Q2 2026 Capri Holdings Ltd Earnings Call

Speaker #1: Ladies and gentlemen, greetings and welcome to Capri Holdings Ltd's second quarter fiscal 2026 financial results conference call. At this time, all participants are in the listen-only mode.

Speaker #1: A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad.

Speaker #1: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jennifer Davis, Vice President of Investor Relations, please go ahead.

Speaker #2: Good morning, everyone, and thank you for joining us on Capri Holdings Ltd's second quarter fiscal 26 conference call. With me this morning are Chairman and Chief Executive Officer John Idol, and interim Chief Financial Officer Raj Mehta.

Speaker #2: Before we begin, let me remind you that certain statements made on today's call may constitute forward-looking statements which are subject to risk and uncertainties that could cause actual results to differ from those we expect.

Speaker #2: 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 statements made during this call will remain operative at a later time in the company undertakes no obligation to update any information discussed on today's call.

Speaker #2: Unless otherwise noted, all financial information on today's call will be presented on a non-GAAP basis. These non-GAAP measures exclude certain costs associated with impairment charges, Capri transformation costs, restructuring and other charges, store renovation program costs, and transaction-related costs.

Speaker #2: To view the corresponding GAAP measures and related reconciliation, please review our latest earnings release posted to our website earlier today at capriholdings.com. Additionally, the company has classified the results of operations and cash flows of its Versace business as discontinued operations.

Speaker #2: Unless otherwise noted, all information on today's call relates only to continuing operations. Now, I would like to turn the call over to Mr. John Idol, Chairman and Chief Executive Officer.

Speaker #2: John?

Speaker #3: Thank you, Jennifer. And good morning, everyone. With the Versace sale expected to close in our fiscal third quarter, we are now fully focused on the growth of our two iconic brands, Michael Kors and Jimmy Choo.

Speaker #3: We plan to use the proceeds of the sale to repay the majority of our debt substantially strengthening our balance sheet and providing greater financial flexibility to both invest in growth as well as return capital to our shareholders in the future.

Speaker #3: As we stated in our press release earlier today, given our planned reduction in debt levels, and the signs of stabilization across our business, our board of directors has authorized a new $1 billion share repurchase program, which the company expects to begin implementing in fiscal 27.

Speaker #3: Now, turning to our fashion luxury houses, we continue to advance our strategic initiatives across Michael Kors and Jimmy Choo to unlock their full potential.

Speaker #3: We are encouraged by the early signs of recovery at our fashion luxury houses, and remain optimistic about the direction of the business. However, we recognize that it will take more time for the full effect to be reflected in our results.

Speaker #3: Despite the dynamic global macroeconomic environment, we are on track to stabilize our business this year while establishing a solid foundation for a return to growth in fiscal 27.

Speaker #3: Now, turning to second quarter results. We are encouraged with the continued sequential improvement in trends which resulted in revenue gross margin and operating income exceeding our expectations.

Speaker #3: However, our results were negatively impacted by 20 cents per share versus our original guidance due to a higher-than-anticipated effective tax rate related to our valuation allowance position.

Speaker #3: Looking at results in more detail, total company revenue decreased two and a half percent versus last year to $856 million on a reported basis.

Speaker #3: At Michael Kors, second quarter revenue decreased 2% on a reported basis, compared to prior year. In our own retail channel, year-over-year trends were consistent with the first quarter, while wholesale trends improved sequentially, turning positive primarily due to shipment timing.

Speaker #3: In our retail channel, we continue to see signs of momentum, with a sequential improvement in trends in our full price channel across all regions.

Speaker #3: In fact, comps in our full price channel turned positive in the second quarter, demonstrating that our strategies are beginning to take hold. Consumers are responding to our modern jet-set lifestyle marketing, standout styles, and updated pricing architecture.

Speaker #3: In the outlet channel, revenue was impacted by our strategy to improve our quality of sales through reduced promotional activity. Additionally, the outlet channel assortment continues to reflect the previous product strategies, which emphasized core and basic styles.

Speaker #3: More modern on-trend styles will be introduced in our third quarter, with a more substantial update planned for the fourth quarter. Now, looking at total Michael Kors retail sales by region.

Speaker #3: In the Americas, revenue was negatively impacted by our quality of sales initiative. In our outlet channel, which we believe is an important step to strengthen brand health and increase AURs over time.

Speaker #3: In Europe, trends remain strong, with year-over-year increases consistent with the first quarter. In Asia, trends were also similar to the first quarter, though we saw a modest sequential improvement in China.

