Capri Holdings Limited Q3 FY2026 earnings call

• John Idol mentioned being pleased with third quarter performance which exceeded expectations. Strategies for Michael Kors and Jimmy Choo focus on strengthening brand desirability through storytelling and creating luxury products. - For Michael Kors: Retail trends showed modest sequential improvement, wholesale performance at point of sale exceeded expectations with strong consumer response to new styles. Brand awareness and consumer engagement were reinforced through hotel stories campaigns, influencer partnerships, and flagship location reopenings. Product-wise, refined pricing architecture drove stronger full-price sell-throughs, with accessories, footwear, and ready-to-wear performing well. Store renovation plan is redefining luxury retail experience with modern design. - For Jimmy Choo: Revenue increased, retail sales improved sequentially, wholesale revenue grew double digits. Brand awareness was amplified through holiday campaigns and global activations. Product strategy focused on developing accessories and expanding casual footwear offering, with core groups and new groups showing strong performance.

Total company revenue for the third quarter was $1.025 billion, decreasing 4% versus last year. By brand, Michael Kors' third quarter revenue decreased 5.6% compared to the prior year. Global retail sales of Michael Kors declined mid-single digits. Wholesale sales of Michael Kors also decreased mid-single digits. Jimmy Choo's third quarter revenue exceeded expectations, increasing 5% compared to the prior year. Global retail sales trends of Jimmy Choo improved sequentially, increasing low single digits. Wholesale revenue of Jimmy Choo grew double digits. Michael Kors gross margin was 59.7% compared to 62.6% last year, excluding tariffs it expanded 60 basis points. Jimmy Choo gross margin was 66.5% compared to 66% last year, excluding tariffs it expanded 80 basis points. Michael Kors' revenue contribution: The Americas decreased 9%, EMEA increased 6%, Asia decreased 1%. Jimmy Choo's revenue contribution: The Americas increased 23%, EMEA increased 3%, Asia decreased 10%.

• Fiscal 2026 revenue is expected to be between $3.45 and $3.475 billion. - Michael Kors revenue is anticipated between $2.86 and $2.875 billion, Jimmy Choo revenue between $590 and $600 million. - Gross margin is anticipated to be approximately 61%. - Operating expenses are now expected to be slightly more than $2 billion primarily due to the impact of foreign currency. - Operating income is anticipated to be approximately $100 million with Michael Kors' operating margin in the high single-digit range and Jimmy Choo operating margin in the negative low single-digit range. - Fiscal 2026 diluted earnings per share is anticipated between $1.30 and $1.40. - Based on progress on strategic initiatives, confident in returning to growth in fiscal 2027, with gross margin expansion driven by better full-price sell-throughs, sourcing cost efficiencies, and targeted price increases.

• Tariffs could impact gross margin as seen in third quarter with higher than anticipated tariffs based on sales mix of new product. - Risks associated with reserve related to a wholesale customer bankruptcy, restructuring and other charges, store renovation program costs, merger and divestiture transaction-related costs, impairment charges, and Capri transformation costs. - Potential risks related to market trends and consumer preferences changing which could impact brand desirability and sales.

Q: At the Michael Kors brand, could you elaborate on the drivers of the slight sequential improvement in retail sales between the second and the third quarter? If you could break down maybe trends at full price relative to outlet? And more specifically, could you break down the low double-digit decline in The Americas that you saw in the third quarter and just walk through the progression that we should expect for Americas retail sales in the fourth quarter?

A: John Idol mentioned strategic initiatives like repositioning the brand, use of social media channels with influencers, focus on standout style, restructured pricing architecture, reduced promotional activity in full-price and outlet channels. Raj Mehta added they were pleased with sequential improvement in North America retail trends, benefited slightly from wholesale shipments, and expect continued sequential improvement in Q4 and return to revenue growth in FY 2027.

Q: Maybe just a follow-up on that last point you made. As you think about the expected revenue growth year, any way to help us think about how you're thinking about units versus price, maybe new customers versus reactivating lapsed? And then any way to just help us just elaborate thinking about those go forward gross maybe just bringing apart your thoughts on where you're setting the initial ticket pricing versus promotions. Lingering impacts of tariffs, fixed cost leverage, deleverage, just anything else we should think about for and takes on gross margin?

A: John Idol said they're feeling cautiously optimistic, seeing better full-price sell-throughs, higher AURs, brand awareness and consumer desirability rising, three sequential quarters of traffic improvement online. Raj Mehta mentioned in Q3 there was a little bit of a higher than anticipated tariff of approximately 50 basis points due to better sales of new product with higher tariff rates, but underlying gross margin expanded 70 basis points driven by better full-price sell-throughs, and expect to offset majority of tariff impact in FY 2027 with continued strategic initiatives and higher full-price sell-throughs.

Q: Given the sequential strength that you're beginning to see in the green shoots at the Michael Kors brand, I was hoping you could help frame the potential operating margin expansion potential that you see as you look ahead into FY 2027. I understand it's a little too early for guidance, but given the magnitude of the gross margin headwind from tariffs the Michael Kors brand that you're seeing today, how should we be thinking about the opportunity for op margin expansion for Michael Kors and for total consolidated Capri?

A: John Idol said they believe will return to revenue growth for the group next year, SG&A relatively stable, with gross margin expansion will lead to operating margin expansion. Raj Mehta added they're pleased with early signs of Michael Kors retail business improving, and confident in revenue growth, margin expansion, and controlling expenses leading to operating margin expansion.

Q: Regarding the opportunity for positive growth on Michael Kors, it sounded like the back half was more likely for next year. Would love any color there. And as you look across the channels, what do you with traffic traffic levels that we should be aware of? It looks like online has been attractive. And lastly, marketing spend and marketing dollars or as a percentage of sales? What's your framework for thinking about how to leverage that?

A: John Idol said assessment of more acceleration in the back half of next year on a TYL basis is likely, with full transition in full price channel, expansion in social media channels, and progress in outlet channel. Raj Mehta mentioned marketing spend is just north of approximately 8%, looking to spend wisely on influencers, TikTok, etc., with Michael Kors number a little more north of that, feeling good about levels driving growth next year.

Q: My question is just about balance sheet. Now that you've reduced net debt to just $80 million what are your plans with free cash flow? Do you plan on using it to update the stores or buy back stock? You know, more other actions?

A: Raj Mehta said priority is to invest in the brands through store renovation program, technology and digital enhancements, and other brand building initiatives. Second priority is to return cash to shareholders via share repurchase program authorized, commencing in FY '27, showing board's belief in Capri Holdings.