Greetings and welcome to the Capri Holdings Limited Third Quarter Fiscal 2025 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce Jennifer Davis, Vice President of Investor Relations. Please go ahead.

Good morning, everyone and thank you for joining us on Capri Holdings Limited third quarter fiscal 2023 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 today’s call. Unless otherwise noted, all financial information on today's call will be presented on a non-GAAP basis. These non-GAAP measures exclude certain costs associated with impairment charges, restructuring and other charges, ERP implementation costs, Capri transformation cost, and costs related to the previously terminated merger with Tapestry, Inc. To view 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.

Thank you, Jennifer and good morning, everyone. Overall, our business remained challenged during the quarter and we are disappointed with our results. Since the termination of the merger agreement, we have reevaluated our strategic initiatives and long-term growth plans. We look forward to sharing details about our strategies to improve current sales trends and drive future growth at our upcoming Investor Day on February 19th. However, because we are still in the early stages of execution, our near-term performance will remain challenged. Entering 2025, we are optimistic about our path forward. The past year and a half has provided us with valuable insights that are shaping a promising future. Looking ahead, we expect trends to improve throughout fiscal year 2026, positioning us to return to growth in fiscal 2027 and beyond. Now I would like to turn to our third quarter performance in more detail. Revenue decreased 12%, as our results were impacted by softening demand for fashion luxury goods globally, with an outsized decline in China. Our performance was further impacted by our store optimization program, as well as our ongoing reductions in the wholesale channel. At the same time, we made a number of missteps in our efforts to reposition our brands, in particular at Versace and Michael Kors, that negatively impacted our results. Now looking at third quarter revenue trends by brand. Starting with Versace, revenue decreased 15% compared to prior year, as results were affected by the decline in global demand for fashion luxury goods. Additionally, in Fall of 2023, we began to reposition the brand, to place greater emphasis on luxury and craftsmanship, which was more in line with the quiet luxury trend. We have been pleased with many aspects of our repositioning efforts. Our VIC consumers have grown at a double-digit rate as they have responded positively to the more sophisticated offerings. Also, as part of our elevation strategy, we reduced end of season markdown rates in our stores, beginning with our Spring-Summer 2024 assortment. This included the elimination of markdowns and accessories, as well as containment of overall markdown rates in our full-price stores. While this has had a near-term impact on Versace's revenue, AUR increased mid-single digits in our full-price channel in the quarter, better positioning the brand for healthier, sustainable future growth. We also made missteps in some of our repositioning efforts. While elevating the assortment, we believed we removed too many unique Versace statement items. Additionally, we significantly reduced our offerings of products at entry-level luxury price points. This impacted our retail sales, but had a more significant impact on our wholesale business. Going forward, we will focus on injecting more energy into Versace's assortment to achieve the ideal balance of fun and elegant assortment. You will see more of this product flow into stores throughout fiscal 2026. Furthermore, after reviewing our pricing architecture, we will be introducing a wider offering of product to appeal to a broader base of luxury consumers. Both of these initiatives will help us engage with consumers and drive higher full-price sell throughs. For holiday, we were able to affect a limited group of products, including accessories and sneakers. For example, in November, we launched playful new bag styles to appeal to a broader luxury consumer and saw a positive inflection in women's accessories in our own retail channel. Another key indicator of strength of the Versace brand is the success of our eyewear and fragrance businesses. Eyewear continues to experience growth. Grammy award-winning singer, songwriter, Sabrina Carpenter, and NBA basketball star, Alexandre Sarr, both appeared in the new Biggie Eyewear campaign, which generated strong consumer demand. Our fragrance business also continues to deliver robust growth. Third quarter results were driven by the highly successful launch of our latest Eros Energy Men's Fragrance, featuring Channing Tatum as the face of the campaign. Moving to brand awareness and consumer engagement. Versace continued to benefit from high levels of brand awareness and engagement through its fall winter campaign, which channeled elevated energy. The iconic hallways and rooms of the Chateau Marmont Hotel in Los Angeles were used as a backdrop to highlight the collection's luxurious - strong, fashion point of view. For holiday, communication efforts focused on giftable items, including the launch of our new Tag Bag. These activities help contribute to a 15% year-over-year increase in Versace’s Global Consumer Database. We believe we have the key building blocks and initiatives in place to realize the full potential of this incredible brand. To return Versace to growth, we are focusing on continuing to leverage our strong brand awareness to drive consumer engagement, expanding our product offering to inject more energy and re-engage with the aspirational luxury consumer, improving store productivity, and returning our wholesale business to growth. Moving to Jimmy Choo, revenue decreased 4% compared to prior year as results were impacted by global slowdown in demand for fashion luxury goods. Our product strategy remains focused on further developing accessories and expanding Jimmy Choo's casual footwear offering. In terms of accessories, we continue to