Kimberly Greenberger - Morgan Stanley Brian Tunick - JPMorgan Erinn Murphy - Piper Jaffray Simeon Siegel - Nomura Securities Faye Landes - Cowen & Company Omar Saad - ISI Group Paul Lejuez - Wells Fargo Adrienne Tennant - Janney Capital Markets Dana Telsey - TAG Camilo Lyon - Canaccord Genuity

Welcome to the Michael Kors Holdings Limited First Quarter 2015 Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. As a reminder, today’s conference is being recorded. And now, I would like to turn the conference over to Christina Lack, Vice President and Treasurer. You may begin.

Good morning and thank you for joining us for our first quarter earnings call. Presenting on today’s call are John Idol, Chairman and Chief Executive Officer; and Joe Parsons, Chief Financial and Chief Operating Officer. Before we begin, let me remind you that certain statements made on this call may constitute forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those that 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 Web site. Investors should not assume that statements made during the call will remain operative at a later time and the Company undertakes no obligation to update any information discussed on the call. I will now turn the call over to Michael Kors’ Chairman and Chief Executive Officer, Mr. John Idol.

Thank you, Christina. Good morning, and welcome to Michael Kors’ first quarter fiscal year 2015 earnings call. With me today is Joe Parsons, Chief Financial and Chief Operating Officer. I will begin with a brief overview of our first quarter performance and discuss our long-term growth opportunities as we continue to expand our presence as a leading global luxury fashion brand. I will then turn it over to Joe for detailed review of our first quarter financial results and our outlook for second quarter and full year. We are very pleased with our first quarter results, which we believe demonstrate the great momentum in our brand and a significant grow opportunities that lay ahead. Michael and our design team continue to deliver an amazing, diversified collection of fashion products that is resonating with consumers worldwide. This has positioned Michael Kors as a true luxury lifestyle brand with a compelling offering of handbags, small leather goods, footwear, ready-to-wear, watches, jewelry, eyewear and fragrance. The strong performance across our product lines and geographies contributed to our financial results in the first quarter. Revenue grew 43% to $919 million and gross margin expanded 20 basis points. Income from operations grew 40%, leading to an operating margin of more than 30%. We achieved these strong results as we continued to successfully execute on our six growth strategies. First, revenue in North America grew 30% driven by comparable store sales increase of 18.7%. We've been very successful in our North American business thus far and we are still building momentum. As we look ahead, we believe that we continue to have significant growth opportunity in this region, driven by comparable store sales growth, new store openings and expansions, shop-in-shop conversions and expansions and the transition of our e-commerce business in-house. In addition, we believe that…

Thank you John, good morning. I will begin with a review of our fiscal year 2015 first quarter financial results followed by our outlook for the second quarter and full year. We exceeded our top and bottom line expectations in the first quarter reflecting strong demand for the Michael Kors brand and continued progress across our strategic growth initiatives. We are raising our full year guidance primarily to reflect the better than expected performance in the first quarter which I will discuss in more detail in a few minutes. We will continue to make strategic investments in our business to support our growth plans and position us to realize our long-term potential as a global luxury lifestyle brand. Now, turning to the first quarter results, total revenue grew 43.4% to $919.2 million as compared to $640.9 million for the first quarter of last year with strong growth in each of our retail, wholesale and licensing segments. Retail net sales increased 47.5% to $480.2 million as compared to $325.7 million in the first quarter of last year, resulting from a comp store increase of 24.2% and the opening of 115 net new stores since the first quarter of last year. Our comp store sales performance was driven by increases in traffic and conversion. We also saw a strong performance across categories with the largest increase in accessories primarily handbags and small leather goods. Wholesale net sales grew 40.0% to $406.8 million in the first quarter compared to $290.6 million in the same period last year. The increase was led by accessories and footwear categories as well as our continued conversion of wholesale doors to shop-in-shops and the expansion of our European operations. In our Licensing segment, revenue grew 30.5% to $32.1 million for the quarter as compared to $24.6 million last…

