Earnings Call Transcript - CPRI Q1 2026

Operator, Operator

Greetings, and welcome to the Capri Holdings Limited First Quarter Fiscal 2026 Financial Results Conference Call. Please note, this conference is being recorded. I would now like to turn the conference over to your host, Jennifer Davis. Please go ahead.

Jennifer Michelle Davis, Host

Good morning, everyone, and thank you for joining us on Capri Holdings Limited First Quarter Fiscal '26 Conference Call. With me this morning are Chairman and Chief Executive Officer, John Idol; and Interim Chief Financial Officer, Raj Mehta. Before we begin, let me remind you that certain statements made on 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 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 Capri transformation costs, restructuring and other charges and transaction-related costs. To view the corresponding GAAP measures and related reconciliation, please view our latest earnings release posted to our website earlier today at capriholdings.com. Additionally, the company has classified the results of operations and cash flows of its Versace business as discontinued operations. Unless otherwise noted, all information on today's call relates only to continuing operations. I would also like to note that in today's 8-K, we included supplemental quarterly segment data for fiscal 2025. Now I would like to turn the call over to Mr. John Idol, Chairman and Chief Executive Officer. John?

John D. Idol, CEO

Thank you, Jennifer, and good morning, everyone. We are pleased with our first quarter results, which showed improvements in trends and led to revenue and earnings per share that surpassed our expectations. This performance reflects the progress we are making as we implement our strategies to revitalize our fashion luxury brands. Although it's still early, we are starting to see that our strategies are effective. Despite the unpredictable global economy, we are on track to stabilize our business this year and build a strong foundation for growth in fiscal '27. In our first quarter, total company revenue fell 6% year-over-year to $797 million, and earnings per share were $0.50. However, we saw sequential improvements in trends across all regions. At Michael Kors, first quarter revenue also dropped 6% compared to last year, with similar trends in both retail and wholesale. In our retail channel, we are noticing positive signs of progress: we have seen better traffic trends in our full-price stores, stronger full-price sell-throughs of new styles, and an improvement in average unit retail trends, which turned positive for the first time in three years in the full-price channel. Although wholesale still faces challenges due to softness in the channel and our previous decisions to reduce exposure, point of sale performance improved sequentially. We have exited 30% of U.S. department store locations over the past year and expect to finalize most wholesale door reductions by the end of this year. Regarding brand awareness, our hotel stories series has been well-received, showcasing our fashion and travel narratives. The first chapter took place in Ibiza, featuring actress Suki Waterhouse, and the next chapter in Rome will capture the season's glamor. We've expanded our reach through local activations and a larger network of influencers, leveraging social media to deliver our message through trusted voices, which we believe is enhancing brand desirability. Our travel the world in style vision, along with our influencer partnerships, is contributing to a favorable shift in brand affinity. Looking ahead to fall, we plan to expand our influencer strategy to further increase reach and drive revenue growth. Michael Kors had a notable presence at the Met Gala, generating nearly 6 billion impressions and reinforcing our position in the fashion world. Our data analytics capabilities are helping to reshape our marketing approach, allowing us to better understand consumer behavior and make informed decisions. In product development, our strategy centers around Michael’s design vision, offering exciting fashion with standout style. We have adjusted pricing to align with historical levels, and in accessories, new introductions have been well received, leading to stronger full-price sell-throughs. In footwear, revenue was down, particularly in the dress category, but casual styles performed better, and we are introducing new styles to capture momentum. In ready-to-wear, revenues increased due to higher average prices as consumers responded to styles that exemplify Michael’s chic sophistication. Men's revenue remained stable with increasing average prices, as consumers showed interest in our latest styles reflecting the Jet Set lifestyle. We're also focusing on renovating our retail stores, aiming to improve the overall consumer experience and drive sales. Over the next three years, we plan to renovate about 50% of our store fleet, which we believe will enhance store productivity. Now, regarding Jimmy Choo, first quarter revenue declined 6% compared to last year, with retail sales down mid-single digits and wholesale down double digits due to shipment phasing. However, we saw sequential improvement in performance driven by successful new product launches, which are achieving higher full-price sell-throughs. Our storytelling for Jimmy Choo emphasises glamor and empowerment. For summer, we've partnered with actress Bai Lu as an Asia Pacific ambassador, whose campaign for the new curve bag reached over 56 million consumers on social media. We're also enhancing our engagement through influencer partnerships. In product strategy, we are focusing on expanding accessories and casual footwear. The Sinch bag has become our best-selling day bag, and we just launched the Curve group with promising initial responses. We plan to introduce more collections to attract a broader segment of luxury consumers. As for footwear, we are working to revitalize our dress category and through nostalgia-driven collections like the archive collection, we saw significant engagement. Our casual footwear lineup is gaining traction, and we are dedicated to expanding our offerings. Overall, we expect to unlock Jimmy Choo's potential and achieve our revenue target of $800 million over time. With the Versace transaction expected to close in the second half of calendar 2025, we are focused on energizing Michael Kors and Jimmy Choo, with positive signs that our strategic initiatives are starting to take hold. We anticipate continued improvement in trends as we move into the back half of fiscal '26, positioning us for growth in fiscal '27. Long-term, we are optimistic about both brands' growth potential. Now, Raj will provide a detailed review of our first quarter results and guidance.

