Greetings and welcome to the Capri Holdings Limited Fourth Quarter Fiscal 2022 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jennifer Davis, Vice President, Investor Relations for Capri Holdings Limited. Thank you. You may begin.

Good morning, everyone and thank you for joining us on Capri Holdings Limited’s fourth quarter fiscal 2022 conference call. With me this morning are Chairman and Chief Executive Officer, John Idol and Chief Financial and Chief Operating Officer, Tom Edwards. Before we begin, let me remind you that certain statements made on today’s call may constitute forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those we expect. Those risks and uncertainties are described in today’s press release and in the company’s SEC filings, which are available on the company’s website. Investors should not assume that the statements made during this call will remain operative at a later time and the company undertakes no obligation to update any information discussed on the call. In addition, certain financial information discussed today will be presented on a non-GAAP basis. These non-GAAP measures exclude certain cost associated with COVID-19 related charges, the war in Ukraine, charitable donations, ERP implementation cost to pre-transformation costs, impairment charges, restructuring and other charges. Unless otherwise noted, all financial information on today’s call will be presented on a non-GAAP basis. To view the corresponding GAAP measures and related reconciliations, please view the earnings release posted to our website earlier today at capriholdings.com. Now, I would like to turn the call over to Mr. John Idol, Chairman and Chief Executive Officer.

Thank you, Jennifer. Good morning, everyone. Looking back on fiscal 2022, I am proud of the progress we made across all our luxury houses. Our three powerful brands: Versace, Jimmy Choo and Michael Kors, continue to resonate with consumers, as evidenced by the 11.5 million new consumers added across our databases over the last year. Revenue and earnings results significantly exceeded our original expectations. In fact, we achieved the highest revenue, gross margin and earnings per share in the company’s history. Our ability to deliver record results while navigating the challenges of an unprecedented global pandemic are a testament to the strength of our brands and the success of our strategic growth initiatives. Most importantly, we would not have been able to achieve these results, if not for the hard work, dedication and resiliency of our teams across the globe. Before turning to our fourth quarter results, I would like to take a moment to recognize all those impacted by the war in Ukraine. Our thoughts and prayers go out to the millions who have been affected by these tragic events. We have made significant charitable donations to help with the humanitarian relief efforts, including $250,000 to the UN Crisis Relief Fund and €1 million worth of essential clothing from Versace, Jimmy Choo and Michael Kors. We are hopeful for a peaceful resolution soon. Now, turning to fourth quarter performance, we were pleased that revenue, operating margin and earnings per share, all exceeded our expectations. The company achieved these results despite ongoing supply chain challenges, COVID-related restrictions in China and the war in Ukraine. Total revenue in the fourth quarter increased 25%, reflecting better-than-anticipated results at all three brands. Gross margin continued to expand even with higher supply chain costs. Operating margin of 14.2% was above our expectations. As a…

Thank you, John and good morning everyone. Starting with fourth quarter results, revenue of $1.49 billion increased 25% versus prior year or 28% in constant currency, exceeding our expectations. On a 13-week basis, revenue increased 19%. Performance was driven by better than anticipated results across all three of our luxury houses. Net income was $152 million, resulting in diluted earnings per share of $1.02. This was above our expectations, reflecting better-than-anticipated revenue and operating margin as well as a lower tax rate. Turning to revenue performance by brand, Versace revenue of $315 million increased 34% versus prior year or 44% in constant currency, which was above our expectations. Global sales in our retail channel increased over 20%, with double-digit increases in both e-commerce and store sales. By geography, total revenue in the Americas increased 81% and revenue in EMEA increased 30%. Revenue in Asia decreased 5%, reflecting strong double-digit increases in Japan and Southeast Asia offset by a decline in China. Versace ended March with a global luxury fleet of 209 retail stores, a net decrease of 1 from prior year. For Jimmy Choo, revenue of $156 million increased 26% to prior year or 29% in constant currency above our expectations. On a 13-week basis, revenue increased 19%. Global sales in our retail channel increased approximately 40% with strong double-digit increases in both e-commerce and store sales. By geography, total revenue in the Americas increased 55%, revenue in EMEA increased 23%, and revenue in Asia increased 10%. Jimmy Choo ended the quarter with a global fleet of 237 retail stores, a net increase of 10 from prior year. At Michael Kors, revenue of $1.02 billion increased 22% to last year or 24% in constant currency, above our expectations. On a 13-week basis, revenue increased 14%. Similar to the last several…

Thank you. [Operator Instructions] Our first question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question.

