Title

Presentation

Capri Holdings Limited beats earnings expectations. Reported EPS is $1.02, expectations were $0.94.

Operator: Greetings and welcome to the Capri Holdings Limited Fourth Quarter and Full Year Fiscal 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jennifer Davis, Vice President, Investor Relations for Capri Holdings Limited. Thank you. You may begin.

Jennifer Davis: Good morning, everyone, and thank you for joining us on Capri Holdings Limited fourth quarter and full year fiscal ’23 conference call. With me this morning are Chairman and Chief Executive Officer, John Idol; and Chief Financial and Chief Operating Officer, Tom Edwards. Before we begin, let me remind you that certain statements made on today’s call may constitute forward-looking statements which are subject to risks and uncertainties that could cause actual results to differ from those we expect. Those risks and uncertainties are described in today’s press release and in the company’s SEC filings, which are available on the company’s website. Investors should not assume that the statements made during this call will remain operative at a later time, and the company undertakes no obligation to update any information discussed on the call.

Unless otherwise noted, all financial information on today’s call will be presented on a non-GAAP basis. These non-GAAP measures exclude certain costs associated with COVID-19 related charges, long lived asset impairments, ERP implementation costs, Capri transformation costs, restructuring and other charges, charitable donations and the war in Ukraine. To view the corresponding GAAP measures and related reconciliation, please view the earnings release posted to our website earlier today at capriholdings.com. Additionally, as a reminder, last year’s fourth quarter and full year included an extra week in the fiscal calendar. Therefore, revenue growth rates for the fourth quarter and fiscal year ’23 will be discussed on a 52-week constant currency basis unless otherwise noted.

Now, I would like to turn the call over to Mr. John Idol, Chairman and Chief Executive Officer. John?

John Idol: Thank you, Jennifer, and good morning, everyone. Looking back on fiscal ’23, revenue increased high single digits and earnings per share increased mid-single digits. These results were measured on a 52-week constant currency basis. While this was not up to our original expectations., many aspects of our business performed well. First, revenue increased across all houses with double-digit growth at Versace and Jimmy Choo, as well as mid-single digit growth at Michael Kors. In fact, we achieved record revenue at Versace and Jimmy Choo in fiscal ’23. Second, we accelerated growth of accessories across all houses, with retail sales of women’s accessories increasing over 40% at Versace, over 20% at Jimmy Choo and low single digits at Michael Kors.

Third, we continued to grow footwear across all brands with retail sales of women’s footwear increasing low double-digits at Versace and Michael Kors as well as high single digits at Jimmy Choo. Fourth, we added 12.6 million new names to our database, representing an 18% increase in our total database size. This is the largest year-over-year increase in the company’s history. Combined with the growth in our own retail channel, we believe this continues to demonstrate the strength and desirability of our luxury houses. Fifth, we returned $1.35 billion to shareholders through share repurchases, reflecting our strong balance sheet and free cash flow generation. These results demonstrate the power of our business model, the strength of our luxury houses, and the execution of our strategic initiatives.

Now I’d like to update you with the progress we made by brand in fiscal ’23. Starting with Versace, in fiscal ’23, we achieved record revenue of over $1.1 billion, demonstrating the momentum of the brand and the success of our strategic growth initiatives. Versace revenue in fiscal ’23 increased 14% in constant currency. Looking at product, starting with accessories, which are a key component of our growth strategy. Women’s accessories was Versace’s strongest performing category, with fiscal ’23 sales in our retail channel up over 40% versus prior year. With our pillars La Medusa, Virtus and Greca Goddess, we are making significant progress in our goal to position Versace as a leading luxury leather house. Turning to footwear, which is another component of our growth strategy.

Footwear performed well as we continued to build our core offering focused on our iconic brand codes. In fiscal ’23, women’s footwear sales in our own retail channel increased double-digits as we continued to gain authority in women’s luxury fashion footwear. In terms of ready-to-wear women’s performed well with sales in our own retail channels increasing double-digits. Looking at men’s ready-to-wear, we are in the early stages of repositioning the brand. We are elevating the assortment to include more tailored styles to capitalize on the sartorial fashion trend. As expected, sales declined in the back half of the year, which resulted in flat men’s ready-to-wear sales in fiscal ’23. Another key indicator of demand for the Versace brand is the strength of our fragrance, eyewear and jewellery businesses, which increased strong double-digits.

Moving to brand awareness and consumer engagement. Versace’s Fall-Winter 2023 show was held in Los Angeles to kick off the Oscars weekend with a collection inspired by the energy, glamour and power of Hollywood. This collection marked the full repositioning of Versace’s women’s ready-to-wear. The show was widely attended by Friends of the House, including Anne Hathaway, Dua Lipa, Chris Lee, Miley Cyrus, Lil Nas X, Channing Tatum and Elton John, among others. The fashion show generated over 400 million impressions, as well as a 60% increase in social media engagements relative to the spring ’23 show. The energy and excitement around the fashion show helped contribute to an approximate 40% year-over-year increase in Versace’s global database.

Overall, we made significant progress executing our strategic initiatives in fiscal ’23. We remain steadfast and clear in our efforts to position Versace as a leading global luxury brand with a focus on leather goods. Turning to Jimmy Choo. In fiscal ’23, we achieved record revenue of $633 million as we continue to execute on our strategic initiatives to expand our accessories, revenue and capitalize on our glamorous footwear opportunities. Revenue in fiscal ’23 increased 13% on a 52-week constant currency basis. Looking at product, starting with accessories, which is a key component of our growth strategy. We are successfully expanding our collection as we develop and invest in timeless iconic styles. At the same time, we are driving newness and excitement with novelty and fashion updates.

Sales of our Avenue and Bon Bon families increased strong double-digits in fiscal ’23. As a result, women’s accessories was Jimmy Choo’s strongest performing category with fiscal ’23 sales in our retail channel up over 20% versus prior year. Turning to footwear. In fiscal ’23, footwear sales were driven primarily by growth in occasion footwear. This category performed well as people continued to embrace social activities and enjoy special events. Sneakers also performed well, driven by our new Diamond Maxi. Beyond our core categories. We saw growth in fragrance, eyewear and jewelry, which reinforced our luxury lifestyle positioning. Now turning to brand awareness and consumer engagement. During the fourth quarter, Jimmy Choo launched a successful capsule collection in celebration of the 30th anniversary of the Japanese animated series Sailor Moon.