Thank you Joe. In closing we are extremely pleased with the strong momentum we have behind our brand. As we solidify our leading position within the global luxury market, we are investing in our company to enable us to fully capitalize on the long-term potential in our business segments across our categories and throughout our geographic regions. When we look at our growth opportunities we see ample runway in North America our largest market as well as in our emerging regions including Europe, Asia and Latin America. Our ability to achieve our long-term potential first and foremost stems from our product offering. We continued to deliver luxury product assortments with the highest quality standards that our customers demand and trust. We are a leader in the global luxury market but we still have enormous growth potential ahead of us. Handbags and small leather goods represent approximately 70% of our global net sales. We see additional growth opportunity in our less developed categories. Today men’s and women’s ready-to-wear combine represent 13% of our global net sales. Footwear is 10% and watches and jewelry are 7% combined. We believe that there is an opportunity to expand market share in each of these categories given their current size and the great performance in our stores and shop-in-shops. The driving force behind our product is Michael himself, an iconic designer who has a standard on pulse of global luxury fashion. People around the world look to him for fashion and style queues and trust him to create products that make them look and feel fabulous. Michael’s motto is why not have it all? And the passion for design that is embodied in every product combined with its unique Michael Kors experience makes you feel like you can have that. It is this attitude that has made Michael Kors synonymous with fashion leadership and jet-set luxury. And finally our jet-set luxury in-store experience creates a state of mind for consumers embodying glamour and style. Our consumer aspires to have a lifestyle that is on the go. Our jet-set philosophy enables us to give each customer a luxury experience and to create a personal attachment to the brand. In the end we believe the ultimate luxury in life is to feel great about yourself and that is how we make consumers feel every time they wear the Michael Kors brand or step into a Michael Kors store. When you combine all these unique facets of our business, it is clear why Michael Kors has multiple geographic and product expansion opportunities as a global luxury fashion brand. For fiscal 2015 we’re poised to achieve 30% plus projected revenue growth and 26% projected earnings growth. At the time we’re positioning ourselves to deliver sustainable, double-digit revenue and earnings growth over the long-term. We will now open up the call for questions.

Thank you. (Operator Instructions). And we’ll take our first question from Kimberly Greenberger with Morgan Stanley.

John I am wondering if you can talk about the progress on bringing e-commerce in house and what you have planned for that business? And any way to sort of integrate ecommerce with your in-store experience here over the next one to two years?

And I just might add that I think we delivered best-in-class results given what other retailers have reported and I might also add we delivered best-in-class results in what other luxury retailers reported. Many time analysts look at us compared to only one Company and I think the analysts should look at us compared to the global luxury market place and look at the results that we achieved. The e-commerce business is really exciting. We're on track to launch the e-commerce site in the beginning of September, so please all of you go on and shop, we would be very appreciative. This site looks phenomenal and as I said to you previously, we really did not think we were best-in-class in our current e-commerce experience. So, that experience will now be, what we believe will be best-in-class in terms of a shopping experience also in terms of the branding experience in particular our Destination Kors portion of our website which really will tell you everything about what’s happening with the brand around the world, what’s going with Michael’s fashion advise and we are really very powerful that way with consumers, they look to us as almost their person stylist and again not many companies have that ability, certain companies or brands, we are a fashion leadership company globally. And the integration will be through omni-channel and that will come on through the balance of the year where we will be able to create a seamless experience for the consumer when they shop online we can deliver it from the store, we can deliver it from the website and as you know this is becoming a more and more of a competitive issue in the marketplace and the speed at which you can deliver product. So, we are working very, very diligently on that and I would say that would be more of first part of next year where again we are going to try and take a leadership position in how we give service to that customer. We believe that part of being a luxury brand is service and that is going to mean speed to delivery in house. And then lastly, I just might add that we view this as very substantial for the business long-term. We ultimately think that this can be up to 20% of our global revenues generated in the retail side from e-commerce. It’s going to take us some time to reach that goal but that is our goal and we think that that will really enhance our overall experience with our customer.

If I can just ask one quick follow-up. I am wondering if you have an update on…

Kimberly, can you speak up, we can’t hear you?

