Capri Holdings Limited

Greetings. Welcome to Capri Holding Limited fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Jennifer Davis, Vice President of Investor Relations. Thank you. You may begin.

Good morning, everyone, and thank you for joining us on Capri Holding Limited's fourth quarter fiscal 2021 conference call. With me this morning are Chairman and 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 costs associated with COVID-19-related charges, long-lived asset impairments, ERP implementation costs, Capri transformation costs, charitable donations, an inventory step-up adjustment, acquisition foreign currency effects, 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 GATT 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. Looking back, fiscal 2021 was a year like no other. Over this time, the COVID-19 pandemic has had a profound effect on the entire world. The unprecedented challenges tested our business and industry in ways we could never have imagined. My thoughts go out to all those affected by the virus and to everyone on the front lines who are tirelessly helping combat this pandemic. The entire Capri team came together not only to successfully navigate these challenging times, but also to position the company to emerge from this global crisis even stronger. I want to thank all of our employees around the world for the hard work and dedication they demonstrate every day to support each other and their communities. It has been inspiring to see the entire organization rally together. I'm incredibly proud of the team and what Capri Holdings has been able to accomplish during these unprecedented times. Looking at fiscal 2021, we were encouraged by the performance of all three of our luxury houses. Revenue and earnings results significantly exceeded our original expectations. Retail sales improved sequentially every quarter, while e-commerce sustained strong increases across all brands, with growth rates accelerating even after stores began reopening. Additionally, in line with our goals to expand margins across all our luxury houses, gross margin increased approximately 340 basis points in fiscal 2021. Furthermore, we attracted nearly 9 million new consumers across our luxury houses as evidenced by the double-digit increases in our customer databases over the last year. Our success is a testament to the strength of our brand, as well as the dedication, resilience, and agility of the entire Capri Holdings team. During the year, we reevaluated and refined Capri Holdings' strategic direction to ensure the company emerges from the pandemic stronger and more profitable. For Versace and Jimmy Choo, we reaffirmed our long-term plans and are even more enthusiastic about the prospects of these luxury houses. For Michael Kors, we recalibrated our plans to further elevate the brand positioning and deliver higher profit margins, which we have already begun to achieve. With the strategic reset of our business, we believe Capri Holdings is well positioned to achieve our goal to grow to $7 billion in revenue. Looking forward, As the world starts to recover from the pandemic, we are confident in our growth opportunities for Versace, Jimmy Choo, and Michael Kors. Consumer optimism is returning with the vaccine rollout progressing in many parts of the world. While the pace of recovery is still dependent on the vaccination's progress, We believe the luxury market will resume a steady growth trajectory and Capri Holdings is well positioned to participate. Now, turning to the fourth quarter performance. We were pleased revenue, gross margin, and earnings per share all significantly exceeded our expectations. The company achieved these results despite greater than anticipated challenges in EMEA and Canada due to additional restrictions and store closures associated with COVID. Total revenue in the fourth quarter was flat compared to prior year, with strength in the retail channel in the Americas and Asia, offsetting the challenged environment in EMEA. Additionally, gross margin expanded 280 basis points, more than double our expectation, with margin expansion across all three luxury houses. Operating margin expanded 360 basis points. As a result, earnings per share of 38 cents were stronger than expected. Looking at group revenue trends, total sales for our retail channel increased 13%, significantly exceeding our expectations. The better results were driven in part by robust e-commerce sales, which increased 80%, and once again accelerated relative to the prior quarter. e-commerce sales are benefiting from our increased use of data analytics to support more targeted and personalized marketing. Additionally, store performance improved significantly quarter over quarter, driven by local clienteling initiatives and improved traffic trends. In the wholesale channel, sales also improved sequentially. By geography, Asia remains the fastest recovering region, with retail sales increasing double digits versus prior year. Once again, revenue in the region increased across all three of our luxury houses, driven primarily by strong growth in mainland China, where sales increased triple digits. In the Americas, retail revenue also increased double digits, even though an average of 40% of our stores in Canada were closed during the