The collaboration included accessories and footwear. Sell through rates of over 90% were achieved. Additionally, the collaboration generated strong engagement across social media, including approximately 80 million impressions and helped contribute to a 17% year-over-year increase in Jimmy Choo’s Global Consumer Database. Overall, we are pleased with the progress at Jimmy Choo as we continue to execute on our strategic initiatives. Now turning to Michael Kors. Revenue of $3.9 billion increased 4% on a 52-week constant currency basis. We were pleased with the continued growth in our own retail channel with full year sales up mid-single digits. However, total revenue was below our original expectation, driven by double-digit declines in wholesale in the back half of fiscal ’23.

Turning to product. In accessories, fiscal ’23 sales in our retail channel increased low single digits globally. Consumers responded positively to our core iconic collections featuring Michael Kors Signature and Hardware. With our Signature and Hardware strategy, we continue to create desire as our iconic Michael Kors branding resonated with consumers. Signature continues to represent over 50% of accessory sales in fiscal ’23. Looking at Footwear, we continue to believe we can significantly expand Michael Kors footwear to drive incremental revenue. Footwear sales and our retail channel increased double-digits as we delivered exciting fashion, featuring iconic Hardware, branding elements and Signature detailing. Turning to Men’s. Men’s was the strongest performing category in our retail channel in fiscal ’23, with sales increasing strong double-digits.

We remain enthusiastic about our opportunity to significantly grow our accessories collection as we diversify the offering. In terms of licensing, revenue declined low double-digits. This was driven by a decline in watches as well as a significant decline in fragrance due to the transition to our new license EuroItalia. Now turning to brand awareness and consumer engagement. During the quarter, we focused on reigniting the Jet Set storytelling of Michael Kors in China with an impressive two-day brand experience in Sanya. This resort destination on the island of Hainan was the perfect backdrop for over 100 friends of the brand to experience the full world of Michael Kors. Guests included Michael Kors newest global Brand Ambassador Shu Qi, China Brand Ambassador Feifei Wang and Bai Lu, as well as top celebrities, performers, influencers and the press.

The event generated over 4 billion impressions across celebrity, social media and the press. We intend to execute more brand activations in China. Now that the country has reopened. During New York Fashion Week, Michael Kors was once again the most engaged fashion brand on social media. The show, which took place in the West Village, celebrated the timeless glamour and Bohemia of New York in the 1970s. Attendees included Kate Hudson, Lea Michele, Katie Holmes and Ellen Pompeo. The show generated over 25 million live stream views. Our marketing initiatives helped contribute to a 17% year-over-year increase in Michael Kors’ global database, demonstrating the continued strength and desirability of the brand. Overall, we were pleased with the growth in our own retail channel in fiscal ’23 as consumers responded to our Jet Set positioning and elevation strategy.

Now turning to Capri’s outlook for fiscal ’24. With Versace, Jimmy Choo and Michael Kors, we have three incredibly powerful brands to drive growth. We recognize there are near-term uncertainties in the Americas. However, we are encouraged by the strong trends in Asia and continued growth in EMEA. For the full year, we anticipate revenue will increase low single digits and EPS will increase mid-single digits. In fiscal ’24 and beyond, we will continue to drive growth as we execute on our strategic initiatives. Across all of our luxury houses, we are focused on continuing to grow our e-commerce channel as well as increasing store productivity through clienteling, store renovations and product expansion opportunities. We intend to grow and leverage our databases.

Our data analytics capabilities will help us foster deeper connections with our consumers. Furthermore, we will utilize this data to empower our sales associates with more impactful clienteling opportunities. Now looking at some of our brand specific initiatives. At Versace, we will capitalize on our powerful brand awareness and engagement to influence consumer desire. We have made significant progress in our ambition to position Versace as a leading luxury leather house. Women’s accessories is one of our fastest growing categories as we continue to gain authority and expand our platforms. Additionally, Versace has tremendous growth potential in Asia as it remains significantly under-penetrated relative to our luxury peers. We remain confident that we have the right strategies in place to grow Versace to at least $2 billion in revenue over time.

Turning to Jimmy Choo. We will continue to drive brand heat through our emphasis on glamour. We remain optimistic about our ability to significantly grow accessories revenue as we gain authority in the category. Additionally, we have a meaningful opportunity to increase our casual footwear business. With the growth potential of these two categories as well as continued growth in our core occasion footwear business. We remain confident in Jimmy Choo’s ability to achieve $1 billion in revenue over time. Finally turning to Michael Kors by reinforcing our iconic Jet Set brand codes, we see meaningful growth opportunity. First, we will continue to grow our core accessories where consumers turn to us as a fashion authority. Second, footwear remains an important driver of future growth, especially as we renovate stores and allocate more space to the category.

Third, we have a significant opportunity to grow Men’s, particularly given our authority in the accessories category. And fourth, Michael Kors’ largest growth opportunity will come from Asia, where we are significantly under-penetrated relative to our luxury peers. We remain optimistic that with these opportunities we will grow Michael Kors’ revenue to $5 billion over time. In closing, our three powerful iconic brands have enduring value and strong brand equity, giving us confidence in our ability to deliver sustainable revenue and earnings growth over time. Now, let me turn the call over to Tom, who will review our fourth quarter results and guidance in more detail.

Tom Edwards: Thank you, John, and good morning, everyone. Starting with fourth quarter results, revenue of $1.3 billion decreased 3% on a 52-week constant currency basis slightly ahead of our expectations. Net income was $121 million, resulting in diluted earnings per share of $0.97. This was also slightly above our expectations, reflecting better than anticipated revenue and operating margin, partially offset by higher than expected interest expense and taxes. Now turning to fourth quarter results in more detail. Revenue growth rates will be shared on a 52-week constant currency basis unless otherwise stated. Starting with revenue by channel. Total company retail sales increased low single digits. These results were driven by growth in both e-commerce and store sales.

We saw continued growth in e-commerce driven by our large and growing database and data analytics capabilities. In the wholesale channel, revenue declined double-digits impacted by lower POS sales in the Americas as well as lapping strong sell-ins in the prior year, as our partners began to build back their inventory positions. Turning to revenue performance by geography. In the Americas, revenue decreased 10%. Retail sales declined low single digits as we saw consumer spending soften across all brands. In wholesale, revenue declined double-digits. In EMEA revenue increased 6% as all houses benefited from continued strong consumer demand. And in Asia, revenue increased 7%, primarily reflecting improving trends in China. Looking at revenue performance by brand.

