Good day, and welcome to the Michael Kors' Second Quarter 2016 Earnings Conference Call. Today's call is being recorded. I would like to turn the call over to Krystyna Lack. Please go ahead. Krystyna Lack - Co-Treasurer, VP & Head-Investor Relations: Good morning, and thank you for joining us for our second 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 than 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 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, Krystyna. Good morning, and welcome to Michael Kors' second quarter fiscal 2016 earnings call. I'll begin with a review of the quarter, and then provide an update on some of our growth initiatives. I'm pleased to report that our financial results for the second quarter exceeded expectations as we continued to expand the Michael Kors luxury brand worldwide. Total revenue increased 7% on a reported basis, and on a constant currency basis, total revenue increased 12%, driven by increases in both our retail and wholesale segments across geographies. We saw revenue growth of approximately 6% in the Americas, 21% in Europe, and 61% in Japan, on a constant currency basis. Our EPS of $1.01, which included a $0.06 impact from foreign currency, was also better than anticipated for the quarter. Our retail sales grew 8%, and in constant currency, our retail business grew 15%, driven by new store openings, strength in our North American digital flagships, and continued momentum in Europe and Japan. Global comparable store sales decreased 8.5%, or 3.4% on a constant currency basis, in line with expectations, and reflecting sequential improvement as compared to the first quarter. North American digital sales more than doubled compared to last year, as consumers continued to shift purchases to online and mobile channels. On a constant currency basis, we delivered a high single digit comp increase in Europe and strong double-digit growth in Japan. In our North American retail stores, comps declined in high single digits as we continue to see the impact from lower mall traffic and a shift to the online channel. If we included our U.S. digital flagship sales in our comp base, our North American comparable store sales would have declined in the mid-single digit range. Wholesale sales grew 8% in the second quarter. And…

Thank you, John, and good morning, everyone. Our financial results exceeded our guidance for the second quarter of fiscal 2016. Total revenue grew 6.9% to $1.1 billion. As expected, foreign currency headwinds continue to impact our results this quarter. On a constant currency basis, total revenue grew 12.3%. By region, in constant currency, revenue in the Americas increased 5.6%, Europe revenue increased 20.6%, and Japan revenue increased 60.7%. In our Retail segment, net sales increased 7.5% to $532.8 million. In constant currencies, net sales increased 14.7%, driven by the opening of 116 net new stores since the second quarter of last year, and an increase in our North American digital flagship sales. Notably, we saw exceptional performance from our digital flagships which generated a sales increase of 136% as compared to the sales of our previous outsource site. Comp store sales declined 8.5% on a reported basis. On a constant currency basis, comp store sales declined 3.4%, reflecting a sequential improvement in the first quarter. The decline is attributable to lower comp store sales in North America, partially offset by an increase in comp sales in both Europe and Japan. If we included our U.S. digital flagship sales in our comp base, our global comp store sales would have decreased in the low single digit range on a constant currency basis. We added 39 new stores in the second quarter, 23 in the Americas, which included 18 previously opened stores from our Panama joint venture which was consolidated for the first time this quarter; 12 in Europe; and 4 in Japan. In addition, we expanded or relocated 13 stores. We ended the quarter with 589 company-owned stores, including concessions, and 804 stores overall, including our license locations. Wholesale net sales grew 7.8% to $554.0 million for the second quarter. On…

Thank you, Joe. In summary, we continue to see ample opportunity for long-term growth in our business around the world, driven by our luxury fashion product, strong brand, and our powerful business model. We remain focused on maintaining our leadership position within the global luxury market, driving expansion of our direct-to-consumer business through digital flagships and retail stores, building our wholesale presence through shop-in-shop conversions, expanding internationally through our regional licenses and driving growth across our key product categories. As we look ahead, we believe that there is continued growth for Michael Kors' luxury brand, and we remain on track to achieve our long-term goals. I will now open up the call for questions.

Thank you. We'll take our first question from Kimberly Greenberger with Morgan Stanley. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Great. Thank you. Good morning. It's so nice to see some stabilization particularly in the comp number. I'm wondering if you can talk about e-commerce, John. I think you mentioned that it grew 136% in the quarter. I believe you took the platform in-house early September last year, so I would assume the growth in the quarter was distorted to July and August since you're sort of anniversarying the big pickup that you had seen in September, but maybe you could just help us out with that. And then, I'm wondering on the wholesale channel, it sounds like a very prudent move to pull back on the inventory there. I'm wondering if you can talk about the pacing of how you sort of pull the inventory back a bit in the wholesale channel and is it – are you doing it both in the North America market and Europe or is it largely concentrated in North America? Thanks.

