in Asia declined slightly, we were pleased that full price comparable sales remained positive in China. In our wholesale channel, revenue exceeded our expectations, declining low single digits. At point of sale, we were pleased to see positive comparable store trends with our wholesale partners, led by a double-digit increase in accessories. Turning to brand awareness and consumer engagement. We continue to reinforce Michael Kors' modern Jet Set lifestyle positioning through immersive storytelling, global events, and destination-driven experiences that capture the essence of our brand vision, traveling the world in style. Building on the momentum of Hotel Stories, our summer campaign captured the spirit of Saint-Tropez, featuring Suki Waterhouse, Dani Ramirez, and our brand ambassador, JCT. The campaign highlighted the season's most compelling styles while reinforcing our modern Jet Set lifestyle positioning.

We further extended the reach of the campaign through an immersive Saint-Tropez Hotel Stories experience, bringing together a curated group of 14 global influencers to showcase our collection. Through authentic brand storytelling, the event generated over 100 million impressions, further amplifying awareness and consumer engagement around the world. Beyond our seasonal campaigns, an important highlight of our brand-building efforts was the Met Gala. At this year's event, a number of celebrities wore custom Michael Kors designs, including Anne Hathaway, as well as brand ambassadors Suki Waterhouse and Dani Ramirez, among others. As one of the fashion industry's most visible cultural moments, the event helped amplify brand awareness, elevate desirability, and reinforce Michael Kors' authority in fashion luxury. Collectively, these activities helped drive an 8% year-over-year increase in the Michael Kors global consumer database.

Through our analytics capabilities, we are leveraging the strength of our extensive database to create deeper and more personal connections with consumers. Turning to product. Our strategy remains centered on delivering exciting fashion with standout style while celebrating our iconic brand codes. Guided by Michael's creative vision, our summer assortment blended classic French elegance with modern ease. New product designs and our broader pricing architecture are continuing to drive stronger full-price sell-throughs. In accessories, consumers continued to respond positively to on-trend styles that align with our broader pricing architecture. Our core icons, Hamilton, Laila, and Nolita, continued to perform well with smaller silhouettes introduced for summer, helping to expand consumer reach and attract younger customers. In footwear, we are beginning to see encouraging traction from new on-trend casual styles that reflect Michael's signature blend of Jet Set glamour and modern versatility.

Notable styles included the Nolan sneaker, Pixie Jelly ballet flat, and the JC floral embellished sandal, which resonated with consumers and helped drive improved trends across the category. Looking at ready-to-wear, consumers responded to seasonal styles that captured Michael's effortless glamour. Our summer collection balanced modern fashion designs with timeless wardrobe staples, drawing inspiration from the relaxed sophistication of the south of France. Now, I would like to discuss the progress we are making with our store renovation program, as our retail locations remain an important pillar of the brand's expression and a driver of our sales recovery. Through our renovations, we are continuing to evolve the Michael Kors Jet Set lifestyle with elevated and more immersive customer experiences. During the quarter, we opened two new flagship stores in key international markets, including Beijing, China World, and Pavilion in Kuala Lumpur.

These locations featured our Jet Set lounge, an immersive experience designed to deepen customer engagement and increase store dwell time. We see meaningful opportunity to build on this innovation and expand Jet Set lounges across flagship locations globally. We believe that our store renovation plan will further strengthen brand desirability and drive higher sales productivity. Early results are encouraging, with renovated locations generating significant sales increases versus prior year. Overall, at Michael Kors, we are encouraged by our first quarter performance, which reflected our efforts to enhance brand desirability and consumer engagement. While we are disappointed with our second quarter outlook, we expect Michael Kors revenue to return to growth in the back half of fiscal 2027, driven by new product introductions, increased marketing investments, the beginning of a normalization in promotional activity, and the increasing benefit from our store renovation program.

Looking beyond fiscal 2027, we remain excited about the long-term growth potential of Michael Kors. By building on the brand's 45-year heritage as a global fashion luxury house and modernizing the Jet Set lifestyle for today's consumer, we are strengthening brand desirability. This positioning is resonating with consumers, our marketing investments are driving stronger customer engagement, and our new product introductions are performing well. We remain confident in our ability to achieve $4 billion in revenue and low 20% operating margins over time. Now, turning to Jimmy Choo. We were pleased with the brand's continued momentum. First quarter revenue exceeded our expectations, increasing 10.5% over last year. Growth was broad-based across channels, regions, and categories, driven by strong brand momentum and the continued success of our strategic initiatives.