At Versace, revenue decreased 9% compared to prior year. As anticipated, global retail sales increased in the low single digits, but were offset by declines in wholesale. By geography, total Versace revenue in the Americas decreased double-digits, driven by significant declines in wholesale. Revenue in EMEA increased low single digits, reflecting growth in our own retail channel. Revenue in Asia increased in the mid-single digits, primarily driven by improving trends in China. For Jimmy Choo, revenue increased 6% compared to prior year. Global retail sales increased low single digits. By geography, total revenue in the Americas decreased slightly. Revenue in EMEA, increased in the low 20% range. Revenue in Asia decreased in the mid-single digits, a sequential improvement relative to prior quarter driven by the reopening of China.

At Michael Kors, revenue decreased 2% compared to prior year. Global retail sales increased low single digits, offset by double-digit declines in wholesale. By geography, sales in the Americas decreased high single digits. Retail sales declined low single digits, while wholesale revenue declined double-digits. Revenue in EMEA increased low single digits. Revenue in Asia increased in the mid-teens, primarily reflecting improving trends in China. Now looking at total company margin performance. Gross margin expanded 90 basis points to 64.6% with expansion across all three of our houses. This improvement primarily reflects moderating inbound transportation costs, price increases and channel mix. Operating expense as a percent of revenue was 55.6% compared to 49.5% last year, reflecting expense deleverage driven by lower wholesale sales.

Total company operating margin was 9.1% compared to 14.2% last year, driven by operating expense deleverage. At Versace, operating margin of 5.1% compared to 15.9% last year. This was below our expectations, primarily reflecting expense deleverage on lower than anticipated wholesale revenue. At Jimmy Choo, operating margin of negative 4.6% compared to negative 9.6% last year. This was ahead of our expectations, driven by leverage on higher than anticipated revenue. And in Michael Kors, operating margin of 16.2% compared to 20.6% last year. The decline reflects expense deleverage on lower wholesale revenue. Our tax rate for the quarter was negative 16.2% compared to last year’s rate of positive 28.3%, primarily reflecting the resolution of uncertain foreign tax positions as well as mix of earnings in lower tax jurisdictions.

Now turning to our balance sheet. We ended the quarter with cash of $249 million and debt of $1.83 billion, resulting in net debt of $1.58 billion. We repurchased approximately $400 million worth of shares in the fourth quarter and $1.35 billion worth for the fiscal year, demonstrating our strong balance sheet and free cash flow generation. Capital expenditures for the year were $226 million and were primarily spent on new store development, renovations, IT and e-commerce enhancements. Looking at inventory, we ended the quarter with $1.06 billion, a 4% decline versus prior year. Now turning to guidance where I will discuss revenue growth rates on a reported basis unless otherwise stated. We expect total company fiscal ’24 revenue of approximately $5.7 billion.

This outlook includes stronger than previously anticipated trends from the reopening of China, as well as slower consumer trends in the Americas. Additionally, it reflects the recent strengthening of the US dollar. By brand, we expect Versace revenue of approximately $1.2 billion, increasing approximately 8% over fiscal ’23. Jimmy Choo revenue of approximately $700 million increasing approximately 11% and Michael Kors revenue of approximately $3.8 billion decreasing approximately 2%. For the year, we anticipate modest growth margin expansion driven by regional mix, channel mix and lower freight. We continue to expect a full year operating margin of approximately 16.5%. By brand, we anticipate Versace operating margin in the mid-teens range.

Jimmy Choo operating margin in the high single digit range and Michael Kors operating margin in the low 20% range. Turning to our expectations around certain non-operating items. We expect net interest expense of approximately $20 million and an effective tax rate of approximately 15%. We anticipated weighted average shares outstanding of 122 million. As a result, we continue to expect to generate diluted earnings per share of approximately $6.40. Turning to capital expenditures, we anticipate spending approximately $260 million, which includes store openings and remodels as well as IT expenditures, including investments in our digital platforms. In terms of our capital allocation plans for fiscal ’24, given the macro environment and higher interest rates, we believe it is prudent to reintroduce debt repayment in conjunction with share repurchases.

Now, I would like to take a moment to provide some perspective around the cadence of revenue and earnings between the first and second half of the year. We expect first half revenue to decline in the mid-single digit range. In our own retail channel, we anticipate a low single digit increase in revenue. This reflects strong double-digit trends in Asia and continued growth in EMEA partially offset by softer trends in the Americas. In wholesale, we expect sales down double digits, given declines at POS in addition to lapping strong sell-ins the prior year as our partners built back their inventory positions. In the second half of the year, we anticipate revenue will increase high single digits. In our own retail channel, we expect sales to increase low double-digits, but high single digits on a constant currency basis, driven by strong trends in Asia as well as modest growth in the rest of the world.

In wholesale, we anticipate trends to normalize as we anniversary the significant declines in the second half of fiscal ’23. And as we begin to benefit from increasing staffing levels in American department stores. Relative to prior year, this revenue cadence will result in lower margins in the first half of fiscal ’24 due to deleverage. In the back half of the year, we expect margin expansion. This will be driven by expense leverage on higher sales as well as the expense reduction initiatives we have implemented. We anticipate first half operating margin of approximately 13% and second half operating margin of approximately 19.5%. Now, turning to first quarter guidance. We expect total company revenue of approximately $1.2 billion. This represents an approximate 12% decrease versus prior year, which we expect to be the largest year-over-year decline in quarterly revenue for fiscal ’24.

In our own retail channel, we anticipate revenue will decline mid-single digits. While we are seeing strong trends in Asia and continued growth in EMEA, we anticipate revenue will decrease in the Americas given the challenging consumer environment. Additionally, as anticipated in the first quarter, we expect to see the largest year –over-year decline in the wholesale channel with revenue down approximately 30%. We expect first quarter wholesale performance to be the weakest year-over-year, given declines at POS sales in the Americas, as well as lapping strong sell-ins the prior year as our partners built back their inventory positions. For first quarter revenue by brand, we forecast Versace revenue of approximately $245 million, decreasing approximately 11%.

