Capri Q2 2027 Earnings Call Transcript

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Provided by Quartr
October 30, 2026

Key Takeaways

  • Positive Sentiment: Capri raised its fiscal 2027 outlook, now expecting approximately $3.42 billion in revenue, $175 million in operating income, and diluted EPS of $2.20, representing 50% and 45% growth, respectively, over the prior year.
  • Positive Sentiment: Second-quarter results exceeded expectations, with revenue of $809 million down 5.5% year over year but operating income up 55% and EPS improving to $0.42 from a $0.03 loss; gross margin expanded 230 basis points to 63.3% on stronger full-price sell-through and lower tariffs.
  • Positive Sentiment: Michael Kors showed improving momentum as new products such as the Hamilton Soft handbag, Jennings loafer, and Piper Flex ballet flat generated strong full-price demand; management expects sequential improvement in Q3 and a return to revenue growth in Q4.
  • Positive Sentiment: Jimmy Choo delivered a second consecutive quarter of double-digit growth, with Q2 revenue rising 11.5% to $146 million, supported by strength in accessories and footwear; the company continues to expect the brand to return to profitability in fiscal 2027.
  • Neutral Sentiment: The recovery remains exposed to execution risks, including Michael Kors inventory delays that reduced Q2 revenue by roughly $50 million, continued weakness in Asia, foreign-currency headwinds, and potentially higher tariffs in the second half.
AI Generated. May Contain Errors.
Earnings Conference Call
Capri Q2 2027
00:00 / 00:00

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Operator

Greetings, and welcome to the Capri Holdings Limited second quarter fiscal 2027 financial results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Jennifer Davis. Please go ahead.

Jennifer Davis
Jennifer Davis
VP of Investor Relations at Capri Holdings

Good morning, everyone, and thank you for joining us on Capri Holdings Limited second quarter fiscal 2027 conference call. With me this morning are John Idol, Capri's Chairman and Chief Executive Officer, and Tyler Reddien, Capri's Chief Financial Officer and Chief Operating Officer. 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 today's call. Unless otherwise noted, all financial information on today's call will be presented on a non-GAAP basis.

Jennifer Davis
Jennifer Davis
VP of Investor Relations at Capri Holdings

These non-GAAP measures exclude certain items associated with impairment charges, transaction-related costs, store renovation plan expenses, Capri transformation costs, as well as restructuring and other expenses. To review the corresponding GAAP measures and related reconciliation, please review our latest 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.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Thank you, Jennifer, and good morning, everyone. We are encouraged by the momentum building at both Michael Kors and Jimmy Choo. Over the past several seasons, we have been focused on elevating brand desirability, strengthening our product assortments, creating deeper connections with consumers, and we are seeing evidence that those efforts are gaining traction globally. New fall product introductions are generating some of the strongest full-price sell-throughs we have seen in years, underscoring the strength of our innovative product designs and the positive consumer response to our collections. At both our luxury houses, the benefits of our strategic initiatives are becoming increasingly evident, reinforcing our expectation that Capri will return to revenue growth in the second half of the year. Based on our second quarter performance and our expectations for the remainder of the year, we are increasing our fiscal 2027 revenue and earnings per share guidance.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Looking ahead, we believe the progress we are making across both our luxury houses provides a strong foundation for sustainable long-term growth. Turning to our second quarter results, we are encouraged by the progress we made throughout the quarter, with trends improving sequentially each month, resulting in revenue, operating income, and earnings per share that were above our expectations. Total company revenue was $809 million, down 5.5% versus last year, while operating income increased 55%. This strong profit growth contributed to earnings per share of $0.42 versus a loss of $0.03 per share last year. Looking at second quarter performance by brand, starting with Michael Kors. Revenue decreased 8.6% year-over-year, ahead of our expectations, due primarily to a shift in wholesale shipment timing. Revenue was impacted by approximately $50 million due to inventory delays, which constrained product availability.

John Idol
John Idol
Chairman and CEO at Capri Holdings

As fall assortments began to arrive later in the quarter, sales trends improved sequentially each month, driven by the positive consumer response to our new product arrivals. Additionally, as anticipated, revenue was impacted by our continued focus on improving quality of sale. Looking at Michael Kors revenue by channel. In our own retail channel, sales declined low double digits as anticipated. We had approximately 40% less markdown inventory available for sale and reduced promotional activity by approximately 50%, both of which created a meaningful headwind to revenue during the quarter. While these actions reduced revenue, they supported higher full-price sell-throughs, growth in AURs, and gross margin expansion. As we have previously mentioned, the majority of these actions are now behind us, giving us increased confidence in the trajectory of the business going forward. In our full-price channel, sales declined as we continued to focus on quality of sale.

John Idol
John Idol
Chairman and CEO at Capri Holdings

With new product arriving and the impact from our quality of sale initiatives moderating, we expect the full-price channel to return to growth in the back half of the year. In our outlet channel, while revenue declined, trends improved sequentially from the first quarter, and a broader assortment of new styles began arriving. With additional newness planned throughout the season and into the spring, we anticipate further sequential revenue improvement through the back half of the year. In our wholesale channel, revenue declined mid-single digits, exceeding our expectations due in part to a timing shift from the third quarter into the second quarter. At point of sale, we were pleased to once again see positive comparable sales trends with our wholesale partners, as consumers responded favorably to our new product introductions. Turning to brand awareness and consumer engagement.

