Christina Coronios - Director, IR John Idol - Chairman and Chief Executive Officer Joe Parsons - Chief Financial and Chief Operating Officer

Omar Saad - Evercore ISI Kimberly Greenberger - Morgan Stanley Matthew Boss - JPMorgan Erinn Murphy - Piper Jaffray Oliver Chen - Cowen and Company

Good morning, and thank you for joining us for our fourth quarter and full year fiscal 2017 earnings call. Presenting on today’s call are John Idol, Chairman and Chief Executive Officer; and Joe Parsons, Chief Financial and Chief Operating Officer.

Also joining us in the room is incoming Chief Financial and Chief Operating Officer, Tom Edwards. Before we begin, let me remind you that certain statements made on this call may constitute forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those that 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 the call will remain operative at a later time.

And the Company undertakes no obligation to update any information discussed on the call. In addition, certain financial information discussed today will be presented on a non-GAAP basis.

These non-GAAP measures excludes certain items related to the acquisition of the Company’s Greater China license as well as impairment charges largely related to underperforming lifestyle source. You may identify these non-GAAP measures by the terms adjusted and non-GAAP.

To view the corresponding GAAP measures and related reconciliation, please view the earnings release posted to our website earlier today at investors.michaelkors.com. I will now turn the call over to Michael Kors’ Chairman and Chief Executive Officer, Mr.

John Idol.

Thank you, Christina. Good morning, and welcome to Michael Kors fiscal 2017 fourth quarter and full year earnings call.

As many of you know, last month, we announced that after 13 years with Michael Kors, Joe Parsons has decided to retire. On behalf of Michael, the Board and the entire organization, I would like to thank Joe, for the integral role he played in building Michael Kors into a leading, global luxury fashion house.

Joe and I have worked together for 20 years, and I would like to personally thank him for his leadership, partnership, and friendship. I and the rest of the team, wish him well in his retirement.

On that note, I would also like to welcome Tom Edwards, our incoming Chief Financial and Chief Operating Officer. Tom joined us from Brinker International, where he served as Executive Vice President and Chief Financial Officer.

Prior to that, he held a number of positions at Wyndham Worldwide, including Executive Vice President and Chief Financial Officer of the Wyndham Hotel Group. And he has held a number of leadership positions Kraft Foods and Nabisco.

Tom has strong financial and operating experience across the diverse set of consumer-facing industries. And we are thrilled to have him join the team.

Joe will continue in his current role through August 1st working with Tom to ensure a thorough and seamless transition. Moving now to our results, while the fourth quarter performance was largely in line with our expectations, fiscal 2017 was a difficult and disappointing year for us.

The retail environment remains challenging. That being said, we must acknowledge that our Company needs to take steps to accelerate the level of luxury fashion innovation and our accessories assortments, and further enhance our store experience in order to better engage and excite consumers.

We have developed a long-term strategic plan, which we have named runway 2020, to address these and other areas. We believe the execution of this strategic plan and our leading luxury fashion brand which is renowned for design innovation and fashion leadership will position us to return to long-term sustainable and profitable growth.

Looking back on the year, we executed on a number of initiatives, which will lay the ground work for our strategic plan. During fiscal 2017, we expanded our global revenues with the acquisition of our Greater China license.

We continue to believe that this region along with Japan, Korea and Southeast Asia will ultimately generate $1 billion in revenue for our Company. We also launched digital flagships in Europe and Asia, bringing the number of countries served to 11, and we began to take steps to protect our brand by reducing promotional activity in our digital flagships, lifestyle stores and wholesale doors.

While we have seen a decrease in both retail and wholesale sales as a result of these changes, we believe this is the right action to protect our brand health, long term. In addition, we undertook five specific initiatives which I outlined for you on our last call.

During the fourth quarter, we made good initial progress on these efforts. While it is not enough to meaningfully impact our results, we believe we are moving in a right direction by infusing more luxury detailing and fashion innovation in our product assortment.

And this is being met with favorable consumer reaction. For instance, Michael and our design team have been focused on creating more elevated and layered assortments.

These fresh new design elements were represented in some of our best selling styles in the fourth quarter. Our Mercer handbag collection, which saw strong sell-throughs globally, reflected an array of bright spring colors and novelty detailing.

The Brooklyn handbag collection saw a strong response and was offered in several styles including novelty detailing like grommets and an oversized tassel. We also expanded the presence of our new Jet Set Signature accessories, capitalizing on current fashion trends.

The collection features multiple layers composed of luxury fashion silhouettes and novelty details. The Jet Set Signature group is an icon element of our brand and continues to resonate with consumers.

We also increased our offering of mix and match products including the Selma Swap handbag, which allows consumers to purchase a reversible jacket to change the look of their bag effectively creating three bags in one. In addition, we introduced interchangeable handbag straps, which featured enhanced styling such as floral embellishments, grommets and studs.

Finally, we continued to focus on opportunities to engage and excite our customers through customization and saw continued positive response to our free monogramming services, which we offered in our digital flagships and select retail stores. Later this year, we will begin to offer monogramming enhancements, including symbols, additional fonts, and alternative placements.