Speaker #3: Now, looking at wholesale, revenue at point of sale while still negative saw a meaningful sequential improvement in trends. Turning to brand awareness and consumer engagement.

Speaker #3: We continue to reinforce Michael Kors' modern jet-set lifestyle positioning, with our brand vision of traveling the world in style. Through our hotel stories franchise, we are bringing the joy of travel and the discovery of new destinations to our consumers each season.

Speaker #3: For fall, we traveled to Rome with English actress and singer Suki Waterhouse, actor Logan Lerman, and our new global brand ambassador, Chinese actor and singer JCT.

Speaker #3: The campaign highlights fall's must-have looks including new interpretations of our iconic Nolita, Leila, and Hamilton groups. Set against the timeless background drop of Rome's historical landmarks.

Speaker #3: During the second quarter, we amplified our storytelling through local activation and immersive experiences. We also continue to enhance our social media strategy by broadening our presence across a wider range of platforms and deepening partnerships with influencers.

Speaker #3: This has enabled us to connect with consumers through authentic relevant voices in fashion and is reigniting brand desirability. According to our consumer insights, we have continued to see a further increase in brand affinity.

Speaker #3: Additionally, Michael Kors' iconic runway shows cast a powerful halo over the brand. Reinforcing our leadership in fashion luxury. The spring-summer 2026 runway show in September drew a notable audience of celebrities, and a powerful network of global influencers.

Speaker #3: Supported by a strong social media amplification, Michael Kors generated 5.5 billion impressions globally, and was the second most engaged fashion brand during. New York Fashion Week.

Speaker #3: These activities contributed to a 9% year-over-year increase in Michael Kors' global consumer database. With our advanced data analytics capabilities, we are leveraging the strength of our extensive consumer database which now exceeds 90 million, to create deeper or personal connections with consumers.

Speaker #3: Now, turning to product. Guided by Michael's creative vision and enhanced by data analytics, we are delivering exciting on-trend fashion with standout style. Additionally, we have refined our pricing architecture to better align with historical levels and are seeing encouraging results from this strategy.

Speaker #3: In accessories, consumers continue to respond positively to new introductions that celebrate our iconic brand codes. And aligned with our new strategic pricing architecture. For fall 2025, we introduced new accessories groups including the Hamilton Modern, a reinterpretation of the brand's iconic 2009 it bag, along with exciting updates to our successful Leila, and Nolita styles.

Speaker #3: These groups are experiencing strong full price sell-throughs, driving growth in accessories in the full price channel. In footwear, trends improved sequentially in our full price channel.

Speaker #3: We saw strong performance in new fashion boots, while casual footwear gained momentum. Consumers responded positively to new sneaker styles, that represent modern trend right evolutions of proven historical bestsellers as we blend timeless appeal with modern style.

Speaker #3: Looking at ready-to-wear. Revenue and our own retail channel increased driven by the strong consumer response to seasonal styles that captured Michael's effortless glamour. The fall assortment balanced trend right designs and timeless wardrobe staples, with dresses and outerwear performing exceptionally well.

Speaker #3: Turning to men's revenue and our own retail channel was approximately flat. Men's sportswear styles performed well, as we continue to focus on timeless essentials with a modern edge.

Speaker #3: Next, I'd like to review our store renovation plan. Where we are redefining our luxury retail experience with a warm residential design. Our stores remain a cornerstone of our brand, and a key driver of our sales recovery.

Speaker #3: Playing a pivotal role in enhancing the client experience and revitalizing growth. Over the next three years, we plan to renovate approximately 50% of our store fleet, and key department store locations, as part of our ongoing investment in brand elevation and retail excellence.

Speaker #3: We recently reopened our London and New York flagship locations. Michael Kors' signature jet set lifestyle is evident throughout these stores, transporting consumers to the featured destination of the season and further enhancing the immersive shopping experience.

Of luxury consumers. Additionally, during the second quarter, we introduced the bar hobo Group, which also features price points under 1500

while still early, we are encouraged by the strong initial consumer response to the modern yet Timeless Styles, and the new strategic pricing architecture

Over time, we expect this initiative to drive significant growth and our accessories business.

turning to Footwear,

Our Autumn collection has performed. Well,

With versatile styling fusing Timeless silhouettes.

With sculptural forms and opulent textures.

E styles including our iconic drop heal families.

Scarlet.

Performed exceptionally well underscoring, our ability to deliver both Innovation and Timeless design.

Jimmy choos strategy to expand day and Casual Footwear continued to gain Traction in the second quarter with an increase in full price sales.

