Capri Holdings Limited (CPRI) Earnings

Management highlights

• **Strategic Progress & Overall Business Health** - Management completed the sale of Versace, which strengthened the balance sheet, reduced net debt to $222 million from $1.4 billion year-over-year, and increased financial flexibility for strategic initiatives. - Early execution of strategic initiatives for the two remaining luxury brands is showing clear positive traction: higher full-price sell-through, rising AURs, growing consumer databases, and improving brand desirability with younger consumers. Quality of sale initiatives at Michael Kors reduced full year 2026 revenue by over $150 million, but this headwind is expected to moderate through 2027. - The company returned to profitability in Q4 2026, delivering diluted EPS of $0.22, generated positive full year free cash flow, and ended the quarter with inventory down 17% year-over-year at $581 million. • **Michael Kors Operational Highlights** - Rebranded storytelling around the modern Jet Set lifestyle resonated with consumers: the Spring 2026 Hotel Stories campaign and 45th anniversary runway show generated 4.3 billion impressions, growing the global consumer database 8% year-over-year. Full-price comparable store sales turned positive across all regions, with sequential improvement in store traffic. - New product strategy focused on iconic core accessories (Hamilton, Layla, Nolita) with expanded smaller silhouettes for younger consumers is driving strong full-price sell-through; casual footwear lines have shown early improvement, and ready-to-wear performance is particularly strong after strategic price adjustments. - 35 store renovations are complete to date, with early results showing improved traffic and sales; the new Beijing flagship with the innovative Jet Set Lounge Cafe concept will be expanded to other global flagships. 100 total renovated/new stores and 150 renovated department store doors are planned for fiscal 2027. - Long-term target: $4 billion in revenue and low 20% operating margins. • **Jimmy Choo Operational Highlights** - Returned to growth in the back half of fiscal 2026, with positive momentum across all regions. Spring 2026 Le Fleurs and bridal campaigns targeting Gen Z/millennial consumers drove strong digital engagement, growing the global consumer database 7% year-over-year. - Product strategy focused on expanding accessories and casual footwear is delivering results: iconic accessory lines (Bonbon, Cinch, Bar, Curve) show strong momentum, particularly with new lower-priced SKUs below $1,500; new casual footwear styles (Elisa Ballerina Flat, Sunny Sneaker) are gaining traction. - A new profit improvement program will be rolled out to optimize costs and drive margin expansion ahead of fiscal 2028. - Long-term target: $800 million in revenue and low double-digit operating margins. • **Capital Allocation** - Prioritize investment in the business (store renovations, digital/IT upgrades) first, then return capital to shareholders via share repurchases while maintaining a strong balance sheet. $79 million in shares were repurchased in Q4 2026, earlier than planned, with $921 million remaining in the repurchase authorization.

Guidance

• **Full Year Fiscal 2027 Guidance**: Management expects low single-digit total revenue growth to ~$3.525 billion, with Michael Kors revenue of ~$2.9 billion and Jimmy Choo revenue of ~$625 million. Retail revenue is expected to grow mid-single digits, offset by a planned decline in the Michael Kors wholesale channel from continued off-price shipment reductions. The 53rd week in fiscal 2027 adds ~1 percentage point to full year revenue growth. • Gross margin is expected to expand ~200 basis points for the full year, incorporating a 10% tariff assumption on US imports. Operating expenses will increase modestly, with total operating income expected to grow 60% year-over-year to ~$190 million. Michael Kors is expected to deliver low double-digit operating margin, while Jimmy Choo will return to profitability with low single-digit operating margin. Assuming $200 million in share repurchases, diluted EPS is expected to be ~$2.15, a 40% increase over fiscal 2026. Capital expenditures are planned at ~$125 million, primarily for store renovations and digital investments. • **First Half 2027 Guidance**: Revenue is expected to decline low single digits, with retail revenue roughly flat and wholesale declining low double digits. Gross margin is expected to expand 300 basis points, and diluted EPS is expected to be ~$0.85, an 80% increase year-over-year. • **Second Half 2027 Guidance**: Revenue is expected to grow mid-single digits as headwinds from Michael Kors quality of sale initiatives lap, with the Michael Kors outlet channel returning to growth. Gross margin expands 100 basis points (300 basis points excluding the year-ago Q4 tariff refund). Diluted EPS is expected to be ~$1.25, a 20% increase year-over-year. • **First Quarter 2027 Guidance**: Total revenue is expected to be ~$750 billion ($585 billion from Michael Kors, $165 billion from Jimmy Choo). The Middle East conflict is expected to reduce Q1 revenue by ~$7 million, and quality of sale initiatives/store closures will reduce revenue by ~$30 million. Operating income is expected to be ~$10 million, with diluted EPS of ~$0.40.

Segment performance

Total company continuing operations (Versace classified as discontinued operations post-sale) reported fourth quarter 2026 revenue of $796 million, a 3.7% year-over-year decline (7% in constant currency). By geographic segment: revenue increased 10% in EMEA, 5% in Asia, and decreased 12% in the Americas. Gross margin for the total company expanded 490 basis points to 64.8%, driven by a $40 million IEPA tariff refund in the quarter, with an additional $25 million of tariff benefit to flow through in the first half of fiscal 2027. Operating margin expanded 170 basis points year-over-year. - **Michael Kors**: Fourth quarter revenue decreased 5.5% year-over-year (8.4% constant currency), representing ~82% of total company revenue. By geography: revenue increased 11% in EMEA, 10% in Asia, and decreased 14% in the Americas, primarily due to intentional quality of sale initiatives that reduced promotional activity, third-party, and off-price sales. Full-price comparable store sales turned positive across all regions in Q4, with average unit retails (AURs) up low double digits. Global retail sales declined mid-single digits, while wholesale revenue also declined mid-single digits. Gross margin was 64.6% (up 600 basis points year-over-year), or up ~150 basis points excluding the $38 million tariff refund, driven by higher full-price sell-through and reduced promotions. Operating margin was 8.7%, expanding 410 basis points year-over-year. - **Jimmy Choo**: Fourth quarter revenue increased 5.3% year-over-year (flat in constant currency), representing ~18% of total company revenue. By geography: revenue increased 11% in the Americas, 8% in EMEA, and decreased 6% in Asia. Global retail sales grew mid-single digits, with wholesale revenue also growing mid-single digits. Gross margin was 65.7% (down 50 basis points year-over-year), or down ~90 basis points excluding the $2 million tariff refund, due to lower initial markups from an expanded lower-price product architecture. Operating margin was negative 14.3%, contracting 680 basis points year-over-year due to foreign exchange headwinds and higher selling/administrative expenses.

Risks & headwinds

• The conflict in the Middle East is expected to negatively impact first quarter 2027 revenue by approximately $7 million. • Quality of sale initiatives (reduced off-price/third-party sales, lower promotional activity) at Michael Kors will create ongoing near-term revenue headwinds, totaling ~$75 million in the first half of fiscal 2027, before lapping in the back half. • New US tariff regimes increase input costs and put pressure on gross margins, which management has partially offset with targeted price increases and supply chain cost reductions. • Jimmy Choo is still in the early stages of its profit improvement program, with final scope and timing still being evaluated, and has yet to return to sustained profitability. • The Michael Kors outlet channel and footwear business are still in the process of strategic repositioning, and improvements are not expected to fully materialize until the back half of 2027.

Analyst Q&A

• Q: What drives the sequential improvement in Michael Kors revenue in FY27 from the first half decline to full year low single-digit growth, and what demand trends are visible entering Q1? /

  A: The positive underlying trend is led by the full-price channel, where comparable sales are already positive, brand awareness is growing, consumer engagement is rising, and renovated stores deliver strong traffic and sales gains. The first half headwind of ~$75 million comes from lapping the ongoing quality of sale initiative that eliminated most third-party outlet sales and reduced promotions; after lapping these cuts in the back half, 75% of outlet product will be refreshed trend-right merchandise, and the channel will return to growth. Full-year gross margin expands 200 basis points, driving a 60% increase in operating income and 40% EPS growth.

• Q: What is the scope and plan for the Jimmy Choo profit improvement program targeted for 2028, and what drives underlying gross margin improvement for the group? /

  A: Gross margin improvement is driven by higher full-price sell-through, rising AURs from price increases that offset tariffs, better inventory balancing, and supply chain cost reduction. For Jimmy Choo, the program is still being finalized, but early focus areas include: improving profitability via revenue growth and higher store productivity, with evaluation of the store fleet to close underperforming locations; SKU rationalization to improve inventory management and operational efficiency in the company-owned factories that produce 50% of output; and SG&A efficiency from disciplined expense management and corporate synergies. The target is to reach low double-digit operating margins long-term.

• Q: How did business trend month-over-month in Q4, is current performance aligned with Q1 guidance, and could Michael Kors retail inflect to growth before October? /

  A: Management does not break out monthly results, but Q4 results came in at the high end of guidance for both revenue and EPS, with sequential improvement across almost all metrics. The company is comfortable with its Q1 guidance. Retail revenue is expected to be positive in the first half of FY27, driven by the full-price channel, with all headwinds concentrated in wholesale. Point-of-sale at wholesale partners turned flat in Q4 for the first time in years, with some major partners already reporting positive year-over-year sales.

• Q: Can you describe what the $4 billion long-term Michael Kors revenue target will look like structurally, and what are the parameters for share repurchases? /

  A: Growth will be led by the full-price retail channel, where mall owners are requesting the brand re-enter properties it previously exited, driven by strong resonance with younger consumers in the accessible luxury category. Wholesale will stabilize and return to modest growth by FY28 after multi years of decline as the brand re-enters partner locations, followed by a return to growth in the outlet channel. The balance sheet is very strong post-Versace sale, with enough cash flow to fund $300 million in store renovations and $200 million in annual share repurchases going forward; $200 million in repurchases are planned for FY27.

• Q: What is the geographic AUR growth opportunity for Michael Kors, and which product lines are driving full-price comp growth? /

  A: AUR growth is global, with the largest increases coming from North America driven by reduced promotional activity and higher full-price sell-through. Accessories are the strongest growth driver, with identical positive sell-through trends now appearing in both retail and wholesale after a year of lag. The footwear business is still being strategically repositioned to focus on casual styles, which will hit outlet stores by Q4 2026 calendar year; once footwear turns, the outlet channel will inflect faster, as accessories are already tracking well.