Capri Holdings (NYSE:CPRI) reported second-quarter financial results on Friday. The transcript from the company’s second-quarter earnings call has been provided below.
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Summary
Capri Holdings reported a 5.5% decline in total company revenue to $809 million for Q2 fiscal 2027, but highlighted a 55% increase in operating income, leading to earnings per share of $0.42 compared to a loss of $0.03 per share last year.
The company increased its fiscal 2027 revenue and earnings per share guidance, expecting revenue to return to growth in the second half, driven by strategic initiatives at Michael Kors and Jimmy Choo, including new product introductions and marketing investments.
Michael Kors experienced an 8.6% year-over-year revenue decline, attributed to inventory delays and a strategic reduction in markdown inventory, while Jimmy Choo saw an 11.5% increase in revenue, driven by strong performance in both the retail and wholesale channels.
The company emphasized its strategic focus on improving brand desirability and consumer engagement, with initiatives like TikTok Shop for Michael Kors, and expanded storytelling and influencer partnerships.
Management expressed confidence in future growth, projecting significant gross margin expansion, continued sequential revenue improvement, and plans to open 50-75 new Michael Kors stores next year.
Full Transcript
OPERATOR
Greetings and welcome to Capri Holdings second quarter fiscal 2027 financial results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Jennifer Davis.
Please go ahead.
Jennifer Davis (Investor Relations)
Good morning everyone and thank you for joining us on Capri Holdings second quarter fiscal 2027 conference call. With me this morning are John Idol, Capri’s Chairman and Chief Executive Officer, and Tyler Redeen, Capri’s Chief Financial Officer and Chief Operating Officer. Before we begin, let me remind you that certain statements made on today’s call may constitute forward-looking statements which are subject to risks and uncertainties that could cause actual results to differ from those we expect. Those risks and uncertainties are described in today’s press release and in the Company’s SEC filings which are available on the Company’s website. Investors should not assume that the statements made during this call will remain operative at a later time and the Company undertakes no obligation to update any information discussed on today’s call.
Unless otherwise noted, all financial information on today’s call will be presented on a non-GAAP basis. These non-GAAP measures exclude certain items associated with impairment charges, transaction-related costs, store renovation plan expenses, Capri transformation costs, as well as restructuring and other expenses. To review the corresponding GAAP measures and related reconciliation, please review our latest earnings release posted to our website earlier today at capriholdings.com.
Now I would like to turn the call over to Mr. John Idol, Chairman and Chief Executive Officer.
John Idol (Chairman and Chief Executive Officer)
Thank you, Jennifer, and good morning, everyone. We are encouraged by the momentum building at both Michael Kors and Jimmy Choo. Over the past several seasons, we have been focused on elevating brand desirability, strengthening our product assortments, creating deeper connections with consumers, and we are seeing evidence that those efforts are gaining traction globally. New fall product introductions are generating some of the strongest full-price sell-throughs we have seen in years, underscoring the strength of our innovative product designs and the positive consumer response to our collections.
At both our luxury houses, the benefits of our strategic initiatives are becoming increasingly evident, reinforcing our expectation that Capri will return to revenue growth in the second half of the year. Based on our second quarter performance and our expectations for the remainder of the year, we are increasing our fiscal 2027 revenue and earnings per share guidance. Looking ahead, we believe the progress we are making across both our luxury houses provides a strong foundation for sustainable long-term growth.
Turning to our second quarter results, we are encouraged by the progress we made throughout the quarter with trends improving sequentially each month, resulting in revenue, operating income and earnings per share that were above our expectations. Total company revenue was 809 million, down 5.5% versus last year, while operating income increased 55%. This strong profit growth contributed to earnings per share of $0.42 versus a loss of $0.03 per share last year.
Looking at second quarter performance by brand, starting with Michael Kors, revenue decreased 8.6% year over year, ahead of our expectations, due primarily to a shift in wholesale shipment timing. Revenue was impacted by approximately $50 million due to inventory delays which constrained product availability. As fall assortments began to arrive later in the quarter, sales trends improved sequentially each month, driven by the positive consumer response to our new product arrivals.
Additionally, as anticipated, revenue was impacted by our continued focus on improving quality of sale. Looking at Michael Kors revenue by channel, in our own retail channel, sales declined low double digits. As anticipated, we had approximately 40% less markdown inventory available for sale and reduced promotional activity by approximately 50%, both of which created a meaningful headwind to revenue during the quarter. While these actions reduced revenue, they supported higher full-price sell-throughs, growth in AURs and gross margin expansion. As we have previously mentioned, the majority of these actions are now behind us, giving us increased confidence in the trajectory of the business going forward.