So, I am wondering if you can just update us on the China business, your thinking, have you considered the timeframe in which you might consider bringing that business in-house.

Yes, so let me talk about Asia first in total, as you know we're very pleased with what’s happening in Japan. We saw excellent comp store results there and that’s very similar to what’s happening in Asia, not only are we seeing that in Asia but we're seeing the Asian consumer travelling. We're seeing her all throughout Europe in our larger tourist destinations obviously, France, London and certain parts of Italy and then in our airport locations. So, they are fast becoming our number one travelling customer for us overtaking what used to be Brazilian and Russian, so we know that this is taking hold. And as I am sure are aware it is estimated that 50% of all the luxury goods purchased by Chinese or in particular are purchased our of Mainland China. So, Stephane has joined the Company, we are going to be analyzing certain changes and arrangements with certain licenses that are actually coming due shortly and other ones that we might convert into joint ventures or in a 100% take backs into the company. So, we are not really ready to discuss that yet but you can be assume that some of that will be horizon in the not too distant future.

And we will take our next question from Brian Tunick from JPMorgan.

I guess one question for John and one for Joe. I guess John on Europe; can you maybe update us sort of on where are you from a brand awareness perspective? Where are the share gains coming from now? And as importantly as you try to be $1.5 billion opportunity in Europe, where did that share come from? And then may be just Joe on the gross margins at retail, I think you said down 50 basis points, so just curious there that mix shift, markdowns, competition just may be give us a little more color. You did say ultimately gross margins would start coming down but just curious what’s going on there? Thanks very much.

Number one, as we've said in the past, market share in the U.S. is at around 89% just as a frame of reference -- I am sorry brand awareness is around 89% and in Europe brand awareness is now at approximately 49%. So, we've always said to everyone that once we get north of that 50% area, you really start to see an inflexion develop. The only market that we are north of 50% is in the UK and we are on the cusp in Germany. The balance of the markets are still in 30% to 40% range, 40%, 45%, so lots of opportunity for growth there. So market share -- and this is a really good point and I am glad you raised it. Obviously we’ve said in previous calls where was that market share coming from and then our opinion at that point in time it was coming from a lot of smaller regional players, we don’t believe that’s true today, we actually know that we are today taking market share from the leading luxury companies. In Europe as I am sure you’re aware we sit on the best street locations next to the finest luxury companies that many of you cover. And we are watching, we are watching the customers go into stores, come into our stores to shop and leave with shopping bags from Michael Kors, and they might be carrying those other luxury shopping bags as well. So in Europe we are definitively taking market share from that category and by the way we are seeing the same thing happen in Asia as well. So we feel really good about our opportunity. We will probably just tip north of a $1 billion next year for the European business so that’s already -- no one has…

Yes. The business is just and so good I really don’t have a lot to add to -- historically it’s been so strong. I don’t have a lot to add other than we’re seeing the trends today. And we’re feeling very good about the business but we think that we’re anticipating this 50 basis point decline.

And by the way one last thing Brain too, our handbag and small leather goods business continues to (comp) [ph] at the rates you saw in our report and/or higher. So again it just shows the strength of the brand and the business with the consumer and I’ll talk a little bit later about that in the call. Thank you, Brain.

And we’ll take our next question from Erinn Murphy with Piper Jaffray.

Great. Thank you. Good morning and congrats on a very solid first quarter. I guess, John, first for you, as you think about the comp drivers during the first quarter, could you just maybe speak to how the trends varied between April, May and June in the U.S., as well as in Europe? And then as we head into the back-to-school fall season, what product categories and launches are you most excited about as you think about fueling this growth?