We expect a decline in sales as we are lapping the incredibly successful Spring ’22 Fendace collaboration in both the retail and wholesale channels. Additionally, in wholesale, we anticipate sales will decline as our partners are taking a more cautious approach to planning the business due to the uncertain macroeconomic environment. We anticipate Jimmy Choo revenue of approximately $180 million, increasing approximately 5%, driven primarily by retail and Michael Kors revenue of approximately $775 million decreasing approximately 15%. We expect sales in our own retail channel will decline modestly, reflecting the challenging consumer environment in the Americas, partially offset by strong trends in Asia and continued growth in EMEA. In wholesale, we anticipate significant declines.

Looking at operating margin, as anticipated, we expect first quarter operating margin will be approximately 8.5% compared to prior year of 18.5%. The majority of this decline reflects the significant deleverage on lower wholesale revenue. In addition, it also includes higher investments, primarily in marketing, which will normalize in future quarters. In terms of operating margin by brand, we anticipate Versace operating margin of approximately breakeven. The majority of this decline reflects significant deleverage on lower revenue, including the significant decline in wholesale. In addition, it also reflects 20 million higher marketing investments year-over-year to support the full repositioning of the women’s collection. This includes the Fall-Winter Fashion show in Los Angeles, The La Vacanza Show last week in Cannes and the new campaign featuring Anne Hathaway and Chris Lee.

We anticipate marketing investments will normalize in future quarters. We anticipate Jimmy Choo operating margin in the high single digits and Michael Kors operating margin in the mid-teens, primarily reflecting expense deleverage on lower wholesale sales. Turning to our expectations around certain non-operating items. We forecast net interest expense of approximately 4 million and effective tax rate of approximately 15% and weighted average shares outstanding of 120 million. As a result, we expect diluted earnings per share of approximately $0.70. In conclusion, looking back on fiscal ’23, Capri generated high single digit revenue growth and mid-single digit earnings per share growth on a 52-week constant currency basis. Well, this was not up to our original expectations.

We were still able to deliver strong operating margins of 16.2% and return 1.35 billion to shareholders. This is a testament to the power of our diversified business model. We remain confident in our ability to achieve our long-term goals over time due to the resilience of the luxury industry, the strength of our three powerful iconic brands and the talented group of employees executing our strategic initiatives. Now, we will open up the line for questions.

Operator: Thank you. At this time, we’ll be conducting a question-and-answer session. Our first question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.

Matthew Boss: Great. Thanks. Good morning, John. So maybe could you elaborate on the near-term uncertainties you cited in the Americas? Any notable differences that you’re seeing across distribution channels today and then as we look to FY’24, to me, the big question is just the visibility that you have today or what gives you confidence in the retail channel improvement that you’re embedding in the guide beyond the first quarter?

John Idol: Good morning, Matt. So in terms of, first, I’d like to say, I think we are, I’m proud of our results for last year with high single-digit revenue growth, mid-single-digit earnings per share growth on a 52-week constant currency basis, while we definitely saw a negative inflection in the back half of the year for the wholesale portion of our business. I think we’re very pleased with what happened at Versace record results for that brand, record results for Jimmy Choo. I’ve mentioned before Jimmy Choo has grown every year, but it’s been basically in existence with the exception of the COVID period. And while Michael Kors saw the largest impact to the wholesale in the group, we still on a 52-week constant currency basis group.

So I think and when you look at the overall operating margin of the company at 16%, I think there’s a lot of positive things to Capri in addition to the $1.35 billion that we returned to shareholders. So I think the business model is sound. I think the three brands are in very, very good position to grow moving forward. So as it relates to what we see around the world, as we said in both mine and Tom’s prepared remarks, Asia has been going very, very well for the company. And now in particular, China, with the reopening, we see a lot of strength there and quite frankly are doing a little bit better than we had even anticipated, which is a good sign. We’re also able to get back in with all three of the luxury houses and start to really animate our brands with events.

We talked about the Sanya event with Michael Kors very successful. We talked about the Sailor Moon which was much more targeted to Asia, very successful in both China and Japan. And then with Versace, we’ve really been able to do more individual animations and I think you can look forward to some pretty significant animations that will be coming in fiscal ’24. So we feel good about what we’re going to be able to do there. And as we’ve mentioned many times, we are significantly underpenetrated to our competition on both the luxury and more accessible luxury levels. And we think that we’re going to be ready to really move the needle there in the upcoming few years. And then in EMEA, we’re very pleased with what we see happening there across all threee of the houses.

The business is very steady and growing and we see the consumer traveling inside of Europe. There obviously has been some travel by Americans and Middle Eastern and India coming into the country or into Europe, which has been a positive for us. So we are seeing tourist travel. We’re yet to see the Asian tourists really return to that market. But we do think that, that will come probably more significantly in calendar ’24 than this year, we might see some return in the back half of the year. So we see two very positive markets for us on a global basis. And then when we look at the Americas, we definitely saw a sequential decline in North America. We saw it first in the North American department stores and it wasn’t just the Michael Kors piece of the business.

We saw it on the luxury side as well with Versace and Jimmy Choo. And we saw that accelerate in the first calendar quarter of this year. And I think you’ve heard that from the many people who have spoken publicly about the performance. And really, we see that as a situation that’s got two pieces to it. Number one, at this time last year, many of the stores were not stocked still properly in particular on the Michael Kors side, where we were not able to get our inventory levels up to where they needed to be. So we were up against shipping quite a bit of merchandise at wholesale. And in Versace, in particular, we were up against the very large shipments and beginning of a big success which really happened in our first quarter with Fendace. So there are some things that are kind of going on in there in the noise.

But I think we’re feeling is that the consumer who was feeling very good about their financial situation in calendar 2022 has been more conservative in the beginning of calendar ’23. We are starting to see some movement with spring merchandise and some of the summer deliveries. We see the consumer getting a little bit more confident. I don’t want to say there’s a step change of any significance. But we see them responding definitely to newness that’s being delivered inside the stores and that’s across all three of the houses. So what we’re looking at in North America is two things. Number one, we think that business will remain soft probably through the majority of the summertime. When I say soft, sort of flattish, down a couple of points, up a couple of points, depending on where we are in the group.

