Greetings. Welcome to Capri Holding Limited Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to Jennifer Davis, Vice President of Investor Relations. Thank you. You may begin.

Good morning, everyone, and thank you for joining us on Capri Holdings Limited fourth quarter fiscal 2021 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 costs associated with COVID-19 related charges, long-lived asset impairment, ERP implementation costs, Capri transformation costs, charitable donations and inventory step-up adjustments, acquisition foreign currency effects, 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 reconciliation, please view the earnings release posted on our website earlier today at capriholdings.com. Before we begin, I would like to note that we have accompanying slides posted to our website. Now, I would like to turn the call over to Mr. John Idol, Chairman and Chief Executive Officer.

Thank you, Jennifer, and good morning, everyone. Looking back, fiscal 2021 was a year like no other. Over this time, the COVID-19 pandemic has had a profound effect on the entire world. The unprecedented challenges tested our business and industry in ways we could never have imagined. My thoughts go out to all those affected by the virus and to everyone on the front lines who worked tirelessly helping combat this pandemic. The entire Capri team came together, not only to successfully navigate these challenging times, but also to position the Company to emerge from this global crisis even stronger. I want to thank all of our employees around the world for the hard work and dedication they demonstrate every day to support each other and their communities. It has been inspiring to see the entire organization rally together. I'm incredibly proud of the team and what Capri Holdings has been able to accomplish during these unprecedented times. Looking at fiscal 2021, we are encouraged by the performance of all three of our luxury houses. Revenue and earnings results significantly exceeded our original expectations. Retail sales improved sequentially every quarter while e-commerce sustained strong increases across all brands with growth rates accelerating even after stores began reopening. Additionally, in line with our goals to expand margins across all our luxury houses, gross margin increased approximately 340 basis points in fiscal 2021. Furthermore, we attracted nearly 9 million new consumers across our luxury houses as evidenced by the double-digit increases in our customer databases over the last year. Our success is a testament to the strength of our brand as well as the dedication, resilience, and agility of the entire Capri Holdings team. During the year, we reevaluated and refined Capri Holdings' strategic direction to ensure the Company emerges from the pandemic stronger and more profitable. For Versace chain and Jimmy Choo, we reaffirmed our long-term plans and are even more enthusiastic about the prospects of these luxury houses. For Michael Kors, we recalibrated our plans to further elevate the brand positioning and deliver higher profit margins, which we have already begun to achieve. With the strategic reset of our business, we believe Capri Holdings is well positioned to achieve our goal to grow to $7 billion in revenue. Looking forward, as the world starts to recover from the pandemic, we are confident in our growth opportunities for Versace, Jimmy Choo, and Michael Kors. Consumer optimism is returning with the vaccine rollout progressing in many parts of the world. While the pace of recovery is still dependent on the vaccinations and progress, we believe the luxury market will resume a steady growth trajectory, and Capri Holdings is well positioned to participate. Now, turning to the fourth quarter performance. We were pleased that revenue, gross margin, and earnings-per-share all significantly exceeded our expectations. The Company achieved these results despite greater than anticipated challenges in EMEA and Canada due to additional restrictions and store closures associated with COVID. Total revenue in the fourth quarter was flat compared to the prior year, with strength in the retail channel in the Americas and Asia offsetting the challenged environment in EMEA. Additionally, gross margin expanded 280 basis points, more than double our expectation with margin expansion across all three luxury houses. Operating margin expanded 660 basis points. As a result, earnings per share of $0.38 was stronger than expected. Looking at group revenue trends, total sales for our retail channel increased 13%, significantly exceeding our expectations. The better results were driven in part by robust e-commerce sales, which increased 80% and once again accelerated relative to the prior quarter. E-commerce sales are benefiting from our increased use of data analytics to support more targeted and personalized marketing. Additionally, store performance improved significantly quarter-over-quarter, driven by local clienteling initiatives and improved traffic trends. In the wholesale channel, sales also improved sequentially. By geography, Asia remains the fastest recovering region with retail sales increasing double digits versus the prior year. Once again, revenue in the region increased across all three of our luxury houses, driven primarily by strong growth in Mainland China, where sales increased triple digits. In the Americas, retail revenue also increased double digits, even though an average of 40% of our stores in Canada were closed during the quarter. On the other hand, in EMEA, revenue trends remain negative as an average of 60% of our stores in the region were closed during the quarter. Despite the increased restrictions and store closures in EMEA, retail sales trends in the region improved sequentially driven by triple-digit increases in e-commerce. Now, turning to fourth quarter performance by brand. Starting with Versace, we were pleased with the results which were significantly ahead of our expectations. Revenues increased 10% in the fourth quarter, demonstrating the strength of the brand and the success of our strategic growth initiatives. Sales in our retail channel increased double digits globally. In the Americas and Asia, we delivered double-digit growth, which more than offset declines in EMEA. E-commerce sales, once again, increased triple digits year-over-year. We were encouraged with the performance of our spring collections, which are resonating with consumers. We saw strength across categories reflecting enthusiastic customer responses to the brand and product. Women's accessories and footwear, our key strategic growth drivers. These categories performed exceptionally well with sales nearly doubling prior year levels during the quarter. We continue to see a strong consumer response to Virtus as well as to the introduction of our new La Medusa collection, which launched in February. With Virtus and La Medusa we now have two powerful highly recognizable brand pillars to grow accessories and footwear. We will soon introduce a third pillar with the fall launch of our La Greca signature pattern. I hope you were able to watch the Versace Fashion Show in March where we debuted the new signature pattern, which combined our iconic Greek Key motif with Versace logo. We believe the introduction of the new La Greca signature pattern will significantly accelerate the trajectory of Versace's revenues as it expands the brand's portfolio of recognizable iconic pillars. Additionally, we saw strength across both women's and men's ready to wear. Seasonal offerings incorporated the Tresor de la Mer pattern, which was featured in the Versace's Spring 2021 Runway Show. We also continue to expand our core lines that incorporate iconic house codes to increase sales and broaden for Versace's reach. Another key indicator of strength of the Versace brand is our very successful fragrance collection, which is one of the largest designer fragrance businesses in the world. We were very pleased with the continued strength of our new Dylan Turquoise and the refresh of our successful Dylan Blue fragrances as