Q2 2021 Capri Holdings Ltd Earnings Call
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Second quarter of fiscal 2021 conference call with me. This morning, our chairman and Chief Executive John Idol, and she financial Officer, and Chief Operating Officer, Tom Edwards 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 then the company's SEC filings, which are available on the company's website investors should not assume that these statements made today. During this call will remain operative for it at a later time and the company undertakes no obligation to update any.
[noise] information discussed on the call. In addition, certain financial information discussed today will be presented on a non-GAAP basis. These non-GAAP measures exclude certain costs associated with COVID-19 related charges long lived outside of parents E. R. P. M Hmm mentation costs Capri transformation costs restructuring and other charges unless otherwise.
[noise] noted all financial information on today's call will be presented on a non got basis to view the corresponding got measures and related reconciliation. Please view the earnings release posted on our web site earlier today at Capri Holdings Dot Com before we begin I would like to note that we have an accompanying sides posted to our web site now I would like to turn the call over to Mister John.
Idle chairman and Chief Executive Officer.
Thank you Jennifer and good morning, everyone.
The COVID-19 pandemic continues to profoundly impact the entire world.
My thoughts and prayers go out to all of those who have been affected by the virus and to everyone on the front lines, who are tires Lee helping to come back this pandemic.
Ah Capri Holdings, we were prioritizing the health and safety of our employees.
Consumers.
And communities.
I want to thank our teams around the world for the hard work and dedication they demonstrate every day to support each other and their communities. During this unprecedented time.
As we look forward, we were increasingly optimistic about the outlook for the fashion luxury industry.
Luxury is enduring as it creates an emotional connection with consumers inspiring excitement and passion and those who valued design innovation as well as exceptional quality.
The industry has proven resilience with sales historically recovering rapidly following economic downturns in global health crisis.
Current trends indicate that once again luxury sales are quickly rebounding.
Additionally, we believe consumers are spending at higher rates on luxury products.
As there has been reduced spending on experiences due to travel restrictions.
While there are many unknowns in front of US we believe the luxury market will resume a steady growth trajectory.
And Ah Capri holdings is uniquely positioned to expand its revenue and earnings.
With Versace.
Jimmy Choo.
Michael of course.
No I would like to turn to our second quarter results.
Revenue and earnings per share cigar.
Significantly exceeded our expectations.
While second quarter revenue declined 23%.
That was a substantial improvement compared to the first quarter.
Sales and a retail channel decreased approximately 17%.
We were particularly pleased with our robust E commerce growth, which accelerated sequentially.
And grew approximately 60% compared to prior year.
Sure performance also improved sequentially driven by local client telling initiatives.
And the wholesale channel performance at the point of sale also continue to improve.
But trucked lower.
And our own store performance.
By geography, we were seeing the fastest recovery in Asia.
This is being led by mainland China with positive sales and a retail channel across all three of our luxury houses.
Revenue in the Americas is also recovering faster than we anticipated with sales or retail channel increasing double digits at for such a low single digits at Jimmy Choo.
And at a slower recovery at Michael Kors.
EMEA improved sequentially, but sales across all three brands trailed other regions given the impact of lower tourism.
And its importance in this geography.
Earnings per share of 90 cents also surpassed our expectations driven by better than anticipated revenue continued gross margin expansion and expense reduction initiatives.
Now turning to second quarter performance by Brown.
Starting with Versace.
We are pleased with the results and trends, which are significantly ahead of our expectations.
Sales in our retail channel increased in the mid single digits globally, demonstrating the strength of the brand and favorable response to our product innovation.
Global E Commerce sales increased triple digits.
While sales in a retail channel in mainland China increased in the high single digits and in the America increased by robust double digits.
Revenue in EMEA in the balance of Asia improved sequentially.
They viewing his new song Stefan.
In a world exclusive.
The campaign gave viewers backstage access to AJ Tracy who was also joined by models wearing designs.
From the Versace collection.
On September.
25, we held our spring summer 2021.
Fashion show in Milan.
Donatello created for Sochi, Awfulness, and underwater fantasy World ruled by Medusa.
The collection is optimistic dreamy and positive.
The show generated over a million total views through our own channels and Versace was the number one engaged brand of social media during Milan fashion week.