believe the category can expand to 30% to 35% of the mix from approximately 23% today. We have seen strong performance in the Cinch Bag, the newest addition to the Bon Bon family. During the third quarter, women's accessories performed well with sales in our retail channel up high single digits. We have also been pleased with the response to our expanding casual assortment. During the third quarter, casual footwear sales in our retail channel increased low double digits versus prior year. Now turning to brand awareness and consumer engagement. In October, Jimmy Choo launched a second capsule collection with the Japanese animated series Sailor Moon. Featuring a curated selection of accessories and footwear, the collection achieved exceptional sell-through rates. It also generated significant engagement across social media, resulting in approximately 12 million impressions. For winter, Jimmy Choo's campaign embodied the vibrant energy and festive spirit of the holiday season. Shot on location in Le Carmen in Paris, the decadent interior provided a glamorous stage for the texture-rich winter collection. Jimmy Choo also launched a playful social first video series starring Kim Cattrall. The campaign, which referenced the brand's cultural legacy from Sex and the City, helped drive awareness for the opening of the new Madison Avenue flagship boutique and drove over 4 million views. Our marketing initiatives continue to underpin our focus on glamour. This helped contribute to a 12% year-over-year increase in Jimmy Choo's global consumer database. Looking forward, we are confident that we have the foundational elements and strategies needed to fully harness the potential of Jimmy Choo. To accelerate growth, we are focusing on engaging and energizing both new and loyal consumers, broadening our product offering in accessories and casual footwear, improving store productivity, and stabilizing our wholesale business. Now turning to Michael Kors, revenue decreased 12% compared to prior year due to softening demand for fashion luxury goods globally. Results were further impacted by our store optimization program, as well as by continued reductions in the wholesale channel. In the Fall of 2023, we began implementing a comprehensive transformation plan. As part of this plan, we aimed to appeal to a younger audience, attempted to elevate price points too quickly, and significantly reduced our signature product offering, while injecting too much fashion for our core consumer. Our data analytics and consumer feedback indicated that this plan was not gaining traction and alienating our core consumers. Going forward, we are refocusing on the heritage of the Michael Kors brand, adjusting our pricing architecture to align with historical levels, and rebuilding our core and signature assortments to achieve a more balanced product mix. These initiatives are being put in place to achieve higher full price sell-throughs and AURs. Given our lead times, the product for Fall and holiday reflected the strategies of the previous plan. While we implemented some minor adjustments to the holiday assortments, the most significant changes will begin to take shape in the Spring and become more pronounced by Fall 2025. For holiday, we strategically realigned the pricing of several key bag styles to reflect the price points more in line with historical levels. This led to an increase in full price sell-through rates on those styles. Turning to eyewear and fragrance, which are key indicators of the strength of the Michael Kors brand. Eyewear continued to experience growth. Additionally, we saw strong growth in fragrance with the launch of Michael Kors' new signature fragrances. This is our first fragrance with Euro Italia, which introduces both women's and men's fragrance that evokes the sense of luxury and escape. The results of this launch exceeded our expectations. Now turning to brand awareness and consumer engagement. Michael Kors remains a powerful brand that resonates with consumers as evidenced by the 11% year-over-year increase in our database. Looking ahead, we are excited to unveil our dynamic new marketing plans, which reconnect with the heritage of the Michael Kors brand by celebrating a modern interpretation of the Jet Set lifestyle. We are elevating our campaigns by showcasing luxury destinations around the globe and celebrating our new vision, traveling the world in style. The Spring campaign set to launch later this month was shot in Ibiza and features English actress and singer, Suki Waterhouse, evoking the essence of the Michael Kors jet set lifestyle. Michael Kors has a strong heritage and we are eager to build on this solid foundation. Thanks to the insights we have gained from our data analytics and consumer feedback, we believe we have the right strategies underway to return the brand to growth over time. Going forward, we are focusing on implementing dynamic new marketing plans that modernize our jet set heritage, optimizing the balance between our fashion and core offerings, creating exciting product with compelling value to drive higher full-price sell-throughs, improving store productivity through our optimization and renovation programs, and stabilizing our wholesale business. In conclusion, I remain optimistic about Capri's future for several reasons. First, we have three incredible fashion luxury brands with Versace, Jimmy Choo, and Michael Kors. Our brands are globally recognized and deeply resonate with consumers. Second, we have a solid distribution network to build upon. With 1,200 luxury retail locations globally combined with our robust digital platform, we have a strong framework for the future. Additionally, our extensive wholesale network serves as an important channel to reach consumers in areas where we do not have our own stores. Third, we have the management team, design talent, and global workforce of dedicated employees to successfully execute our initiatives. Fourth, Capri has the financial strength to implement our strategies, which we will share at our upcoming Investor Day. Now I'd like to turn the call over to Tom to discuss our results and future outlook in more detail.