Hey, good morning everyone. Congrats on managing through the macro really well. I guess, John, would love some of your perspective and context around what you are seeing in Asia right now? I think you gave some guidance on what’s implied for the region in Q1, but maybe by brand because I know your exposures are different, but just kind of what you are seeing in real time in Mainland China and then what your expectation is as you move into Q2 and beyond?

Good morning, Ike and thank you for the questions. Just to give you a little flavor around the world for the consumer. Number one, the North American consumer, as you can see from our results remains quite strong and robust I think you can also see across all three brands, our databases had double-digit growth, which we think is a very good indicator for the health of these luxury houses as well as the consumer desire for our products. So we are feeling quite optimistic about the North American consumer. Obviously, you are all reading a lot of things in the paper about various impacts that maybe facing the consumer as we go forward as it relates to inflation, etcetera and we will have to see how that plays out. But for the moment, we feel quite strong about all three of the luxury houses in North America through the balance of this fiscal year. Regarding Europe, we see a very strong rebound over the last two quarters. As truly, I would say, most, if not all, the markets are fully reopened at this point and the consumer is really reacting positively, both from going out for social occasions as well as there is a go back – there is a movement of going back to work and that bodes well for addressing up our brands lean into those different areas. So we are feeling very good about that. As you know, the war in Ukraine has impacted our business in Russia. We stopped shipping product there. And there are many consumers who would have normally traveled from region to purchase in other markets. So we’ve removed all of that revenue from our guidance. And so we see that as an impact to the business in Europe. And I’d say…

Thanks.

Thank you. Our next question comes from the line of Omar Saad with Evercore ISI. Please proceed with your question.

Thanks for all the color. I wanted to ask my question about the levels of promotional discipline. I mean your ASP trends, your margins are still very strong in the Michael Kors brand. Are you seeing promotional – any signs of promotions in the marketplace out there? Maybe kind of reiterate what your strategy is around pricing and promotions given this kind of evolving macro environment? And then just a quick clarification, John, on China, did you say you expect China to continue to be weak, but you kind of indicated that it could be a bit of a guess, maybe the Chinese customer comes back booming after the lockdowns reopened, but maybe not? And you guys sounds like you’re taking a more cautious approach. Just want to clarify that, too? Thanks.

Sure. First off, good morning, Omar and thanks for the question. So on the promotional front, I think we’ve been quite emphatic and we remain emphatic that we’ve reduced promotional activity across all brands globally, and this was all set prior to the pandemic. And that’s been very, very successful for us. and Versace and Jimmy Choo are really set and we’re in a great place. So whatever activities were taking place before that we didn’t think were healthy for the business. are now completely gone. As it relates to Michael Kors, we stepped that down before, again, beginning before the pandemic and then through the pandemic. And we have made the decision, we’re going to continue to step it down further and continue to raise prices. as we move the Michael Kors brand truly more upmarket, and you’re going to start to see that. We have some other announcements that we will talk about during – talk at Investor Day, which are going to further reinforce that. So whatever the North American competitors to Michael Kors are doing and I will leave that to your own observations, we don’t intend on participating, we intend on holding where we are, we think our brand has extraordinary value. And we continue to want to reinforce that. So we have come this far, we are not looking to turn back. I also want to address this Tom did in his opening remarks regarding our inventories. As you know, our inventories are at an elevated level but that is by design and by plan. So, we did two things. First thing we did was we brought in our core and basic products, mainly in accessories and in footwear and again mainly, it’s actually for both Michael Kors and Jimmy Choo, and to a…

Thanks for all the color.