Great. Thank you, Kimberly, and good morning. Kimberly, we're very pleased with what's happening with our e-commerce business since we brought it in-house. I mean, obviously the numbers are very strong in terms of the growth rates and the conversion rates as well, and what we're really seeing is the engagement of the customer. And I have to be frank with you, we're I think, at the very early stages of what we're going to be able to achieve with this platform. We're operationally, I think, in great shape. I think the site itself is quite exciting. We're going to do a lot of things over the next six months or so to improve our mobile experience. We don't think that's where it really needs to be. And secondly, what we're going to be able to do through our analytics and CRM with truly presenting our styling capabilities and Michael's messaging with the various communication vehicles that we're developing to tailor the experience for our customer. We think the opportunity is, quite frankly, very, very large for us. So I think that basically it's all systems go in terms of what we're seeing both in North America and I'll say, America and Canada, both platforms are operating at a very, very high productivity rate. And as we said in the call, we're bringing on Europe in the fall and we will actually bring up Korea and Japan not too far after that. So we will be, I think in a very, very strong position. We told you two years ago that we were going to make a very big investment in systems, people and in the distribution facilities to be able to handle all this and we're there. And we consider ourselves to be a company who will ultimately be…

We'll take our next question from Omar Saad with Evercore ISI.

Good morning. Thanks for all the information. John, I wanted to talk about the kind of moderated comp expectations for the back half from last quarter to this quarter, you know trying to understand how much of it is top down, the macro environment, the consumer environment. Or is it maybe the smaller handbag trends accelerating or other internal things that you could add there. And then I have one follow-up.

Okay. Sure. Omar, first off, we're kind of pleased with what's happening with the sequential performance of our comp store trends. In fact, our comp stores through October are getting better, again, from what we just reported. So we're pleased with what's happening with the trend in the marketplace. It's two things in North America. It is, without question, smaller handbags. Again, I want to really hit home on this point so you all understand. When we're selling high double-digits in terms of additional units, that means that people are buying a lot more Michael Kors product, and the same thing may be happening to some of our other competitors. That's just trend. So we're losing actual performance in the stores just because the customer thinks that they bought a handbag. So that's the first thing. And the second thing is, the moderation from our previous guidance also reflects the continuation of what we think is impacting us is the tourist traffic. Both in the department stores and in the retail channel, we have huge doors, whether it's in New York, whether it's in the Southern Florida area, all of us are now being impacted in parts of Texas because of oil prices there, that's a little bit less tourist, but some of it's related to the Mexicans shopping cross-border with the peso to the dollar. So these are things that we just don't see going away so quickly, even though we'll be lapsing the change in currency, which will happen probably to its largest effect Q4, the tail end of that. That's just something we think we're going to be a little bit more prudent about. And, again, both in retail and wholesale, we just like to have a lot less markdown inventory in the stores. We don't think that's good for the brand long-term and we can still achieve our financial targets. As you can see, our new range annually still puts us kind of, if you take the middle of that range, at the low end of our previous guidance. So we're still going to achieve our financial objectives and we're going to do it in a prudent way that's going to protect the health of the brand and be respectful of what's happening in the environment.

Thanks. That's really helpful. And then you've talked about in the past kind of some new product launches and innovation and pushing the fashion envelope. Can you help us understand the timing in both the handbag and the watch category? Can you help us understand the timing of when we might expect some of that? And I think on the marketing side too, all of that to kind of flow through and maybe drive an inflection in the comp.

Yeah. So it's happening now, Omar, and we're seeing an inflection on a sequential improvement in the comp. As I said in the call, saddlebags are – we're probably going to run out before – even before the holiday season. Merlot, we're probably going to run out before the fashion season. We've got some great new handbag styles that have hit that are really getting some excellent traction. And the whole cross-body piece of the business, I want to tell you, we're excited about. We're less excited about the lower transaction value, but we are on trend, and all the consumer research that we're doing, our customer says we love Michael Kors, we want to buy Michael Kors, and they are actually buying more Michael Kors. They're just buying small units, a smaller average price point unit for us. So we're seeing that happen. The biggest piece of that is going to hit for the spring season where we've got 22 new handbag groups that we're introducing. Obviously, all of those won't be at retail. But you're going to see a major change in the way that the product works in the stores. And that's not just because of comp store trend. I want to be clear. That's because that's what's happening in the handbag and the fashion business. Our luxury competitors around the world are doing a great job, certain of them, in really updating product and making it exciting and compelling for the customer, and that's what the customer wants to do. When we're delivering newness, they get excited. And I want to say we're seeing that in the watch business, in a business that is clearly challenged, and the customer has voted a little bit more for the iPhone and a little less for the watch when all of a sudden when Michael was the one who really drove it and said let's go after the leather watchband business in a big way. We're getting excellent sell-throughs on that. Our new platings, Sable and Navy, excellent sell-throughs on that. So that's just saying to us, she wants, she's ready to shop, but we better be a fashion leader and on trend to inspire her, so we like what we see in the stores. And I want to leave you with this call that we're kind of excited about what we see what's happening out there right now. Thanks, Omar.