Rajal Mehta, Interim CFO

Thank you, John, and good morning, everyone. Before we begin, I would like to remind you that today's financial results exclude Versace, which was reclassified as a discontinued operation. My discussion today will reflect results from continuing operations and our financial statements have been adjusted for prior periods to exclude Versace. We continue to anticipate the sale of Versace will close in the second half of calendar 2025. Now looking at our first quarter results, total company revenue of $797 million decreased 6% versus prior year on a reported basis and 7.7% in constant currency, representing a sequential year-over-year improvement relative to the fourth quarter. Net income was $60 million, resulting in diluted earnings per share of $0.50. Performance exceeded our expectations driven by better-than-anticipated results at both Michael Kors and Jimmy Choo as our strategic initiatives begin to take hold. Results also reflect a discrete tax benefit. Now turning to first quarter results in more detail. Starting with revenue by channel, total company retail sales declined mid-single digits. In the wholesale channel, revenue declined high single digits, reflecting continued broad-based softness in the channel as well as our prior initiatives to reduce wholesale exposure. Turning to revenue performance by geography. In the Americas, revenue decreased 9%. Revenue in EMEA increased 6%, while revenue in Asia declined 15%. Looking at revenue performance by brand. At Michael Kors, revenue decreased 5.9% compared to prior year on a reported basis and 7.3% in constant currency. Global retail and wholesale sales decreased mid-single digits. Store closures negatively impacted retail sales in the low single-digit range. By geography, sales in the Americas decreased 8%. Revenue in EMEA increased 9%, while revenue in Asia declined 16%. At Jimmy Choo, revenue decreased 6.4% compared to prior year on a reported basis and 9.2% in constant currency. Global retail sales declined mid-single digits and wholesale decreased double digits. By geography, total revenue in the Americas decreased 12%. Revenue in EMEA increased 1%, while revenue in Asia decreased 14%. Now looking at total company margin performance. Gross margin of 63% was approximately flat to prior year. We estimate higher tariffs negatively impacted gross margin by 30 basis points. By brand, Michael Kors gross margin of 61.1% compared to 62.1% last year. The decline versus prior year was primarily driven by the impact of our new strategic pricing architecture and tariffs, giving true gross margin of 70.4% compared to 67.1% last year. The increase versus prior year was primarily driven by channel mix. Operating expense decreased $22 million. The decline versus prior year was primarily attributable to our cost reduction program. As a percentage of revenue, operating expense was 60.5% compared to 59.5% last year, primarily reflecting expense deleverage on lower revenue. Total company operating margin was 2.5% compared to 3.7% last year. By brand, Michael Kors operating margin of 9.9% compared to 11.1% last year, and Jimmy Choo operating margin of 2.5% was slightly above prior year. Our tax rate for the quarter was negative 36.4%, reflecting a tax benefit related to our valuation allowance due to the mix of earnings across jurisdictions. Now turning to our balance sheet. Looking at inventory. At quarter end, inventory totaled $779 million, a $76 million or 10.8% increase versus prior year. This increase primarily reflects $50 million of planned earlier receipts of product. Additionally, foreign currency exchange rates and tariffs combined increased inventory by approximately $25 million. Looking ahead, we expect year-over-year inventory levels to sequentially decline. We ended the quarter with cash of $129 million and debt of $1.67 billion, resulting in net debt of approximately $1.5 billion. Now turning to guidance. While we are encouraged by our first quarter results and the early signs that our strategic initiatives are working, the global macroeconomic environment remains dynamic. Since our last earnings call, trade policies have evolved and tariff rates have increased. Our updated guidance reflects incremental tariff rates on imports from China at 30%, India at 25%, the rest of Asia at 19% to 20% and the European Union at 15%. As a result, we now estimate unmitigated impact of tariffs on products shipped into the United States will increase our cost of goods sold by approximately $85 million in fiscal 2026, up from our prior estimate of approximately $60 million. As a reminder, our sourcing is broadly diversified with the majority of Michael Kors production originating from Vietnam, Cambodia, and Indonesia. Jimmy Choo sources the vast majority of its products from Italy. As a note, China represents approximately 5% of total Capri U.S. production volumes. Our global supply chain is highly agile, supported by long-standing relationships with our manufacturing partners. We anticipate offsetting a majority of the impact from tariffs in fiscal '27 through a combination of: one, working with our sourcing partners to create cost efficiencies; two, sourcing optimization to minimize tariff exposure; and three, implementing targeted price increases. Additionally, the benefits of our strategic initiatives, particularly efforts to drive higher full-price sell-throughs will further support gross margin expansion. Turning to revenue. In fiscal '26, we now expect total company revenue to be between $3.375 billion and $3.45 billion. We are raising prior revenue guidance to reflect the recent weakening of the U.S. dollar as well as our outperformance in the first quarter. By brand, we expect Michael Kors revenue between approximately $2.8 billion and $2.875 billion and Jimmy Choo revenue between $565 million and $575 million. As we think about the cadence of the year, we anticipate a gradual sequential improvement in trends in the back half of the year, supported by new product deliveries and the growing impact of our marketing initiatives. For the year, we now expect gross margin of approximately 60.5% to 61%, reflecting higher tariff rates. We continue to anticipate operating expenses of approximately $2 billion. We continue to expect full-year operating income of approximately $100 million reflecting our increased revenue outlook and diligent expense management. By brand, we continue to anticipate Michael Kors operating margin in the high single-digit range and Jimmy Choo operating margin in the negative mid-single-digit range. In terms of nonoperating items, we expect net interest income between $85 million and $95 million, an effective tax rate in the mid-teens range and weighted average shares outstanding of approximately 119 million. As a result, we continue to expect to generate diluted earnings per share between $1.20 and $1.40. In terms of our capital allocation plans, our first priority remains to invest in our brands through store renovations, technology and digital enhancements as well as other brand-building initiatives. Our second priority is to reduce debt, and our third priority is to return cash to shareholders via a share repurchase program in the future. Now turning to second quarter guidance. We expect total company revenue to be between $815 million and $835 million, with Michael Kors revenue between $685 million and $700 million, and Jimmy Choo revenue between $130 million and $135 million. Looking at gross margin, we expect the second quarter gross margin rate to decline approximately 250 to 300 basis points impacted by our new strategic pricing architecture and greater tariff headwinds. In terms of operating margin, we expect second quarter operating margin to be slightly positive. By brand, we anticipate Michael Kors operating margin in the high single-digit range and Jimmy Choo operating margin in the negative mid-single-digit range. Turning to our expectations around certain nonoperating items. We anticipate second quarter net interest income of approximately $15 million. We forecast an effective tax rate of approximately 40% in the second quarter due to expected shifts in the geographic mix of earnings and the related valuation allowance impacts. We anticipate weighted average shares outstanding of approximately 119 million. As a result, we expect to generate diluted earnings per share of approximately $0.10 to $0.15. In closing, we are encouraged by the early signs that our strategic initiatives are working. We anticipate trends will improve in the back half of fiscal 2026 as our strategic initiatives gain traction. Looking ahead to fiscal '27, we expect to return to revenue and earnings growth. Longer term, we remain confident that Capri Holdings is well positioned to deliver sustainable growth while increasing shareholder value. Now we will open up the line for questions.

Operator, Operator

We'll go first to Matthew Boss with JPMorgan.

Matthew Robert Boss, Analyst

Congrats on the sequential improvement. So John, on Michael Kors, could you elaborate on recent sell-through trends on product launches across direct-to-consumer and wholesale maybe where the product assortment stands today relative to back half opportunities? And any initial signs of demand elasticity or how best to think about pricing power for the brand?

John D. Idol, CEO

Matt, and thank you for that nice comment about our sequential improvement. At Michael Kors, as you know, from our previous calls, around October, November of last year, we made a decision to first change strategic storytelling around Michael Kors to focus again on Jet Set but through a modern lens, and that was through our hotel stories and traveling the world in style. So the first results are that we're seeing consumers very much engaged with that storytelling. The second thing that we did was we changed our marketing approach and leaned much more heavily into influencers and into certain social media channels where we might not have had as great of a presence, and you're going to see that continue to grow throughout the fiscal year. And as we are seeing these improved results from marketing through those channels and seeing the consumer response, we are increasing certain of our marketing spend whether that's in channels or in totality from our original budgets inside the company. So it's nice to be able to see results. And it's nice to be able to see that we can put our foot gently on the accelerator as we're seeing the consumer respond. And the last point around that is we have a very robust consumer insight program that's been going on now for close to 2 years. And so we really understand a lot more about the consumers' intent around the brand, around engaging with the brand and now engaging with the product that we think is the right product. So the last part of what we did is we analyzed our sell-throughs and for the prior 18 months to when we started making changes, which really most of which happened kind of from January on. We saw our discounting actually growing because we were marking product down because the consumer just wasn't responding to the prices that we had at that. And there were design issues as well. So we've changed the design, in particular, on handbags. In particular, we were able to get the price value relationship on ready-to-wear as well. We haven't quite got it right on footwear. And what we've seen is the trends in our own retail stores, as you heard, we did turn AUR positive in full price, and that's been quite some time. We have seen a very significant sequential improvement in comps in our full-price stores. We're also seeing that again this quarter, which is very nice to see, two quarters does not make a year or a long-term trend, but it certainly is a very good indicator that our strategic initiatives are working, and we saw also our women's ready-to-wear turn positive. So it was AURs and accessories, AURs in our women's ready-to-wear, we've really seen some positive indicators that our strategies are working. The wholesale channel is also seeing that. I wouldn't say it's turned positive yet, but it's definitely heading in the right direction. And I think I commented to you on our last call that we have pretty much been around the globe met with our partners, really shown everyone the new strategies. And there's a real excitement level, whether that's the various mall owners around the world, who are really embracing our project to renovate approximately half of our store fleet as well as our department store partners who are also on board, and you're going to see a lot of that starting to happen. It will be more in the spring season of next year, but you'll see some happening here in New York, hopefully, will get you all up to our Rock Center store, which will be renovated and reopened mid- to late October, our Regent Street store as well. And then there'll be dozens behind that, that are coming quite quickly. We've had a few open so far and we are seeing positive lift from the renovation. So what we can report to you today is that the strategies we've put in place are working and the consumer is responding to them and the forward-looking Data that we've gotten from our consumer insights show that actually our fall marketing fall product and the way the customer is perceiving the brand is even stronger than what we saw in the spring season that we obviously have to see that come to fruition and sell-throughs of product. But all the leading indicators show things are positive. And so far in the quarter, again, we're only a month or so into it, but we are seeing actually better results than we even saw in our Q1 to date.

Operator, Operator

Our next question comes from Brooke Roach with Goldman Sachs.

Brooke Siler Roach, Analyst

It's great to hear the commentary regarding the positive AUR and pricing strategy trends. Can you talk a little bit about how you expect that to translate to margins into the back half of this fiscal year and into FY '27. Can you help us talk through the puts and takes of the tariff mitigation opportunity over time as you look to offset some of those incremental costs? And where you see the largest opportunities in gross margin ahead?

John D. Idol, CEO

I will let Raj address that. However, I want to highlight that the company has performed exceptionally well this year, despite facing around $85 million in tariff impact. We just provided guidance indicating an increase in our revenue while maintaining our operating income, which reflects the improvements Raj will discuss regarding our margins. This achievement also demonstrates that our teams are effectively managing cost reduction initiatives across the organization, including fleet optimization, which we mentioned earlier. We are focused on further reducing the SG&A impact, and we are confident that next year we will achieve leverage with modest revenue growth. Raj will discuss anticipated gross margin growth, and we plan to keep SG&A expenses tightly controlled. We expect a significant turnaround next year, especially if our strategic initiatives at both Michael Kors and Jimmy Choo continue to succeed, particularly in the latter half of the year, where we anticipate a near 100% positivity. This will signal a strong position for the company as we approach fiscal year '27. Now, I will hand it over to Raj to elaborate on gross margins.

Rajal Mehta, Interim CFO

Thanks, John, and good morning, Brooke. As John mentioned, the tariff situation has been very dynamic. We have updated our guidance based on new information and now expect about $85 million in unmitigated tariff impact this year, an increase from our earlier estimate of $60 million. Looking at the first quarter, our gross margin was roughly the same as last year. We experienced some changes due to our pricing reset and around a 30 basis point impact from tariffs, which was partially balanced by improved channel mix. For the second quarter, we project a decline of about 250 to 300 basis points due to increased tariff impacts and ongoing effects from our pricing strategy. This elevated tariff impact will persist throughout the quarter and the year. The second half may benefit from our strategic initiatives as we implement some mitigation efforts related to cost efficiencies with our sourcing partners and targeted price increases. For fiscal '27, we expect to see gross margin expansion driven by our strategic initiatives aimed at increasing full-price sell-throughs and average unit retails, along with our mitigation efforts. Thanks, Brooke.

John D. Idol, CEO

And Brooke, let me add one further note as well. One of the things that you're going to start to see in the back half of the year and certainly into next year's, we have reduced our promotional cadence, in particular, in our outlet channel. We're down approximately 35% in storewide promotional activity. That's having an impact on revenue. We know that we're going to continue that strategy. We're very focused on improving gross margin. So to improve gross margin, we need to reduce the sale activity. That's the first thing. Secondly, we have done some things, in particular, related to the Daigou channel, where the company has had a history of servicing that channel as do many of our competitors. And we have reduced the discount there significantly. And therefore, that has also reduced revenues because of our reduction of that. And again, we think that's a good thing for us. It's healthy long term. It reduces product that flows to certain air channels, both inside the United States and outside and we're going to look to really tighten that considerably going forward. So that will have an impact, in particular in our outlet channel. So we're going to work our way through that over the next year. And we hope to see gross margin improvement from that and AUR. As we've said to you previously, we're very focused on raising the AURs in the company and that will be one of the initiatives around doing that. Thank you, Brooke.

Operator, Operator

We'll go next to Ike Boruchow with Wells Fargo.

Irwin Bernard Boruchow, Analyst

Congratulations, John, on the sequential improvement. I have a couple of questions. From a modeling perspective, are you including growth in any quarter this year at Michael Kors in either the retail or wholesale channel? Which channel do you expect to see an inflection first? Also, once the Versace sale closes, could you provide a high-level view of what you expect the balance sheet to look like? Will you aim for zero debt? Any update on that would be helpful.

John D. Idol, CEO

There is no growth at the moment, although we are seeing sequential improvement. We do not yet have a year-over-year growth plan in any channels. The first channel where we expect to see growth is in our full price segment, and we are approaching that point now. This is a strong indicator; having a successful full price channel can really help stabilize the entire company. Last October and November, we moved swiftly to enhance our full price offerings by introducing different products to the floor more quickly and focusing our strategic pricing efforts, which is paying off. We were not able to move as quickly in the outlet channel, but you will see new products flowing into that channel in the fourth calendar quarter of this year. This will be evident in our third quarter fiscal, where you can expect much more newness at higher price points. Although we are making various improvements in the outlet channel that may affect our revenue, these changes will significantly benefit the company’s average unit retail and reduce promotional activity. Furthermore, we plan to introduce our full price products into the outlet channel in September through a program called Icons, featuring three of our best-selling full-price handbag collections. We've observed that, in some cases, between 10% and 20% of revenue in that channel has come from full price products, which presents a strong opportunity for us. We are already implementing this in some Jimmy Choo locations. Therefore, the full price channel is the first area we expect growth, particularly in the third and fourth quarters. Lastly, across all our brands, we are experiencing much better sell-through rates for new and full price products. Customers, while discerning and price-conscious, are seeking new items. Our new full price product sell-throughs are up double digits across the board, which is encouraging. If we see any weakness, it tends to be in clearance-heavy products, which are not appealing to customers. This could reflect the current consumer sentiment regarding their financial situations. Therefore, we anticipate that the year will conclude this way, and I do not expect to see positive growth in the outlet channel until next year. Now, I will hand it over to Raj for an update on Versace.

Rajal Mehta, Interim CFO

Yes, regarding the Versace gross sale proceeds, as we stated previously, we expect the Versace transaction to close in the back half of this calendar year. And as I spoke about, we plan to use the proceeds to substantially reduce our debt. So post the deal closing, we expect to have minimal debt remaining on our balance sheet. And then as the business stabilizes, we'll look to reevaluate reinstating a share repurchase program. So we feel really good about having a strong balance sheet as we approach the end of the year.

John D. Idol, CEO

We plan to invest around $350 million over the next three years in our store renovation program. Alongside the funds from the transaction, we expect to improve our free cash flow situation, particularly next year. This investment is crucial for boosting the company's top line. We've already begun to see positive returns from the over $100 million we've invested in data analytics and updating our e-commerce platforms. While being strategic with our investments, we have clear plans since we believe that significant revenue growth is the most important opportunity for the company. We aim to manage our SG&A expenses tightly, and as Raj mentioned, we anticipate some gross margin expansion next year due to better full-price sell-throughs, reduced promotional activity, and collaboration with our manufacturing partners who are helping us navigate tariff challenges. Additionally, we will implement modest strategic price increases starting in the fourth quarter of our fiscal year. Thank you.

Operator, Operator

Moving on to Oliver Chen with TD Securities.

Oliver Chen, Analyst

John, as we look forward to the sequential improvement opportunity to continue what handbag families might be most important? And how would you help us dissect traffic relative to AUR looking ahead? And then a quick follow-up. The store renovation sounds quite compelling in terms of what you're doing there? What are some of the principles or frameworks and what you want to see to continue to elevate the brand?

John D. Idol, CEO

Thank you, and good morning, Oliver. In our prepared remarks, we mentioned three handbag families, Laila, Lolita, and Bryant, which are already in production and have achieved some of the highest sell-throughs we've seen in over four years. This is very encouraging for us. Additionally, we occasionally hold events where we put our entire assortment on sale, but we've decided to exclude certain products from these sales, and this decision hasn't negatively affected sell-throughs, which is fantastic. We're planning to feature more higher-end items while removing some from specific sales, reinforcing our brand's value to consumers. We're also excited about our upcoming fall collection called Hamilton, which is a redesigned legacy group that's garnered substantial interest from consumers even before launch. This gives us optimism about its potential success. We aim to focus on fewer new product introductions and spend more time storytelling about the existing items in our collections. We hope that in our next call, we can share updates on similar approaches for our outlet channel as well. We are rolling out full-price products to a number of stores, though we are not disclosing the exact number at this time. We will also maintain a similar strategy highlighting iconic Michael Kors items. Our accessories division is showing very strong results, while footwear has faced some challenges, which we've previously mentioned. We have strategies in place to address this, as footwear remains a key part of our business. There's been a noticeable softness in our formal dress category, while casual and sneaker sales have demonstrated stronger growth, highlighting the need to respond more swiftly to fashion trends in that segment. We expect to address this soon, likely within the next 60 days. We are optimistic about improving our footwear results, as our handbag and ready-to-wear segments are performing well. Boosting our footwear business could enhance overall traffic and average unit retail prices. When we fail to deliver the right fashion products, it leads to markdowns, which negatively impacts average unit retail. Fixing our footwear offerings is a critical component for success in our full-price stores, and I hope to report positive outcomes in our next call. Regarding our store program, we have two main points. First, many of our stores are aging, and we haven't renovated a significant portion of them quickly enough for various reasons, including our transition with Tapestry and previous investments in Versace and Jimmy Choo. Currently, over 90 percent of our budget is directed towards Michael Kors. Our goal is not only to renovate stores to enhance the consumer experience—where we've already seen promising results in a small number of renovated stores—but also to establish a clear aesthetic for the brand. The renovated stores are designed to showcase this unique aesthetic. We also plan to provide a different in-store experience that deviates from the typical retail approach; we will share more details closer to the opening of our new store at Rockefeller Center, where we hope you can all join us to see the location.

Operator, Operator

Our next question comes from Rick Patel with Raymond James.

Rakesh Babarbhai Patel, Analyst

I'll have my congrats on the progress. Can you expand on the evolving U.S. distribution as you shrink exposure to U.S. department stores and leaning into retail, are you seeing signs that consumers are following you into the retail channel? And then just bigger picture, how are you envisioning the role of wholesale versus retail over the long term?

John D. Idol, CEO

We have a couple of things to discuss. First, regarding retail, we mentioned in our prepared remarks that we plan to close around 75 million stores this year, effectively completing the fleet optimization program for Michael Kors. There will be a few more closures in fiscal year '27, but they won't be on the same scale. Interestingly, we are currently reevaluating some malls from which we've withdrawn. Our observations show that when we close a store in a specific area, we are not recapturing that business through nearby outlet stores or e-commerce, indicating that there are customers we are not reaching. In some markets, we have completely exited, including locations like downtown Manchester, England, where we no longer have a presence. We are planning to reopen a standalone store in that area, now understanding that an ideal store size is between 1,500 and 2,000 square feet, along with a strong grasp on the economics needed to ensure profitability in these stores. When we provide guidance for fiscal year '27, I expect to announce modest store growth in certain U.S. and European markets where we have previously exited, and I will discuss wholesale shortly. We see potential in engaging these larger markets that can accommodate a Michael Kors store. Our partners in malls worldwide are enthusiastic about this concept, and we will share more about a flagship initiative in October, which has received positive responses from both the retail mall community and street store community. As for wholesale, we will nearly finish the closure of wholesale operations by the end of this calendar year, with only a few remaining in the spring. We are not focusing on expansion; there will be a small number of department store doors we may return to, but it will be minimal. Instead, we intend to renovate our existing shop-in-shops, as we have excellent locations with department store partners that are currently outdated and need to represent the new modern image of Michael Kors. We are excited to begin renovations with U.S. department stores this fall, and we are also starting to roll out this concept with our European partners. Overall, we will maintain a limited number of additional doors in the full-price market, keeping wholesale relatively stable for all of calendar year '27, concentrating on improving productivity. We aim for the wholesale channel to show positive results in fiscal year '27, and while we are not there yet, there are encouraging indicators suggesting we can achieve modest retail growth in calendar year '27.

Operator, Operator

Our next question comes from Aneesha Sherman with Bernstein Research.

Aneesha Sherman, Analyst

Great to hear all the positive comments on this call. John, I want to ask about Jimmy Choo. It's historically been a different core category, different brand heritage, different sourcing mix from Kors maybe some of those differences may be narrowing as you grow the handbag assortment and if you grow footwear of course. But can you talk about how you think about the value added and Jimmy Choo the portfolio? How does it complement core, where is it incremental? And would you ever consider divesting of this brand as you did with Versace?

John D. Idol, CEO

Thank you, Aneesha. Let me address the last part of your question first. Jimmy Choo is not for sale; we have no intentions of selling it. In fact, we are enthusiastic about the growth potential that Jimmy Choo brings to our company. When we acquired Jimmy Choo years ago, one of the main reasons was its remarkable name, history, and heritage within the luxury fashion sector. It is widely recognized and is focused on shoes, from which we believed we could learn a lot, and we have. Additionally, over the years, we've added two manufacturing facilities, allowing us to produce over 50% of our products in-house. Our vertical integration with Jimmy Choo is strengthened by our two beautiful factories in Italy, along with a newly built, impressive R&D center for our employees. Jimmy Choo is in a solid position; our store fleet is also performing well. We've invested significantly in renovating our stores, including our new flagship on Madison Avenue, which is exceptional and thriving. The investments we've made can now be leveraged effectively. We purchased the company knowing we could enhance its value, particularly in accessories, an area we believe we understand well. We've faced some distractions over the past couple of years, particularly due to the merger, which diverted focus. However, we are fully re-engaged with the accessories line. There is a significant opportunity for Jimmy Choo; we have a presence in the luxury consumers' wardrobes today. The task is not about convincing consumers whether they like Jimmy Choo; rather, it’s about delivering products, especially accessories, that resonate more with them. Our Jimmy Choo accessories business has been improving, notably with two bag lines: an evening collection named Bonbon and a day bag called Sinch, which has become the largest-selling day bag in the company’s history. We've strategically introduced the curve bag, which you may have seen online, at price points ranging from $995 to $595. We've observed significant price increases in luxury's higher-end sector, leading to some consumer pushback, so we aim to find a balance. We will offer bags in the $1,500 to $2,500 range while also introducing two new groups priced similarly to the curve bag. Additionally, our sneaker category has seen strong growth, and we have launched a new jelly shoe priced at $395. These price points remain robust while expanding our pricing strategy by leveraging the appeal of the Jimmy Choo brand. We are optimistic about Jimmy Choo's potential contributions to the company. However, we need to expand our accessory offerings since Jimmy Choo currently derives about 80% of its revenue from footwear, which generally has lower margins due to sizing constraints. By leveraging our expertise and the brand's affinity, we believe there's a significant opportunity for margin growth. We can return this business to a double-digit operating margin, potentially reaching a $600 to $800 million business, which would yield a healthy return. We have made all necessary investments and are excited about Jimmy Choo's future as a key part of the Capri family. Thank you, Aneesha. Lastly, I’d like to thank everyone for joining us today. We are pleased with our first-quarter results and optimistic about the second quarter. Consumer engagement remains strong, and if we keep focused on our initiatives, we expect to meet our guidance for the year and return Capri to growth in fiscal year '27. We believe this will position us well for earnings growth as we mitigate most current tariffs. Thank you once again for joining us.

Operator, Operator

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