Q1 2022 Capri Holdings Ltd Earnings Call
[music].
Greetings welcome to Capri Holdings.
Ltd.
First quarter fiscal 'twenty 'twenty 2 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note.
Conference is being recorded I will now turn the conference over to Jennifer Davis, Vice President of Investor Relations. Thank you you may begin.
Good morning, everyone and thank you for joining us on Capri Holdings Ltd first quarter fiscal 'twenty 'twenty 2 conference call with me. This morning are chairman and Chief Executive Officer, John Idol.
This <unk> 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 in the company's SEC.
The SEC filings, which are available on the company's website.
Investors should not assume that the statements made during this call will remain operative at a later time and the company undertakes no obligation to update any information discussed on the call in.
In addition, certain financial information discussed today will be presented on a non-GAAP basis. These non.
Non-GAAP measures exclude certain costs associated with COVID-19 related charges ERP implementation costs Capri transformation called restructuring and other charges.
Unless otherwise noted all financial information on today's call will be presented on a non-GAAP basis to view the corresponding GAAP measures and related reconciliation. Please.
Please view the earnings release posted to our website earlier today at Capri Holdings Dot com.
I would also like to note that we have accompanying slides posted on our website now I would like to turn the call over to Mr. John Idol, Chairman and Chief Executive Officer.
Thank you Jennifer and good morning, everyone.
Last month, we share.
Share Capri holdings growth strategies and long term outlook.
During our Investor day.
The initiatives that supported our growth opportunities centered around 5 strategic pillars.
Which are being executed.
For Saatchi Jimmy Choo.
Couple of quarters.
These pillars form the foundation that position Capri holdings to deliver multiple years of strong revenue and earnings growth.
I would like to take a moment now to review our 5 strategic pillars.
First we plan to maximize the full potential of.
Of our 3 distinct fashion luxury houses while each brand is unique with its own heritage. They all have consistent philosophies of.
<unk> fashion leadership and luxury.
Second.
We will create the most innovative and exciting fashion luxury product led by the design visions of Donatella Versace.
Sandra Choi.
And Michael Kors.
Third we will create compelling communication to deepen consumer desire.
Engagement with each of our luxury houses.
Fourth we will leverage our seamless omni channel capabilities to accelerate revenue growth.
And fifth.
We will build upon our corporate values with communities, both internally and externally.
And we are already successfully executing against these strategies and are encouraged by our progress.
Now turning to first quarter performance, we were pleased that revenue gross margin operating margin and earnings per share all significantly exceeded our expectation.
These results were driven by strength across all 3 of our luxury houses as they continued to deepen consumer desire and engagement, adding 10 million new consumers to their databases.
Total revenue in the first quarter increased 170.
8%.
Reflecting robust growth across all channels and regions.
Additionally, gross margin expanded 90 basis points and.
And operating margin reached 28% both meaningfully better than anticipated.
As a result earnings per.
Per share of $1.42.
Was well ahead of our expectations.
Moving to first quarter performance by brand.
Starting with Versace.
We were pleased with results, which were materially ahead of our expectations.
Revenue.
<unk> increased 158% in the first quarter, demonstrating the strength of the brand.
And the success of our strategic growth initiatives.
All categories performed well as such as bold and fearless designs.
Were positively received by consumers.
In women's accessories, we saw continued improvement with sales more than double prior year.
Consumer response to the Lama and virtuous collections was strong.
Overall, we are excited with the traction and accessories and.
On the category is growing much faster than we anticipated.
We are confident in our ability to position versace, as a leading luxury leather house and expand accessories revenue to $1 billion overtime.
Footwear also delivered strong.
<unk> performance with sales more than doubling prior year levels.
In April we introduced our new Greco sneaker for men and women.
Which features the iconic Greek key pattern.
The consumer response to this new addition in on.
Our active family was positive.
In women's dress footwear Versace is expanding its authority as.
As we execute on our initiative to build a core offering focused on our iconic brand codes.
Additionally, we saw strength across both men's and women's ready to wear.
<unk>.
Strings incorporated the treasurer Delamere pattern, which was featured.
In the Versace spring 2021 runway show.
We also continued to expand our core lines, which incorporate iconic house codes to increase sales and broaden for such as reach.
<unk> are moving to brand awareness and consumer engagement.
As such it continues to deepen consumer desire.
The brand's summer campaign lava comes on.
The chronic very versace look.
The Italian Riviera.
The campaign showcased the crystal.
Clear waters and Blue skies of Laguardia.
Featuring iconic fashion from.
On the summer collection.
We were very encouraged to see a return of in person red carpet events during the quarter a wonderful sign of recovery.
And an opportunity for Versace.
2 once again adorn the world's most famous celebrities.
<unk> presence on the Red carpet was extensive dressing celebrities, including Lily Aldridge Hailey Bieber due of Lipa Zen dire Nick Jonas.
Leslie Odom.
Junior and Usher.
In June for such a launched a mini capsule in collaboration with Lady Gaga is born this way Foundation.
The capsule included a readmission of an affiliate for such a jacket that Lady Gaga War on tour as well as unisex.
T shirts.
The capsule sold out within hours and a portion of the proceeds were donated to Lady Gaga is born this way foundation.
We are also thrilled to have global superstar dual Lipa featured in our fall campaign.
Where she will introduce the new look recognize.
Collection.
The pop culture icon has over 90 million followers on her social media accounts.
Lipa.
Itemizes, the Versace brand with her impeccable style fearless attitude and Universal appeal.
These initiatives among others helped to drive a 24% year over year increase.