sales continue to exceed our expectations. In terms of brand awareness and consumer engagement, Versace's Spring-Summer 2021 campaign reflected Donatella's underwater fantasy world Versaceopolis, starring Kendall Jenner, Hailey Bieber, and Precious Lee, the modern Versace end users exhibit an empowered attitude that looks to the future with optimism and hope. In addition, in China, Versace launched a dedicated campaign featuring its new celebrity ambassador, Betty Wu. The Chinese singer and actress has over 25 million followers on her social media accounts. Also, Versace debuted Donatella's new collection during its Fall-Winter 2021 Fashion Show in March, which introduced our new La Greca signature pattern. The virtual show was presented in a vertical maze inspired by our iconic Greco motif and featured top fashion models, including Irina Shayk, Gigi and Bella Hadid among others. The Fashion Show generated more than 20 million views on our own channels and Versace ranked first for engagement among all the Italian fashion brands. These initiatives among others help to drive a 22% year-over-year increase in Versace's global database. Overall, Versace's results speak to the strength of the brand and reinforce our confidence in the luxury house's long-term growth potential. Versace represents the largest growth opportunity for Capri Holdings as we continue to believe revenue will increase to $2 billion. Moving to Jimmy Choo; results were also ahead of our expectations with revenue increasing 16%. Sales in our retail channel increased in the high single digits globally. In the Americas and Asia, we delivered double-digit growth, which more than offset declines in EMEA. E-commerce sales improved sequentially and increased over 50% versus the prior year. We are encouraged with the performance of our spring collection, which encompasses '90s Chic and celebrates the notion of contradictory glamour. Accessory sales showed strong growth driven by our signature JC Warren and continued success of the Bon-Bon Group. In footwear, new designs by Sandra Choi blurred the lines between shoes and jewelry featuring styles adorned with crystals and pearls. As restrictions begin to ease in many parts of the world, we have seen trends improve in the dress footwear category. In our casual offerings, we saw continued success of Hawaii and the Diamond Sneaker franchise. We also saw success with our Jimmy Choo/Marine Serre collaboration, which combined Jimmy Choo's feminine aesthetic with the futuristic vision and signature crescent moon print to create limited edition footwear. In terms of brand awareness and consumer engagement, Jimmy Choo's Spring 2021 campaign is a modern ode to springtime in Paris. The imagery captures model artist Sharon Alexie's vibrancy with key Parisian landmarks as backdrops. Jimmy Choo also continues to drive localized marketing. Our Asian brand ambassador, Chinese actress and singer, Victoria Song presented the Spring-Summer collection to her 15 million plus followers on social media accounts. In the first quarter alone, the dedicated hashtag for Victoria Song, as Jimmy Choo's Asia Ambassador garnered 60 million views. Our luxurious product and engaging marketing helped contribute to a 13% year-over-year increase in Jimmy Choo's global consumer database. Overall, we are encouraged by the progress we are making towards our goal of growing revenue at Jimmy Choo to $1 billion. Turning to Michael Kors; we are pleased with the pace of the recovery, revenue again improved sequentially in the fourth quarter declining 4% as compared to last year. Sales in our retail channel increased in the mid-teens globally. In the Americas and Asia, we delivered double-digit growth, which more than offset declines in EMEA. E-commerce sales once again accelerated relative to the prior quarter and increased approximately 75% benefiting from our increased use of data analytics to drive more targeted and personalized marketing. Moving to product performance; we continue to increase signature penetration across all categories by expanding our offering and developing new designs. Overall, signature represented approximately 35% of the assortment across all categories compared to 28% last year resulting in higher average unit retails and gross margins. We believe signature can eventually grow to approximately 50% of our overall product assortment which will drive higher margins. Accessory sales in our retail channel increased double digits globally as consumers responded to fresh updates for spring including flashes of color that energize our iconic signature styles. Sales of totes and larger bags remain strong as we continue to build upon the assortment offering a variety of new shapes and functionalities. Within footwear, we have seen a positive response to new spring updates driven by signature, shine, and feminine details. Turning to men's which remained our fastest growing category in the fourth quarter, sales increased double digits driven by signature and accessories. I am excited to say that our watch sales were positive for the first quarter since 2016 with retail sales up double digits. We continue to see a resurgence in our traditional styles that are true to our DNA with bold sophisticated and distinctive designs. During the quarter, we also launched Michael Kors' newest fragrance, Gorgeous. The launch was extremely successful resulting in fragrance sales significantly exceeding our expectations. The dedicated campaign stores model and actress, Sara Sampaio who fully embodies the spirit of the fragrance. She radiates confidence, optimism, joy, and strategy. With respect to brand awareness and consumer engagement, Michael's Spring 2021 campaign reflects the love of travel and features supermodel Bella Hadid, the quintessential jetsetter as she rediscovers iconic New York City sites. In China for the Lunar New Year, Michael Kors launched a capsule collection featuring a luxurious selection of our most loved accessories including the Soho shoulder bag exclusively offered in a new special edition red and black tweed. Our brand ambassadors, Gao Yuanyuan, Leo Wu, and others continue to amplify Michael Kors' jetset brand messaging to their more than 120 million social media followers. I'm also excited to talk about Michael Kors' 40th anniversary show that recently took place in April. Michael celebrated his eternal optimism and love of New York with the theme, Opening Night. From the heart of Broadway, the show immersed guests in the inspiration for this collection. The idea of stepping out once the world opens up again. The collection featured a selection of Michael's most iconic looks from different years over the past 40 years. Past and present supermodels including Naomi Campbell, Helena Christensen, Carolyn Murphy, Ashley Graham, Shalom Harlow, and Bella Hadid all paid tribute to Michael. The show generated more than 34 million views on our own channels. These marketing initiatives continue to underpin our brand pillars of speed, energy, and optimism. This helped contribute to an 18% year-over-year increase in Michael Kors global database. Overall, we were encouraged by the sequential improvement in revenue trends and continued gross margin expansion at Michael Kors. As a result, we remain confident in our ability to grow our revenue at Michael Kors to $4 billion. In total, Capri Holdings' fourth quarter and full year results significantly exceeded our expectations demonstrating the strength of our brands and the resiliency of our teams across the globe. During these unprecedented times, we have stayed focused on executing our strategic initiatives across all three luxury houses. We believe Capri Holdings will emerge a stronger and more profitable company and remain confident in the long-term opportunities for each of our unique global luxury houses. With the combined power of our three iconic founder-led fashion luxury brands Versace, Jimmy Choo, and Michael Kors, Capri Holdings is positioned to accelerate revenues to $7 billion and deliver multiple years of earnings growth. Now, let me turn the call over to Tom.

