Q1 2026 Capri Holdings Limited Earnings Call
Greetings and welcome to the Capri Holdings. Limited first quarter fiscal 2026 Financial results 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 this conference is being recorded, I would now like to turn the conference over to your host Jennifer Davis. Please go ahead. Good morning everyone and thank you for joining us on Capri holding limited first quarter fiscal 26 conference call
With me this morning, our chairman and chief executive officer, John Idol and interim Chief Financial Officer. Raj maida
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 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 today's call.
Financial information on today's call will be presented on a non-gaap basis. These non-gaap measures exclude certain costs associated with Capri transformation costs, restructuring and other charges and transaction related costs.
To view the corresponding Gap measures and related reconciliation. Please view our latest earnings release posted to our website earlier today at Capri holdings.com.
Additionally, the company has classified, the results of operations and cash flows of its Versace business as discontinued operations, unless otherwise noted all information on today's call relates only to continuing operations.
I would also like to note that in today's 8K we included supplemental quarterly segment data for fiscal 2025
Now, I would like to turn the call over to Mr. John Idol, chairman, and chief executive officer.
John.
Thank you, Jennifer and good morning everyone.
We are encouraged by our first quarter results.
Trends, improved sequentially.
Leading to both revenue and earnings per share.
That exceeded our expectations.
This performance demonstrates, the progress. We are making.
as we execute against our strategic initiatives to re-energize our fashion luxury houses,
While still early, we are beginning to see signs that our strategies are working.
although, the global macroeconomic environment remains dynamic,
We are on track to stabilize our business this year, while establishing a strong foundation for a return to growth in fiscal 27.
now, looking at our first quarter results,
Total company Revenue, decreased 6% versus last year.
To 700.
And 97 million on a reported basis.
And earnings per share were fifty cents.
Our results reflected a sequential Improvement in Trends across all regions.
At Michael Kors. First quarter Revenue decreased 6% on a reported basis compared to Prior year.
With similar Trends in both retail and wholesale.
In our retail Channel.
We are starting to see encouraging signs of momentum.
First.
Traffic Trends in our full price stores, improved sequentially.
Second. We achieved stronger full price. Sell throughs on new styles.
And third Aur Trends continue to improve sequentially.
turning positive in our full price channel, for the first time in 3 years,
We view these as early but meaningful indicators that our strategies are gaining traction.
In the wholesale Channel.
Performance at point of sale, improved sequentially.
Wholesale shipments. Also saw a sequential Improvement versus prior quarter, but continue to be impacted by the broad-based softness in the channel.
As well as our prior initiatives, to reduce wholesale exposure.
As a point of reference, we have exited 30% of US Department Store doors over the past year.
We anticipate the majority of wholesale door reductions will be completed by the end of the year.
now, turning to Brand awareness and consumer engagement,
we saw continued positive consumer response to our hotel Story series underscoring The Appeal of our compelling fashion and travel storytelling approach.
The first chapter of Hotel stories took place in Aiza.
At the month of old hotel.
Featuring English actress and singer Suki Waterhouse.
The Narrative captured exciting fashion moments in a Visa.
and at the hotel while celebrating the joy of traveling the world in style,
As we look ahead to fall, the next chapter of Hotel stories will take place in Rome.
Capturing the glamour of the Season through the lens of fashion and culture.
Ations.
And an expanded network of influencers.
we have pivoted our approach to better Leverage, The Power of social media platforms and influencer Partnerships to not only engage with consumers, whenever and wherever they are,
But also to deliver our story through trusted voices, in fashion.
By aligning with relevant influencers and celebrities.
We are creating more authentic brand moments that resonate with our consumers.
we believe our travel, the world in style brand Vision, combined, with our expanded network of influencers,
Is helping us to reignite brand desirability.
According to our consumer insights, we have seen a further, positive shift in brand affinity.
Signaling that our strategies are resonating.
Looking ahead to the fall, we plan to build on this momentum with an expanded influencer strategy designed to not only further extend our reach but also deepen consumer engagement.
But also drive incremental revenue growth.
Additionally, Michael Kors. Once again had a strong Presence at the Met Gala with a number of celebrities wearing Michael's tailored sophisticated styles.
The event, highlighted Michael's leadership in the world of fashion and drove strong consumer engagement.
Generating nearly 6 billion impressions.
The combined power of our hotel stories, narratives.
Global events.
Activations and influencer Partnerships.
Helped amplify our reach.
Enhanced by the utilization of our Advanced data analytics capabilities. These efforts contributed to a 9% year-over-year increase in Michael Kors Global database.
Our data analytics capabilities are reshaping the way we approach marketing.
Enabling us to develop deeper, consumer understandings, anticipate Behavior.
And make more informed strategic decisions.
Now turning to product.
Our strategy is centered around Michael's Design vision.
Delivering exciting fashion with standout Style.
We have also adjusted. Our pricing architecture to align with historic levels.
In accessories.
Consumers continue to respond positively to new introductions that celebrate our iconic brand codes and align with our new strategic pricing architecture.
Groups, including Leila.
Nolita and Bryant.
Are experiencing Strong full price, sell throughs and contributed to a sequential Improvement in accessories, aurs.
Additionally, we saw continued growth in our iconic signature Styles reinforcing their appeal with consumers.
Turning to Footwear Revenue was down double digits during the quarter driven by a sequential decline in the dress category.
Continued to perform better.
During the quarter we began introducing new styles that embody iconic, Michael Kors branding elements and Heritage design details.