Thank you, John and good morning, everyone. Overall, our business remained challenged during the quarter, and we are disappointed with our results. We recognize that this performance does not reflect the true potential of our three iconic luxury houses. Our results were impacted by the overall slowdown in the fashion luxury market, as well as by some of the strategic initiatives we previously put in place at Versace and Michael Kors that did not perform as expected. Since the termination of the merger agreement, we have reevaluated our strategic initiatives and long-term growth plans. We look forward to providing a more detailed update on our plans at our upcoming Investor Day. Now, turning to third quarter results in more detail. Total company revenue of $1.3 billion decreased 12% versus prior year. By channel, total company retail sales declined low double digits, with e-commerce down high single digits. The impact of our store optimization program negatively impacted retail sales in the low single digit range. In the wholesale channel, revenue declined low teens due to overall softness in the channel, as well as our prior initiatives to reduce our wholesale exposure. Turning to revenue performance by geography. In the Americas, revenue decreased 11%. In EMEA, revenue declined 9%. In Asia, revenue decreased 20%. Now looking at revenue performance by brand. At Versace, revenue declined 15% compared to prior year. Global retail sales decreased low teens, while wholesale declined double digits. By geography, total Versace revenue in the Americas decreased 21%. Revenue in EMEA declined 13%, while revenue in Asia decreased 11%. At Jimmy Choo, revenue decreased 4% compared to prior year. Global retail sales were approximately flat to last year, while wholesale declined mid-teens. By geography, total revenue in the Americas decreased 10%. Revenue in EMEA increased 9%, while revenue in Asia declined 17%. At Michael Kors, revenue decreased 12% compared to prior year. Global retail sales decreased low teens, while wholesale declined high single digits. By geography, sales in the Americas decreased 10%. Revenue in EMEA declined 13%, while revenue in Asia decreased 27%. Now looking at total company margin performance. Gross margin of 64.4% declined 60 basis points to prior year. The decline was primarily due to lower full price sell-throughs across the group. Operating expense decreased $20 million as we continued to realize the benefits of our cost reduction program. As a percent of revenue, operating expense was 58.4% compared to 53% last year, primarily reflecting expense deleverage on lower revenue. Total company operating margin was 6% compared to 12.1% last year. By brand, Versace operating margin of negative 10.9% compared to negative 6.2% last year. Jimmy Choo operating margin of negative 3.8% compared to positive 2.4% last year. And Michael Kors operating margin of 16.2% compared to 21.2% last year. The declines across all brands were primarily due to expense deleverage on lower revenue. Our tax rate for the quarter was 9.8% compared to last year's rate of 17.9%, primarily due to the global mix of earnings and the lapping of a one-time Italian tax reserve established in the third quarter last year. Net income was $54 million or $0.45 per diluted share. This included $23 million or $0.19 of foreign currency losses. Now that we have completed the review of Capri Holdings adjusted non-GAAP P&L results, I would like to briefly comment on the brand intangible and goodwill impairment charges associated with Versace and Jimmy Choo. These non-cash accounting adjustments were the result of more modest revenue and earnings growth rate expectations. We continue to believe in the long-term growth opportunities at both the Versace and Jimmy Choo. Now turning to our balance sheet. We ended the quarter with cash of $356 million and debt of $1.48 billion, resulting in net debt of $1.12 billion. Our strong balance sheet and free cash flow generation provide us with the resources to execute our strategic initiatives. Looking at inventory, we ended the quarter with $892 million, a 13% decrease over last year, reflecting our ongoing diligent inventory management. Now turning to guidance. Looking at the fourth quarter, we are in the early stages of executing our new strategic initiatives to improve current sales trends and drive future growth. We anticipate fourth quarter revenue will decline 20% to $975 million. This includes a foreign currency headwind of approximately $25 million and an impact from store closures related to our optimization program for approximately $15 million. Looking at retail, we forecast sales in the fourth quarter will decline in the mid-teens. Excluding the