Morgan Stanley Virtual Global Consumer & Retail Conference

Dec 2, 2020

Good morning, everyone. My name is Kimberly Greenberger, and I'm the specialty soft line department store and branded apparel analyst here at Morgan Stanley, we're very pleased to welcome this morning Capri Holdings Limited. Capri Holdings is the parent company of 3 growing luxury lifestyle brands, Michael Kors, Versace and Jimmy Choo, and they operate more than 800 stores worldwide. Joining me today are John Idol, Chairman and Chief Executive Officer and Tom Edwards, Chief Financial Officer and Chief Operating Officer. John has been the Chairman of Capri Holdings since September 2011 and the Chief Executive Officer since December 2003. Previously, John served as Chairman and CEO of Casper from 'one to 'three and as CEO and Director of Donna Karan International from 'ninety 7 to 'one. John also served as Ralph Lauren's Group President and COO of Product Licensing Home and Men's from 1994 until 1997. Tom is the Executive Vice President, Chief Financial Officer and Chief Operating Officer of CapRe. He's been with the company since 2017. Previously, Tom served as Executive Vice President and CFO of Brinker International. Prior to that, he held numerous positions within finance at Wyndham Worldwide from 2007 to 2015, including having served as EVP and CFO of Wyndham Hotel Group. Mr. Edwards has also held a number of financial and operational leadership positions in the consumer goods industry. And with that, John and Tom, thank you both for joining us today. We'll spend the majority of today's session in a question and answer style fireside chat, where we will explore some of the investor questions we've heard most often in recent months. We've also reserved time to answer your questions. For those of you joining via the webcast, please click the Ask a Question button on the webcast to submit your questions. Lastly, before we begin, I need to remind everyone that for important disclosures, please see the Morgan Stanley Research Disclosure website at www.morgan stanleyresearchdisclosures. With that, we'll kick off the fireside chat. And John, I'd like to start with just some bigger picture questions. First, how do you see the synergies and advantages of managing a multi brand portfolio compared to the mono brand structure that you had before forming Capri Holdings? Thank you, Kimberly, first for having us on this call today. It's a real pleasure to see you as always and to have a great group of investors listening to our story. Kimberly, as you've followed us from the very beginning, know that Michael Kors grew very, very rapidly for 10, 12 years and reaching well over $4, 000, 000, 000 close to 4, 500, 000, 000 dollars And as we were going through that cycle, about 3 years ago, we said we cannot continue to keep pushing this brand because eventually you can do things that can damage a brand by taking it to 4. And so we decided that it would be best for us to take the significant amount of cash that the company was generating and really look at acquisitions. And it was interesting you started out by saying that you cover branded apparel. We specifically didn't want to go into horizon, we saw the And then when we looked out in the horizon, we saw the luxury industry, a $300, 000, 000, 000 industry last year plus growing at the kind of mid single digit CAGR year on year has been very successful through economic downturns also through, believe it or not, some pretty significant medical, not quite the pandemic that we're seeing here today, but other issues, particularly in the Far East, etcetera. And this industry has been very resilient. And as you know, wealth continues to be created around the globe at a pretty significant The other thing that we liked when we looked out across the horizon is, The other thing that we liked when we looked out across the horizon is many of our competitors were operating 30% plus operating margins. So again, not only was a sustainable and growing business, but it had very high operating margins, much higher than the typical fashion apparel companies, in particular, based in North America. And so when we looked at that, we said, well, this could be a real opportunity for us. And by chance, by luck, by strategy, all the above, we were able to acquire Versace and Jimmy Choo, which we think are 2 really extraordinary assets in the industry. And we believe that we can take Versace from its I'll go by pre COVID numbers, dollars 850, 000, 000 last year to over $2, 000, 000, 000 And again, there's many, many examples of that in our industry, the luxury industry, and in particular, European luxury, where that has happened over in fact, last 10 years. And we think that we can take Jimmy Choo from about $550, 000, 000 again pre COVID to $1, 000, 000, 000 And again, these are weaseled companies. Historically, they have not had significant operating margins. But we think with our expertise, accessories, we're able to build the business out on and again, the accessories luxury industry, dollars 70, 000, 000, 000 worldwide, and the luxury footwear industry is north of $30, 000, 000, 000 and they're growing every year. So we think that our growth trajectory has actually changed in the company. And operating a model brand company, yes, we could probably grow 