Early performance of these Styles has been strong. And we are expanding the assortment to build on this momentum.
Looking at ready to wear revenues, increased driven by higher aurs as consumers responded to Styles, reflecting Michael's, effortless Glamour and Timeless sophistication.
Turning to men's Revenue was approximately flat.
Aurs in our full price Channel were up and improved sequentially.
Consumers, responded positively to the latest, men's sportswear Styles, which reflect the Brand's modern jetset lifestyle.
Next, I'd like to review our Fleet optimization program.
Our retail stores remain. A critical pillar in supporting our sales recovery.
Ating the overall consumer experience.
and revitalizing Michael Kors, sales trajectory
over the next 3 years, we plan to renovate approximately 50% of our store Fleet,
As well as key department, store locations.
We believe that our renovation program will drive higher store productivity.
And we look forward to sharing our progress and results with you in the future.
Additionally, we remain on track to close 75 under productive. Michael Kors stores in fiscal 26.
Following these closures, our store rationalization program.
Will be largely complete.
Looking forward. Michael Kors is a powerful fashion luxury brand with a 444 year Heritage that continues to resonate with consumers.
Building on this.
Legacy and guided by our data analytics and consumer insights.
We believe we have the right strategies underway.
To return the brand to growth and remain optimistic, about our ability to achieve 4 billion in revenues over time.
Now moving to Jimmy Choo.
Which is an iconic brand with a sense of Glamour and a playful daring spirit.
We are focusing our initiatives to leverage the strengths of this highly recognized luxury brand.
First quarter Revenue decreased 6% on a reported basis compared to Prior year.
Retail sales declined. Mid single digits.
While wholesale declined double digits, which was primarily due to shipment phasing.
Looking at Trends in our retail Channel.
First quarter performance, improved sequentially relative to the fourth quarter.
Performance. Also improved sequentially as the quarter progressed driven by the successful launch of new product. Introductions.
Importantly, these styles are driving higher full price, sell throughs and aurs.
In the wholesale Channel Revenue at point of sale, improved sequentially and was flat in North American department stores. Indicating that our new product is resonating with consumers,
Turning to Brand awareness and consumer engagement.
Our storytelling continues to focus on glamour.
Inspiring joy and empowering confidence.
For summer, our initiatives emphasize new seasonal styles featuring American actress and fashion icon Chloe Sevigny.
In June, Jimmy Choo named Chinese actress BU as its new asia-pacific ambassador.
Her debut campaign featured, the launch of the new curve bag.
Which she unveiled to her extensive fan base.
As 1 of China's, most followed actresses booze involvement helped the campaign, reach over 56 million consumers, across social media channels, in asia-pacific alone.
We also continue to extend our reach and deepen consumer engagement through high impact influencer Partnerships. That balance glamour with authenticity,
By collaborating, with style leaders and cultural taste makers. Jimmy Choo is crafting meaningful moments, that resonate with consumers,
The integration of our storytelling Global events activations in influencer Partnerships.
And clienteling initiatives helped amplify our reach.
Enhanced by our data analytics capabilities.
These efforts contributed to a 9%.
Year-over-year increase in Jimmy choos Global consumer database.
Learning to product.
Jimmy choos product strategy remains focused on further developing accessories and expanding our casual Footwear offer
Accessories, we are pleased with recent momentum.
Driven by the continued strong sales of our Bonbon and cinch bags.
Jimmy choos best-selling day bag of all time.
Additionally, towards the end of the quarter, we introduced The Curve group.
With Styles, priced between 595 and 9.95.
While still early, we are encouraged by the strong initial consumer response.
We are equally pleased to see curve, attracting new consumers to the brand.
In the fall, we plan to introduce the bar group and additional collection, within this price range to capture a broader segment of luxury consumers.
With our strong brand equity and design Authority. We Believe Jimmy Choo is well, positioned to capture share within this luxury price segment.
We expect this initiative to drive significant growth in our accessories business over time.
turning to Footwear,
Our dress category remains soft.
We are focused on bringing excitement to this assortment with Innovation and animation.
In May Jimmy Choo launched the archive collection.
A curated edit of read Edition, Footwear styles from the first 5 years of the house.
By fusing Nostalgia and Discovery The Collection resonated with a wide audience from original, Jimmy Choo fans to Millennials and gen Z's.
The Collection delivered, strong sell through rates while also generating over 50 million social media Impressions, highlighting, its strong Market reception and brand residence.
Jimmy choos strategy to expand day and Casual Footwear gain Traction in the first quarter with an increase in full price sales.
We continue to believe there is a meaningful opportunity to expand our offering.
Active Footwear sales in our full price Channel, increased mid single digits driven by strong demand for the vellus and Diamond Flex sneakers.
We are also expanding our casual assortments Beyond active. For example, in June, we introduced the jelly ballerina flat,
Which blends nostalgic design with modern glamour.
Priced at 395, the jelly is experiencing extremely strong, full price, sell throughs and attracting new customers to the brand looking forward. We believe, we are on the right path to unlock Jimmy choos unique potential by expanding its position within the world of fashion luxury.
And ultimately achieving our Revenue Target of 800 million over time.
Conclusion, with the Versace transaction expected to close in the second half of calendar 2025.
We are fully focused on energizing our 2, iconic Brands, Michael Kors and Jimmy Choo.
We are pleased to see early indications that our strategic initiatives are beginning to work.
Looking ahead, we continue to expect Trends to improve in the back, half of fiscal, 26, positioning us to return to growth in fiscal 27.