Yes Erinn we actually had a very good April and May, June is a little softer for us and as I said that was really sadly self-inflicted. We brought that fall merchandizing early you may have seen it in the stores; it just wasn’t the right thing to do in hindsight. That being said we converted very quickly as you know we’re fast and we moved out of that product quickly and then have our new camouflage delivery on the floor right now. And I might add that we’re off to a very successful start in July so far. So our customers are super, super smart, we’ve always told you that fashion is what leads our Company that’s what leading us globally. Many people write about us and competitors against us this and that, why is Michael Kors successful it’s because of our product category. So then we, you talk about in terms of what are we excited about for the fall season. Again, what’s interesting is two really big drivers for us that are kind of coming on stronger then we continue to anticipate our shoe business did excellent during the quarter both in our own retail stores and in the wholesale environment. And then also the jewelry business continues to be strong and what we like about those two businesses, they are just bringing more customers into our stores, shopping different categories and hence that’s why we are going to upsize Joe mentioned earlier in the call. We’re going to upsize approximately 41 stores and the primary reason we’re doing that is really we’re in enlarging the handbag spaces in the stores, we’re enlarging watches and jewelry, footwear and our women’s ready-to-wear and the early results of that are quite strong. And so yes we will end up with 400 stores in North America and I have seen the comment that we’re opening too many stores which we would absolutely disagree with. And in fact we’ll be pretty much complete with our North American store roll out within the next 24 months or so. And then we’re going to be doing this really looking at upsizing our best stores, our high productivity locations and that expansion will come from our product extensions. So again we think we’re poised to continue our growth in North America and have the right strategy to do that. And I might also add we never changed our strategy in this Company since 2006, 2007. So everything that we’ve been saying since before our IPO, during our IPO and to this day is exactly what we’re doing in terms of our pace and in terms of how we’re building out the business.

And just if I could just follow up on the watch business, I mean it continues to be a standout as you mentioned continued stellar productivity there. How do you think about some of the longer-term drivers and then how are you thinking about the potential iWatch launch this fall and any potential participation in that smartwatch category?

Sure the watch business is just like the rest of our businesses, we have to have newness, we have to have excitement to stimulate the customer. We know our loyal customer has somewhere between two and three watches that they’re purchasing from us. And we’ve got to excite her to want a third and fourth and a fifth. So we think we do that well. You certainly saw with our Watch Hunger Stop campaign, I mean that was just an extraordinary success for us both the good that we’re doing around the world and the fact that people just love the whole colored dial story. So colored dials have been really, really strong for us and we see that continuing into the fall season. And again that’s just another way of exciting her about Michael Kors watches. And we have some amazing things coming actually for spring season on that category. The eyewear business, I mean we’ve got just a brilliant partner in Luxottica. They have developed an entirely new line. By the way we had already a very sizeable eyewear business and we didn’t talk about it a lot. So it is substantial and hence why Joe mentioned the impact in our licensing area because it was a very sizeable business for us. So we go through the transition and with the support of everything from LensCrafters to Sunglass Hut to their global distribution network and then Luxottica is turning out to be amazing partner and I think we’re going to be one of the leaders in the world in both sun and in optical due to our great partnership.

And we’ll take our next question from Simeon Siegel from Nomura Securities.

So John, just to your point about the gross margins, I mean you guys still beat the gross margin guidance you had given. Can you talk about where the beat came from? And then can you just quantify how much retail operating margin pressure you may have felt from the preopening expenses and/or the e-commerce spend this quarter?

Again as we’ve always said the margins are going to be impacted most by markdowns. So the decrease was a markdown but the beat was primarily related to that somewhat due to the strength of our European business which as you know has a slightly higher margin. In terms of the operating margins all those items that we mentioned are going to be impacting operating margin as John mentioned, we are definitely investing in the Company. And the investments that we’re doing do have an impact in the operating margins. We feel very good about those investments, but they do as I say impact operating margins.