Thank you, John, and good morning, everyone. Starting with the fourth quarter, revenue of $1.2 billion was flat to last year significantly exceeding our expectations. Performance was driven by better-than-anticipated results across all brands and regions. Net income was $59 million resulting in diluted earnings per share of $0.38, this was above our expectations reflecting better-than-anticipated revenue and gross margin along with lower operating expenses. Looking at revenue trends by channel, total company retail sales increased 13%. These results were driven in part by robust e-commerce sales which increased approximately 80% and once again accelerated relative to the prior quarter. Additionally, store performance improved significantly quarter-over-quarter driven by local clienteling initiatives and improved traffic trends. In the wholesale channel, revenue also improved sequentially. By geography, in Asia, retail sales increased double digits versus the prior year. Once again, revenue in the region increased across all three of our luxury houses driven primarily by stronger growth in Mainland China, where sales were up over 100%. In the Americas, retail revenue increased double digits, despite store closures in Canada. Conversely, in EMEA, retail revenue trends remained negative as an average of 60% of our stores were closed during the quarter. Despite the increased restrictions and store closures in EMEA, retail sales trend improved sequentially driven by triple-digit increases in e-commerce. Turning to revenue performance by brand. Versace revenue was $235 million, representing a 10% increase to the prior year and above our expectation. Global sales in our retail channel increased double digits with e-commerce sales once again increasing triple digits. Sales in Asia grew double digits driven by strong double-digit growth in Mainland China. The Americas was once again the best performing region with revenue up strong double digits. Trends in EMEA remain below prior year impacted by increased restrictions and store closures. Versace ended March with a global luxury fleet of 210 retail stores, a net increase of four from the prior year. For Jimmy Choo, revenue during the quarter increased 16% to $124 million, also above expectations. Retail sales in Mainland China increased triple digits resulting in double-digit sales growth in the total Asia region. In the Americas, retail revenue increased in the low double digits. While in EMEA trends remain negative, but improved sequentially despite the increased restrictions and store closures. Jimmy Choo ended the quarter with a global fleet of 227 retail stores, a net increase of one from the prior year. At Michael Kors, total revenue of $838 million declined 4% compared to last year. Overall, retail sales increased in the mid-teens, significantly better than expectations, e-commerce sales growth accelerated sequentially increasing approximately 75%. Retail revenue in Mainland China increased triple digits driving double-digit retail sales growth in the total Asia region. In the Americas, retail revenue increased double digits. In EMEA trends remain negative but improve sequentially despite the increased restrictions and store closures. For our Global Wholesale business, sales at retail and shipments both improved sequentially. However, overall shipments remain below prior year. Michael Kors ended the quarter with a global fleet of 820 retail stores, a net decrease of 19 from the prior year. Now, looking at total company margin performance. We were pleased with gross margin expansion of 280 basis points, which was significantly above our expectations. As John mentioned, gross margins expanded across all three of our luxury houses. This improvement primarily reflected increased full price sell-throughs and select price increases at Jimmy Choo and Michael Kors. These gains were partially offset by higher tariffs related to the expiration of the GSP trade program as well as increased transportation costs. Operating expense as a percent of revenue was 51.5% compared to 52.3% last year. Total company operating expenses were modestly below last year, reflecting our expense reduction initiatives, partially offset by higher foreign currency exchange rates and variable costs associated with increased retail revenue. As a result, total company operating margin expanded 360 basis points to 11.9% compared to 8.3% in the prior year and was well ahead of our expectation. Looking at operating margin by brands. Versace's operating margin of 12.3% was above our expectations and improved over 1,000 basis points, reflecting both gross margin expansion and expense leverage. Jimmy Choo's operating margin of negative 14.5% reflects expense deleverage partially offset by gross margin expansion. Michael Kors' operating margin of 20.5% was above our expectations and expanded 460 basis points over the prior year reflecting higher gross margin and lower operating expenses. Our tax rate for the quarter was 59%, driven primarily by mix of income across different tax jurisdictions. Now, turning to our balance sheet. We ended the year with cash of $232 million and debt of $1.3 billion resulting in net debt of approximately $1.1 billion. We paid down approximately $70 million of debt during the quarter and approximately $850 million during the year. Total liquidity at the end of the year was $1.5 billion. Given our strong cash flow generation, we are exiting our covenant waiver and 364 day credit facility ahead of schedule. Additionally, we are now reinstating our share repurchase authorization which has $400 million of availability remaining. Looking at inventory, we ended the quarter with $736 million, down 11% compared to the prior year. We expect to build inventory to support sales growth over the year. While we are seeing delays in receiving merchandise. The current situation is incorporated into our outlook for the year, and we continue to work on initiatives to further mitigate transportation challenges. Capital expenditures for the year were $111 million and were primarily spent on new store development, renovations, IT, and e-commerce enhancements. Now, turning to fiscal 2022 guidance. Though it's not our normal practice, we believe it is important to lay out our view of the quarterly progression of revenue and earnings throughout fiscal 2022. We are doing this for two reasons. First, the COVID-19 pandemic has had a significant impact on both revenue and expense comparison. Our forecast incorporates our expectations for the pieces of recovery on revenue as we move through the year as well as the amount and timing of expenses such as marketing and reopening costs. Second, as previously discussed, we have reset our business strategies and objectives. Most notably, we are planning for a smaller but more profitable Michael Kors business. As a result, we believe the most appropriate benchmark to evaluate our progress against our revised objectives is this forecast which we believe will provide a more accurate reflection of the success of our initiatives. For the full year, we forecast Capri Holdings revenue of approximately $5.1 billion. This includes approximately $75 million associated with the 53rd week and assumes Versace revenue of approximately $925 million to $975 million, Jimmy Choo revenue of approximately $500 million to $525 million and Michael Kors revenue of approximately $3.5 billion to $3.6 billion. For the first quarter, we forecast revenue of approximately $1.1 billion. We expect continued growth in the Americas and Asia region despite ongoing restrictions including store closures in Canada, Japan, and Southeast Asia. In EMEA, we anticipate revenue will continue to be impacted by regional restrictions including store closures. Turning to the second quarter, we anticipate revenue of approximately $1.2 billion supported by reopening in EMEA, Canada, Japan, and Southeast Asia. As we look to the second half, we are optimistic about a stronger recovery after vaccines are more widely distributed. All of our luxury houses should benefit as people begin to feel more comfortable returning to more normalized routines. In the third quarter, we expect revenue of approximately $1.4 billion. And for the fourth quarter, we anticipate revenue of approximately $1.4 billion. Now, let me talk about the remainder of the full year P&L. Starting with gross margin, for fiscal 2022, we continue to see underlying strength in our ability to expand gross margins through higher full price sell-throughs, select price increases at Jimmy Choo and Michael Kors, as well as increased penetration of accessories at Versace and Jimmy Choo. As I previously noted, we are experiencing higher transportation costs. As a result, we now anticipate approximately 50 basis points of gross margin expansion year-over-year. Moving to operating expenses; we now expect operating expenses of approximately $2.6 billion. This includes the benefit of our COVID-related cost reduction initiatives. It also reflects higher variable expenses related to increased revenue, additional reinvestments in our business to accelerate growth, in particular, marketing as well as the impact of foreign currency exchange rates. Taken together, we anticipate Capri Holdings operating margin of approximately 14% reflecting year-over-year operating margin improvement across all brands. For Versace, we anticipate operating margin in the low-double-digit range. For Jimmy Choo, we expect operating margin in the negative mid-single-digit range due to continued expense deleverage. For Michael Kors, we anticipate operating margin in the low 20% range. Turning to our expectations around certain non-operating items. For fiscal 2022, we estimate net interest expense of approximately $20 million. Our effective tax rate is estimated to be approximately 15% and we forecast weighted average shares outstanding of approximately 156 million. As a result, for fiscal 2022, we expect to generate earnings per share of approximately $3.70 to $3.80. Turning to capital expenditures; we anticipate spending approximately $200 million in fiscal 2022 which includes store openings and remodel as well as IT expenditures including investments in our digital platform. Now I would like to discuss our non-GAAP charge expectations for fiscal 2022. We anticipate transformation expenses of approximately $20 million. Implementation costs for SAC of approximately $30 million and restructuring charges of approximately $70 million related to our fleet optimization program. Turning to our first quarter guidance. As I said earlier, we expect revenue of approximately $1.1 billion. This is since Versace revenue of approximately $220 million, Jimmy Choo revenue of approximately $110 million and Michael Kors revenue of approximately $770 million. For gross profit, we expect continued margin expansion in our retail channel. For the quarter, this improvement will be offset by higher wholesale penetration as shipments normalize. We expect wholesale penetration to nearly double to approximately 25% in the first quarter. Therefore we anticipate total company gross margin contraction of approximately 100 basis points in the first quarter compared to last year. Turning to operating expenses; we expect first quarter operating expenses to increase approximately $150 million year-over-year. This reflects the significant increase in revenue relative to last year, which is generating higher variable expenses. Additionally, it reflects reinvestment in our business as sales recover as well as the impact of foreign currency exchange rates. Taken together, we anticipate first quarter operating margin of approximately 12%. With Versace, we anticipate operating margin in the high single-digit range. For Jimmy Choo, we expect operating margin in the negative low to mid-teens range. For Michael Kors, we anticipate operating margin in the low 20% range. Now, looking at certain non-operating items. For the first quarter of fiscal 2022, we estimate net interest expense of approximately $5 million. Our effective tax rate is estimated to be approximately 9% and we assume weighted average shares outstanding of approximately 155 million. As a result, we anticipate first quarter earnings per share of approximately $0.75. Now, I would like to share our expectations around our quarterly earnings per share assumptions for the remainder of the year. Again, while this is not our normal practice, we thought it would be helpful to lay out our view of the quarterly earnings progression through fiscal 2022 based on the impact of the COVID-19 pandemic and the reset of our business strategies and objectives. For the second quarter, we anticipate earnings per share in the range of $0.70 to $0.75. For the third quarter, we expect earnings per share in the range of $1.65 to $1.70 and for the fourth quarter, we forecast earnings per share in the range of $0.55 to $0.60. Please note, this guidance does not incorporate any additional store closures or new government restrictions that could further impact our business. In summary, we believe the progression over our initiatives throughout fiscal 2022 positions Capri to deliver on its long-term goals. As we look beyond to fiscal 2023, we continue to anticipate revenue and earnings per share will exceed pre-pandemic levels. In conclusion, we are pleased with the trajectory of our business reflecting the strength of our fashion luxury houses and the execution of our strategy. Versace's results speak to the power of the brand and reinforce our confidence in the luxury house's long-term potential. Versace represents the largest growth opportunity for Capri Holdings as we continue to believe revenue will increase to $2 billion while operating margins expand to at least the mid-teens longer term. At Jimmy Choo, we are encouraged by the progress we are making toward our goal of growing revenue to $1 billion, while expanding operating margins to the mid-teens longer term. At Michael Kors, we are encouraged by the sequential improvement in revenue trends and continued gross margin expansion. Longer term, we remain confident in our ability to position Michael Kors as a smaller, more profitable business with revenue of $4 billion and operating margins of approximately 25%. Taken together, we believe Capri Holdings is well positioned to generate $7 billion in revenue with Versace and Jimmy Choo combined accounting for approximately 40% of revenue and approximately one-third of total company earnings. As the world emerges from the pandemic, we remain confident that our three luxury houses position Capri Holdings to deliver multiple years of revenue and earnings growth, as well as increased shareholder value. We look forward to sharing more of our future outlook with you at our upcoming Investor Day on June 29. Now, we will open up the lines for questions.

Thank you. Our first question is from Omar Saad with Evercore ISI. Please proceed.

Good morning, thanks for taking my question, and great job in the quarter, pretty exciting stuff. I guess I'll use my one question to ask about how sticky some of these margin gains are that you guys are generating, especially around the Kors brand, I think it's up 400 basis points gross margin, up 400 basis points versus kind of pre-pandemic, and less promos more pricing power, and I'm wondering if we should think about longer-term as supply and demand normalize. Do you think some of that promotionality will go away? I'm sorry, could return, and, or should we think about Kors as kind of like a smaller, a little bit smaller, leaner, more profitable brand, steadier grower in terms of long-term algorithm. Thanks.

Thank you, Omar, and good morning. I'll pick part of it and I'll let Tom pick part of it as well. To begin with, I think we're extraordinarily pleased with what happened in the quarter for all three of our luxury houses and really the margin expansion we saw, which was important because we've been focused on reducing the SKU counts across all three of the companies and really putting a laser focus on full price sell-throughs and that's gone up across the group. I think we're seeing the impact of that. Also, I just might add that the performance of accessories at Versace is really extraordinary and far ahead of what we had expected to be at this point in time. When you look at this brand having about a 10% increase in the quarter and remember two years ago we dropped almost $150 million when we bought the company from its revenue base to clean it up and set it as a luxury company where we eliminated two of the lines. So, that whole strategy is working in place and I think we're also seeing at Jimmy Choo the power of two things happening again, reducing our SKUs. We are seeing better full price sell-through in the dress shoe business, which is returning and our active business in particular, our Hawaii and DIAMOND platforms are having great sell-throughs. So really good things are happening there. Again, that's helping to improve margin. And then at Michael Kors, there are a number of things going on. Again, SKU reduction is part of the story. Clearly, the price increases that we've taken and we will take more; I think we talked about that on our previous calls, more will happen this fall season and we will probably take more even further in Spring of 2022. Our feeling is, as we've stated a number of times, we want the Michael Kors brand to be higher positioned from a luxury standpoint. We want to reduce the amount of promotional activity. The way we do that is to really curtail the amount of supply. The biggest part of the story is quite frankly our focus on our signature business and the designs that Michael and his team have been putting forth in our marketing campaigns. We are resonating with the customer. There is no question what's happening. I think the cool and interesting thing that we've found is that this new customer who in many cases is or early on was the latter part of the millennial, the Michael Kors brand is new to them. That's what's exciting and we find that in the watch business too. We've talked about our first quarter of seeing watch comps up and it's for many years, and this is because the new customer is finding our brands. So, we're super excited that we can see that happening. I do believe that this is going to be, to use your term, sticky. I think we're going to see continued expanded gross margin at Michael Kors, really again based around price increases that we're going to take. Again, I think we talked about signature across the total group this time, where normally we only talked about it in accessories and what you're finding is a more total number, and we're seeing that this could really be 50% across all categories of business in the company. So that's quite exciting, and that gives us better full price sell-throughs and a more sustained product lifecycle, which is another very important thing as we look at profitability. So, I'll let Tom talk to the actual numbers himself.

Thank you, Omar. As John mentioned, we exceeded expectations this year through fundamental actions and initiatives taken by the business. More importantly, we have initiatives that will continue and expand into fiscal year '22 and '23. We are forecasting 50 basis points of margin expansion for '22, which accounts for these initiatives along with some headwinds from transportation costs and the wholesale mix, especially in Q1. Looking at the quarterly progression provided, you'll see that we’ll strengthen as the year progresses and as we move past the normalization in wholesale. For fiscal '23, we expect an additional 100 basis points of expansion. Overall, our company will see expansion, and specifically for Michael Kors, we are on track to achieve operating margins of 25%, well above our historical performance.

And Omar, I'll just add one last point as well in terms of the KPI. When you look at the fact that we've been raising prices in Michael Kors, there has been less promotional merchandise available. Our inventories are down as there is less for the customer to find, and remember, that's more of a North America situation. When you go outside of North America, we don't have that cadence in the business; we follow a much similar cadence to the luxury industry. But we grew our database 18% in the last quarter, and that means two things: the customer is responding to our marketing and Michael's phenomenal designs, and it also means that the price increases are not stopping that customer from crossing the line and purchasing products. So thanks a lot for that question, Omar.

Great color. Thank you.

Our next question is from Kimberly Greenberger with Morgan Stanley. Please proceed.

Okay, great. Thanks so much. Really, really nice numbers here in fourth quarter. Thank you so much for the rundown. John, it sounds like just in answer to Omar's question that you might be sort of rethinking your view on long-term margins given maybe to higher margin rates that you guys are delivering right here with the ongoing opportunity. So I'm just wondering, am I reading you correctly? Do you think that longer-term operating margins both in aggregate and by brand could in fact be higher than the targets you established several years ago? And if you could just, and Tom, can you just help us understand how margins change over time through international growth and e-commerce growth? Thank you so much.

Kimberly, that's a great question and good morning. I’ll address that in two parts. First, as mentioned in our press release today, we have announced an Investor Day where we will outline our long-term strategic goals and provide more detailed timelines around them. As you can imagine, we still lack complete clarity given that we're emerging from the pandemic. The business in Greater China has led recovery, and North America has shown strong growth, particularly in the last quarter, which is continuing into this one. We’re particularly pleased with the robust performance of the department store business in North America, especially given our significantly reduced inventories. The sell-through rates, inventory turns, and margins are all in excellent shape. However, we anticipate continued low wholesale numbers for two reasons: firstly, Europe still has a long way to go before recovery, and we expect improvements only in the latter part of Q3, specifically referring to calendar Q3. We hope to see better conditions by calendar Q4 as vaccinations increase and borders reopen. Secondly, while we’re excited about the return of domestic air travel, our international duty-free business remains largely inactive, though we expect it to resume in 2022, providing a positive boost since we've basically been out of that sector for two years, apart from our strong duty-free performance in China. Regarding long-term margins, we’re optimistic about the targets we've set for Michael Kors, aiming for a margin around 25% over time, ideally not taking too long. For Versace, the mid-teens operating margin we’ve discussed is just our initial benchmark. As we scale, we have even more ambitious goals, but we don’t want to rush things as we will need to make investments. Versace is performing well, and our accessories segment is growing rapidly, with La Greca being a standout success. While we have confidence in the new collection and its potential, achieving our targets will take time. If everything aligns, we anticipate significantly higher goals than what we have presented thus far. However, we still need to build the necessary volume and leverage. There’s no doubt we are on the right track as consumers are responding positively. Looking at Michael Kors and Versace, we see a gap in Europe that hasn't fully recovered yet. Despite sequential improvements in our digital business, our physical stores are not yet performing as needed. We remain hopeful that we’ll see improvements by the third and fourth quarters of the calendar year. Once we have a full year of recovery, we believe this will provide pleasant leverage for the company. Lastly, regarding Jimmy Choo, it may take longer than we initially expected due to the impact of the pandemic on the dress footwear segment. We are aiming for mid-teens margins, which will also depend on the development of our accessories line. While progress is slow, we’re confident that we have the right strategies in place to meet our objectives.

And Kimberly, there were two other items you'd asked about international e-commerce and how they impact our margins longer term. They're actually both positives for our margins and would support additional growth and expansion. When we look at international, I'm speaking about Asia in particular, it grew this year to over 20% of our total revenue, and all three of our brands are growing and performing well in the region. That is a region that structurally has higher margins. Historically, and we anticipate that to continue in the future. So as we increase our penetration in Asia and China in particular, that will help the overall company margin base. The second item is e-commerce. Now for all three brands, our e-commerce margins are positive for Jimmy Choo and Versace; they always were in line with or better than stores. Now for Michael Kors with the growth that we saw this year and the leverage that we've seen in e-commerce, our margins are at or above store levels. So as we increase penetration and by the way, e-commerce penetration about doubled in fiscal '21 and will be growing off a much larger base. As we move forward, that will also be accretive to margins. We'll be making investments to help support that growth across the business as part of our CapEx plans and we're really excited about it.

Lastly, regarding Greater China specifically, our competitors across the Group are generating revenues between $1 billion to $2.5 billion. When considering the opportunities for Versace and Michael Kors, we believe they can likely reach similar revenue levels. Jimmy Choo may have slightly less potential, but there are still significant opportunities. Our company has a substantial growth runway with our brands. Thank you very much, Kimberly.

Great, guys. Thank you so much.

Our next question is from Ike Boruchow with Wells Fargo. Please proceed.

Hey, everyone. Let me add my congrats. Just wanted to dig into the gross margin real quick. I guess on the outlook, can you talk about, especially in the near term, the pressures you're seeing on supply chain and fulfillment. Just any detail there would be kind of interesting this year. And then maybe, Tom, on GSP just to be clear, are you assuming the GSP is not renewed in your guidance? And then if you are, if you're not, what would the benefit be if something retroactively does go through at some point this year? Thank you.

Thanks, Ike. With regard to supply chain and fulfillment, we are seeing delays as I noted and costs are higher. We're seeing challenges, for instance, just getting container space and our port delays coming out of Asia in particular, and then more delays in Long Beach and LA. However, as I noted, we have built that into our forecast and we have incorporated the higher costs. Our teams are doing an amazing job working to mitigate that both what they have done and additional plans that we're putting in place. We do anticipate it will continue to ultimately normalize but it's incorporated in our forecast right now. With regard to GSP, we do assume that ultimately it will be renewed. There is actually some legislation put forward in the Senate that was introduced to start that process. But overall when you look at the GM impact, I think you have to look at the total puts and takes as to where this would fall if for instance it were not done; it's really too early to tell the impact of GSPs since we don't know the timing and the form of renewal. As John mentioned and I also noted, we have a number of other actual base business initiatives, full price sell-through, and increasing signature our pricing activities as well as those other items like Asia's growth in e-commerce that we've overdelivered on in the past. So with all the puts and takes, I think it's a little too early to talk about the overall impact and the net impact to our gross margins right now. We're very comfortable with the 50% or 50 basis point increase this year and 100 next.

Got it, thank you.

Thank you, Ike.

Our next question is from Matthew Boss with JP Morgan. Please proceed.

Thanks and congrats on the improvement. So maybe John, it's a little bit larger picture, but I know we've talked about it at length in the past. As we exit the pandemic hopefully sooner than later. I guess how would you re-frame the relative growth rates and opportunity as we think about first the accessible luxury market at Michael Kors operate, and then second, maybe trends in the forward-looking really to have on core luxury, that would be more Versace and Jimmy Choo on a go-forward basis.

Thank you and good morning, Matt. I want to highlight a few points. First, we've reassessed and refined our vision for the company, which has been a significant turning point for us. We've recognized that profitability is crucial for our growth, along with expanding gross margins and achieving full price sell-throughs. We have carefully evaluated our business strategies and how we can align them with our goals. We are confident that Versace is on the right path. The company is performing well, and consumers are responding positively to our new design initiatives. We see significant growth potential, especially in accessories. We plan to adapt our product offerings and brand positioning based on consumer feedback across all our lines. We look forward to seeing the results from the new designs and remain confident in our long-term goal of reaching the $7 billion revenue target. Thank you very much, Matt.

Great color. Best of luck.

Our next question is from Erinn Murphy with Piper Sandler. Please proceed.

Great, thanks, good morning. John, my question is for you on Versace, the logo product, that you recently unveiled back at the end of March. Can you talk about what distribution will look like this fall and then into next spring? And then Tom, if I can just follow-up on the gross margin, what is embedded in the outlook for any raw material cost price increases that you're seeing? Thanks so much.

Good morning and thank you, Erinn. The La Greca, which is what you saw in the show in March, I hope you all got excited about that. Again, I take my hat off to Donatella and the design team under the leadership of our CEO Jonathan Akeroyd. This was a very important moment for the company. The Company while we've had our iconic Medusa emblem, it really is not a full signature logo strategy. The Company has never really had this in its history. What is exciting about Versace, when you think about Italian luxury-goods companies you typically think about leather goods. This company has been in the business but never used it as its lead. We are really excited about how it's generated a strong consumer response. The distribution for La Greca will be obviously our own digital channels, our own retail stores, and then limited to our department store luxury partners. This will be strategic. We do not want to rush this; this takes time. Our marketing strategies, storytelling, and the renovations of our stores will be a pivotal part of this rollout.

And Erinn, with regard to raw material costs, we have seen increases in raw material costs and input costs such as leather, for instance. That is embedded in our outlook for our gross margin levels and 50 basis point increase for the year as well as the progression through the year. So if you look at the puts and takes, the takes being transportation and then the input costs and wholesale in the beginning of the year, overall which will be more than offset by the positive. So the full price sell-through, our pricing actions and growing the accessories business among other activities. That’s how we see it playing out. The progression-wise, the first half is a little more impacted in particular Q1 by the wholesale mix as that normalizes and we get into the second half, then the benefits and the strength of those initiatives can shine through. They’re there the whole time, but that’s when you’ll see them picking up in terms of gross margin expansion.

Thank you, Erinn.

Thank you.

Our next question is from Paul Lejuez with Citigroup. Please proceed.

Thanks, guys. The Michael Kors brand within North America, just curious what your assumptions are for this year on the wholesale side. And what percent of that brand sells in the US department stores? And then how does that compare to pre-pandemic levels? And also just curious if you could talk about performance of urban stores, malls, first outlet? Thanks, guys.

