Good day, and welcome to the Michael Kors Fourth Quarter 2017 Earnings Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Christina Coronios, Director of Investor Relations. Please go ahead, ma’am.

Good morning, and thank you for joining us for our fourth quarter and full year fiscal 2017 earnings call. Presenting on today’s call are John Idol, Chairman and Chief Executive Officer; and Joe Parsons, Chief Financial and Chief Operating Officer. Also joining us in the room is incoming Chief Financial and Chief Operating Officer, Tom Edwards. 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 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. In addition, certain financial information discussed today will be presented on a non-GAAP basis. These non-GAAP measures excludes certain items related to the acquisition of the Company’s Greater China license as well as impairment charges largely related to underperforming lifestyle source. You may identify these non-GAAP measures by the terms adjusted and non-GAAP. To view the corresponding GAAP measures and related reconciliation, please view the earnings release posted to our website earlier today at investors.michaelkors.com. 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 fiscal 2017 fourth quarter and full year earnings call. As many of you know, last month, we announced that after 13 years with Michael Kors, Joe Parsons has decided to retire. On behalf of Michael, the Board and the entire organization, I would like to thank Joe, for the integral role he played in building Michael Kors into a leading, global luxury fashion house. Joe and I have worked together for 20 years, and I would like to personally thank him for his leadership, partnership, and friendship. I and the rest of the team, wish him well in his retirement. On that note, I would also like to welcome Tom Edwards, our incoming Chief Financial and Chief Operating Officer. Tom joined us from Brinker International, where he served as Executive Vice President and Chief Financial Officer. Prior to that, he held a number of positions at Wyndham Worldwide, including Executive Vice President and Chief Financial Officer of the Wyndham Hotel Group. And he has held a number of leadership positions Kraft Foods and Nabisco. Tom has strong financial and operating experience across the diverse set of consumer-facing industries. And we are thrilled to have him join the team. Joe will continue in his current role through August 1st working with Tom to ensure a thorough and seamless transition. Moving now to our results, while the fourth quarter performance was largely in line with our expectations, fiscal 2017 was a difficult and disappointing year for us. The retail environment remains challenging. That being said, we must acknowledge that our Company needs to take steps to accelerate the level of luxury fashion innovation and our accessories assortments, and further enhance our store experience in order to better engage and excite consumers. We…

Thank you, John. For the fourth quarter, total revenue was $1.1 billion compared to $1.2 billion in the prior year quarter. As a reminder, fiscal 2016 includes approximately $34 million in sales associated with the 53rd week of that fiscal year. In the retail segment, net sales increased 0.5%, due primarily to the addition of 159 net new stores, since the fourth quarter of last year, including 111 stores associated with the recent acquisition of the Greater China license. Comparable sales decreased 14.1%, reflecting a low-teens decrease in North America and low 20% decline in Europe partially offset by a low single-digit increase in Asia. Our e-commerce comparable sales contributed approximately 450 basis points to our performance in the quarter. Our results in North America continued to face pressure from declining traffic and our decision to reduce promotional activity in our lifestyle stores. This was partially offset by increased conversion rates in our stores and strong performance of our digital flagships, which achieved double-digit comparable sales growth in the quarter. The comparable sales decline in Europe was due to reduced store traffic and lower average unit retail, in addition to sales that migrated to the online channel following the launch of our European digital flagships in the fall of calendar 2016. While European digital flagships are not yet included in the comparable sales base, had they been included, European comparable sales would have been down in the mid-teens on a reported basis and down in the low-teens on a constant currency basis. Asia comparable sales, which include Japan and Korea, grew in the low single digits on a reported basis and were flat on a constant currency basis. In the wholesale segment, net sales declined 22.8%. The wholesale in the Americas region declined 22.1% as we strategically reduced the amount…

Thank you, Joe. As I said earlier, Michael, our management team, and I are disappointed with our financial results in fiscal 2017, and we are committed to taking action to improve our performance. As we implement our new strategic plan, runway 20-20, we will address key opportunities to excite and engage consumers. Clearly, fiscal 2018 will be a rebuilding year for us as we reset our baseline and lay the groundwork for our future success. We will build on our strengths including our strong brand and history of fashion leadership, while accelerating the fashion innovation in our accessories assortments, growing our presence in key categories, rightsizing our store fleet and elevating the store experience. Through these efforts, we will deepen consumer desire and demand for our products and return our Company to growth. With that, I will now open up the call to questions.