And Simeon I might add we have said all along from again, the day we went public. We never believed that a 30% operating margin was a sustainable margin for the company. And by the way we don’t want that. So I want to be very clear, let no one be misunderstanding, we don’t think that’s the right way to run our business. We need more investment, we’re building this company for the long-term, we’re not here for a quarter-by-quarter situation, we’re here to build something that is very sustainable. And to do that you have to invest, we’re investing in people, you saw amazing talent that we’re bringing to this company, we have some more announcements to make that I think will even further strengthen the bench here. We’re investing in distribution facilities, when you’re growing a staff business and putting on $800 million to $900 million a year, you need to invest in state-of-the-art distribution facilities, you need to upgrade your technology. By the way bringing in ecommerce in house, I don’t know how anyone could assume that that’s not going to impact our operating margins. Those are all the right things to do to build the business. And then lastly the impact of the development of these stores the expansions we’re going to have accelerated write-offs on these stores. That’s going to impact our D&A. So again these are all good things that we’re doing to build this business and to build this company which I hope that you all will understand and respect. And don’t just look at the little changes and a bps here and there that’s not what drives the business, what drives the business is good strategic investment and also building your brand with the consumer which again I’ll talk about little bit more at the end of the call.

And we’ll take our next question from Faye Landes with Cowen & Company. Faye Landes - Cowen & Company : Could you just do us a favor and go back and give us a little bit more texture on the inventory increase? Because although you have talked, you have said that in the past, inventory will grow faster than sales, this is a big percentage. So if you could just break that out a little bit more and what’s different this time than like in the previous quarters?

You are correct. It is a big increase relative to the increase in revenues however our increases in the inventory in the past have varied from our increases in sales as well. So, we are very comfortable with what happened. As we said if you kind of take the inventory increase at a revenue increase level, the amount in excess of that have about half of it relates to building up retail and building up retail commerce, another half of that relates to timing. We have accelerated production and brought goods in earlier this year and also as Europe becomes bigger, we are investing more in inventories in Europe. So, in Europe we have buildup of replenishment and Europe has transitioned as a percent of business more to accessories and therefore the inventory cost is higher as we develop the business. Faye Landes - Cowen & Company : Okay and also just one quick question which -- on the early fall receipts, did that impact the results in June or in July? I just want to make that.

So, the receipts are really not impacting the sales. John talked a little bit about deliveries into our retail stores which did have some impact late in the quarter but the inventory receipts themselves… Faye Landes - Cowen & Company : Not in terms of inventory, I am talking about segway -- I am talking -- and in terms of sales and margins. The fact that the early fall receipts were not as well received as you expected because of weather et cetera for whatever various issues…

So, Faye let me explain, so we timed and planned to have those receipts in the stores in June. As I said that didn’t work for us and we took that out of stores very rapidly and so that immediately the traffic in the store et cetera, so we feel really good about moving quickly. When Joe is talking about the early receipts of merchandize, let me just explain, Faye, it’s also what’s called in-transit. So, there is times when we have a fair amount of in-transit inventory, so the in-transit he is referring to is actually goods that we will receipt physically in the warehouse. These goods are on the water, so they are actually not in our warehouse yet. Faye Landes - Cowen & Company : No I understand. I understood, I am just saying in terms of -- I think there is going to be a lot of focus after this call on your comments on the early fall product that did not sell-through that the way that you liked and then you moved quickly et cetera. I just want to clarify where that shows up in the numbers?

It’s already in our guidance, Faye, it’s all done. Faye Landes - Cowen & Company : But I am saying so it’s a July issue?

No, some of that was in June. We did take markdowns in the store in June and we moved on and you would seen that and also I might add to that remember we have e-commerce now as well which we did not have at this time last year. So, you are going to see e-commerce showing up in our inventories for at least three quarters until the revenues really catch up with where the inventory levels are because we kind of don’t know how big the e-commerce business is. We have an idea based upon our previous relationship with Neiman Marcus but we just don’t know exactly how big that’s going to be. So, there will be some mismatching for a period of time as we get comfortable with that business.

We will take our next question from Omar Saad with ISI Group.

A technical question, so just to be clear, you guys made a bit of a mistake this quarter on this early fall, decision to go early with fall. You’re able to cycle through it, take some markdowns, you are able to still expand gross margins in the quarter and then it sounds like you are off to a good start with the new product in the second quarter. Is that all a fair characterization?

Yes, but you should identify that to a month, the month of June which is what the question was asked earlier. So, it’s not the quarter. There was one month worth of delivery by the way that’s very similar to what we have done in the past where we had a transitioned group. We just brought in few weeks earlier and we found that the customer didn’t respond to that.

