Capri Holdings Ltd. Q1 FY2026 earnings call

• The company is encouraged by first quarter results with trends improving sequentially, exceeding expectations.
• Michael Kors saw positive signs from hotel stories narratives, global events, activations, and influencer partnerships, with a 9% year-over-year increase in global database. Product strategy centered on design vision and adjusted pricing architecture, with accessories and ready-to-wear showing positive trends.
• Jimmy Choo focused on glamor storytelling, new product introductions like the Curve bag and Jelly flat, and had a 9% year-over-year increase in global consumer database. Product strategy in accessories and footwear aimed at further development.
• Plan to renovate approximately 50% of Michael Kors store fleet over 3 years and close 75 underproductive stores in fiscal '26.

Total company revenue decreased 6% versus last year to $797 million. For Michael Kors, first quarter revenue decreased 6% on a reported basis. In the retail channel, traffic trends in full-price stores improved sequentially, achieved stronger full price sell-throughs on new styles, and AUR trends turned positive in the full-price channel for the first time in 3 years. Wholesale channel performance at point of sale improved sequentially but was impacted by broad-based softness. At Jimmy Choo, first quarter revenue decreased 6.4% on a reported basis. Global retail sales declined mid-single digits, wholesale decreased double digits. In accessories, consumers responded positively to new introductions, and certain groups contributed to sequential improvement in accessories AURs. Footwear revenue was down double digits in the quarter, but new styles in footwear began to show strong early performance.

• Updated guidance reflects higher tariff impacts. Total company revenue for fiscal 2026 is expected to be between $3.375 billion and $3.45 billion. Second quarter total company revenue is expected to be between $815 million and $835 million.
• Anticipate trends will improve in the back half of fiscal 2026 and return to growth in fiscal 2027.
• Expect year-over-year inventory levels to sequentially decline, and plan to use proceeds from Versace sale to substantially reduce debt.

• Global macroeconomic environment remains dynamic.
• Trade policies have evolved and tariff rates have increased, impacting cost of goods sold.

Q: Congrats on the sequential improvement. 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?

A: Matt, and thank you for that nice comment about our sequential improvement. At Michael Kors, we saw improved results from marketing through influencers and social media channels. Changed design, pricing architecture, and analyzed consumer insights. Saw positive indicators in retail stores with improved comps and AURs turning positive. Wholesale channel is heading in the right direction but not yet positive. Forward-looking data shows positive signs for fall product and marketing.

Q: 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 FY '27. 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?

A: Look, 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 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 store -- 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 continued 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 2017. But let me turn it over to Raj for the gross margin piece. Thanks, Brooke.