Thank you. [Operator Instructions] We’ll take our first question from Omar Saad. Please go ahead.

Thanks. Good morning. [Audio gap] all the information and the update. Can you guys maybe elaborate a little bit further and just little bit more information about how you’re thinking about this transition year FY18? And kind of in the context of where the brand and the business has come the last couple of years and where you expect it to go in the next few years, both brand and positioning, but also the footprint of the brand, retail, full price, outlets, wholesale. How should we think about kind of those evolving dynamics over the last couple of years and out next few years? Thanks.

Thank you, Omar. Good morning. I’ll answer the first piece of this, which is how do we look at fiscal 2018. As we said, our number one priority is to focus on really fashion innovation which we were inspired by what we saw happen in the fourth quarter and in the third quarter as well by certain elements of newness that we started bringing into our accessories collection, and also our women’s ready-to-wear collection, which as you noted -- as we noted in the prepared remarks, was very -- has been very strong for the Company. So, we know that the consumer is still very engaged with our brand. And we know that when we deliver product that is exciting, compelling and innovative, she’s responding. So, we’ve seen that in a number of areas inside the Company. So that’s going to be our number one focus. I would say, the number two focus for us is really going to be our fleet optimization, both beginning the execution of closing the 100 to 125 stores and also the development of our fleet modernization. Again, we look forward on June 9th to being able to give a much greater picture of how that will roll out over the next few years and what will that mean for the Company’s growth. But again, I want to just reiterate, we have an incredibly strong brand and the consumer continues to resonate with it. But we’ve had some product misses, and I want to be very clear and say to you that we are facing that as a significant and important challenge for us as we go forward. And we’re going to do that all amongst the backdrop of reducing promotional activity, and next year is going to be significant. So that’s really why we’re…

Thanks, John. See you next week.

And our next question will come from Kimberly Greenberger with Morgan Stanley. Please go ahead.

Great. Thank you so much. Good morning. John, I wanted to just ask about how you’re thinking about the ultimate complexion of your retail store fleet. Are you looking to reduce your exposure in the outlet malls? Are you looking to reduce your exposure, let’s say in lower productivity B or maybe A minus malls? As you think about sort of optimizing your store fleet over the next 1, 2, 3, 4 years, what would you like that fleet to look like? And in terms of the modernization, the store remodeling and updating program, I guess, the fleet modernization, are you looking to invest sort of equally in the facelift, if you will, on the stores across all of the remaining store fleet, or are you going to be distorting your investment in capital in just a select subset of those stores? Thanks so much.

Thank you, Kimberly. Good morning. Let me start with the store fleet completion. Today, of the company-owned stores, outlet is approximately 25% of our fleet. Now, that will go up slightly as a percentage, because we’re going to close 100 to 125 stores. But, remember, we’re also going to open 50 stores this year in Asia and they’ll probably be equal that many the following year in the Asia region as we get to a more full distribution in that area. So, it’s going to be in that 25% to 30% range in terms of store count. So, we still feel comfortable that that’s the right number for us and again keeping the integrity. Because, again our primary focus as a company is to sell full price merchandise and present Michael Kors in the best and most appropriate exciting environment for our consumer. In terms of the store complexion, we’re going to look at the productivity and profitability of stores every single quarter. And if we think that more of the fleet is heading in the direction that will be unprofitable, then we will deal with that, if that’s the case. We think we’ve taken a fairly long-term view of what this is, and I don’t want to promise you that we would never come out say that we will close more stores. But we think this captures the general sense of the doors that have become, as I said, either unprofitable today or are moving in that direction. We still have a considerable amount of doors worldwide that are profitable, and we view that as our most-important efforts around returning those stores to a positive comp growth. We know that’s not going to happen this year, but we have aspirations that we think that that will come, in particular…

And our next question will come from Matthew Boss with JPMorgan.