quarter. On the other hand, in EMEA, revenue trends remain negative, as an average of 60% of our stores in the region were closed during the quarter. Despite the increased restrictions and store closures in EMEA, retail sales trends in the region improved sequentially, driven by triple-digit increases in e-commerce. Now, turning to fourth quarter performance by brand. Starting with Versace, we were pleased with the results, which were significantly ahead of our expectations. Revenues increased 10%, in the fourth quarter, demonstrating the strength of the brand and the success of our strategic growth initiatives. Sales in our retail channel increased double digits globally. In the Americas and Asia, we delivered double-digit growth, which more than offset declines in EMEA. E-commerce sales once again increased triple digits year over year. We were encouraged with the performance of our spring collections, which are resonating with consumers. We saw strength across categories reflecting enthusiastic customer responses to the brand and product. Women's accessories and footwear are key strategic growth drivers. These categories performed exceptionally well, with sales nearly doubling prior year levels during the quarter. We continued to see strong consumer response to Virtuous, as well as to the introduction of our new La Medusa collection, which launched in February. With Virtuous, and La Medusa, we now have two powerful, highly recognizable brand pillars to grow accessories and footwear. We will soon introduce a third pillar with the fall launch of our La Greca signature pattern. I hope you were able to watch the Versace fashion show in March where we debuted the new signature pattern which combines our iconic Greek key motif with the Versace logo. We believe the introduction of the new LaGreca signature pattern will significantly accelerate the trajectory of Versace's revenues as it expands the brand's portfolio of recognizable iconic pillars. Additionally, we saw strength across both women's and men's ready-to-wear. Seasonal offerings incorporated the Tresor de la Mer pattern, which was featured in the Versace Spring 2021 runway show. We also continue to expand our core lines that incorporate iconic house codes to increase sales and broaden Versace's reach. 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 we were very pleased with the continued strength of our new dylan turquoise and the refresh of our successful dylan blue fragrances as sales continue to exceed our expectations in terms of brand awareness and consumer engagement Versace's spring-summer 2021 campaign reflected Donatella's underwater fantasy world, Versaciopolis. Starring Kendall Jenner, Hailey Bieber, and Precious Li, the modern Versace muses exhibit an empowered attitude that looks to the future with optimism and hope. In addition, in China, Versace launched a dedicated campaign featuring its new celebrity ambassador, Betty Wu. The Chinese singer and actress has over 25 million followers on her social media accounts. Also, Versace debuted Donatella's new collection during its fall-winter 2021 fashion show in March, which introduced our new La Greca signature patterns. The virtual show was presented in a vertical maze inspired by our iconic Greca motif and featured top fashion models, including Irina Shank, Gigi, and Bella Hadid, among others. The fashion show generated more than 20 million views on our own channels, and Versace ranked the first for engagement among all Italian fashion brands. These initiatives, among others, helped to drive a 22% year-over-year increase in Versace's global database. Overall, Versace's results speak to the strength of the brand and reinforce our confidence in the luxury house's long-term growth potential. Versace represents the largest growth opportunity for Capri Holdings as we continue to believe revenue will increase to $2 billion. Moving to Jimmy Choo. Results were also ahead of our expectations, with revenue increasing 16%. Sales in our retail channel increased in the high single digits globally. In the Americas and Asia, we delivered double-digit growth, which more than offset declines in EMEA. e-commerce sales improved sequentially and increased over 50% versus prior year. We are encouraged with the performance of our spring collection, which encompasses 90s chic and celebrates the notion of contradictory glamour. Accessories sales showed strong growth driven by our signature JC Varenne and continued success of the Bon Bon Group. In footwear, new designs by Sandra Choi blurred the lines between shoes and jewelry, featuring styles adorned with crystals and pearls. As restrictions begin to ease in many parts of the world, we have seen trends improve in the dress footwear category. In our casual offerings, we saw continued success of Hawaii and the diamond sneaker franchises. We also saw success with our Jimmy Choo Marine Serre collaboration, which combined Jimmy Choo's feminine aesthetic with the futuristic vision and signature crescent moon print to create limited edition footwear. In terms of brand awareness and consumer engagement, Jimmy Choo's Spring 2021 campaign is a modern ode to springtime in Paris. The imagery captures model artist Sharon Alexi's vibrancy with key Parisian landmarks as backdrops. Jimmy Choo