Flats and low heels grew in our full price Channel driven by the strong response to new Styles including our Scarlet kitten heel and jelly ballerina fat.

The diamond Flex sneaker. Also, continued to perform well,

we see significant opportunity to further scale, casual Footwear.

not only to deepen engagement with existing consumers, but also to attract new clients,

Looking forward. We believe. We are on the right path to unlock Jimmy choos unique potential to expand its position within the world of fashion luxury.

In conclusion, we are pleased to see early indications that our strategic initiatives are beginning to work.

Looking ahead, we continue to expect retail 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 second 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.

Now, looking at our second quarter results, Revenue gross margin and operating income, exceeded, our expectations driven, by better than anticipated performance at Michael Kors, as our strategic initiatives, begin to take hold, as well as a wholesale timing shift.

However, a higher than anticipated effective tax rate, versus our original guidance, due to our valuation, allowance position impacted net income by 24, million and earnings per share by 20 cents.

Turning to our second quarter results in more detail. Total company revenue of 856 million decreased 2.5% versus prior year, on a reported basis and 4.2% in constant. Currency representing a sequential year-over-year, Improvement relative to the first quarter.

Looking at Revenue by Channel Total company, retail sales declined. Mint signal digits.

In the wholesale Channel Revenue, increased High single digits primarily due to shipment timing.

Turning to revenue performance by geography. In the Americas Revenue decreased 7% Revenue in Amia increased, 1% and revenue in Asia increased 12%.

Looking at revenue performance by brand at Michael Kors, revenue decreased 1.8% compared to the prior year on a reported basis and 3.3% in constant currency.

Global retail sales declined at a similar rate to the first quarter.

Similar to Prior quarters store closures. Negatively impacted retail sales in the low single digit range.

also, sales increased low double digits due primarily to shipment timing

by geography sales in the Americas decreased 7%.

At Jimmy Choo, Revenue decreased 6.4% compared to Prior year on a reported basis and 9.3% in constant currency.

Global retail sales Trends improved sequentially. Declining low single digits.

Wholesale Revenue, decreased mid-, teens negatively impacted by the timing of shipments as the second quarter, and into the third quarter.

Now booking a total company margin performance gross margin of 61% declined 130 basis points.

Higher tariff rates, negatively impacted gross margin by approximately 120 basis points.

By brand Michael Kors, gross margin of 59.3% compared to 61.1% last year.

The decline versus prior year was predominantly driven by the impact of tariffs.

Jimmy's true gross margin was 70.2% compared to 68.6% last year. The increase versus the prior year was primarily driven by channel mix and higher full-price shelters.

Operating expense decreased 8 million. The decline versus prior year was primarily attributable to our cost Reduction Program.

As a percentage of Revenue operating expense was 58.6% compared to 58.1% last year. Primarily reflecting expense D, leverage on Lower Revenue.

Total company, operating margin was 2.3% compared to 4.2% last year.

By brand Michael Kors, operating margin of 10.1% compared to 11.8% last year.

And Jimmy Choo operating margin of -6.9 compared to -3.6 last year.

Our tax rate for the quarter was 112%.

As a result of being an evaluation allowance position. We are revising our Global tax structure. The implementation of this change took longer than anticipated resulting in a higher than expected tax rate during the second quarter.

Importantly, we continue to forecast a full year tax rate in the mid-teens range.

Now, turning to our balance sheet, looking at inventory at quarter end inventory, total of 766 million a 2.8% decline versus prior year.

Booking ahead. We continue to expect year-end inventory levels to be up, slightly, primarily due to higher tariff, rates and foreign currency exchange rates.

we ended the quarter with cash of 120 million and debt of 1.8 billion resulting in net, debt of approximately 1.6 billion,

Now, turning to guidance, we are reiterating our prior full year, guidance of revenue, between 3.375 and 3.45 billion.

With Michael Kors, revenue between $2.8 billion and $2.875 billion and Jimmy Choo revenue between $565 million and $575 million.

We continue to anticipate full year gross margin of approximately 60.5% to 61%.

Excluding the impact of tariffs full year gross margins would have expanded driven by the benefits of our strategic initiatives. We expect year-over-year gross margin declines to moderate to the remainder of the Year. Reflecting continued traction from our strategic initiatives ongoing sourcing cost efficiencies and targeted price increases.

We continue to expect full year operating expense of approximately 2 billion and operating income of approximately 100 million with 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 anticipate full year, net, interest income between 85 and 95 million, an effective tax rate in the mid teens range and weighted average shares outstanding of approximately 120 million

Resulting in diluted earnings per share between $1.20 and $1.40.