And Versace Global database.
Overall for such a strong first quarter results speak to the strength of the brand and reinforce our confidence in the luxury houses longer.
Growth potential.
Moving to Jimmy Choo.
<unk>, we're well ahead of our expectations with revenues increasing 178%.
As we are beginning to realize the benefits of our strategic growth initiatives.
And accessories.
Long tails showed robust growth as we continue to focus on our 3 key hero handbag families.
A N Madeline and bottom line.
Sales of women's handbags increased over 150%.
In the first quarter.
In.
Footwear, we have seen strong signs of recovery and dress styles as people are returning to work.
On the events and enjoying special occasions.
Our casual offerings represent a significant growth opportunity and continued to perform well in.
In the quarter.
Results were led by the success of our new sneaker introductions, and Diamond light and Diamond extra.
As we shared at our recent Investor day, 1 of Jimmy Choo strategic growth initiatives is its core collection.
This permanent collection of accessories and footwear was launched.
At the end of June and is centered on 3 design pillars that represent Jimmy choose D N a.
Crystal Pearl and JC monogram.
The core collection enables us to translate our brand codes across product categories and consumer.
Launch that indication to create a recognizable and authentic identity for Jimmy Choo.
Additionally growth in the core collection will enable us to expand gross margins over time.
The initial reaction from consumers has been encouraging.
In terms of brand awareness and consumer.
<unk> Communications Jimmy choose Summer 2021 campaign features our beach capsule collection and celebrates the summer holidays with laid back glamour.
To launch the Beach collection, Jimmy Choo hosted 10 Influencers in Sanya China.
Or a social media.
Activation of it using the hashtag chew travels.
The activations generated over 14 million views on Weibo.
Jimmy Choo had a strong showing on the red carpet.
Celebrities wearing Jimmy Choo included Beyonce.
Viola Davis, Laura Dern litho.
With her spoon and then Dyer.
With the return of weddings, Jimmy Choo has enjoyed unique success and user generated content on social media specifically in the bridal sector.
Due into hash tag.
Is the top trending bridal hashtag on Instagram.
In June Jimmy Choo collaborated with Billy Porter to create a capsule to coincide with pride.
To Mark the collections release, Jimmy Choo donated a portion of the proceeds to support the Trevor project, whose mission is.
As ending LGBT IQ youth suicide.
Our glamorous product and engaging marketing.
<unk> contributed to a 14% year over year increase in Jimmy Choo shoes global consumer database.
Overall, we're optimistic.
Can we choose future growth opportunities.
We have the key building blocks to expand our assortments to meet all of our consumers needs every day anytime anywhere from formal to casual across accessories and footwear.
Now turning to Michael Kors.
About our first quarter performance was better than anticipated with revenues, increasing 184% compared to prior year, reflecting broad based strength.
We continue to increase signature penetration across all product categories by expanding our offering and develop.
And new designs.
Overall signature represented 36% of the assortment compared to 30% last year.
Helping support higher gross margins and <unk>.
With our signature strategy, we continued to create desire.
As our iconic Michael Kors branding resonated with consumers.
Now moving to accessories.
Revenue in our retail channel increased triple digits.
Globally as consumers responded to the fresh updates that continued to energize our.
Signature styles.
In footwear casual performed well as we excited consumers with laid back yet luck styles offering iconic Michael Kors brand name.
Consumers also responded positively to core styles updated and.
Looking at women's ready to wear we saw strong results in MK go which capitalized on our consumers' active lifestyle.
Turning to mens first quarter sales increased over 300% driven by accessories.
The men's business remains 1 of.
Interest growing categories at Michael Kors.
In watches and jewelry, we continued to see strong performance revenue in watches was driven by traditional styles that are true to our DNA with bowl sophisticated and distinctive designs.
In jewelry, we have seen a positive consumer response.
2 our elevated assortment focused on Sterling silver.
Crushers metal plating and semi precious stones.
In terms of brand awareness and consumer engagement, we can.
<unk> are highly successful.
I must travel campaign.
Which reflects Michael love of travel and our consumers jet set lifestyle.
For summer of the campaign again featured quintessential Jetsetter Bella Hadid.
And was filled with.
Color Sun and sea.
Which are also trademarks.
Of the Michael Kors jet set lifestyle.
Michael Kors drove strong consumer engagement across social media platforms in the first quarter.
We used influencers to create local relevance and generate.
<unk> global Buzz around the launch of our new Bradshaw accessories collection.
These influencers generated more than 153 million impressions across the social media platforms.
In June we activated our campaign around pride celebrate.
Celebrating Michael lifelong support.
Of the LGBT IQ community.
We launched a dedicated pride capsule that featured a rainbow wave pattern and heart logo.
A portion of the profits were donated to outright action international which.
Which works.
On to advance human rights for the L. G B T IQ community globally.
In China, Michael Kors took over the Paramount theater in Shanghai in celebration of Michael's 40th anniversary show.
The event began with a pre show greeting from Brandon.
Prasad or Gal young young.
Followed by the live stream on the show, which featured in studio commentary from brand Ambassadors, Wang Fay Fay and Lorena song.
As a result, the show generated 26 million views in Asia.
These marketing.
<unk> continued to highlight our brand pillars of speed energy and optimism.
This helped contribute to a 20% year over year increase in Michael Kors Global database.
Overall, we are extremely optimistic about the future growth of Michael Kors.
And the strategies, we put in place over the past 2 years have been generating high consumer engagement as well as attracting new and younger customers.