We will also debut a customized pin it program. These perforated leather handbags, accessories and footwear will be uniquely styled by the consumer with a variety of pins, including leathers, horoscope signs, symbols and more.

In our footwear assortment, we continue to offer on-trend innovative product with consumers responding positively to exciting new details like the strong floral motif in our Heidi thong and Kit sandal, as well as to Pumps with our signature chain heel treatment. Active footwear sales continued to grow and our new floral perforated designs saw particularly strong response.

In women’s ready-to-wear, dresses were our best performing category in the quarter with high single-digit comparable sales growth. Our expanded dress assortment included innovative fashion detailing as well as seasonal colors and concepts.

We are pleased with the favorable consumer response and we’ll build on our momentum as we continue to grow this category. Turning to our men’s business, we continued to grow this segment of our business in fiscal 2017, as our sportswear offerings resonated with the consumer and we saw strong response to our expanded offering in men’s luxury leather goods.

While this remains a small part of our overall business, we now have 41 stores as well as 261 shop-in-shops, and see men’s as an important category of growth going forward. As we have previously stated, we believe men’s will ultimately grow to a $1 billion business.

In our watch business, ACCESS smartwatches continue to be an outstanding success. This product line is expected to represent approximately 25% of our watch assortment in fiscal 2018 as we expand our offerings with exciting new styles, updated plating options, and an increased selection of interchangeable straps which enabled consumers to customize their smartwatches with multiple looks.

Finally, with respect to marketing, Michael’s luxury fashion message remains a cornerstone of our communication with consumers. We continued to invest in both traditional and digital marketing channels.

We’re increasingly incorporating CRM activation in our digital marketing activities to drive traffic and conversion. We are using data on purchase history, interests and geography to align the creative in our messages to the most relevant audiences in order to more effectively connect with consumers, which in turn has helped drive traffic and conversion, in particular in our digital flagships globally.

Moving to our financial performance. For the full year 2017, we reported total revenue of $4.5 billion and adjusted earnings per share of $4.24.

In the fourth quarter revenue was $1.1 billion and adjusted earnings per share of $0.73. In the quarter, global retail net sales grew 0.5% and comparable sales decreased 14.1%.

In the Americas, retail net sales decreased 13.8% and comparable sales decreased in the low-teens. Our digital flagships continued to generate double-digit sales growth as consumers shift to online channel.

However, retail comps remained under pressure by challenging traffic trends in the retail industry and the highly promotional environment. As we have previously discussed, beginning in February, we implemented a new promotional policy as part of our effort to protect brand integrity and improved margins.

Additionally, in our North American digital flagships and lifestyle stores, we offered our Mercer and Hamilton accessories collection, as well as our ACCESS smartwatch collection on a non-promotional basis. Those products generated approximately 20% of our digital flagship and lifestyle store full price sales, which contributed to a low-single-digit increase in full price AUR in the quarter.

In Europe, retail net sales declined 15.4%, comparable sales which exclude e-commerce sales declined in the low-20s percent range on a reported basis and the high-teens range on a constant currency basis. Including e-commerce sales and on a constant currency basis, European comparable sales results would have declined in the low-teens range for the quarter.

Similar to North America, we are taking steps in Europe to reduce promotional activities. We had 16 fewer brand wide promotional days in the fourth quarter of fiscal 2017 than in the same period last year.

While this change negatively impacted store traffic, it was the right long-term decision. We also believe traffic was pressured by reduced consumer confidence and uncertainty in the certain markets stemming from European elections and the formal triggering of Brexit.

In Asia, retail net sales increased more than 200%, largely as a result of the shift in China sales to our company-owned retail segment. Asia comparable sales which included Japan and Korea grew in the low-single-digits on a reported basis and were flat on a constant currency basis, as Japan comparable sales continued to be impacted by the decline in Chinese tourism.

Asia comparable sales including the Greater China business grew in the mid single digits or high single digits on a constant currency basis. Overall, we remain pleased with our continued strong performance in the Asia region.

Now, I’d like to discuss our retail strategy. While we expect the digital channel to grow as a percent of sales, our stores will also continue to play important role in increasing the Company’s revenue long term.

Stores will continue to serve as the destination for consumers looking for experience of the Michael Kors brand firsthand, make luxury fashion purchases, as well as to showcase our innovative designs and engage consumers through service and clienteling. In order to optimize our store base, we performed an in depth analysis on our entire fleet.

Based on the results of this evaluation, we plan to close between 100 and 125 lifestyle stores globally over the next two years. This will enable us to focus on the most productive locations as well as those that we believe are important in supporting our brand image.

We will continue to selectively open new stores in key cities with a primary focus on expanding our presence in Asia. Another key element of our retail strategy is to modernize our stores around the world.

Last spring, we opened our new flagship on Regent Street in London. The store features a palette of soft browns and grays that mixed with the warm woods and luxury materials captures our refined take on glamour, while offering a modern and inviting environment in which to shop.

