Capri Holdings Limited

Greetings and welcome to the Capri Holdings Limited First Quarter Fiscal 2026 Financial Results 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 would now like to turn the conference over to your host Jennifer Davis. Please go ahead.

Good morning everyone and thank you for joining us on Capri Holding Limited First Quarter Fiscal 2026 Conference Call. With me this morning are Chairman and Chief Executive Officer John Idle and Interim Chief Financial Officer Raj Mehta. 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 today's call. Unless otherwise noted all financial information on today's call will be presented on a non-GAT basis. These non-GAT measures exclude certain costs associated with Capri transformation costs, restructuring and other charges and transaction related costs. To view the corresponding GAT measures and related reconciliation please view our latest earnings release posted to our website earlier today at capriholdings.com. Additionally the company has classified the results of operations and cash flows of its Versace business as discontinued operations. Unless otherwise noted all information on today's call relates only to continuing operations. I would also like to note that in today's 8k we included supplemental quarterly segment data for fiscal 2025. Now I would like to turn the call over to Mr. John Idle, chairman and chief executive officer. John.

Thank you Jennifer and good morning everyone. We are encouraged by our first quarter results. Trends improved sequentially leading to both revenue and earnings per share that exceeded our expectations. This performance demonstrates the progress we are making as we execute against our strategic initiatives to re-energize our fashion luxury houses. While still early we are beginning to see signs that our strategies are working. Although the global macroeconomic environment remains dynamic we are on track to stabilize our business this year while establishing a strong foundation for a return to growth in fiscal 27. Now looking at our first quarter results total company revenue decreased 6% versus last year to 797 million on a reported basis and earnings per share were 50 cents. Our results reflected a sequential improvement in trends across all regions. At Michael Kors first quarter revenue decreased 6% on a reported basis compared to prior year with similar trends in both retail and wholesale. In our retail channel we are starting to see encouraging signs of momentum. First traffic trends in our full price stores improved sequentially. Second we achieved stronger full price sell-throughs on new styles and third AUR trends continued to improve sequentially turning positive in our full price channel for the first time in three years. We view these as early but meaningful indicators that our strategies are gaining traction. In the wholesale channel performance at point of sale improved sequentially. Wholesale shipments also saw a sequential improvement versus prior quarter but continue to be impacted by the broad-based softness in the channel as well as our prior initiatives to reduce wholesale exposure. As a point of reference we have exited 30% of U.S. department store doors over the past year. We anticipate the majority of wholesale door reductions will be completed by the end of the year. Now turning to brand awareness and consumer engagement. We saw continued positive consumer response to our hotel story series underscoring the appeal of our compelling fashion and travel storytelling approach. The first chapter of hotel stories took place in Ibiza at the Matasol Hotel featuring English actress and singer Suki Waterhouse. The narrative captured exciting fashion moments in Ibiza and at the hotel while celebrating the joy of traveling the world in style. As we look ahead to fall the next chapter of hotel stories will take place in Rome capturing the glamour of the season through the lens of fashion and culture. During the first quarter we built upon the hotel stories narrative by broadening our reach with local activations and an expanded network of influencers. We have pivoted our approach to better leverage the power of social media platforms and influencer partnerships to not only engage with consumers whenever and wherever they are but also to deliver our story through trusted voices in fashion. By aligning with relevant influencers and celebrities we are creating more authentic brand moments that resonate with our consumers. We believe our travel the world in style brand vision combined with our expanded network of influencers is helping us to reignite brand desirability. According to our consumer insights we have seen a further positive shift in brand affinity signaling that our strategies are resonating. Looking ahead to the fall we plan to build on this momentum with an expanded influencer strategy designed to not only further extend our reach and deeper consumer engagement but also drive incremental revenue growth. Additionally Michael Kors once again had a strong presence at the Met Gala with a number of celebrities wearing Michael's tailored sophisticated styles. The event highlighted Michael's leadership in the world of fashion and drove strong consumer engagement generating nearly six billion impressions. The combined power of our hotel stories narratives global events activations and influencer partnerships helped amplify our reach enhanced by the utilization of our advanced data analytics capabilities. These efforts contributed to a nine percent -over-year increase in Michael Kors global database. Our data analytics capabilities are reshaping the way we approach marketing enabling us to develop deeper consumer understandings anticipate behavior and make more informed strategic decisions. Now turning to product our strategy is centered around Michael's design vision delivering exciting fashion with standout style. We have also adjusted our pricing architecture to align with historic levels. In accessories consumers continue to respond positively to new introductions that celebrate our iconic brand codes and align with our new strategic pricing architecture. Groups including Leila, Nalita, and Bryant are experiencing strong full price sell-throughs and contributed to a sequential improvement in accessories AURs. Additionally we saw continued growth in our iconic signature styles reinforcing their appeal with consumers. Turning to footwear revenue was down double digits during the quarter driven by a sequential decline in the dress category. Casual styles continued to perform better. During the quarter we began introducing new styles that embody iconic Michael Kors branding elements and heritage design details. Early performance of these