Capri Holdings Limited

Good day and welcome to the fourth quarter and fiscal year. Today's conference is being recorded. At this time, I would like to turn the conference over to Jennifer Davis, Vice President of Investor Relations at Capri. Please go ahead.

Good morning, everyone, and thank you for joining us on Capri Holding Limited fourth quarter and full year fiscal 2020 conference call. With me this morning are Chairman and Chief Executive Officer John Idle and Chief Financial Officer and Chief Operating Officer Tom Edwards. Before we begin, let me remind you that certain statements made on today's conference, 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 the 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 include COVID-19-related charges, long-lived asset impairments, ERP implementation costs, the pre-transformation costs, restructuring Noted, all financial information on today's call will be presented on a non-GAAP basis. To view the corresponding GAAP measures and related reconciliation, please view the earnings today at capriholdings.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. I recently reopened New York offices. I hope you and your families are healthy and safe. that are impacting all today. These are truly unprecedented times. Our heartfelt condolences go out to the families, individuals, and communities affected by the unjust and tragic deaths of George Floyd and Rayshard Brooks. as well as the countless victims that have come before them. The systematic discrimination against the black community that has led us to this point is deplorable and untenable. At Capri Holdings, we stand against racism, discrimination, and violence of any kind. We cannot change the past, but as an organization and as individuals, we have an opportunity to positively impact the future. At Capri Holdings, our Diversity and Inclusion Council is diligently working on initiatives to foster greater equality in the communities that we serve. Learning and taking the necessary actions to support long-term positive change for the Black community. While we foster an inclusive environment where employees of diverse backgrounds are welcomed, valued, and celebrated, There is more that we can do to increase diversity at all levels inside our company. We are working on significant initiatives to create change within Capri Holdings and look forward to sharing our plans in the near future. If we want to see change in our industry, we need to be the change in our industry. The COVID-19 pandemic entire world. My thoughts and prayers go out to all those who have been affected by the virus. Our hearts are with those who are working on the front lines to help the world combat this pandemic. We thank them for their remarkable dedication and courage. Our companies, its founders, and I donated more than $3 million in support of COVID-19 relief efforts globally, demonstrating Capri Holdings' commitment to supporting the frontline workers who are risking their health to keep our communities safe. Additionally, earlier this week, Michael Kors made a $35 million product donation to help provide relief to people in need. Philanthropy has long been a core value of the Michael Kors brand. Our ongoing support of various organizations that provide relief to those who need it most is a fundamental value for Capri Holdings. This is clear because we are all stronger in our united resolve. I also want to thank our teams around the globe for the hard work we demonstrate every day during the pandemic. It has been inspiring to see the entire Capri Holdings organization rally together. Our distribution center employees kept e-commerce facilities up and running while stores were closed. Our retail employees are eager to get back to work and have begun to reopen their stores. And lastly, corporate employees have begun returning to our offices across the globe. Now turning briefly to our full year financial results. Entering fiscal 2020, we expected this to be an investment year to fund strategic initiatives and position our luxury houses for revenue and operating margin growth. Prior to the impact of COVID-19, our earnings per share Our expectations were largely on track with our initial guidance for fiscal 2020. For the full year, our results were significantly impacted by the corona pandemic. Revenue of $5.6 billion increased 6% year-over-year. Earnings per share decreased 22 cents and was further impacted by an unanticipated valuation allowance of 44 cents per share. Despite the pandemic, we were pleased with our progress as we executed many of our strategic growth initiatives. We continue to believe in the power of our three fashion luxury houses and the resilience these extraordinary times. We remain confident and optimistic about the future of Capri Holdings. Looking at fiscal 2021, As we manage through these unprecedented times, we are focused on five key areas. First, protecting the health and safety of our employees, customers, and communities. Second, reopening our business globally. Third, deepening customer engagement. Fourth, maintaining financial strength. And fifth, preparing for future growth in fiscal 2022 and beyond. Starting with protecting the health and safety of our employees, customers, and communities. Across the globe, we have implemented procedures for our stores, distribution centers, and corporate offices. These include conducting health screenings and temperature checks, providing employees with personal protective equipment, implementing