These initiatives helped to drive a 20% year over year increase in Versace's Global database, which which grew to 3 million consumers.
Overall, we're such as results speak to the strength of the brand and reinforces our confidence in the luxury houses long term growth potential.
Tillery with Jimmy Choo signature off duty glamour sold out immediately.
The success of this collaboration demonstrates the power of the Jimmy Choo brand.
And the vision of sender choice.
In the casual footwear arena.
Additionally, we have seen strong sales results in booties, including the crews boots particular in styles, a dorm with crystal or Pearl detailing that add a touch of elegance.
To casual styles.
Our luxurious product and engaging marketing campaigns helped contribute to a 22% year over year increase in our global consumer database, which grew to 3.4 million consumers.
Overall, we believe our strategy to build accessories as a cornerstone of Jimmy choose already solid luxury foundation, along with the additional emphasis on off duty footwear.
Will enable us to grow revenue by approximately $500 million in the coming years.
Turning to Michael Kors.
We are pleased with the pace of the recovery.
In the second quarter revenue improved sequentially, and we generated higher gross margins.
E Commerce sales increased strong double digits.
And retail sales in mainland China increased high single digits.
In all our other regions.
Trends improved sequentially, but remained below prior year.
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<unk> featured a documentary style film that immersed viewers and the mood and inspiration of the season. In addition to the runaway show.
A fashion show was filmed.
And a New York Restoration project community Garden.
Featuring performance by American Idol when winter.
Samantha Diaz.
Additionally, in September we announced award winning Chinese actors Gao Jan Jan.
As our newest brand investor.
She is one of the most celebrated and beloved actresses in China with nearly 50 million followers on Weibo.
And our first role as Brandon Boster Guy.
<unk> is featured.
And our fall campaign in Asia.
The second quarter results revenue of 1.1 billion decreased 23% compared to last year.
These results were significantly ahead of our expectations.
Retail and E commerce performed considerably better than anticipated.
While wholesale was slightly ahead of our expectations.
Net income was 137 million.
Resulting in diluted earnings per share of 90.
This was also meaningfully above our expectations, reflecting better than anticipated revenue continued gross margin expansion and the benefits of cost reduction initiatives.
Looking at revenue performance by brand for.
Ecommerce sales increased strong double digits and revenue in mainland China grew low double digits.
All other regions sequentially improved relative to the first quarter, but still declined double digits.
In wholesale we saw outperformance at point of sale improved sequentially, but at a lower rate than our own retail stores.
Wholesale shipments are also improving but as expected recovering at a slower pace than point of sale results.
Michael Kors ended the quarter with the global fleet of 828 retail stores, a net decrease of 22 from prior year.
Now looking at total company margin performance.
Reflecting higher gross margin and lower expenses.
Turning to our balance sheet, we ended the quarter with cash of $238 million and that of 178 billion, resulting in net debt of 1.54 billion.
Total liquidity at the end of the quarter was 1.17 billion.
We are pleased with the strength of our business as we maintain our liquidity position throughout the first half of the year. Despite the impact of the pandemic.
Looking at inventory, we ended the quarter with $930 million down 13% compared to prior year.
This reflects the aggressive inventory reduction we implemented at the beginning of the pandemic, including inventory repurpose for upcoming seasons.
Inventory is expected to sequentially decline over the next two quarters, given the cancellation of holiday receipts and the Repurposing of spring Summer 2020 product.
We continue to expect inventory approximately in line with revenue by the end of the year.
Now turning to guidance.
Due to the lack of visibility surrounding the progression of the pandemic macroeconomic fundamentals and tourism flows we are unable to provide annual earnings guidance.
However, I would like to share some thoughts around how we see the back half of the year progressing.
While encouraged by the recovery so far we're taking a measured approach to the balance of our fiscal year due to the ongoing uncertainty.
Given the better than expected sales results in the second quarter, we know anticipated revenue decline of approximately 30% for the year and improvement versus our prior expectation.
And the third quarter, we anticipate a modest sequential improvement in total company revenue with sales declining double digits compared to prior year.
This represents an improvement relative to our prior outlook driven by better results and our own retail channel.