The new store layout is built around a center runway opening onto luxurious rooms that distinctly showcase our accessories, footwear, women’s wear and men’s wear categories and allow our sales associates to provide consumers with a unique and elevated styling experience. We are pleased with the performance of our Regent Street store and plan to use this as our design concept for the future.

Over the next two years, we plan to renovate approximately 100 locations with this new concept. We expect these enhancements will improve the productivity of our overall fleet by highlighting our footwear, women’s ready-to-wear, and men’s areas, in addition to our accessories offering and look forward to providing you with updates as we continue with our fleet modernization efforts.

Turning to our wholesale segment, net sales declined 22.8% in the fourth quarter. The Americas declined 22.1%, largely driven by reduced sell-in into the department store channel as well as our decision to reduce our authorized promotional periods to four times per year.

As a result of this decision, we had 49 fewer promotional days in this quarter than in the fourth quarter of last year. This drove an increase in full price AUR across our accessories, footwear, and men’s wear categories.

While the decrease in promotional activity may cause a short-term reduction in sales, we are encouraged by the improvement in full price AUR and remain confident that this is the right long-term decision for our brand. In Europe, net sales declined 17.4% in the quarter as the headwinds that impacted our retail stores also had a negative impact on our wholesale channel.

As part of our continued focus on our brand health, we have thoughtfully and selectively begun to curtail shipments into this channel to reduce the end of season promotional inventory in wholesale accounts. In Asia, net sales decreased 56.9%, primarily attributable to the shift of China sales to our company-owned retail segment.

Turning to our license segment, revenues decreased 6.2% in the quarter with good performance from the new fashion watch styles, ACCESS smartwatches and eyewear, partially offsetting declines in other categories. We saw positive response to new luxury fashion watch styles, Portia and Cynthia, both of which feature our new slim and feminine design.

We are also pleased with the continued sales growth of our ACCESS wearable technology assortment. As I stated earlier, we plan to expand this category and are excited about the two new ACCESS smartwatch styles Sofie and Grayson that were introduced at Baselworld in March.

We plan to roll these new styles to stores this fall. We are continuing to expand our leadership in the fashion wearable technology category with the introduction of My Social, a feature which will enable users to link their Instagram account and set a personal post photo as a watch face.

The app allows the user to scroll through their Instagram posts, select a favorite image and even apply filters, creating a watch face that’s as personal as their life. As we expand this category through the new product introductions and technology innovations with our partner, Google, we believe our ACCESS wearable technology business can ultimately reach 50% of our overall watch sales.

We are also pleased with the performance of our eyewear category in the quarter as consumers reacted favorably to new styles including Lon, a flat lens aviator, and Ina, an open wire metal cat-eye. Lastly, we continue to be pleased with the fragrance category performance, particularly in Europe.

We are excited to expand the category this fall with the global launch of a major new fragrance Sexy Ruby, which will add another pillar to our successful fragrance business. Looking ahead, as we deepen the fashion innovation in our assortments, grow key product categories, right size our store fleet, and elevate our store experience, fiscal 2018 will be a transition year in which we establish a new baseline before returning to long-term growth.

We have a strong luxury brand led by Michael Kors with a history of fashion innovation and leadership, a global footprint with stores positioned in many of the best locations around the world and the marketing expertise to effectively convey our fashion stories. We will be hosting an Investor Day on June 9th at our Company’s New York headquarters where we will walk you through our runway 2020 strategic growth plan.

Members of the leadership team will be joining me to share the details of this plan, which builds on some of the recent initiatives I discussed today. Ultimately runway 2020 is designed to leverage our product innovation, elevated store experience, personalized shopping experience and global presence to drive long-term sales and profitability growth.

I look forward to sharing more details on our future growth initiatives with you at our Investor Day. With that, I will turn the call over to Joe.

Thank you, John. For the fourth quarter, total revenue was $1.1 billion compared to $1.2 billion in the prior year quarter.

As a reminder, fiscal 2016 includes approximately $34 million in sales associated with the 53rd week of that fiscal year. In the retail segment, net sales increased 0.5%, due primarily to the addition of 159 net new stores, since the fourth quarter of last year, including 111 stores associated with the recent acquisition of the Greater China license.

Comparable sales decreased 14.1%, reflecting a low-teens decrease in North America and low 20% decline in Europe partially offset by a low single-digit increase in Asia. Our e-commerce comparable sales contributed approximately 450 basis points to our performance in the quarter.

Our results in North America continued to face pressure from declining traffic and our decision to reduce promotional activity in our lifestyle stores. This was partially offset by increased conversion rates in our stores and strong performance of our digital flagships, which achieved double-digit comparable sales growth in the quarter.

The comparable sales decline in Europe was due to reduced store traffic and lower average unit retail, in addition to sales that migrated to the online channel following the launch of our European digital flagships in the fall of calendar 2016. While European digital flagships are not yet included in the comparable sales base, had they been included, European comparable sales would have been down in the mid-teens on a reported basis and down in the low-teens on a constant currency basis.

Asia comparable sales, which include Japan and Korea, grew in the low single digits on a reported basis and were flat on a constant currency basis. In the wholesale segment, net sales declined 22.8%.