And then I think that we’re up against softer comparables in the back half of the year. While we still think North America will have some just minor increases. We think that Europe and Asia will continue to move forward in a very positive manner. So that’s what gives us our comfort level around the back half in terms of our own retail channels. I also want to say that when you look at, I’ll start with Versace, we’re really excited about what happened with our Los Angeles show I hope you all were able to see it. That was, I think, marked the full repositioning of the women’s collection. As you know, we’ve been really working very hard on the accessories and the footwear part of the collection. That was the repositioning of the women’s ready-to-wear and we already know we can see because we get pre-orders from many of our high net worth clientele.

We’ve also been attracting a very large new clientele base based upon that show to the brand. We also are seeing the same thing happening coming off of the highly successful show that we just had in our collaboration with Dua Lipa in Cannes. So I feel very good about what’s happening with Versace in particular, in the back half of the year and also some of the new accessories introductions. Jimmy Choo has been moving along very solidly. Very pleased with what we see happening there, obviously, particularly in the accessories area, where that was a goal for us to really get set. We think that’s going to continue to have an impact for us globally. And then lastly, with Michael Kors, I think, we feel good about the fact that we have reinvigorated our positioning around Jet Set which is resonating with the customer.

You look at a 17% growth in our database. That’s quite an extraordinary number to be adding. And what we do see, Matt, is we see ourselves lapping in the back half of next year, where we saw the significant declines. I think we better understand the declines now that happened in the department store arena. I would say they would be based upon the following. Number one, we told you we did not have enough sales associates at the point of sale that will be ramped up significantly for the fall season. So we feel good about that and we can see inflections in stores where we do have those sales associates already happening. Secondly, I do think that our elevation strategy, as you know, has worked extremely well in our own stores. And I think that the consumer who was in the department stores probably didn’t accept as much of the price increases that we took.

We see that. And we are staying with our elevation strategy. We’re not going to move away from that. We are going to broaden some of the offerings within that to be able to maybe better balance that with inside the department stores. You’ll see that coming for the fall season. So I think we feel good about that. And the other thing I want to point out is in Michael Kors brand in both our Q3 and this, I’m sorry, Q4 of this year, we have reduced our full price, what you see as the Kors Event by 33%. So that had a significant impact on our revenues. We told you before we were going to be less promotional. We told you we would give up volume if that meant for the health of the brand. We did that. We are giving up some volume by elevating the brand and by becoming less promotional.

We’re going to stay with that strategy. And the last thing I’ll just note that we’ll open our two new prototype stores for Michael Kors, one in Miami and one in Vancouver that will open in the next probably 60 days. If we like what we see initially, which we think we will, we are going to go on a very significant store remodeling program for the Michael Kors brand on a global basis. So all the things that we started out saying we were going to do before COVID and also the things that we are executing against that we feel good about, we think are going to have impact. So that gives us I’m sorry for the long explanation, but there’s a lot in there that will give you the reason why we feel comfortable with the forecast that we’ve put together.

And let me turn it over to Tom now.

Tom Edwards: And Matt just one additional point here on the second half for FY’24 visibility. As I mentioned in the prepared remarks, we expect retail to be up high single digits on a constant currency basis. It’s really driven by significant strong double-digit growth in China, where we’re already seeing the results and great momentum Europe will remain positive, which it’s already doing now and the Americas turns to moderate growth. And those are really the components there and John provided all the context, but I wanted to give that in the context of what’s really driving it.

John Idol: And I want to again remind everyone the first two quarters are where we’re going to see the significant wholesale declines and that’s what we said was going to happen and that’s what you see in the Q1 forecast. That’s really the greatest impact to our profitability is really around the wholesale declines across the group as the North American department stores really reset their inventory levels. And we know that’s the right thing to do for us so that we don’t end up, once again, we don’t want too much inventory sitting for markdowns. We want to protect brand health and we think we’re doing the right things in order to set ourselves up for that success. Thank you, Matt.

Operator: Thank you. Our next question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question.

Ike Boruchow: Hey, good morning, everyone. A couple of questions on the outlook. I guess, John, looking at the Kors outlook, so you cut $100 million off of that and Versace $50 million. I guess just for Kors specifically, is that incremental pressure in wholesale that you’re adding on to that? Or is that some potential weakness at retail versus the outlook at three months ago? And then with Versace is that US consumer weakness at the high end that is leading to that slight revision down and then maybe, Tom, on the gross margin helpful for the year. Just kind of curious the shape, maybe first half, back half, it seems to me like the gross is actually might be front-half weighted in terms of expansion just based on the channel mix. But with wholesale down so much, but I just kind of wanted to get a little bit more clarity there? Thank you.

Tom Edwards: Sure. I can start. Regarding the change in guidance for revenue for Kors and I’ll talk about it in general first for $100 million from $5.8 billion to $5.7 billion, good, the majority of that was driven by a change in FX. So the dollar strengthened versus our prior forecast and we adjusted that. The other piece reflects the trends in North America that we were seeing. So those pieces flow through to Michael Kors and also to Versace. We’re seeing great strength in Jimmy Choo and very pleased with that performance. For gross margin for the year, we expect expansion in gross margin in both first half and second half. There’s slightly different drivers in it. And in the first half, it’s going to mirror what we saw in Q4 where we have transportation, inbound freight, channel mix helping and we’ll see that continue into the first half as well as a region mix.

And then in the second half, transportation will begin to tail off, but the region, with China growing even stronger, we’ll continue to drive results as well as the strategic initiatives that John mentioned across all of our houses, which is underlying our margin growth over the past several years that will continue and drive gross margin in the back half of the year. So again, we expect margin expansion for the year and expected in both halves.

John Idol: And let me just address one other thing too with Versace. Versace is going to return to growth basically every quarter after this upcoming first quarter. And so we have a couple of things happening. Number one, we have this huge anniversary that we’re going up against of the Fendace, which was massively successful. We could not anniversary that. That was impossible thing for us to do. And it happened very, very rapidly. It happened almost in a six-week period of time and quite frankly, if you back out the success of that, we’re actually slightly up in Q1. So we just have to live through that and get beyond that. The second thing that is happening and I mentioned it in my prepared remarks and I think I mentioned it on the call before.

When we started this journey with Versace, first thing we had to do fix and clean up the stores. We did that. Second thing we had to do was clean up, we cut $150 million of product that was being sold at very low prices and under different labels we got rid of that. Third thing we had to do was to get the accessories business going, which as we talked about. It’s been hugely successful for the company. And as you recall, this company went from not even being fairly profitable to very reasonable operating margins, which we are holding at a certain level because we’re investing. Third, the fourth thing we did was to get the women’s footwear going, which happened much faster than we could have even have imagined and we’re very pleased with that.