Turning to Capital allocation, our priorities remain the same. Our first priority is to invest in Our Brands to store Renovations technology and digital enhancements, as well as other brand building initiatives.

As previously stated, we plan to invest approximately 350 million over the next 3 years to execute our store renovation plan.

On the anticipated, completion of the Versace sale, we plan to use the proceed to significantly reduce debt.

And our third priority is to return cash to shareholders via share repurchase program in the future.

Given the encouraging signs of stabilization across our business and our planned reduction in debt levels. Our board of directors has authorized a new 1 billion, share repurchase program which the company expects to begin implementing in fiscal 27.

Now.

Turning to third quarter guidance. We expect total company Revenue to be between 975 million. And 1 billion, with Michael Kors, revenue between, 825 and 845 million impacted by an approximate, 20 million shift in wholesale, shipments, out of the third quarter, and into the second quarter.

And Jimmy true revenue between 150 and 155 million.

Looking at gross margin, we expect the third quarter gross margin rate to decline approximately 200 to 250 basis points versus 63.2 last year.

Impacted by greater tariff. Headwinds

in terms of operating margin, we expect third quarter operating margin to be approximately 7 to 8%.

By brand, we anticipate Michael Kors. Operating margin in the low teens range and Jimmy Choo operating margin in the negative low to mid single digit range.

Turning to our expectations around certain non-operating items. We anticipate third quarter, net interest income of approximately 20 million

we forecast an effective tax rate in the low to mid single digit range and the third quarter, due to the expected shifts in the geographic mix of earnings and the related valuation allowance impacts

We anticipate it weighted average shares outstanding of approximately 120 million.

As a result, we expect to generate diluted earnings per share of approximately 70 to 80 cents.

In closing, we are encouraged by the early signs that are strategic initiatives are working.

We anticipate retail 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.

We anticipate gross, margin expansion, as we mitigate the majority of the impact from higher tariffs and we continue to benefit from our strategic initiatives.

Additionally, we anticipate operating expense leverage on higher Revenue as we diligently manage expenses.

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.

Ladies and gentlemen, we will now be conducting a question and answer session.

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Ladies and gentlemen, we will wait for a moment while we Poll for question.

Our first question comes from the Lion of Matthew boss with JP Morgan Chase. Please go ahead.

Great, thanks. Um, so John could you speak to Global reception that you're seeing to the Michael Kors full price? Retail repositioning elaborate on drivers of full price. Channel comps turning positive in the second quarter and then just any change in momentum in October or opportunity? You see for the brand versus a year ago during holiday

Um, thank you, Matt and good morning.

Number 1, I I think we are. Um,

Pleased with, um, the fact that the business we're starting to see stabilization in in um, the Michael Kors business. As, you know, our full price comps turned positive during the quarter.

Initiatives.

that starts first with our branding, and we think that the way the consumer is seeing the modern jetset marketing,

Uh, based around the traveling, the world and styles, and really, we're doing that, uh, from a storytelling point of view through our hotel stories. Um, uh, uh, uh, delivered with a large group of influencers is really helping, uh, consumers, um, engage with the brand and the storytelling of brand. So, that's the first

I'm a very positive sign. And, as I said in my prepared remarks,

We're seeing consumer sentiment. Um, really increase very nicely uh uh and brand awareness.

the second area is our product um, and as you know our our

Real kind of, um, focus is on standout style. Um, we want to make sure that when we're delivering product its first on Trend, but secondly, Michael has a very very strong point of view on style and styling. Um, and as we've reinterpreted that, um, for a more modern point of view, the consumer is really engaging with us on that. And so again, we're very pleased, uh, and and as we've said in our previous calls, we've spent the majority of our initiative around uh the full price.

uh, uh,

initiatives in the company because we think that's where the consumer will first see us lean into us. Um, and we saw that, uh, really globally, um, uh, uh, in terms of the increases um, in comp and what was also very exciting for us. Um, really, you know, when you said the drivers, the biggest driver was actually our accessories business, which turned positive during, uh, uh, the quarter and that's being driven from from 3 iconic, uh, uh, groups that we have today. First, um, is Leila which we introduced in the spring of of last year over this past year. Sorry. Uh, then we have nolita which was actually introduced um, the tail end of of last year. Uh, and we've brought modern interpretations to both of those. They're also arriving

In the stores as we speak for the holiday season as well fall. And holiday, and they were really excited about our new Hamilton modern introduction, Which is far exceeding, our expectations. It's a take on our original 2009, it bag. Uh, and and the consumer is giving us. Um, very positive reception to all 3 of those very strong full price, sell throughs. Um some of those bags are actually not even included in our um our our our our our um 4 times a year. Uh uh um uh sale inside the uh

Price stores. We've removed those styles from that and the, uh, sell trees are not being impacted. So customers responding to product. They're also responding to our, our strategic price architecture, which is, uh, really helping our full price, sell throughs AC the group. And uh, uh, what's also happening is we are seeing stronger engagement with Millennials and Z's, uh, both on styling and on the Strategic, uh, uh, uh, pricing architecture.

