Q3 2025 Capri Holdings Ltd Earnings Call
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Speaker Change: Greetings and welcome to the Capri Holdings Limited 3rd Quarter Fiscal 2025 Financial Results Conference Call.
At this time, all participants are in a listen-only mode.
Speaker Change: A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Jennifer Davis, Vice President of IR. Please go ahead.
Jennifer Davis: Good morning, everyone, and thank you for joining us on Capri Holdings Limited's third quarter fiscal 2025 conference call. With me this morning are Chairman and Chief Executive Officer John Idle and Chief Financial and Chief Operating Officer Tom Edwards.
Speaker Change: 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.
Speaker Change: Those risks and uncertainties are described in today's press release and in the company's SEC filings, which are available on the company's website.
Speaker Change: Unless otherwise noted, all financial information on today's call will be presented on a non-GAAP basis.
Speaker Change: These non-GAAP measures exclude certain costs associated with impairment charges, restructuring and other charges, ERP implementation costs, CAPRI transformation costs, and costs related to the previously terminated merger with Tapestry, Inc.
Speaker Change: To view the corresponding GAAP measures and related reconciliation, please review our latest earnings release posted to our website earlier today at capreholdings.com. Now I would like to turn the call over to Mr. John Idle, Chairman and Chief Executive Officer.
Thank you, Jennifer, and good morning, everyone.
Overall, our business remained challenged during the quarter.
and we are disappointed with our results.
since the termination of the merger agreement.
We have re-evaluated our strategic initiatives and long-term growth plans.
Speaker Change: We look forward to sharing details about our strategies to improve current sales trends and drive future growth at our upcoming Investor Day on February 19th.
Speaker Change: However, because we are still in the early stages of execution, our near-term performance will remain challenged.
Entering 2025, we are optimistic about our path forward.
Speaker Change: The past year and a half has provided us with valuable insights that are shaping a promising future.
Speaker Change: Looking ahead, we expect trends to improve throughout fiscal year 2026, positioning us to return to growth in fiscal 2027 and beyond.
Speaker Change: Now, I would like to turn to our third quarter performance in more detail.
Speaker Change: Revenue decreased 12% as our results were impacted by softening demand for fashion luxury goods globally with an outsized decline in China.
Speaker Change: Our performance was further impacted by our store optimization program, as well as our ongoing reductions in the wholesale challenge.
Speaker Change: At the same time, we made a number of missteps in our efforts to reposition our brands, in particular at Versace and Michael Kors, that negatively impacted our results.
Now looking at third quarter revenue trends by brand.
starting with Versace.
Speaker Change: Revenue decreased 15% compared to prior year as results were affected by the decline in global demand for fashion luxury goods.
Speaker Change: Additionally, in fall of 2023, we began to reposition the brand to place greater emphasis on luxury and craftsmanship.
which was more in line with the quiet luxury trend.
Speaker Change: We have been pleased with many aspects of our repositioning efforts.
Our VIC consumers have grown at a double-digit rate.
as they have responded positively to the more sophisticated offerings.
Speaker Change: Also, as part of our elevation strategy, we reduced end-of-season markdown rates in our stores beginning with our Spring-Summer 2024 assortment.
Speaker Change: This included the elimination of markdowns and accessories as well as containment of overall markdown rates in our full-price stores.
While this has had a near-term impact on Versace's revenue,
Speaker Change: AUR increased mid-single digits in our full price channel in the quarter, better positioning the brand for healthier, sustainable future growth.
We also made missteps in some of our
Speaker Change: While elevating the assortment, we believed we removed too many unique Versace statement items.
Thank you.
Speaker Change: Additionally, we significantly reduced our offerings of products at entry-level luxury price points.
Speaker Change: This impacted our retail sales, but had a more significant impact on our wholesale business.
Speaker Change: Going forward, we will focus on injecting more energy into Versace's assortment to achieve the ideal balance of fun and elegant styling.
Speaker Change: You will see more of this product flow into stores throughout fiscal 2026.
Furthermore, after reviewing our pricing architecture.
Speaker Change: we will be introducing a wider offering of product to appeal to a broader base of luxury consumers.
Speaker Change: Both of these initiatives will help us engage with consumers and drive higher full-price sell-throughs.
Speaker Change: For holiday, we were able to affect a limited group of products, including accessories and sneakers.
Speaker Change: For example, in November, we launched playful new bag styles to appeal to a broader luxury consumer and saw a positive inflection in women's accessories in our own retail channel.
Speaker Change: Another key indicator of strength of the Versace brand is the success of our eyewear and fragrance businesses.
Eyewear continues to experience growth.
Speaker Change: Ramy award-winning singer-songwriter Sabrina Carpenter and NBA basketball star Alexander Saar both appeared in the new Biggie Eyewear campaign.
which generated strong consumer demand.
Our fragrance business also continues to
Speaker Change: Third quarter results were driven by the highly successful launch of our latest Eros Energy Men's Fragrance featuring Channing Tatum as the face of the campaign.
moving to brand awareness and consumer engagement.
Speaker Change: Versace continued to benefit from high levels of brand awareness and engagement.
through its fall-winter campaign.
which channeled elevated energy.
Speaker Change: the iconic hallways and rooms of the Chateau Marmont Hotel in Los Angeles.
Speaker Change: were used as a backdrop to highlight the collection's luxurious, strong fashion point of view.
Speaker Change: For Holiday, communication efforts focused on giftable items, including the launch of our new tag bag.
Speaker Change: These activities help contribute to a 15% year-over-year increase in Versace's global consumer database.
Speaker Change: We believe we have the key building blocks and initiatives in place to realize the full potential of this incredible brand.
Speaker Change: To return Versace to growth, we are focusing on continuing to leverage our strong brand awareness to drive consumer engagement.
Speaker Change: Expanding our product offering to inject more energy and re-engage with the aspirational luxury consumer.
improving store productivity and returning our wholesale business to growth.
Speaker Change: Moving to Jimmy Choo. Revenue decreased 4% compared to prior year as results were impacted by a global slowdown in demand for fashion luxury goods.
Speaker Change: Our product strategy remains focused on further developing accessories and expanding Jimmy Choo's casual footwear offering.
Speaker Change: In terms of accessories, we continue to believe the category can expand to 30-35% of the mix from approximately 23% today.