Thank you, Paul. So Paul, as I've pointed out over the last two years, we tried to make a very specific point in this that we look at the wholesale business at Michael Kors in three buckets. We look at the North American department store business, which I'll talk to in a moment; we look at the European business, which is a combination of both department stores and specialty stores. There is also some regional licenses which we don't even talk about, and those are our licenses in regions like Russia or the Middle East, etc., all reside in that category. The North American business will probably be more dominant of the wholesale business because these other two categories will continue to suffer. In North America, what we did was reduce the amount of sell-in of products to really push up the sell-through and reduce the markdowns. Our partners here in North America have been thrilled with this strategy. They are on board and executing it well. If anything, we are a little lean on inventory. Their sell-throughs are so high in some of these stores. They're enthused. The North American wholesale will be more heavily weighted than it has been in the future. We do expect, as I said, for the fourth quarter of this year, Europe to be back to 80% plus of its normalized volume rates and in the earlier quarters, things will be slow. We don't expect the wholesale business to return in travel retail until calendar year 2022. In terms of the regional stores versus the metropolitan ones, we are seeing some small return, but they're not back anywhere close. Some of the regional or suburban mall locations in, I have to always speak to the US, because Europe is only recently reopening, are showing strong signs and are even showing increases back to 2019 levels. We're quite excited to see consumers are moving to more normalcy; mall traffic is improving weekly.

That's helpful, John. Thank you.

Our next question is from Jay Sole with UBS. Please proceed.

Great, thank you so much. My question is just on the balance sheet and free cash flow. John, if you could sort of elaborate what your priorities are for the free cash the company is going to generate this year and if M&A is something that's rising in terms of the priorities that would be super helpful. Thank you.

Jay, thank you. I'm going to let Tom answer that, just before I want to make sure everyone knows you're looking at our company. But we intend to spend into this year. Our objective is to really engage with our consumer and get them back into stores. Stores are critical; we see them return to ultimately pre-pandemic levels and we will be using our upside in many cases to spend into great marketing initiatives. In particular, at something like Versace, when we see La Greca happening, we're going to spend into it and we're going to develop that communication with our consumer. We think that’s the right thing for us to do, continue to build brand equity and in certain regions of the world where we are underdeveloped, Asia would be that in particular; we want to try to ride the wave and/or take market share and we think to do that we'll need to spend on those activities. Tom?

Sure, Jay. When you look at free cash flow this year, it's a little over $0.5 billion, it's pretty close to where we were pre-COVID at over $600 million. We're pleased with how the business performed based on the different initiatives we put in place. As we look forward, we think that operating income is up at guidance levels over 60%. That’s really going to help build back up our cash flow profile. That's a testament to the fundamental strength of the businesses. As we look forward, we will be investing in two areas: higher capital expenditures as we renovate stores and build out, particularly in Asia and also investing in inventory to support the higher sales growth, but we feel like we’re on a good path to continue generating strong free cash flow. Our allocation perspective will be investing in the business, and this includes areas like digital. We'll be paying down debt, and we paid down significant amounts during this year, approximately $850 million. But we will continue to strengthen our balance sheet. This gives us capacity in the future to return cash to shareholders, and our balance sheet is strong with leverage under 3 times at this point. At some point in the future we may look at additional acquisitions, but we're focused on our business right now.

Our next question is from Dana Telsey with Telsey Advisory Group. Please proceed.

Good morning, everyone, and nice to see the progress. As you talked about the digital margins and the retail margins, what are the opportunities and where do you see the digital margin getting to given that it is surpassing retail margins? Is there a difference by region or by brand? Thank you.

Good morning, Dana, and thank you for that question. Our digital business is exciting. We're using data analytics to support more targeted and personalized marketing. We're seeing all three of our brands excel under this strategy, and it's great to see the teams get together and talk about what's happening in each of the business units and share learnings. We really believe in an omni experience, and we think that as exciting as the growth is in digital and e-commerce—we want that and we’re going to empower that—we're equally focused on stores. Stores will still be the predominant part of our business. We're seeing consumers moving between stores and online, requiring new things from us, in home experience and our clienteling initiatives that you've heard us talk about have been extraordinary by all three of the groups. We see opportunities to continue to grow our digital pieces of the business, and we're excited about it. I’ll just give you a good example: with Michael Kors we have something called MK Go, a more sporty side of the business running triple-digit growth rates, largely driven by online activity. Similarly, Versace's underwear business is primarily driven by online activity as it sees significant consumer engagement. We expect to drive new categories online with Jimmy Choo as well. Our existing categories will have a real opportunity too. Overall, our digital initiatives are enhancing profit margins and delivering on full-price sell-through, which is crucial for brand health.

And when you ask about upside being, there is indeed upside. We thought this year just by building scale in the Michael Kors brand, the impact had positive e-commerce margins. Continued growth in that area can positively impact our overall business margin profile. Additionally, we will be making investments in our digital platforms and continue expanding our analytics capabilities, which will help improve our returns. All three brands will benefit from those initiatives as we increase scale.

Thank you, Dana. I'd like to take this time to thank everyone for joining us this morning. I know this call was longer than normal, but it is our year-end call. We wanted to take the opportunity to provide more detailed guidance. It's not our typical practice, but given that we reevaluated and refined Capri's strategic direction and have a better insight into how it flows, it was important to share that with you. We look forward to giving you further updates in calls ahead and at our upcoming Investor Day. Thank you very much, and nice speaking with you all.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.