Long-term, we remain optimistic about the sustainable growth potential of both Michael Kors and Jimmy Choo.
Now, Raj, will review our first quarter results and guidance in more detail.
Thank you, John, and good morning everyone. Before we begin. I would like to remind you that today's Financial results exclude Versace, which was reclassified as a discontinued operation
My discussion today will reflect results from continuing operations and our financial statements have been adjusted for prior periods to exclude Versace. We continue to anticipate the sale of Versace will close in the second half of calendar 2025. Now looking at our first quarter results, total company revenue of 797 million, decreased 6% versus prior year, on a reported basis, and 7.7% in constant currency representing a sequential year-over-year, Improvement relative to the fourth quarter.
Net income was 60 million, resulting in diluted earnings per share of 50 cents.
Performance exceeded our expectations driven. By better than anticipated results at both Michael Kors and Jimmy Choo as our strategic initiatives, begin to take hold results. Also reflect a discrete tax benefit.
Now, turning to first quarter results in more detail.
Starting with Revenue by Channel Total company. Retail sales declined. Mid single digits in the wholesale Channel, Revenue declined, High single digits reflecting, continued broad-based softness in the channel as well as our prior initiatives to reduce wholesale exposure, turning to revenue performance by geography. In the Americas, Revenue decreased 9% Revenue in Amia increased 6%. While Revenue in Asia declined, 15%
Looking at Revenue performance by brand at Michael Kors, Revenue, decreased, 5.9%, compared to Prior year on a reported basis and 7.3% in constant currency.
What will retail and wholesale sales decreased mid single digits.
Store closures, negatively impacted retail sales in the low single digit range.
By geography sales in the Americas, decreased 8% Revenue in Amia increased. 9% while Revenue in Asia declined, 16%
at Jimmy Choo, Revenue decreased 6.4% compared to Prior year on a reported basis and 9.2% in constant currency
Global retail sales declined. Mid single digits and wholesale decreased double digits.
By geography, total revenue in the Americas, decreased 12% Revenue in Amia increased. 1% while Revenue in Asia, decreased 14%
Now looking at total company margin performance, gross, margin of 63% was approximately flat to Prior year, we estimate higher tariffs, negatively impacted gross margin by 30 basis points.
By brand Michael Kors, gross margin of 61.1% compared to 62.1% last year. The decline versus prior year was primarily driven by the impact of our new strategic pricing architecture and tariffs.
Jimmy Choo's gross margin was 70.4%, compared to 67.1% last year.
The increase versus prior year was primarily driven by Channel mix.
Operating expense decreased 22 million, the decline versus prior year was primarily attributable to our cost Reduction Program as a percentage of Revenue. Operating expense was 60.5% compared to 59.5% last year primarily reflecting expense deleverage on Lower Revenue.
Total company operating margin was 2.5% compared to 3.7% last year.
By brand Michael Kors, operating margin of 9.9% compared to 11.1% last year.
And Jimmy 2, operating margin of 2.5% was slightly above prior year.
Our tax rate for the quarter was negative - 36.4% reflecting a tax benefit related to our evaluation allowance due to the mix of earnings across jurisdictions.
Now, turning to our balance sheet, looking at inventory at quarter end inventory, total 779 million a 76 million or 10.8% increase versus prior year.
This increase primarily reflects 50 million of planned earlier, receipts of product.
Additionally, foreign currency exchange rates and tariffs combined increased inventory by approximately $25 million.
Looking ahead. We expect year-over-year. Inventory levels to sequentially decline.
We ended the quarter with cash of 129 million and debt of 1.67 billion resulting in. Net debt of approximately 1.5 billion.
now, turning to guidance while we are encouraged by our first quarter results and the early signs that are strategic initiatives are working the global macroeconomic environment remains dynamic
Involved and tariff rates have increased.
Our updated guidance, reflects incremental tariff rates on imports from China at 30%.
India at 25% the rest of Asia at 19, to 20% and the European Union at 15%
As a result, we now estimate unmitigated, impact of tariffs on products shipped into the United States will increase our cost of goods sold by approximately 85 million in fiscal 2026.
from our prior estimate of approximately 60 million,
As a reminder our sourcing is broadly Diversified with the majority of Michael Kors production originating from Vietnam Cambodia and Indonesia.
Jimmy Choo sources. The vast majority of its products from Italy.
As a note China represents approximately 5% of total Capri us production volumes.
Our Global Supply Chain is highly agile supported by long-standing relationships with our manufacturing Partners. We anticipate offsetting a majority of the impact from tariffs in fiscal 27 to a combination of 1, working with our sourcing Partners to create cost efficiencies.
2 sourcing optimization to minimize tariff exposure, and 3 implementing targeted price increases.
Additionally, the benefits of our strategic initiatives, particularly efforts to drive higher full price sellers will further support gross margin expansion.
Turning to revenue in fiscal 26. We now expect total company Revenue to be between 3.375 and 3.45 billion.
We are raising prior Revenue guidance to reflect the recent weakening of the US dollar as well as our outperformance in the first quarter.
By brand, we expect Michael Kors revenue between approximately 2.8 and 2.875 billion, and Jimmy Choo revenue between 565 and 575 million.
As we think about the Cadence of the year, we anticipate a gradual sequential Improvement in Trends in the back, half of the Year supported by new product deliveries and the growing impact of our marketing initiatives.
For the year. We now expect gross margin of approximately 60.5% to 61% reflecting, higher tariff rates,
We continue to anticipate operating expenses of approximately 2 billion.
We continue to expect full year. Operating income of approximately 100 million reflecting our increased Revenue Outlook and diligent expense management.
By brand, we continue to anticipate Michael Kors, operating margin in the high single digit range.
And Jimmy Choo operating margin in the negative mid. Single digit range.
In terms of non-operating items. We expect net interest income between 85 and 95 million, an effective tax rate in the mid-, teens range and weighted average shares, outstanding of approximately 119 million
As a result, we continue to expect to generate diluted earnings per share between $1.20 and $1.40.
In terms of our Capital, allocation plans are first priority remains to invest in Our Brands through store, renovations to technology, and digital enhancements, as well as other brand building initiatives.
Our second priority is to reduce debt.
And our third priority is to return cash to shareholders via a share repurchase program in the future.
Now, turning the second quarter guidance, we expect total company Revenue to be between 815 and 835 million.
With Michael Kors, revenue between 685 and 700 million, and Jimmy true revenue between 130 and 135 million.
Looking at gross margin. We expect the second quarter, gross margin rate to decline approximately, 250 to 300 basis points impacted by our new strategic pricing architecture and greater tariff. Headwinds
in terms of operating margin, we expect second quarter operating margin to be slightly positive
In the high single digit range, and Jimmy 2 operating margin in the negative. Mid single digit range.
Turning to our expectations around certain non-operating items. We anticipate second quarter, net interest income of approximately, 15 million
we forecast an effective tax rate of approximately 40% in the second quarter due to expected shifts in the geographic mix of earnings and the related valuation allowance impacts
We anticipate weighted average shares, outstanding of approximately 119 million.
As a result, we expect to generate diluted earnings per share of approximately 10 cents to 15 cents.
In closing, we are encouraged by the early signs that are strategic initiatives are working. We anticipate Trends will improve in the back half of fiscal 2026 as our strategic initiatives gain traction.
Looking ahead to fiscal 27. We expect to return to revenue and earnings growth.
Longer term, we remain confident that Capri, Holdings is well, positioned to deliver sustainable growth while increasing shareholder value.
Now we will open up the line for questions.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Please let yourself to 1 question.
You may press *2 if you would 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.
Again, that is star 1 to ask a question.
And we'll go first to Matthew boss with JP Morgan.
Great, thanks. And congrats on the sequential Improvement.
John on on. Michael Kors could you elaborate on recent sell through Trends on product launches across direct to consumer in wholesale, maybe where the product assortment stands today, relative to back half opportunities and any initial signs of a demand elasticity or how best to think about pricing power for the brand.
Good morning. Uh, Matt and, uh,
Thank you for that, nice, comment about our sequential Improvement, um, at Michael Kors. As, you know,
from our previous, uh, calls around October November of last year, we made a uh decision
to First change.
The Strategic, uh uh storytelling around Michael Kors to focus, uh, again on jetset, but through a modern lens and that, uh, was through our hotel stories and traveling the world and style.
So, the first uh uh results are that we're seeing consumers, very much engage with that storytelling.
The second thing that we did, uh, was we changed our marketing approach, uh, and leaned much more heavily, uh, into influencers and into certain social media channels where we might not have had as great of a presence. And you're going to see that continue to grow, um, throughout uh, the, the fiscal year. And and as we are seeing these improved results from marketing through those channels and, uh, seeing the consumer response, uh, we are, uh, increasing certain of, our of our marketing, spend, uh, whether that's in channels, or or in totality from our original, uh, budgets inside the company. So it's, it's nice to be able to see results, uh, and it's nice to be able to see that we can, um, put our
Foot gently uh on the accelerator as we're seeing the consumer response.
Um, and and the last, uh, uh, Point around that is we have a, a very robust consumer Insight, uh, uh, program that's been going on now, for close to 2 years. And so, we really understand a lot more about the consumer's intent, um, around the brand around, uh, uh, uh, engaging with the brand and now engaging with the product that we think is the right product,
Consumer just wasn't responding to the prices that we had it at.
And there were design issues as well. So we've changed the design in particular, on handbags in particular, we were able to uh, uh, get the, the, the price value relationship right on excess on, on ready to wear as well. Uh, we haven't quite got it right on Footwear and, and uh, what we've seen is the trends in our own retail stores, as you heard. Um, we we did turn Aur positive in full price and that's been quite some time. Uh, we have seen a very significant uh, sequential Improvement in in comps in our full price stores. Uh, we're also seeing that again, this quarter, uh, which is very nice to see, um, uh, uh, 2 quarters does not make a year or, or a long-term Trend, but it certainly is a very good, uh, indicator that our strategic, um, initiatives are working, um, and, and, uh, we, we saw also our women's ready to turn turn, turn positive. So it was
A is an accessories aurs in, in our, in our, um, women's ready to, we've really seen some positive indicators that our strategies are working. Um, the wholesale channel is also seeing that, uh, I wouldn't say it's turned positive yet, uh, but it, but it's definitely heading in, in the right direction. Uh, and I think I commented to you, on our last call that, uh, we had pretty much been around the globe, uh, met with our, our
Partners, uh, really shown everyone, the new strategies and, and there's a real excitement level, whether that's, uh, the, uh, the, the various, uh, mall owners around the world, uh, who are really embracing our our um, project to uh, renovate approximately half of our store Fleet, as well as our department store Partners who are also on board and uh, you're going to see a lot of that starting to happen. It'll be more in the spring season of next year. But you'll see some Happening Here, uh, in the New York. Hopefully, we'll get you all up to our Rock Center store, which will be renovated and reopened, uh, mid to late October, uh, our region Street store as well. And then they'll be, you know, dozens behind that that are coming quite quickly. Um, we've had a few open so far. And we are seeing positive, uh, a Lyft from the renovations. So, um, what we can report to you today is is that, is that the strategies we put in place
are are working and the consumer is responding to them. And the forward looking, uh, uh, uh, uh, um, data that we've gotten from our consumer insights show that actually, our fall marketing fall product and and the way the customer is is perceiving, the brand is even stronger than what we saw in the spring season that we obviously have to see that, um, come to fruition and sell through as a product, but all the leading indicators, uh, show things are
Um, positive and so far in the quarter again, we're only a month or so into it, but we are, uh, seeing actually better results than we even saw in in um, our q1 today.