Thanks, John. Nice job.

We'll take our next question from Erinn Murphy with Piper Jaffray. Erinn E. Murphy - Piper Jaffray & Co (Broker): Great. Thanks. Good morning. I was hoping to speak a little bit about what you're seeing in Europe. It looks like the sales overall, I know there were some pretty stiff FX headwinds to decelerate in the second quarter and maybe it was led a little bit more by wholesale. Could you just talk about what you're seeing in the wholesale channel, particularly in Europe? And then I have a follow-up. Thank you.

Yeah. Thanks, Erinn. Erinn, I remember about three or four years ago when the conversation of sequential deceleration came up. Our business is going to sequentially decline, whether it's North America or Europe in the quarter just because we're getting bigger. We're doing over $1 billion in Europe, which is incredibly impressive to have built that in basically six years, and we have high brand awareness, great customer loyalty. We're looking at our newest kind of developed market that we went after this year, Italy. Business is literally on fire, running strong double-digit comp growth there. So I would tell you that our business in Europe is very, very strong. There are – leave the FX headwinds out of this a second. There are a couple of factors that are impacting the business in Europe and that is, first and foremost, the Russian tourist who was a very large piece of our business has not been traveling, as you well know. The second piece is there's a Middle Eastern tourist issue that they're not traveling as much as they did, and we had a very nice business with them. So both of those individual markets, if I go in and look at our Middle Eastern market and our Russia market, are doing exceptional double-digit comp store growth in both of those markets. Because the customer is not coming into Europe, they're shopping it in those markets, so we pick some of that up through our wholesale channel. But they tend to spend a little bit more when they're traveling and a little bit less fluidly when they're in their country. And then there is some challenge in the UK and that's more of a pound to the euro situation where, again, the tourists are traveling a little less into the…

Sure. North America, yeah, we've said we'd be at 400 doors. That will actually probably change just slightly because of – I mean, North America women's (48:40). The Americas will change slightly because you'll see the South American numbers reported in our Americas numbers, so just so you know. But no, we have no intent of kind of going beyond that, and we're close to it. We'll open a few more stores, and then that rollout will be complete. And, again, as we've said to you many times, because you've all questioned us regularly, I might say, on why do you open more stores. Well, we're profitable when we open more stores. And people, while online shopping is absolutely a trend and it's going to move the needle for the company, people will still go out and shop in a store. That won't, at least while I'm alive, won't have evaporated. So we'll be in the right cities, in the right locations, and feel good about that. And then in terms of men's, I would say to you that we're going to open these six or seven stores in North America. We've got about three/four on the docket in Europe and then a handful in Asia, and then we've got about 75 shop-in-shops going in, in North America, and I don't remember the exact number in Europe. I would say we'll get these all in place, and then we'll kind of hold a little bit just to make sure we understand what the performances are, productivities, how we're going to go about doing this. We're really excited. I can't wait to show you guys the new fall line that's coming with Marcel Ostwald joining us, and as you know, he headed sportswear design for Hugo Boss. So we're really excited about what's coming product wise. We've got a whole new marketing campaign that Michael has developed that will include some significant television advertising for men's because, men's, it's not a traditional magazine driven communication market. So what we're going to do digitally and on TV with men's I think you'll be quite impressed with. So we're deadly serious about the men's business. You've heard me say before it's a $1 billion opportunity. Of that $1 billion, we think $300 million of it is in leather goods, and if you go down to Macy's Herald Square, you can see our leather goods shop there. You're going to see quite a few more opening as we move forward. So this is an area of business. It's going to take us a couple of years to grow it, but once it gets going, this will be a very nice additional growth vehicle for the company. Thank you, Erinn.

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

Thanks. Good morning, guys. John, given your comment about AUR declines as a function of mix, I guess, how were the like-for-like AURs? And then just given the commentary on the units versus the price, can you just quantify any of the composition or give any color around the composition of that North America or consolidated comp at all? And then just to quickly follow up, given the discussions around margin concerns, you've actually had some relative stability I'd say around that wholesale, seems to be holding in better. Can you talk about the comfort you have around that number? Thanks.