Thanks. So, as we break down your negative high single digit global same-store sales for this year, I guess, what’s embedded for North America versus Europe; and are you expecting any improvement in the back half of the year or should we think about down high singles as run rate all year?

Matthew, we think that you should think about down high single digits run rate for the whole year.

Okay. And then, just North America versus Europe within that?

I would say, North America will do a little bit better than Europe, that’s our current forecast.

Got it. And then just one on the promotional strategy, John. I guess, larger picture, what percentage of handbags overall are purchased at full price today from you guys? And prior to the strategic change, I guess what percent of bags went out the doors, say 30% off versus 50% off or more? I’m just kind of curious about how you’re thinking about price laddering going forward versus what we’ve seen in the past.

Sure. Matthew, we don’t disclose the two pieces of information that you’re asking about, which is how much went out the door sales versus regular price et cetera and the purchase on that. The way we think about price laddering is twofold. First, we do know is that our AUR has declined for two years consecutively. So, we went for basically 12 years or more and our AUR never moved. I think you know that from all the years of listening to us discuss it. And we really, after digging in and take a lot of digging in, but we understood that that was coming from promotional activity that we were either doing on our own or doing relative to matching competitors. So, we feel that we can elevate our AUR by 10%, and it probably won’t happen completely over this year, but that is our internal goal. And we’re going to do that by reducing the amount of days that we have on sale. And by the way, we are not only doing that in our regular promotional policy that you’ve I think heard about which addresses what we called our full price sales but also even in our markdown sales in our lifestyle stores. So, we are going to begin to reduce that cadence. You’ll see the reduction both online and inside the stores. And we’ll move more of that product to our outlet stores to be cleared and to be handled through there. So that will help our AUR inside of our stores. And the second part of price laddering is as we just said in our prepared remarks, 20% of our sales came from items that were not put on sale at all. So, there is a label that hangs on the product that indicates that…

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

Great. Thanks, good morning. Just a couple of questions. I guess, first, John, for you on the commercial cadence you referenced. I think you said in the fourth quarter you reduced promotional days 16 in your lifestyle stores. Is that the type of cadence that you guys are thinking about in 2018, fiscal 2018 within your lifestyle stores?

Erinn, thanks. First off, good morning. I think you’re referencing that was in Europe, we referenced that number.

Okay.

Let me just -- I think there is an easier way for us to define it. We estimate that we will have approximately 40% less promotional days in our North American lifestyle retail stores this year versus last year in 2018, hence, the reason why we are anticipating the comp store sales to continue to decline. So that will be both on our full price promotion and on when you see additional percentages off on markdowns. So, it’d be approximately in that range. So that’s quite significant in terms of reduction in days and events that will be held inside the stores. And again, what the best part about it is, is on the footfall, we refer to as a full price promotions, those are cadenced, and they will happen at the same time coordinated as what’s happening in the wholesale channel, and I think you saw that executed in the fourth quarter. And I think our partners did a terrific job of doing that. And again, as we’ve said in the prepared remarks, they also saw AUR increases. So, I think the general feeling is that that strategy is working in terms of getting a better handle around presenting the brand to the end consumer.

Our next question will come from Oliver Chen with Cowen and Company.

Hi. Thanks a lot. John, good morning. Regarding the product portfolio, how are you feeling about the opening price points? It sounded like you can intensify at the premium side, but just curious about your thoughts on innovation there. And then, if you have thoughts on the category at large, as you think about in terms of what’s happening with handbags and how we can look forward to more excitement and innovation in the industry at large? And then secondly, on the omni-channel question in regarding Amazon. Can you update us on your thoughts and your relationship with Amazon and how this intersects with your own omni-channel capabilities and if that interplays with your decision on the store fleet? Thank you.