Thank you, Matt.
And our next question comes from Brooke roach with Goldman Sachs.
Good morning and thank you for taking our question. It's great to hear the commentary regarding the positive Aur and pricing strategy. Trends, can you talk a little bit about how you expect that to translate to margins into the back half of this fiscal year and into FY? 27, can you help us talk through the puts and takes of the Tariff mitigation opportunity over time as you look to offset some of those incremental costs and where you see the largest opportunities in gross margin ahead. Thank you.
Look, I'm going to let Raj take that, but before he does, I just want to, um, uh, say I think the company has done an excellent job, you know, since we started the the year, uh, we've had um, approximately 85 million dollars of tariff impact, um, to the company and, you know, we just gave our guidance where we've, um, raised our our revenue and we've been able to hold our operating income, and I think that's a, a testament to some of the things that Raj is going to talk about in our margin, but it's also a testament to the fact that, um, the teams are doing a great job.
Growth, uh uh, Raj will talk about some gross margin growth. Um, and then really being able to hold that sgna a relatively tight. Um, and and so we think there's going to be, um, a, a significant inflection, uh, in next year. Uh, again, assuming that our, uh, strategic initiatives at both Michael Kors and Jimmy Choo continue to, um, bear fruit and, and, uh, show this, uh, in particular back half, uh, Improvement, where we anticipate, um, uh, not being 100% positive, but pretty close to it. And that will be a real sign for, for, um, where where the company should be able to leverage off of, for fiscal year 27. But let me turn it over to Raj, for the gross margin piece. Thanks John and uh, good morning Brooke.
Um, so obviously as John stated, um, you know, there have been the Tariff situation has been extremely fluid.
And we've now Incorporated some additional new information into our guidance.
Uh, we now anticipate approximately 85 million of unmitigated tariff impact in this year, uh, up from our previous estimates of 60 million.
And then, as we look at the quarter in the first quarter, gross margin was approximately flat to, to last year, we saw some puts and takes in reference to the resetting of our pricing and approximately, a 30 basis point in impact of tariffs offset by some upside in, uh, Channel mix.
And then as we look to the second quarter, we're forecasting to be down approximately 250 to 300 basis points as we'll see. Increased tariff impact, as well as the continued impacts of the pricing strategy. Uh, that we previously spoke about
and then the higher tariff impacts going to continue throughout the quarters and throughout the year.
The second half, we'll see, some offsets from the benefits of our strategic initiatives. As we realize some of the offsets of the mitigation efforts that are related to creating cost efficiencies with our sourcing Partners sourcing optimization.
And targeted price increases. Um, and then as we look to fiscal 27, we expect to return to gross margin expansion. And that's really going to come from our strategic initiatives around driving higher full full, full price shelters and aurs coupled with our mitigation efforts.
Thanks, Brooke and Brooke. Let me add one further note as well. One of the things that you're going to start to see in the back half of the year and certainly into next year is that we have reduced our promotional cadence.
Um, in in particular, in our Outlet channel, uh, we're down approximately 35%, uh, in, in, in, in storewide promotional, uh, uh, activity. Um, that's having an impact on Revenue. We know that we're, we're, we're going to continue that strategy. Uh, we're very focused on improving gross margin. So to improve gross margin. We need to reduce the sale activity, that's the first thing. Secondly, um, we have done some things, uh, uh, in particular related to the do Channel, um, where the company, uh, has had a history of servicing that channel. Um, as do many of our competitors and, uh, we have reduced the, the discount, their significantly. Uh, and therefore that has also reduced revenues because of our reduction of that. Um, and again, we we think that's a good thing for us. It's healthy long term. It reduces uh, product that flows.
To, um, certain air channels, uh uh, both inside the United States and outside. Um, and we're going to look to really tighten that um considerably going forward, so that will have an impact in particular in our Outlet Channel. Um, so we're we're going to we're going to work our way through that over the next um year. Um and and we hope to see uh gross margin improvement from that and Aur as we've said to you previously we're very focused on on raising the aurs and the company. Um and and that will be 1 of the initiatives around doing that. Thank you Brooke.
Great. Thanks so much. I'll pass it on.
We'll go next to Ike Buro. Chow with Wells, Fargo.
Like are you are you going to go zero debt? Uh just an update. There will be helpful.
Sure, right. So, I there is no, um, growth, uh, or obviously there's sequential Improvement, but there is no year-over-year growth planned in, in any of the channels.
Yet. I, I would say the first channel that we're anticipating seeing that is in our full price channel. Uh, and and we're, we're getting close to that right now. And and that's a very good indicator. As you know, if you've got the full price Channel working, um, that's an area where you can really kind of solidify the rest of, of the company. And, and again, we moved very quickly last, um, uh, uh, October November around the full price. It was making sure that we got different product to the floor more quickly. Uh, we took a, a, a very, um, focused approach to our strategic pricing architecture. Um, and, and that is absolutely paying off. Um, we did not, we weren't a just couldn't move as fast to do that in the outlet Channel. Um, and and so that's going to come into the you're going to see that new product flowing into the outlet Channel, really in the fourth calendar quarter of this year. So more of our
Third quarter, fiscal, uh, where you're going to see that product flowing in a lot more newness and at higher price points. So, you know, we're doing a lot of things in the outlet Channel, um, that might impact us from a revenue standpoint, but from a health standpoint, it's going to be much better for the company. From an Aur standpoint, uh, from less promotional activity and just a lot more newness. Um, additionally, uh, in our Outlet Channel us like many of our, uh, uh, people who who are in our world, uh, we will be, uh, introducing our full price product into the outlet channel, in September. Uh, so this is a program called, uh, called icons. Uh, and inside of that will be, um, 3 of our best-selling full price, uh, handbag groups, uh, we've seen in that Channel, anywhere between 10 and 20% of multiple companies, uh, uh, Revenue coming.
From full price product in that channel. Uh, and so we're going to take advantage of what we think is a, a very strong opportunity for us. Uh, we actually already do it in, Jimmy Choo in a, in a number of locations and we're expanded for for Jimmy Choo, as well. Um, so I would tell you again, I think the full price channel is the first place, um, that we are expecting um, to see growth uh in in in in. Um, and I would look at that as more of a
Third and fourth quarter, uh, uh, area and initiative for us. Uh, the last thing I want to note is that across the group, um, at all three of our houses, um, we are seeing a much better sell-through on new product.
And full price product, the customer while they're very Discerning, uh, uh, and yes, they are, you know, looking very closely at pricing. They definitely want newness. So, our full price new products, sell throughs are up double digit, and that's right across the group. So, that's a, that's a very good sign. And, and probably of anywhere we're seeing, uh, uh, softness, it's really more in the, in the clearance, heavy clearance product, where it's, it's, you know, she's just not turning to that. That's not her her go-to. Um, and that also may be a, a, you know, a consumer, uh, uh, uh, uh, issue in terms of of, of where they are, uh, in their, in their fiscal, um, uh, uh, personal situations. So again, uh, that's how we think that the, the year will flow out. And I don't think we'll see a return to positive growth in the outlet Channel until until next year.
In terms of uh, Versace, I will turn it over to Raj to talk about that.
Good morning hike. Um, yeah, regarding the Versace Pro uh sale proceeds.
As we stated previously, we expect the Versace transaction to close in the back, half of this calendar year. And as I spoke about, we plan to use the proceeds to substantially reduce our debt.
So post a deal closing. We expect to have minimal debt remaining on our balance sheet. Um, and then as the business stabilizes, we'll look to re-evaluate, you know, reinstating, a share repurchase program. So we feel really good about having a strong balance sheet, um, as we approached the, the end of the year,
Years on our store renovation program. Um, and we're going to have not only the cash from the transaction but actually will be returning to a better free cash flow situation in particular next year. Um, so so we want the money to really invest in in the business to to, to get the top line of this company going again. Um, we are starting to see some very nice Returns on the 100,000.
Some some uh, gross margin expansion. Next year, based around first and foremost, our our uh better full price. Uh, sell throughs which we're already seeing, uh, uh, engaging with the customer second, uh, reduced promotional activity, and then third, mitigating with our manufacturing Partners who have been great. They've already working with us. Uh, we are going to get some of that benefit in this year, that's already included in our guidance. Um, but they have been terrific, uh, in helping us through, um, what will be
You know, for for every company, a challenge to work through the tariffs but we're uh, committed to that. Oh, and and I forgot a strategic price increases which for us will really start uh in our fiscal year, our fiscal fourth quarter. That's when you'll start to see some of that and they will be modest.
Thank you, Mike.
Thanks John.
Moving on to Oliver Chen with TD securities.
Hi John. Thanks a lot. Um, as we look forward to the sequential Improvement opportunity to continue, um, what what handbag families might be most important and how would you help us dissect, uh, traffic relative to Aur looking ahead? And then a, a quick follow-up that the store renovation sounds quite compelling in terms of what you're doing there? What are some of the principles or Frameworks and what you want to see to continue to elevate the brand? Thank you.
Um, thank you and good morning Oliver. Um, so I, I think what we discussed in our, in our, um, again prepared remarks was in the full price, there's 3 handbag families, there's um,
Uh, there's layoffs. Uh, there is um
Nolita. Um, and there is uh, uh,
Bryant which are are are bags that are already in the pipeline today and and have seen some of the highest shelters this companies had in 4 plus years.
So, um, that's really encouraging for us. Uh, the other thing that is starting to happen is, um, we do have, um,
Events that we have that, that where we, um, periodically will will put, um, the entire assortments, uh, in our soar store on sale. We are removing certain products from those sales, uh, and they have not impacted the sell through at all which has been terrific. So, we're going to take higher, uh, uh, uh, uh, uh, uh, we're going to take more of the assortment and remove them um, from certain uh, sale activities inside of our store. Really, again reinforcing, uh, the the the uh, importance of a platform to the consumer.
Um, we're very excited about a new, uh, group coming out for the fall season, which is called Hamilton. You may remember it. It's a legacy group from from this company, it's been redesigned and quite interesting in, in our consumer, uh, uh, insights. It has ranked. Now, the highest before, we've even shipped a piece before we've we've we've gotten any sell through results. Uh, it's had the highest response um from the consumer.
Uh, in terms of the of the product and the marketing that we've given to This research. Uh and and so we are very excited about what that will mean for us.
Secondly, we will have a similar strategy around really highlighting.
Very iconic. Uh, Michael Kors, families and shapes. Um, the the, uh, the bigger, you know, we're having. I would say some very, very strong results from our, our, our accessories. Uh, uh, worlds. Um, we're having a bit more of a challenge in our Footwear world. I think I said that on our call, uh, we have some, some initiatives, um, in place to take advantage of that, still a big part of our business, um, and you have seen and we've mentioned this about Jimmy Choo, as well. There's been a softness in the very, very formal dress piece of the business, um, where uh, casual, uh, and and certain of the sneaker business has been a much stronger, uh, uh, growth opportunity. We've always had a big sneaker business at Michael Kors. Um, we need to be a little, um, faster with with, with the fashion trends in that area. And I think you're going to see that um, dealt with uh actually coming up here very shortly uh and kind of the next 60 days. So we feel good about what could happen there to
2, because we've got our handbag and are ready to wear business moving in the right direction. If we can get that Footwear business going as well. Um, I think that's going to also help uh, uh, not only traffic but but also aurs once again, you know, when you're not delivering the right fashion or Trend product, then you're marking it down and it hurts your Aur. So, I think, I think, you know, that's a little bit of the last piece of the puzzle, um, for our full price.
Stores are getting that footwear fixed, and, uh, hopefully on our next call, I'll be able to have some, some, uh,
Some good results for you, uh, in terms of the store, um, uh, program, there's 2 things number 1. The stores are quite aged, uh, and, and um, for various reasons, um, uh, uh, we we didn't move, uh, as quickly as we needed to, um, to renovate, uh, uh, a very, very large piece of the fleet.
um, some of that was related to while we were, uh, pending during the during the, um,
Uh, the the, the, the, the, the, the trans, the transaction, uh, with, with tapestry, and part of that was prior to, to that, we were spending more money on Versace and Jimmy Choo. I would say the Lion Share 90 plus percent of our dollars are going directed right at Michael Kors. And what we were looking to do is not only renovate and improve the consumer experience, which again, we're having some very good results or just in the short window of time of a handful of stores. We've renovated both full price and Outlet. I might add um
But also uh I I it's a little bit of a a good thing that happened in that we're very clear about what that aesthetic should be. Um, and I think when you see the store you're going to see, um, the the the very unique aesthetic that it has and the last piece of this, um, which, uh, we will we will get into more. There is going to be an experience inside.
The store will make that announcement a little bit later, uh, uh, closer towards uh, when the store opening happens. Um, but we are going to uh, have have a different experience inside the store. That is not just a typical retail ready to wear experience. So I'll, I'll leave that as a little bit of a surprise as we get closer, um, to the store opening at at, um, the the, uh, Rockefeller Center where we can hopefully take most, if not all of you there to to see the location.
Thank you, bye. Thank you.
Our next question comes from Rick.
Good morning again, I have my congrats on the progress.
Can you expand on the evolving Us distribution as you shrink exposure to the US department stores and lean into retail. Uh, are you seeing signs that consumers are following you into the retail Channel and then just bigger. Picture. How are you envisioning? The role of wholesale versus retail over the long term?
Um, good morning, Rick and thank you. Um,
so a couple of things number 1 on retail.
Uh, I I think you saw in our prepared remarks. Uh, we said we're going to close about 75 stores this year, um, which should more or less complete the, uh, Fleet optimization program for, uh, Michael Kors. There'll be a few more in fiscal year 27, but nothing of this magnitude. Um, and quite interestingly,
We are actually doing something different right now. We are going back and looking at certain malls that we've actually left
Um what we have seen is when we close the store in an area or a location, we are not recapturing that business either at a outlet store. That's nearby or in e-commerce.
Certain markets, we may have left the market with our own store as well as the department store. So we've exited the market completely. Um, and and uh, I'll give you a good example. That's Manchester England as a as a good example where downtown Manchester the brand doesn't exist any longer.
So we're in the process of of um opening reopening a, a freestanding store uh in that in that area. We now know the sizes that we need, we need to really open a store that's between 1500 and 2,000 square feet.
Um and we have some pretty good uh understanding on the economics around. Uh what we need to do to be profitable in those stores. So I'm hoping that when we start to give you guidance for fiscal year 27, you're actually going to hear about uh, modest store growth um in certain areas of the US and in certain areas of Europe where we have left markets. Um, and I'll talk about wholesale here in a second but where we think we have an opportunity to engage? And these are going to be
Fairly large markets, they're not going to be small markets. That wouldn't be able to house a Michael Kor store and I would again like to reiterate that our our partners at the various uh uh malls around the the world actually have been super excited to work with this on this concept. Uh, and you're going to hear about a further Flagship concept, uh, when we talk about it in, in more in October, um, that's also getting a lot of, um,
Google good support from the retail.