increased cleaning and sanitizing procedures throughout our stores distribution centers, and offices, practicing social distancing, including re-spacing floor plans to maintain a safe six feet, limiting store capacity to allow for physical distancing, adding distancing markers inside and outside our stores as necessary, posting signage encouraging customers to observe social distance guidelines, and encouraging consumers to wear a face covering while shopping. Stores will have masks available for consumers who do not have their own. In terms of reopening our business, we have made the decision to begin a phased reopening on a location by location basis. While our stores are accommodating for new health and safety standards, we will not let that take away from our luxury aesthetic and exceptional in-store experience. We are maintaining the highest standards of service our customers have come to expect from our luxury houses. We are pleased with the performance of reopening thus far. We have made the most progress in mainland China, where stores have been open for several months now and volumes have been steadily increasing. We expect revenue in our fiscal first quarter to be approximately at Versace and Jimmy Choo in this region. Of course, we expect revenue to be below prior year levels. Revenue in Hong Kong and Macau remained significantly below last year. In the remainder of Asia, outside of Greater China, the recovery is progressing at a slower pace. This is due to two factors. First, in Japan, the retail store closure and reopening process occurred several months later than in China. Therefore, Japan is early in the recovery phase. The second factor impacting Asia outside of China is the decline in tourism. Air traffic in the region is down significantly since the outbreak of COVID-19, due to travel restrictions. Chinese tourism and travel retail comprise a meaningful portion of our luxury sales in the region. In the Americas and EMEA, where we began reopening our fleet in May, we are encouraged by the performance thus far. Revenue has ranged from 50% to 75% of prior year levels since stores have reopened. Results have improved since initial reopening with a gradual build in sales trends. Overall, we are pleased with our progress with all regions tracking above our internal expectations. While traffic at reopened stores is trending slightly better than we had originally anticipated, conversion is meaningfully higher than expected. Additionally, we saw a significant acceleration in our e-commerce revenue growth in the first quarter. Now turning to our next area of focus, engaging customers. We are fortunate to have three brands with loyal and passionate consumers. Through our e-commerce sites, social media channels, and other digital communications, we are creating messaging that is exciting to our followers as we focus on keeping them highly engaged. Donatella Versace, Sandra Choi, and Michael Kors have powerful voices to communicate with fans as they remain connected with our customers. At Versace, Donatella provided followers with memories as she shared personal memories of time she spent with other iconic models, actors, Versace shared content through social media to help support, motivate, and inspire followers, generating overwhelmingly positive sentiments and results. These initiatives resulted in a significant increase in engagement and helped contribute to nearly 30% increase in Versace's Instagram followers during the quarter, which grew to almost 22 million followers. At Jimmy Choo, we launched the Choo Sketch Competition. We invited followers to join Sandra Choi and share sketches of their ultimate fantasy shoe. From the over 10,000 entries received, and from there, our Instagram followers voted for their top five. They will see their sketches brought to life as part of an upcoming capsule collection. The success of the competition helped contribute to a 13% increase in Jimmy Choo's Instagram followers to 11 million. At Michael Kors, Michael connected with fans as he embodied the brand's attitude of energy and optimism. Michael released 18 videos on Facebook, Twitter, and Kakao sharing stories and showing how he spent his time during quarantine. He urged followers to stay safe, strong, patient, and positive through these difficult times. Additionally, Michael invited clients to join him and personalize virtually with the participants. Michael also interacted with fans in China, where we experienced a very successful Superbrand Day on T-Mall in April. A collection of customizable bags. bags sold exclusively on Tmall. The launch was combined with an interactive digital quiz that allowed customers to engage with Michael. We were thrilled with the results, which far exceeded our expectations. On that one day alone, we had 1.3 million visitors to our site and generated over 2 million in revenue. During the quarter, Michael Kors' global social media presence increased by 8% to nearly 49 million followers. Now I'd like to take a moment to acknowledge one of the most powerful assets in the company, our incredible group of nearly 13,000 Versace, Jimmy Choo, and Michael Kors store associates worldwide. While our stores were closed, many associates focused on clienteling and engaging with customers at home. They were able to interact with clients through alternative channels such as Zoom, FaceTime, WhatsApp, WeChat, and Line. Now turning to our next area of focus, financial strength. Capri Holdings' liquidity remains strong. We currently