Capri Holdings Limited

Thank you for standing by. This is the conference operator. Welcome to the Capri Holdings Limited second quarter fiscal 2021 earnings conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Jennifer Davis, Vice President, Investor Relations.

Please go ahead. Good morning, everyone, and thank you for joining us on Capri Holding Limited's second quarter fiscal 2021 conference call. With me this morning are Chairman and Chief Executive John Idol and Chief Financial Officer 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 costs associated with COVID-19-related charges, long-lived asset impairments, ERP implementation costs, CAPRI transformation costs, restructuring, and other charges. Unless otherwise 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 release posted on our website earlier today at capriholdings.com. Before we begin, I would like to note that we have accompanying slides posted to our website. 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. The COVID-19 pandemic continues to profoundly impact the entire world. My thoughts and prayers go out to all of those who have been affected by the virus and to everyone on the front lines who are tirelessly helping to combat this pandemic. At Capri Holdings, we are prioritizing the health and safety of our employees, consumers, and communities. I want to thank our teams around the world for the hard work and dedication they demonstrate every day to support each other and their communities during this unprecedented time. As we look forward, we are increasingly optimistic about the outlook for the fashion luxury industry. Luxury is enduring as it creates an emotional connection with consumers inspiring excitement and passion in those who value design, innovation, as well as exceptional quality. The industry has proven resilient with sales historically recovering rapidly following economic downturns and global health crises. Current trends indicate that, once again, luxury sales are quickly rebounding. Additionally, we believe consumers are spending at higher rates on luxury products as there has been reduced spending on experiences due to travel restrictions. While there are many unknowns in front of us, we believe the luxury market will resume a steady growth trajectory and that Capri Holdings is uniquely positioned to expand its revenue and earnings with Versace, Jimmy Choo, and Michael Kors. Now I would like to turn to our second quarter results. Revenue and earnings per share significantly exceeded our expectations. While second quarter revenue declined 23%, that was a substantial improvement compared to the first quarter. Sales in our retail channel decreased approximately 17%. We were particularly pleased with our robust e-commerce growth, which accelerated sequentially and grew approximately 60% compared to prior year. Door performance also improved sequentially, driven by local clienteling initiatives. In the wholesale channel, Performance at the point of sale also continued to improve, but tracked lower than our own store performance. By geography, we are seeing the fastest recovery in Asia. This is being led by mainland China with positive sales in our retail channel across all three of our luxury houses. Revenue in the Americas is also recovering faster than we anticipated, with sales in our retail channel increasing double digits at Versace, low single digits at Jimmy Choo, and at a slower recovery at Michael Kors. EMEA improved sequentially, but sales across all three brands trailed other regions, given the impact of lower tourism and its importance in this geography. Earnings per share of 90 cents also surpassed our expectations, driven by better than anticipated revenue, continued gross margin expansion, and expense reduction initiatives. Now turning to second quarter performance by brand. Starting with Versace, we are pleased with the results and trends which are significantly ahead of our expectations. Sales in our retail channel increased in the mid single digits globally, demonstrating the strength of the brand and favorable response to our product innovation. Global e-commerce sales increased triple digits, while sales in our retail channel in mainland China increased in the high single digits and in the America increased by robust double digits. Revenue in EMEA and the balance of Asia improved sequentially, though trends remained below prior year. We saw strength across the brand, particularly in menswear and fashion athletic footwear. We also continued to see strong consumer response to the Barocco V logo, which performed well across all classifications, including accessories, footwear, belts, and jewelry. Within women's ready-to-wear, consumers responded to Donatello's fall-winter collection that channeled power and strength by featuring broad shoulders and cinched waists. Another key indicator of strength of the Versace brand is our very successful fragrance collection, which is one of the largest designer fragrance businesses in the world. In September, we launched Dylan Turquoise, the latest addition to the Dylan family of fragrances, with a dedicated campaign starring Hailey Bieber. We also launched a refresh of our successful Dylan Blue featuring Bella Hadid. Our fragrance sales have shown a strong sequential improvement during the quarter. In terms of brand awareness and consumer engagement, in July we revealed our capsule flask collection in a live stream video featuring a performance by British musician A.J. Tracy, debuting his new song, Step On, in a world exclusive. The campaign gave viewers backstage access to A.J. Tracy, who was also joined by models wearing designs from the Versace collection. On September 25th, we held our Spring Summer 2021 fashion show in Milan. Donatella created Versaceopolis, an underwater fantasy world ruled by Medusa. The collection is optimistic, dreamy, and positive. The show generated over a million total views through our own channels, and Versace was the number one engaged brand on social media during Milan Fashion Week. These initiatives helped to drive a 20% year-over-year increase in Versace's global database, which grew to 3 million consumers. Overall, Versace's results speak to the strength of the brand and reinforces our confidence in the luxury house's long-term growth potential. Versace continues to represent the largest growth opportunity for Capri Holdings, where we believe revenue will increase by over a billion dollars in the coming years. Moving to Jimmy Choo. We are pleased with the sequential revenue improvement in the second quarter. E-commerce sales increased triple digits. Retail sales in mainland China grew strong double digits, and in the Americas grew low single digits. Trends in the EMEA and the rest of Asia improved sequentially but remained below prior year. We are encouraged with the performance of our expanded accessories assortment. with particular strength in totes and mini bags. Our signature JC Varenne remains the best-selling collection in accessories. In footwear, trainers continue to outperform and increase in penetration. We have a significant opportunity to expand Jimmy Choo's casual footwear assortment beyond sneakers as demonstrated by our recent collaboration with Timberland that resulted in almost a 100% sell-through. The $5,000-plus all-over Swarovski crystal embellished version, which fused Timberland's outdoor utility with Jimmy Choo's signature off-duty glamour, sold out immediately. The success of this collaboration demonstrates the power of the Jimmy Choo brand and the vision of Sandra Choi in the casual footwear arena. Additionally, we have seen strong sales results in booties, including the cruise boots, particular in styles adorned with crystal or pearl detailing that add a touch of elegance to casual styles. We also recently launched the Seduction Collection, Jimmy Choo's first luxury beauty line that includes lipstick, nail polishes, as well as fragrances. The collection launched exclusively at Harrods. Sales have exceeded our expectation, and we are planning to expand distribution. In terms of brand awareness, the consumer engagement we launched in our fall 2020 campaign featuring British actress Daisy Edgar Jones, who is the star of the hit Hulu show, Normal People. In September, Daisy was featured in the latest installment of the In My Choose interview series, which highlights strong, prominent women who not only dare to stand out, but also empower others by sharing their insights, learnings, and experiences. Daisy Edgar Jones personifies the off-duty glamour and femininity of the Autumn Winter Collection. Our collaboration with Timberland drove energy and excitement and helped introduce new consumers to Jimmy Choo. The marketing campaign shot by Riverdale actor and photographer Cole Sprouse brought the product to life with authentic storytelling that resonated with both new and existing consumers. Our luxurious product and engaging marketing campaigns helped contribute to a 22% year-over-year increase in our global consumer database, which grew to 3.4 million consumers. Overall, we believe our strategy to build accessories as a cornerstone of Jimmy Choo's already solid luxury foundation along with the additional emphasis on off-duty footwear, will enable us to grow revenue by approximately $500 million in the coming years. Turning to Michael Kors. We are pleased with the pace of the recovery. In the second quarter, revenue improved sequentially and we generated higher gross margins. E-commerce sales increased strong double digits and retail sales in mainland China increased high single digits. In all our other regions, trends improved sequentially but remained below prior year. We are encouraged with the initial performance of our fall collection, inspired by Marrakesh in the 70s, reflecting rock and roll glamour and bohemian bliss. We are increasing signature penetration across all categories by expanding the offering and developing new techniques as well as executions. In accessories, signature continues to perform well as consumers respond to newness. Signature penetration increased to nearly 40% compared to almost 30% last year, resulting in higher AURs and gross margins. We continue to see strength in large handbags, totes, and backpacks, which are also contributing to AUR increases. Within footwear, we saw strong performance in fashion active driven by our luxe logo and signature styles. Additionally, the men's business continues to perform well driven by accessories and outerwear. With respect to brand awareness and consumer engagement, Michael Kors Fashion Innovation was highlighted in the Spring Summer 2021 Collection Runway Show, which drew inspiration from Michael's enduring love for New York City. The collection debuted through a multi-layered digital experience accessible at michaelkors.com and featured a documentary style film that immersed viewers in the mood and inspiration of the season, in addition to the runway show. The fashion show was filmed in a New York Restoration Project community garden, featuring performance by American Idol winner Samantha Diaz. Additionally, in September, we announced award-winning Chinese actress Gao Yunyun as our newest brand ambassador. She is one of the most celebrated and beloved actresses in China, with nearly 50 million followers on Weibo. In her first role as brand ambassador, Gao is featured in our fall campaign in Asia. In the Americas and EMEA, Bella Hadid, who has approximately 36 million social media followers, embodies Michael Kors' jet-set vision with a sense of rock and roll glamour in our fall campaign. Over social media, fans followed Bella throughout a series of classic rock and roll vignettes that engaged consumers in our fall campaign. Our marketing initiatives continue to underpin our brand pillars of speed, energy, and optimism. This helped contribute to a 16% year-over-year increase in our global database, which reached over 46 million consumers. Overall, we are pleased with the sequential improvement in sales trends and gross margin expansion at MicroCores. we remain confident in our ability to grow revenue while generating operating margins above historical levels. Looking ahead, we plan to grow Capri Holdings revenue and earnings by executing on the following five strategic pillars. First, designing the most innovative and exciting fashion luxury product from all our three founder-led houses. Second, Inspiring, engaging, and delighting our consumers through compelling marketing campaigns. Third, developing a more consumer-centric approach by leveraging our expanding global database. Fourth, accelerating revenue growth at all three fashion luxury houses through industry-leading e-commerce and omnichannel capabilities. And fifth, being an exceptional corporate citizen with a comprehensive environmental and social responsibility strategy emphasizing diversity and inclusion as well as philanthropy. In conclusion, Capri Holdings' second quarter results significantly exceeded our expectations with better than anticipated performance across all our luxury houses. The sequential improvement in revenue demonstrates the strength of our brands and resiliency of our teams across the globe. We will continue to execute on our strategic growth initiatives and remain confident in the long-term opportunities for each of our unique global luxury houses. Now, let me turn the call over to Tom.