Capri Holdings Limited

Good day and welcome to the CAPRI Holdings Limited First Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jennifer Davis, Vice President of IR at CAPRI. Please go ahead.

Good morning, everyone, and thank you for joining us on CAPRI Holding Limited First Quarter Fiscal 2020 Conference Call. With me this morning are Chief Executive Officer John Idle, 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 these statements made today 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 items related to transaction, transition, and integration costs associated with the Jimmy Choo and Versace acquisitions, restructuring, and non-cash impairment charges. Unless otherwise noted, all financial information on today's All financial information on today's call will be presented on a non-GAAP basis, and all comparable store sales numbers will be presented on a constant currency basis. To view the corresponding GAAP measures and related reconciliation, please view the earnings release posted on our website earlier today at copperyholdings.com. Now I would like to turn the call over to Mr. John Idle, Chairman and Chief Executive Officer.

Thank you, Jennifer, and good morning, everyone. As we outlined in our recent Investor Day presentation. Capri Holdings' strategy is to focus on international fashion luxury brands that are leaders in style and trend. The foundation of our strategy is innovation and fashion leadership, led by the design visions of Donatella Versace, Sandra Choi, and Michael Kors. With the resources and investment that our group will provide, both Versace and Jimmy Choo are positioned for significant growth. We believe both luxury brands have significant opportunity to expand in accessories and footwear. Supported by our group expertise, we are already executing on initiatives with both houses to rapidly develop these categories. Additionally, both Versace and Jimmy Choo will increase revenues with global retail expansion. At Michael Kors, we continue to execute on our plans to position the brand for future growth by continuing to develop the Asia market and accelerating growth in our men's category. With the power of Versace and Jimmy Choo and strength of Michael Kors, we believe our three iconic founder-led fashion luxury brands position Capri Holdings to accelerate revenue to $8 billion over time and deliver multiple years of earnings growth. Now turning to Capri Holdings' first quarter results, revenues of $1.35 billion increased 12% year over year. Earnings per share of $0.95 exceeded our expectations. Based on first quarter performance and our plans for the remainder of the year, We are reaffirming our earnings outlook for fiscal 2020 of approximately $4.95 per share, which includes the impact of the strengthening U.S. dollar and additional tariffs on imports from China. Starting with the House of Versace, one of the most storied luxury brands in the world, we were very pleased with first quarter results. Revenues of $207 million and double-digit comparable store sales growth were both ahead of our expectations. Versace's strong momentum is a reflection of the enthusiastic customer response to our spring line. Seasonal offerings incorporated the iconic codes of the house while we continued to focus on expanding our core lines to create a solid base for long-term results. Both women's and men's ready-to-wear, as well as active footwear, continued to be key drivers of growth. In women's ready-to-wear, dresses featuring Versace's iconic safety pin and reimagined Barroco prints performed well in the quarter. For the men's line, customers responded to seasonal versions of our classic prints, while fashion innovation helped drive strong outerwear sales. In accessories, we saw a positive response to our new introductions in smaller size bags, capitalizing on market trends. And we were pleased with the strong performance of the new Versace vintage logo offerings. Turning to footwear performance, it was led by the continued expansion of Fashion Active. The introduction of cross-chainer performed well, and built on the success of our chain reaction line. In terms of brand awareness and engagement, Versace enjoyed a strong presence across multiple events and regions. On the red carpet, Versace's presence at the Met Gala was exceptional. With the Atelier dressing Jennifer Lopez, Alex Rodriguez, Kendall Jenner, Kylie Jenner, Serena Williams, Idris Elba, and Henry Golding. The Atelier's extensive presence on the Met's red carpet was further amplified on social media by sharing the design and artistry in the creation of each dress worn at the event. As a result, Versace was the most engaged brand across all social media channels for the gala. In Asia, We opened our China World Beijing flagship during the quarter, Versace's largest store in the region. The store features our new retail concept, which is part of the brand's global fleet renovation program that recently debuted in several major international locations. We have seen strong results from our new store formats. In addition, we announced our first Asia brand ambassador, Yang Mi, a celebrated actress and singer with approximately 100 million followers across social media. These initiatives further amplify the vibrant image of the brand in the region, where we continue to see strong growth. Capping off the quarter, Versace played an integral role celebrating the 50th anniversary of World Pride in New York City. Donatella Versace was named a Stonewall Inn ambassador, honoring her commitment to promote and defend diversity, equality, and inclusivity all over the world. Taking the stage at the Stonewall Inn 50th anniversary celebration, Donatella was one of the main speakers and shared the stage with Lady Gaga, who wore a custom-made rainbow flag-inspired Versace Atelier look designed for the occasion. Donatello was also the honorary guest of the Stonewall Inn float during the famous parade that closed the month-long celebration, which was capped off with a concert by Madonna, who also wore Versace Atelier. Our total media coverage was extensive. And during the quarter, Versace's Instagram followers grew to 18.6 million, an increase of 41 percent over prior year. Additionally, Donatella's Instagram personal following reached 4.4 million. Overall, we could not be more pleased with the continued momentum and strong start to the year from Versace. We are aggressively executing against our growth initiatives and investing in the brand and remain confident in our goal to accelerate growth and achieve $2 billion in revenue. Moving to Jimmy Choo. Revenue declined 9 percent reported and 6 percent on a constant currency basis. Retail revenues increased double digits in the quarter and comparable store sales were flat. As previously anticipated, wholesale revenues declined during the quarter. These results were slightly lower than we anticipated due to the pound weakening in the quarter and later demand fulfillment in our key active footwear category. Jimmy Choo continued to deliver comparable sales growth in footwear led by the design vision of Sandra Choi. The brand introduced new seasonal updates of our core groups across all classifications while continuing to focus on the rapidly expanding fashion active category. The recently introduced diamond and rain sneakers both continue to exceed our expectations. As previously stated, demand has been stronger than anticipated, and we are working to fill backlogs for both diamond and rain. We anticipate being back in an appropriate inventory position in Q3. In accessories, we continue to build our new collections. introducing Madeline during the quarter, and the initial results are very encouraging. Additionally, we are excited about the future introduction of our first JC signature group, Varney. We believe comparable store sales and accessories will begin to show growth later in the year, supported by these two new introductions. In terms of brand awareness and engagement, Jimmy Choo continued to dominate the red carpet with celebrities such as the Duchess of Cambridge, Gemma Chan, Duleepa, Emily Blunt, Priyanka Chopra, Amal Clooney, and Lady Gaga. Jimmy Choo built on the positive response to Gemma Chan wearing the Shiloh pump at the Oscars and used this platform for a broad social media campaign around the launch of a capsule collection of our most iconic red carpet-worthy shoes and evening clutches. In Asia, the brand partnered with Ambassador Victoria Song Kwan to design the launch and launch a bespoke capsule collection. Supported by a social media campaign on Weibo and WeChat, the capsule was very successful. We also expanded our online presence in China during the quarter, launching our own brand website and opening a Jimmy Choo store on WeChat. During the quarter, Jimmy Choo's Instagram followers grew to 10.5 million, an increase of 25% versus last year. Looking at Jimmy Choo more broadly, we are pleased with the significant progress of our investment initiatives, retail store fleet expansion, and accessories product development. We look forward to the brand's growth for the remainder of the year and beyond as we build towards our goal of $1 billion in revenue. Turning to Michael Korsbrand, first quarter revenue declined 5% on a reported basis and 3% on a constant currency basis compared to prior year. Revenue was below last year primarily due to unfavorable foreign currency translation and lower America's wholesale shipments. Comparable store sales declined in the low single digits in line with our expectations. We delivered positive comparable store sales growth in Asia and Europe, while comparable sales declined in the Americas. Excluding the impact of watch declines, comparable sales would have been positive. Moving to our product performance. Michael's vision continues to create energy, excitement, and engagement with our customers. In accessories, the Michael Kors Collection Iconic Bancroft Group remains a customer favorite. New shapes such as disco pouch, medium shoulder, and mini satchel have received a positive response. In our Michael Michael Kors line, our recently introduced CC, which features an elegant fold-over silhouette and lock and key detailing quickly grew into a top performer during the quarter. We saw strong success with the launch of our new Manhattan group. Manhattan was also featured in a collaboration with Japanese celebrity Tsubasa Honda. Our Michael Kors signature styles continued to enjoy increased consumer demand and we saw strong comparable sales growth in this classification. We continue to improve our inventory position signature with penetration increasing to the mid 20% range. However, we remain under inventoried and plan to grow this signature to approximately 30% of our retail accessory sales by the end of the year. Moving to footwear, performance was driven by Fashion Active, which was led by our Georgie, Billy, and Allie sneakers. Our customers responded well to seasonal color combinations, new soft colors presented in luxury mixed media materials, and novelty detailing. Signature continued to perform well across all classifications with a strong response to our signature printed denim fabrics as well as lighter, more subtle signature mixes. In women's ready-to-wear, dresses remained our largest platform with strong customer response to Michael's summer collection, featuring medallion lace with applique details, studded floral motifs combined with luxe artisanal texture fabrics, as well as metallic foil prints that evoke an elegant Mediterranean charm. Beyond dresses, fashion outerwear continued to trend positively, with bestsellers including our iconic leather motorcycle jacket and an oversized anorak offered with trademark hardware detailing. In our men's business, the accessories collection continued to be a key strategic focus and is performing well. Growth was led by backpacks, including our core Grayson and Henry groups, as well as our newly introduced Brooklyn mesh backpack trimmed with leather and sporting a suede bottom and neon accents. Sportswear also performed well, with the Greenwich Polo remaining a top seller. Additionally, our recently introduced sport capsule collection, featuring signature taping and bold color choices, continued to perform well globally. In our watch category, we continued to innovate in fashion watches, launching the Whitney and Runway Mercer, which feature feminine details and semi-precious accents. We also introduced our new Access Sophie smartwatch with heart rate monitoring and new sport features. Despite these initiatives, the overall watch category remains more challenged with declines remaining above historical levels. We are focused on accelerating the distribution of our fine jewelry line to offset watch declines longer term. During the quarter, we saw a sequential improvement in jewelry sales driven by strong performance of collections featured in our Bella Hadid spring marketing campaign, including Coors Love and Mercer Link offerings. With respect to brand awareness and customer engagement, we continue to benefit from Michael Kors' personal and extensive global presence. At the Met Gala, Michael dressed a wide array of celebrities, including Gigi Hadid. We are also excited to announce that Gigi will be the new face of Michael Kors' Wunderlust fragrance campaign. This new relationship will build on our successful fashion campaigns with Bella Hadid, By partnering with both Bella and Gigi, two of the most highly recognized fashion icons in the world, with a combined Instagram following of 74 million, we are further deepening our connection with millennial and Gen Z consumers. Turning to World Pride Day in New York, Michael was at the forefront of celebrating his lifelong support for the LGBTQ plus community. Michael sponsored a celebration at the Stonewall Inn in support of God's love we deliver, which highlights his philanthropic commitment to support those in need. In June, we launched MKGO Rainbow, a capsule collection celebrating pride across all categories of men's and women's businesses. As a result, the company was able to raise significant funds to support LGBTQ plus organizations. Reflecting on our strong brand communication initiatives, we increased our global social media audience by 9% to over 46 million followers and expanded our database by 25% to approximately 36 million customers, both demonstrating the strength and desirability of the Michael Kors brand. Overall, we remain very encouraged by the continued progress we are making with Michael Kors. to ultimately return the brand to growth. We believe these efforts will support better results for the entire brand, including a sequential improvement in comparable sales in the second half and solidify Michael Kors as the foundation of our group. In conclusion, we are pleased with the start to the year. We are investing in Versace and Jimmy Choo to position these preeminent luxury houses for future revenue growth and margin expansion. Additionally, we continue to execute on our strategic initiatives at Michael Kors. The combined power of our three fashion luxury houses gives us the confidence and our ability to achieve our long-term goals. Now, let me turn the call over to Tom.