have approximately $1.1 billion in cash and availability under our revolving credit facility. As the pandemic spread, we took decisive actions to preserve our cash and maintain our financial space by $500 million to emerge a strong company. And finally, preparing for future growth in fiscal 2022 and beyond. I am proud of the progress we are making executing against our strategic initiatives. The results we are seeing reinforces our confidence in the future growth of Capri Holdings. We have a portfolio of three exceptional luxury houses, Versace Heritage, Michael Kors, which is with its 39 years, and Jimmy Choo with its 24-year heritage. These brands have enduring value and a long history of successfully navigating challenging periods. Given the history of our luxury houses, I am confident that we will successfully navigate these unprecedented times and emerge in a strong position. Looking at each of our luxury houses, starting with Versace, we are confident in our ability to increase revenue to $2 billion at a mid-teens operating margin over time. First, we plan to build on the luxury runway momentum driven by Donatello's fashion vision. Second, we will enhance the brand's powerful and iconic marketing to expand engagement and build upon our large social media following. Third, we expect to continue increasing the luxury house's global retail footprint from approximately 200 stores today to 300 over time. We believe physical stores will always play a vital role in a consumer's experience with luxury brands. As a reminder, Versace under-penetrated relative to its luxury peers. Fourth, we intend to accelerate channel development. And fifth, we will continue to expand Versace's accessories and footwear business from approximately 35% of revenues today to 60%. We made significant progress in fiscal 2020 with the launch of our new iconic Barocco V logo on the Virtuous Accessories line. This logo is a key foundation for future growth opportunities across multiple product categories. Similarly, at Jimmy Choo, our confidence in the luxury house's long-term growth potential has not changed. We believe there is a revenue to $1 billion and achieve a mid-teens operating margin over time. First, Jimmy Choo will continue to to expand its luxury footwear collection with an emphasis on building the rapidly growing fashion active classification. We plan to build on the successful introductions over the past year. Second, our strategy to increase the penetration of accessories remains on track with the successful launch of our new Madeline and Varon handbag collections in fiscal 2020. we will continue to expand the breadth of our offerings and grow the category to approximately 50% of revenue. Third, we still believe we have the opportunity to grow the store base to approximately 300 stores compared to 226 today. As a reminder, Jimmy Choo's store base is also under-penetrated relative to its luxury peers. Turning to Michael Kors. We were pleased with the traction of our strategic initiatives in fiscal 2020. Our global customer database expanded by approximately 20%, reaching 44 million customers, demonstrating the continued strength and desirability of the Michael Kors brand. We attracted a younger customer, expanded our signature assortments, and continued to grow apparel, footwear, and men's. In fiscal 2021, we plan to continue to build on our success. First, we are focusing on product innovation, delivering fashion and newness across all our successful signature offerings. Second, we are planning to expand our men's business as we remain strategically focused on this high growth category. Prior to the pandemic, we were seeing strong performance, which we Third, Michael Kors has tremendous growth opportunity in Asia, primarily in China, where we believe we can double our revenue over time. Given the increased wealth in the region, as well as our expanded brand recognition, we believe we have significant opportunity to grow our digital business, open new stores, and to increase productivity of existing stores. Finally, the brand is increasing engagement by leveraging Michael's powerful voice and leading social media presence while enhancing our 360-degree marketing efforts. In conclusion, we are confident and optimistic about the long-term opportunities for Capri Holdings for the following reasons. First, we have a portfolio of three iconic founder-led fashion luxury houses with powerful global recognition. Our incredible brands inspire passion and excitement in customers who value imagination, exceptional quality, and design innovation. Fashion and luxury speak to deep-seated desires for self-expression and creativity, and we have no doubt they will remain long after the global shutdown is behind us. Second, we are driving increased customer engagement and deepening our relationship with existing and new customers through many communication channels. Third, our leading distribution network combines a world-class digital experience with luxury retail locations in the most fashionable, sought-after shopping destinations around the world. Fourth, we continue to execute on our strategic initiatives, which position us to resume revenue, growth, and expanded operating margins. And finally, we have a strong balance sheet and a history of robust free cash flow generation. Therefore, we remain confident in the long-term opportunities for our company and believe we are poised to resume our growth trajectory in fiscal 2022. Now, let me turn the call over to Tom.