impact of foreign currency and store closures, we anticipate retail sales in the fourth quarter will decline at a similar rate to the third quarter. In the wholesale channel, we forecast a decline of approximately 30%. We anticipate the fourth quarter will reflect the greatest wholesale quarterly decline and decreases will moderate as our efforts to stabilize the channel gain traction. By brand, we anticipate Versace revenue of approximately $200 million. We expect foreign currency to negatively impact sales by approximately $7 million. Jimmy Choo revenue of approximately $125 million. We expect foreign currency to negatively impact sales by approximately $5 million. And Michael Kors revenue of approximately $650 million. We expect foreign currency to negatively impact sales by approximately $13 million. Turning to gross margin, we forecast fourth quarter gross margin to be approximately flat versus prior year. In terms of operating expenses, we anticipate a decline of approximately $50 million in the fourth quarter, resulting in a decrease of over $100 million for the full year. The reduction primarily reflects our cost savings initiatives, including store closures, global headcount reductions, office consolidation, and other efficiency measures across supply chain and back office. As a result, we forecast an operating loss of $25 million in the fourth quarter. By brand, we anticipate Versace operating margin in the negative high single-digit range, Jimmy Choo operating margin in the negative high single-digit range, and Michael Kors operating margin in the positive mid-single-digit range. Based on our fourth quarter expectations, we forecast full year fiscal 2025 revenue of approximately $4.4 billion and operating income of approximately $100 million. In fiscal 2026, we expect revenue to begin to stabilize and margins to expand. Looking at our preliminary expectations, we forecast total company revenue of approximately $4.1 billion. This includes an approximate $100 million negative impact from foreign currency exchange rates, as well as an approximate $60 million impact from planned store closures. Excluding these two items, we expect retail revenue to be approximately flat versus fiscal 2025. We anticipate wholesale revenue will decline low double digits or high single digits in constant currency, which is a significant sequential improvement versus fiscal 2025. It will take time for us to reengage with our partners and align our product offering to better meet the needs of consumers in this channel. That said, we have shown fall 2025 collections for all of our fashion luxury houses to our partners, and they have responded positively to the changes we are making in terms of product design and pricing architecture. As we think about the cadence of the year, we anticipate gradual progression as our strategic initiatives gain traction. By brand, we anticipate Versace revenue of approximately $800 million. We expect foreign currency to negatively impact sales by approximately $25 million. Jimmy Choo revenue of approximately $550 million; we expect foreign currency to negatively impact sales by approximately $15 million. And Michael Kors revenue of approximately $2.75 billion; we expect foreign currency to negatively impact sales by approximately $60 million. Looking at gross margin, we expect modest gross margin expansion in fiscal 2026 with momentum building through the year. Turning to operating expenses, we expect expenses to decline approximately $200 million primarily due to $150 million of new cost reduction initiatives. We are taking actions to close additional unprofitable stores, realize supply chain efficiencies, reduced back-office operating costs, and implement a new workforce optimization plan. As a result, we expect operating income of approximately $150 million in fiscal 2026. By brand, we anticipate Versace operating margin of approximately breakeven, Jimmy Choo operating margin down slightly, and Michael Kors operating margin in the low double-digit range. Looking to fiscal 2027, with our strategies fully in place, we expect to return to revenue growth. We also anticipate continued operating margin expansion driven by modest gross margin expansion and additional cost reduction initiatives resulting in expense leverage. In conclusion, we remain optimistic about the long-term growth potential for Versace, Jimmy Choo, and Michael Kors as we execute our strategic initiatives. Our powerful brands have enduring value and proven resilience, reinforcing our confidence in their ability to deliver strong revenue and earnings growth over time. We look forward to sharing more details around our growth strategies at our upcoming Investor Day on February 19th.