also continued to drive localized marketing. Our Asian brand ambassador, Chinese actress and singer Victoria Song, presented the spring-summer collection to her 50 million plus followers on social media accounts. In the first quarter alone, the dedicated hashtag for Victoria's Song as Jimmy Choo's Asia Ambassador garnered 60 million reads. Our luxurious product and engaging marketing helped contribute to a 13% year-over-year increase in Jimmy Choo's global consumer database. Overall, we are encouraged by the progress we are making towards our goal of growing revenue at Jimmy Choo to $1 billion. Turning to Michael Kors, we are pleased with the pace of the recovery. Revenue again improved sequentially in the fourth quarter, declining 4% as compared to last year. Sales in our retail channel increased in the mid-teens globally. In the Americas and Asia, we delivered double-digit growth, which more than offset declines in EMEA. E-commerce sales once again accelerated relative to the prior quarter and increased approximately 75%, benefiting from our increased use of data analytics to drive more targeted and personalized marketing. Moving to product performance. We continue to increase signature penetration across all categories by expanding our offering and developing new designs. Overall, signature represented approximately 35% of the assortment across all categories compared to 28% last year, resulting in higher AURs and gross margins. We believe signature can eventually grow to approximately 50% of our overall product assortments, which will drive higher margins. Accessory sales in our retail channel increased double digits globally as consumers responded to fresh updates for spring, including flashes of color that energized our iconic signature styles. Sales of totes and larger bags remain strong as we continue to build upon the assortment, offering a variety of new shapes and functionalities. Within footwear, we have seen a positive response to new spring updates driven by signature, shine, and feminine details. Turning to men's, which remained our fastest growing category in the fourth quarter, sales increased double digits, driven by signature and accessories. I am excited to say that our watch sales were positive for the first quarter since 2016, with retail sales up double digits. We continue to see a resurgence in our traditional styles that are true to our DNA with bold, sophisticated, and distinctive designs. During the quarter, we also launched Michael Kors' newest fragrance, Gorgeous. The launch was extremely successful, resulting in fragrance sales significantly exceeding our expectations. The dedicated campaign stars model and actress Sarah Sampaio, who fully embodies the spirit of the fragrance. She radiates confidence, optimism, joy, and strength. With respect to brand awareness and consumer engagement, Michael's Spring 2021 campaign reflects his love of travel and features supermodel Bella Hadid, the quintessential jet setter, as she rediscovers iconic New York City sights. In China, for the Lunar New Year, Michael Kors launched a capsule collection featuring a luxe selection of our most loved accessories, including the Soho shoulder bag, exclusively offered in a new special edition red and black tweed. Our brand ambassadors, Gao Yunyun, Leo Wu, Lorena Song, and Wang Feifei continue to amplify Michael Kors Jet Set brand messaging to their more than 120 million social media followers. I'm also excited to talk about Michael Kors 40th anniversary show that recently took place in April. Michael celebrated his eternal optimism and love of New York with the theme Opening Night. From the heart of Broadway, the show immersed guests in the inspiration for this collection. The idea of stepping out once the world opens up again. The collection featured a selection of Michael's most iconic looks from different eras over the past 40 years. Past and present supermodels including Naomi Campbell, Helena Christensen, Carolyn Murphy, Ashley Graham, Shalom Harlow, and Bella Hadid all paid tribute to Michael. The show generated more than 34 million views on our own channels. These marketing initiatives continue to underpin our brand pillars of speed, energy, and optimism. This helped contribute to an 18% year-over-year increase in Michael Kors global database. Overall, we were encouraged by the sequential improvement in revenue trends and continued gross margin expansion at Michael Kors. As a result, we remain confident in our ability to grow our revenue at Michael Kors to $4 billion. In total, Capri Holdings' fourth quarter and full-year results significantly exceeded our expectations, demonstrating the strength of our brands and the resiliency of our teams across the globe. During these unprecedented times, we have stayed focused on executing our strategic initiatives across all three luxury houses. We believe Capri Holdings will emerge a stronger and more profitable company and remain confident in the long-term opportunities for each of our unique global luxury houses. With the combined power of our three iconic founder-led fashion luxury brands Versace, Jimmy Choo, and Michael Kors, Capri Holdings is positioned to accelerate revenues to $7 billion and deliver multiple years of earnings growth. Now let me turn the call over to Tom.