Now we’re on to fixing the women’s ready-to-wear, which we think we’ve got a pretty good handle on that and I hope you will see that when you see the product arriving in the stores for fall. And some of it’s happening right now with buy wear show-now buy-now collection of Dua Lipa. The last piece is we have to fix the Men’s business. Men’s for Versace is still 50% of the company, 50. So it weighs quite heavily on our total revenues. We’re going to drive that number down purposely to probably 40% and Women’s will rise, which we think will be better for our margins, in particular, women’s accessories. But as a part of that, we have really vacated a lot of classifications in the business, not completely, but we’ve scaled back things like T-shirts, things like pool slides, things like sneakers, where those were businesses that were wonderful to have, but they were not really going to drive a luxury customer perception.

So if you go in the stores today, there’s much more sectorial tailoring. There is much more product that is — that addresses evening, that addresses work that addresses certain day opportunities and so that is — when you look at the primary declines in Versace versus the gains in North America, it’s Men’s, that’s doing that. And I have to say we’re the ones who are really pushing that to be the case. So I please encourage you to go in the stores. You’ll see that change that is happening and happened. And that’s what we want to do. We want to make sure that the sophistication level of women’s and men’s matches each other inside the stores and we believe that’s the right thing to do. It also happens to be what fashion trend is right now, but that’s where historically Versace was and that’s where we wanted to get.

That’s where we want it to get back to. Thank you, Ike.

Ike Boruchow: Thank you.

Operator: Thank you. Our next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

Brooke Roach: Good morning and thank you for taking our question. I was hoping you could talk to your efforts to align the cost structure of the business to the current level of demand that you’re seeing. What actions are you taking to improve your margins? And can you provide an update on your thoughts to return Capri to an 18% or greater operating profit margin over time? Thank you.

Tom Edwards: Sure, Brooke. I’d be happy to do that. So for this year, given the large change in wholesale, and we noted this in prior quarters, but we’ve worked through a number of initiatives to reduce our cost structure and recalibrate the rate of spending on initiatives. We are looking at back-office type activities as well as corporate overhead and focusing on non-revenue driving expenses, projects, initiatives while continuing to invest in marketing and in e-commerce and those initiatives like the replatforming of our e-commerce systems that will help us drive revenue and expand margins in the future. As we look ahead to getting to 18% and we’ve ultimately given a long-term goal of 20% operating margin, that will really come with, as we noted in this year, gross profit expansion, but mostly of leverage.

And the leverage on the SG&A will be driven, first and foremost, by increased store sales densities and then leverage on our corporate activities. Within that, we’re going to continue to spend on marketing, and we’ve increased it in fiscal ’23 significantly as a percent of revenue and as a total. And we’ve also built in an increase in fiscal ’24 as that’s going to be key to driving our long-term revenue and margin expansion via that leverage.

John Idol: Thank you, Brooke.

Operator: Thank you. Our next question comes from the line Rick Patel with Raymond James. Please proceed with your question.

Rick Patel: Thank you and good morning, everyone. Can you provide some additional color on what you’re seeing at wholesale in terms of sell-in versus sell-through. We’re trying to better understand what guidance reflects in terms of evolving market conditions versus Capri pulling back intentionally to protect its brands. Also, you touched on wholesale normalizing in the back half. Perhaps some additional color here on the direction of revenue growth and which brands we should see the most improvement?

John Idol: Thank you, Rick, and good morning. Rick, I think we have always been a company that really looks at our, I think, you’re, in particular, referring to wholesale, our sell-in versus sell-through. I think we did a great job managing our inventories all the way through COVID and then coming out of COVID and I think we told you that we would sequentially reduce our inventories across the company and I think we did that. And you saw that in our inventory reduction this year at the end of the year. So I think we feel good about our inventory positions that we own in our own retail stores as well as the inventory we own that will be available to ship to our wholesale partners. We monitor it weekly. And so we’re really in lockstep with our partners on how that product ends up in the stores.

Again, you’ll see wholesale will decline much more significantly than what’s happening at POS because again we’re up against last year. We were restocking the stores at this point in time when they were, quite frankly, below targeted inventory levels. So I think we feel good about that. And as I said, we’re seeing some green shoots on some of the new products that we’ve delivered really across the group. When I look at some of the new Jimmy Choo Totes that just got delivered that you see in canvas and in straw performing extremely well. I’m very proud of everything that, that team is doing. The JC logo on the bags are kind of a very, very strong driver for us. I hope you saw the new campaign with Giselle. We were one of the first companies to really work with Giselle since she’s come back to the fashion industry.

And so we’ve got, I think, the right marketing around Glamor. We’ve got the right products around signature and logo happening there, and we’re seeing the results. At Versace, as I said, we’re very pleased with what’s happening with our accessories, both in wholesale and in our own retail channels and the women’s business has been strong as well. The men’s business is going to take time for us to rebalance. It’s the right thing to do. If we believe in luxury, if we believe in the future, we have to really reset that part of the business. And we’ll take some hits on that. But that’s — this is about the future of $2 billion plus for Versace not whether we get there in a quarter or two. But I do think we have the ammunition, in particular, with the new Anne Hathaway campaign with icons coming for Versace in terms of the ready-to-wear.

And of course, we’re having very good success with our La Greca launch and the solid performance of La Medus and Virtus so our codes are really starting to resonate. And again, we just came off of a record year for Versace and I think we’re quite proud of that. And then in terms of Michael Kors, I think that look this is a very painful thing that we’re going through with the reduction in the wholesale channel for us. I think that, that is something that we have to work harder at, and I said that in the last call, in particular, with getting more sales associates into the stores to really be present and to clientele and to be able to conclude transactions. I think that we were slow to rebuild that program coming out of COVID, and that’s a mistake that we made.

I think you’ll see that in a much better place come fall season. We’re also seeing some green shoots while our hardware program was launched last fall season and probably didn’t deliver exactly the results we were looking for. As we reduce some of the size of that hardware, we’re getting very, very strong performance on that now. So between our signature, which I mentioned is over 50% of our business. And now the hardware growth, we’re really starting to see come online. We think we’ve got the product in place to reset with our wholesale partners. And again, all we’re looking to do is to stabilize that business. We’re not looking for growth. We’re not there yet, but we do think that we will be there for the fall season. Thank you, Rick.