John Idol
John Idol
Chairman and CEO at Capri Holdings

We continue to reinforce Michael Kors' modern jet set lifestyle position through our brand vision of traveling the world in style, bringing the joy of travel and the discovery of new destinations to our consumers each season. For fall, we traveled to London with brand ambassadors Suki Waterhouse, Danny Ramirez, and JCT. Set against the city's distinctive energy, the campaign highlights the season's key fashion statements, reflecting the blend of polish, individuality, and the effortless style that defines the Michael Kors aesthetic. The campaign introduced new hero handbag silhouettes, including the Hamilton Soft, a relaxed version of one of our most enduring icons. The campaign also showcased fresh interpretations of Laila and Nolita, as we evolve our iconic styles with compelling new design details.

John Idol
John Idol
Chairman and CEO at Capri Holdings

To amplify our brand storytelling, we continue to enhance our social media strategy by strengthening our presence across a broader range of platforms, as well as expanding both the scale and reach of our influencer partnerships. During the quarter, we launched a Michael Kors shop on TikTok, creating a seamless path from discovery to purchase on a platform that plays an increasingly important role in how younger consumers engage with fashion. Early performance has exceeded our expectations, generating strong engagement and sales while further expanding our reach with a new generation of luxury consumers. Together, these efforts are helping to strengthen Michael Kors' relevance while fostering more authentic and meaningful connections with Gen Z consumers. Additionally, Michael Kors' iconic runway shows continue to serve as a powerful halo for the brand, reinforcing the house's leadership in fashion luxury.

John Idol
John Idol
Chairman and CEO at Capri Holdings

The Spring 2027 show, held at the Museum of Modern Art's Sculpture Garden in New York, attracted a high-profile audience of celebrities and global influencers. The event generated significant impressions globally, extending the show's reach well beyond the runway. Collectively, these activities helped drive an 8% year-over-year increase in the Michael Kors global customer database, attracting new and younger consumers, and expanding our ability to build deeper, more personalized relationships with consumers around the world. Through our analytics capabilities, we are leveraging the strength of our extensive database and AI-driven insights to better understand evolving consumer preferences, deliver more relevant experiences, and strengthen engagement across channels. Turning to product. Guided by Michael Kors' vision, our strategy is built around delivering on-trend fashion luxury products with standout style while celebrating our brand codes.

John Idol
John Idol
Chairman and CEO at Capri Holdings

In accessories, our focus on refreshing iconic franchises with modern design elements continue to gain traction with consumers, supporting strong full price sell-throughs and creating meaningful excitement around new product introductions. Hamilton, Laila, and Nolita anchored the assortments, underscoring the enduring appeal of our iconic styles. The launch of the Hamilton Soft during the quarter was a standout success, generating strong enthusiasm among consumers globally. It has quickly become one of the brand's best-selling styles, with demand exceeding our expectations, and our teams are actively chasing inventory to try and meet strong consumer demand. Turning to footwear. We remain focused on building enduring franchises across both casual and dress categories. We are evolving the assortment with more on-trend styles, expanding our casual offerings across categories such as loafers and flats that are resonating with consumers.

John Idol
John Idol
Chairman and CEO at Capri Holdings

New introductions, including our Jennings loafer and Piper Flex ballet flat, are emerging as top-performing styles. By balancing proven silhouettes with modern newness, we are creating products that resonate with consumers today while laying the foundation for future icons within the category. Looking at ready-to-wear, the fall collection brought a modern urban edge to the assortment through elevated denim, on-trend wardrobing essentials, and versatile day-to-evening dressing. Consumers responded particularly well to our expanded outfitting categories, underscoring the appeal of fashion-forward styles that express Michael's distinctive point of view. Turning to men's, we are refining our sportswear assortments through a combination of established iconic styles and compelling new fashion introductions. In accessories, we are seeing increased consumer interest in the softer bag silhouettes, which are helping attract a new and younger consumer. As a result, men's sales trends improved sequentially relative to the first quarter.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Now I'd like to review our store renovation plan, a key component of our strategy to revitalize growth. In our new stores, we are creating a warmer, more residential environment that reflects the modern Michael Kors Jet Set lifestyle and provides an elevated backdrop for our luxury products. Since launching the program, we have renovated 50 stores as we advance toward our goal of renovating 300 stores. As part of this initiative, we continue to expand our Jet Set Lounge concept, an immersive retail experience designed to deepen customer engagement and increase store dwell time. Today, we have seven Jet Set Lounges across key flagship locations globally, and we are encouraged by the customer response. We believe that our renovation plan will further strengthen brand desirability, deliver an elevated consumer experience, and drive higher sales productivity. Early results remain encouraging, with renovated locations generating higher traffic and revenues.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Overall, we are encouraged by the progress we are making at Michael Kors. We expect revenue trends to improve sequentially in the third quarter and return to growth in the fourth quarter, driven by new product introductions, strong holiday gift-giving assortments, increased marketing investments, growing contributions from our store renovation program, and a moderating impact from our quality of sale initiatives. Looking beyond FY 2027, we remain excited about the potential for Michael Kors to return to sustainable growth and achieve $4 billion in revenue with operating margins in the low 20% range. Now turning to Jimmy Choo. We were pleased with the brand's continued momentum. Second quarter revenue exceeded our expectations, increasing 11.5% over last year, as our marketing and product initiatives attracted new and younger consumers while creating additional purchase opportunities for existing clients.

John Idol
John Idol
Chairman and CEO at Capri Holdings

In our own retail channels, sales increased mid-single digits, with trends in the Americas up double digits and EMEA increasing high single digits, while Asia declined mid-single digits. Turning to wholesale, revenue grew strong double digits, benefiting from the earlier shipment of fall products this year. Trends at point of sale remained encouraging, supported by positive consumer response to our fall assortments, which once again drove double-digit increases in North American department stores. Turning to brand awareness and consumer engagement, our storytelling continued to highlight the effortlessly alluring essence of Jimmy Choo and the sense of joy and confidence the brand inspires. During the quarter, our marketing strategy focused on expanding the brand's reach, deepening client connections, and strengthening cultural relevance. For fall, we celebrated Jimmy Choo's 30th anniversary with two campaigns that reflected the house's distinctive blend of luxury, glamour, craftsmanship, and playful spirit.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Our fall campaign, Assertive Glamour, was set in Milan's historic Palazzo Gallarati Scotti and highlighted the artistry behind the collection, showcasing statement boots and fresh interpretations of our iconic Cinch and Bar handbags. This was followed by The Choos You Can't Live Without, a campaign featuring influential fashion personality Devon Lee Carlson, whose distinctive style resonates with a new generation of luxury consumers. The campaign showcased key styles, including our Bon Bon and Cinch handbags, as well as our iconic Scarlett and Heloise footwear franchises, reinforcing Jimmy Choo's enduring desirability across generations. By pairing compelling brand storytelling with influential talent, we are broadening our customer reach, attracting new clients, and reinforcing Jimmy Choo's relevance with the next generation of luxury consumers. At the same time, we are increasingly leveraging our advanced data analytics and AI insights to deepen consumer engagement and enhance the effectiveness of our marketing.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Taken together, these initiatives are strengthening brand desirability, expanding our consumer reach, and deepening our relationship with consumers through more personalized engagement, which contributed to a 7% year-over-year increase in Jimmy Choo's global consumer database. Turning to product, our strategy remains focused on building Jimmy Choo's accessories business and expanding its casual footwear assortment while reinforcing the house's distinctive luxury position. By extending the house's reach across categories and occasions, we are creating additional revenue opportunities by driving higher purchase frequency among existing consumers and attracting new clients to the brand. We were pleased with the strong consumer response to our fall collection, which reflected Sandra Choi's design vision of reimagining the house's iconic codes through a contemporary lens while remaining true to Jimmy Choo's heritage of glamour and craftsmanship. The collection resonated with consumers across both accessories and footwear. During the quarter, accessories increased double digits versus last year.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Our iconic Bon Bon and Cinch franchises delivered robust growth, while newer franchises, Bar and Curve, continued to gain traction, broadening the reach of the brand. Turning to footwear, we were pleased with our performance across both casual and dress styles. In casual footwear, we were encouraged by the strong response to versatile silhouettes, such as the Margot flat and Scarlett kitten heel, which reflect our focus on expanding the brand's presence across a broader range of occasions. Our core dress category also delivered strong growth, driven by continued demand for our iconic styles, such as Azia and Sacora, as well as newer styles, including Faiz. The strong performance across the assortment underscored the enduring appeal of Jimmy Choo's signature glamour.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Finally, I would like to take a moment to congratulate Sandra Choi, who will be honored with a special recognition award by the British Fashion Council at The Fashion Awards in London. This prestigious recognition celebrates Sandra's extraordinary creative leadership over the past 30 years and her contributions to the broader fashion industry. As Jimmy Choo celebrates its 30th anniversary, this is a particularly meaningful honor and a testament to Sandra's remarkable vision and enduring influence on the brand. Looking ahead, we are increasingly confident in Jimmy Choo's trajectory. Our marketing is attracting new audiences, and our product strategies are expanding the brand across categories as well as occasions. We continue to expect Jimmy Choo to return to profitability in fiscal 2027, supported by revenue growth, gross margin expansion, and disciplined expense management.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Over the long term, we believe the brand can achieve $800 million in revenue and operating margins in the low double-digit range. In conclusion, we're encouraged by the progress we are making across Michael Kors and Jimmy Choo. We continue to expect total company revenue to return to growth in the second half of fiscal 2027, supported by exciting new product introductions, increased investments in marketing, and our focus on elevating the consumer experience. The actions we are taking are strengthening our fashion luxury houses and positioning Capri to deliver sustainable growth and create meaningful value for shareholders over time. Before turning the call over to Tyler, I would like to thank our approximately 11,000 employees around the world whose dedication, passion, and talent are instrumental to the progress we are making. Now Tyler will take you through our second quarter results and guidance in more detail.

Tyler Reddien
Tyler Reddien
CFO and COO at Capri Holdings

Thank you, John, and good morning, everyone. We are encouraged by the progress we made through the second quarter, with trends improving sequentially each month at both Michael Kors and Jimmy Choo. As anticipated, the arrival of new product and improving inventory availability at Michael Kors contributed to stronger performance as the quarter progressed. At Jimmy Choo, momentum continued, driven by strength in both footwear and accessories. As a result, we delivered revenue, operating income, and earnings per share above our expectations. Looking at our second quarter results in more detail, total company revenue of $809 million decreased 5.5% on a reported basis and 4.9% in constant currency compared to the prior year. Looking at revenue performance by brand, Michael Kors revenue of $663 million decreased 8.6% on a reported basis and 8% in constant currency compared to the prior year.

Tyler Reddien
Tyler Reddien
CFO and COO at Capri Holdings

Revenue was impacted by inventory delays discussed last quarter, which constrained product availability, as well as our actions to reduce markdown inventory by roughly 40% and promotional days by about 50%. As inventory constraints eased and new fall product began arriving, trends improved sequentially each month throughout the quarter. Second quarter results also benefited from around $15 million of earlier-than-expected wholesale shipments that shifted from the third quarter into the second quarter. Looking at total Michael Kors revenue by geography, revenue in the Americas decreased 11%, impacted by inventory delays and our planned reduction in markdown inventory and promotional activity. In EMEA, revenue declined 5%, impacted by the broader effects of the ongoing conflict in the Middle East, as well as inventory delays. In Asia, revenue declined 1%, impacted by inventory constraints.

Tyler Reddien
Tyler Reddien
CFO and COO at Capri Holdings

Turning to Jimmy Choo, revenue of $146 million increased 11.5% on a reported basis and 12.2% in constant currency compared to the prior year. Results benefited from approximately $5 million of wholesale revenue associated with earlier-than-expected shipments, which shifted sales from the third quarter into the second quarter. Looking at total Jimmy Choo revenue by geography, sales increased double digits in the Americas and EMEA, with the Americas up 24% and EMEA up 13%. Sales in Asia declined 7%. Now looking at total company margin performance, gross margin of 63.3% increased 230 basis points versus last year, driven primarily by higher full-price sell-throughs, brand mix, and lower tariff rates versus the second quarter of FY 2026.

Tyler Reddien
Tyler Reddien
CFO and COO at Capri Holdings

By brand, Michael Kors gross margin of 61.5% increased 220 basis points versus last year, driven primarily by higher full-price sell-throughs and lower tariff rates, partially offset by greater use of air freight given the inventory delays. Jimmy Choo gross margin of 71.2% increased 100 basis points versus last year, primarily due to higher full-price sell-throughs. Total company operating expenses decreased $21 million due primarily to cost savings initiatives and lower variable expenses more than offsetting inflationary cost pressures. As a percentage of revenue, operating expense was 59.5% compared to 58.6% last year, reflecting expense deleverage on lower revenue. Total company operating income of $31 million represented operating margin expansion of 150 basis points year-over-year to 3.8%, driven by higher gross margins. This was ahead of our expectations due to both the timing of wholesale shipments and disciplined expense management.

Tyler Reddien
Tyler Reddien
CFO and COO at Capri Holdings

Looking at operating margin by brand, Michael Kors operating margin of 10.3% was above our expectations and increased 20 basis points compared to last year, with higher gross margins more than offsetting expense deleverage on lower revenue. Jimmy Choo operating margin of 1.4% was above our expectations and increased 830 basis points compared to the prior year, primarily driven by expense leverage on higher revenue and disciplined expense management. Net income was $45 million, or $0.42 per diluted share, versus a loss per share of $0.03 last year. Turning to our balance sheet and cash flows, our balance sheet remains strong, and we ended the second quarter with cash of $125 million and debt of $461 million, resulting in net debt of $336 million, down from $1.6 billion last year.

Tyler Reddien
Tyler Reddien
CFO and COO at Capri Holdings

During the quarter, we remained committed to returning capital to shareholders, repurchasing $150 million worth of shares. We repurchased 10.3 million shares in the quarter, reducing our share count by approximately 9%. As of September 26th, 2026, we had $721 million of availability remaining under our share repurchase authorization. Inventory at quarter end was $712 million, a 7% decline year-over-year, in line with our expectations. We continue to expect inventory to build throughout the back half of the year to support our anticipated revenue growth. Turning to guidance, based on our second quarter results and our expectations for the balance of the year, we now anticipate fiscal 2027 revenue of approximately $3.42 billion, despite increasing foreign currency headwinds. By brand, we now anticipate Michael Kors revenue of $2.77 billion.

Tyler Reddien
Tyler Reddien
CFO and COO at Capri Holdings

We expect revenue trends to improve sequentially in the third quarter and return to growth in the fourth quarter, driven by new product introductions, strong holiday gift-giving assortments, increased marketing investments, growing contributions from our store renovation program, and a moderating impact from our quality of sales initiatives. At Jimmy Choo, we now anticipate revenue of $650 million, reflecting the momentum we are seeing across the brand. For the year, we continue to anticipate gross margin of approximately 64% compared to 62.3% last year. Operating expenses are still expected to be approximately $2 billion. Accordingly, we now expect full-year operating income to be approximately $175 million, a 50% increase over last year. By brand, we continue to anticipate Michael Kors operating margin in the low double-digit range, and Jimmy Choo returning to profitability with operating margin in the low single-digit range.

Tyler Reddien
Tyler Reddien
CFO and COO at Capri Holdings

Turning to certain non-operating items, we expect net interest and other income of approximately $100 million and an effective tax rate in the low teens range, with fluctuations in quarterly tax rates due to our valuation allowance position. We now anticipate weighted average shares outstanding of approximately 108 million, reflecting share repurchases of $300 million during fiscal 2027, a $100 million increase versus our prior guidance. This increase underscores our confidence in Capri's future growth and value creation, while also reflecting our commitment to returning capital to shareholders. Based on these assumptions, we expect to generate diluted earnings per share of $2.20, representing 45% growth over the prior year. Turning to third quarter guidance, we expect total company revenue of just over $1 billion.

Tyler Reddien
Tyler Reddien
CFO and COO at Capri Holdings

This outlook includes the impact of the $20 million of wholesale shipments that shifted from the third quarter into the second quarter, as well as greater foreign currency headwinds. By brand, we anticipate Michael Kors revenue of $830 million and Jimmy Choo revenue of $175 million. We expect third quarter operating income of approximately $90 million. In terms of operating margin by brand, we anticipate Michael Kors operating margin in the mid-teens percent range and Jimmy Choo operating margin in the low to mid-single digit percent range. Looking at certain non-operating items, we expect third quarter net interest and other income of approximately $25 million. We anticipate an effective tax rate in the mid-teens range and weighted average shares outstanding of 103 million. As a result, we expect to generate diluted earnings per share of $0.95.

Tyler Reddien
Tyler Reddien
CFO and COO at Capri Holdings

In closing, our second quarter results exceeded our expectations, and our increased outlook reflects the confidence we have in the trajectory of the business. We are encouraged by the consumer response to our new product introductions and the progress we are seeing across both Michael Kors and Jimmy Choo. Looking ahead, we remain focused on executing our strategic initiatives, strengthening our luxury houses, and positioning Capri to deliver sustainable growth and value creation for our shareholders. Now we will open up the line for questions.

Operator

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Please limit yourself to one question. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question will come from Matthew Boss with JPMorgan.

Matthew Boss
Matthew Boss
Analyst at JPMorgan

Thanks, and nice to see the improvement. John, at Michael Kors, could you speak to the drivers of sequential month-over-month improvement that you saw in the quarter and elaborate on exit rate trends in September and October that support your confidence for positive revenue growth in the back half while continuing to pull back on the level of promotions?

John Idol
John Idol
Chairman and CEO at Capri Holdings

Thank you, Matt, and good morning to everybody on the call. Matt, we were very pleased to see how the Michael Kors business had month-over-month sequential revenue improvement during the quarter. There were a number of things that happened for us. First, we continue to flow exciting new fashion on-trend product. The teams, the design teams led by Michael, are starting to very significantly hit trends in the marketplace, and you are seeing that in both accessories, and now we are starting to see that in footwear as well. As you have heard me say in some of the previous calls, footwear has been a drag for us. Now with the Jennings loafer that I talked about in my prepared remarks, the Piper Flex Ballet, these things are starting to show very strong full-price sell-throughs. We saw sell-throughs on things like Hamilton Soft.

John Idol
John Idol
Chairman and CEO at Capri Holdings

We have not seen that for, I do not know, five or six years. As Tyler mentioned as well, we are literally chasing inventory on certain products in both accessories and now some in footwear. So, we feel great that the consumer is really engaging with our storytelling. They are loving our new product introductions, and we are seeing by far the best kind of trend for us for newer and younger customers. I might also add that we saw, during the quarter, search for Michael Kors handbags really significantly increase. Again, we have not seen this in quite some time. So, all the indicators are showing that these are more than just green shoots. In certain cases, they are turning into significant volume opportunities. Everything I talked to you about there was really in the full-price channel.

John Idol
John Idol
Chairman and CEO at Capri Holdings

In the outlet channel, as you know, we started to introduce a few new styles there. Our new Sammy silhouette, in particular, has started out to become one of the best-selling styles in that channel or groups in that channel. This is what we were hoping for, and we are seeing the results of that. As we progressed through the quarter, we said we would get to about 75% in this quarter of new product in the outlet channel. We are well on our way to do that. What is also exciting, we did all that with our markdown and promotional strategy down by 50%. I want to reemphasize that again, 50%. That is a very, very big pullback. We are proud of what the teams have done inside of our stores, and our department store partners are also embracing this strategy to sell more Michael Kors at full price.

John Idol
John Idol
Chairman and CEO at Capri Holdings

That is driving higher AURs. We can see that right across the globe. So, we are seeing this whole strategy of really giving great value to the customer kind of play through. The last thing, another very big headwind, as you know, we had 40% less markdown inventory, which, when the customer went to look for things at certain prices, it just was not there. That is not an easy thing to go through, but we have made the decision, we are sticking to it, and we are really seeing the results of that. So, the inventories in our third quarter and fourth quarter are going to be in a much different complexion than they were at this time last year, which will be much healthier.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Then the last thing I just want to end on is, we did hold this up against the backdrop of having $50 million less than we had planned in terms of inventory. I think our sales would have been much better had we had that inventory. As you know, we've been experiencing certain delays in Michael Kors from Asia on our transportation. That's getting better, and we've also supplemented that with air shipment, etc, to help us have that inventory here, especially for the holiday season. Again, our confidence is really based around that, as to how we look at Q3 for us. We think we're set up really in a great way with all the new product flowing, and also some incredible holiday gift programs and some fun things to excite the customer with.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Thank you very much for your question, Matt, and have a great holiday season.

Operator

Our next question will come from Brooke Roach with Goldman Sachs.

Brooke Roach
Brooke Roach
Analyst at Goldman Sachs

Good morning, and thank you for taking our question. John, I was hoping we could dig a little bit deeper into the trends that you're specifically seeing at Michael Kors Americas outlet. Was the sequential improvement that you saw in the quarter and quarter-to-date something that you also saw in outlet as that new product was flowing? What are your latest thoughts on getting Michael Kors Americas outlet back to consistently positive comp growth in that channel? Finally, one question on the Hamilton slouch. Saw that that was just restocked. That's great to see. How quickly can you chase into some of these products that are working, that are outperforming your expectations? Thank you.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Thank you, and good morning, Brooke. Brooke, I might add that, first off, Jimmy Choo had an outstanding quarter. This is a second quarter in a row for Jimmy Choo of double-digit growth, which is really quite extraordinary. Interestingly, we saw the quarter accelerate as we went through. So, pretty much, we are seeing the same thing at Michael Kors and at Jimmy Choo. So, that is really what we think is a great trend for us to see happening as we head into the all-important holiday season. In terms of Michael Kors outlet, interestingly enough, we actually saw a slightly stronger acceleration in the outlet stores. I think we said, if we did not, we saw acceleration in revenue throughout the quarter, traffic throughout the quarter, and then this search throughout the quarter. So, all three of those indicators were quite strong.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Probably not surprisingly, in the outlet side, we were receiving a much bigger percentage of newness there versus our full price, and that was something that we had been waiting for. I would also add that in the full-price business, that is where we had the greatest percentage of decline in markdown inventory, which we knew was going to have this impact on revenues during the quarter. I think I had said that not only in our first quarter commentary, but I mentioned it in fourth quarter, that we were going to take this very big pullback on markdowns in our kind of our big summer clearance sale. So, again, I think we are seeing the right trajectory heading into the fall season. As it relates to Hamilton, Brooke, I wish I could sit here and tell you how quickly we can get back into these things.

John Idol
John Idol
Chairman and CEO at Capri Holdings

The sell-throughs, I would say, surprised us. By the way, those sell-throughs started actually in Asia for us first, and then it just kind of rippled right across the globe. So, we are moving as fast as we possibly can. I am sure you are going to see some outs on a number of things as we go through the holiday season, because the product is not really highly desirable. What is also really exciting about Hamilton Soft in particular is the influencer community is driving a lot of this interest. If you go online and follow some of the influencers, they are just organically talking about this product. We are starting to see this undertone that Michael Kors is back. Have you seen Michael Kors? Look at this product. That is all being naturally driven.

John Idol
John Idol
Chairman and CEO at Capri Holdings

On top of that, I think you can see in our storytelling, one of the things that we have really looked at very carefully is our handbag business and accessories business, and we are putting an even greater priority on that above and beyond some of our other categories in the company. We know there is market share to be regained and taken. As you know, the industry, and in particular, some of the other European luxury brands are having a bit of a struggle right now, and we actually think this is a super time for us to be able to resonate with consumers who are being a bit more choiceful. We can see that with some other brands around the world who are enjoying the fruits of that success. So, we think the timing is right for us.

John Idol
John Idol
Chairman and CEO at Capri Holdings

The product is getting not exactly where we want it to be, but pretty close. Storytelling's in good shape. The last thing I just have to talk about is our store program. We are really thrilled with the results. We have approximately 50 stores that we have completed in our renovation so far. We have got about another 25 or so to go this year to complete on our renovations. I am excited to say to you that next year, we are going to open between 50 and 75 brand new stores. I think I mentioned to you previously that we are starting to get confidence, given especially the renovations and the results we are seeing with higher traffic and higher revenues.

John Idol
John Idol
Chairman and CEO at Capri Holdings

We will be opening new Michael Kors freestanding stores that we have actually opened a few this year, and that's an exciting growth opportunity for us as we look out to fiscal year 2028. Thank you, Brooke.

Brooke Roach
Brooke Roach
Analyst at Goldman Sachs

Thank you so much.

Operator

We will go next to Simeon Siegel with Guggenheim Partners.

Simeon Siegel
Analyst at Guggenheim Partners

Thanks. Morning, everyone. John, just recognizing the ongoing improving quality of sales you're talking about and that we can see, just curious, do you have a view on what the right size for Michael Kors wholesale should be? Just recognizing the point of sale comments, how are you thinking about when to sell in, when we, the order of magnitude we should think about as the sell-in improves. Then Tyler, the gross margin was great to see. How are you thinking about the specific drivers for the gross margin for the back half, and then how should we think about that longer term? Thanks, guys.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Good morning, Simeon. Simeon, the wholesale business is, as you know, if we go back six, nine months ago, the wholesale business was trailing the full-price business, really in North America and Europe. In some ways, it's not only caught up to it, in some places, it's actually ahead of it. Quite interesting. We're seeing this not only in North America, but we're seeing it in Europe, in particular in Europe, where some of the, again, the luxury brands that we sit on the same floors with are starting to see some difficult sales results. Consumers are enjoying the Michael Kors product. By the way, I want to add the Jimmy Choo product, which as you know, Jimmy Choo is now on its second or third consecutive quarter of double-digit increase in accessories.

John Idol
John Idol
Chairman and CEO at Capri Holdings

The wholesale channel for us, we believe is going to return to growth next year, with a very healthy growth. Our partners are excited about us. We're opening approximately 100 shop-in-shops that were in construction. Some of that will get completed this year, some of that will get completed next year. The new shop-in-shops that are going in not only look beautiful, but the results are great, and we're pushing that quite hard. Also interesting, we haven't talked about it in a long time, but our international airport and duty-free business is also starting to grow again. We've got strong interest from our partners who want to open up new Michael Kors locations and renovate the existing ones. That's a very strong business for us that we think could also add to our wholesale development. So, I think all indicators are pointing in that direction.

John Idol
John Idol
Chairman and CEO at Capri Holdings

I would say, Simeon, for whether it's Michael Kors or Jimmy Choo, somewhere in the 20% range, 25% range, that's typically what you think of for a wholesale business. Again, it just depends on the health of the partners, and where that stands around the world. As you probably know, there's been quite a bit of consolidation in the wholesale world, in terms of certain stores in Europe not being here any longer or struggling, etc, and then certain players in the duty-free business that have, again, either gone out of business or are struggling. I think we're starting to see that all stabilize now. So, we're quite hopeful about the development of the wholesale business on a go-forward basis.

Tyler Reddien
Tyler Reddien
CFO and COO at Capri Holdings

I'll jump in on the second part of the question. In terms of gross margin for the second half, we are expecting that we'll see a bit of a pullback in the expansion year-over-year relative to the first half, but we are going to ultimately see significant expansion in gross margin in the second half as well, primarily driven by higher full-price sell-throughs that are helping us with, and higher AURs at both Michael Kors and Jimmy Choo. There are some headwinds, though, that are pulling back that growth relative to the first half, first of which we're anniversarying some of the benefits of the quality sales initiatives as we look at the back half of the year.

Tyler Reddien
Tyler Reddien
CFO and COO at Capri Holdings

We also are expecting that second half tariff rates on average will be a bit higher than they were in the first half, as we've seen tariffs kind of kick in. The other thing is that we also will be anniversarying the tariff refund in the fourth quarter of 2026. Net-net, our gross margin expansion is expected to be slightly less in the second half, and that's reflected in our guidance. We continue to expect gross margin expansion consistent with our strategy, increasing full price sell-throughs as well as AURs.

Simeon Siegel
Analyst at Guggenheim Partners

Thanks, guys. Best of luck for the year ahead.

Operator

As a reminder, please limit yourself to one question. We will move next to Adrienne Yih with Barclays.

Adrienne Yih
Adrienne Yih
Analyst at Barclays

Great. Thank you very much. Good morning. Excuse me. It is really nice to see the, excuse me, the gross margin inflection. You could absolutely see it first in the stores and then kind of a little bit later on the last four to five weeks happening clearly in the outlets. Congrats there. Excuse me. John, can you talk higher level? There is a fashion shift, and I know you see this globally. There is a fashion shift on the landscape. Apparel, footwear is getting more stylized. It is becoming more formalized. This has historically boded well for kind of accessories in general. The industry people that we talk to think that this is only building into next year and that we are kind of on the verge of sort of a breakout moment to more mass adoption.

Adrienne Yih
Adrienne Yih
Analyst at Barclays

Wondering your thoughts on that and how it impacts both the accessories at both brands. Then, secondly, with regard to the re-engagement of the customer, are these cohorts largely new customers? Can you give us some color on age, demo, or are they reactivated lapsed customers or a combination of both? Thank you so much.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Thank you, Adrienne. Adrienne, yeah, we are definitely seeing the fashion winds shift. I might add that this is good for Jimmy Choo and for Michael Kors. As you know, we have always been a bit more, I will say, slightly dressed up. We have been a slightly more glamorous, both of our companies, and we think the winds are going in our favor. I think you have seen, we will start with Jimmy Choo. Jimmy Choo, we had a strategy to, number one, grow our accessories business. We are well on the way for that. We have four platforms now that all are growing significantly. We are super excited about that. We are actually growing market share in the luxury handbag business. We can see it, we know it, we see how the consumers are responding to us.

John Idol
John Idol
Chairman and CEO at Capri Holdings

That could be an even bigger opportunity than we probably have even sized from our goals. More to come on that. Again, quite exciting. We're starting to open shop-in-shops in department stores with Jimmy Choo. Many of those are concession shops that we run. That puts us on par with, obviously, all the best luxury players in the world. So, super excited about that. Second thing at Jimmy Choo is really our casual footwear business, which we're starting to get the great traction on that. We talked about that in our prepared remarks. What's really also happening simultaneously is our dress footwear business is back. This, Adrienne, to your point, is people are getting a little more dressed up. Also, there's another change, leg widths of pants, etc, are getting slightly skinnier.

John Idol
John Idol
Chairman and CEO at Capri Holdings

There's a return to some level of a version of glamour and sexy and that type of real styling. That's going to bode really, really well for Jimmy Choo. Now that we've got a foundation in some of these more casual platforms, we're there for that other platform. We've always been there. In terms of Michael Kors, we see the same thing happening. One of the things that really has impacted the Michael Kors footwear business was our sneaker business, which used to account for some 30%-40%, 35% of our business. That will go down to probably closer to 20%-25% of our business. So, we're making that up with more dress. Not just casual, but also dress, which is something we historically have had a big positioning in.

John Idol
John Idol
Chairman and CEO at Capri Holdings

I think some of our competitive brands don't have that same positioning that we have to be able to flex to that trend part of the business. So, really excited about if it continues this way, this could be a tailwind for both Jimmy Choo and Michael Kors. Lastly, on the customer, we're seeing, again, very similar, Jimmy Choo and Michael Kors, we're attracting new, younger customers. They're not all Gen Z. They're millennials and younger millennials, and they're definitely engaging with the brand. I would say at Michael Kors, in particular, the Gen Z consumers, they almost didn't know who we were. So, we're in kind of an interesting spot where, on the one hand, we need more. We need to educate them more. One of the exciting things we did during the quarter was to open the TikTok shop.

John Idol
John Idol
Chairman and CEO at Capri Holdings

This is doing much more business, I would say almost 4x from what we had originally anticipated. That's exciting. That's new, that's young, that's Gen Z. Also, we're seeing it on some other platforms that we've, are engaging with as well. So, it's starting to come with those consumers, and they're starting to now understand the brand story of what Michael Kors is. It's the jet set, traveling the world in style, your style, experiencing the way that you want to experience it. So, that storytelling is resonating, and we're excited about what that means for us for the future. Thank you, Adrienne.

Adrienne Yih
Adrienne Yih
Analyst at Barclays

That is great. Pass our congrats on to Sandra, please.

John Idol
John Idol
Chairman and CEO at Capri Holdings

We will. She deserves it.

Adrienne Yih
Adrienne Yih
Analyst at Barclays

Thank you. She definitely does.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Of course, she got her OBE as well. We don't want to forget about that. That's another really exciting thing.

Adrienne Yih
Adrienne Yih
Analyst at Barclays

Yep. Congrats.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Yeah. She deserves a big shout. I hope she is listening to this call. Sandra, you deserve a big shout-out. By the way, the Jimmy Choo product, why is Jimmy Choo successful? Some of the things I talked to you about. Jimmy Choo is successful because the product is fantastic right now. Please go in and shop for your friends and family and yourself.

Adrienne Yih
Adrienne Yih
Analyst at Barclays

Absolutely. Kudos. Thank you.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Thank you.

Operator

Our next question will come from Rick Patel with Raymond James.

Rick Patel
Rick Patel
Analyst at Raymond James

Thank you. Good morning. I was hoping you can talk about the opportunity you see around AUR. The work around quality of sales has been a tailwind, but as that moderates, how do we think about the potential to elevate the business further? Curious about the opportunity you see across the product assortment and marketing that can keep the positive AUR momentum going.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Thank you, Rick. Rick, I am going to go half and half. I will give Tyler a part of this as well. Rick, the first thing is that, as you know, again, about two years ago, a little less than that, we went in and reset our strategic pricing across the group. When I say across the group, we did that at Jimmy Choo, certain products, and we did it at Michael Kors very, very heavily. I think that has definitely boded well for the full-price sell-throughs in the company. We are trying to give the product at the price that we know that the customer will be excited about and will show value. I will tell you simultaneously, we have started to raise prices in outlet. I think you heard us talk about that. That seems to be going well.