The wholesale in the Americas region declined 22.1% as we strategically reduced the amount of inventory we ship into that channel and reduced our authorized promotional periods to four times per year. European wholesale net sales decreased 17.4%.

As John explained earlier, we are strategically decreasing our sell-in in this channel as we focus on ensuring long-term brand health. In Asia, the 56.9% decrease in net sales largely reflects the shift of our Greater China business to the retail segment.

In the licensing segment, revenue decreased 6.2%. ACCESS smartwatches performed well during the quarter but did not offset the decline in fashion watches.

We also saw strong results in eyewear. Gross margin was flat compared to last year at 58.2%.

During the fourth quarter of fiscal 2017, we conformed our elimination of certain intercompany costs in Greater China region with our consolidated methodology. As recorded, retail gross margins declined 20 basis points and decreased 190 basis points, excluding the impact of this adjustment.

As recorded, gross margin for our wholesale segment declined 280 basis points and decreased 60 basis points, excluding the impact of this adjustment. This adjustment did not impact consolidated gross margin or have a material impact on previously recorded retail or wholesale gross margins.

Total adjusted operating expense increased 710 basis points to 44.0% of total revenue. In addition to deleverage, the increase was primarily due to the inclusion of our business in Greater China as well as investments in new stores, e-commerce, omni-channel capabilities and infrastructure improvements.

Adjusted income from operations was $151.2 million or 14.2% as a percentage of total revenue, as compared to $255.0 million or 21.3% as a percentage of total revenue in the fourth quarter of fiscal 2016. In the fourth quarter, retail and wholesale operating margins were impacted by the aforementioned gross margin adjustment for Greater China.

Conforming the methodology did not impact consolidated operating income or have a material impact on the previously reported operating income by segment. Adjusted operating margin for our retail segment declined 650 basis points to 6.8%, which includes the positive impact of the gross margin adjustment.

Excluding this, operating margin declined 820 basis points to 5.1% as compared to 13.3% in the prior year period. This decrease was largely driven by continued investments in building our digital flagship platforms, retail store-related sales cost and deleverage, as well as the decrease in the gross margin I previously described.

Fourth quarter wholesale operating margin declined 510 basis points to 22.1%, which includes the negative impact of the gross margin adjustment. Excluding this, wholesale operating margin decreased 290 basis points to 24.3% versus 27.2% in the prior year period.

This was largely the result of the increase in operating expense as a percent of revenue. Licensing operating margin was 33.2% compared to 44.1% in the prior year period, largely as a result of deleverage.

Adjusted net income was $118.0 million or $0.73 per diluted share, this compares to an adjusted net income of $184.8 million or $1.02 per diluted share in the fourth quarter of fiscal 2016. We ended the fourth quarter with cash and cash equivalents of $227.7 million.

Inventory was relatively flat compared to last year despite increases from the inclusion of Greater China inventory of $51.8 million and the translation increase of $6.3 million caused by the increased euro on our European inventory. This compares to an 11.2% decrease in net sales or a decrease of 8.6% excluding prior year’s 53rd week of sales.

Given our reduced promotional activity, we are planning for slower inventory turns in the future. Due to the slower turns, we project that inventory will incur a similar increase in inventory relative to net sales for fiscal 2018.

Moving to capital allocation, we remain committed to returning value to shareholders. And during the quarter, we repurchased approximately 6.6 million shares totaling $250 million under our share repurchase program.

This completed our most recent $1 billion authorization and on May 25th, our Board of Directors approved a new $1 billion authorization. During fiscal 2017, we generated operating cash flow of approximately $1 billion.

Capital expenditures for the quarter totaled $17.1 million and were related to the build out of new retail shops as well as investments in our distribution facilities, our corporate offices, digital flagships, and other infrastructure improvements. During the quarter, we recorded a non-cash impairment charge of $193.8 million related to retail store and other long-lived assets in the fourth quarter.

The charge came primarily as a result of reduced revenue expectations for our store fleet based upon our review that overall traffic trends will remain under pressure as well as our decision to close between 100 and 125 stores over the next two years. We expect to record additional charges of approximately $100 million to $125 million of onetime costs related to the store closures over that time period.

We ultimately anticipate annual savings of approximately $16 million as a result of store closures and the lower depreciation and amortization associated with the impairment charge. In fiscal 2018, we expect to close between 20 and 40 full price stores.

The guidance we are providing today includes assumptions about the ongoing impact to revenue as well as to operating and D&A costs, but excludes any one-time costs associated with the store closures. For fiscal 2018, we expect revenue to be approximately $4.25 billion.

We expect to continue to tighten inventory control and reduce promotional activity in both the retail and wholesale channels. As a result, we anticipate that retail net sales will be roughly flat versus the prior year with comparable sales decreasing in the high single digits range.

We expect wholesale net sales to decline in the low teens range and licensing revenue to be approximately flat. We anticipate gross margin to be approximately 60.0% for the full year.

We expect gross margin improvement from the reduction in promotional days as well as favorable channel and geographic mix due to higher percent of revenue from the retail segment and growth in Asia. This will be somewhat offset by the growth of lower margin categories, including apparel and footwear.