In the fourth quarter, we anticipate a more pronounced improvement in trends. So we continue to expect sales to remain below prior year.
Optimization increases included returning base salaries to 90% of prior year levels for our employees and executive management team with.
With the exception of John Idol, Michael Kors, Donatella, Versace, and Sandra Troy, who will continue to forego their base salaries for fiscal 2021.
Our board of Directors annual retainer was also reinstated at 90%.
Now turning to our expectations around certain non operating items.
For the full year, we anticipate interest expense of approximately 50 million.
Our effective tax rate is expected to be approximately 20%.
And we forecast weighted average shares outstanding of approximately $152 million.
In conclusion, we are extremely pleased with the progress of the recovery, thus far which is well ahead of our internal projections.
The luxury industry has proven resilient and we believe it is poised for years of above average growth.
As we emerge from the pandemic, we're confident that to pre holdings is well positioned to drive multiple years of strong revenue and earnings growth as well as increased shareholder value.
Now I will open up the line for questions.
Thank you we will now begin the question and answer session.
To join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request we ask that you. Please limit yourself to one question.
If you are using a speakerphone please pick up your handset before pressing any keys.
As in our watch business continuing to perform better.
A very high level realm.
Relative to the total performance.
We are and we see.
The greatest.
Softness in women's ready to wear and mens ready to wear and that's really across the group, we see that kind of the same trends.
With the exception of there were such a brand which is has shown strong growth in both men's and women's ready to wear in the retail channel as well as as.
Sitting there was no fiscal 22 guidance out there, but how would you expect your revenue mix to be balanced on a in a more normal world between wholesale and retail in other words, what ultimately do you expect a wholesale business to represent as a percentage of total when we returned to.
Normal and then I I just had a quick clarification for Tom if I could the hundred and 50 basis point gross margin.
Expansion this current year that you're seeing Tom.
It is a piece of that I would think a piece of that benefit is likely permanent in terms of some of the manufacturing efficiencies higher prices that are full price sell through to the extent you can maintain that but maybe there's a a piece of that 150 that would be more temporary based on the make shift between hold wholesale and retail.
I I don't know if you have a way to help us think about what the sustainable improvement in the gross margin rate is might be for this year. Thanks. So much.
Good morning Kimberley.
Just a call for you and your family help you with today.
And where we've seen historical.
Pandemics or or medical crisis.
The luxury business has really rebounded quite successfully and if I look at Versace in particular.
Better cities, but we have a question mark around what will travel retail really.
Look like and.
One last thing and I'm going to turn it over to Tom.
On the margin side, I think that 150 basis points, we absolutely think we're going to hold that and I'll, let Tom talk about the growth that we actually see in that area of the business to in future.
Thank you Kimberley when we look at it gross margin, we're really pleased with how things have gone in Q1 and Q2 with continued expansion as John mentioned, we're keeping the 150 expectation for the year and that does include an improvement in both Q3 and Q4.
You are correct in that there are some what I would call fundamental drivers of margin expansion that are benefiting us through this year and we expect it to continue well beyond this year and that includes a better full price sell throughs, we're taking selective price increases across our brand.
We're seeing manufacturing efficiencies.
And then longer term, increasing the penetration of accessories that for Saatchi and Jimmy too.
And growth in Asia.
Certainly supporters of gross margin now this year, we did have favorable mix from lower wholesale revenues versus R. Retail and we saw that about 50, 50% of the gross margin driver in Q1, but in queue to the fundamental drivers were greater and we would expect this mix benefit to be less of a tail.
And the second half and of course normalize as we get into FY 22, and beyond but what we're really really enthused about the growth and opportunities expand gross margin longer term for the business.
Our next question comes from Matthew Boss of J P. Morgan. Please go ahead.
Great and congrats on the improvement.
So John maybe can you help quantify and walk through the driver of the higher Aur's more specifically and maybe larger picture do you see this is a cycle inflection for the accessories category as a whole and then for Capri, how would you rank multiyear AUR opportunity if we were thing.
King by brand across the portfolio just in terms of magnitude.
Good morning, Matt Thank you.
I'll start with Capri first.
We've taken.
Quite frankly, I think we have underpriced, our product over the past probably three years.
And we've seen no resistance, we've been quietly taking price increases. This happens this all started well before the.
And so we will consistently continued to take price increases over the next three or four quarters.
And and we think that the consumer is is.
Remaining completely engaged with us and I want to highlight the fact that in the Michael Kors brand. Our database grew by 16% on a year on year basis that 6 million people I want to say that again at 6 million consumers. We've added to our database on a quarter over quarter basis, that's extraordinary.
We took some limited ones on a handful of items.
They happen to be high velocity items, but but I think that.
Stay as you currently see it today.
Thank you.
Our next question comes from Bob Gerbil of Guggenheim Securities. Please go ahead.
Hi, Good morning, just a couple of questions I think on the inventory improvement that you've had has in terms of the the changes in the product by their brands. He has a lot of it just sort of been sold through sold in I was just wondering if you could maybe give us some commentary around you know where they inventory.
When you look at the overall inventory as John mentioned, we talked about in the call. We took aggressive action early to align inventory with demand. So for the quarter were down 13% in inventory compared to revenue down 23, but at the same time, we had re purpose. Some spring summer 2020 for later seasons, that's being held in the quarter. So if you had excess.
Alluded this our sales trends inventory and sales trends would even be more aligned closely in Q2, but broadly speaking, we believe our inventories well positioned for the year. There may be some select areas for products that are performing well that.
We may not have as much inventory into the holiday season, but overall, we believe we're well positioned and as John said, we'll be working at a lower overall inventory level in the future based on the Sq reduction approach.
Thank you.
Our next question comes from Simon Siegel of BMO capital markets. Please go ahead.
Thanks, Good morning, everyone really nice results.
Where you are with great to see did you or could you quantify what the oil. It was this quarter and then John anything you can elaborate on the larger handbag strength that was great.
And anything on the licensing business. Thanks.
Sure Good morning, Simeon and again I Hope you and everyone else was on this call per.
Remaining healthy and safe.
During this unique time, so we're all facing.
So I mean, we're not going to.
Give the actual you are okay.
Overall leverage increase because it's it's in a lot of different places. So so but the greatest you are increase we have seen is in accessories.
And I'd say, that's driven probably half and half Simeon half by by the trend of of Totes.
We are starting to see certain satchel sales pickup we have our new our new Hamilton group. That's that's been wildly successful and again, it's really nice to see big handbags selling again.
We've seen backpacks as we've talked about and we're seeing a similar thing and Jimmy Choo as you heard me talk about and that for such as well. So it's definitely a trend across the industry.
Again small bags are still very very strong and we have some incredibly.
Strong new sellers that we've delivered for the holiday season that are probably some of the strongest of sell through is that we've had in some time.
And so so I think you're going to also see some some additional eight you are lifted our footwear I think across all Versace, Jimmy Choo and Michael Kors.
At a particular, Jimmy Choo, Jimmy Choo, I talked about the sell through on timberland.
The $5000 boot.
With all of our Swarovski crystals literally sold out almost to the piece.
And so we've seen that we've seen a number of shoes and Jimmy Choo at the 1200, two kind of $1500 price range that had been very strong sellers. So we're encouraged and emboldened in a sense to to sell more fashion product at higher price points.
Again, some of the quantities are limited, but it's definitely what the customer is reacting to and again, we don't have to put that product into a whole swath of our stores because with our digital prowess and our ability.
To use the data and to really reflect on who the customer is.
We're able to do these things and really get high sell throughs.
So I think I think we are going to continue to use more of that.
And again I also want to point out one of the other you are.
Benefits for US is also in Asia.
Where our Asia business has been very.
Very strong in particular mainland, China, and and the price points are considerably higher there.
On a on a hello versus versus North America and EMEA.
Thank you so much.
Our next question comes from Mark Altschwager of Baird. Please go ahead.
Hi, Good morning, Thanks for taking my question and congrats on the progress so far.
I was hoping you could give us a sense of where you are in terms of digital penetration by brand, where you think that this will normalize given some of the structural changes in the wholesale channel and changes you're making to the to the store fleet.
And then separately nice to see the continued sequential improvement in retail was hoping you could give us a sense of the current run rate of store productivity versus where you ended last year at each brand. Thank you.
Good morning.
Hey, Mark.
Mark as you know, we don't break out the actual.
Digital performance.
For the company or by brand, but what I can tell you is the following.
You saw our digital business grow 60% for the group you saw it grow triple digit.
For Saatchi, and Jimmy Choo, and very very strong double digit growth at Michael Kors.
What I would say is the following as we've talked about in the past and in North America. The.
All three brands are really at our full capacity in terms of store development.
There will be a handful of stores. Additionally, that we will open it Jimmy Choo and that Versace.
And in Michael Kors, we're going to close a significant amount of stores.
Our feeling is that in North America digital.
Will represent at at a point in time over the next couple of years between 40 and 50% of the overall revenues for the brands in North America, we can see that we could see ourselves getting to that point.
And again, it's going to take a few years to get there, but the trends are definitely leaning in that direction.
Europe, we don't see that type of trajectory, we see something that will probably get us to a 30% level.
Over the next few years and in Asia as you know, it's a much smaller.
Piece of the business today.
Low single digits, but.
But we do think that that will kind of be in that 10% to 15% range again over the next few years.
We are we are extremely pleased with our development of the digital business I'll first start in Japan, which is for the group and excellent across all three of our luxury houses.
And as you know or May know, we've gone on to a team all about a year ago with the Michael Kors brand and.
With with.
With the Jimmy Choo and for such a brands only just recently Michael Kors was the number one brand in the 11 11 promotion, which we were very excited about and again.
I might add that the consumer engagement and the database increases were making our extraordinary when I look at the fact that across the group. We added approximately 7 million names about $6 million for Microcor is $5 million.
For 500000 for Versace in about the same at Jimmy Choo. This.
This gives us the ability to to really engage with our customer on both current and lapse on a more regular basis.
Then when we just see them inside the store.
I will also say that the that the majority of the growth that came from our business online came from new customers and again Thats just really an extraordinary.
Data point for Us and if we continue Donna.
Donatella and.
Sandra and Michael I mean, these are very powerful voices in terms of marketing.
And Michael has done just an extraordinary job as you know during the during this pandemic of personal appearances and different messages around staying.
Staying healthy he.
He was very vocal during the elections around around voting, which had tremendous engagement with our customers actually brought us new customers as well so we have very prominent.
Fashion icons, who are leading our design direction and their vision for how to build these brands our ability to communicate that vision and then our tactical initiatives around our databases.
It's really obviously, becoming a strength and the good news is that for Saatchi and Jimmy Choo, the ecommerce business is actually more profitable than the than the four wall.
Store business and at Michael Kors, while it's not quite there yet we're seeing market improvement in our profitability in the ecommerce channel, which really bodes well for us because as you know we are going to restructure our total store fleet and as we've talked about before of Michael Kors, that's going to have operating margin benefit for us.
We gave you the guidance in the previous call that we will be north of that 20% historical level in the future years for our operating profit for Michael Kors and that bodes well.
Really for our long term profitability, where we think that post this situation and we're going to actually be a more profitable company than we were going into.
Thank you Mark.
Our next question comes from Paul Trussell of Deutsche Bank. Please go ahead.
Good morning, and congrats on.
Our successful in improving quarter.
I wanted to ask a question on margins, Tom maybe just a little bit more detail about the full year view and the puts and takes as we think about the 150 basis point.
Guidance for gross margins and Opex.
How we should think about kind of the reinvestment.
Into the business and support from marketing.
Versus the cost savings that's flowing to the bottom line and then quickly. John also if you can just maybe chime in a little bit more about.
Where you stand today in terms of your kind of medium term outlook for growth at both brands Akshay into thank you.
Paul Thanks for the question and I'll start with gross margin and then move to the cost piece, but overall, we're excited about the gross margin opportunities and we continue to expect to see gross margin expansion hundred 50 basis points for the year and in the second half in Q3 in Q4 again, a little less.
The tailwind from the wholesale channel mix, but still expect the fundamental drivers of better full price sell through selective price increases and manufacturing x. fish.
You should see it to continue to drive gross margin expansion across the company and really across brands.
So that piece, we would then expect to continue into the next year.
When we look at the cost savings, we updated our guidance on that and we are excited about doing better and we're spending back as the business is recovering at a quicker rate.
The first half did benefit from a few factors that weren't really applicable to the second half like savings from furloughed and store closures and some some other activities around rent and significant reductions in support for the business well it was closed but.
But now as were building back up and we have a lot more confidence in the growth trajectory and we're spending has of course to support the brand on marketing as sales are increasing we're spending on higher cost on a variable basis.
The compensation reductions and of course wasn't anticipated at the time, but the dollar has weakened and that's impacted us by about $50 million. So thats a little bit of the back half second half. If you look at the longer term. The 500 million that we had initially indicated we were saving we expected about half of that the flow through to the future and we're still seeing.
Underlying savings, but they are just a few considerations for you on that the ultimate flow through.
The first is better than expected revenue recovery and as revenue is higher than what we initially anticipated at that 500 level.
Of course would be higher variable expenses and the second is the weaker dollar we expect to continue into next year. So there will be some a bit of a headwind there, but overall, we expected robustly at our rigorously controlled costs going into the year and still expect savings in that area.
Thank you good morning, Paul So Paul but as we've talked about before Versace. We think is one of the most important acquisitions that this company has made.
There are not many luxury houses that first off come to the market and secondly have this type of global brand recognition.
And and and again a lot of the initiatives that we started.
With Donatella and with Jonathan Ackroyd, our CEO.
We will have commented about on previous calls.
Terrific leader for this this this luxury house.
Have we put these in place before the pandemic started.
And.
We're really seeing we're starting to bear a lot of the fruit from that.
Weve shutdown multiple lines, we closed stores we continue.
Continuing to renovate the fleet because we know this will be hopefully behind us in the next 12 to 24 months. So we continue to invest in in repositioning of this brand.
For what we firmly believe is a billion dollar opportunity.
And to see this brand and this luxury house perform in this environment, increasing in our own retail stores in mid single digits is really extraordinary.
And I put that right in as I said earlier in the.
And in the competition and competitive mode with our with our other luxury appears around the world and as you know the luxury category is really performing quite strongly during the pandemic and you've seen that through some of the other reports that come out.
So in the medium term.
We continue to believe that for such is going to grow at the kind of levels that you've seen.
In the previous.
Earnings calls so again, we're well on our way and we know what once we get through these difficult times. This this acquisition we've made it's going to really.
Turn on and then again, we've we've said we believe we will have mid mid teens operating margins for this.
This luxury house, and I think youre going to see us well on our way to getting there.
In terms of Jimmy Choo.
Weve talked beforehand again, we're very proud of this acquisition, we've got a brand new CEO in there who has been with the company I believe she was the third employer third or fourth employee to start with the company.
How to call him and she knows this company inside out you've got a very clear vision of where she wants to take it and.
And were moving rapidly to reposition because some of the the dress footwear category was it was suffering before the pandemic and obviously the pandemic has has put even further stress on that but Jimmy choo can be more than just a dress footwear company, we've proven that with our trainer.
Business, our sneaker business, which is really penetrating and we're off to an incredible start we've got some new design talent. We brought in we've also talked about the fact that we can do these.
Collaborations, which we have a few more on the way that are going to be we think also equally as successful as the timber timberland and then lastly is we're very pleased with the accessory development in the company and how we're going to build that out.
We have some other things in the pipeline that I think will be will be very interesting for you to see so for US again, we think this is a half a billion dollar opportunity for such a billion and this is a half a billion dollars and again I think the both of these luxury houses have the names to do that we have the talent and leadership in place and I think we've got the strategies that will.
Also lead us there and the last thing I just want to say is that with Michael Kors.
We were already on it on a trajectory to kind of reshape the business, we want to do a little less business, we want to be more profitable and we think we have a clear path to do that and quite frankly, the digital strategies that we put in place and in particular the data analytics strategies that we've put in place are really.
Helping to lead the way.
For for our overall business is again as I said to you and new customers had the highest eight yours also during the quarter. So not only where there is the largest part of our growth. They also had the highest eurs. So again.
In the midst of what is obviously, a very difficult environment I think we see so many positives of costs across the group right now and you hear the enthusiasm in my voice and Tom's voice.
Because we see a lot of good things happening thanks, Paul.
Our next question comes from Dana Telsey of Telsey Advisory Group. Please go ahead.
Good morning, everyone and congratulations on the progress it's very nice to see John as you think of the physical footprint, you've given out updated targets. How are you thinking about the closures. What are you thinking about regionally in terms of what the physical footprint should look like.
And our rent reductions, helping drive the SGN, a long term cost efficiencies going forward. Thank you.
Thank you Dan and good morning.
Dana first off I want to thank all of our.
Real estate partners around the globe.
I'd say 90 plus percent of them.
Were absolute partners during the darkest moments of this pandemic.
And really our biggest partners came to the table and you know, it's not easy for them to do that but I have to really give a big sign.
Thanks to all of them.
And we worked collaboratively together do that.
We're not necessarily at the moment seeing any long term rent reductions, we're going to honor our leases and be good partners and.
And if we have got term on those leases were going to pay those leases as stated.
So so I wouldn't say, that's where we're going to see leverage maybe overtime rents will come down I don't know its.
Most of our leases are in place for some duration. So I think it's too early to judge that.
But clearly we are doing is we are we are reducing our overall store count and it's really a Michael Kors initiative, and it's I would say.
Probably 80 20, 80% in North America and 20%.
In Europe, and those stores have have fallen below profitability or actually are no longer profitable. So the more we shed those those those stores are closed those stores the more profitable the company will actually be.
I'd say the short term concern is that the major cities again. This is not something that you are not aware of whether it's New York Chicago San Francisco.
Certain parts of Los Angeles, Paris, London May.
Milan Madrid. These are all high high tourist level cities and again there is many more.
Some even in Asia, whether it's in Tokyo or in Korea.
We need we need tourism to return.
To get these stores back up to a level traffic is still down dramatically across the.
The group.
But it's really impacted in the major cities.
And so again, we think thats going to take time to come back but the good news is we're structuring the company Weve got to.
I wouldn't say, 100% clear vision moved out to a relatively clear vision of how the consumer is behaving today again, another place that data it really gives us an advantage.
We may have had her shopping with us in our Rockefeller center store or over such a fifth Avenue store, maybe she's not coming in or he's not coming in now, but we can reach out and communicate with them and again.
Maybe I'll leave you with this last thing we think theres three very important ways that we're going to really interact with the customer and it's an omni experience. The first we believe our business is being led by digital interaction so whether thats, our marketing initiatives, whether thats the way that we are.
Developing the customers interest in the product that's the number one player she or he comes in views and sees.
The initial interaction with the with our product.
Secondly is obviously the store experience and given in light of the pandemic and the concerns people have about having to face to face interaction that's.
Thats going to be more limited and develop overtime. It is recovering so I want to be clear that I say that traffic has been is recovering but still not at a level that's acceptable.
For us to really feel good about.
The last thing is where we are also starting to see some real traction is is clienteling. So that can either be through a one on one zoom call. The client whether that can be actually bringing product to the client task I talked about previously we had a few very successful initiatives really the most important what was led by Jimmy Choo, where we have a.
Program called two to you.
And we are really engaging with customers we might have small social gatherings at someone's house, we've actually brought the inventory there too. So I think clienteling is something that people don't talk a lot about but.
But it's really working well for us so a lot of our stores, even though traffic is down right.
Revenues, especially in the non major city stores in some cases are maybe flat or slightly up at certain stores and thats really engaging with the local clients and having a personal interaction with them and we've got some of the best sales associates around the globe, who are really having those interactions and I'd like to close.
By thanking all of our 11000, plus 12000, plus sales associates around the globe, they get up everyday of the week and there really.
Keeping the lights on and making an incredible effort to engage with our customers. So I want to thank all of them and of course I want to thank the balance of our employees who.
Who have really done an extraordinary job of really driving our business. During this very difficult time.
I'd like to conclude.
Todays call by saying, we remain highly encouraged by the recent developments that were seeing with all three of our luxury houses Versace, Michael Kors and and Jimmy Choo. We think we've got outstanding leadership, and we think we have strategies and initiatives that will help lead us.
For further growth and and revenue and earnings per share growth in the future. Thank you very much for joining us today.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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