Yeah. Let me start with the AUR side. The AUR in the quarter in our North American retail business was down approximately 15%. So that is driven, I would say, about 60% of that is driven by smaller handbags and I'd say the balance of that is driven by additional promotional activity inside the stores. We see that starting to stabilize, in particular, in the third and fourth quarter because, remember, we're lapping some of this stuff starting to happen. The world got a little more promotional last holiday season, got really promotional into Q1, or whatever; our Q4, calendar Q1. And then the small handbag thing started around that time. So we see in our retail business, in North America in particular, we think margins are going to start to stabilize in Q3 and Q4. You've seen kind of a sequential 1% to 2% decline in gross margins in the retail business and we think that's going to stabilize for us. We feel pretty good about that. And we think this AUR situation, we'll be lapping it as well. The other thing I might add that also impacted – again, I don't want to sound defensive, but a lot of people are writing about our comp store decline, and it's all about the handbags. The watches are having an enormous impact on our comp store decline. So, our handbag business is relatively healthy, and I think the industry is relatively healthy. It's not growing at the high-single digit rate it used to. But when you look at the amount of bags that are being purchased, the interest by the customer, we feel good about all that. We'll start to lap the comp store decline in watches also coming soon. And remember, our average watch sale was between $200 and $225, so that actually impacts our average transaction inside of our stores. So once we start to lap some of that, again, we feel pretty good about that situation as well. And your second question was – or was that it?

That was it.

Okay.

We'll take our next question from Joan Payson with Barclays.

Hey. Good morning. Could you talk a little bit about in terms of the domestic comp trends, what you've seen in terms of the outlets versus the full-price stores? And then just turning to China, John, I know you had a few comments about the rising brand awareness there, but could you provide any update on the revenue sizing of that business as well as thoughts on timing for taking it in-house?

Sure. We don't break out the full price in the outlet, Joan, as you know. But I will tell you that the traffic in outlets has also seen a sequential decline, although modest. It's been very, very small. So the larger decline in traffic is in full price shopping malls, and the smaller piece of it is in outlets. And what's interesting now is the kind of the traffic decline and the comps are starting to marry up a little bit. At one point the traffic decline was higher than the comp decline and the comp decline got higher than traffic decline, and that was driven by AUR. Now, as I said to you, that's why you're hearing me feel positive. It's kind of evening out, our conversion rates are up, which – they're up significantly, by the way, and I have to take my hat off; I want to compliment our 7,000 employees out selling around the world. These people are doing a great job. And that's one of our, I think, incredible strengths. You may remember from the IPO, our jet set training, the way that we really work with our teams and we've announced the Kors Concierge, which will be piloted starting really this week, is going to be an incredible tool for these people to really act as not only a brand ambassador but really to be a styling consultant. And, again, we'll show this to you guys because I think you'll be quite impressed with what the technology gives our sales associates from not only a product point of view both also information about who the customer is, what they bought previously, etcetera all at their fingertips. And I think that is going to help us with comps because traffic is going to continue to…

And we'll take our final question from Dana Telsey with Telsey Advisory Group.

Good morning, everyone. Can you talk a little about when you commented on the gross margin, how do you see the buckets underneath the gross margin, whether it's markdowns in department stores, what's happening in retail, and the complexion with the overall smaller handbags that's going on with the lower AUR? How do you see that for the holiday quarter and go forward in each of the channels? Thank you.

Well, Dana, I don't think we would talk about it by quarter. I'd rather just talk about it as a trend. But I would say to you that the gross margin in retail we believe is going to stabilize. I said that to you that – we're feeling pretty good about that. We think we've got a pretty clear picture on that. We are going to take some price increases on some of our small leather goods because we've been actually slightly underpriced compared to some of our other luxury competitors and also on some of our cross bodies, so we think that will get us some margin improvement there. And as I said, we're kind of lapsing the promotional environment. So I'd say that that's going to remain in a pretty good place. And we'll probably have a little sequential decline in wholesale gross margin, and that's a result of higher allowances to department stores. But, again, we think that will be not highly significant as we look out and especially as we begin to pull back some of the inventories. And that's really more of a North American thing. We don't see that as a European or we have a very sizable business in Asia now growing to our license partners and through the duty-free operating channels as well.

So, I'd like to thank everyone for joining us on the call today. I think you can sense a lot of enthusiasm from us here at Michael Kors, and that's based around, I want to first start with the incredible product that Michael and the design teams have been putting forth. And what we're feeling good about is the fact that that product is resonating, we're both delivering great new fashion innovation and we're delivering trend. So those are two things that are important to being successful, and Michael and our design teams have done that. Secondly, we're really excited about our execution of what's happening in the digital world for us, and I also want to layer on to that what's going to come with Kors Concierge and give our already 7,000 amazing employees around the world who are selling every day of the week to our fashion customers an outstanding tool to help deliver a better jet set experience. And third, I want to say that we believe that we'll be lapping some of the headwinds that we've seen over the past 12 months, and that, therefore, we will have slightly easier comparisons and additionally, we think we'll have a little bit more of a platform to begin to launch off of. So with those things resonating in front of us, and the growth of our international business, Michael Kors is going to be an exciting company to watch, and we're looking forward to reporting to you in the next quarter and delivering another outstanding set of results. Thank you very much.

And this does conclude today's conference call. Thank you all for your participation. You may now disconnect.