For the full year, we expect operating expenses as a percent of total revenue to be approximately 44.0%, largely due to deleverage on lower sales volume. We expect D&A for the year to be between $210 million and $220 million which includes a $35 million reduction in D&A as a result of the impairment charges, partially offset by D&A that is beginning to roll in from capital projects that we undertook over the last several years.

These assumptions result in an operating margin of approximately 16.0%. We expect diluted earnings per share to be in the range of $3.57 to $3.67.

This assumes a tax rate of approximately 18% and 155 million weighted average shares outstanding. Capital expenditures are expected to be approximately $200 million.

And we will focus on renovating our retail store fleet, continuing to make investments in global digital strategies and omni-channel capabilities. We also plan to open approximately 50 new stores, primarily in the Asia region, as well as 77 shop-in-shops, most of which will be for our men’s business.

For the first quarter, we expect total revenue to be between $910 million and $930 million and a high single-digit decrease in comparable sales. Gross margin is expected to be approximately 60.5%.

We expect operating expense as a percentage of total revenue of approximately 47.5%, resulting in an operating margin of approximately 13.0%. We expect diluted earnings per share to be in the range of $0.60 to $0.64.

This assumes a tax rate of approximately 19% and 160 million weighted average shares outstanding. In conclusion, we were disappointed in our financial performance in fiscal 2017 and are taking action to improve our long-term performance.

We expect fiscal 2018 to be a year where we will reset our base and begin to execute on our strategic plan. Through these efforts, we expect to improve our financial performance and return the Company to long-term profitable growth.

I will now turn the call back to John for closing remarks.

Thank you, Joe. As I said earlier, Michael, our management team, and I are disappointed with our financial results in fiscal 2017, and we are committed to taking action to improve our performance.

As we implement our new strategic plan, runway 20-20, we will address key opportunities to excite and engage consumers. Clearly, fiscal 2018 will be a rebuilding year for us as we reset our baseline and lay the groundwork for our future success.

We will build on our strengths including our strong brand and history of fashion leadership, while accelerating the fashion innovation in our accessories assortments, growing our presence in key categories, rightsizing our store fleet and elevating the store experience. Through these efforts, we will deepen consumer desire and demand for our products and return our Company to growth.

With that, I will now open up the call to questions.

Thanks. Good morning.

[Audio gap] all the information and the update. Can you guys maybe elaborate a little bit further and just little bit more information about how you’re thinking about this transition year FY18?

And kind of in the context of where the brand and the business has come the last couple of years and where you expect it to go in the next few years, both brand and positioning, but also the footprint of the brand, retail, full price, outlets, wholesale. How should we think about kind of those evolving dynamics over the last couple of years and out next few years?

Thanks.

Thank you, Omar. Good morning.

I’ll answer the first piece of this, which is how do we look at fiscal 2018. As we said, our number one priority is to focus on really fashion innovation which we were inspired by what we saw happen in the fourth quarter and in the third quarter as well by certain elements of newness that we started bringing into our accessories collection, and also our women’s ready-to-wear collection, which as you noted -- as we noted in the prepared remarks, was very -- has been very strong for the Company.

So, we know that the consumer is still very engaged with our brand. And we know that when we deliver product that is exciting, compelling and innovative, she’s responding.

So, we’ve seen that in a number of areas inside the Company. So that’s going to be our number one focus.

I would say, the number two focus for us is really going to be our fleet optimization, both beginning the execution of closing the 100 to 125 stores and also the development of our fleet modernization. Again, we look forward on June 9th to being able to give a much greater picture of how that will roll out over the next few years and what will that mean for the Company’s growth.

But again, I want to just reiterate, we have an incredibly strong brand and the consumer continues to resonate with it. But we’ve had some product misses, and I want to be very clear and say to you that we are facing that as a significant and important challenge for us as we go forward.

And we’re going to do that all amongst the backdrop of reducing promotional activity, and next year is going to be significant. So that’s really why we’re anticipating that the comps will be down on the high single digit range, while that again is painful.

It’s the right thing to do for the brand and it’s the right thing to do to signal to the customer that we’re proud of the product that we’re selling and we don’t have put it on sale all the time to get her to purchase it. And again, as we said in the prepared remarks, 20% of our business in our lifestyle stores in the full price category came from products that weren’t on sale one day during the promotional periods, not one day, so Mercer, Brooklyn and ACCESS were all regular priced, and she bought it at regular price.

So, we know there’s an appetite for that. It’s going to take us a little bit of time to ease into do that.

And so, we’re excited to continue that journey. In terms of the footprint of our -- and again -- we believe in our retail fleet, we think it’s critical to our business.

It’s still going to be by far the majority of the Company’s revenues. And we think that the key to success there again revolves around product and it revolves around the store environment and creating excitement.

We hope that you all will get a chance to go out and visit Short Hills, New Jersey where we just opened up about a week and half ago, the new concept that is in Regent Street, if you haven’t been able to see it in Regent Street, you can now see it at Short Hills, New Jersey, and we have a number of stores coming behind that, and the initial results are absolutely outstanding. Now again, a few weeks doesn’t make whole year or multiple seasons, but we’re very pleased with what we see there.

So, what’s happened is there’s a number of stores in the fleet that are either going to -- either are now unprofitable or going to turn unprofitable, and that’s a result of declining revenues and because of declining traffic in certain of the malls. We wouldn’t call these the most high-profile locations.

So, we don’t think it’s going to do anything to the brand integrity by closing a number of these locations. And we know that it will increase the profitability of our fleet and also give us an opportunity to focus more time and energy on less stores.

In terms of the wholesale footprint, the doors have declined somewhat, and that’s either predominantly by some of the retailers closing stores or handful of locations that we’re finding unprofitable but there is no significant change on our part to reduce our exposure with our wholesale partners. We’re very proud to be in business with them.

They have been great partners with us. And now that we have in North America, a promotional policy that we think protects the integrity of our brand, we’re very comfortable with how our brand sits at retail and the way that the consumer is now seeing it presented to them, both in terms of presentation and in terms of the way that it’s handle from pricing integrity standpoint.

Thank you, Omar.

Thanks, John. See you next week.

Great. Thank you so much.

Good morning. John, I wanted to just ask about how you’re thinking about the ultimate complexion of your retail store fleet.

Are you looking to reduce your exposure in the outlet malls? Are you looking to reduce your exposure, let’s say in lower productivity B or maybe A minus malls?

As you think about sort of optimizing your store fleet over the next 1, 2, 3, 4 years, what would you like that fleet to look like? And in terms of the modernization, the store remodeling and updating program, I guess, the fleet modernization, are you looking to invest sort of equally in the facelift, if you will, on the stores across all of the remaining store fleet, or are you going to be distorting your investment in capital in just a select subset of those stores?

Thanks so much.

Thank you, Kimberly. Good morning.

Let me start with the store fleet completion. Today, of the company-owned stores, outlet is approximately 25% of our fleet.

Now, that will go up slightly as a percentage, because we’re going to close 100 to 125 stores. But, remember, we’re also going to open 50 stores this year in Asia and they’ll probably be equal that many the following year in the Asia region as we get to a more full distribution in that area.

So, it’s going to be in that 25% to 30% range in terms of store count. So, we still feel comfortable that that’s the right number for us and again keeping the integrity.

Because, again our primary focus as a company is to sell full price merchandise and present Michael Kors in the best and most appropriate exciting environment for our consumer. In terms of the store complexion, we’re going to look at the productivity and profitability of stores every single quarter.

And if we think that more of the fleet is heading in the direction that will be unprofitable, then we will deal with that, if that’s the case. We think we’ve taken a fairly long-term view of what this is, and I don’t want to promise you that we would never come out say that we will close more stores.

But we think this captures the general sense of the doors that have become, as I said, either unprofitable today or are moving in that direction. We still have a considerable amount of doors worldwide that are profitable, and we view that as our most-important efforts around returning those stores to a positive comp growth.

We know that’s not going to happen this year, but we have aspirations that we think that that will come, in particular led by the modernization, and obviously, some of the product innovation we’ve talked about. The 100-store renovation, even though we’ve said that will happen over 24 months, that could actually be accelerated, that’s just probably more on the outside than what our intentions are.

We intend on executing that as quickly as possible, and that’s just going to be a matter of working with the developers where we can get temporary locations because obviously we have to shut certain stores for a period of time, while we go through a complete renovation. So, there’s going to be a little bit of turmoil.

And as you know, those stores will typically be impacted during that period of time when we relocate them to temporary locations. So, but, our intention is do that quickly.

And if the results are positive, which I would say will probably take us about 12 months to report back to you, then our intent would be to, in particular, the full price stores, we would go and renovate, all the full price stores globally or the majority of them. And part of this is also natural.

Many of our stores now are approaching in some cases, over 10 years old that haven’t been touched in terms of renovation. So, this is kind of needed almost regardless.

The good news for us that we’ve held off until we found a concept that we thought was innovative, would create excitement for the consumers and also give us a unique position in terms of the marketplace. And we believe we’ve found that now, and we feel really good about making that investment.

So, that’s how we kind of look at the fleet and where we are going with it in the future. And I would lastly add that more of those renovations will happen in North America and to a lesser degree, in Europe and probably very few in Asia because most of the Asia fleet is brand-new, with the caveat that if we see significant lift, we would go back and look at that.

But the majority of those renovations will happen in North America and then probably next will be Europe. So, thank you very much.

Thanks. So, as we break down your negative high single digit global same-store sales for this year, I guess, what’s embedded for North America versus Europe; and are you expecting any improvement in the back half of the year or should we think about down high singles as run rate all year?

Matthew, we think that you should think about down high single digits run rate for the whole year.

Okay. And then, just North America versus Europe within that?

I would say, North America will do a little bit better than Europe, that’s our current forecast.

Got it. And then just one on the promotional strategy, John.

I guess, larger picture, what percentage of handbags overall are purchased at full price today from you guys? And prior to the strategic change, I guess what percent of bags went out the doors, say 30% off versus 50% off or more?

I’m just kind of curious about how you’re thinking about price laddering going forward versus what we’ve seen in the past.

Sure. Matthew, we don’t disclose the two pieces of information that you’re asking about, which is how much went out the door sales versus regular price et cetera and the purchase on that.

The way we think about price laddering is twofold. First, we do know is that our AUR has declined for two years consecutively.

So, we went for basically 12 years or more and our AUR never moved. I think you know that from all the years of listening to us discuss it.

And we really, after digging in and take a lot of digging in, but we understood that that was coming from promotional activity that we were either doing on our own or doing relative to matching competitors. So, we feel that we can elevate our AUR by 10%, and it probably won’t happen completely over this year, but that is our internal goal.

And we’re going to do that by reducing the amount of days that we have on sale. And by the way, we are not only doing that in our regular promotional policy that you’ve I think heard about which addresses what we called our full price sales but also even in our markdown sales in our lifestyle stores.

So, we are going to begin to reduce that cadence. You’ll see the reduction both online and inside the stores.

And we’ll move more of that product to our outlet stores to be cleared and to be handled through there. So that will help our AUR inside of our stores.

And the second part of price laddering is as we just said in our prepared remarks, 20% of our sales came from items that were not put on sale at all. So, there is a label that hangs on the product that indicates that that product is excluded from the sales.

And that really has had a tremendous impact on AUR. And we will introduce hopefully another new group into that range in spring season.

And we’ll also begin to ladder up price points inside of our stores as well. So, we’re very excited about two different strategies.

First, when we kind of reset the base, we had five groups out; we talked to you about that we were at 298 range. And we did specifically so that when we were on promotion less, she would walk in and find a great value for the product.

Now we’re going to really layer up our 350, our 400 and plus bags, so that -- because there is less footfall in the stores, we’ve got to be able to take the average transaction up. What we’re also excited about is we’re going to be a little bit more aggressive and we’ll talk too more about this at our Investor Day with our collection label.

We’re launching a new group called Bancroft for the fall season that -- and again, we’ve always sold collection bags in our stores but we’re going to actually take a more aggressive positioning around that part of our business, again Michael is a runway designer. We have tremendous engagement with our customers around his runway collections.

And we think that product offers us a unique opportunity to talk to the luxury and fashion customer. So, the second part of the laddering beyond the promotion is really dealt around product and the price points in that product and how we’re going to position that with the customer over the next 12 to 24 months.

Great. Thanks, good morning.

Just a couple of questions. I guess, first, John, for you on the commercial cadence you referenced.

I think you said in the fourth quarter you reduced promotional days 16 in your lifestyle stores. Is that the type of cadence that you guys are thinking about in 2018, fiscal 2018 within your lifestyle stores?

Erinn, thanks. First off, good morning.

I think you’re referencing that was in Europe, we referenced that number.

Okay.

Let me just -- I think there is an easier way for us to define it. We estimate that we will have approximately 40% less promotional days in our North American lifestyle retail stores this year versus last year in 2018, hence, the reason why we are anticipating the comp store sales to continue to decline.

So that will be both on our full price promotion and on when you see additional percentages off on markdowns. So, it’d be approximately in that range.

So that’s quite significant in terms of reduction in days and events that will be held inside the stores. And again, what the best part about it is, is on the footfall, we refer to as a full price promotions, those are cadenced, and they will happen at the same time coordinated as what’s happening in the wholesale channel, and I think you saw that executed in the fourth quarter.

And I think our partners did a terrific job of doing that. And again, as we’ve said in the prepared remarks, they also saw AUR increases.

So, I think the general feeling is that that strategy is working in terms of getting a better handle around presenting the brand to the end consumer.

Hi. Thanks a lot.

John, good morning. Regarding the product portfolio, how are you feeling about the opening price points?

It sounded like you can intensify at the premium side, but just curious about your thoughts on innovation there. And then, if you have thoughts on the category at large, as you think about in terms of what’s happening with handbags and how we can look forward to more excitement and innovation in the industry at large?

And then secondly, on the omni-channel question in regarding Amazon. Can you update us on your thoughts and your relationship with Amazon and how this intersects with your own omni-channel capabilities and if that interplays with your decision on the store fleet?

Thank you.

Sure. Thank you, Oliver and good morning.

So, in terms of the product portfolio, our view is, is that the global accessories market, handbags and small leather goods, is roughly flat. We think it’s down slightly in North America, we think it’s flattish in Europe, and we think it’s up slightly in Asia, and actually, probably picking up in Asia even from its past trends.

We see some good momentum there, not only from ourselves but some of our competitors. And as you know, in the Asia market, every call will have a different perspective on certain of the regions, given the political turmoil that’s happening there on any given day, whether it’s things that happen in Korea or Japan or in China and how that all kind of intersects.

I think, many of our competitors also talk about that. So, just understand that on the call, it may move around by region, but we think the region in total is quite healthy and actually growing.

I want to just give you that as an overall perspective. I want to talk about the watch business.

As you know, the fashion watch business continues to be under pressure. Although, we are pleased with what is happening with the wearable technology and how the consumer is responding to wearable technology.

Very clearly, Apple is the leader in that and we hope to be a very, very significant player in that and it’s really doing some really good things for our own retail stores, as well as our wholesale and specialty store partners around the world. And I have to take my hat off to Kosta and Fossil and everything that they’re doing there, they really are putting us in a leadership position.

And I also have to thank Google, because they’re doing just a tremendous job and really have a strong dedication to making this an important part of their ecosystem. So, but that being said, the fashion watch business continues to decline.

And as you know, the Swiss watch business is declining. So, we think that’s going to be continued headwind for us in the coming year.

Again, watches still remain a significant part of our business. And until that category starts to getting a little bit turned around, I think we have a concern.

And again, that’s also baked into our down high single-digit comp number. That all being said and we we’re going to talk to about this during Investor Day, we’re a lifestyle brand.

We’re not a company that has to become a lifestyle brand; we’ve been a lifestyle brand. So, we are going to put a lot more emphasis on our women’s ready-to-wear business, which -- we made a stance and said that we’re going to be one of the most important dress companies from a fashion standpoint.

And that’s paying off very, very nicely, both in our own stores and in our wholesale distribution as well. And we think, we can take that a lot of further than we’ve gone today.

We think that our footwear assortments look great. And again, it’s another leadership area for us.

So, we’ll be talking a little bit about rebalancing at our Investor Day and how, while we know we’re under pressure in some of these other categories, we’re going to have to kind of redirect some of our assets towards these other businesses. And we’re in them and we’re relatively good at them and we think we can get better.

As it relates to the laddering of product and innovation, look, Michael has been doing this for a long time and he certainly and the design teams are very capable of creating innovation and fashion leadership. We know, we’ve got a little bit behind and we’ve very clearly stated it and are saying that it’s a significant initiative inside the Company.

And unlike other companies, this is the man who took us to $4.5 billion and has been driving this Company and he still is deeply engaged and is leading our team with what we think are going to be incredible design concepts for the upcoming seasons. In our [audio gap] and marketing, and we’re going to use the power of that to help really launch and communicate those new products and innovations that we’re going to be moving forward with.

On your second question around Amazon, Amazon is an incredible company and obviously, probably the most successful online player in the world. We have a relationship with them in watches, and that’s all we intend on going forward with currently.

And again, they’ve been terrific partners and again, especially in the wearable technology area, they’re a dominant player. And our focus is going to be on our own e-commerce businesses.

And as you know, we’ve made significant investments. We’re up in 10 countries; we’re adding a lot more countries as we go forward towards the back half of the year.

And we’re going to really build out our CRM capabilities. So that will be our focus in terms of how we’ll communicate to our customer digitally, primarily through our own online channels.

So, thank you, Omar. We’re going to take one last question.

Hi. Good morning.

This is Bilun [ph] on for Brian. Thanks for taking our questions.

I guess, as you look at your guidance now versus the preliminary guidance you provided back in February, it looks like you’re now taking some sort of more of a conservative approach despite Q1 being largely in line. So, what are some of the few areas that now, even maybe the store closures that you particularly decided to be more prudent in over the last few months?

I couldn’t understand, I’m sorry, the last part of your question, what was that something about the guidance, last few months?

Yes. So, what are some of the few areas maybe you decided to be more conservative in both the margins and comps suggested for next year, looks like a bit more prudent than what we were talking about maybe back in February, despite -- yes, so generally what are few things that you would maybe point out?

So, I just want to remind everyone, there was no specific guidance provided in February, but that being said, we did indicate that we would have sales earnings increases in 2018, which now we are indicating is not going to be the case. So, as we said in both our prepared remarks and some of the comments that I mentioned, we really made the decision after studying our store fleets and what we’re going to do in terms of optimizing those presentations and profitability that we would take 2018 and kind of reset for us and the resets are clearly, first off closing unproductive, and unprofitable stores; secondly, to modernize our store fleet.

And as I said, we’re very happy about what we’ve seen happen in Regent Street; we’re also very happy, again only few weeks in but what we’re seeing happen in our Short Hills store. And so, we’re going to push forward renovating 100 stores as quickly as possible.

Hopefully, the majority of those will happen probably in the very back half of this year, by the time we can actually get to these stores, but we would like to get as many done as possible in this year. And then lastly, is really product innovation and pushing that forward much faster than we had.

So taking that into account along with the fact that we have decided to kind of even take a step further with our promotional stance and cadence inside of our lifestyle stores and reducing even on the percentage off markdowns that that will impact our comp stores. So, after you look at all of that together, that brought us to the conclusion that between closing stores, between reducing our comp store expectations that would lower our revenue expectations.

And unfortunately that creates deleverage and that would lower our earnings per share expectations and our operating income expectations. But we do believe that there is growth and opportunity that lies ahead for us.

And I look forward to speaking to each of you and seeing you during our Investor Day coming up on June 9th. On that, I’ll say thank you for joining us today on our conference call and look forward to seeing you shortly.

Thank you.

Thank you for joining us today.