Rick Patel: Thank you.

Operator: Thank you. Our next question comes from the line of Simeon Siegel with BMO Capital Markets. Please proceed with your question.

Simeon Siegel: Thanks. Hey, everyone. Good morning. John, did you — or could you share what AUR was this quarter maybe in marketing as a percent of sales? And then Tom, could you just elaborate at all on how you’re thinking about the approach to debt levels and then I think the full year shares were guided above the 1Q. So any color on the repurchases on the other side of that? Thanks guys.

John Idol: Sure. So Simeon, at Versace, AURs are up, and that’s driven by two things, by price increase and by full price sell-throughs, in particular, on our accessories and our footwear. So we feel good about what’s happening there. I think I mentioned on the previous call, we will not be taking any more price increases at this point. We took a lot of substantial price increases in Versace. And so I think we’re pretty much finished with that for the moment. Jimmy Choo, again, AURs are up. We also took many price increases. We’re going to take a few more in Jimmy Choo, but I think that will kind of end towards the third and fourth calendar quarter of this year and we feel we’re in a really good position both at Jimmy Choo and Versace, we’re going to balance inside of those price points.

And I think that’s something you’ve heard me mention about Michael Kors as well. You have to really look at things on a good, better, best strategy and tier your pricing to be able to really reach multiple different consumers who are at different income levels. And so I think we’re in the process of fine-tuning that across those two areas. Michael Kors, the average unit retail has not declined. The average transaction has declined slightly and that is driven by we see a significant uptick in smaller bags. So some of the decline that you’ve seen in our own stores that we reported this past quarter is actually unit sales are up and this is something that we — as we went through COVID we saw totes. We saw backpacks, we saw large handbags significantly increase in revenues.

That has slowed down. And what is speeding up is smaller bags and we saw that with people returning to more social activities going out to parties. And we see this globally. This is not a US situation. And again I think we are — look to as a company that does read fashion. And again, we have a younger consumer who’s been here and a lot of people talk about gaining younger consumers. And we continue to gain younger consumers, but we’ve already have a, we believe a disproportionate level, that not in a bad way, but in a good way. And so that customer tends to want to have a little more fun and get dressed up a little bit. And we think that, that customer is responding to the fashion that we’re delivering. And that’s also where I mentioned to you on the hardware.

Where we’re seeing some of the slightly smaller hardware bags really start to get a lift inside the company. So we’re quite pleased with that. And that’s just a trend that’s happening in fashion. I’ll turn it over to Tom.

Tom Edwards: Simeon, regarding debt levels, first, I’d like to say our debt levels are very manageable, and our leverage is below two times and as we guided, net interest is $20 million for the year expected to be. However, in the past, we’ve always been balanced between buying back shares and repaying debt. So this is really a return to our usual practice, and in the current environment, we think it’s prudent to do so and to manage both with really strong free cash flow, which ended the year last year, about $540 million and expect to continue to generate strong free cash flow going forward. With regard to shares, the full year share count was guided above Q1, and that’s due to the normal issuance of shares in the June time frame for our employees as part of long-term compensation. So that’s why the year is above the run rate coming out of the prior year, which included the $1.35 billion of share repurchases and that’s flowing through.

John Idol: Thank you, Simeon.

Simeon Siegel: Thanks a lot guys. Best of the luck for the year.

Operator: Thank you. Our next question comes from the line of Alex Straton with Morgan Stanley. Please proceed with your question.

Alexandra Straton: Great. Thanks a lot for taking the question. I just had a couple of follow-ups on pricing and promotions. It sounds like you guys had some department store pushback on pricing, but have you observed any of that or sensitivity there in the direct-to-consumer channel. If you have any color on variation by household income level, that also be helpful. I think just finally, it’s great to hear that you guys have an ongoing commitment to limited promotions, but how would you describe the broader environment there and what expectations you have embedded into the guidance? Thanks a lot.

John Idol: Yes. Thanks and good morning, Alex. So, I want to be clear, it wasn’t a pushback by the department stores. The consumer and our department store partners, both in United States, Europe and of course, we have them in Japan as well have been terrific. And by the way, have been totally on board with our elevation strategy. So we’ve had great support from them on that. I would say that we were able to sell higher price points in our own stores better than that what happened in the department stores. And I think part of the result of that or part of the reason for that was we did not have as many sales associates inside the stores to really work with the end consumer on either why the product was more expensive or talking about quality issues et cetera.

So I think that’s — and I want to make sure I make it clear that we think that’s a big mistake that we made and we’re going to correct that mistake very rapidly. This is just a matter of getting the people hired now, and that’s what takes time to get that in place. So we really feel like around September, we’ll start to have a fully staffed department store situation. Still not up to pre-pandemic levels, but significantly over double what we had going into this past holiday season and our partners feel great about that as well both in North America and in Europe. So I think that, and as I said before, you need to tier your pricing strategy in every — whether it’s the most high-end luxury retailers or brands that are more at the accessible luxury category do that.

And I think we’re just going to do some tweaking inside our accessories and some of our footwear businesses in the department stores, in particular, in Michael Kors, but not only exclusive to Michael Kors and we’re doing that a little bit with Versace as well because we’ve got a very big footwear business with Versace and we want to balance some of those price points as well. So I think that’s going to be a constant fine-tuning for us. In terms of the environment at large, we certainly see a more active promotional environment. And I think that’s a result of many companies having too much inventory coming out of the holiday season, heading into spring also with certain retailers reducing orders. We’ve got ahead of it, I think, very quickly.

And as you can see by our own inventories, we’re in good shape. So we don’t feel a huge desire or need to do things take out actions that would be brand damaging. And I think that, again, we’ve said it before and in particular, around Michael Kors, if we have to give up some volume to protect the brand, we’re going to do that. And again, this is more of a North America conversation because these conversations are really not the same level that you see in Europe or in Asia around the Michael Kors brand in particular. So we’re going to stay steadfast to what we set out to do. We think that, again, when you see a 17% increase in a customer database, I think, that says tremendous about what’s happening to the consumer wanting to come to our brand, shop our brand and be a part of the Michael Kors lifestyle.

Thank you very much, Alex.

Operator: Thank you. Our next question comes from the line of Dana Telsey with Telsey Advisor Group. Please proceed with your question.

Dana Telsey: Hi. Good morning, everyone. John, as you think about the Americas business and your retail store profile, what is the right number of stores? How do you see these remodels transforming the business? And what percentage of CapEx do you think goes into it? Thank you.

John Idol: Good morning, Dana. First off, as you know, we had closed close to 150 stores over the last few years to get to the right profile. And that really was a result of the e-commerce business. Once we turned on e-commerce, a number of our stores, the volumes reduced quite significantly. We have a very, very strong e-commerce business, as you know, growing. And as I indicated before, we’ve got a younger customer who’s always been part of the Michael Kors profile. And that customer is a bit more digital native. So we’ve got a few more to go, a few more stores to close, probably another 25 or 30 or so in North America, and then we’re done. And then we are going to renovate every single store in North America. We went on the same mission at Versace.

I think it’s working quite well for us there. We were fortunate when we bought Jimmy Choo, most of the store fleet was renovated. We’ve got a handful of stores to do there. But Michael Kors, we want to reset the stores for two reasons. Number one, it’s time to refresh many of the stores, and we are a few years behind on that, mainly because of COVID. We just didn’t feel like that was the right moment to make those investments. And secondly, as we’ve said, I think in our Investor Day, summer of last year, we’re going to upsize the shoe spaces inside of our retail stores. We talk so much about our accessories business. But as we noted, we had very good growth across the whole group in footwear. We’ve learned a lot from our partners at Jimmy Choo about how to service customer create a really luxury environment for footwear.

And we think we can do that much better than we’re doing it today. You’ll see that in the two prototype stores that open and then that will be one of the core pillars when we start to renovate the stores to be able to give footwear a much bigger presence and you see many luxury companies doing this. Again, we’re not the only one who is looking at this as an opportunity for us. So you’ll actually see the store count while I said we probably have another 20 or 25 to close in North America. You’ll actually see the store count remain roughly flat or go up slightly, and that’s mainly because of the stores we’re opening in China. And we have some additional stores we’re opening in the Middle East and in India as well. So there are markets we will grow.

North America will shrink a little bit and completely renovate the fleet here in North America. And that will be a few hundred million dollars over a few year time period. We’ll get back to you with more details around that and — but we certainly have the — the cash flow to be able to do this. And as Tom mentioned before, we’re going to invest in everything from stores in the company to our technology inside the company. We have a belief that we have three very powerful brands that can all grow and we’re going to invest to be able to support that growth.

Tom Edwards: And Dana, I’d add, we guided to a CapEx this year of $260 million. A little over half of that is for stores and renovations that at Investor Day we provided a longer-term number of about 300 a year. So as John was noting, as we finished Versace’s store refurbishments, then and remodeling then move into Michael Kors. Will provide more details in the future, but that provides a little context.

John Idol: Yes. And those new store renovations like they’ve done in Versace, like they’ve done in Jimmy Choo, should give those stores a lift, which is another avenue for us for increasing store productivity. Thank you, Dana.

Operator: Thank you. Our next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.

Lorraine Hutchinson: Thank you. Good morning. Can you quantify peak to trough wholesale revenues at Michael Kors? And just any comments on — do you think you’ve taken the business to the right level at this point? Or is there a risk that there’s another leg down to that channel?

John Idol: Well, Lorraine, I would say across the group, we’re looking at wholesale very carefully. It runs in that 20-something percentage for us today. And I think over time, we’ve said we want to see the wholesale business decline happened a little faster to us than we would have liked to have seen happen. And as I said, I think we made some missteps in the fall season and the beginning of the spring around the Michael Kors piece. But we’ve seen declines in Versace and Jimmy Choo as well as you’ve heard that reported by multiple luxury companies. So we’re not telling you anything that you’re not hearing from other luxury companies. And so I think our goal is to stabilize the wholesale business. Our goal is not to grow the wholesale business.

And our goal is, quite frankly, to shrink the wholesale business as a percent to total. We’re very proud of the partners that we work with today. I think we work with the best stores in Europe and in North America and some of the best specialty stores in the world across all three of the houses. But I think that our future really lies in our own direct-to-consumer business driven by our retail stores first because it’s the biggest part of our revenue and second, by our e-commerce business. And one of the things we’re really on a very strong mission around. And one of the great things about having the luxury group, the way that we have is, we’ve learned a lot from each of the different houses on clienteling. And we’re starting to really make some very significant inroads and clienteling.

It is now double-digit part of the revenue for Michael Kors, which is quite impressive. I don’t think we thought we could get to this level this quickly. And that’s being driven by technology. We have systems in place now for our sales associates to really clientele with. We’re now able to take the data analytics that we’ve been using and driving for our e-commerce business, and you see we keep reporting growth in our e-commerce revenues. But now we’re using that same data analytics to put in the hands for clienteling and direct customer communication, which is becoming a very — and it will become even a more significant part of our business. So I think that’s where we look to the growth again continue to stabilize with our existing wholesale partners but not looking to make that a strong growth engine for the company.

Thank you, Lorraine.

Lorraine Hutchinson: Thank you.

John Idol: So I’d like to thank everyone for taking the time. We ran a little bit over because usually, at the year-end call, it’s time to give you a broader perspective. I hope what has come through loud and clear is that we have three very powerful names, starting with Michael Kors, our biggest business in the company. We do believe that, that brand will grow to $5 billion over time. We do believe that we will double our business in Asia, and we do believe that we will continue to grow our accessories and footwear business. And we like what we’re doing with repositioning to be more aspirational and to reset the values especially around Jet Set for Michael Kors. Secondly, Jimmy Choo, we are feeling very good about what’s happening in Jimmy Choo.

In particular, you’re going to see operating margin expansion. We’ve been talking about that for some time. We feel like we’re in a very good position. We won’t get to probably double digit this year, but we think next year, we will. And as that business gets closer to $1 billion, it’s going to be able to generate significant operating profit dollars for the company. And then lastly, Versace, as we’ve talked about many times, we have our sights set on $2 billion. We feel that we have a very good road map to get there. And we also believe that there’s more upside beyond that, and you can certainly see that through some of the very, very powerful names across the globe and we believe that Versace sits in that world. So we feel strong about our future at Capri and we look forward to giving you more feedback on our progress.

Thank you very much for joining us today.

Operator: Thank you. This concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation.