Capri Holdings Limited

Stand by. Good day, everyone, and welcome to the Capri Holdings Limited Second 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, VP of IR at Capri. Please go ahead, ma'am.

Thank you, Shannon. Good morning, everyone, and thank you for joining us on Capri Holding Limited Second 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 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 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 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. Capri Holdings has in a short period of time assembled an outstanding family of founder-led fashion luxury houses. The diversification of our portfolio is a key component for our long-term growth strategy. Now I would like to update you on the progress we are making developing our fashion luxury group. Starting with Versace, we continue to execute against our five strategic growth pillars. First, we are building on Versace's luxury runway momentum driven by Donatella's fashion vision. Second, we are enhancing the brand's powerful and iconic marketing. Third, we are rapidly increasing the brand's global retail footprint toward our goal of 300 stores. Fourth, we are accelerating our e-commerce platform to improve our capabilities. And fifth, We are expanding our accessories and footwear businesses with compelling new collections, including our Virtus group featuring the recently introduced Barocco V signature logo. Turning to Jimmy Choo, we continue to make progress on our strategic initiatives. Starting with footwear innovation, the brand is seeing positive trends for active footwear, a key growth category. Our strategy to expand accessories penetration remains on track with very encouraging results from new groups, including our recently introduced Varenne JC Signature Collection. Lastly, due to our successful store expansion, we recently raised Jimmy Choo Global Fleet Retail Goal to 300 stores and are making significant progress towards that target. At Michael Kors, we are extremely pleased to see an inflection point in our business with positive comparable store sales in the second quarter, reflecting improving trends in the Americas and continued growth internationally. Our accessories category has seen a sequential improvement, which indicates that our product innovation strategies are resonating with consumers. We are successfully executing against the brand's repositioning efforts to attract and engage millennials and Generation Z consumers with Michael's optimistic design vision and energetic marketing. Our renewed Jet Set vision focusing on speed, energy, and optimism across product innovation, brand engagement, and customer experience is clearly exciting consumers. Overall, we are committed to building on the many positive trends we are seeing in our three fashion luxury houses. With continued focus on execution and investment to support our growth plans, we are confident that Capri remains on track to grow revenue to $8 billion over time and deliver multiple years of earnings growth. Now turning to Capri Holdings second quarter results. Revenues of $1.44 billion increased 15% year over year, in line with our expectations. This increase reflects the addition of Versace and growth from Jimmy Choo, partially offset by an anticipated decline from Michael Kors. Revenue was also impacted by unfavorable foreign exchange translation and developments in Hong Kong during the quarter. The situation in Hong Kong intensified and had a greater impact on our results than we originally anticipated. Earnings per share were $1.16, which was below our expectations. Our earnings were negatively impacted by higher than anticipated expenses in the quarter due to timing, as well as greater than anticipated impact from developments in Hong Kong. Looking at fiscal 2020, we are reiterating guidance for revenue of approximately $5.8 billion and earnings per share of approximately $4.95. For the remainder of the year, we continue to execute on our strategic initiatives at Versace and Jimmy Choo and plan to build on the better than expected comparable sales trends we are seeing at Michael Kors. Starting with the House of Versace, we were pleased with our second quarter results. Revenues of $228 million was ahead of our expectations, reflecting higher contributions from new stores and strong wholesale performance. Comparable store sales were flat for the quarter. Versace continued to deliver double digit comparable sales growth in the Americas and EMEA, while we experienced declines in Asia as the region was affected by greater than anticipated challenges related to the situation in Hong Kong and consumer reaction in China to an incorrectly labeled product. Versace's continued momentum was driven by the positive response to Donatello's fall collection. were particularly enthusiastic about our new seasonal offerings, which featured vivid faux furs, lush jewels, and bright hues that epitomize Versace's rock and roll legacy. In addition, heritage offerings were well received across all lines, building on the brand's iconic codes. Both men's and women's ready-to-wear, as well as active footwear, continued to be key drivers of growth. In women's ready-to-wear, new groups incorporating updated house codes performed well in the quarter, led by a broad offering featuring variation of Versace's famous and highly recognizable safety pin. In accessories, we were encouraged by the early response to the launch of the Virtus handbag collection, which prominently displays the new Barocco V logo. on a bold symbol of the brand's aesthetic heritage. Turning to footwear, growth in the fashion active category continued to drive performance, led by our best-selling chain reaction line. We also recently introduced a new active group, the Squalo, to build on this momentum. For the men's lines, new styles featuring Signature pattern silks and animal prints in a wide range of vibrant colors as well as highly refined tailoring offerings were well received. In terms of brand awareness and engagement, Versace held a historic runway show during the quarter that was met with widespread acclaim and media coverage. The Spring 2020 show celebrated the 20th anniversary of the legendary moment in fashion history when the iconic jungle print dress worn by Jennifer Lopez helped inspire the creation of Google Images search function. To close the show, Jennifer Lopez surprised and delighted the audience and lit up social media once again by walking the runway wearing a reimagined version of the tropical print dress she wore to the 2000 Grammys. On the red carpet, Versace's presence during the quarter was extensive. The Atelier dressed superstar Taylor Swift, who opened the MTV Awards show wearing a custom Atelier Versace look. Versace also dressed Kaya Gerber, Angelina Jolie, Kendall Jenner, Kylie Jenner, Gigi Hadid, and 2 Chainz, among many others. The brand's media coverage was extensive during the quarter. Versace's Instagram followers grew to 20 million, an increase of approximately 40% over the prior year. Versace's digital brand momentum is higher than that of its much larger luxury peers, giving us confidence in our ability to expand our product offering and retail footprint. Overall, we are executing against our growth initiatives at Versace, including continuing our luxury fashion focus, enhancing marketing, increasing the brand's global retail footprint, accelerating e-commerce, as well as expanding our accessories and footwear offerings. We remain confident in our goal to accelerate growth and achieve $2 billion in revenue. Moving to Jimmy Choo, revenue increased 8% on a reported basis and 10% in constant currency, in line with our expectations. These results reflect new store openings and higher wholesale shipments, partially offset by a mid single digit decline in comparable store sales. Comparable store sales were impacted by weaker performance in Hong Kong and a decline in Japan as we lapped a highly successful 10th anniversary campaign in the prior year. Excluding Hong Kong and Japan, comparable store sales would have been flat. In footwear, Jimmy Choo continued to deliver strong comparable store sales in the fashion active classification, as Sandra Choi's exciting new designs resonated with consumers. This performance was led by our best-selling diamond and rain sneakers. Turning to our fashion offerings, several seasonal introductions showed strong performance, including Fetto, an asymmetric slingback with a modern kick heel, and Bing, a luxury mule with crystal-encrusted detailing. In accessories, we continue to expand our new collections, introducing the first Varenne JC Signature Group. Varenne is offered in rich autumn colors, including Bordeaux, rust, and dark green, and comes in several distinct silhouettes. Initial customer response to this collection has been very positive. Veren joins the recently introduced Madeline and Helio groups, and together these new collections have already delivered comparable sales growth in handbags in Americas, EMEA, and mainland China. We're excited about the future prospects for building accessories momentum supported by these new introductions. In terms of brand awareness and engagement, Jimmy Choo supported the launch of Veren Collection with a broad marketing and social media campaign featuring supermodel Kaya Gerber, who was also featured in our fall winter advertising campaign. Kaya's authenticity transcends generations and is the perfect representation of the dynamic energy of the brand. Jimmy Choo continued to dominate the red carpet with celebrities such as Kate Hudson, Priyanka Chopra, Bella Hadid, Sienna Miller, Victoria Song Chang, Camila Cabello, and Halsey, wearing our shoes and handbags. During the quarter, Jimmy Choo's Instagram followers grew to 11 million, an increase of over 20% versus last year. Overall, we continue to drive footwear innovation, accelerate accessories product development, and expand the brand's retail store fleet. we remain confident in our long-term ability to grow Jimmy Choo's revenue to $1 billion. Turning to Michael Kors brand, second quarter revenue declined 4% on a reported basis and 3% on a constant currency basis, in line with our expectations. During the quarter, we were pleased with a return to comparable store sales growth, which increased in the low single digits and we're ahead of our expectations. Positive comparable store sales reflects continued growth in Asia and Europe, while trends improved to flat in the Americas, driven by sequential improvement in accessories performance. In the wholesale channel, revenue at the point of sale trended below our retail stores, in part due to lower signature inventories. Moving to our product performance and accessories, Michael Kors Collection Bancroft Group continues to be a top performer. The recently introduced MKC monogram adds a luxury signature touch to several new collection offerings and has been well received. In our Michael Michael Kors line, we relaunched two of our iconic handbag groups, the Hamilton and Bedford, bringing back core elements of the brand. The new Hamilton has been modernized with sleeker proportions and updated functionality, while still offering a nod to the original version with an updated Hamilton lock and belting detail. The Bedford Legacy offers a sophisticated silhouette with a more casual, softer luxury presence. Both of these groups quickly became bestsellers. The recently introduced CC and Manhattan collections also continued to perform well globally as we build a core of strong differentiated collections. Additionally, we launched an expanded travel collection during the quarter. This builds on the jet set lifestyle Michael Kors has become so well known for and now includes a full line of luggage and travel accessories. Overall, Our global accessories category delivered improved results in second quarter, led by the success of Michael Kors signature styles. In our retail channel, we saw continued strong comparable sales growth in signature styles driven by improved inventory position, with penetration increasing to nearly 30% of retail sales in the quarter. While we have reached our 30% goal, we now see potential to rapidly increase the mix to 40% due to the strong consumer response. Additionally, we are actioning increased signature inventory levels in our wholesale channel to take advantage of this strong selling trend. Moving to footwear, performance continues to be driven by Fashion Active, which was led by the Georgie, Irving, Billy, and Olympic sneakers. Seasonal updates resonated with our customers, including new woven fabric techniques, metallic detailing, and mixed materials with hair cap highlights. Signature continued to perform well across all classifications with our updated MK charm, helping propel the newly launched Lily moccasin to become one of the most popular casual items. Additionally, we have seen strong sales of emerging fall fashion, including moto, combat, and hiking boots. In women's ready-to-wear, dress sales were driven by exotic animal prints and logo details. Trends highlighted prominently in our fall ad campaign featuring Bella Hadid. Best sellers included leopard print wrap dresses and sweater dresses with MK logo trim. We saw continued strong consumer response to fashion outerwear with best sellers such as crop denim jacket with removable faux fur collars and cuffs, a leopard print down puffer, and MK signature print trench. In our men's business, we remain strategically focused on expanding the accessories collection and continue to see strong consumer response. Growth was led by backpacks, including the recently introduced Brooklyn silhouette across fashion and sports executions. Updated signature offerings also performed well. In sportswear, we saw strength from our top-selling Greenwich polo in fall colors, as well as our MKGO capsule collection featuring technical fabrics in sport-inspired silhouettes. Additionally, we have seen a strong response to our newly introduced sneaker collection. with best sellers crafted with mixed materials of leather, suede, and mesh, while sporting our signature logo print. In our watch category, we continue to innovate with our smartwatches and are very excited about our next generation MKGO watch, which retails at $295. Our next generation smartwatches feature new technology that gives iPhone users the ability to place and receive calls through any of our watches that have speakers. While we continue to innovate in this classification, the overall watch category remains challenged and with decline similar to prior quarters. We remain focused on accelerating the distribution of our fine jewelry line to offset watch declines long term. During the quarter, we saw a sequential improvement in jewelry sales in our retail channel. With respect to brand awareness and customer engagement, Michael Kors Fashion Innovation was highlighted in the Spring Summer 2020 Collection Runway Show, which drew inspiration from the 1940s and celebrated America's unique role supporting diversity and inclusion as a melting pot for the world. Michael Kors was the number one engaged brand on social media in New York Fashion Week. And for the first time, Michael Kors ranked number one every day during New York Fashion Week. During the quarter, we also launched our Michael Michael Kors fall campaign featuring supermodel Bella Hadid. Amplified across digital, print, outdoor, and in-store, Bella continues to drive engagement and traffic for the brand and broaden our customer reach. Turning to China, we launched the Xixi capsule collection for Chinese Valentine Day featuring our new Michael Kors brand ambassadors, Leo Wu and Lorena Song, combined with a broad social media campaign and further expanding the brand's exposure in China. In Japan, we collaborated with artist Masami Yangadia and launched a limited edition accessories collection that was available exclusively in Japan. His illustrations were inspired by vintage Harajuku street style or featured on numerous iconic signature logo items. Both of these initiatives drove strong sales results. Michael dressed a wide array of celebrities during the quarter, including Jennifer Lopez, Nicole Kidman, Kate Hudson, Gigi Hadid, and Billy Porter, among many others. We continue to expand our global social media presence by approximately 10% to over 47 million followers and expanded our database by 25% to approximately 40 million customers. Overall, we are very pleased that the Michael Kors brand returned to comparable store sales growth during the quarter. We saw significant inflection in our accessory sales driven by our signature fashion styles. Our new fashion product initiatives and our renewed Jet Set marketing are helping to drive our growth. In conclusion, we are pleased with the progress we are making developing our founder-led fashion luxury houses. Growth initiatives for our recent acquisitions, Versace and Jimmy Choo, are gaining traction. For Michael Kors, a return to comparable store sales growth and our sequential improvement in accessory sales support our future return to growth for the brand. Combined, we believe the power of our three fashion luxury houses keep us on track to accelerate growth over the long term. Now let me turn the call over to Tom.