Thank you. Our first question comes from Simeon Siegel with BMO Capital Markets. Please go ahead with your questions.

Thank you guys. Good morning. I'm sure you're thrilled to be taking our collective questions again, but it is very nice to speak to you again. So John, how do you view the competitive and promotional environment now maybe versus a couple of years ago, anything you've seen that's changed and maybe any noteworthy sell-in or sell-through divergence as you're seeing at wholesale? And then Tom, just the flat gross margin guide for Q4. Any thoughts on gross margin into next year and maybe what you expect net debt to look like within the 2025 and 2026 guidance? Thank you.

Good morning, Simeon. We're pleased to be speaking with everyone today. We have gained more clarity on our strategies going forward and are excited to share more details with you on February 19th, including guidance and additional insights on our return to revenue growth and profitability that better reflect our brand performance. Regarding the competitive landscape, especially for Versace and Jimmy Choo, the promotional activity remains unchanged among our European competitors. We are all experiencing the impact of the slowdown in China, and recovery does not seem imminent. There are discussions that recovery may occur in the second half of next year, but we anticipate ongoing significant declines in China during our fiscal year. For American competitors like Michael Kors, the promotional landscape is similar. Consumers are being very selective, a trend we've observed over the past six months. Unfortunately, our average unit retail price is down, as we mentioned on the last call. We effectively raised prices substantially over the last two years, which worked well post-COVID, but as customers became more selective, we had to increase promotions to meet their pricing expectations. Our data analytics have shown us how consumers value the Michael Kors brand. Recently, we adjusted the pricing of some handbag collections to more historically appropriate levels, and we received a strong response, leading to the full-price sell-through rates we aim for. In summary, I wouldn’t characterize the market as more or less promotional; rather, consumers are more discerning. The same trend is evident with Versace and Jimmy Choo, where we lost some aspirational consumers due to various factors, including insufficient product availability. As we evaluate our portfolio, we're referring to our strategic pricing approach, aiming for a more balanced strategy, particularly for Versace. Jimmy Choo will see minor adjustments, while Michael Kors will undergo significant changes which we believe will enhance future full-price sell-through and revenue growth. Now, I'll hand it over to Tom for insights on the wholesale side.

Simeon, when you talk about the gross margin, if you look at Q4, there are some puts and takes in there. We're seeing some benefits for, as John mentioned, for lower markdowns in store for Versace and other quality of revenue efforts. On the other hand, we still have this product that was bought in for the prior strategy and where we're adjusting pricing for that, that is an offset. So we expect flat margin in the quarter. As we look at fiscal 2026, we do expect margin improvement, modest gross margin improvement and that will happen as we buy into the new strategy and our new pricing architecture. So as that moves through starting in Spring and then more fully in Fall and holiday, we expect to see higher full price sell-throughs and higher AURs, which will then support higher gross margins. So we expect a progression there. And overall, for the year, a modest gross margin improvement.

Simeon, I don't think I addressed the wholesale aspect of your question. Let me clarify that. Our wholesale business has faced three main challenges. First, we increased our prices and adjusted our strategies, particularly for Versace and Michael Kors, which had a significant effect on our wholesale operations and led to some customers feeling that this strategy wasn't conducive to their growth. Secondly, as you may know, we reduced distribution points in Michael Kors to enhance our quality of sale, resulting in around a $200 million decrease for this fiscal year. We had hoped this would translate to better performance in our retail business, but that hasn't happened. However, we are moving forward with this initiative, which we expect to complete by the end of the upcoming Spring season. We believe we've shown our wholesale clients our new lines, and they are pleased with our product direction and pricing structure. We anticipate that the decline in wholesale sales will slow down and may even stabilize or experience slight increases in the second half of next year. We're actively collaborating with our partners on this strategy and are seeing positive progress, with them increasingly interested in the opportunities presented by both Versace and Michael Kors. Thank you, Simeon.

I will address the debt question. For Q3, our net debt was $1.1 billion, which is below our year-end forecast. We anticipate a year-end total of about $1.2 billion, considering the normal timing of cash flows and working capital as we purchase Spring inventory. We expect to maintain a similar year-end figure as previously indicated. For fiscal 2026, our business remains robust, and we project generating substantial free cash flow. I expect our ending debt for fiscal 2026 to be around $200 million, which provides us with ample cash to invest in our strategies and to drive the business, such as in data analytics and our store renovation program for Michael Kors. These are our primary focuses, but we will also continue to reduce debt as we progress.

Great, thanks so much guys. See you in a couple of weeks.

Thank you. Our next question is from Bob Drbul with Guggenheim Partners. Please proceed with your questions.

Hi, good morning. If I could just follow up a little bit on some of the pricing and the strategic pricing initiatives, I guess specifically with Kors and Versace, can you just talk more around like levels or the changes in the declines or the reductions in AUR, ASP? And then the other question that I have is just around the marketing plans, I think, around Kors you mentioned, I mean is there going to be a big change in level of spend around Kors or it's just a reallocation of the dollars that you're spending? Thanks.

Thank you for the question, Bob, and good morning. Let me begin with marketing for Kors. As mentioned in our prepared remarks, the company has been working on what we called the transformation plan. While the intent was positive, the strategy did not resonate with our Kors customers or the new audience we aimed to attract. After analyzing consumer insights and data analytics, we learned that customers defined Michael Kors as a brand centered around Jet Set. Additionally, we found that this term was among the top searches for our brand from major marketing partners. Given this feedback, we decided to return to celebrating our heritage, which focuses on Jet Set, with a new mantra of traveling the world in style. Expect to see our efforts on February 19th. Our consumer research has shown positive sentiment, all viewed through a modern perspective. We anticipate a favorable response from customers. Regarding marketing spend, it will differ from previous efforts, but I'll refrain from sharing specifics at this time. We will present our strategies for the Jet Set focus on February 19th. Regarding pricing, we observed that we increased prices too quickly, whereas consumers preferred certain price ranges. This led to discounts to meet those expectations, negatively impacting both brand image and customer perception of our products. We reviewed historical pricing and out-the-door pricing, finding that average unit retail (AUR) was down by nearly high single digits for Michael Kors. We believe we can stabilize or even grow that figure next year. Although it seems counterintuitive, lowering some prices and enhancing our good, better, best strategy, particularly in the lower price segments, should lead to improved full-price sell-throughs and less discounting. We are actively starting this process. While some reductions in discounting will have a negative impact initially, we believe it ultimately positions us better for higher gross margins with improved full-price sell-throughs. I want to highlight two bags that have recently shown promising sales: the Nolita soft shoulder bag at $398, which has strong sell-throughs, and the Laila satchel at $258, which has received an excellent response. This indicates we have established the right price-value relationship, as consumers are responding positively. Additionally, I want to emphasize that we have a robust ready-to-wear segment. In that area, we had raised prices by 30% to 40%, and now those prices will decrease by the same percentage. We anticipate about 65% of this price adjustment to occur during the Spring season, with full implementation by Fall. We believe these changes will attract more traffic to our retail stores, as consumers tend to purchase ready-to-wear items more frequently than handbags or footwear. We think Michael's style will align well with consumer preferences, so we are leaning into ready-to-wear to drive store activity. This is not a change in store layout, but rather a shift in pricing back to more historical levels.

Okay, thank you.

Thank you. Our next question is from Ike Boruchow with Wells Fargo. Please proceed with your questions.

Hey, good morning everyone. Good to hear from you again. A question for Tom and then a question for John. I guess the revenue trajectory has been a little bumpy in the past couple of quarters. And then obviously, based on the fourth quarter guide, obviously, there's channel dynamics. I guess my question is, as we move into the cadence of next year, should everything kind of linearly begin to get less bad or could we expect more lumpiness? And then just a follow-up for John. I guess I'll just ask, I mean, there's been speculation around the sale of Versace and/or Choo for a few months in editorials and what have you. I mean, I guess, are you able to cop there, how should we be thinking about the portfolio, how you're envisioning the portfolio, anything you can share there would be helpful? Thank you.

Hi, so starting off with the revenue trajectory for 2026, I think as we said, we see a retail flat to maybe slightly positive excluding FX and the store closure impact. And as our strategy has come into place and we're buying into them and getting the right product at the right price, we do expect to see a progression through the year of sales. On wholesale, we are still seeing the tail end of reducing our distribution and also the need to ramp up and selling in for Spring and more importantly, for Fall/Winter next year. So we'd expect wholesale to start the year negative and then to improve as we get later into the year.

For the fourth quarter of this year, the biggest impact on our revenue decline, in percentage terms, is primarily from wholesale. We believe this will be our last significant decline in that area. We've worked closely with our wholesale partners to enhance our relationships and increase bookings, and you will start to see improvements in the first quarter, with a more substantial acceleration expected in the second, third, and fourth quarters of next year as we implement the strategies discussed in today's call. This applies across all three of our brands. Regarding our assets, as a publicly traded company, we always prioritize shareholder value. We recognize the immense value of our brands, Jimmy Choo and Versace. We've noted the market speculation regarding these assets, and as I mentioned in the last call, we are open to engaging with interested parties. However, our current strategy is to focus on building out our three businesses, and while we’re willing to have discussions about parts or the entirety of our assets, that is not our main objective right now. Instead, we're looking forward to meeting with everyone on February 19th to outline our growth strategies for these outstanding luxury fashion houses.

Thanks.

Our next question comes from Brooke Roach with Goldman Sachs. Please go ahead with your questions.

Good morning and thank you for my question. John, could you provide more details on the expectations for retail to improve to flat or slightly positive, excluding foreign exchange and some store closures? Can you explain the assumptions behind that, including the key strategies you are implementing, as well as your expectations for traffic increases and the effects of your marketing plans in relation to Kors' like-for-like product improvements that you have better visibility on? Thank you.

Good morning, Brooke, and thank you for your question. First and foremost, our focus is on delivering an exceptional product. I'm thrilled about the innovations our teams have developed across our three luxury brands. Our retail buying teams have reviewed our product, especially for the Fall season, and they've reacted very positively. We believe we understand what it takes to engage our customers effectively. While we may not achieve perfection, we feel significantly more confident than we did a year ago. Regarding our marketing initiatives, particularly for Michael Kors, we have conducted extensive internal and external research. We believe that tapping into our brand heritage through a modern lens will enhance consumer engagement. All three of our luxury brands are experiencing strong database growth, indicating significant interest from our customers and that growth is coming from actual purchases, which we view as a positive sign. We've noticed a slight decline in foot traffic—mainly moderate in North America but more pronounced in Asia—and we anticipate this will stabilize next year, driven by our marketing strategies that will encourage more visits to our stores and e-commerce platforms. We plan to provide more detailed insights during our presentation on February 19th, featuring our CEOs and marketing teams. Additionally, in terms of pricing strategies for Versace and Michael Kors, we've introduced initiatives like The Tag Bag, priced between $950 and $1,250, which aims to attract younger consumers while still maintaining luxury standards. The initial response has been very encouraging. We've also launched a sneaker called The Galaxia for $550, which has started strong. We're ensuring we offer various options beyond higher-end retail prices to appeal to more aspirational consumers, addressing previous gaps in our lineup. Moreover, we're planning a significant strategy for men's pricing in Versace, particularly concerning our shorts, where we're lowering prices to enhance full-price sales and profitability. Early indicators suggest that these adjustments have improved our average unit retail (AUR) in the third quarter by reducing promotional activity and optimizing entry-level price points. Lastly, regarding the Michael Kors brand, we are focused on minimizing our signature product's prominence, which is vital to our business. We anticipate that by the end of the Spring season, we can increase signature product penetration back to 40%, which is crucial for driving both loyal and tourist customers into our stores. Our marketing efforts will also enhance the consumer experience with the Michael Kors brand. Overall, we have several strategies in place to support our goals and expect to bounce back from the low comparisons after our performance issues in 2025. Our expectations are modest yet realistic. Thank you, Brooke.

Thank you so much.

Our next question is from Oliver Chen with TD Cowen. Please proceed with your questions.

Hi John. You mentioned quiet luxury on the call earlier. Just curious about your thoughts on the evolution of that relative to core and signature and what you're doing at the Michael Kors brand with where you want to go with fashion execution? Also, as you think about outlet versus full price segmentation or thoughts around that, that would be helpful, too? Thanks a lot.

Thank you, good morning Oliver. I'd like to begin by discussing Versace in response to your question. As I mentioned in my opening remarks, we started repositioning the Versace brand nearly two years ago, deciding to focus more on luxury and craftsmanship, reflecting the brand’s origins under Johnny and Donatella. Our fashion show in Los Angeles made a significant statement, and we are committed to this strategy. We are in the process of improving the Versace business and will share more updates in our next call regarding our efforts to establish this brand firmly in the luxury market. We’re maintaining our focus on this strategy, despite the challenges it presents. We have a well-balanced pricing structure in both Jimmy Choo and Versace, ensuring we align with the best luxury brands in full-price and outlet centers. Each brand operates around 220 stores, which we believe is the right number for now, potentially increasing to around 300 in the future. The trend of quiet luxury remains strong, and we've noticed brands that align with it performing well. Since acquiring Versace, we've adjusted its positioning, leading to significant growth in key indicators such as the VICs, which have increased over 20%, demonstrating strong sales performance. We're seeing interest from wealthy customers, and as we reengage with our aspirational customer segment, we anticipate Versace experiencing substantial growth in the upcoming year. In our next call, we’ll discuss additional positioning strategies for Versace. Regarding Michael Kors, the brand's style has traditionally emphasized glamour, but the transformation aimed at appealing more to Gen Z understandably alienated our core customer base. However, we are about to launch new products in stores shortly, complemented by marketing campaigns featuring talents like Suki Waterhouse. Our goal is to return Michael Kors to a chic and glamorous aesthetic that resonates with standout style, and we will elaborate on this during our upcoming Investor Day. Michael has been an exceptional talent for over 40 years, and he is deeply involved in shaping the brand’s direction. We aim to reduce our store count to about 650 worldwide, which is a smaller footprint than our competitors. Our wholesale distribution will also align closely with this strategy. Any previous concerns about over-distribution are being addressed. We believe we now have the right mix of full-price and outlet offerings. Additionally, as discussed in our previous call, we plan to renovate around 150 full-price stores over the next 24 months, beginning this project immediately. We’re thrilled about the new store concept and will provide further details at our Investor Day on February 19th.

Thank you.

Thank you. Our next question is from Paul Lejuez with Citigroup. Please proceed with your questions.

Hey, thanks guys. Tom, curious if you can give a CAPEX number for next year, just sort of what you're thinking about? And then, John, for you, just at a high level, I'm curious if as you went through the merger period, how much of that distraction and uncertainty contributed to what we're seeing in the business today, were your hands tied in any way, things you want to do, actions you wanted to take but you couldn't, what were those and how easy is it to get some of that in motion and is that kind of what we're seeing today? And then just last, any big holes in leadership that still need to be filled that you could share with us?

