Capri (CPRI) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total company revenue for Q4 2025 was $1 billion, a decrease of 15% compared to the prior year, slightly better than expectations [27] - The company reported a net loss of $581 million, resulting in a diluted loss per share of $4.9, primarily due to a non-cash tax valuation allowance [27][35] - Gross margin decreased to 61%, down 170 basis points from the prior year, primarily due to inventory actions taken during the quarter [31][32] Business Line Data and Key Metrics Changes - Michael Kors revenue decreased by 16% compared to the prior year, with global retail sales down mid-teens and wholesale sales declining double digits [29][30] - Jimmy Choo revenue decreased by 3% compared to the prior year, with global retail sales declining high single digits while wholesale increased high teens [30] - Michael Kors gross margin was 58.6%, down from 60.8% last year, while Jimmy Choo's gross margin was 66.2%, down from 70.1% [32] Market Data and Key Metrics Changes - Revenue in The Americas decreased by 13%, EMEA declined by 14%, and Asia saw a decrease of 23% [28][30] - In Jimmy Choo, revenue in The Americas decreased by 7%, while EMEA revenue increased by 9% and Asia revenue declined by 16% [30] Company Strategy and Development Direction - The company plans to focus resources on Michael Kors and Jimmy Choo following the pending sale of Versace, aiming to maximize value and reduce debt levels [4][5] - Strategic initiatives include enhancing brand desirability, improving product offerings, and stabilizing the wholesale business [6][10] - The company aims to grow Michael Kors to $4 billion in revenue and Jimmy Choo to $800 million, while restoring operating margins to the double-digit range [25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future despite a challenging macro environment, focusing on strategic initiatives to improve sales trends [5][24] - Early signs of improvement in sales momentum and key indicators such as consumer database growth and store traffic were noted [16][17] - Management expects trends to improve throughout fiscal 2026, positioning the company for growth in fiscal 2027 and beyond [24][50] Other Important Information - The company plans to renovate approximately 50% of the Michael Kors store fleet over the next three years, with an estimated cost of $350 million [47] - The anticipated impact of tariffs is expected to increase the cost of goods sold by approximately $60 million in fiscal 2026 [42] - The company will reclassify Versace as a discontinued operation beginning in fiscal 2026, excluding it from future non-GAAP results [3] Q&A Session Summary Question: Discussion on revenue expectations and margin degradation - Management expressed optimism about revenue growth based on early Q1 trends, with significant improvements in Michael Kors retail performance and strong full-price sell-throughs [56][58] - Concerns about margin degradation were attributed to tariff impacts and inventory actions, with plans to mitigate these effects over time [65] Question: Wholesale outlook for Michael Kors - Management indicated that discussions with wholesale partners have been positive, with increased commitments from some partners and successful launches on platforms like Amazon [72][74] Question: Strategies to drive traffic and conversion - Management highlighted the importance of marketing initiatives, storytelling, and data analytics to engage consumers and drive traffic, noting improvements in conversion rates [80][81] Question: Strategies to improve sales trajectory for Michael Kors - Management acknowledged past missteps and emphasized a return to the brand's heritage and pricing strategies that resonate with consumers, aiming for sustainable growth [90][92] Question: Pricing strategy and its implications - Management expects to achieve a steady pricing state by the fall season, with adjustments made to align with historical price points while evaluating potential price increases to mitigate tariff risks [100]