Speaker Change: We have seen strong performance in the Cinch Bag, the newest addition to the BondMod family.
Speaker Change: During the third quarter, women's accessories performed well with sales in our retail channel up high single digits.
Speaker Change: We have also been pleased with the response to our expanding casual assortment.
Speaker Change: During the third quarter, casual footwear sales in our retail channel increased low double digits versus prior year.
Now turning to brand awareness and consumer engagement.
Speaker Change: In October Jimmy Choo launched a second capsule collection with the Japanese animated series Sailor Moon.
Speaker Change: Featuring a curated selection of accessories and footwear, the collection achieved exceptional sell-through rates.
Speaker Change: It also generated significant engagement across social media, resulting in approximately 12 million impressions.
Speaker Change: For winter, Jimmy Choo's campaign embodied the vibrant energy and festive spirit of the holiday season.
Shot at location in Le Carmen in Paris.
Speaker Change: The decadent interior provided a glamorous stage for the texture-rich winter collection.
Speaker Change: Jimmy Choo also launched a playful social first video series starring Kim Cattrall.
Speaker Change: The campaign, which referenced the brand's cultural legacy from Sex and the City, helped drive awareness for the opening of the new Madison Avenue flagship boutique and drove over 4 million views.
Our marketing initiatives continue to underpin our focus on Glamour.
Speaker Change: This helped contribute to a 12% year-over-year increase in Jimmy Choo's global consumer database.
Speaker Change: Looking forward, we are confident that we have the foundational elements and strategies needed to fully harness the potential of Jimmy Choo.
Speaker Change: To accelerate growth, we are focusing on engaging and energizing both new and loyal consumers.
broadening our product offering in accessories and casual footwear.
improving store productivity, and stabilizing our wholesale business.
Now turning to Michael Kors.
Speaker Change: Revenue decreased 12% compared to prior year due to softening demand for fashion luxury goods globally.
Speaker Change: Results were further impacted by our store optimization program, as well as by continued reductions in the wholesale channel.
Speaker Change: In the fall of 2023, we began implementing a comprehensive transformation plan.
Speaker Change: As part of this plan, we aim to appeal to a younger audience, attempted to elevate price points too quickly, and significantly reduced our signature product offering, while injecting too much fashion for our core consumer.
Speaker Change: Our data analytics and consumer feedback indicated that this plan was not gaining traction and alienating our core consumers.
Speaker Change: Going forward, we are refocusing on the heritage of the Michael Kors brand.
Speaker Change: adjusting our pricing architecture to align with historical levels, and rebuilding our core and signature assortments to achieve a more balanced product mix.
Speaker Change: Given our lead times, the product for fall and holiday reflected the strategies of the previous plan.
Speaker Change: While we implemented some minor adjustments to the holiday assortments, the most significant changes will begin to take shape in the spring and become more pronounced by fall 2025.
Speaker Change: For Holiday, we strategically realigned the pricing of several key bag styles to reflect the price points more in line with historical levels.
Speaker Change: This led to an increase in full price sell-through rates on those styles.
Speaker Change: Turning to eyewear and fragrance which are key indicators of the strength of the Michael Kors brand.
Eyewear continued to experience growth.
Speaker Change: Additionally, we saw strong growth in fragrance with the launch of Michael Kors new signature fragrances.
This is our first fragrance with Euro Italia.
Speaker Change: which introduces both women's and men's fragrance that evokes the sense of luxury and escape.
The results of this launch exceeded our expectations.
Now turning to brand awareness and consumer engagement.
Speaker Change: Michael Kors remains a powerful brand that resonates with consumers as evidenced by the 11% year-over-year increase in our database.
Speaker Change: Looking ahead, we are excited to unveil our dynamic new marketing plans which reconnect with the heritage of the Michael Kors brand by celebrating a modern interpretation of the Jet Set lifestyle.
Speaker Change: We are elevating our campaigns by showcasing luxury destinations around the globe and celebrating our new vision, traveling the world in style.
Speaker Change: The spring campaign, set to launch later this month, was shot in Ibiza and features English actress and singer Suki Waterhouse.
evoking the essence of the Michael Kors Jet Set lifestyle.
Speaker Change: Michael Kors has a strong heritage and we are eager to build on this solid foundation.
Speaker Change: Thanks to the insights we have gained from our data analytics and consumer feedback, we believe we have the right strategies underway to return the brand to growth over time.
Speaker Change: Going forward, we are focusing on implementing dynamic new marketing plans that modernize our Jet Set heritage.
Optimizing the balance between our fashion and core offerings.
Speaker Change: creating exciting product with compelling value to drive higher full price sell-throughs.
Improving store productivity through our optimization and renovation programs.
and stabilizing our wholesale business.
Speaker Change: In conclusion, I remain optimistic about Capri's future for several reasons.
Speaker Change: First, we have three incredible fashion luxury brands with Versace, Jimmy Choo, and Michael Kors.
Our brands are globally recognized and deeply resonate with consumers.
Second, we have a solid distribution network to build upon.
Speaker Change: with 1,200 luxury retail locations globally, combined with our robust digital platform.
We have a strong framework for the future.
Speaker Change: Additionally, our extensive wholesale network serves as an important channel to reach consumers in areas where we do not have our own stores.
Speaker Change: Third, we have the management team, design talent, and global workforce of dedicated employees to successfully execute our initiatives.
Speaker Change: Fourth, Capri has the financial strength to implement our strategies which we will share at our upcoming Investor Day.
Tom Edwards: Now, I'd like to turn the call over to Tom to discuss our results and future outlook in more detail.
Tom Edwards: Thank you, John, and good morning everyone. Overall, our business remained challenged during the quarter and we are disappointed with our results.
Tom Edwards: We recognize that this performance does not reflect the true potential of our three iconic luxury houses.
Tom Edwards: Our results were impacted by the overall slowdown in the fashion luxury market, as well as by some of the strategic initiatives we previously put in place at Versace and Michael Kors that did not perform as expected.
Tom Edwards: Since the termination of the merger agreement, we have re-evaluated our strategic initiatives and long-term growth plans.
Tom Edwards: We look forward to providing a more detailed update on our plans at our upcoming Investor Day.
Now, turning to third quarter results in more detail.