Um, we're seeing things like watches also. Um, start to really see sequential Improvement inside the stores are ready to wear businesses very strong inside the stores. So when I look across the landscape and how the consumers responding to the marketing initiatives, the storytelling the product and then lastly, you know, we talked about how well, it's only a handful of stores. We've we've uh, renovated so far and I hope many of you on this, call, get a chance to see our New York Flagship, which is located at Rockefeller Center or our London uh store on region Street. Uh, we've got some other stores around the world that are opening. Uh I think the new store design really speaks to um where where the brand is going uh forward and how we're really communicating uh with the consumer. Uh and inside of that we're really excited about our our new jetset Lounge. Again, it's very early days uh where you'll be able to have coffee and tea and

Some of our uh, at least 1 of our new store, Renovations, uh, take place during the quarter and that's going to happen at Jersey Gardens, uh, and we've got more coming behind that, uh, a similar concept to our full price store and uh, and really more in our, our fourth quarter uh where the product will um, be S more significantly impacted um by some of the initiatives that we're putting in place. So from a trend standpoint, we feel good about where we're going to be for the holiday season and and Q3 product is Flowing, consumers are responding. Uh, uh, the only I would say, you know, if those are all the puts the take would be. Um,

Uh, that that we are reducing our promotional uh activity. Uh, in in particular, in the outlet stores, we've had significant pullbacks as we talked about last quarter. We're doing, uh, uh, more of that this quarter, uh, that will have an impact but we, we are focused on the quality of sale. We're focused on increasing A's. Uh, we saw sequential improvement in our auras in the atlas doors. Um, and so again, we we have to go through this work to be able to put ourselves in a position to return to revenue and what we think will be some pretty positive, uh, uh, uh, operating income growth for next year as well. So again, we don't want to be overly confident, but uh, we're feeling very positive about these last 2 quarters and most importantly how the consumer.

First responding to us. So thank you very much for that question, ma'am.

Thank you.

Our next question comes from Brooke Roach with Goldman Sachs. Please go ahead.

Good morning and thank you for taking our question John. I wanted to dive a little bit deeper into the Outlet business as you reposition Promotional and product. What is the profile of the consumer? That's engaging with you in North America? Today are you seeing any signs of price sensitivity or stronger or weaker engagement in any particular income or age? Cohort as you execute execute the outlet repositioning? And how should we be thinking about the timeline and path to Improvement for total? North America given the green shoots that you're seeing in the full price Channel today. Thank you.

Um, thank you Brooke and good morning. I, I would first say that we anticipate. Um,

Sequential Improvement in the retail.

Uh, in our retail channel, for both Michael Kors and Jimmy Choo, uh, in the back half of the year.

As I said, you know, in the full price, um, we're we're feeling, uh, very, uh, good about what we see happen. We feel the same way about Jimmy,

a very nice.

Uh and and I and I think we're going to see the same type of sequential Improvement.

in terms of the, the outlet, um,

But, let me answer, let me first, answer your, the other part of your question? Uh, uh, there's no question that the, the, um gen z customer consumer in particular, is more price sensitive. And we've seen that, um, and actually, some of our strategic, um, pricing architecture. We didn't really understand this in the beginning, um, but it's, it's, it's really leaning into, uh, and helping us get more gen Z consumers. Um, they are they are more price sensitive um, than Millennials and and x's and Boomers so so we think that our, our strategy of making sure that we're at really focused strategic price points.

Um, across all products, Not Just Accessories, but in Footwear, and except and ready to wear because remember, we, we significantly reduce our prices and ready to wear, uh, even much more than we did in in, um, in our handbag business. And, and uh, uh, and and that's working really well for us. And in fact, our wholesale partners are starting to roll out, our ready to wear. Uh, again after we,

Slightly higher price than what they've seen today. And we're doing that for our purposes. We're also doing that to offset some of the, um,

Tariff. Uh, uh, uh, uh.