Thank you. Our next question comes from the line of Kimberly Greenberger with Morgan Stanley. Please proceed with your question.

Okay. Great. Thanks so much. Good morning. John, I wanted to just follow-up on your comments on pricing. I know that this is something that you’ve been working on for the better part of the past year and maybe a little bit longer. Maybe if you could just comment on pricing by brand. It sounds like in your answer to Omar’s question that you think there’s still a little more pricing opportunity at Michael Kors. So if you could just sort of talk to us about the progress you’ve made by brand on your pricing initiative and where you still have further to go. And then just to understand or put some numbers around the pricing at the Michael Kors brand specifically. I know revenue grew 35% for the year. I’m just wondering if you could break down the recovery in units sold versus price on the full year basis. Thanks so much.

Sure, Kimberly. So there’s two different conversations. I’ll start with the Versace and the Jimmy Choo. Jimmy Choo started a little over a year ago. You may recall that we really looked at the competitive luxury landscape and Jimmy Choo was opening price point. And that has just been historical since before we purchased the company. The management team led by Hannah Colman, our in particular, we made the decision that we, quite frankly, were just underpricing the product. We have taken about two very large price increases. We have another one coming for the fall season. And that is just to get us to a level where we believe we will sit with the true luxury pricing. We have seen absolutely no pushback from our consumer on that. You can see the Jimmy Choo business is literally on fire at this point. So I think it’s been a combination of the great designs led by Sandra Choi and the teams and the fact that obviously, dress up and having a little more fun with your glamour is back, which all plays right into Jimmy Choo’s hands. And our competitors are all sitting at much higher prices than we are. So I don’t think the consumer looks at what we’ve done and said, that’s not the right place to be. So that’s ongoing. I don’t know that there’ll be a lot more happening at Jimmy Choo. Maybe there’ll be something again more next year, but it won’t be large. Versace, we went through the same exact exercise. And as you know, in the real power of luxury brands, prices are rising consistently. Once again, Versace, I would, again, call it almost opening price point to the luxury world. We have moved somewhat and really our first big price increases are…

Thanks. We look forward to hear in more in July.

Thank you. Our next question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.

Thanks and congrats on a nice quarter. So John, having now lapped stimulus and in light of the wallet share shifts across different consumer categories, how are you thinking about growth prospects, maybe in the broader handbags and accessories space structurally relative to pre-pandemic? What are you embedding for travel and tourism this year? And then just on the luxury side, can you just speak or elaborate on the glide path that you’re seeing for Versace maybe as it relates to the $2 billion target and just growth opportunities that you see untapped for that concept?

Good morning and thank you for that question, Matt. Look, I think in terms of the stimulus and the wallet I think every company saw a little bit of softness during March, very little bit in the beginning of April, and then things started to come back. So we’re seeing business in North America trending very nicely right now. So I don’t know how much of that – obviously, everyone continues to speak about the health of the American consumer and the $2.5 trillion that’s more in savings than it was at this time, pre-pandemic. So all of that, I think, bodes well for us. And I think the thing that bodes the most is the fact that people are going out and they’re getting dressed up there they’re going back to work. So I think it’s really healthy for our accessories business, our footwear business, and we’re even seeing it in some of the ready-to-wear business. Our dress business in women’s had been very, very challenged during COVID, and that’s now coming back to not quite pre-pandemic levels, but we’re getting there. So what we’re seeing is healthy growth. And again, as I said before, Europe is excellent right now. And again, how long will that continue for? We don’t know. But certainly, it’s giving us a lot of confidence for how we move forward into the future. On the travel front, we still don’t believe travel will be back in a significant way until 2020, our fiscal 2024, which is calendar next year, there’s going to be obviously a very solid rebound in the North American consumer traveling, but getting the globe moving again, I think, is really something that we think will happen in calendar ‘23. And again, in Tom’s and my prepared remarks, we’ve said that…

Thank you. Our next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

Good afternoon and thank you so much for taking our question. A lot of ground has been covered, but I would love to hear a little bit more about the context you could provide on the puts and takes to gross margin for the year. What level of structural underlying improvement are you seeing this year from your strategic initiatives? And can you help quantify the more temporary headwinds that you anticipate from China lockdowns and other temporary cost pressures. Thank you.

Hi, Brooke, it’s Tom here. Thanks for your question. So as we look at FY ‘23 on gross margin, we expect to continue to see strong benefits from our strategic initiatives to grow margin. And this is driven by things that John mentioned, pricing across certain brands, increased full price sell-through and growing our accessories business, which in the quarter is up significantly at both Jimmy Choo and Versace. And of course, ultimately, as Asia and China become more normalized and begin to grow then that is also a structural benefit and tailwind to margin. Some of the takes on the side are really supply chain costs. So we expect them to remain elevated through the year, but the biggest impact is in the first quarter because they compared it against a time frame when they were not as high in the prior year. And then we’ll begin to see that moderate through the year. So that’s an important fact. Right now, delays are still long and there is many disruptions. So we are going to be watching that very closely, but that is a negative as we look through the year. On the SG&A side, we’re looking over time to leverage SG&A as we continue to grow the business. And a key part of that is store productivity. As we look at FY ‘23 we are investing in marketing across our brands. And so we did that in ‘22. We’re going to continue that in ‘23. We think it’s critical to support the long-term growth and of course, now we are pivoting to opening more stores in the year. As I mentioned in the prepared remarks, our CapEx for the year is $300 million. About half of that is on new stores and renovations as we continue to build out our fleet, particularly for Versace and Jimmy Choo around the world and of course, some higher variable costs as we grow revenue. So overall, I think you’d see a progression through the year on the gross margin side and operating profit as well. And then in terms of China and the – right now, we’re just looking at it as Q1 is the largest impact. As John mentioned, as you can read in the press, Shanghai is beginning the reopening, but we do believe that, that will be a measured process and still believe that in Q2, it will be down 20% in China across the group. But after that, have a more normal situation.

Thank you. Our next question comes from the line of Simeon Siegel with BMO Capital Markets. Pleas proceed with your question.

Thanks. Hi, everyone. Good morning. Could you just – I know you spoke about it a bit, could you just elaborate on the comment that inventory constraints held back sales, just recognizing that we can see the inventory growth on the balance sheet? So maybe could you dig into further? Is it regional allocation seasonal in transit units for installers? Just when we look at that growth, help us understand the comment versus sales? And then, Tom, did you say what the 53rd week impact was to EBIT? Thank you very much.

Thanks, Simeon, for your question. So on the inventory impact to sales, I would point out that our in-transit inventory was up double in the year. So what you’re seeing on the balance sheet includes that and our on-hand was not nearly as high. Also, it’s a quarter end number. So as we built and we’re building the inventory in order to support future sales, and as John mentioned, as we noted in the remarks, pull-forward deliveries as well as hold more core, that was something that was more building towards the end of the quarter and again, most of it or a good portion of it, not actually available for use at that time. Again, we expect to be in a similarly high position versus prior year in the second quarter, and that will begin to sequentially moderate and be more in balance towards the end of the year. And this is perfectly consistent with our expectations and how we planned inventory. We want to make sure we are supporting future sales and our partners and consumers. With regard to the 53rd week in terms of sales, it was about $70 million. And we noticed that it was, I think, in terms of EPS in the low teens impact.

Great. Thanks a lot guys. Best of luck for the year ahead.

Thank you.

Thank you. Our next question comes from the line of Jay Sole with UBS. Please proceed with your question.

Great. Thank you. John, I’m interested in how long do you think this trend toward dress event were party where will last? You think it’s something can go through this year to be less into next year? Maybe talk about which brands are best positioned to capitalize maybe on the men’s opportunity that you see? Thank you.