Sure. Thank you, Oliver and good morning. So, in terms of the product portfolio, our view is, is that the global accessories market, handbags and small leather goods, is roughly flat. We think it’s down slightly in North America, we think it’s flattish in Europe, and we think it’s up slightly in Asia, and actually, probably picking up in Asia even from its past trends. We see some good momentum there, not only from ourselves but some of our competitors. And as you know, in the Asia market, every call will have a different perspective on certain of the regions, given the political turmoil that’s happening there on any given day, whether it’s things that happen in Korea or Japan or in China and how that all kind of intersects. I think, many of our competitors also talk about that. So, just understand that on the call, it may move around by region, but we think the region in total is quite healthy and actually growing. I want to just give you that as an overall perspective. I want to talk about the watch business. As you know, the fashion watch business continues to be under pressure. Although, we are pleased with what is happening with the wearable technology and how the consumer is responding to wearable technology. Very clearly, Apple is the leader in that and we hope to be a very, very significant player in that and it’s really doing some really good things for our own retail stores, as well as our wholesale and specialty store partners around the world. And I have to take my hat off to Kosta and Fossil and everything that they’re doing there, they really are putting us in a leadership position. And I also have to thank Google, because they’re doing…

And our next question will be from Brian Tunick with RBC Capital Markets.

Hi. Good morning. This is Bilun [ph] on for Brian. Thanks for taking our questions. I guess, as you look at your guidance now versus the preliminary guidance you provided back in February, it looks like you’re now taking some sort of more of a conservative approach despite Q1 being largely in line. So, what are some of the few areas that now, even maybe the store closures that you particularly decided to be more prudent in over the last few months?

I couldn’t understand, I’m sorry, the last part of your question, what was that something about the guidance, last few months?

Yes. So, what are some of the few areas maybe you decided to be more conservative in both the margins and comps suggested for next year, looks like a bit more prudent than what we were talking about maybe back in February, despite -- yes, so generally what are few things that you would maybe point out?

So, I just want to remind everyone, there was no specific guidance provided in February, but that being said, we did indicate that we would have sales earnings increases in 2018, which now we are indicating is not going to be the case. So, as we said in both our prepared remarks and some of the comments that I mentioned, we really made the decision after studying our store fleets and what we’re going to do in terms of optimizing those presentations and profitability that we would take 2018 and kind of reset for us and the resets are clearly, first off closing unproductive, and unprofitable stores; secondly, to modernize our store fleet. And as I said, we’re very happy about what we’ve seen happen in Regent Street; we’re also very happy, again only few weeks in but what we’re seeing happen in our Short Hills store. And so, we’re going to push forward renovating 100 stores as quickly as possible. Hopefully, the majority of those will happen probably in the very back half of this year, by the time we can actually get to these stores, but we would like to get as many done as possible in this year. And then lastly, is really product innovation and pushing that forward much faster than we had. So taking that into account along with the fact that we have decided to kind of even take a step further with our promotional stance and cadence inside of our lifestyle stores and reducing even on the percentage off markdowns that that will impact our comp stores. So, after you look at all of that together, that brought us to the conclusion that between closing stores, between reducing our comp store expectations that would lower our revenue expectations. And unfortunately that creates deleverage and that would lower our earnings per share expectations and our operating income expectations. But we do believe that there is growth and opportunity that lies ahead for us. And I look forward to speaking to each of you and seeing you during our Investor Day coming up on June 9th. On that, I’ll say thank you for joining us today on our conference call and look forward to seeing you shortly. Thank you.

That concludes today’s question-and-answer session. At this time, I’ll turn the conference back over to John Idol for any additional or closing remarks.

Thank you for joining us today.