2% or 3% or 4 percent. By having these 2 extraordinary assets, we could probably be looking at very high single digit or double digit growth in the future, especially when we get some of our initiatives in place. And then lastly, we're already seeing the effects of creating synergies, and that's in manufacturing, that's in our warehouse and distribution, that's in IT, that's in finance. And a lot of those synergies are starting to flow through this year, and we're going to see more of that in the coming years. So we think that a multi luxury platform is clearly the best way for this company to grow and to really create value for our shareholders. Fantastic. Well said. You introduced a number of strategic initiatives, John, at your most recent Analyst Day, which at this point has now been about a year and a half, I wanted to just sort of look through the lens of COVID and ask you, have these strategic initiatives at any of the brands changed since the onset of COVID? Kimberly, that's a great question. And when we sat down in really late February, early part of March, every CEO, I don't think in just the luxury business or the fashion industry or whatever, it could be in cars or hotels or whatnot, had to ask themselves the same question. What do we do? We're in the middle of something. We don't know how long it's going to last. And what's our company going to look like when we come out the other side? And we, early on, made 2 strategic decisions. The first 1 is that we weren't going to change our initiatives and our vision for what we had to do for Versace, Jimmy Choo or Michael Kors. And just reminding everybody briefly for Versace, it's really important for us and 1 of our key growth initiatives around our accessories business. And again, we think that, that is something we're well on the way to developing. And again, you're going to see some pretty extraordinary things, in particular, our February fashion show. I just got off the phone with Donatello before I jumped on the call with you. And secondly, the acceleration of our omni capabilities that company, in that group, which have not been there because it was more of a private company before, but we're making the investments. And then increasing our store count to 300 doors, again, still very limited. But truthfully, it's we'll still be underpenetrated to our luxury peers and then renovating every single store across the globe. And we're about 30% of the way through that. And at Jimmy Choo, same strategy. We need to have an accessories business. Our plan is to get that to around 50% of the revenues. Footwear always carries a lower margin than accessories. And so if we're able to achieve our objectives, and again, this is going to be based around our new JC signature, which we introduced a little over a year ago, we think we'll be able to get that to a very significant part and expand margin in the company. And then at Michael Kors, we and I've been very honest with everyone, I made a mistake a couple of years ago when I took our signature products and really pulled many of them strategically off the line. There was a point in time when we thought that was not the right trend, and I was wrong. And what's great is that we were able to move that quickly. I know I promised everybody that about 2 years ago, and we're hitting that and delivering on that. So that's 40% to 50% now of our accessories business growing 250%. And so when we looked at all these things and said, what do we have to do? And we said, we have to focus on that because the world will heal. And if it heals and we didn't do the things that we started out strategically saying we were going to do, we won't get to our objectives. So we stay very, very laser focused on that. What COVID has taught us though is, and I don't think we're the only luxury or fashion company in this, we've reduced our line sizes across all 3 of our portfolio companies by 30%. And the truth is, when business is great, you're growing, you say more is more and you put out more. And we always feel that you, our customer or other male customers, if we just show you more, we'll sell you more. And that's probably not the smartest thing in the world. But at the time, it feels like it's something that's strategically right. And what we've really seen is we're getting better full price sell throughs. Sometimes it's not when you see markdowns on our websites, it's not that we're trying to be in the markdown business. The problem is when you're delivering this much fashion and you're trying to say I'm going to deliver it 4 times a year, it has to go somewhere. And to do that, you have to clear the merchandise and that creates a almost a devalues your brand in the face of the customer and your pricing positioning. So what we're having right now is quite interestingly 30% reduced assortments, better full price sell We've been raising prices at Jimmy Choo and at Michael Kors having very little, if no price resistance, And it's increasing our margins. So all these things that we kind of set out to do in the beginning, now we've got this added benefit that we know we can do it with less product. And that gives us an opportunity to be much more focused. So I think that COVID, if there is a silver lining out of this, and I don't want to ever pretend that there's any silver lining, but it is that we are more focused on the breadth and the size of the product offering, and we're creating better engagement with our customers by having a clearer vision of what it is that we think is important in each season for interesting enough, that's exactly the conversation Donatella and I were just having and Michael has been laser focused on this as late also. Let's really be clear to the consumer about what we think is important that season and let's be there for them and be able to deliver it to them in an omni situation. And really that's the last thing I would say that COVID has done in terms of our strategic initiatives. 5, 6, 7 years ago, we set out and we had a goal of $1, 000, 000, 000 of online business and that was just when it was Michael Kors. As a group, we're going to get close to that pretty quickly. And thank goodness we invested in the platforms, in the warehouse and distribution and the omni capabilities of our stores to be able to handle this new way that the consumer is shopping. We have to be there for her whether she wants it online, whether she wants it in her store just to have a virtual conversation with a sales associate or whether she's going to come into the store or pick up in store. And we have all those capabilities. We've got some more work to do on the Versace side. We'll get there more or less at the tail end of spring season next year. But as a company, having that capability, we're able to be flexible and be where he or she is and how they want to shop. Fantastic. And by the way, I'm happy to come after Donatella anytime. I wanted to dig in a little more on the Versace opportunity. John, you talked about the path and the goal of getting from $850, 000, 000 last year in revenue to $2, 000, 000, 000 over time. If you could talk about that through the lens of 2 things, how does Versace compete globally? And where do you see the biggest growth opportunities for that brand? So again, really teeing off your first question, Versace's position is 1 of the most preeminent luxury houses in the world. And you see these brand studies and where the name itself lands. And we land with the very best names, whether it's Chanel, Hermes, Vuitton, Gucci, we're right there with them. And it's quite interesting because we this powerful brand recognition, but we have an $850, 000, 000 business. And I believe all the businesses I just said are over $10, 000, 000, 000 dollars And so and I'm not suggesting we will be $10, 000, 000, 000 but what I'm suggesting is that consumers know our name. They understand what the brand stands for, and they understand that it stands for luxury. So we think with a 42 year history, we just clearly reside in the luxury business. And as you may recall, when we bought the company, the company had about $150, 000, 000 in businesses that were kind of other tiered lines. And the first thing we did after acquiring the company, and I know that many of our investors were first thought that we overpaid for the company, and I would challenge that because in the luxury industry, it's typically 2 times sales, 20 plus times EBITDA. So and I think many people thought that Michael Kors, I mean Versace was not profitable. It actually was profitable when worth of worth of business and just closed it down. And so that really cemented our positioning in the luxury world. And as I said before, this is a $300 plus 1, 000, 000, 000 business growing mid single digits. And in particular, the areas that's fastest growing is the footwear and accessories business, which is over $100, 000, 000, 000 And again, you know the competitors out there, you know they've been growing at and just the 4 I name, when you put 10% growth on each 1 of those companies, you're talking $1, 000, 000, 000 plus a year for many of these companies are growing. So this is an industry that's really a business that will continue to develop and grow. And you know the appetite for the Chinese consumer and luxury. It's very, very powerful and and strong as well. And we all believe that, that will be, for most of us, the largest market in the world over the next 10 plus years. So when you look at the opportunities for Versace, Versace was a family run company. By the way, it grew for almost every year of its existence. It didn't grow the last year or so because we were doing some things with it purposely. And it's quite extraordinary when you look at that. And but it was a company that was built on ready to wear, it was fashion ready to wear. So now to have a company that is laser focused Broco V and the collection that surrounded that. We're really starting to get some traction on that product category across footwear, belts, leather goods and even on some of our ready to wear product. That is the core to the growth of this company. So we have to grow the leather goods business. And again, all of our competitors, all the Italian competitors are all generally at 50% plus in accessories and 20% to 30% in footwear. So this is just pure opportunity for us. And I think we know a little bit about those categories. The group itself does over $1, 000, 000, 000 in footwear. By the way, we also bought a luxury footwear facility in Florence recently, which is going extremely well. Tom is now a shoemaker, by the way. He went from the food business to he's a shoemaker. And so we're really we're feeling very, very confident in our ability to do that. And the other thing, as I said earlier, is Versace does not have a highly penetrated e commerce business, although it's growing very rapidly on an outdated platform without having all the omnichannel tools in place. We will fix that next year. And just imagine when we get that capability in place that we're really able to service the consumer in a much broader way than we have today, and we've got great teams in the company doing that. And then lastly, listen, we believe in retail. We believe retail stores will be important for 2 reasons. Number 1, major cities will come back. We just opened our new flagship store on London Bond Street, I think, yesterday. We just renovated our store in Beijing flagship. Shanghai is just opening, I think, in the next day or 2. Paris will open in spring. We're going to open a new lower Manhattan flagship as well for Versace and so on and so forth. So where we're opening stores are in powerful cities with millions of people living. People will come back to stores. And secondly, stores, as you know, have given all of us a new capability of being able to service the customer in a different way. So if you're living in an apartment in Manhattan and you want to have the collection or pieces of it delivered to your house, we'll deliver it to you. And if you're uncomfortable having a sales associate there, we'll have a virtual conversation with you about. So I believe clienteling, as much as e commerce is obviously the most important thing all of us have to look at today, particular in the middle of this pandemic. But clienteling is going to become, I think, the second most important thing for all of us and that interaction and that connection with the customer and how we move forward. And so when I look at those, the accessories, our omnichannel capability and the opportunity to grow our store network because we're really sitting at around 200 stores today. So there is opportunity. And those being in major cities where we won't be overstored, And I think that Versace has this real incredible opportunity to reach this goal relatively quickly. And then lastly, of course, we have to tell her Versace, who I don't know if any of you saw Michael Kors last night on the God's Love We Deliver fundraising, but he was spectacular. So Michael is a personality, Donna Tellett is a personality and to have that kind of power in your arsenal, where the founder is speaking directly to your customer is incredibly powerful. Many companies don't have that. And I think that's real strength for us as well. Great. Okay, fantastic. 1 more question on Versace, and then I want to move to Jimmy Choo. But when you acquired Versace, you talked about this mid teens margin target. And I wanted to know how should investors think about this mid teens margin target in light of the fiscal 2021, the current year performance despite the fallout from the pandemic? I'm going to let Tom answer that. Hi, Kimberly. Thanks for the question. We are extremely confident in our ability to achieve a mid teens operating margin for Versace. We believe it's a very realistic target. And as John said, many other luxury brands have operating margins over 30%. So looking at the pace over the next several years, we expect a very strong recovery in fiscal year next year and anticipate achieving our mid teens operating margin in the next year, fiscal 'twenty 3. We expect to achieve the target by a couple of different means. The first is expanding our higher margin accessories offering. 2nd, improving productivity in our stores. And finally, leveraging SG and A as we grow our sales. So we're optimistic, very optimistic we can achieve these targets with the rollout of the vaccine, which is of course critical for trends to normalize for traffic and for people to feel comfortable traveling. Great. Wow, fiscal 2023, that's not very far away, Tom. That's fantastic. Okay. Moving on to Jimmy Choo. I wanted to talk about Jimmy Choo, the key points of differentiation for that brand and where you see the biggest growth opportunities. Yes. So Jimmy Choo, as you know, was our first acquisition. And interestingly enough, this company is also an iconic luxury brand with 25 years of history. And Jimmy Choo has grown every single year. Obviously, last year, it didn't grow because of what happened in the Q4 for us, where Europe was closed down even much earlier than North America, but it was set to grow again last year. So Jimmy Choo has been growing very, very nicely as a company, kind of mid single digits. There were a couple of years they had double digit growth. So again, like a very solid luxury company, we're not looking to have 25% 30% 40% growth, but we're looking to have very steady high single digit, maybe even low teens growth out of both Versace and Jimmy Choo once things obviously settle down. Down. And by the way, I just might add, our perspective on that is spring of next year being the 1st 6 months continue to be bumpy. We know that the vaccine will not get distributed to most people until the Q2 and maybe as much into Q3. But we are really optimistic about the back half of the year. We think that schools will be reopened on a more stable basis. We think people will be absolutely going back to restaurants, attending parties, etcetera. We don't think travel will resume quite as quickly. We think that will be a bit more into 'twenty 2. But just to give you a sense for us, I mean, we're gearing up for a very strong fall season, just FYI. But Jimmy Choo, again, is positioned in this $100, 000, 000, 000 category of accessories and footwear. And by the way, Jimmy Choo has had a history of being in the accessories. At 1 point, it accounted for 35% of the company's sales. And then over the last or 4 years, they just really didn't focus on it and it drifted. And 1 of the things we did when we got there, and this company has gotten to this $550, 000, 000 level without any kind of an identification, which is really extraordinary. You heard me talk about the earlier competitors. Every 1 of them have a highly identifiable logo, if you want to call it that. And Jimmy Choo didn't have that. So first thing we did was we brought in the JC, which is on our Varen accessories collection on many shoes and bags. And interestingly enough, some of the footwear collections, it's accounting for 20% to 30% of the sales, which is very interesting. We never thought it would get there that quickly. And the accessories collection that we introduced is starting to really take hold. So again, companies had a history of being in the luxury accessories business, but did it really without any kind of iconic markings. So we feel very strongly that we are able to enter that world. Now obviously, the big question mark, I think, on all investors' hands minds and on your mind would be, can we get to this 50% level? And I would say, probably of all the initiatives we have going on across the again, Jimmy Choo doesn't have a ready to wear collection and a runway show from that standpoint. Again, Jimmy Choo doesn't have a ready to wear collection and a runway show from that standpoint. But when we go out and do consumer research, we're in 20 plus percent of people's closets in terms of luxury with that product. And the love and the loyalty for this brand is really quite extraordinary. So we like what we see happening, and we know that this is going to be a bit more of a challenge for us, but we're up for the challenge and we certainly understand how to develop this category of product. So that's the first thing that we think will really drive this business and really create it as more of a lifestyle brand and less of jewelry and watches in the future. So we're going to continue to jewelry and watches in the future. So we're going to continue to round out this company as a lifestyle company. Secondly, in footwear. In footwear, just to no, just to footwear, just to really briefly touch on that. And we've been public about this. The company has had some challenges with the dress footwear business, and that was before COVID. Really, the taste of many consumers is changing. And it's much more casual in nature. So that's sneakers, which again, our best selling item in the entire company today is an item called Hawaii, which is on fire for us. And also we just had our Timberland collaboration, which was almost a complete sellout. So we know we can be in the consumer's luxury closet with casual, and we know we can grow the footwear business as well. So it's going to compete in the luxury category. And the last thing I just might mention is we're also going to be raising prices in Jimmy Choo, I think I mentioned earlier. The company has traditionally been the least expensive player in the luxury business, and we don't actually understand why. And our new CEO, Hannah Coleman, has 1 of the first things she came in and did is start this positioning. And so you'll see that happening as well. Wonderful. That is excellent. And it sort of brings us to the revenue and the margin potential for Jimmy Choo, Tom. So I wanted to ask you, does the pandemic reset the revenue and margin potential for the Jimmy Choo brand in any way? Thanks, Kimberly. So no, really the pandemic doesn't change our goals. We continue to believe in a 1, 000, 000, 000 revenue and mid teens operating margin targets for Jimmy Choo. As a matter of fact, we expect a very strong recovery as we go into next year. And in fiscal 'twenty 3, anticipate reaching a double digit operating margin, which just brings Jimmy Choo back to the brand's historical profit level. John covered the revenue growth drivers, but on the operating margin side, we're really focused on expanding accessories, which are higher margin. The increasing pricing will support this as well. And of course, leveraging SG and A on sales growth. So as I mentioned before, we're optimistic we can achieve these targets with the rollout of the vaccine because that is, of course, critical for traffic trends to normalize and people to feel comfortable traveling. But overall, we're still very confident in our goals for Jimmy Choo. Okay, great. And I just saw a question come through here on the webcast. And I think this was referring a margin, 1 of the a margin 1 of the margin targets you laid out. For Versace, I've said that for fiscal 2023, we would achieve our mid teens operating margin target. And just now for Jimmy Choo, we would not be at the mid teens in 'twenty 3, but we'd be at double digits in 'twenty 3, so on our way to mid teens. