Capri Holdings Ltd. Q2 FY2027 earnings call

• Strategic Momentum: Both brands are showing sequential improvement in trends, with Michael Kors seeing its strongest full-price sell-throughs in years due to innovative product designs.
• Michael Kors Initiatives: The brand is elevating desirability through store renovations (50 completed, targeting 300), expanding the 'Jet Set Lounge' concept, and launching a TikTok shop that exceeded expectations. Product highlights include the Hamilton Soft handbag and new footwear franchises like the Jennings Loafer.
• Jimmy Choo Growth: Celebrating its 30th anniversary, Jimmy Choo achieved double-digit growth in both accessories and footwear. The brand is successfully attracting younger consumers through campaigns featuring influencers and diverse silhouettes ranging from casual flats to iconic dress heels.
• Consumer Engagement: Both brands are leveraging AI-driven insights and social media to deepen connections with Gen Z and millennial consumers, resulting in an 8% increase in Michael Kors’ global database and a 7% increase for Jimmy Choo.
• Operational Discipline: Capri significantly reduced markdown inventory by ~40% and promotional days by ~50%, which constrained short-term revenue but improved gross margins and full-price sell-throughs.

Total company revenue was $809 million, a decrease of 5.5% year-over-year (4.9% in constant currency). Michael Kors revenue decreased 8.6% to $663 million, impacted by inventory delays and reduced promotional activity. Jimmy Choo revenue increased 11.5% to $146 million, driven by strength in footwear and accessories. Gross margin expanded 230 basis points to 63.3%. Operating income rose 55% to $31 million, with an operating margin of 3.8%. Net income was $45 million, or 42 cents per diluted share.

• Fiscal 2027 Full Year Revenue: Increased guidance to approximately $3.42 billion (Michael Kors: $2.77 billion; Jimmy Choo: $650 million).
• Fiscal 2027 EPS: Increased guidance to $2.20, representing 45% growth over the prior year, supported by $300 million in share repurchases.
• Third Quarter 2027 Revenue: Expected at just over $1 billion (Michael Kors: $830 million; Jimmy Choo: $175 million).
• Third Quarter 2027 EPS: Expected at 95 cents per diluted share.
• Long-Term Targets: Michael Kors aims for $4 billion in revenue with low 20% operating margins; Jimmy Choo targets $800 million in revenue with low double-digit operating margins.

• Supply Chain Disruptions: Inventory delays from Asia affected Q2 performance, constraining product availability and impacting sales by approximately $50 million at Michael Kors.
• Geopolitical Headwinds: The ongoing conflict in the Middle East negatively impacted EMEA revenue for Michael Kors.
• Tariff Volatility: Tariff rates are expected to be higher in the second half of the year compared to the first half, potentially pressuring gross margins despite current expansions.
• Inventory Management: While inventory levels were managed down, there is a risk of stockouts for high-demand items like the Hamilton Soft bag during the holiday season as the company chases inventory.

Q: What drove the sequential month-over-month improvement at Michael Kors, particularly regarding exit trends and promotion pullbacks? / A: CEO John Idol attributed the improvement to strong consumer engagement with new, on-trend products, specifically in accessories (Hamilton Soft) and emerging footwear franchises. He emphasized that despite a 50% reduction in promotional days and 40% less markdown inventory, full-price sell-throughs surged. Search interest and influencer-driven demand for key styles exceeded expectations, signaling a return to health despite temporary inventory constraints from Asian supply chain delays.

Q: How does Capri view the future size and health of its wholesale business, and what are the drivers for gross margin expansion? / A: Management indicated that the wholesale channel has caught up to and in some regions surpassed full-price performance, with plans to return to healthy growth next year. They view wholesale as roughly 20-25% of the business long-term. CFO Tyler Reddien noted that while gross margin expansion will moderate in H2 due to higher tariffs and anniversarying quality-of-sale benefits, significant expansion remains driven by higher full-price sell-throughs and average unit retail (AUR) increases across both brands.

Q: What is the impact of the global fashion shift toward more stylized/formal apparel on Capri’s accessory and footwear strategies? / A: CEO John Idol stated that the shift toward more glamorous and dressed-up styles benefits both brands, particularly Jimmy Choo, which is gaining market share in luxury handbags and seeing a resurgence in dress footwear. At Michael Kors, the decline of the sneaker category (from 35-40% to 20-25% of business) is being offset by growth in dress and formal footwear. Additionally, both brands are successfully attracting new, younger millennial and Gen Z customers through targeted storytelling and digital platforms like TikTok.

Q: Is there further opportunity to elevate Average Unit Retail (AUR) and gross margins beyond current initiatives? / A: Management confirmed significant opportunities for continued AUR and gross margin expansion beyond fiscal 2027. This includes selective price increases at Michael Kors full-price and outlet channels, optimizing manufacturing and logistics networks, and improving distribution efficiencies. CEO Idol reiterated that Jimmy Choo is not for sale and represents a major long-term value driver, with potential to exceed previous revenue and margin targets due to its strong product momentum and accessories focus.