Uh, Mall community and Street store Community, uh, in terms of wholesale, we're we'll we'll be almost complete with the closure of wholesales. Uh, at the end of this calendar year, few more to go in, in, in Spring. Uh, and and their we're not looking to expand. Uh, there'll be a handful of department stores, uh, doors, that will re-enter, but it will be very minimal. Um, what we're really looking to do is go back in renovate. Our, our uh, existing shop and shops we have fantastic locations in in most of the department store partners that were in today, the shops are old. They're tired. Uh, they need to reflect the new modern image of of Michael Kors, uh, and and jetset, and traveling the world in style and and so far, we've had nothing but great support in in the US department stores are on board um to begin Renovations and those will begin this fall season uh and and uh we're just starting to roll that concept out with our European Partners, so so far. So
Good. Um, and I'd say, you know, a handful of limited additional doors that will will have in the in the full price markets. Uh, really remaining kind of static uh uh in wholesale. For um, what we'll call all this calendar, 27 and really focus on productivity, uh, increases. We we are looking for the wholesale Channel, um, to turn positive.
In fiscal year, 20 or Talent called calendar year 27. Uh, and again, we're we're not there yet. Um, but there's some very good lead indicators that we should be able to um get onto that track. Uh, for modest retail, uh uh uh, growth in calendar year 27.
Thank you, Rick.
Thank you.
And our next question comes from Anisha Sherman with Bernstein Research.
Hey, thank you so much, for taking my question and great to hear all the positive comments on this call. Um, John, I wanted to ask about Jimmy Choo, it's, you know, it's it's historically been a different core category, different brand Heritage, different sourcing, mix from korres, maybe some of those differences, maybe narrowing as you grow the handbags assortment, and if you grow Footwear, of course, but can you talk about how you think about the value added of Jimmy Choo to the portfolio? How does it compliment cores? Where is it incremental? And would you ever consider domestic of this brand as you did with Versace?
Um, thank you Nisha. And, and, uh, so let me start with the last part of it. Uh, Jimmy Choo is not for sale. We, we, we do not have an intent on selling Jimmy Choo. And in fact, we're excited about um, the growth opportunity that Jimmy Choo represents for the company when we bought Jimmy Choo, many years ago, 1 of the reasons. First we bought it is because it's it has an incredible uh uh
In-house. We are truly vertical. Uh with Jimmy Choo 2, beautiful factories that we have uh in Italy. Uh and we've just built a brand new um spectacular. Um R&D Center for our our our employees there to to work out of. So, Jimmy choosing very good shape, the store fleets and excellent shape. We spent a lot of money over the years, renovating the stores, and hopefully, you get a chance to see our new flagship on Madison Avenue. It's fantastic. And, and doing really well. Um, and so, so, the Investments we've made, now we can leverage we bought the company knowing that we could add some value to that in particular around accessories, which is something. We think we know a little bit about, um, we got distracted over the last couple of years. Again, the, the the merger did not help things. Um, people didn't spend as much time focusing on that we are completely re-engaged on the accessories side. There's a very big opportunity for Jimmy Choo, we're in a luxury, consumer's, wardrobe. Today, we're in their closet, so so it's not in a matter of getting people to to
To say, oh, I like or dislike Jimmy Choo. That's not the issue. The issue is getting product in particular and accessories. There's more relevant to that consumer. And as we pointed out, uh, our our Jimmy Choo accessories business has, has been been getting healthier, especially, as of late. Um, around 2 bags, 1 is an evening group called Bonbon and the 1 is more of a day bag called cinch. And it's cinch has now become the largest selling Day by group for for the company its history, we've just done something very strategic.
We've introduced something called The Curve bag, which you may have seen, uh, online. And we took a very strategic pricing, uh, uh, approach to it the bags retail from 9.95 to 5.95. We think that there's been a lot of, uh, very significant pricing increase in the, in the, uh, upper end of luxury. And we think there's customer, uh, resistance to that. So we want to use Jimmy Choo and, and try to have both, we're going to have bags that are in the 1500 to 2500 range. But we are going to have 2 groups, uh, 1 being the the, um, uh, uh, new curve and we just are introducing. I think it's going to launch today. Actually, uh, online with Sydney Sweeney hopefully today or tomorrow um, uh, our bar Group which is also priced in that same range. So uh and and I think you also heard um, me say am I prepared remarks that our sneaker category is has had some very strong, uh, growth as well as we just introduced this new Jelly, uh,
uh, which has been fantastic and it retails for 395. So, these are still very healthy price points. Um, but they're also broadening our, our, our strategy, uh, around pricing and using the great leverage of the Jimmy Choo name, uh, and brand Affinity with the consumer. So, we're excited about what Jimmy Choo, uh, can can can do for the company. We do need to build more product in the accessories range because, um, Jimmy Choo is uh today,
80% in Footwear Footwear is always a, a tougher margin business because it's sized. Um, but if we can really leverage our our no knowledge and this customer Affinity to the brand with accessories, we think we've got a very nice margin lift opportunity, we can get this business back to a double digit. Um, operating margin
You know, I don't know, $600 million, $700 million, maybe $1 to $800 million business. That's a very nice return. And so we've made all the investment. We're excited about Jimmy Choo, and we think it's going to be very much a core part of the Capri family.
So, thank you Nissa. Uh, on that note, I'd like to say thank you for everyone uh, to for joining us today. Uh, we are uh, encouraged by the first quarter results. Um, we are also encouraged by what we see so far in the second quarter. Uh, the consumer uh, remains uh engaged, uh and, and, and appears to be getting more engaged, uh, with both Brands. And if we continue to stay focused on our initiatives, we believe that we will, uh, end the year, uh, with, uh, in the range of the guidance that we gave. And we feel that in fiscal year 27, uh, we will return Capri growth. And we think the leverage that that will create, uh, along with mitigating, uh, the majority of the, of the current tariffs uh will vote very well for the earnings per share growth for the company. So thank you for joining us today.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference, you may disconnect your lines and have a wonderful day.