Additionally, we continued to elevate the brand positioning at Michael Kors, which is driving higher profitability.
In total.
The <unk> holdings first quarter results significantly exceeded our expectations demonstrating the power of our 3 luxury houses and the execution of our strategic initiatives.
The strength, we are experiencing today.
As a direct result of the dedication focus and.
Talent of all of our employees around the world.
Looking forward, we are pleased with the progress our luxury houses are making towards their strategic goals and the pace of their revenue growth.
While it is clear the world will continue to see challenges as the global pandemic.
[noise] evolves, including regional closures and temporary restrictions.
We believe the ultimate path to recovery remains strong.
As we have shown Capri holdings has the proven ability to successfully navigate these challenging times for.
Capri holdings with our 3 powerful.
Treehouses is positioned to deliver multiple years of revenue and earnings growth.
Now, let me turn the call over to Tom.
Thank you John and good morning, everyone, starting with first quarter results revenue of $1.5 billion increased 178% versus prior year meaningfully exceeding.
Our expectations performance was driven by better than anticipated results across all brands and regions.
Net income was $221 million, resulting in diluted earnings per share of $1.42.
This was above our expectations, reflecting better than anticipated revenue gross margin and.
And operating margin.
Looking at revenue trends by channel total company retail sales increased 135%. These.
These results were driven by robust e-commerce sales, which increased approximately 60% as well as strong store sales <unk>.
Retail store sales improved sequentially.
<unk> increased traffic trends and client telling initiatives.
In the wholesale channel revenue improved sequentially as sales rebounded compared to the initial impact of the pandemic last year.
By geography, the Americas was the strongest performing region with total revenue increasing 304% versus prior year.
In EMEA, where an average of 25% of stores were closed during the quarter revenue increased 148%.
And in Asia revenue increased 55%, despite restrictions and store closures that impacted numerous countries.
Turning to revenue performance by brand for such.
<unk> was $240 million, 158% increase compared to prior year and above our expectations global.
Global sales in our retail channel increased 141% with e-commerce sales increasing triple digits.
Store sales also increased in the triple digits.
By geography, the Americas was once again, the best performing region with revenue increasing 480%.
Revenue in EMEA increased 222% and revenue in Asia increased 29% gross.
<unk> ended June with a global luxury fleet of 208 retail stores a net increase.
<unk> on 4 from prior year.
For Jimmy Choo revenue during the quarter increased 178% to 142 million well above expectations as we began to benefit from our strategic growth initiatives.
Mobile sales in our retail channel increased 153% with ecommerce sales.
Again, increasing triple digits.
Door sales also increased materially.
By geography, the Americas was the best performing region with revenue increasing 533%.
Revenue in EMEA increased 213% and revenue in Asia increased 86% Jimmy.
1 thing to the quarter with a global fleet of 233 retail stores, a net increase of 5% from prior year.
At Michael Kors total revenue of $871 million increased 184% compared to last year on.
Also exceeding expectations.
Sales in our retail channel increased.
<unk>, 130%.
E Commerce sales increased strong double digits, while retail store sales also increased significantly.
Sales revenue increased substantially year over year as shipments normalized in the first quarter of fiscal 2022.
However, wholesale revenue remains well below historic levels in line with our strict.
Strategic initiative to have a smaller wholesale business, while improving profitability.
The Americas was also the best performing region for Michael Kors with revenue increasing 278%.
Revenue in EMEA increased 109% and revenue in Asia increased 61%.
<unk> ended the quarter.
With a global fleet of 820 retail stores, a net decrease of 2% from prior year.
Now looking at total company margin performance, we were pleased with gross margin expansion of 90 basis points. This improvement reflected better than anticipated performance in the retail channel across all 3 brands.
And including material increases versus prior year at Versace, and Jimmy Choo, driven by our strategic initiatives.
However, as anticipated wholesale penetration was approximately double prior year levels, resulting in an overall lower gross margin for Michael Kors in the quarter.
Operating expense as a percentage.
<unk> was 47, 2% better than our expectations as higher revenues resulted in increased expense leverage.
On an absolute basis operating expense increased approximately $140 million versus prior year, primarily reflecting the significant increase in revenue, which generated higher variable expenses.
Revenue. Additionally, the increase reflected reinvestments in our business as sales recover as well as the unfavorable impact of foreign currency exchange rates.
As a result of higher gross margin and lower operating expense as a percentage of revenue total company operating margin of 28% was above our expectations all.
<unk> operating margins also exceeded our expectations, reflecting both better gross margin and operating expense leverage.
And for such a operating margin was 20%.
At Jimmy Choo operating margin was 7.7% and then Michael Kors operating margin was 27, 6%.
Now turning to our balance sheet, we ended the quarter with cash of $356 million and debt of $1.3 billion, resulting in net debt of approximately $1 billion.
Total liquidity at the end of the quarter was $1.4 billion.
Looking at inventory, we ended the quarter was $760 million down 20% compared to prior year.
Going forward, we expect to build inventory to support sales growth over the remainder of the year.
During the first quarter, we repurchased approximately $50 million worth of shares and have an additional $350 million of availability remaining under our share repurchase authorization.
Now turning to guidance.
Before going into detail I would like to take a moment to provide some perspective around our full year outlook.
We are increasing our revenue guidance, primarily to reflect the higher than expected first quarter results and stronger anticipated sales in the second quarter.
We remain cautiously optimistic about the balance of the year, even though we are seeing some store.
Crushers and regional restrictions as the pandemic continues to impact certain regions of the world.