Tom Edwards: Total company revenue of $1.3 billion decreased 12% versus prior year. By channel, total company retail sales declined low double digits with e-commerce down high single digits.
Tom Edwards: The impact of our store optimization program negatively impacted retail sales in the low single-digit range.
Tom Edwards: In the wholesale channel, revenue declined low teens due to overall softness in the channel as well as our prior initiatives to reduce our wholesale exposure.
Turning to Revenue Performance by Geography.
In the Americas, revenue decreased 11 percent.
In EMEA, revenue declined 9%.
In Asia, revenue decreased 20 percent.
Now looking at revenue performance by brand.
Tom Edwards: At Versace, revenue declined 15% compared to prior year. Global retail sales decreased low teens while wholesale declined double digits.
Tom Edwards: By geography, total Versace revenue in the Americas decreased 21 percent.
Tom Edwards: Revenue in EMEA declined 13%, while revenue in Asia decreased 11%.
Thank you.
At Jimmy Choo, revenue decreased 4% compared to prior year.
Tom Edwards: Global retail sales were approximately flat the last year, while wholesale declined mid-teens.
By geography, total revenue in the Americas decreased 10 percent.
Tom Edwards: Revenue in India increased 9%, while revenue in Asia declined 17%.
Tom Edwards: At Michael Kors, revenue decreased 12% compared to prior year. Global retail sales decreased low teens while wholesale declined high single digits.
Tom Edwards: By geography, sales in the Americas decreased 10 percent, revenue in EMEA declined 13 percent, while revenue in Asia decreased 27 percent.
Now, looking at total company margin performance.
Tom Edwards: Gross margin of 64.4% declined 60 basis points to prior year. The decline was primarily due to lower full price sell-throughs across the group.
Tom Edwards: Operating expense decreased 20 million as we continue to realize the benefits of our cost reduction program. As a percent of revenue, operating expense was 58.4 percent compared to 53 percent last year, primarily reflecting expense de-leverage on lower revenue.
Tom Edwards: Total company operating margin was 6% compared to 12.1% last year.
Tom Edwards: By brand, Versace operating margin of negative 10.9% compared to negative 6.2% last year.
Tom Edwards: Jimmy Choo operating margin of negative 3.8% compared to positive 2.4% last year.
Tom Edwards: And Michael Khor's operating margin of 16.2% compared to 21.2% last year.
Tom Edwards: The declines across all brands were primarily due to expense de-leverage on lower revenue.
Tom Edwards: Our tax rate for the quarter was 9.8% compared to last year's rate of 17.9%, primarily due to the global mix of earnings and the lapping of a one-time Italian tax reserve established in the third quarter last year.
Tom Edwards: Net income was $54 million, or $0.45 per diluted share. This included $23 million, or $0.19 of foreign currency losses.
Tom Edwards: Now that we have completed the review of Capri Holdings adjusted non-GAAP P&L results,
Tom Edwards: I would like to briefly comment on the brand intangible and goodwill impairment charges associated with Versace and Jimmy Choo.
Tom Edwards: These non-cash accounting adjustments were the result of more modest revenue and earnings growth rate expectations.
Tom Edwards: We continue to believe in the long-term growth opportunities at both Versace and Jimmy Choo.
Tom Edwards: Now, turning to our balance sheet, we ended the quarter with cash of $356 million and debt of $1.48 billion, resulting in net debt of $1.12 billion. Our strong balance sheet and free cash flow generation provide us with the resources to execute our strategic initiatives.
Tom Edwards: Looking at inventory, we ended the quarter with $892 million, a 13% decrease over last year, reflecting our ongoing diligent inventory management.
Now, turning to guidance.
Tom Edwards: Looking at the fourth quarter, we are in the early stages of executing our new strategic initiatives to improve current sales trends and drive future growth. We anticipate fourth quarter revenue will decline 20% to $975 million.
Tom Edwards: This includes a foreign currency headwind of approximately $25 million and an impact from store closures related to our optimization program of approximately $15 million.
Tom Edwards: Looking at retail, we forecast sales in the fourth quarter will decline in the mid-teens. Excluding the impact of foreign currency and store closures, we anticipate retail sales in the fourth quarter will decline at a similar rate to the third quarter.
Thank you.
Tom Edwards: In the wholesale channel, we forecast a decline of approximately 30%.
Tom Edwards: We anticipate the fourth quarter will reflect the greatest wholesale quarterly decline and decreases will moderate as our efforts to stabilize the channel gain traction.
Tom Edwards: By brand, we anticipate Versace revenue of approximately $200 million. We expect foreign currency to negatively impact sales by approximately $7 million.
Tom Edwards: Jimmy Choo revenue of approximately 125 million. We expect foreign currency to negatively impact sales by approximately 5 million.
Tom Edwards: And Michael Kors revenue of approximately $650 million. We expect foreign currency to negatively impact sales by approximately $13 million.
Tom Edwards: Turning to gross margin we forecast fourth quarter gross margin to be approximately flat versus prior year.
Tom Edwards: In terms of operating expenses, we anticipate a decline of approximately $50 million in the fourth quarter, resulting in a decrease of over $100 million for the full year.
Tom Edwards: The reduction primarily reflects our cost savings initiatives, including store closures, global headcount reductions, office consolidation, and other efficiency measures across supply chain and back office.
Thank you.
Tom Edwards: As a result, we forecast an operating loss of $25 million in the fourth quarter.
Tom Edwards: By brand, we anticipate Versace operating margin in the negative high single-digit range.
Tom Edwards: Jimmy Chu operating margin in the negative high single-digit range, and Michael Kors operating margin in the positive mid-single-digit range.
Tom Edwards: Based on our fourth quarter expectations, we forecast full year fiscal 2025 revenue of approximately $4.4 billion and operating income of approximately $100 million.
Tom Edwards: In fiscal 2026, we expect revenue to begin to stabilize and margins to expand.
Tom Edwards: Looking at our preliminary expectations, we forecast total company revenue of approximately $4.1 billion.
Tom Edwards: This includes an approximate 100 million negative impact from foreign currency exchange rates, as well as an approximate 60 million impact from planned store closures.
Tom Edwards: Excluding these two items, we expect retail revenue to be approximately flat versus fiscal 2025.
Tom Edwards: We anticipate wholesale revenue will decline low double digits or high single digits in constant currency, which is a significant sequential improvement versus fiscal 25.