Understood but you are able to react and respond and you are kind of back on track.

Exactly.

Okay and then another kind of clarification question. I think the implied EBIT margin guidance for the full year that you gave on the last call, the fourth quarter call. I think down about 80 or 100 bps something like that. And I think today you are guiding to EBIT margins for the full year down 150 to 200, is really the biggest part of the differential, opportunities to accelerate investment to tune up to support the further growth and all the opportunities that you guys have.

Yes, that’s correct. Clearly we are -- continue to invest, we have some accelerated depreciation for the stores that we're going to change. So, yes we've developed our point of view in terms of the operating margins since fourth quarter.

But the primary change is not some sort of fundamental change in how you view the gross margin cadence?

It is not. It is really -- as John has said we are investing in this company for the future. And that’s what’s driving that.

We’ll take our next question from Paul Lejuez from Wells Fargo.

Hey, can you talk about the average price point of a handbag in the U.S. versus Europe versus Japan and how has that changed over the last couple of quarters, on a year-over-year basis or even years and what do you expect going forward? How should we think about average price points? Thanks.

You know as we have said in the past really average price points have not changed dramatically in the Company, they are almost flat, average transaction is running about flat. Average price point is up just slightly a tick and that’s really more because of the consumer responding to certain higher priced handbag from us. That is not a strategic change on our part. We have -- still offer product from more or less in the $250 to $450 range that’s kind of our range of sweet spot with really $350 being the core price point for us. And then in SLGs again that average is ticking up a little bit there because of cross bodies being a picture percentage of our small leather goods business but we don’t really view anything there as being different. And then of course, in Europe our product is more expensive due to VAT and our operating expense is bit more or bit higher in Europe as a percent to total. So therefore we run the product at a higher price. And then in Asia it’s obviously the most expensive and again that’s really driven from real estate costs and what a cost to operate in department stores in certain markets where we have confessions and to our freestanding stores which have typically higher rents in particular than North America and in some cases even in Europe.

And the steady price points that you've talked about, you are seeing that across geographies? You are not seeing the average price point to be higher in Europe and Japan relative to themselves?

No. It’s all runs pretty much about the same.

And we shouldn't expect any change in the future in that number as well?

No.

We will take our next question from Adrienne Tennant with Janney Capital Markets.

I guess my question is, from a longer-term perspective, if 30% is not the sort of right op margin number that we should be thinking about, how long should the investment phase last? And where should we think about those margins settling in? And then really quickly, the mid-teen comp assumption for the year would assume ongoing deceleration? I am just wondering why that might be. Thank you very much.

Okay. So two things, let me just discuss the comp first and then the operating margin. I think you have seen us give guidance before and I think fortunately we have been able to do better than the guidance. And as we said to you in the past we like to guide with what we know that we can deliver. And then if the consumer is there as she has been and demanding our product, we’ve been able through our factory relationships and other situations with the way we (book) [ph] product, be able to achieve those comp stores. So I think we’re planning as we had from the beginning of the year. And if the product continues to have the strong results that we’re seeing than you might see us do better, but so we view our double-digit comp store growth as still being best in class. I don’t think there is any other luxury retailer in the world who is delivering the kind of comp store results that we are. And I think you all and the investment community needs to look at that as a very positive sign for the strengths of the business. Let me just point out something on that note and then we’ll come to operating margin. There’s a number of people who are picking and choosing little spot to discuss trends in the business and we can’t come out and respond to every single piece of information like that. But I will tell you the traffic to our website with us by the way backing off of marketing as we were transitioning is up 26%. Our CRM database went up 69% in the quarter. Our Facebook fans went up 160% in the quarter. Our Instagram fans went up 155%. Our Twitter fans went…

And we’ll take our next question from Dana Telsey from TAG.

As you look at -- just a couple quick questions. How did ticket perform in the quarter and any other timing changes in the second half of the calendar year that we should look to in terms of the timing of bringing in goods? And lastly, just the SoHo store opening, when do you expect that to open and how is the impact of those costs on overall operating expenses?