John Idol
John Idol
Chairman and CEO at Capri Holdings

There will be some level of, we did take some minor price increases at Michael Kors full price. We will take a few more selectively where we think there is opportunity for us to not slow revenue, but also gain margin. Because as we look forward, while we are happy about the margin gains that we made, they are not good enough. We have much higher aspirations, and I will let Tyler talk about our aspirations in particular for next year.

Tyler Reddien
Tyler Reddien
CFO and COO at Capri Holdings

Yeah. Thanks, John. As John mentioned, we absolutely, we are anniversarying our quality of sales initiatives, and that provides us with a tailwind in terms of AUR, but we do see continued opportunity to increase AUR even further, as John mentioned. Ultimately, this is about driving gross margin and driving improved margin across the business. We do see significant opportunities in terms of gross margin expansion. We are targeting to improve our gross margin substantially as we go through, not only in fiscal 2027, but beyond. We see opportunities in terms of Michael Kors to continue increase full-price sell-throughs, expanding gross margins, as well as looking for efficiencies across our distribution and logistics network.

Tyler Reddien
Tyler Reddien
CFO and COO at Capri Holdings

With Jimmy Choo, we see significant opportunities to improve our gross margin, both in terms of improving our overall full-price sell-throughs, but also really optimizing around both our manufacturing as well as our logistics and distribution network. So, we are expecting and we are working towards significantly improving gross margins going forward beyond just fiscal 2027, which will ultimately support sustainable long-term earnings growth.

Rick Patel
Rick Patel
Analyst at Raymond James

Thank you very much.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Rick, just one last thing too. I want to make sure everyone understands. We are excited about Jimmy Choo. I answer this question regularly, so when anybody wants to ask the question, Jimmy Choo is not for sale in the company. Jimmy Choo, we think, is a big opportunity. As we have said in our prepared remarks, we think it is a business that can be $800 million. I think we are getting excited about even thinking bigger than that. If you look at that as a low double-digit type of operating margin in that company, that will be a significant contributor to us. So, we are super excited about what Jimmy Choo can do for us also from an operating margin and this accessories opportunity is something that could be bigger than we have all thought about.

Rick Patel
Rick Patel
Analyst at Raymond James

Great context. Thank you.

Operator

We will go next to Mark Altschwager with Baird.

Mark Altschwager
Mark Altschwager
Analyst at Baird

Good morning. Thank you for taking my question. First, John, with the Q3 Michael Kors guide down about 1.5% excluding the wholesale timing, does that assume that October trends hold or further improvement in the holiday? Is full-price channel positive yet quarter-to-date?

John Idol
John Idol
Chairman and CEO at Capri Holdings

Yeah, sure. Mark, we do not talk about trends month-by-month. What I am going to tell you is that there is absolutely a sequential improvement planned throughout the quarter, like we saw in the last quarter. One of the biggest issues for that in Michael Kors is the flow of product. As I said to you, we were $50 million short of what we wanted in Q2. That product is coming in Q3. I am sure you are hearing we are not the only company that continues to have issues with getting freight out of Asia. We think we are going to be in good shape, and we are supplementing with air where we need to. It is not flowing exactly as we would all love it to be, but we are going to be okay.

John Idol
John Idol
Chairman and CEO at Capri Holdings

I think that this just, the assumption is that we continue to flow great new product. Our marketing initiatives, as you have seen, take hold, and we see this continued trend on search. I want to give a big shout-out to our creative teams, not just our design teams, but I think our creative looks just really spectacular in terms of the way we are really leaning into younger demographics in our creative and the product, and the way that we are really highlighting our accessories and bags. I also want to give a big shout-out to the Jimmy Choo teams. I hope you have seen the creative really change there over the past 12 months, and that has given a big push to the business because Jimmy Choo used to, from a creative standpoint, probably be more dressed and more glamour and more evening, and more event.

John Idol
John Idol
Chairman and CEO at Capri Holdings

Now you see this whole new casual side of Jimmy Choo, and it is driving new and younger customers into our stores. I think we are going to continue to see a sequential build throughout the quarter. Remember, this does assume that Michael Kors full price does return to positive during the quarter, and so I think we are quite confident that that will take place. Thank you all for joining us today. In closing, we are pleased with the progress that we are making at both Michael Kors and Jimmy Choo. Our strategic initiatives are having a clear impact on returning Capri to revenue and earnings per share growth. This foundation gives us the confidence in our ability to return to growth in the second half of the year. For the full-year, our estimated operating income will increase by 50%, and our earnings per share up 45%.

John Idol
John Idol
Chairman and CEO at Capri Holdings

These anticipated results show a significant recovery in fiscal 2027. Looking towards fiscal 2028, we anticipate Capri will return to growth with both Michael Kors and Jimmy Choo growing globally for the year. Driven by our exciting brand storytelling at our luxury houses, attracting new and younger consumers, continuing to introduce exciting new on-trend fashion products, and accelerating new store openings and our store renovation program, giving an exciting consumer experience. These focused initiatives will drive sustained revenue and earnings growth at Capri. We look forward to update you on our future growth on our next call. In the meantime, we wish you and your families a happy and healthy upcoming holiday season. Thank you.

Operator

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

Executives
    • Jennifer Davis
      Jennifer Davis
      VP of Investor Relations
    • John Idol
      John Idol
      Chairman and CEO
    • Tyler Reddien
      Tyler Reddien
      CFO and COO
Analysts
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