Tom Edwards: It will take time for us to re-engage with our partners and align our product offering to better meet the needs of consumers in this channel.
Tom Edwards: That said, we have shown fall 2025 collections for all of our fashion luxury houses to our partners and they have responded positively to the changes we are making in terms of product design and pricing architecture.
Tom Edwards: As we think about the cadence of the year, we anticipate gradual progression as our strategic initiatives gain traction.
By brand, we anticipate Versace revenue of approximately $800 million.
Tom Edwards: We expect foreign currency to negatively impact sales by approximately $25 million.
Tom Edwards: Jimmy Choo revenue of approximately $550 million, we expect foreign currency to negatively impact sales by approximately $15 million.
Tom Edwards: And Michael Kors revenue of approximately $2.75 billion. We expect foreign currency to negatively impact sales by approximately $60 million.
Tom Edwards: Looking at gross margin, we expect modest gross margin expansion in fiscal 2026 with momentum building through the year.
Turning to operating expenses.
Tom Edwards: We expect expenses to decline approximately $200 million, primarily due to $150 million of new cost reduction initiatives.
Tom Edwards: We are taking actions to close additional unprofitable stores, realize supply chain efficiencies, reduce back office operating costs, and implement a new workforce optimization plan.
Tom Edwards: As a result, we expect operating income of approximately $150 million in fiscal 2026.
By brand, we anticipate Versace operating margin of approximately break-even.
Tom Edwards: Jimmy Chiu operating margin down slightly and Michael Kors operating margin in the low double-digit range.
Tom Edwards: Looking to fiscal 2027, with our strategies fully in place, we expect to return to revenue growth. We also anticipate continued operating margin expansion driven by modest gross margin expansion and additional cost reduction initiatives resulting in expense leverage.
Tom Edwards: In conclusion, we remain optimistic about the long-term growth potential for Versace, Jimmy Choo, and Michael Kors as we execute our strategic initiatives.
Tom Edwards: Our powerful brands have enduring value and proven resilience, reinforcing our confidence in their ability to deliver strong revenue and earnings growth over time.
Tom Edwards: We look forward to sharing more details around our growth strategies at our upcoming Investor Day on February 19th.
Now, we will open up the line for questions.
Thank you.
Tom Edwards: Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.
Tom Edwards: A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.
Bye!
Speaker Change: Thank you. Our first question is from Simeon Siegel with BMO Capital Markets. Please proceed with your question.
Simeon Siegel: Thanks. Hey guys, good morning. I'm sure you're thrilled to be taking our collective questions again, but it is very nice to speak to you again.
So...
Speaker Change: John, how do you view the competitive and promotional environment now, maybe versus a couple of years ago? Anything you've seen that's changed, and maybe any noteworthy sell-in or sell-through divergences you're seeing at wholesale? And then, Tom, just the flat gross margin guide for Q4. Any thoughts on gross margin into next year, and maybe what you'd expect net debt to look like within the 2025 and 2026 guidance? Thank you.
Speaker Change: Good morning, good morning, Simeon, and we are excited to be back and speaking to everybody today. I think we have.
Speaker Change: lot more clarity on our strategies moving forward and we're excited to share that with you on February 19th. Not only the guidance that that we talked about today but some additional future guidance.
Speaker Change: as this company returns to revenue growth and to profitability levels that we think are more representative of how these brands should be performing.
Speaker Change: The competitive landscape, I'll start first with the Versace and Jimmy Choo landscape.
Speaker Change: I don't think it's any more or less promotional in that group of European competitors.
I think that we're all obviously.
Speaker Change: feeling the effects of that significant slowdown in China and I don't think we see the recovery yet.
Speaker Change: I think there's a lot of conversation about that it will happen in the second half of next year.
Speaker Change: We think the declines will have a sequential improvement, but we do think there will still be a significant decline in China, in particular in our fiscal year.
Speaker Change: And then in terms of the micro-cores, the more of the American competitors, I would say it's not any more or less, again, promotional. I think the consumer is very choiceful.
Speaker Change: And I think that's what we really learned over the past.
Speaker Change: six months in particular. When you look at the Michael Kors business, unfortunately our AUR is down and I think we talked about that on the previous call where we had raised prices significantly.
Over the last
24 plus months.
Speaker Change: and that was successful coming out of COVID, and then the customer got more and more choiceful. And unfortunately, we had to be more promotional because we had to get to the price points where she would buy the brand. And actually, we're seeing a
Speaker Change: a bit of a crossover in that we now know where she puts the pricing and valuation on the microcores brands.
Speaker Change: very good data analytics and consumer insights around that. And as I said in my prepared remarks, we've seen an inflection where we priced a couple of our handbag groups.
Speaker Change: more at the historical levels of our pricing and she responded.
Speaker Change: very very strongly to that and we've seen the types of full-price sell-throughs that we would like to see.
Speaker Change: So I think that, again, in conclusion, I wouldn't say it's any more or less.
promotional, I think the consumer is very choiceful.
Speaker Change: And I think we have to, and by the way, we see that in the same with Versace and Jimmy Choo where.
Speaker Change: Again, in that business, we lost a bit of the aspirational consumer, I think, for a lot of different reasons.
Speaker Change: one of which was we didn't have enough product for that consumer. So as we look across the group, we've referred to it as our strategic pricing architecture and we'll be more balanced in Versace in particular, Jimmy Choo's more or less there, we'll make a few tweaks.
Speaker Change: And in micro-cores, there's going to be some big changes and we think that's really going to help drive future full-price sell-through and revenue growth. I'll let Tom speak to the wholesale piece.
Tom Edwards: Simeon, if we talk about the gross margin, if you look at Q4, there's some puts and takes in there.
Simeon Siegel: We're seeing some benefits for, as John mentioned, for lower markdowns in store for Versace and other quality of revenue efforts. On the other hand, we still have this product that was bought in for the prior strategy and where we're adjusting pricing for that, that is an offset.
Simeon Siegel: So we expect flat margin in the quarter. As we look at fiscal 26, we do expect margin improvement, modest gross margin improvement, and that will happen as we buy into the new strategy and our new pricing architecture.
Simeon Siegel: So, as that moves through, starting in spring and then more fully in fall and holiday, we expect to see higher full-price sell-throughs and higher AURs, which will then support higher gross margins.
Simeon Siegel: So, we expect a progression there and overall for the year, a modest gross margin improvement.
Speaker Change: Simeon, I don't think I answered the wholesale part of the question, let me just take that for one second. So our wholesale business, if you recall, has been impacted by
really three things. First, we
Speaker Change: raised our prices and changed our strategies really at more at Versace and and Michael Kors and and I would say that had a significant impact.
Speaker Change: our wholesale businesses and our customers not feeling that that was the right strategy for them to develop and grow with.
Speaker Change: Secondly, I think that you're aware that, in particular, in Michael Kors, we reduce distribution points.
Speaker Change: And again, to improve our quality of sale, that was about a $200 million reduction for us in this fiscal year. We would have liked to have seen that flow back into our retail business. That did not.
Speaker Change: But we are carrying forward with that, and that initiative will be finished.
Speaker Change: by the end of this spring season that we're heading into right now. So we think that, and we've shown our lines, as you've heard in Tom's prepared remarks, to our wholesale clients, and they are...
Speaker Change: very pleased with the direction that we have taken with ProductFirst.
Secondly, with price architecture.
And we believe that the wholesale declines will...
Uh, slow.
and in fact, probably in the second half.
Speaker Change: of next year or the upcoming fiscal year will actually be flat slash see some small increases. And so we're already working with our partners on planning that strategy. And I would say.
Speaker Change: we're making good progress, and it's nice to see them coming in here feeling that both the Versace opportunities that we've positioned and the Michael Kors opportunities are something that they want to lean into.
Thank you, Samir.
Speaker Change: Simeon, I'll also handle the debt question. With regard to Q3, we came in below our year-end forecast at $1.1 billion in net debt. We still expect at year-end approximately $1.2 billion normal timing of cash flows and working capital as we buy spring inventory.
Speaker Change: So, continue to expect a similar year-end number that we shared earlier.
for fiscal 26.
Speaker Change: Our business is very strong and we expect to generate strong free cash flow. I would expect the ending debt for Fiscal 26 to be lower and I'd say at this point approximately $200 million.
Speaker Change: But that leaves us plenty of cash to invest in our strategies and to drive the business as we invest in things like data analytics and begin our store renovation program for Michael Kors. So those are of course the first priorities. We will then continue to reduce debt.
As we move forward
Speaker Change: Great. Thanks so much, guys. See you in a couple weeks. Thank you, Tim.
Thank you.
Speaker Change: Thank you. Our next question is from Bob Durble with Guggenheim Partners. Please proceed with your question.
Bob Durble: Hi. Good morning. If I could just follow up a little bit on some of the pricing and strategic pricing initiatives, I guess specifically with Coors and Versace. Can you just talk more around like levels or the changes and the declines or the reductions in AUR, ASP? And then the other question that I have is just around the marketing plans, I think around Coors you mentioned. Is there going to be a big change in level?
Bob Durble: of spend around CORS or it's just a reallocation of the dollars that you're spending? Thanks.
Bob Durble: Thanks for the question, Bob, and good morning. So let me start with the marketing first in CORS. So I think you heard me say in our prepared remarks.
Bob Durble: The company tried to work on something, it was called the Transformation Plan, and I think the intent...
Bob Durble: was good intent, the strategy was not received well by our core customer and quite frankly, different customer that we were trying to reach out to.
after looking at our consumer insights or data analytics.
Bob Durble: The customer really came back to us, and again, we did some outside research as well, and said, this is what we believe Michael Kors stands for.
Bob Durble: And in fact, everyone came back and said, we believe you're a company that's about Jet Set. And we had data from also from some very, very large companies that we partner with on marketing that said it was the.
Bob Durble: third or fourth most searched term for the brand in totality. So after looking at all that data and how the customer reacted to our previous strategy, we have gone back to really celebrate our heritage, which is Jet Set.
Bob Durble: mantra around that it's traveling the world in style and you're going to see all that work on February 19th
Bob Durble: We've also done some consumer research around that, and the sentiment is very positive.
Bob Durble: And it's all looked at through a modern lens. And so we're excited about how we think the customer is going to react to that.
Thank you.
Bob Durble: As it relates to the marketing spend will be, I would say, different from what we've done in the past.
Bob Durble: And, again, I'd rather not get into that detail today, but we'll share that information with you on February 19th as we really lay out our strategies and how we're going to implement.
this jet-set and traveling the world heritage refocus.
Bob Durble: In terms of the pricing, again, what we have seen is that we elevated prices too quickly and that the consumer ultimately wanted us to be at certain price ranges.
Bob Durble: And so therefore, we ended up discounting to get to those price ranges, which obviously had a negative effect, I think, on the brand image and also on the way the customer perceived our product.
Bob Durble: So we went back, we looked at two things. We looked at historical pricing first, and secondly, we actually looked at the out-the-door pricing.
So our AURs were down close to high single digits.
for microcores.
Bob Durble: And we think we'll be able to elevate that to flat or actually growth.
Bob Durble: next year. And it sounds counterintuitive, but actually by lowering certain prices...
Bob Durble: offering more, we have a good, better, best strategy, more in the good and better parts of the line.
and get better full-price sell-throughs, which will mean lower discounting.
Bob Durble: We're starting that process as we speak right now, there will be some negative impact to some of the reduction in discounting around certain, in particular of our full price.
Bob Durble: styles, but we think that's the right direction for us to head in, and also that will, we believe, result in higher gross margins, ultimately, as we have better full-price sell-throughs. And again, you know, I will point out to you.
Bob Durble: two bags that we've seen recently that have had these green shoots that I mentioned before, and that's a Nolita soft shoulder bag that
Bob Durble: Quite frankly, it's $398, but the sell-throughs are very, very strong for us.
Bob Durble: on another bag, which is called Layla, which we just introduced over the past few weeks.
That's a satchel of $258.
Bob Durble: And that's seeing very strong reception from the consumer. So I think where the right price value relationship is, and I would say that's the key to this, the consumer's responding.
Bob Durble: I would like to add one further note as well, because a lot of times we talk about handbags and et cetera in this company, but we have a strong, ready-to-wear business.
And in that area, we raised prices.
30 to 40 percent.
Bob Durble: and those prices will come down 30% to 40%, and you're gonna see probably 65% of that activity happen in the spring season.
Bob Durble: and you'll see it in full place for the fall season. And we believe that's actually going to drive more traffic.
Bob Durble: to our retail stores, as you're probably aware, consumers purchase ready-to-wear on a more frequent basis than they do handbags and footwear.
Bob Durble: And Michael certainly has a style that we think will be representative of something the consumer desires So we're going to lean into ready-to-wear to help us drive our store activities. It's not a change of spacing in our stores It's just a change of pricing and taking us back to our more historical levels
Thank you.
Speaker Change: Thank you. Our next question is from Ike Birchow with Wells Fargo. Please proceed with your question.
Ike Birchow: Hey, good morning everyone. Good to hear from you again. Question for Tom and then a question for John. I guess the revenue trajectory has been a little bumpy the past couple quarters, and then obviously based on the fourth quarter guide, obviously there's channel dynamics I guess.
Ike Birchow: I guess my question is, as we move into the cadence of next year, should everything kind of linearly begin to get less bad, or could we expect more limpiness?
Ike Birchow: And then just a follow-up for John, I guess I'll just ask, there's been speculation around the sale of Versace and or Chu for a few months in editorials and what have you, I mean I guess, are you able to comment there, how should we be thinking about
Ike Birchow: the portfolio, how you're envisioning the portfolio, anything you can share there would be helpful. Thank you.
Ike Birchow: Sure. Hi, Ike. So starting off with the revenue trajectory for 26.
Ike Birchow: I think as we said, we'd see a retail flat that may be slightly positive, excluding FX and the store closure impact. And as our strategies come into place and we're buying into them and getting the right product at the right price, we do expect to see a progression through the year of sales.
Ike Birchow: On wholesale, we are still seeing the tail end of the...
Reducing our distribution.
Ike Birchow: also need to ramp up and selling in for spring and more importantly for fall winter next year. So we'd expect wholesale to start the year negative and then to improve as we get later into the into the year.
And again, just finishing on that, for Q...
four of this year.
Ike Birchow: the greatest impact for the company in revenue decline is on a percentage basis is really the wholesale. So this is gonna be, we believe, our last.
Ike Birchow: very, very large and significant decline in wholesale. Again, we've worked with our partners in the Wholesale Channel, we've been able to affect some of the some of that
Bye-bye.
relationship and the idea of
increasing some of the
Ike Birchow: bookings. You'll see some of that happen in Q1 and it will really accelerate in Q2, Q3 and Q4 next year as we as we'll be able to ship into a lot of the strategies that we've talked about on today's call and that's that's really across the board that's at all three of our of our houses.
Ike Birchow: As it relates to our assets, first and foremost, we're a public company and we always are looking at shareholder value.
Ike Birchow: We know we have two highly valuable assets in Jimmy Choo and Versace. We, like you, have read a lot of the speculation that's been out in the marketplace.
Ike Birchow: I think I said on the last call, we're always going to listen to interested parties who
may or may not have an interest in these assets.
Ike Birchow: Currently, that's not what our strategy is. Currently, our strategy is we're going to build three businesses, and we think, because again, we've got three incredible assets.
Ike Birchow: And, you know, where people are interested in parts or the whole, we will always have that conversation, but that is currently not our focus, or currently our focus is on meeting with you all on February 19th and sharing what our strategies are for growth with three incredible fashion luxury houses.
Bye.
Thanks. Thanks, Mike.
Thank you.
Speaker Change: In the interest of time, we ask that participants limit themselves to one question.
Good morning and thank you for taking our question.
Speaker Change: John, I was hoping you could elaborate on the expectation for retail to improve to flat to slightly positive, excluding FX and some of the store closures.
Speaker Change: Can you help us understand what assumptions are embedded within that, the most important strategies that you are putting into place, and when, and what you are assuming for traffic increases, and the impact of your marketing plans relative to core like-for-like improvements in product.
that you have better visibility to. Thank you.
Good morning, Brooke, and thank you for your question.
Speaker Change: So, Brooke, I would say the first thing always for us is, you know, amazing product.
I'm very
Speaker Change: excited by what our teams have put together at all three of the houses.
Speaker Change: And so I think that we feel that we have a pretty good understanding of what we need to do to excite the customer. We're not going to be perfect at that, but we feel in a much better place than we did a year ago sitting here at this time.
Speaker Change: Secondly, I think the marketing initiatives, and I'll start with Michael Kors.
Speaker Change: As I said to you, we've done a lot of work internally as well as research externally.
Speaker Change: And we think our heritage and leveraging our heritage in a modern way.
Speaker Change: under the modern lens, is going to really have an inflection with how the consumer interacts with the brand.
Speaker Change: That being said, you've seen that all three of our luxury houses have had very strong database growths. So, there's tremendous interest from our customers and the database growths are people who are purchasing from us.
So we're seeing that as a very good lead indicator.
Speaker Change: And I think what we're seeing with, let's call it high single-digit traffic decline that we've seen at many of the brands.
Speaker Change: less so in North America, more so in Asia, et cetera.
Speaker Change: We're looking for that to flatten out next year and that will be driven by our marketing initiatives and how we're bringing people to our stores or to our e-commerce sites. We're going to share more of that with you on February 19th in...
a fairly specific detail.
with each of our CEOs who will be present.
at the presentation and our marketing teams as well.
Speaker Change: So we feel good about that. And then lastly, again, more in Versace and Michael Kors, some of the initiatives we've made in our pricing architecture. I'll give you one good example. In Versace, we've launched a new bag called the Tag Bag.
And the early indications are very, very strong.
It's a little younger in its attitude.
and 12.50 in that range.
And so it's still.
luxury pricing.
Speaker Change: but the more opening price point of luxury, and that's just a balance point that we were missing.
Speaker Change: previously, and now we're getting a very good reaction to that.
Speaker Change: We've introduced a new sneaker called the Galaxia in Versace. It retails for $550. We're off to a terrific start with that product. Again, we're still going to have sneakers that are going to retail for $1,000 as well, but we were probably missing some of that entry level for the more aspirational consumer that we had previously.
Speaker Change: It had a weighting issue in terms of what that looked like in the line. And then lastly, there's going to be a very large strategic move on the men's side in Versace around our silk shirt pricing, which is a very big part of our business in men's.
Speaker Change: And in fact, when we look at the real out-the-door price versus
Speaker Change: What we were trying to sell it at, we're bringing those down in many cases from some 1,500 euros down to 950 euros. And we think we'll get better full-price selling, improve our gross margin, and interestingly enough, some of the early work
Speaker Change: that we've done around that is our AUR actually went up.
Speaker Change: in Versace in the third quarter. And we think that was a lot because we reduced the promotionality and some of the work we did around some of our opening.
Speaker Change: price points. So we think that's going to start to to gain traction as well.
with the consumer.
Speaker Change: And then the last thing is I want to point out in the Michael Kors business in particular,
Speaker Change: I think we mentioned that there was a strategy around reducing our signature, which was a very, very significant part of the MicroKores business.
Speaker Change: we believe that we will be in a very, very strong shape.
Come
Speaker Change: really help enhance the way that consumers experience the microcourse brand. So, we've got a lot of things, Brooke, that we think will help us get there. And, you know, we're going to be coming off of some relatively low...
Speaker Change: comps after the poor performance that we had in 2025. So I think our expectations are modest and I think they're achievable.
Thank you, Brooke.
Thank you so much.
Bye.
Speaker Change: Our next question is from Oliver Chen with TD Cal. Please proceed with your question.
Thank you.
Oliver Chen: Hey, John. You mentioned quiet luxury on the call earlier. Just curious about your thoughts on the evolution of that relative to CORE and Signature and what you're doing at the Michael Kors brand with where you want to go with fashion execution. Also, as you think about outlet versus full price segmentation or thoughts around that, that would be helpful too. Thanks a lot.
I think, as I stated in my opening remarks,
Oliver Chen: It's almost two years ago that we started to really reposition the Versace brand.
Oliver Chen: And we made a decision that we were going to lean into luxury and craftsmanship.
Speaker Change: more the history of the origins when Gianni and Donatella founded the company. And we made quite a statement with our fashion show out in Los Angeles.
Speaker Change: And we believe very, very deeply in that strategy. We are.
Speaker Change: Cleaning up the Versace business. We have some other announcements. We'll make on the next call
Speaker Change: further things that we're doing to position this brand as a pure luxury brand and competing at the at the very highest ends of fashion luxury.
Speaker Change: And we're staying, we're keeping our head down. It's painful, but we're keeping our heads down.
and we're going to stay.
stay the course on that strategy.
Speaker Change: We have a very balanced full-price-to-outlet structure in, I believe, all of our businesses. In Jimmy Choo and in Versace, whether it's in full-price centers, we sit with the best.
Speaker Change: luxury brands, and in the outlet centers we sit with the same as our competitors. So we're, we believe, very tight with our distributions. Both of these companies have
Speaker Change: approximately 220 doors each, and we think that's the right distribution. Ultimately, that could probably be closer to 300 over time, but we're kind of going to keep our head very steady with the stored networks that we have today.
Speaker Change: And there's no question the quiet luxury trend is still in place.
Speaker Change: and you know the brands that are performing extremely well around that initiative. We did quiet Versace down from its positioning when we bought the company. And some of the key indicators, especially the VICs, I think you...
Speaker Change: We saw on our call, it's up over 20% and it's driving huge velocity for us inside the stores. So we know we're doing the right thing. She, and especially the wealthy customer, is leaning into us.
Speaker Change: and we know if we get that right, where we didn't have that right before, and we start to now.
Speaker Change: Turn back on some of the initiatives around the aspirational customer. We think we're going to really see an inflection
Speaker Change: Versace as we move throughout the year next year. And again on our next call we'll explain some of the other positioning things that we're doing that I think will be helpful for you to understand what we're doing at Versace. And then in terms of Michael Kors,
Speaker Change: You know, if you really look at the Michael Kors style and look.
which is more of our historical look.
Speaker Change: It was based on a lot of glamour and a lot of product that really
was right during its time period.
Speaker Change: The transformation that happened at the company was too strong to try to really look at a Gen Z customer in particular, and to try and lean into that much more heavily, and unfortunately that alienated our core customer and some other things.
Speaker Change: But when you look at the product, and it's literally arriving in stores over the next few weeks, and the marketing campaigns, you saw one of the pictures.
Speaker Change: chic and glamorous, probably not with that level of shine, but it's going to be very much about standout style, which you'll hear about at our upcoming Investor Day.
And Michael has been...
Speaker Change: you know, such an incredible talent for over 40 years. He's got a lot to offer for the consumer from a fashion point of view. But Michaels always brings it to you in kind of the most chic perspective.
Speaker Change: We may have lost that over a 18 month period of time. I think it's back. It's going to be back very strong Michael is highly engaged and has a great vision on how and where he wants to take this company So I think you'll see that in in quitely all channels from us
Speaker Change: And again, you've seen us reduce our store fleet. Our ultimate goal is to get down to about 650 stores.
Speaker Change: worldwide and that will be smaller distribution than some of our competitors.
Speaker Change: Also, our wholesale distributions won't be that far off in terms of
of alignment, I'd say, quite frankly, very much the same.
Speaker Change: So we're going to be, you know, if there was ever a concern that this company was overdistributed, I think that's no longer an issue.
Speaker Change: I think we have the right balance of full price and outlet. And lastly, as we talked about in our previous call, we're going to renovate about 150 of our stores. Those will be primarily our full price stores over the next 24 months. We're starting that project literally as we speak.
Speaker Change: And we're excited about the new store concept. And again, we're gonna talk to you a lot about that at our February 19th Investor Day.
Thank you all. Thanks, John.
Bye.
Speaker Change: Thank you. Our next question is from Paul Leshway with Citigroup. Please proceed with your question.
Speaker Change: Hey guys, Tom, I'm curious if you can give a CapEx number for next year, just what you're thinking about. And then John, for me, it's just at a high level. I'm curious if, you know, as you went through the merger.
Speaker Change: period, how much of that distraction and uncertainty contributed to what we're seeing in the business today? Were your hands tied in any way, things you wanted to do, actions you wanted to take that you couldn't?
Speaker Change: You know, what were those and how easy is it to get, you know, get some of that in motion? And is that kind of what we're seeing today? And then just last, any big holes in leadership that still need to be filled that you could share with us?
Bye. Bye.
Good morning, Paul, and thank you for your question.
I'll start with the merger, and again...
Not a lot really too
Speaker Change: comment per se on that, but it was highly distracting for the for the management team.
Speaker Change: And I think as we've said in our previous call and in this call,
Bye.
Speaker Change: There was there was a lot of work and energy and effort that went into.
Speaker Change: the management teams preparing for that potential merger. And so I would just say it's highly, highly distracting and we didn't have as much time to work on our longer term strategies.
Speaker Change: And I would say that there was some confusion about what strategy should I be working on given where the company was going to be at whatever period of time. But we've obviously put that behind us.
Speaker Change: And I think we're super engaged and I have to compliment the senior leadership team at all three of our companies for rebounding very quickly, putting in place strategies that we think are going to drive the business.
Speaker Change: I think Jimmy Choo has always been relatively clear about where they're going to go and how they're going to get there.
Speaker Change: We'd like a few more weddings to happen right now. We'd like people to dress up in a few more high heels, but we're feeling that trend's coming our way. So we're feeling optimistic. As I just mentioned before, the Versace strategy, we feel
quite confident that we're on the right
Speaker Change: path once we really start to anniversary some of the, in particular, some of the quality of sale initiatives.
Speaker Change: And that's, you know, something that goes back to Brooke's question.
Speaker Change: We'll kind of anniversary most of that by the end of calendar year this year.
Speaker Change: Some of that will actually anniversary in the beginning of fall season.
Speaker Change: So we think as the consumer understands that particular full-price channel in Versace, they're not going to see that level of discounting happening. It will start to bear fruit for us.
Speaker Change: And then, lastly, with Michael Kors, I'd say that's where really the biggest...
Speaker Change: strategy changes had to take place and with the ending of the merger it gave us much more confidence.
Speaker Change: to make that move, make it bold, make it quickly, use the data analytics and consumer insights to guide us and quite frankly use Michael's vision to guide us. And if the little tiny green shoots early on or anything between.
Speaker Change: Some of the handbags that we talked about that are getting traction
and some of the consumer wholesale reaction.
Speaker Change: good about the initiatives that we've put in place. And then lastly, in terms of leadership.
Speaker Change: The answer is we lost very few people during the merger.
Speaker Change: And again, I have to say thank you to our global...
teams. They have had a dedication to this company.
And we believe that they will be.
Hopefully, it's part of the secret sauce that will be...
Speaker Change: moving us forward to returning to revenue growth in particular in fiscal 27, but as we as we move towards operating earnings growth in 26.
Speaker Change: our teams will be critical to implementing and making that happen for us.
Speaker Change: So I'll turn it over to Tom for your other question.
Speaker Change: Paul, regarding CapEx, for this year, fiscal 25, we expect to spend approximately 125 million in CapEx.
And that's for systems and store, limited store openings.
Speaker Change: For next year we're looking at about the same range and that will support the beginnings of the Michael Kors Renovation Program for our stores. Some very focused store openings. We're closing many more stores than we'll be opening next year after this year closing.
Over 100. Next year we expect to close approximately 70.
Speaker Change: And then we'll also be investing in areas like e-commerce and data analytics.
So, it's approximately the same year over year.
Thank you, guys. Good luck.
Thank you.
Bye. Bye.
Bye.
Speaker Change: Thank you. Our next question is from Dana Telsey with Telsey Advisory Group. Please proceed with your question.
Dana Telsey: Hi, good morning, everyone. As you think about, and you were just mentioning, Tom, the retail store changes that are going on, how are you thinking about outlet versus full price in terms of what you're opening or closing? And when you think about the marketing spend that you're investing, John, how do you think about it by brand?
Dana Telsey: And are there any other metrics that you're looking at in terms of new customer acquisition that you're targeting to gauge the business as it progresses? Thank you.
Speaker Change: So good morning Dana and and let me start with the stores and Tom was our CapEx Tom was correct.
We're going to continue to invest in upgrades to our.
are
technology inside of our company we've spent
hundreds of millions of dollars over the last few years.
Speaker Change: and in particular on our e-commerce and our data analytics capabilities. And so we're in a very good position there, and we're just going to have to spend less going forward as a percentage because of the amount of effort and technology that we brought into the company over really the past
Speaker Change: two and a half, three years. So we feel good about that.
Speaker Change: number one. Number two, we are going to close some 75 stores next year. The majority of those will be full-price stores and the majority of those will be microcores.
Speaker Change: full-price stores and we think that we again have a very good balance between full-price and outlet stores. We are not opening new outlet stores so the distribution and
Speaker Change: score count that we have today will remain flat over the next few years.
Speaker Change: And we're going to work very hard to, across the group, and we've said this in my prepared remarks and Tom's, we're really looking at, once we finish most of our store closures, which should be by the end of next year,
Speaker Change: next fiscal year, that we're really looking at densities and productivities inside the fleet that we will have. And so the point that I wanted to make is the majority of our CapEx around stores will go to actually store renovations.
Speaker Change: And it's early days, but we are encouraged by the new store concepts and you'll see those.
Speaker Change: At our presentation, we're encouraged by some of the early results.
Speaker Change: that are taking place there. And so we're gonna put more investment as a company into our retail fleets.
Speaker Change: than we will into where we've been outsized investment in IT and technology over the last three years, and now we'll go more into CapEx.
Speaker Change: inside the Michael Kors store fleet in particular. We've really renovated most of the Versace fleet. It's probably 90% renovated. Jimmy Choo's about the same. So we're gonna really target the majority of our investment around the Michael Kors store fleets.
Speaker Change: And then lastly, in terms of marketing spend, depending on the brand, we're spending between seven and 8% on marketing. It can go higher than that, depending on how we see the results of certain initiatives that we're putting forth.
Dana Telsey: And Dana, I would rather leave that piece of the initiatives to our Investor Day, because we have some...
some very interesting tactics that will...
Dana Telsey: Be as forthright with you as we can without sharing too much with our competitors, but we're definitely looking at how we market.
Dana Telsey: through a different lens, even than what we did this past year.
Speaker Change: Thank you Dana and I would like to thank everyone for joining us on this call today. We look forward to seeing you on February 19th to share more of our longer-term strategic
Speaker Change: our longer-term strategies, and additionally we will be speaking to you about some of our longer-term guidance as we return the company to revenue and operating earnings growth. Thank you very much.
Bye.
Speaker Change: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.