Tickets exactly the same, from 2007 to where we’re today it’s almost identical also little bit it’s been climbing ahead but nothing to really call significant at all. Average transaction, UPT has gone up and I had mentioned that to you for the past year or so and that was really driven by jewelry but more people coming in and buy more product in total. So we feel good about that. The timing thing, let me just explain this again the reason why we try to do this the fall delivery is a good example is, because we don’t want to compete in the markdown arena. Again both in our wholesale business and in our retail business we remain on the same cadence. So every day of the week we try to think about how to sell more full priced product. I saw an analyst wrote a note about the unmentioned 500 stores, which by the way is exactly -- we've been in all those department stores since we’ve been operating in this company. We’ve been upsizing those shop-in-shops. And guess what? They sell mostly full priced product. So again I think there has been a little misdirection that needs to be looked at and again what we’re trying to do is we’re trying to sell more full priced products. So we’re going to push the envelope, we’re going to try and get new fashion in stores earlier. And are we going to make some mistakes at times? Absolutely that’s what fashion is about. And so that timing issue for us -- same thing we do by the way and the holiday season, in January we tried to get out of the sale product as quickly as possible and we try to bring spring product into our stores in January.…

And we’ll take our final question from Camilo Lyon with Canaccord Genuity.

I just wanted one final clarification on this gross margin concern as I think that’s going to be a highly debated topic. As you think about the guidance that you spoke about, down 50 basis points for the year, it seems like a lot of the markdowns on the fall lines have already been taken, maybe a little bit seeps into Q2. How are you approaching the promotional landscape around back to school and holiday and more importantly, how are you viewing your relationships with your wholesale partners and how they are planning their business from a markdown cadence perspective?

So again I want to reiterate, I think 0.5% of gross margin movement off of a very high gross margin is, I wouldn’t view that as -- you may view that as highly debatable we will take the position that that’s not given the fact that we’re a luxury goods company growing our business. But we are going to take the exact same point of view that we have always taken; we are not going to become more promotional that is not what we’ve built this company on. And I think our consumer has responded to that. By the way we don’t participate in a back to school promotional cadence, never have, never will. What we will do is we’ll introduce great new product. For example bag packs are becoming quite strong, today and those are leather bag packs as well. And so we’ve got a whole collection of those that happen to be retailing quite strong for us. So we will do things like that, we’ll increase our assortment of flats that way we can take advantage of some of the younger customer who might go -- up for back to school, again we are focused on trying to excite customers with fashion, not with price. That’s not how we are going to win as a luxury company.

Thank you for that clarity and gives you just one more point on that. Could you just clarify then what is the main driver for the gross margin decline expectation?

Sure as we have said earlier on the call, we believe that there is just some more normalized selling rates that are happening inside the store. Those were unsustainable gross margin. We told everyone that for multiple quarters. We also told everyone that the operating margins were not sustainable and we have had planned them to come down, so I said that to you guys in previous conversations. I think the shock and the reality of seeing that has everyone a bit unfocused in my opinion because you are not focusing on what is the true development of this business. We put on 20 plus percent comp store growth. We had 43% top-line sales. We are adding stores. We are growing the business to a $1.5 billion in Europe and when you are focused on only one little detail that’s not the whole picture of the company. And the other thing that I want to end on though is remember we don’t compete with one company in the world and I believe that many and I am going to say this, many analysts are just focused on that, I think it’s wrong. I think you need to focus on the fact that there are a lot of luxury goods companies in the world. There is a very large luxury market in the world and we don’t compete in just one category as we said earlier. 70% of our business is coming from handbags and small leather goods, 30% is coming from other categories and those categories are growing very, very quickly for us. So, look at some of the other luxury players and what percentages they run in some of those categories. And I think you might see opportunity for Michael Kors in its growth and development. I want to thank everyone for participating in the call today. Look forward to speaking to you all and hopefully on the next call that we are all together. Thank you very much.

This concludes today’s conference. Thank you for your participation.