Yes. Thank you for the question, Jay. Two things. Number one, I would – what’s exciting about the trend is – it’s the larger portion of the group’s business and if not like that wasn’t the case prior to the pandemic. It certainly was. So we lean in across all three brands more weighted towards people going out for social and really being more – a little more dressed up or going back to work, etcetera going to work, I should say. I also want to note that again, prior to the pandemic, we started something at Michael Kors called MKGO. And it’s become a very sizable business for us and it’s very much a casual driven business. And I would say that was a bit more ready to wear, and that was fortunate for us that we had started that because as the pandemic hit, as you know, that was a very big piece of business, and we were able to really dial back our more dressed up product and take that dial up. We certainly do not want to walk away from that business. It’s a very healthy business for us. It continues to grow. And of course, at all three of the luxury houses, we have a large sneaker business. And as I think I’ve talked about on previous calls, sneakers in luxury for certain companies can account for as much as 50% of their overall revenue in footwear. Now we are not quite at those levels at Versace or Jimmy Choo, but it’s an enormous opportunity for us when we look at our competitors and how much total revenues they’re doing in that category. So one could only hope that this – that we have the pandemic behind us and that this level of dress up or this level of social engagement is back and will resume its pre-pandemic path. Yes, there’s probably a little bit of extra lift right now going on. But I don’t think it will just all of a sudden go away next year. I think it’s here to stay. And I think oddly enough, I think the fashion trend would have changed anyway. I think that while casual wear is certainly something that’s been a trend you see trends in fashion always change and they swing back and forth. It’s quite interesting that the men’s business around the globe, and I think that’s what you’re indicating is quite strong. And again, I think men are feeling the need to refresh their wardrobes and again, with the return to work. And you see some of this in some of the more dressed up areas of men’s are really coming on strong that again, that – whether that stays as much through next year or not, I don’t know. But it’s definitely a very positive trend right now. Thank you very much, Jay.

Thank you.

Thank you. Our next question comes from the line of Adrienne Yih with Barclays. Please proceed with your question.

Good morning. Let me add my congratulations. The product at Kors, in particular, I see that the both looks fantastic, so elevated. John, staying on that point, I wanted to ask you about Pinnacle luxury price points are up, I don’t know, over 30% from pre-pandemic. How much of the pricing gap have you already taken? You just mentioned something about in the fall, taking another price up. And I guess my other question, as you launch Versace and Choo into the accessories, your initial price points, are they up where LV and Chanel might be with the Pinnacle guys or are you layering into those? Those are my questions. Thank you very much.

Thank you, Adrienne. It’s an excellent question. So first off, all three brands will take price increases in the fall season. Again, it was planned. Versace, as you have noted, absolutely has the opportunity to go up significantly. We think we need a little bit more time to, again, create the credibility with the consumer in leather goods. This company did not start out historically as a leather goods company, it was more a fashion ready-to-wear company. I think you can see what we’re doing inside of the construction of the stores. I think you can see what we’re doing with the marketing. We are very excited about the new Greca Gatas [ph] bag that was introduced in the runway by Donatella and our design teams, and that is going to be a major, major push. And as you know, in this business, with Luxury, all you need is one group to really click, and it can be enormous, enormous opportunity. And so we feel that we’re starting to see some of these things happen in Versace. And so the price point today is probably on the lower end of luxury. And to get to the pinnacle would probably take us a few years. But there’s no question we have the opportunity to do that. And quite frankly, we have the authority to do that. And I think the answer is, we will do that over a period of time. Jimmy Choo won’t. Jimmy Choo will always be a little bit more, hopefully, I’ll call it the middle instead of being where we were the opening. So we do have some way to go. A little less so in footwear now and a little more in accessories, but probably of all the three brands in the group, it’s got the…

That’s helpful.

And I want to thank you all for joining us today. I apologize. We went over a little bit. It is the year-end call, so we normally do that. Again, we are extremely excited about the results that we delivered for our fiscal 2022. We think fiscal ‘23 is going to be another very strong year for our company. And we think that we’ll have very positive mid-single-digit growth, although that’s on a reported basis on a constant currency basis, it would have been double digit. And we will deliver double-digit earnings per share growth. The company reported its highest revenues, gross margin and earnings per share in its history this year. So we believe we have a very strong platform with our three luxury brands: Versace, Jimmy Choo and Michael Kors to continue to grow in the luxury market. Thank you for joining us today.

Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.