Tariff implications, um, the the second thing as I've said is we are going to be introducing a a significant amount of new product into the outlet stores that comes a little bit in Q3 a lot more in Q4 and then throughout fiscal 27, uh we had been 2 focused on core product inside of our outlet stores and consumers want fashion doesn't matter what channel, they're shopping in, whether it's our e-commerce, our full price or our Outlet Channel, they want fashion, uh, and we were not, um, uh, in in in a strong enough position in that, in our, in our Outlet. Um, so as I said we we really feel like that's going to be coming more in the back half of the year um, through through uh, uh next year. Um, and then and then, uh, lastly we had a do business which was a a product that was being purchased in our outlet stores shipped to multiple places around the world sold predominantly on online channels. And we're really shrinking that business, um, significantly

So um over 60% of the decline that we're having in our Outlet business is coming from that um real shutdown of a business. Um, for us that we think will provide a much healthier.

Uh, uh, company for the long term and actually improve aurs as well. So that's a long-winded, uh, way for me to say that really we won't see North America return to positive, uh growth, uh, in our retail Channel, um, in Michael Kors until next year. Um, and probably more in the second quarter of next year. Uh, uh, and then we should be in a pretty good trajectory um, after that point in time.

Thank you for that question, Brook.

Great. Thanks so much.

Thank you.

Our next question comes from, I poro with Wells Fargo. Please go ahead.

Hey, good morning everyone. Uh, 2 from me. Um, just first on the tariffs. So I think you said 120 basis, points headwind in the second quarter, could you just, uh, let us know what's baked in on tariffs for both 3 q and 4 q. And then the follow-up is for John, um, maybe just on on the wholesale, upload double digits. But you mentioned, there's a 20 million ship in there. Um, could you just comment roughly? What, what, what's the growth rate? Uh, for Mk wholesale X, the shift, I mean, my math is flattish, but I'd love to get that clarified. And then John how are you viewing that channel just organically at shifts in the 3Q and 4 q from our Revenue standpoint?

Uh, thanks so I can good morning. Um our expectations around the Tariff headwinds uh for the full year, remain largely unchanged. Uh, we still expect the unmitigated tariff impact to be approximately 85 million for the full year.

Uh, and as you said, you know, in the second quarter, our gross margin was down 130 basis points and 120 of that was related to the tariffs. Uh, we saw the Tariff and headwinds a little bit less than anticipated, and that's really due to the timing of sell, throughs of the Tariff impacted inventory.

As we look at Q3, we're expecting gross margins to be down, 200 to 250 basis points. And there's a greater weight of inventory that has the full amount of terrorists.

So, you're going to see a larger impact, uh, of that building Q3 and then further into Q4. But more importantly, um, as we look,

You know, forward, we expect to see continued benefits from our strategic initiatives and Target tariff mitigation efforts. So, looking at fiscal 27. We anticipate to offset a majority of the Tariff impact. And that coupled, with our strategic initiatives around driving higher full price Sellers and higher aurs will lead to gross margin expansion next year.

Wholesale offset shipment wise, and I'll take the retail part of it. Yeah. Um, so we did see, um, in in the second quarter, there were 20 million of Michael Kors, wholesale shipments, that ended up going out in Q2, where, where we were forecasting them to go out in Q3. So that's really just a timing ship between the quarters. Um, you know, what, we're really proud of and John spoke to earlier, is the retail sequential Improvement that will that will see indicate 3, as well as Q4. Um,

Coming coming out.

No longer Dodge, it double digits. It's it's single digit decline. Um, again, we're not calling a victory at this point in time, but there's no question. Um, things are starting to to get better. We have, uh, our partners as I said, on the last call are very excited about, uh, doing shop Renovations with us. So, that's we've got a pretty significant, um, program roll out, uh, going on there. Uh, I've been out visiting with our teams to all the major, all of our major, uh, uh, partners and will conclude some more, uh, actually the next week, uh, in in Europe. Um, and there is there's absolutely positive, um, uh, sentiment for our strategic initiatives and for the brand in general. Um, and and as you know, you know, the the the I think there's been a obviously a very, very significant move by many stores to the

Higher side of the luxury business. Um, that business has has definitely seen a Slowdown, um, and so the, um, the the, the, the more entry levels of luxury where Michael Kors, plays, in particular, uh, and some other competitors, um, I think there's a very strong renewed interest in that category. Um, as customers are more choice. There's no question, um, that they're looking at at at price value relationship. And what's so interesting is, is is in all 3 of our companies and Michael Kors and Jimmy Choo and Versace, all 3 of our full price businesses.

are actually significantly better than they were a year and even 2 years ago, and it's a bit more in the off-price channels where the customer is.

You know, they're they're really, really, being selective uh, on on pricing. So we think that uh, you know, we're we're seeing our wholesale, uh uh uh Partners look and, and and want to lean into this strategy, uh, with ourselves and and, and other, um, people who, who, who are in this. Um, same category of more opening, uh, price point, uh, luxury. So, um, you know, I, I, I think,

For next year, uh, I wouldn't say there's going to be an improvement in the wholesale revenues because again, we're going to do some cleanup work around uh, off price, uh, where we are not only cleaning up, um, our Daigo business in the Outlet business in the outlet Channel. But we're also doing, um, some pretty significant cleanup. Work around some other, um, uh, uh, areas of off price inside the company. And again, this all translate back to quality of sale, we're focused on that. We want to raise Aur, as we want to raise full price, sell throughs. Um, and as raj said, uh we're excited about the gross margin expansion. We will finally get to, uh, next year, uh, after we kind of lapse where we are. Um,

In in, uh, the, the tariffs again, we're working with inventory that that does not have tariffs on it and we're working with inventories that has tariffs on it. You know, we'll probably feel the hardest effect of those in fourth quarter and probably first quarter of next year and then we'll start to lap that. And, and, and our strategic initiatives will take hold. Uh, and I think you'll see some um, very positive results in that 1 of the thing. Just to note, uh, when you look at our gross margins today and and as raj, pointed out, the majority of the impact came from, uh, a tariffs. Um, we also are without those tariffs more, or less holding our gross margins with. If you recall, lowering our prices in our full price Channel and uh, uh, uh, clearing some other product as we talked about, in a prepared marks in the outlet channel. So, I'm I'm really

Happy about that because it shows you what our sell throughs are starting to look like they're looking good. Our inventories are really tight inside the company. So we're in a good position now, um, to move forward uh uh, on on both our, our retail Channel, and our, and our wholesale Channel.

Thanks John.

Thank you.

Our next question comes from Anisha Shaman with Bernstein. Please go ahead.

Thank you so much. Um, John last quarter you commented that in the full price Channel, you've kind of stabilized, the assortment in terms of price points and selection. Um, are you still seeing Aur increases in full price? Can you comment a little bit on, on volume versus Aur? That's driving that positive full price comp? And then in the guidance for the back half of kind of minus High, single digits for Michael Kors, what's embedded in that? I I you said earlier that 2% about 2% of it is from the timing shift, for the remainder. Are you assuming continued positive full price comps with the with the wholesale and Outlet being negative, um, a little bit more color on. That would be helpful. Thank you.

There might be a misunderstanding on the guidance of the back half, which, which Raj will walk you through, um, on the full price aurs. They're actually down slightly and again, remember that's because we lowered our price points. Uh, uh, uh, so full price to sell throughs, are up significantly. Uh, price points are down. Our Aur is down slightly. We we knew that would be the case. Um, given the fact that we took, you know, some fairly significant price, um, um, adjustments in our strategic pricing architecture. Uh, I would also point out to you that when we end the year our inventories, um, well, they will be up slightly in dollars. That's a impact of the of the, um, foreign exchange, uh, rates. And the tariffs are units, are going to be down, very significantly. So again, quality of sale, uh, we feel super good about that. Um, and and and think that will continue on, I'll let Raj speak to you about the guidance.

Yeah. And as far as the guidance, in the back half of the year, uh, I think, uh, we will referring to it. Sequentially improving not turning positive. So I think, um, you know, we we're pleased with what we're currently seeing in the business and the trends. Uh, and as John mentioned, it's going to take time to inflict to positive in the retail Channel and be positive. And we won't see that until next year and our overall retail channel. So we'll see sequential Improvement continued in the Q3 and Q4

Thank you, bro. I'm sorry. Just just a clarification. Raj. I my question was specifically on full price, so you're seeing positive comps in the full price business. Are you assuming continued, positive comps in full price? For the second, half with wholesale and Outlet, then driving the total into negative territory.

Yes, that's correct. That is correct. Got it, okay?

Thank you.

Thank you.

Our next question comes from Rick. Patel with Raymond James, please go ahead.

Uh, good morning and congrats on the progress. Um, can you help us with your expectations for Revenue by geography as we think about the back half, what's the right way to think about, um, the progress being made in the Americas and air and Asia did quite well. Uh, in Q2 for Michael Kors, what would you attribute that to and also sustainable? If you think that growth is

um Rick. So so we kind of don't guide by geography, you know, as a on a go forward basis. What I, what I will comment to is the following number 1. Um, in Michael Kors. Europe is, is clearly the best performing part of our business and, and, uh, we anticipate that to continue. And again, Europe never had the kind of declines that we had in North America and, and, uh, and, and it's interesting even with outdoor Renovations Etc, the, the product, uh, and the consumer reception to the new product. Introductions has been very, very strong.

Very quickly. Um, and and so we're we're um, we're super pleased with that. Um, also the Outlet business over there is, um, actually relatively stable, um, versus the North American, uh, Outlet business.

Um, and we definitely are seeing, um, Let me let me break out Asia into 2 parts, um, Japan remains um, flattish, but still has been positive, you know, coming out of last year. Um, and that that's there's some currency um, issues going on there. So we still feel very good about our business in Japan. Uh, China is definitely seeing an improvement, it's modest moderate. Um, but we are seeing some very significant consumer engagement. Our storytelling is resonating. Uh, there's no question that the consumer is now, you know, our best-selling products in the United States and in Europe are now, the best-selling products in Asia, that wasn't always the case over the last couple of years, uh, and some of that was self-inflicted. Um, and so we're, we're, we're definitely feeling like we're going to get some momentum. Um, a continued momentum, in our business, in China, and in Southeast Asia, in Jimmy Choo.

Um I would say that uh uh North America is is is very very strong for us and getting stronger and it's interesting and Jimmy Choo. Also our Retail Partners are really leaning into us. Our our uh you know, the the again higher uh uh uh some of the some of the luxury uh competitors have raised prices vary very significantly.

Very exciting opportunity for the company. Uh, Europe has been stable and kind of growing. Um, we've got some work to do in in both uh, Japan and in China. Uh and and that that is is more of an issue for us that I'd say the trend that we see happening in the region.

Thank you, Rick.

Thank you. Our next question, comes from Bob tribal. With btig, please go ahead.

Hey um, good morning. Um, just 2 questions for me, the first 1, John in terms of your team. You know, what team do you need in place as you continue to move the company forward, you know, from where we are. I know that Raj is is still interim and I guess the second question is for Raj, which is, can you expand a bit on sort of, you know, the net interest income that your currency hedging, you know, as you look, you know, into the future and and how the company's positioned from that, sometimes those numbers are a little confusing to us. Thanks.

Um, thanks and good morning. Bob Bob, Bob, you know, we have a great team in place. We'll start out with, you know, at at Michael Kors, we have a man called Michael Kors. He's been here for 44 years, he's been here since the start and and he continues to be, uh, our our, our uh, uh, kind of visionary for the brand. And, and I, I think the product that he and our design teams are putting out now is

Some of the best that I've ever been associated with the company. So I'm really proud and happy with what's happening there. Uh, we've got strong teams around the world who are, who are helping us Implement our strategies. And then we've got great teams in place for, uh, everything from from, from our Worldwide Logistics, to our production, to our finance teams. Uh, and and, and yes, Raj is the interim CFO. But we got great people who who are here, working with Raj, uh, and so I'm really proud and, and, and our teams are, are, are I think doing a great job and, and to, to, to also, say to you, you know, our our previous situation was quite disruptive for the company. Uh, when we went through a 18 plus month period of time, where people weren't exactly clear about what was happening. Um, and, and now they are and I think they're Resolute in, in, in in in uh, getting our, our, our company back.

In a, in a positive direction. And so we're excited about finishing up fiscal. 26, uh, on a, on a well, we'll, we'll be down. Uh, I'll call that a positive note because we're going to stabilize this business. And really, we're looking forward to fiscal 27. When we think we're returning to revenue growth, and some very strong operating income growth, which I think will be, um, um, uh, very, very important, um, for our shareholders but also important for our teams inside the company.

Uh, thanks Bob and uh, good morning. Um, so we continue to receive income from our net investment Hedges. Uh, as you mentioned and the hedges really related to in our company investments in our European subsidiary subsidiaries, uh, we pay out interest rates in euros, and we received interest payments in USD. Uh, so that's sort of the pickup that you're seeing. Um, and then on the other side, when we received the proceeds, from the sale of our site, we expect to substantially reduce our debt levels, which was, which will result in lower interest expense, and we'll have minimal debt on our balance sheet. So you'll see a lot of the, the interest expense go away and really the interest income continue with our net investment hedges.

Thanks Bob. Thank you.

Thank you. I'd like, I'd like to thank everyone for joining us today and we look forward to uh, continued exciting news about Capri, and how we are moving forward. And we thank you for your uh, uh opportunity to spend time with us today and look forward to updating you more in the future. Thank you. All.

Thank you.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.