styles has been strong and we are expanding the assortment to build on this momentum. Looking at -to-wear revenues increased driven by higher AURs as consumers responded to styles reflecting Michael's effortless glamour and timeless sophistication. Turning to men's revenue was approximately flat. AURs in our full price channel were up and improved sequentially. Consumers responded positively to the latest men's sportswear styles which reflect the brand's modern jet set lifestyle. Next I'd like to review our fleet optimization program. Our retail stores remain a critical pillar in supporting our sales recovery and we believe our global store renovation program will play a pivotal role in elevating the overall consumer experience and revitalizing Michael Kors sales trajectory. Over the next three years we plan to renovate approximately 50 percent of our store fleet as well as key department store locations. We believe that our renovation program will drive higher store productivity and we look forward to sharing our progress and results with you in the future. Additionally we remain on track to close 75 underproductive Michael Kors stores in fiscal 26. Following these closures our store rationalization program will be largely complete. Looking forward Michael Kors is a powerful fashion luxury brand with a 44-year heritage that continues to resonate with consumers. Building on this legacy and guided by our data analytics and consumer insights we believe we have the right strategies underway to return the brand to growth and remain optimistic about our ability to achieve four billion in revenues over time. Now moving to Jimmy Choo which is an iconic brand with a sense of glamour and a playful daring spirit. We are focusing our initiatives to leverage the strength of this highly recognized luxury brand. First quarter revenue decreased six percent on a reported basis compared to prior year. Retail sales declined mid-single digits while wholesale declined double digits which was primarily due to shipment phasing. Looking at trends in our retail channel first quarter performance improved sequentially relative to the fourth quarter. Performance also improved sequentially as the quarter progressed driven by the successful launch of new product introductions. Importantly these styles are driving higher full price sell-throughs and AURs. In the wholesale channel revenue at point of sale improved sequentially and was flat in North American department stores indicating that our new product is resonating with consumers. Turning to brand awareness and consumer engagement our storytelling continues to focus on glamour inspiring joy and empowering confidence. For summer our initiatives emphasize new seasonal styles featuring American actress and fashion icon Chloe Seven Yee. In June Jimmy Choo named Chinese actress Bai Lu as its new Asia Pacific ambassador. Her debut campaign featured the launch of the new Curve Bag which she unveiled to her extensive fan base. As one of China's most followed actresses Bai Lu's involvement helped the campaign reach over 56 million consumers across social media channels in Asia Pacific alone. We also continue to extend our reach and deepen consumer engagement through high impact influencer partnerships that balance glamour with authenticity. By collaborating with style leaders and cultural tastemakers Jimmy Choo is crafting meaningful moments that resonate with consumers. The integration of our storytelling, global events, activations, influencer partnerships and client telling initiatives helped amplify our reach. Enhanced by our data analytics capabilities these efforts contributed to a 9% year over year increase in Jimmy Choo's global consumer database. Turning to product. Jimmy Choo's product strategy remains focused on further developing accessories and expanding our casual life. In accessories we are pleased with recent momentum driven by the continued strong sales of our bonbon and cinch bags. The cinch bag is now Jimmy Choo's best selling day bag of all time. Additionally towards the end of the quarter we introduced the Curve Group with styles priced between $5.95 and $9.95. While still early we are encouraged by the strong initial consumer response. We are equally pleased to see Curve attracting new consumers to the brand. In the fall we plan to introduce the Bar Group, an additional collection within this price range to capture a broader segment of luxury consumers. With our strong brand equity and design authority we believe Jimmy Choo is well positioned to capture share within this luxury price segment. We expect this initiative to drive significant growth in our accessories business over time. Turning to footwear. Our dress category remains soft. We are focused on bringing excitement to this assortment with innovation and animation. In May Jimmy Choo launched the archive collection, a curated edit of re-editioned footwear styles from the first five years of the house. By fusing nostalgia and discovery the collection resonated with a wide audience from original Jimmy Choo fans to millennials and gen Z's. The collection delivered strong sell-through rates while also generating over 50 million social media impressions highlighting its strong market reception and brand resonance. Jimmy Choo's strategy to expand day and casual footwear gained traction in the first quarter with an increase in full price sales. We continue to believe there is a meaningful opportunity to expand our offering. Active footwear sales in our full price channel increased mid single digits driven by strong demand for the VELUS and diamond flex sneakers. We are also expanding our casual assortments beyond active. For example in June we introduced the Jelly ballerina flat which blends nostalgic design with modern glamour. Priced at $395 the Jelly is experiencing extremely strong full price sell-throughs and attracting new customers to the brand. Looking forward we believe we are on the right path to unlock Jimmy Choo's unique potential by expanding its position within the world of fashion luxury and ultimately achieving our revenue target of 800 million dollars over time. In conclusion with the Versace transaction expected to close in the second half of calendar 2025 we are fully focused on energizing our two iconic brands Michael Kors and Jimmy Choo. We are pleased to see early indications that our strategic initiatives are beginning to work. Looking ahead we continue to expect trends to improve in the back half of fiscal 26 positioning us to return to growth in fiscal 27. Long term we remain optimistic about the sustainable growth potential of both Michael Kors and Jimmy Choo. Now Raj will review our first quarter results and guidance in more detail.