Good morning, Paul, and thank you for your question. I’ll begin with the merger. There isn’t much to add about that, but it was very distracting for the management team. As we have mentioned in previous calls, a significant amount of work and effort was dedicated to preparing for that potential merger. It was indeed a major distraction, and as a result, we didn’t have as much time to focus on our long-term strategies. There was also some uncertainty about which strategy to pursue, depending on where the company was headed at various points in time. However, we have moved past that and I believe we are fully engaged now. I must commend the senior leadership team across all three of our companies for bouncing back quickly and implementing strategies that we believe will drive the business forward. Jimmy Choo has always had a clear direction of where it wants to go and how to achieve that. We hope to see more celebratory events and a rise in high heel usage soon, and we’re optimistic that this trend is on the horizon. Regarding the Versace strategy, we feel confident we are on the right track, especially as we begin to see the benefits of some of the quality of sale initiatives we have in place. Many of these will start to show results by the end of this calendar year, with some even coming to fruition at the beginning of the Fall season. As consumers recognize this, particularly in our full-price channel at Versace, they will no longer encounter the same level of discounting, which we believe will be beneficial for us. Lastly, for Michael Kors, the most significant strategic shifts needed to occur there. The conclusion of the merger has instilled greater confidence in making bold decisions quickly, utilizing data analytics and consumer insights to navigate, all while following Michael’s vision. Early indicators, such as positive responses to certain handbags and consumer feedback from wholesale, give us hope regarding the initiatives we've set in motion. Regarding leadership, we have lost very few people during the merger, and I must thank our global teams for their dedication to this company. We believe their commitment will be crucial in driving us toward revenue growth, particularly in fiscal 2027, while contributing to operating earnings growth in 2026. Our teams will be vital in making this happen. I’ll now turn it over to Tom for your other questions.

Paul, for fiscal 2025, we expect to spend about $125 million on CAPEX, which will go towards systems and limited store openings. For the following year, we anticipate a similar level of spending to support the start of the Michael Kors renovation program for our stores, along with some targeted store openings. We plan to close significantly more stores than we will open; after closing over 100 this year, we expect to close around 70 next year. Additionally, we will be investing in e-commerce and data analytics, so the spending will be roughly the same compared to last year.

Thank you guys, good luck.

Thank you. Our next question is from Dana Telsey with Telsey Advisory Group. Please proceed with your questions.

Hi, good morning everyone. As you think about and you were just mentioning, Tom, the retail store changes that are going on, how are you thinking about outlet versus full price in terms of what you're opening or closing? And when you think about the marketing spend that you're investing, John, how are you thinking about it by brand and are there any other metrics that you're looking at in terms of new customer acquisition that you're targeting to gauge the business as it progresses? Thank you.

Good morning, Dana. Let me start by confirming that our capital expenditures, as mentioned by Tom, are accurate. We will continue to invest in enhancing our technology within the company. Over the past few years, we've invested hundreds of millions of dollars, particularly in e-commerce and data analytics, putting us in a strong position. Moving forward, we expect to spend a smaller percentage on capital expenditures due to the extensive effort and technology we've integrated over the last two and a half to three years, which gives us confidence. In addition, we plan to close around 75 stores next year, primarily full-price locations, with most being Michael Kors full-price stores. We believe we have a good balance between full-price and outlet stores, and we will not be opening new outlet locations, so our current distribution and store count will remain stable in the coming years. We are focused on improving productivity and density within our existing stores after most of our planned closures are completed, which we expect by the end of the next fiscal year. Most of our capital expenditures related to stores will be directed towards renovations. We are optimistic about our new store concepts and have seen encouraging early results, prompting us to increase our investment in our retail operations rather than continuing the high level of investment in IT and technology we've made over the past three years. Specifically, within the Michael Kors store fleet, we have largely upgraded the Versace and Jimmy Choo stores, with about 90% of each being renovated. Our primary investment focus will be on the Michael Kors stores. Lastly, regarding marketing expenditures, we allocate between 7% and 8% depending on the brand, with potential for higher spending based on the performance of specific initiatives. I prefer to reserve details about these initiatives for our Investor Day, where we will share innovative strategies without revealing too much to competitors. We are definitely considering a new approach to our marketing this year compared to the last.

Thank you.

Thank you all for joining us on this call today. We look forward to seeing you on February 19th to discuss our longer-term strategies. We will also update you on our longer-term guidance as we work towards returning the company to revenue and operating earnings growth. Thank you very much.

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