In our full-price channel, sales declined as we continue to focus on quality of sale. With new product arriving and the impact from our quality of sale initiatives moderating, we expect the full-price channel to return to growth in the back half of the year. In our outlet channel, while revenue declined, trends improved sequentially from the first quarter as a broader assortment of new styles began arriving. With additional newness planned throughout the season and into the spring, we anticipate further sequential revenue improvement through the back half of the year.
In our wholesale channel, revenue declined mid single digits, exceeding our expectations due in part to a timing shift from the third quarter into the second quarter. At point of sale, we were pleased to once again see positive comparable sales trends with our wholesale partners as consumers responded favorably to our new product introductions. Turning to brand awareness and consumer engagement, we continue to reinforce Michael Kors’ modern jet set lifestyle position through our brand vision of traveling the world in style, bringing the joy of travel and the discovery of new destinations to our consumers. Each season, for fall we traveled to London with brand ambassadors Suki Waterhouse and Danny Ramirez. Set against the city’s distinctive energy, the campaign highlights the season’s key fashion statements, reflecting the blend of polish, individuality and the effortless style that defines the Michael Kors aesthetic.
The campaign introduced new hero handbag silhouettes, including the Hamilton Soft, a relaxed version of one of our most enduring icons. The campaign also showcased fresh interpretations of Layla and Nolita as we evolve our iconic styles with compelling new design details. To amplify our brand storytelling, we continue to enhance our social media strategy by strengthening our presence across a broader range of platforms as well as expanding both the scale and reach of our influencer partnerships.
During the quarter, we launched a Michael Kors shop on TikTok, creating a seamless path from discovery to purchase on a platform that plays an increasingly important role in how younger consumers engage with fashion. Early performance has exceeded our expectations, generating strong engagement and sales while further expanding our reach with a new generation of luxury consumers. Together, these efforts are helping to strengthen Michael Kors’ relevance while fostering more authentic and meaningful connections with Gen Z consumers.
Additionally, Michael Kors’ iconic runway show has continued to serve as a powerful halo for the brand while reinforcing the house’s leadership in fashion luxury. The spring 2027 show, held at the Museum of Modern Art’s Sculpture Garden in New York, attracted a high-profile audience of celebrities and global influencers. The event generated significant impressions globally, extending the show’s reach well beyond the runway. Collectively, these activities helped drive an 8% year-over-year increase in the Michael Kors global customer database, attracting new and younger consumers and expanding our ability to build deeper, more personalized relationships with consumers around the world. Through our analytics capabilities, we are leveraging the strength of our extensive database and AI-driven insights to better understand evolving consumer preferences, deliver more relevant experiences and strengthen engagement across channels.
Turning to product, guided by Michael Kors’ vision, our strategy is built around delivering on-trend fashion luxury products with standout style while celebrating our brand codes. In accessories, our focus on refreshing iconic franchises with modern design elements continued to gain traction with consumers, supporting strong full-price sell-throughs and creating meaningful excitement around new product introductions. Hamilton, Layla and Nolita anchored the assortments, underscoring the enduring appeal of our iconic styles.
The launch of the Hamilton Soft during the quarter was a standout success, generating strong enthusiasm among consumers globally. It has quickly become one of the brand’s best-selling styles, with demand exceeding our expectations, and our teams are actively chasing inventory to try and meet strong consumer demand. Turning to footwear, we remain focused on building enduring franchises across both casual and dress categories. We are evolving the assortment with more on-trend styles, expanding our casual offerings across categories such as loafers and flats that are resonating with consumers. New introductions, including our Jennings Loafer and Piper Flex Ballet Flat, are emerging as top-performing styles. By balancing proven silhouettes with modern newness, we are creating products that resonate with consumers today while laying the foundation for future icons within the category.
Looking at ready-to-wear, the fall collection brought a modern urban edge to the assortment through elevated denim, on-trend wardrobing essentials and versatile day-to-evening dressing. Consumers responded particularly well to our expanded outfitting categories, underscoring the appeal of fashion-forward styles that express Michael’s distinctive point of view. Turning to men’s, we are refining our sportswear assortments through a combination of established iconic styles and compelling new fashion introductions.
In accessories, we are seeing increased consumer interest in the softer bag silhouettes, which are helping attract a new and younger consumer. As a result, men’s sales trends improved sequentially relative to the first quarter. Now I’d like to review our store renovation plan, a key component of our strategy to revitalize growth. In our new stores, we are creating a warmer, more residential environment that reflects the modern Michael Kors jet set lifestyle and provides an elevated backdrop for our luxury products. Since launching the program, we have renovated 50 stores as we advance toward our goal of renovating 300 stores. As part of this initiative, we continue to expand our Jet Set Lounge concept, an immersive retail experience designed to deepen customer engagement and increase store dwell time.
Today we have seven Jet Set Lounges across key flagship locations globally, and we are encouraged by the customer response. We believe that our renovation plan will further strengthen brand desirability, deliver an elevated consumer experience and drive higher sales productivity. Early results remain encouraging, with renovated locations generating higher traffic and revenues. Overall, we are encouraged by the progress we are making at Michael Kors. We expect revenue trends to improve sequentially in the third quarter and return to growth in the fourth quarter, driven by new product introductions, strong holiday gift-giving assortments, increased marketing investments, growing contributions from our store renovation program and a moderating impact from our quality of sale initiatives. Looking beyond fiscal 27, we remain excited about the potential for Michael Kors to return to sustainable growth and achieve 4 billion in revenue with operating margins in the low 20% range.
Now turning to Jimmy Choo, we were pleased with the brand’s continued momentum. Second quarter revenue exceeded our expectations, increasing 11.5% over last year as our marketing and product initiatives attracted new and younger consumers while creating additional purchase opportunities for existing clients. In our own retail channels, sales increased mid single digits, with trends in the Americas up double digits and EMEA increasing high single digits, while Asia declined mid single digits.
Turning to wholesale, revenue grew strong double digits, benefiting from the earlier shipment of fall products this year. Trends at point of sale remained encouraging, supported by positive consumer response to our fall assortments, which once again drove double-digit increases in North American department stores. Turning to brand awareness and consumer engagement, our storytelling continued to highlight the effortlessly alluring essence of Jimmy Choo and the sense of joy and confidence the brand inspires. During the quarter, our marketing strategy focused on expanding the brand’s reach, deepening client connections and strengthening cultural relevance. For fall, we celebrated Jimmy Choo’s 30th anniversary with two campaigns that reflected the house’s distinctive blend of luxury, glamour, craftsmanship and playful spirit.
Our fall campaign, Assertive Glamour, was set in Milan’s historic Palazzo Gallarati and highlighted the artistry behind the collection, showcasing statement boots and fresh interpretations of our iconic Cinch and Bar handbags. This was followed by the Choose You Can’t Live Without, a campaign featuring influential fashion personality Devin Lee Carlson, whose distinctive style resonates with a new generation of luxury consumers. The campaign showcased key styles including our Bonbon and Cinch handbags as well as our iconic Scarlet and Heloise footwear franchises, reinforcing Jimmy Choo’s enduring desirability across generations.
By pairing compelling brand storytelling with influential talent, we are broadening our customer reach, attracting new clients and reinforcing Jimmy Choo’s relevance with the next generation of luxury consumers. At the same time, we are increasingly leveraging our advanced data analytics and AI insights to deepen consumer engagement and enhance the effectiveness of our marketing. Taken together, these initiatives are strengthening brand desirability, expanding our consumer reach and deepening our relationship with consumers through more personalized engagement, which contributed to a 7% year-over-year increase in Jimmy Choo’s global consumer database.
Turning to product, our strategy remains focused on building Jimmy Choo’s accessories business and expanding its casual footwear assortment while reinforcing the house’s distinctive luxury position. By extending the house’s reach across categories and occasions, we are creating additional revenue opportunities by driving higher purchase frequency among existing consumers and attracting new clients to the brand. We were pleased with the strong consumer response to our fall collection, which reflected Sandra Choi’s design vision of reimagining the house’s iconic codes through a contemporary lens.
While remaining true to Jimmy Choo’s heritage of glamour and craftsmanship, the collection resonated with consumers across both accessories and footwear. During the quarter, accessories increased double digits versus last year. Our iconic Bonbon and Cinch franchises delivered robust growth, while newer franchises, Bar and Curve, continued to gain traction, broadening the reach of the brand. Turning to footwear, we were pleased with our performance across both casual and dress styles.
In casual footwear, we were encouraged by the strong response to versatile silhouettes such as the Margot flat and Scarlet kitten heel, which reflect our focus on expanding the brand’s presence across a broader range of occasions. Our core dress category also delivered strong growth, driven by continued demand for our iconic styles such as Asia and Sakura, as well as newer styles including Faiz. The strong performance across the assortment underscored the enduring appeal of Jimmy Choo’s signature glam.
Finally, I would like to take a moment to congratulate Sandra Choi, who will be honored with a special recognition award by the British Fashion Council at the 2026 Fashion Awards in London. This prestigious recognition celebrates Sandra’s extraordinary creative leadership over the past 30 years and her contributions to the broader fashion industry. As Jimmy Choo celebrates its 30th anniversary, this is a particularly meaningful honor and a testament to Sandra’s remarkable vision and enduring influence on the brand.
Looking ahead, we are increasingly confident in Jimmy Choo’s trajectory. Our marketing is attracting new audiences and our product strategies are expanding the brand across categories as well as occasions. We continue to expect Jimmy Choo to return to profitability in fiscal 2027, supported by revenue growth, gross margin expansion and disciplined expense management. Over the long term, we believe the brand can achieve 800 million in revenue and operating margins in the low double-digit range.
In conclusion, we’re encouraged by the progress we are making across Michael Kors and Jimmy Choo. We continue to expect total company revenue to return to growth in the second half of fiscal 2027, supported by exciting new product introductions, increased investments in marketing and our focus on elevating the consumer experience. The actions we are taking are strengthening our fashion luxury houses and positioning Capri to deliver sustainable growth and create meaningful value for shareholders over time.
Before turning the call over to Tyler, I would like to thank our approximately 11,000 employees around the world, whose dedication, passion and talent are instrumental to the progress we are making. Now, Tyler will take you through our second quarter results and guidance in more detail.
OPERATOR
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Please limit yourself to one question. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
And our first question will come from Matthew Boss with J.P. Morgan.
Matthew Boss (Analyst)
Thanks, and nice to see the improvement. So, John, at Michael Kors, could you speak to the drivers of sequential month-over-month improvement that you saw in the quarter and elaborate on exit rate trends in September and October that support your confidence for positive revenue growth in the back half while continuing to pull back on the level of promotions?
John Idol (Chairman and Chief Executive Officer)
Thank you, Matt, and good morning. And good morning to everybody on the call. Matt, we were very pleased to see how the Michael Kors business had month-over-month sequential revenue improvement during the quarter. There were a number of things that happened for us. First, we continue to flow exciting new fashion, on-trend product. The design teams led by Michael are starting to very significantly hit trends in the marketplace, and you’re seeing that in both accessories and now we’re starting to see that in footwear as well.
And as you’ve heard me say in some of the previous calls, footwear has been a drag for us. And now with the Jennings loafer that I talked about in my prepared remarks, the Piper Flex Ballet, these things are starting to show very strong full-price sell-throughs. We saw sell-throughs on things like Soft Hamilton. We haven’t seen that for, I don’t know, five or six years. And as Tyler mentioned as well, we are literally chasing inventory on certain products in both accessories and now some in footwear.
So we feel great that the consumer is really engaging with our storytelling. They are loving our new product introductions, and we’re seeing by far the best kind of trend for us for newer and younger customers. I might also add that we saw during the quarter search for Michael Kors handbags really significantly increase. Again, we haven’t seen this in quite some time. So all the indicators are showing that these are more than just green shoots. In certain cases they’re turning into significant volume opportunities. So everything I talked to you about there was really in the full-price channel. In the outlet channel, as you know, we started to introduce a few new styles there.
Our new Sammi silhouette in particular has started out to become one of the best-selling styles in that channel or groups in that channel. This is what we were hoping for and we’re seeing the results of that. And as we progressed through the quarter, we said we’d get to about 75% in this quarter of new product in the outlet channel. We’re well on our way to do that. And what’s also exciting, we did all that with our markdown and promotional strategy down by 50%.
I want to re-emphasize that again, 50% — that is a very, very big pullback. And we’re proud of what the teams have done inside of our stores. And our department store partners are also embracing this strategy to sell more Michael Kors at full price. That’s driving higher AURs. We can see that right across the globe. And so we’re seeing this whole strategy of really giving great value to the customer kind of play through. And then the last thing, another very big headwind: as you know, we had 40% less markdown inventory, which, you know, when the customer went to look for things at certain prices, it just wasn’t there. And that’s not an easy thing to go through. But we made the decision, we’re sticking to it, and we’re really seeing the results of that. So the inventories in our third quarter and fourth quarter are going to be in a much different complexion than they were at this time last year, which will be much healthier.
And then the last thing I just want to end on is we did hold this up against the backdrop of having $50 million less than we had planned in terms of inventory. I think our sales would have been much better had we had that inventory. As you know, we’ve been experiencing certain delays in Michael Kors from Asia on our transportation. That’s getting better. And we’ve also supplemented that with air shipment, etc., to help us have that inventory here, especially for the holiday season.
And again, our, you know, our confidence is really based around that as to how we look at Q3 for us — we think we’re set up really in a great way with all the new product flowing and also some incredible holiday gift programs and some fun things to excite the customer with. So thank you very much for your question, Matt, and have a great holiday season.
OPERATOR
Our next question will come from Brooke Roach with Goldman Sachs.
Brooke Roach (Analyst)
Good morning, and thank you for taking our question, John. I was hoping we could dig a little bit deeper into the trends that you’re specifically seeing at Michael Kors Americas Outlet. Was the sequential improvement that you saw in the quarter and quarter-to-date something that you also saw in Outlet as that new product was flowing? And what are your latest thoughts on getting Michael Kors Americas Outlet back to consistently positive comp growth in that channel?
And finally, one question on the Hamilton Slouch — saw that that was just restocked, that’s great to see. How quickly can you chase into some of these products that are working, that are outperforming your expectations? Thank you.
John Idol (Chairman and Chief Executive Officer)
Thank you and good morning, Brooke. Brooke, I might add that first off, Jimmy Choo had an outstanding quarter and, you know, this is a second quarter in a row for Jimmy Choo of double-digit growth, which is really quite extraordinary. And interestingly, we saw the quarter accelerate as we went through, and so pretty much we’re seeing the same thing at Michael Kors and at Jimmy Choo. So that’s really what we think is a great trend for us to see happening as we head into the all-important holiday season.
In terms of Michael Kors Outlet, interestingly enough, we actually saw a slightly stronger acceleration in the outlet stores. And I think we said — if we didn’t — we saw acceleration in revenue throughout the quarter, traffic throughout the quarter, and then the search throughout the quarter. So all three of those indicators were quite strong. And, you know, probably not surprisingly, on the outlet side we were receiving a much bigger percentage of newness there versus our full price.
And that was something that we had been waiting for. I would also add that in the full-price business that is where we had the greatest percentage of decline in markdown inventory, which we knew was going to have this impact on revenues during the quarter. I think I had said that not only in our first quarter commentary but I mentioned it in fourth quarter that we were going to take this very big pullback on markdowns in our — you know, it’s our kind of big summer clearance sale.
So again I think we’re seeing the right trajectory heading into the fall season. As it relates to Hamilton, Brooke, I wish I could sit here and tell you how quickly we can get back into these things. The sell-throughs, I would say, surprised us. And by the way, those sell-throughs started actually in Asia for us first and then it just kind of rippled right across the globe. And so we’re moving as fast as we possibly can. I’m sure you’re going to see some outs on a number of things as we go through the holiday season because the product is really highly desirable.
And what’s also really exciting about Hamilton Soft in particular is the influencer community is driving a lot of this interest. If you go online and follow some of the influencers, they’re just organically, you know, talking about this product. And we’re starting to see this undertone that, you know, Michael Kors is back — have you seen Michael Kors, look at this product — and that’s all being naturally driven. On top of that, I think you can see in our storytelling, one of the things that we’ve really looked at very carefully is our handbag business and accessories business, and we’re putting an even greater priority on that above and beyond some of our other categories in the company. We know there’s market share to be regained and taken. As you know, the industry, in particular some of the other European luxury brands, are having a bit of a struggle right now, and we actually think this is a super time for us to be able to resonate with consumers who are being a bit more choiceful.
And we can see that with some other brands around the world who are enjoying the fruits of that success. So we think the timing is right for us. The product is getting not exactly where we want it to be, but pretty close. Storytelling is in good shape. And then of course, the last thing I just have to talk about is our store program. We’re really thrilled with the results. We have approximately 50 stores that we’ve completed in our renovation so far. We’ve got about another 25 or so to go this year to complete our renovations. And I’m excited to say to you that next year we’re going to open between 50 and 75 brand new stores. I think I mentioned to you previously that we are starting to get confidence given especially the renovations and the results we’re seeing with higher traffic and higher revenues.
And so we will be opening new Michael Kors freestanding stores — we’ve actually opened a few this year — and that’s an exciting growth opportunity for us as we look out to fiscal year ’28. Thank you, Brooke.
Brooke Roach (Analyst)
Thank you so much.
OPERATOR
We’ll go next to Simeon Siegel with Guggenheim Partners.
Simeon Siegel (Analyst)
Thanks. Hey, morning everyone. John, just recognizing the ongoing improving quality of sales you’re talking about and that we can see, just curious, do you have a view on what the right size for Michael Kors wholesale should be and, just recognizing the point-of-sale comments, how you’re thinking about when the sell-in — the order of magnitude we should think about as the sell-in improves? And then just, Tyler, the gross margin was great to see. How are you thinking about the specific drivers for the gross margin for the back half? And then how should we think about that longer term? Thanks, guys.
John Idol (Chairman and Chief Executive Officer)
Good morning, Simeon. The wholesale business is, as you know, if we go back six, nine months ago, the wholesale business was trailing the full-price business really in North America and Europe. And in some ways it’s not only caught up to — in some places it’s actually ahead of it. Quite interesting. And we’re seeing this not only in North America, but we’re seeing it in Europe — in particular in Europe where some of the, again, the luxury brands that we sit on the same floors with are starting to see some difficult sales results, and consumers are enjoying the Michael Kors product.
And by the way, I want to add the Jimmy Choo product, which as you know, Jimmy Choo is now on its second or third consecutive quarter of double-digit increase in accessories. So the wholesale channel for us we believe is going to return to growth next year with a very healthy growth. Our partners are excited about us. We’re opening approximately 100 shop-in-shops that are in construction. Some of that will get completed this year, some of it will get completed next year. And the new shop-in-shops that are going in not only look beautiful, but the results are great and we’re pushing that quite hard. Also interesting, we haven’t talked about it in a long time, but our international airport and duty-free business is also starting to grow again.
We’ve got strong interest from our partners who want to open up new Michael Kors locations and renovate the existing ones. And that’s a very strong business for us that we think could also add to our wholesale development. So I think all indicators are pointing in that direction. And I would say, Simeon, for whether it’s Michael Kors or Jimmy Choo, somewhere in the 20% range, 25% range — that’s typically what you think of for a wholesale business.
Again, just depends on the health of the partners and where that stands around the world. As you probably know, there’s been quite a bit of consolidation in the wholesale world in terms of certain stores in Europe, you know, not being here any longer or struggling, etc., and then certain players in the duty-free business that have again either gone out of business or are struggling. And I think we’re starting to see that all stabilize now. And so we’re quite hopeful about the development of the wholesale business on a go-forward basis.
Tyler
Reminder, I’ll jump in on the second part of the question. So in terms of gross margin for the second half, we are expecting that we’ll see a bit of a pullback in the expansion year over year relative to the first half, but we are going to ultimately see significant expansion in gross margin in the second half as well, primarily driven by higher full-price sell-throughs that are helping us with, and higher AURs of both Michael Kors and Jimmy Choo.
There are some headwinds though that are pulling back that growth relative to the first half, first of which we’re anniversarying some of the benefits of the quality sales initiatives as we look at the back half of the year. We also are expecting that second-half tariff rates on average will be a bit higher than they were in the first half, as we’ve seen tariffs kind of kick in. And the other thing is that we also will be anniversarying the tariff refund in the fourth quarter of 2026.
So net-net, our gross margin expansion is expected to be slightly less in the second half and that’s reflected in our guidance. But we continue to expect gross margin expansion consistent with our strategy, increasing full-price sell-throughs as well as AURs.
OPERATOR
And as a reminder, please limit yourself to one question. We’ll move next to Adrian Yee with Barclays.
Adrian Yee (Analyst)
Great. Thank you very much. Good morning. Excuse me. It is really nice to see the—excuse me—the gross margin inflect. And you could absolutely see it first in the stores and then kind of a little bit later on the last four to five weeks happening clearly in the outlet. So congrats there. Excuse me, John, can you talk higher level? There is a fashion shift and I know you see this globally. There’s a fashion shift on the landscape. Apparel footwear is getting more stylized, it’s becoming more formalized. This has historically boded well for accessories in general. And the industry people that we talk to think that this is only building into next year and that we’re kind of on the verge of sort of a breakout moment to more mass adoption.
So wondering your thoughts on that and how it impacts both the accessories at both brands. And then secondly, with regard to the re-engagement of the customer, are these cohorts largely new customers? Can you give us some color on age demo, or are they reactivated lapsed customers, or a combination of both? Thank you so much.
John Idol (Chairman and Chief Executive Officer)
Thank you, Adrienne. Adrian? Yeah, we are definitely seeing the fashion winds shift and I might add that this is good for Jimmy Choo and for Michael Kors. As you know, we’ve always been a bit more—I’ll say, slightly—dressed up. We’ve been a slightly more glamorous—both of our companies—and we think the winds are going in our favor. I think you’ve seen—we’ll start with Jimmy Choo. Jimmy Choo: we had a strategy to, number one, grow our accessories business. We’re well on the way for that. We have four platforms now that all are growing significantly, and so we’re super excited about that. And we are actually growing market share in the luxury handbag business. We can see it, we know it, we see how the consumers are responding to us. So that could be an even bigger opportunity than we probably have even sized from our goals.
So more to come on that. Again, quite exciting. We’re starting to open shop-in-shops in department stores with Jimmy Choo. Many of those are concession shops that we run. And that puts us on par with, obviously, all the best luxury players in the world. So super excited about that. Second thing at Jimmy Choo was really our casual footwear business, which we’re starting to get great traction on. And, you know, we talked about that in our prepared remarks. But what’s really also happening simultaneously is our dress footwear business is back. And this, Adrienne, to your point, is people are getting a little more dressed up. Also, there’s another change—you know, leg widths of pants, et cetera, are getting slightly skinnier.
There’s a return to, you know, a version of glamour and sexy and that type of real styling. And so that’s going to bode really, really well for Jimmy Choo. And now that we’ve got a foundation in some of these more casual platforms, we’re there for that other platform. We’ve always been there. In terms of Michael Kors, we see the same thing happening. One of the things that really has impacted the Michael Kors footwear business was our sneaker business, which used to account for some 30 to 40, 35% of our business. That will go down to probably closer to 20 to 25% of our business. And so we’re making that up with more dress—and not just casual, but also dress—which is something we historically have had a big positioning in. And I think some of our competitive brands don’t have that same positioning that we have to be able to flex to that trend part of the business.
So really excited about—if it continues to continue this way, this could be a tailwind for both Jimmy Choo and Michael Kors. And then lastly, on the customer, you know, we’re seeing, again, very similar—Jimmy Choo and Michael Kors—we’re attracting new, younger customers. They’re not all Gen Z; they’re Millennials and younger Millennials. And they’re definitely engaging with the brand. And I would say at Michael Kors in particular, the Gen Z consumers, they almost didn’t know who we were. So we’re in kind of an interesting spot where, on the one hand, we need to educate them more.
One of the exciting things we did during the quarter was to open the TikTok Shop. This is doing much more business, I would say almost 4x from what we had originally anticipated. That’s exciting, that’s new, that’s young, that’s Gen Z. And also we’re seeing it on some other platforms that we’ve been engaging with as well. So it’s starting to come with those consumers, and they’re starting to now understand the brand story of what Michael Kors is.
It’s the jet set—you know, traveling the world in style, your style—experiencing, you know, the way that you want to experience it. And so that storytelling is resonating, and we’re excited about what that means for us for the future. So thank you, Adrian.
Adrian Yee (Analyst)
That’s great. And let’s pass our congrats on to Sandra, please.
John Idol (Chairman and Chief Executive Officer)
We will, we will. She deserves it. Thank you. Of course, she got her—she
Adrian Yee (Analyst)
Definitely does.
John Idol (Chairman and Chief Executive Officer)
She got her OBE. Well, we don’t want to forget about that. That’s another exciting thing. She deserves a big shout. I hope she’s listening to this call. Sandra, you deserve a big shout-out. And by the way, the Jimmy Choo product—why is Jimmy Choo successful? Some of the things I talked to you about, but Jimmy Choo is successful because the product is fantastic right now. So please go in and shop for your friends and family and yourself.
Adrian Yee (Analyst)
Absolutely. Kudos. Thank you.
John Idol (Chairman and Chief Executive Officer)
Thank you.
OPERATOR
Our next question will come from Rick Littell with Raymond James.
Rick Littell (Analyst)
Thank you. Good morning. I was hoping you can talk about the opportunity you see around AUR. The work around quality of sales has been a tailwind. But as that moderates, how do we think about the potential to elevate the business further? Curious about the opportunities you see across the product assortment and marketing that can keep the positive AUR momentum going.
John Idol (Chairman and Chief Executive Officer)
Thank you, Rick. So, Rick, I’m going to go half and half. I’ll give Tyler a part of this as well. Rick, the first thing is that, as you know, again, about two years ago, we went in and reset our strategic pricing across the group, and I say across the group—we did that at Jimmy Choo, certain products, and we did it at Michael Kors very, very heavily. And I think that has definitely boded well for the full-price sell-throughs in the company. We’re trying to give the product at the price that we know that the customer will be excited about and will show value.
But I will tell you simultaneously we’ve started to raise prices in outlet. I think you heard us talk about that. That seems to be going well. And there will be some level of—we could take some minor price increases at Michael Kors full-price. We’ll take a few more selectively where we think there’s opportunity for us to not slow revenue but also gain margin. Because as we look forward, while we’re happy about the margin gains that we made, they’re not good enough.
We have much higher aspirations. And I’ll let Tyler talk about our aspirations in particular for next year.
Tyler
Yeah, thanks, John. And I think, as John mentioned, we absolutely are anniversarying our quality of sales initiatives and that provides us with a tailwind in terms of AUR. But we do see continued opportunity to increase AUR even further, as John mentioned. But ultimately this is about driving gross margin and driving improved margin across the business. And we do see significant opportunities in terms of gross margin expansion. We are targeting to improve our gross margin expansion substantially as we go through—not only in fiscal 27, but beyond.
We see opportunities in terms of Michael Kors to continue increasing full-price sell-throughs, expanding gross margins, as well as looking for efficiencies across our distribution and logistics network. And with Jimmy Choo, we see significant opportunities to improve our gross margin both in terms of improving our overall full-price sell-throughs, but also really optimizing around both our manufacturing as well as our logistics and distribution network.
So we are expecting, and we’re working towards, significantly improving gross margins going forward beyond just fiscal 27, which will ultimately support sustainable, long-term earnings growth.
John Idol (Chairman and Chief Executive Officer)
Thank you very much. Last thing, Rick. Rick, just one last thing, too. I want to make sure everyone understands we’re excited about Jimmy Choo. I answer this question regularly, so when anybody wants to ask the question: Jimmy Choo is not for sale in the company. And Jimmy Choo we think is a big opportunity. As we’ve said in our prepared remarks, we think it’s a business that can be $800 million. I think we’re getting excited about even thinking bigger than that.
And if you look at that as a low-double-digit type of operating margin in that company, that will be a significant contributor to us. So we’re super excited about what Jimmy Choo can do for us also from an operating margin. And you know what? This accessories opportunity is something that could be bigger than we’ve all thought about. Great context. Thank you.
OPERATOR
We’ll go next to Mark Altschwager with Baird. Good morning.
Mark Altschwager (Analyst)
Thank you for taking my question first, John. With the Q3 Michael Kors guide down about 1.5%, excluding the wholesale timing, does that assume that October trends hold or further improvement in the holiday? And is the full-price channel positive yet quarter to date?
John Idol (Chairman and Chief Executive Officer)
Yeah, sure. So, Mark, you know, we don’t talk about trends month by month, but what I’m going to tell you is that there’s absolutely a sequential improvement planned throughout the quarter like we saw in the last quarter. And one of the biggest issues for that in Michael Kors is the flow of product. And so as I said to you, we were 50 million short of what we wanted in Q2. That product is coming in in Q3. I am sure you’re hearing we’re not the only company that continues to have issues with getting freight out of Asia.
So we think we’re going to be in good shape and we’re supplementing with air where we need to. It’s not flowing exactly as we’d all love it to be, but we’re going to be okay. And so I think that the assumption is that we continue to flow great new product, that our marketing initiatives, as you’ve seen, take hold and we see this continued trend on search. And I want to give a big shout out to our creative teams, not just our design teams, but I think our creative looks just really spectacular in terms of the way we’re really leaning into younger demographics in our creative and the product and the way that we’re really highlighting our accessories and bags.
I also want to give a big shout out to the Jimmy Choo teams. I hope you’ve seen the creative really change there over the past 12 months and that’s given a big push to the business because Jimmy Choo used to, from a creative standpoint, probably be more dressed and more glamour and more evening and more event. And now you see this whole new casual side of Jimmy Choo and it’s driving new and younger customers into our stores. So I think we’re going to continue to see a sequential build throughout the quarter.
And remember, this does assume that Michael Kors full price does return to positive during the quarter. And so I think we’re quite confident that that will take place. So thank you all for joining us today. In closing, we’re pleased with the progress that we are making at both Michael Kors and Jimmy Choo, our strategic initiatives are having a clear impact on returning Capri Holdings to revenue and earnings per share growth. This foundation gives us the confidence in our ability to return to growth in the second half of the year. For the full year, our estimated operating income will increase by 50% and our earnings per share up 45%.
These anticipated results show a significant recovery in fiscal 27. Looking towards fiscal 28, we anticipate Capri Holdings will return to growth with both Michael Kors and Jimmy Choo growing globally for the year. Driven by our exciting brand storytelling at our luxury houses, attracting new and younger consumers, continuing to introduce exciting new on-trend fashion products and accelerating new store openings and our store renovation program giving exciting consumer experience, these focused initiatives will drive sustained revenue and earnings growth at Capri Holdings.
We look forward to update you on our future growth on our next call. In the meantime, we wish you and your families a happy and healthy upcoming holiday season. Thank you.
OPERATOR
Ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines and have a wonderful day.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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