Thank you John and good morning everyone. Before we begin I would like to remind you that today's financial results exclude Versace which was reclassified as a discontinued operation. My discussion today will reflect results from continuing operations and our financial statements have been adjusted for prior periods to exclude Versace. We continue to anticipate the sale of Versace will close in the second half of calendar 2025. Now looking at our first quarter results total company revenue of 797 million decreased 6% versus prior year on a reported basis and .7% in constant currency representing a sequential year over year improvement relative to the fourth quarter. Net income was 60 million resulting in diluted earnings per share of 50 cents. Performance exceeded our expectations driven by better than anticipated results at both Michael Kors and Jimmy Choo as our strategic initiatives begin to take hold. Results also reflect a discrete tax benefit. Now turning to first quarter results in more detail. Starting with revenue by channel total company retail sales declined mid single digits. In the wholesale channel revenue declined high single digits reflecting continued broad-based softness in the channel as well as our prior initiatives to reduce wholesale exposure. Turning to revenue performance by geography in the Americas revenue decreased 9%. Revenue in EMEA increased 6% while revenue in Asia declined 15%. Looking at revenue performance by brand at Michael Kors revenue decreased .9% compared to prior year on a reported basis and .3% in constant currency. Global retail and wholesale sales decreased mid single digits. Store closures negatively impacted retail sales in the low single digit range. By geography sales in the Americas decreased 8%. Revenue in EMEA increased 9% while revenue in Asia declined 16%. At Jimmy Choo revenue decreased .4% compared to prior year on a reported basis and .2% in constant currency. Global retail sales declined mid single digits and wholesale decreased double digits. By geography total revenue in the Americas decreased 12%. Revenue in EMEA increased 1% while revenue in Asia decreased 14%. Now looking at total company margin performance. Gross margin of 63% was approximately flat to prior year. We estimate higher tariffs negatively impacted gross margin by 30 basis points. By brand Michael Kors gross margin of .1% compared to .1% last year. The decline versus prior year was primarily driven by the impact of our new strategic pricing architecture and tariffs. Jimmy Choo gross margin of .4% compared to .1% last year. The increase versus prior year was primarily driven by Channelmix. Operating expense decreased 22 million. The decline versus prior year was primarily attributable to our cost reduction program. As a percentage of revenue operating expense was .5% compared to .5% last year. Primarily reflecting expense deleverage on lower revenue. Total company operating margin was .5% compared to .7% last year. By brand Michael Kors operating margin of .9% compared to .1% last year. And Jimmy Choo operating margin of .5% was slightly above prior year. Our tax rate for the quarter was negative 36.4%. Reflecting a tax benefit related to our valuation allowance due to the mix of earnings across jurisdictions. Now returning to our balance sheet. Looking at inventory. At quarter end inventory totaled $779 million. A $76 million or .8% increase versus prior year. This increase primarily reflects 50 million of planned earlier receipts of product. Additionally foreign currency exchange rates and tariffs combined increased inventory by approximately 25 million. Looking ahead we expect year over year inventory levels to sequentially decline. We ended the quarter with cash of $129 million and debt of $1.67 billion. Resulting in net debt of approximately $1.5 billion. Now turning to guidance. While we are encouraged by our first quarter results and the early signs that our strategic initiatives are working. The global macroeconomic environment remains dynamic. Since our last earnings call trade policies have evolved and tariff rates have increased. Our updated guidance reflects incremental tariff rates on imports from China at 30%. India at 25%. The rest of Asia at 19 to 20%. And the European Union at 15%. As a result we now estimate unmitigated impact of tariffs on products shipped into the United States will increase our cost of goods sold by approximately $85 million in fiscal 2026. Up from our prior estimate of approximately $60 million. As a reminder our sourcing is broadly diversified with the majority of Michael Kors production originating from Vietnam, Cambodia and Indonesia. Jimmy Choo sources the vast majority of its products from Italy. As a note China represents approximately 5% of total Capri U.S. production volumes. Our global supply chain is highly agile. Supported by long-standing relationships with our manufacturing partners. We anticipate offsetting a majority of the impact from tariffs in fiscal 27 through a combination of one working with our sourcing partners to create cost efficiencies. Two sourcing optimization to minimize tariff exposure. And three implementing targeted price increases. Additionally the benefits of our strategic initiatives particularly efforts to drive higher full price sell-throughs will further support gross margin expansion. Turning to revenue. In fiscal 26 we now expect total company revenue to be between $3.375 and $3.45 billion. We are raising prior revenue guidance to reflect the recent weakening of the U.S. dollar as well as our outperformance in the first quarter. By brand we expect Michael Kors revenue between approximately $2.8 and $2.875 billion. And Jimmy Choo revenue between $565 and $575 million. As we think about the cadence of the year we anticipate a gradual sequential improvement in trends in the back half of the year supported by new product deliveries and the growing impact of our marketing initiatives. For the year we now expect gross margin of approximately .5% to 61%. Reflecting higher tariff rates. We continue to anticipate operating expenses of approximately $2 billion. We continue to expect full year operating income of approximately $100 million. Reflecting our increased revenue outlook and diligent expense management. By brand we continue to anticipate Michael Kors operating margin in the high single digit range. And Jimmy Choo operating margin in the negative mid single digit range. In terms of non-operating items we expect net interest income between $85 and $95 million. An effective tax rate in the mid teens range and weighted average shares outstanding of approximately $119 million. As a result we continue to expect to generate diluted earnings per share between $1.20 and $1.40. In terms of our capital allocation plans our first priority remains to invest in our brands through store of innovations, technology and digital enhancements as well as other brand building initiatives. Our second priority is to reduce debt and our third priority is to return cash to shareholders via a share repurchase program in the future. Now turning to second quarter guidance we expect total company revenue to be between $815 and $835 million with Michael Kors revenue between $685 and $700 million and Jimmy Choo revenue between $130 and $135 million. Looking at gross margin we expect the second quarter gross margin rate to decline approximately 250 to 300 basis points impacted by our new strategic pricing architecture and greater tariff headwinds. In terms of operating margin we expect second quarter operating margin to be slightly positive. By brand we anticipate Michael Kors operating margin in the high single digit range and Jimmy Choo operating margin in the negative mid single digit range. Turning to our expectations around certain non-operating items we anticipate second quarter net interest income of approximately $15 million. We forecast an effective tax rate of approximately 40 percent in the second quarter due to expected shifts in the geographic mix of earnings and the related valuation allowance impacts. We anticipated weighted average shares outstanding of approximately $119 million. As a result we expect to generate diluted earnings per share of approximately 10 cents to 15 cents. In closing we are encouraged by the early signs that our strategic initiatives are working. We anticipate trends will improve in the back half of fiscal 2026 as our strategic initiatives gain traction. Looking ahead to fiscal 27 we expect to return to revenue and earnings growth. Longer term we remain confident that Capri Holdings is well positioned to deliver sustainable growth while increasing shareholder value. Now we will open up the line for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question please press star one on your telephone keypad. A confirmation tone will indicate your question is in the question queue. Please limit yourself to one question. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys. Again that is star one to ask a question. And we'll go first to Matthew Boss with JP Morgan.

Great thanks and congrats on the sequential improvement. So John on Michael Kors could you elaborate on recent sell through trends on product launches across direct to consumer and wholesale. Maybe where the product assortment stands today relative to back half opportunities and any initial signs of demand elasticity or how best to think about pricing power for the brand.

Good morning Matt and thank you for that nice comment about our sequential improvement. At Michael Kors as you know from our previous calls around October November of last year we made a decision to first change the strategic storytelling around Michael Kors to focus again on jet set but through a modern lens and that was through our hotel stories and traveling the world and stuff. So the first results are that we're seeing consumers very much engage with that storytelling. The second thing that we did was we changed our marketing approach and leaned much more heavily into influencers and into certain social media channels where we might not have had as great of a presence and you're going to see that continue to grow throughout the fiscal year. As we are seeing these improved results from marketing through those channels and seeing the consumer response we are increasing certain of our marketing spend whether that's in channels or in totality from our original budgets inside the company. So it's nice to be able to see results and it's nice to be able to see that we can put our foot gently on the accelerator as we're seeing the consumer respond. And the last point around that is we have a very robust consumer insight program that's been going on now for close to two years and so we really understand a lot more about the consumer's intent around the brand around engaging with the brand and now engaging with the product that we think is the right product. So the last part of what we did is we analyzed our sell throughs and for the prior 18 months to when we started making changes, which really most of which happened from January on, we saw our discounting actually growing because we were marking product down because the consumer just wasn't responding to the prices that we had it at. And there were design issues as well. So we've changed the design in particular on handbags. In particular we were able to get the price value relationship right on Ready to Wear as well. We haven't quite got it right on footwear. And what we've seen is the trends in our own retail stores as you heard, we did turn AUR positive in full price and that's been quite some time. We have seen a very significant sequential improvement in comps in our full price stores. We're also seeing that again this quarter, which is very nice to see. Two quarters does not make a year or a long-term trend but it certainly is a very good indicator that our strategic initiatives are working. And we saw also our women's Ready to Wear turn positive. So it was AURs in accessories, AURs in our women's Ready to Wear. We've really seen some positive indicators that our strategies are working. The wholesale channel is also seeing that. I wouldn't say it's turned positive yet but it's definitely heading in the right direction. And I think I commented to you on our last call that we had pretty much been around the globe, met with our partners, really shown everyone the new strategies. And there's a real excitement level whether that's the various mall owners around the world who are really embracing our project to renovate approximately half of our store fleet as well as our department store partners who are also on board. And you're going to see a lot of that starting to happen. It'll be more in the spring season of next year but you'll see some happening here in New York. Hopefully we'll get you all up to our Rock Center store which will be renovated and reopened mid to late October, our Regent Street store as well. And then there'll be you know dozens behind that that are coming quite quickly. We've had a few open so far and we are seeing positive lift from the renovations. So what we can report to you today is that the strategies we put in place are working and the consumer is responding to them. And the forward looking data that we've gotten from our consumer insights show that actually our fall marketing, fall product and the way the customer is perceiving the brand is even stronger than what we saw in the spring season. We obviously have to see that come to fruition and sell through as a product but all the leading indicators show things are positive. And so far in the quarter, again we're only a month or so into it, but we are seeing actually better results than we even saw in our Q1 today. Thank you Matt.

And our next question comes from Brooke Roach with Goldman

Sachs. Good morning and thank you for taking our question. It's great to hear the commentary regarding the positive AUR and pricing strategy trends. Can you talk a little bit about how you expect that to translate to margins into the back half of this fiscal year and into FY27? Can you help us talk through the puts and takes of the tariff mitigation opportunity over time as you look to offset some of those incremental costs and where you see the largest opportunities in gross margin ahead? Thank you.

Brooke, I'm going to let Raj take that but before he does, I just want to say I think the company has done an excellent job. You know, since we started the year, we've had approximately $85 million of tariff impact to the company and we just gave our guidance where we've raised our revenue and we've been able to hold our operating income and I think that's a testament to some of the things that Raj is going to talk about in our margin. But it's also a testament to the fact that the teams are doing a great job with our cost reduction programs throughout the organization, our fleet optimization programs which we talked about in our prepared remarks. So there's a real focus on continuing to reduce the SG&A impact in the company and next year we feel very strongly we're going to create leverage with modest revenue growth. Raj will talk about some gross margin growth and then really being able to hold that SG&A relatively tight and so we think there's going to be a significant inflection in next year, again assuming that our strategic initiatives at both Michael Kors and Jimmy Choo continue to bear fruit and show this in particular back half improvement where we anticipate not being 100% positive but pretty close to it and that will be a real sign for where the company should be able to leverage off of for fiscal year 27. But let me turn it over to Raj for the gross margin fees.

Thanks John and good morning Brooke. So obviously as John stated, you know, the tariff situation has been extremely fluid and we've now incorporated some additional new information into our guidance. We now anticipate approximately 85 million of unmitigated tariff impact in this year up from our previous estimates of 60 million and then as we look at the quarter in the first quarter gross margin was approximately flat to last year. We saw some puts and takes in reference to the resetting of our pricing and approximately a 30 basis point impact of tariffs offset by some upside in channel mix and then as we look to the second quarter we're forecasting to be down approximately 250 to 300 basis points as we'll see increased tariff impact as well as the continued impacts of the pricing strategy that we previously spoke about and then the higher tariff impacts going to continue throughout the quarters and throughout the year. The second half we'll see some offsets from the benefits of our strategic initiatives as we realize some of the offsets of the mediation efforts that are related to creating cost efficiencies with our sourcing partners, sourcing optimization and targeted price increases. And then as we look to fiscal 27 we expect to return to gross margin expansion and that's really going to come from our strategic initiatives around driving higher full price shelters and AURs coupled with our mitigation efforts. Thanks Brooke.

And Brooke let me add one further note as well. One of the things that you're going to start to see in the back half of the year and certainly into next year is we have reduced our promotional cadence in particular in our outlet channel. We're down approximately 35 percent in store-wide promotional activity. That's having an impact on revenue. We know that. We're going to continue that strategy. We're very focused on improving gross margin so to improve gross margin we need to reduce the sale activity. That's the first thing. Secondly we have done some things in particular related to the Daigu channel where the company has had a history of servicing that channel as do many of our competitors and we have reduced the discount there significantly and therefore that has also reduced revenues because of our reduction of that. And again we think that's a good thing for us. It's healthy long-term. It reduces product that flows to certain channels both inside the United States and outside and we're going to look to really tighten that considerably going forward. So that will have an impact in particular in our outlet channel. So we're going to work our way through that over the next year and we hope to see gross margin improvement from that and AUR as we've said to you previously. We're very focused on raising the AURs in the company and that will be one of the initiatives around doing that. Thank you,

Brooke. Great. Thanks so much. I'll pass it on.

We'll go next to Ike Borochow with Wells Fargo.

Hey

everyone. Congrats John on the sequential improvement. A couple things from me. Just from a modeling perspective, John, are you guys in your guidance, are you baking in growth in any quarter this year at Michael Kors in either the retail or the wholesale channel? And then to that point, which channel would you expect an inflection to hit first? And then just a quick follow-up is once the Versace sale closes, can you give us a high-level perspective on what you expect the balance sheet to look like? Are you going to go zero debt? Just an update there would be helpful.

Sure. So there is no growth, obviously there's sequential improvement, but there is no -over-year growth planned in any of the channels yet. I would say the first channel that we're anticipating seeing that is in our full price channel, and we're getting close to that right now. And that's a very good indicator as you know. If you've got the full price channel working, that's an area where you can really kind of solidify the rest of the company. And again, we moved very quickly last October, November around the full price. It was making sure that we got different product to the floor more quickly. We took a very focused approach to our strategic pricing architecture, and that is absolutely paying off. We just couldn't move as fast to do that in the outlet channel. And so you're going to see that new product flowing into the outlet channel really in the fourth calendar quarter of this year, so more of our third quarter fiscal. We're going to see that product flowing in a lot more newness and at higher price points. So we're doing a lot of things in the outlet channel that might impact us from a revenue standpoint, but from a health standpoint, it's going to be much better for the company from an AUR standpoint, from less promotional activity, and just a lot more newness. Additionally, in our outlet channel, us, like many of our people who are in our world, we will be introducing our full price product into the outlet channel in September. So this is a program called Icons, and inside of that will be three of our best-selling full price handbag groups. We've seen in that channel anywhere between 10 and 20 percent of multiple companies' revenue coming from full price product in that channel. And so we're going to take advantage of what we think is a very strong opportunity for us. We actually already do it in Jimmy Choo in a number of locations, and we're expanding for Jimmy Choo as well. So I would tell you, I think the full price channel is the first place that we are expecting to see growth and I would look at that as more of a third and fourth quarter area and initiative for us. The last thing I want to note is that across the group at all three of our houses, we are seeing a much better sell-through on new product and full price product. The customer, while they're very discerning, and yes, they are looking very closely at pricing, they definitely want newness. So our full price new product sell-throughs are up double digit, and that's right across the group. So that's a very good sign, and probably if anywhere we're seeing softness, it's really in the heavy clearance product where she's just not turning to that. That's not her go-to, and that also may be a consumer issue in terms of where they are in their fiscal personal situations. So again, that's how we think that the year will flow out, I don't think we'll see a return to positive growth in the outlet channel until next year. In terms of Versace, I will turn it over to Raj to talk about that.

Good morning, Mike. Regarding the Versace sale proceeds, as we stated previously, we expect the Versace transaction to close in the back half of this calendar year. As I spoke about, we plan to use the proceeds to substantially reduce our debt. So post the deal closing, we expect to have minimal debt remaining on our balance sheet, and then as the business stabilizes, we'll look to re-evaluate reinstating a share repurchase program. So we feel really good about having a strong balance sheet as we approach the end of the year. Thanks, Ike.

And the last on that, I think we've said in our previous calls, we intend on spending about $350 million over the next three years on our store renovation program. And we're going to have not only the cash from the transaction, but actually we'll be returning to a better free cash flow situation in particular next year. So we want the money to really invest in the business to get the top line of this company going again. We are starting to see some very nice returns on the $100 plus million that we spent over the last couple of years on our data analytics and replatforming our e-commerce areas. So again, we want to be strategic about how we invest, but we have some very clear plans because we think that revenue growth, very healthy revenue growth is the most important opportunity for this company. And then we create that leverage that I talked about before holding the SG&A very, very tight. And then as Raj mentioned, some gross margin expansion next year based around first and foremost our better full price sell-throughs, which we're already seeing engaging with the customer. Second, reduced promotional activity. And then third, mitigating with our manufacturing partners who have been great. They've already been working with us. We are going to get some of that benefit in this year that's already included in our guidance, but they have been terrific in helping us through what will be for every company a challenge to work through the tariffs, but we're committed to that. Oh, and then I forgot strategic price increases, which for us will really start in our fiscal year, our fiscal fourth quarter. That's when you'll start to see some of that. And they will be modest. Thank you, Mike.

Thanks, John.

Moving on to Oliver Chen with TD Securities.

Hi, John. Thanks a lot. As we look forward to the sequential improvement opportunity to continue, what handbag families might be most important and how would you help us dissect traffic relative to AUR looking ahead? And then a quick follow-up, the store renovation sounds quite compelling in what you're doing there. What are some of the principles or frameworks and what you want to see to continue to elevate the brand? Thank you.

Thank you and good morning, Oliver. So I think what we discussed in our, again, prepared remarks was in the full price, there's three handbag families. There's Layla, there is Nolita, and there is Brian, which are bags that are already in the pipeline today and have seen some of the highest sell-throughs this company's had in four plus years. So that's really encouraging for us. The other thing that is starting to happen is we do have events that we have, that where we periodically will put the entire assortments in our store on sale. We are removing certain products from those sales and they have not impacted the sell-throughs at all, which has been terrific. So we're going to take more of the assortment and remove them from certain sale activities inside of our store, really again reinforcing the importance of a platform to the consumer. We're very excited about a new group coming out for the fall season, which is called Hamilton. You may remember it's a legacy group from this company. It's been redesigned and quite interesting in our consumer insights. It has ranked now the highest. Before we've even shipped a piece, before we've gotten any sell-through results, it's had the highest response from the consumer in terms of the product and the marketing that we've given to this research. And so we are very excited about what that will mean for us. We really need to stay more focused and not try to introduce as much new product and really spend a lot more time on the storytelling on the products that exist inside of our families. So we feel good about that. Hopefully at this time when we speak on our next call, we'll be able to talk about some of the same initiatives that we will take inside the outlet channel as well. Yes, as I said, we're introducing the full-price product into an amount of stores. We're not prepared to say how many at this moment. And then secondly, we will have a similar strategy around really highlighting very iconic Michael Kors families and shapes. I would say some very, very strong results from our accessories world. We're having a bit more of a challenge in our footwear world. I think I manager that's still a big part of our business. And you have seen, and we mentioned this about Jimmy Choo as well, there's been a softness in the very, very formal dress piece of the business where casual and certain of the sneaker business has been a much stronger growth opportunity. We've always had a big sneaker business at Michael Kors. We need to be a little faster with the fashion trends in that area. And I think you're going to see that dealt with actually coming up here very shortly in kind of the next 60 days. So we feel good about what could happen there too, because we've got our handbag and our -to-wear business moving in the right direction. If we can get that footwear business going as well, I think that's going to also help not only traffic, but also AURs. Once again, when you're not delivering the right fashion or trend product, then you're marking it down and it hurts your AURs. So I think that's a little bit of the last piece of the puzzle for our full-price stores is getting that footwear fixed. And hopefully on our next call, I'll be able to have some good results for you. In terms of the store program, there's two things. Number one, the stores are quite aged. And for various reasons, we didn't move as quickly as we needed to to renovate a very, very large piece of the fleet. Some of that was related to while we were pending during the transaction with Tapestry. And part of that was prior to that, we were spending more money on Versace and Jimmy Choo. I would say the lion's share, 90 plus percent of our dollars are going directed right at MicroCores. And what we were looking to do is not only renovate and improve the consumer experience, which again, we're having some very good results, just in the short window of time of a handful of stores we've renovated, both full-price and outlet, I might add. But also, it's a little bit of a good thing that happened in that we're very clear about what that is. And then, in the store, you're going to see the very unique aesthetic that it has. And the last piece of this, which we will get into more, there is going to be an experience inside the store. We'll make that announcement a little bit later, closer towards when the store opening happens. But we are going to have a different experience inside the store that is not just a typical retail, -to-wear experience. So I'll leave that as a little bit of a surprise as we get closer to the store opening at the Rockefeller Center, where we can hopefully take most, if not all, of you there to see the location. Thank you, Paul.

Thank you.

Our next question comes from Rick Patel with Raymond James.

Good morning, Rick. And I might congratulate you on the progress. Can you expand on the evolving U.S. distribution as you shrink exposure to U.S. department stores and lean into retail? Are you seeing signs that consumers are following you into the retail channel? And then, just a bigger picture, how are you envisioning the role of wholesale versus retail over the long term?

Good morning, Rick. And thank you. So a couple of things. Number one, on retail, I think you saw in our prepared remarks, we said we're going to close about 75 stores this year, which should more or less complete the fleet optimization program for microcores. There'll be a few more in fiscal year 27, but nothing of this magnitude. And quite interestingly, we are actually doing something different right now. We are going back and looking at certain malls that we've actually left. What we have seen is when we close a store in an area or location, we are not recapturing that business either at an outlet store that's nearby or in e-commerce. So we know there are customers we're not servicing. And in certain markets, we may have left the market with our own store as well as the department store. So we've exited the market completely. And I'll give you a good example. That's Manchester, England, as a good example, where downtown Manchester, the brand, it doesn't exist any longer. So we're in the process of reopening a freestanding store in that area. We now know the sizes that we need. We need to really open a store that's between 1,500 and 2,000 square feet. And we have some pretty good understanding on the economics around what we need to do to be profitable in those stores. So I'm hoping that when we start to give you guidance for fiscal year 27, you're actually going to hear about modest store growth in certain areas of the US and in certain areas of Europe, where we have left markets. And I'll talk about wholesale here in a second, but where we think we have an opportunity to engage. And these are going to be fairly large markets. They're not going to be small markets that wouldn't be able to house a microcore store. And I would again like reiterate that our partners at the various malls around the world actually have been super excited to work with us on this concept. And you're going to hear about a further flagship concept when we talk about it more in October that's also getting a lot of real good support from the retail mall community and street store community. In terms of wholesale, we'll be almost complete with the closure of wholesales at the end of this calendar year. A few more to go in spring. And there we're not looking to expand. There'll be a handful of department stores doors that will reenter, but it will be very minimal. What we're really looking to do is go back in, renovate our existing shop and shops. We have fantastic locations in most of the department store partners that we're in today. The shops are old. They're tired. They need to reflect the new modern image of microcores and jet set and traveling the world in style. And so far we've had nothing but great support. The US department stores are on board to begin renovations, and those will begin this fall season. And we're just starting to roll that concept out with our European partners. So far so good. And I'd say a handful of limited additional doors that we'll have in the full price markets really remaining kind of static in wholesale for what we'll call all this calendar 27 and really focus on productivity increases. We are looking for the wholesale channel to turn positive in fiscal year 20 or calendar year 27. And again, we're not there yet, but there's some very good lead indicators that we should be able to get onto that track for modest retail growth in calendar year 27.