In addition, we are experiencing increased delays in receiving merchandise and challenges at the factory level due to temporary closures.
However, if the current situation is incorporated in our outlook for the year.
Now.
Store closure at full year fiscal 2022 guidance.
We forecast Capri holdings revenue of approximately $5.3 billion.
This assumes versace revenue of approximately $1.0 billion to $5 billion, Jimmy Choo revenue of approximately $550 million and Michael Kors revenue of approximately $3.75 billion.
Now looking a reminder guidance includes approximately $75 million associated with the 50 <unk> week.
For gross margin, we now expect approximately 100 basis points of expansion for the year, an increase from our prior guidance of 50 basis points.
This increase reflects stronger first quarter results as well as growth.
Gross margin expansion in each quarter of the year, despite higher transportation costs.
We continue to forecast operating expense of approximately $2.6 billion.
This reflects lower than anticipated expenses in the first quarter offset by additional investments in the remainder of the year as.
As discussed during our recent investor.
As we believe it is important to support our future growth and build momentum into fiscal 2023.
Therefore, we will be reinvesting approximately $25 million to $30 million in marketing e-commerce and regional growth initiatives.
As a result, we now expect an operating margin of approximately 16% an increase.
<unk> day, 200 basis points relative to our prior guidance.
For Versace, we anticipate an operating margin in the low double digit range.
For Jimmy Choo, we expect an operating margin in the negative low single digit range and for Michael Kors, We anticipate an operating margin in the mid 20% range.
Turning to our expectations around certain non operating items.
We now anticipate net interest expense of approximately $5 million.
And effective tax rate of approximately 17%.
And weighted average shares outstanding of $156 million.
As a result, we now expect to generate diluted earnings per share of <unk>.
Increase of $4.50 for fiscal 2022.
Turning to our second quarter guidance, we expect total company revenue of approximately $1.25 billion, we forecast for such a revenue of approximately $260 million, Jimmy Choo revenue of approximately $120 million and Michael Kors revenue of approximately.
<unk> $870 million.
We now anticipate our second quarter operating margin will be approximately 13% an increase of 200 basis points relative to our prior guidance.
This reflects a 50 basis point increase in gross margin versus last year as well as expense leverage on our higher revenue forecast.
Ultimately our Versace, we now anticipate an operating margin in the low double digit range.
For Jimmy Choo, we continue to expect an operating margin of negative low double digit range.
And for Michael Kors, we now anticipate on operating margin in the low 20% range.
Turning to our expectations around certain non operating items.
Interest expense is forecast to be approximately $1 million.
Our effective tax rate is expected to be approximately 12% and we forecast weighted average shares outstanding of $156 million.
As a result, we now expect diluted earnings per share of approximately <unk> 90.
In conclusion, we are pleased with.
This quarter results and the momentum of our business. This performance reflects the strength of our fashion luxury houses and execution of our strategic initiatives.
As the world emerges from the pandemic, we remain confident that Capri holdings is positioned to deliver multiple years of revenue and earnings per share growth as.
Well as increased shareholder value.
Now we will open up the line for questions.
Thank you if you would like to ask a question. Please press star 1 on your telephone keypad.
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We do ask that you limit yourself to 1 question.
Our first question is from Omar Saad with Evercore ISI. Please proceed.
Good morning, Thank you for taking my question.
Excellent job pretty much on all fronts congratulations.
I wanted to follow up on the Versace strength and the true strength.
Could you guys talk about any sort of customer response wholesale customer sponsored or marketplace response, youre seeing on the la Greco signature print.
And I was also wondering with shoe is the strength sneakers M heals, probably healed product or is it really kind of shifting back towards the heald healed product side. Thanks.
Thank you and good morning Omar.
By the way I'm joining you.
For today's call from Paris, France, where we.
Oh about little over a month ago opened are brand new.
<unk> flagship for Versace, which I might say is spectacular so its quite exciting to be here to see that.
Hum.
On Mark to answer both of your questions first on Versace.
As.
As we discussed in our earlier prepared remarks.
The momentum that we're seeing in accessories is from sleep.
It's coming much quicker than we had anticipated and the 2 new collections that we introduced first the virtuous.
Which is the broker V, it's really selling across not only accessories.
<unk> products, but really strong in footwear.
And on some of our ready to wear categories. So.
That initial design that was very early days from Donatella has been a quite frankly, a huge success for the for the company.
And then she came right back with it really.
Pushing.
This new law Medusa collection, which obviously takes our our Medusa icon.
And really puts us in the forefront and that collection has far exceeded our expectations and quite frankly, we're having trouble keeping up with demand.
In the stores right now so that's a.
I guess to some degree of good problem.
They have and again, we're seeing that resonate.
Across men's knit shirts, and belts and other product categories.
Really.
Quite pleased with that pillar for us and now before we've even landed la <unk>, which is the overall signature pattern.
The signature of low <unk> on our sneakers and both try GAAP Greco.
And the low Greco sneaker are again, we're having trouble keeping up with demand, which is not something we ever anticipated.
On the physician to be in right now.
So.
The good news is is that the pillars that.
We've kind of put in place today are already absolutely resonating with the customer and interestingly resonating with a younger customer as well, which is something we'd hope for.
And you can see that the database grew by 20%, which is really quite extraordinary because these are all growing on top of them were large.
Increases.
Over the last 18 months.
You know the the response from our own teams on our own stores to look record coming has been.
Really.
Strong and importantly, the wholesale channel for us.
Again as.
The cornerstone of our business, but an important part has reacted very very strong to this and I think what they're pleased about seeing with all of the pillars that we've been introducing is there's a real rhythm to versace now.
Maybe in the past, we were a little bit more full.
Full fashion, driven and we didn't have enough core products and again, our large competitors have those core products, which really you can generate a lot of revenue and also you can generate a tremendous amount gross profit.
We now have those and it's a matter of us executing against that.
I think.
You know and they'll do and we'll talk more about it in our upcoming call.
In October is that the launch.
Launch of La <unk> is going to be very very powerful I mean, this will be 365 degrees.
Super excited about the fact that dual Lipa who's 1 of the most famous.
Music music artists in the World has has.
Greed to be on the face for Versace for our campaign.
And with her 90 million plus.
Our fans.
Along with our huge following I think we're going to make quite an impact around the world.
So again.
I just we're so pleased and I hope some of you. Most of you on this call are based in New York. Please go to see our new Green Street store.
We just opened a few weeks ago. Some smaller version of our flagship here, but you'll really see the whole thing come together right there and of course low Greco will be there in September.
Jimmy Choo.
2 things are happening at Jimmy Choo first.
We've seen a return to.
To socializing, obviously in the United States, we're starting to see that in Europe.
I've been on a very very strong run in China.
With Jimmy Choo really during the entire pandemic the balance of Asia.
There is a bit challenged.
For all of them.
Companies brands, just because of closures, but.
So where we've seen reopening occur in.
People resuming a socially engaging with 1 another on the dress business is really quite strong.
I'd say it's.
To go to work part of the dress business, but its force things around.
Parties around around especially casual for the summertime people going away on holidays, and then lastly, bridal has really bounced back very very strong for us so and that's a big business for Jimmy Choo.
Quite good about that.
But on the other side the casual part of our business, which as I commented before has really not been a strength of the company.
We've really made huge inroads in particular in our sneakers.
And at our Diamond franchise, which has really taken hold.
Again, we're having a little.
Difficulty keeping up with demand on that again, I guess to some degree of a good place to be but.
We're we're learning how high is high on that category.
And I just want to end with Jimmy Choo.
We talked a lot about the accessories growth too, which was about 150 per cent.
Again, our core groups are are really starting to resonate.
And we have a new introduction that will be coming off for spring from our we've hired 1 of the most talented individuals' from the major luxury groups, who is now designing our handbags.
And the new product is coming is really quite spectacular it plus we have the JC monogram that'll be coming so I think we have a lot in our in our Arsenal with Jimmy Choo to really start accelerating that business and and and and I think the product will be there starting for fall and beyond so thank you Omar.
Thanks for the color.
Yeah.
Our next question is from Kimberly Greenberger with Morgan Stanley. Please proceed.
Great. Thanks, so much and thanks for the great overview.
My questions. This morning on for Tom Tom I'm wondering.
Can you just talk about that.
And much better gross margin performance that you're seeing I know wholesale is coming back, but you've reduced it compared to historical levels.
It was a real sort of notable inflection in your guidance today and obviously the beat here in the quarter. So can.
Can you just dive into that a little bit more are you.
We're purposefully suppressing the exposure that you've got to wholesale to 2.
Basically reposition the brands and are you seeing any impact maybe you can just talk about some of the headwinds that you're seeing from a the shipping delays.
On sort of the factory delays that Youre currently encountering and if you've got any visibility on on timing on those that would be great as well. Thanks.
Sure Kimberly on thank you. Thank you for those questions from them.
So let me just say 1 thing before I turn it over to Tom.
The gross and.
On the quarter I, just want you to be really clear.
First led by the great performance at retail so I just want you to know that.
The second thing that happened in the quarter, because I think this will add color to your to your so Tom's commentary.
Is.
The wholesale business in <unk>.
<unk> America, which is the biggest piece of our wholesale business has actually rebounded very very positively it's still not running at the at the.
The rates that we're seeing in our in our full price business, but the sell throughs are excellent.
We're seeing consumers return into the stores into the department stores, which I have.
To tell you is really exciting to see so I just want you to get a feel for the color that it's not just just happening in our retail stores, but people are absolutely returning in shopping in department stores, sorry, Tom go ahead.
Thanks, John and I can't really looking at the gross margin it really was driven by retail.
<unk> on wholesale was also above expectations and it's all about full price sell through so we saw great performance across all brands with better full price sell through at Michael Kors signature was a larger portion of the business.
At Jimmy Choo, and Versace accessories, as well as some pricing at Jimmy Choo and Michael Kors.
And that was seen.
<unk> gross margin expansion, despite the wholesale mix being higher and higher transportation costs.
When we look at wholesale we.
<unk> already said that we want that business to be smaller than it was in the past and more profitable and that's really where we're coming out when we look at the year we.
<unk>.
25% penetration in the prior year, we expect that to be similar so wholesale is going to grow off of a smaller base.
Smaller business, that's more profitable and in the first quarter. We saw it off of a very low base that was impacted by Covid, we expect net growth.
We're at a level off in the second half in line with our strategy.
You had asked about.
Delays of receipts.
Factory closures as noted in the prepared remarks, we are seeing delays, but that is really built into the current forecast. So we would anticipate the situation will continue.
But we have built it into our expectations and despite that we're still expecting to grow margin on the <unk>.
Most margin line every quarter this year.
Great color. Thank you so much.
Our next question is from <unk>.
With Wells Fargo. Please proceed.
Hey, good morning, and let me add let me add my congrats great job guys.
Tom So to stick with the gross margin on the decline in quarters.
Understandable on the channel mix could you maybe just give us some color on.
Where does the gross margin maybe relative.
Moving to 2 years ago, just kind of curious how much expansion you've seen realm.
Relative to relative to fiscal 'twenty, and then John as a quick follow up.
Gave some details on the outlook for the business at your analyst day for next fiscal year I'm, just curious I mean, such a robust start to this year can you say if there is an area in the model right now where you're already seeing.
The most potential upside to that $5 number for next year to come from thank you.
Sure Michael I'll take the first part.
When we look at gross margin versus a couple of years ago, Michael Kors is significantly above where it was in that pre COVID-19 world and that's really due to those initiatives.
We've been talking about coming to fruition.
Inventory management, and lower Skus and more tightly managing our product to drive full price sell throughs signature continuing to increase and then pricing actions, particularly in the accessories line that will continue to occur.
Through the year and drive margins as we look into next year. So well ahead of where we were historically on the gross margin line.
Yes, I would just like to add 1 thing for everyone on this call.
Think we mentioned this some time ago.
Michael Kors, we are not focus.
Initiatives on L. L y.
And really because we've reset the business and what our expectations are for the business. So it's gonna be hard comparing it when we're trying to have a smaller wholesale business and I also might add debt, even when we're looking at L. L y.
There are still situations in.
In Japan, and in Southeast Asia, and Australia, and Europe, which which are we are not backed by any stretch the imagination to.
Full prior year levels.
And unfortunately, many of you on this call know that.
Delta viruses.
Spreading the variant.
So I think that will probably slow down some of our expectations around <unk>.
Europe.
Rebounding as quickly as we would've liked to have seen but on the other hand, we see North America going much quicker than we've seen we see strength in China, where again we've.
Had a strong double digit growth across the entire group. So theres going to just be puts and takes as we go through this but again I want to remind you Michael Kors were kind of not focused on where we were 2 years ago, we're only focused on our expectations.
More profitable business.
Growing.
In a way that's really focused.
Just on full price sell throughs and growing categories, not just accessories as we talked about in our in our.
Our long term strategies.
We see opportunity to.
To grow some of our ready to wear businesses men's accessories. So the complexion.
On Michael Kors is going to field.
Yeah.
Different from that standpoint.
And as it relates to fiscal year 2023, I think that's too early for us to to point to that obviously the first quarter was was well ahead of our expectations I'm Tom mentioned in his prepared.
Prepared remarks, we're seeing continued strength in the second quarter.
On the back half of the year, we've just got to see how you know some are closures look or restrictions.
As this delta kind of moves through some of the some of the economies around the world we.
We feel quite.
Optimistic that even if there are bumps you know over the next 345 months of debt.
We think the world is on its way to recovery.
And again, we think that our products are resonating with the consumers are we took on brand strategies are really are quite.
And as you know we talked about we did not change our brand strategies as we went through Covid, We did decided with Michael Kors to make things a bit more of a.
Smaller and more focused but if versace and Jimmy Choo, we never.
It appeared from what we were trying to achieve.
So I think it all bodes well for the future and.
And I think the results are kind of speaking for themselves.
For the question Mike.
Okay. Thank you.
Our next question is from Matthew Boss with JP Morgan. Please proceed.
Thanks, and congrats on a great quarter.
So.
And maybe 2 part question on operating margin Tom as we think about the bridge between today at 16% operating margin forecast for the year relative to the 14 per cent prior.
Have you changed back half assumptions at all really today or is this really first and second quarter and then John on the continued digital.
And then the sequential improvement that we're seeing in brick and mortar as the world Reopens I guess, maybe larger picture wearing.
Where are you most optimistic across the brand portfolio as we think about changes in customer behavior. After the pandemic relative to before.
Matt.
Matt Thanks for the question and looking at the operating margin going from our prior guidance of 14%. We were really pleased to increase it to 16 and its really a combination of factors. It is.
Over delivery in Q1.
In Q2, as we look at that quarter. When we look at the back half of the year I would say we're reinvesting.
Some of the benefit that we saw in lower spending lower expenses in the first quarter into the back part of the year. So that's about $25 million to $30 million and we want to reinvest in order to drive the business and continue to position us to further build momentum into fiscal year 'twenty..3 so I think that this is a balance.
We're very pleased to be increasing the guidance, but also want to make sure. We're doing the right things to support our business to achieve that longer term growth were expected deliver double digit revenue growth and mid teens earnings per share growth over a longer period of time.
Yeah.
Good morning, Matt.
So so.
Great question, you asked by the way.
Which really dovetails into Tom's remarks, just now.
The obviously the e-commerce business for us growth.
<unk> rapidly.
Basically in every region of the world.
We want to continue to.
Spend the money to fuel that business and what's great about that as we get a fee.
Few things first off we drive customer engagement second.
Secondly, we build our databases and we think we've got a fairly sophisticated.
Hum.
Yeah.
Team, that's working with our data analytics and the way that we're working on 2.
To drive our customer growth and engagement as I said.
All of that is something that I think we have a pretty good idea on how we can do and we've got a good feeling for that.
And all <unk>.
The brands really were able to you know adverse Archie we can grow these accessories too.
Said in my prepared from our civilian.
And that's a very realistic number.
And if we look at the penetration of where that is even on our E. Commerce channel today from Versace, we have so much room to grow.
We can drive that business.
3 of them at Jimmy Choo same thing accessories, and and are on our footwear on our casual footwear capabilities at Michael Kors.
Really a huge opportunity in our ready to wear categories online in particular.
Where those could be much bigger percentages of our business and also very.
Profitable for us So I think we feel good about R. R.
Our capabilities from a digital standpoint, we feel good about our capabilities from an omni standpoint, and we've made those investments over the last few years, we're continuing to make a lot of investments around that.
On brick and mortar we're pleased with what we see happening in North America.
In terms of traffic also happy with what we see happening in China.
Again, Europe, we all wish things would go a little faster, we're just going to be.
That's going to depend on how countries open up and how the new Green passport for Europe, really works and allowing people to move.
Country to country.
So I'd say, we're optimistic but cautiously optimistic on the on the actual brick and mortar traffic part.
The business hopefully will see Europe have that same kind of lift that we're seeing in North America.
Thanks, Matt.
Okay.
Our next question is from Lorraine Hutchinson with Bank of America. Please proceed.
Thanks, Good morning.
I just wanted to ask just follow up a little bit on the reinvestment.
On a lot at the analyst day about reinvesting.
Sales upside into marketing and it sounds like Youre doing that for some of it but as we think about the rest of the year should we continue to think about any further upside being reinvested or do you feel like you have a good enough base in terms of the store openings. The marketing campaigns that you have planned for the remainder of the year.
And Lorraine I think you know.
We're.
Obviously very pleased with our revenue growth and our earnings per share growth on our operating margin growth et cetera.
So I don't think we have a absolute desperate need to see the operating.
Margin expand beyond this new 16% guidance and then truthfully, if we saw <unk>.
Significant revenue upside again over the next few quarters.
I don't know that we would have 1.
100% flow it all through we might spend more on overall marketing and brand building and.
And other initiatives.
For the company.
I think that what we wanted to do is to continue to build for 2023.2024.
Yes.
I've said to you on our Investor day, we're going to do over $7 billion with this company and there's more to come even beyond that.
When you look at.
Initially, we're just gonna do over $1 billion this year.
And when we look at our projections things are looking really good for that but that luxury house things are picking up at Jimmy Choo. So you know in our business you need to invest to to continue to grow your business and I think that's the smart thing.
For us to do and hopefully if we continue to see the type of sell throughs that we've seen across the group.
Hopefully, you'll you'll see some of that also flow to the bottom line, but I don't think that's our absolute priority right now our absolute priority is to continue to.
Make sure that all 3 of these luxury houses are building stronger and stronger.
Stronger basis, so that as we look out into the future we will be looking at a much bigger number than $7 billion in terms of revenue and you know.
As we've said long term operating margins that will hopefully have something with a 2 plus in front of it.
Thank you Laurie.
Okay. Thanks.
Our next question is from.
Paul <unk> with Citigroup. Please proceed.
Hey, Thanks, It's Tracy Kogan filling in for Paul.
Was wondering why.
You are currently seeing in QQ you mentioned.
Revenues were strong, but you are guiding a quarter or 2 I think down 13% versus 2 years.
Which is a pretty big deceleration versus what you saw on <unk>. So just wondering if what you're seeing now is what you're guiding to or if you're just assuming that things moderate as the quarter progresses. Thanks.
Tracy I'm going to let Tom touched on that but remember you can't go by what happened in Q1 Q1.
You know most of the world.
It was completely shut down so I think while we're extremely proud of and I think we've had 1 of the best performances of luxury group globally.
By the by the results.
I think that you know.
We were up against some some some.
Major closures again Q2.
Do we have to be cautious Europe is not open Japan has closed most of southeast Asia is either under locked down or well stores, maybe open there's very little business transacting, there Australia, starting lockdowns we.
We have big international businesses, and while North America is really robust.
Just as we said in our <unk>.
Remarks in China is moving ahead very nicely, we've got some other issues still to deal with it. So I think we need to be we need to be very cautious but at the same point in time, we said.
We're off to a good start on the quarter and we and we like the way the consumers.
<unk> is responding to.
2.2 are product from all 3 of the luxury houses.
Tom do you want to comment on sure and Tracy I just.
Refer on radiate something that John mentioned, a little earlier that having reset our business strategies and objectives and in particular for Michael Kors, We really do believe the.
As the more appropriate benchmark to evaluate our progress and with Michael Kors, We're planning for a smaller but more profitable business in these quarterly fluctuations versus Earl y.
Really hard to look at because of wholesale already planning to be lower and wholesale of course was up a lot in Q.
1.
So.
The variations are really wholesale driven when we look at retail it continues to improve on a sequential basis across our houses and we expect that trend in retail to continue in Q2.
And 1 last thing Tracy.
We promised some time ago.
<unk> for fiscal 'twenty, 3 we would be above pre pandemic revenue at above pre pandemic.
Earnings per share on the earnings per share side, we're gonna be ahead of our original expectations. So we're really pleased with our profitability. Obviously, we've got a lot more runway to go with profitability and you can you can understand that because as we as.
So it was increase we're going to create leverage yes, we're going to spend some of that on marketing, but as we get into 'twenty, 3 and whatnot, we're going to create a lot of leverage and we think that's going to be.
Sitting for the group and for our shareholders. Thank you Tracy.
Great. Thank you.
Our next question is from Simeon Siegel.
As our revenue with BMO capital markets. Please proceed.
Thanks, Hi, everyone. Good morning, Congrats on a nice really nice results Hey, John did you say how was AUR. This quarter could you share your perspectives on maybe just the broader promotional landscape now and how do you think that'll look into holiday and then to the point about the walking jewelry strength just any color you can talk to us about broader licensing.
Over the quarter, and then where do you see that going over the year. Thank you.
Sure, Thanks, Simeon and good morning.
You know, we made a decision really going back kind of almost 2 years ago.
That we were going to.
Walk away from trying to chase every.
Competitive environment situation around promotional activity and we've stayed firm to that commitment.
I think what we know and I don't think I know I know that what youre seeing in the gross margin performance is not only full quote full price sell through but it's just when.
We've got considerably less activity.
Around certain discounting that we did really it was a more of a north American situation.
Second which is a huge issue we don't have the inventory to do that and so.
I can answer the question for everyone right now because I keep hearing this question come up.
It's not going on.
If our competitors do it it doesn't matter, we don't have the inventory to do it so it won't happen.
And not only that we just don't want to do it anymore.
On the opposite direction as you've heard we're raising prices on Michael Kors and by the way I mentioned on our previous call were going to raise prices again for spring season.
I don't carrier price, they're going to go up considerably.
And also in Jimmy Choo, we've talked about that as well. So we're going the opposite direction and I hope I can kind of close the door on that on that conversation because I don't I don't think it's a I don't think the I know everyone's waiting for that to happen again that won't happen for us.
Next given the way we've purchased product what product is flowing today and given where we think on our brand is positioning we're going up not down.
So that's really our clarity on on that topic.
Oh on watches and jewelry I'm, sorry watches enjoy Wow Wow, it's all I can say is wow.
I'm.
What's happened.
But in our brand new flagship store in Paris, and same thing we are hearing in North America that I commented to you about in the last call. It's definitely new customer. So all of our very kind of bold Michael Kors watches in particular.
Really the more expensive.
Watches are selling through very very very strong and that's a result of a younger customer who is really finding Michael kors and that's what we're finding really almost globally. It's a new generation has discovered us. It's almost you know to them or a new brand and.
Shoppers, who are really driving our signature business and accessories, our watch business.
And interestingly, our jewelry business as you probably are aware, we exited what we considered to be the fashion jewelry business and went to a sterling silver.
Product line, which is more elevated works a lot more expensive.
And they're the ones that is doing really really well globally. So we finally got some nice traction on that business, both on our own stores and at the and on our.
Wholesale partners around the world.
So good things are going to come for us and I want to thank you. Thank our partners at fossil and.
And last thing I'll just mention is for the group.
Licensing revenues were up very significantly.
As I've commented before we have 1 of the largest fragrance businesses in the world with Versace and our partners at your Italian have done an amazing job on our businesses.
<unk> above L L y.
And the same Michael Kors our businesses.
Is really up I don't know 50, 60% in fragrance with the new launch.
Of our new pillar and so all things are really clicking for us on our license business and we're pleased to see that on a global basis. Thank.
Thank you very much perfect.
Thanks, So much guys best of luck of the year.
Thanks.
Our next question is from Erinn Murphy with Piper Sandler. Please proceed.
Great. Thanks, Good morning, I wanted to follow up on births Sochi, and specifically just on the margin profile June historically is not the biggest quarter, but you're.
Already at 20% EBIT, John So curious if theres any changes.
Changes of how youre thinking about the longer term 20 per cent guide, particularly given how robust the demand has been across accessories. I know, it's early days, but you're clearly building a pretty robust platform. There. Thanks so much.
Well Erin.
I'm not surprised you asked that question because we were preparing for it we knew.
We'd be asking that question and kind of ask ourselves that question obviously.
Just left our CEO, Jonathan Aykroyd here in Paris and.
Look we know what our competition does and we know they're really strong competitors are 20 between 20.
25, and 40% operating margin.
As I've mentioned on on our on our Investor Day, I believe 1 of the biggest.
Things that will create leverage at Versace.
Is higher revenues in our in our flagship stores, we have the right locations. We have the right amount of space, we don't need to build.
Bigger are.
We could literally do 4 times more business in every 1 of our stores and still not be probably half the.
Dollars per square foot of our competition.
That shows you how much runway we have on.
To really go at Versace, and you know the numbers of R. R.
Competitors.
And so again, we have a very tight store base today over little over 200, we will get to 300 over time, but that's going to be super tight we're looking at productivity and as we drive that productivity, we will drive profitability.
And again.
I.
They were surprised we're presently we're pleased that we're moving much quicker on the accessories than we thought.
So so if that continues on like this.
The obvious answer is yes, we're going to move quicker than what we thought.
And that will be presented at our Investor day, but I think we've got it again.
B B B b.
Our cautious we're still not out of the woods, such as a very big business in Europe, and we've got to get consumers back into the stores in Europe.
Where that's not the case here.
And when we see that youre going to see a very very big a lift again in operating.
Don't want to sit for Versace. So I think it's a great question, you asked and we're definitely seeing a path to that 20% operating margin for Versace.
Can't say, whether it's gonna be quicker or not but I think we're much much more confident.
Over the last.
90 days ago.
We need to see like rock up get into the stores and see how that does but if it if it does and it gets in and it clicks then that were really will be off to the races.
Thank you on.
Thank you.
Yeah me too.
A question and answer session I would like to turn the conference back over to management for closing remarks.
I want to thank you all for joining us today on on our.
First quarter earnings call I would like to most importantly say thank you to all of our management and employees around the world. Our results are a direct reflection of all of the hard work and energy that they put forth.
Fourth and without them, we would not be achieving the success that we're having today. So I want to thank them in particular and I'd like to thank everyone else for joining us today.
Stay safe.
Thank you this guidance.
Today's conference you may disconnect your lines at this time and thank you for your participation.
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Uh huh.
Okay.
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