Capri Holdings Limited

Greetings and welcome to the Capri Holdings Limited Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jennifer Davis, Vice President of Investor Relations. Please go ahead, ma'am.

Good morning, everyone, and thank you for joining us on Capri Holdings Limited's second quarter fiscal 23 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. Unless otherwise noted, all financial information on today's call will be presented on a non-GAAP basis. These non-GAAP measures exclude certain costs associated with COVID-19 related charges, ERP implementation costs, CAPRI transformation costs, impairment charges, restructuring, and other charges. To view the corresponding GAAP measures and related reconciliation, please view the earnings release posted on our website earlier today at capriholdings.com. Now, I would like to turn the call over to Mr. John Eidolf, Chairman and Chief Executive Officer. John?

Thank you, Jennifer, and good morning, everyone. We were pleased with our second quarter performance as Capri Holdings delivered strong revenue growth and record earnings per share. Results were driven by momentum across all three of our luxury houses, reflecting the continued execution of our strategic initiatives as well as the power of our brands. While we remain confident in our long-term growth potential, we are now more cautious in our revenue outlook for the remainder of fiscal 2023 due to an increasingly uncertain macroeconomic environment, foreign currency headwinds, and the ongoing impact of COVID-related restrictions in China. Accordingly, we will carefully manage our business by focusing on profitability and controlling expenses. Despite near-term headwinds, we will remain focused on executing the strategic initiatives that we presented at our recent investor day to drive sustainable future growth. Before turning to second quarter results, I would like to welcome Emanuel Ginsberger, as our new Chief Executive Officer of Versace. He has a proven track record of building global fashion luxury houses. We believe his experience and vision for Versace will help us further accelerate our growth plans and strengthen our strategic initiatives. We look forward to you getting to know him in the future. Now, Turning to second quarter performance, revenue was in line with our expectations, increasing 9% on a reported basis and 18% in constant currency. Operating margin of 19.8% was above our expectations, reflecting better than anticipated gross margin and diligent expense management. We delivered record second quarter earnings per share of $1.79. In terms of customer acquisition, we added more than 12 million new names across our databases versus the prior year. This is the largest year-over-year increase in our history, demonstrating the strength and desirability of our brands. Now looking at second quarter group revenue trends by geography. In the Americas, revenue increased 15% with double-digit growth across all of our houses driven by sustained demand for luxury products. In EMEA, revenue increased 3% on a reported basis and 20% in constant currency. This was driven by strong growth across all our houses benefiting from robust domestic consumer demand, as well as an increase in travel. In Asia, revenue decreased 2% on a reported basis, but increased 12% in constant currency. This reflects strong results in Japan and Southeast Asia. With mainland China revenue down in the high teens, and down low double digit in constant currency. Moving to second quarter revenue trends by brand. Starting with Versace. We were pleased with the brand's performance as revenue and operating margin were ahead of our expectations. Revenue increased 9% on a reported basis and 28% on a constant currency compared to prior year as we continue to execute on our strategic initiatives and consumers responded to Donatella's bold and fearless design vision. Turning to product, starting with accessories, which are a key component of our growth strategy. Women's accessory sales in our retail channel increased approximately 60% versus prior year. We are gaining traction by focusing on our existing pillars of La Medusa and Virtuos while expanding the assortment with the launch of Grecca Goddess. We are pleased with the initial response to our new Grecca pillar. With these three pillars, La Medusa, Virtuos, and Grecca, we are making significant progress in our goal to position Versace as a leading luxury leather house. Another component of our growth strategy is to expand women's footwear. Versace continued to gain authority as a women's luxury footwear brand as we expanded our core offering focused on iconic coats. Second quarter sales in our retail channel were strong, driven by styles featuring a range of Versace codes, including Greca and Medusa. In women's and men's ready-to-wear, consumers embraced the La Greca pattern as well as new Barocco prints. We also continued to expand our core lines, which incorporate iconic house codes to broaden Versace's reach. Moving to brand awareness. and consumer engagement. Versace continued to deepen consumer desire through powerful storytelling. The house's fall 2022 campaign, which was shot in Rome, starred Lily James embracing Versace's Italian heritage and runway glamour. Additionally, Versace was among the top engaged Italian fashion brands on social media during Milan Fashion Week. The spring 2023 show was inspired by Donatella's vision of the modern Versace woman who is both bold and glamorous. The show generated over 23 million views globally and was the most mentioned show online during Milan Fashion Week. Now turning to Asia. Versace restaged the fall 2022 fashion show in Bangkok, Thailand, coinciding with the launch of the fall collection. Celebrities, models, and influencers attended the event and generated nearly 50 million impressions across social media. The combination of these brand-building activities and our data analytics capabilities led to an increased consumer acquisition, driving 40% year-over-year growth in Versace's global database. Overall, Versace's strong second quarter results speak to the strength of the brand and the success of our strategic initiatives, reinforcing our confidence in the luxury house's long-term growth potential. Moving to Jimmy Choo. We were pleased with the second quarter results. Revenue was in line with our expectations, and operating margin was better than anticipated. Revenue increased 4% on a reported basis and 15% in constant currency compared to prior year as we continued to execute on our strategic initiatives and consumers responded to Sandra Choi's glamorous design vision. Turning to product, one of Jimmy Choo's key strategies is to expand accessories. Women's accessories sales in our retail channel increased over 30% in the second quarter. Our iconic bonbon continued to perform well and we expanded our Varenne family with the launch of Varenne Avenue. We were pleased with the early response to Avenue and sales have exceeded our expectations. Another key product strategy for Jimmy Choo is to maximize our casual opportunity. Casual footwear sales in our retail channel increased strong double digits. driven by strong performance of the new Diamond Light Maxi with its unique platform sole that resembles diamonds set in stone. Moving to brand awareness and consumer engagement. Jimmy Choo continues to drive consumer acquisition and engagement by combining storytelling and data analytics. We are excited to feature Kendall Jenner as the face of Jimmy Choo's new Fall 2022 campaign. In a continuation of our Time to Dare series, Kendall embodies the glamorous, confident and daring spirit of the brand. Kendall has nearly 300 million followers across her social media accounts, which has increased Jimmy Choo's consumer reach. In Japan, Jimmy Choo introduced actress and model Ayami Nakajo as the latest friend of the house. In a series of images set against the Tokyo skyline, she is featured with Autumn's must-have accessories, boots, and sneakers. The actress has over 2 million followers on Instagram and is helping us reach new customers. Our engaging customer communication, which combines storytelling with data analytics, helped contribute to a 30% year-over-year increase in Jimmy Choo's global consumer database overall Jimmy Choo's strong second quarter results speak to the strength of the brand and the success of our strategic initiatives reinforcing our confidence in the luxury house's future growth potential turning to Michael Kors we were pleased with the second quarter results revenue was in line with our expectations and operating margin was better than anticipated. Revenue increased 9% on a reported basis and 15% in constant currency compared to the prior year. As we continue to execute on our strategic initiatives and consumers responded to Michael's glamorous jet set design vision. Turning to product, as we continue to elevate our assortment, we introduced our new Empire Hardware and Art Deco logo design that embodies the style of Michael Kors and his love of New York City. The Empire Hardware debuted on our new Parker bags as well as on a selection of shoes ready to wear and eyewear. We see a significant opportunity in products featuring our newly highly recognizable MK hardware codes as they build brand identity and consumer loyalty. In accessories, consumers responded positively to the glamorous hardware of our new Parker bags. We are pleased with the initial response to the collection and sales exceeded our expectations globally. Signature also continued to perform well. As a result, accessory sales in our retail channel increased mid single digits globally turning to footwear as we discussed during our july investor day we believe we can significantly expand michael kors footwear to drive incremental revenue footwear sales in our retail channel increased high single digits during the quarter as we continue to capitalize on our brand codes and deliver exciting fashion. Looking at men's, which is another growth opportunity for Michael Kors, second quarter retail sales increased strong double digits globally as we focused on timeless essentials with a modern edge. Accessory sales were strong, driven by signature styles. Now turning to brand awareness and consumer engagement. Michael's fall campaigns reflect his love for New York City as well as his passion for travel. The Michael Kors collection campaign celebrates the allure and glamour of New York City with opulent extravagance. The Michael Michael Kors campaign highlights the brand's jet set DNA as Bella Hadid and friends explore London. In Asia, as we increased our focus in the region, Michael Kors created a localized extension of the global jet set campaign featuring Chinese supermodel, Hikong. During New York Fashion Week, Michael Kors was the most highly engaged brand on social media. The theme of the spring 2023 show was urban resort which combined the elegance of city life with the laid-back glamour of a resort getaway. The show generated over 23 million views globally. In China, Michael Kors took over an immersive venue in the heart of Shanghai to view the Spring 23 Fashion Show. Brand ambassadors Gao Yunyun and Wang Feifei were joined by over 750 guests, including top models, influencers, and press. As a result, the event generated over 50 million social media impressions, and the fashion show was livestreamed by over 21 million viewers on Weibo. The combined power of our Jet Set storytelling and our data analytics capabilities contributed to a 17% year-over-year increase Michael Kors global database turning to our retail fleet I am also pleased to announce that we will be opening two new Michael Kors flagship locations one on Madison Avenue in New York City and one on Bond Street in London they are scheduled to open next year before the holiday season both locations are approximately 10,000 square feet and will showcase our entire luxury assortment. These stores are being designed not only to elevate the brand, but also to drive more significant retail revenue in major cities. Finally, I'm happy to announce that we launched Michael Kors Preloved during the quarter, driven by our commitment to sustainability. The Michael Kors Preloved site is the official marketplace for buying and selling gently used items from Michael Kors. Our goal is to give consumers the best value for their past purchases while giving those items a new beginning with another stylish Michael Kors customer. Overall, Michael Kors' second quarter results speak to the strength of the brand as well as the success of our strategic initiatives. As we continue to elevate the brand positioning we are confident in Michael Core's future potential. In conclusion, we were pleased with Capri's second quarter results as we delivered strong revenue growth and record earnings per share. Looking forward, while we recognize there are near-term macro uncertainties, our powerful brands have enduring value and proven resilience, reinforcing our conviction in Capri's ability to deliver strong revenue and earnings growth over time. Our confidence is also underpinned by the talented group of employees at Capri Holdings that are executing our strategic initiatives.