Thank

you, Rick.

Thank

you.

Our next question comes from Anisha Sherman with Bernstein Research.

Hey, thank you so much for taking my question and great to hear all the positive comments on this call. John, I wanted to ask about Jimmy Choo. It's historically been a different core category, different brand heritage, different sourcing mix from cores. Maybe some of those differences may be narrowing as you grow the handbag assortment and if you grow footwear at cores. But can you talk about how you think about the value added of Jimmy Choo to the portfolio? How does it complement cores? Where is it incremental? And would you ever consider divesting of this brand as you did with Versace?

Thank you, Anisha. And so let me start with the we do not have an intent on selling Jimmy Choo. And in fact, we're excited about the growth opportunity that Jimmy Choo represents for the company. When we bought Jimmy Choo many years ago, one of the reasons first we bought it is because it has an incredible name and history and heritage with the fashion luxury consumer. It's highly recognized and it is in the shoe business and we thought we would actually learn a lot from them, which we have. And I might add also over the years, I'm not sure this has been clear, but we've actually bought two manufacturing facilities. So we produce over 50% of our own product in-house. We are truly vertical with Jimmy Choo, two beautiful factories that we have in Italy. And we've just built a new spectacular R&D center for our employees there to work out of. So Jimmy Choo is in very good shape. Store Fleet is in excellent shape. We spent a lot of money over the years renovating the stores and hopefully you get a chance to see our new flagship on Madison Avenue. It's fantastic and doing really well. And so the investments we've made now we can leverage. We bought the company knowing that we could add some value to that, in particular around accessories, which is something we think we know a little bit about. We got distracted over the last couple of years. Again, the merger did not help things. People didn't spend as much time focusing on that. We are completely re-engaged on the accessory side. There's a very big opportunity for Jimmy Choo. We're in a luxury consumer's wardrobe today. We're in their closet. So it's not a matter of getting people to say, oh, I like or dislike Jimmy Choo. That's not the issue. The particular in accessories that is more relevant to that consumer. And as we pointed out, our Jimmy Choo accessories business has been getting healthier, especially as of late, around two bags. One is an evening group called Bon Bon. And the one is more of a day bag called Cinch. And Cinch has now become the largest selling day bag group for the company in its history. We've just done something very strategic. We've introduced something called the Curve Bag, which you may have seen online. And we took a very strategic pricing approach to it. The bags retail from $9.95 to $5.95. We think that there's been a lot of very significant pricing increase in the upper end of luxury. And we think there's customer resistance to that. So we want to use Jimmy Choo and try to have both. We're going to have bags that are in the $1,500 to $2,500 range. But we are going to have two groups, one being the new Curve. And we just are introducing, I think it's going to launch today actually, online with Sydney Sweeney. Hopefully today or tomorrow. Our Bar Group, which is also priced in that same range. And I think you also heard me say in my prepared remarks that our sneaker category has had some very strong growth, as well as we just introduced this new Jelly, which is fantastic. And it retails for $395. So these are still very healthy price points. But they're also broadening our strategy around pricing and using the great leverage of the Jimmy Choo name and brand affinity with the consumer. So we're excited about what Jimmy Choo can do for the company. We do need to build more product in the accessories range because Jimmy Choo is today 80-ish percent in footwear. Footwear is always a tougher margin business because it's sized. But if we can really leverage our know-how, our knowledge, and this customer affinity to the brand with accessories, we think we've got a very nice margin lift opportunity. We can get this business back to a double-digit operating margin. And on a six, seven hundred, maybe one to eight hundred billion dollar business, that's a very nice return. And so we've made all the investment. We're excited about Jimmy Choo and we think it's going to be very much a core part of the Capri family. So thank you, Nisa. On that note, I'd like to say thank you for everyone for joining us today. We are encouraged by the first quarter results. We are also encouraged by what we see so far in the second quarter. The consumer remains engaged and appears to be getting more engaged with both brands. And if we continue to stay focused on our initiatives, we believe that we will end the year with in the range of the guidance that we gave. And we feel that in fiscal year twenty seven, we will return Capri to growth. And we think the leverage that will create along with mitigating the majority of the current tariffs will bode very well for the earnings per share growth for the company. So thank you for joining us today.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.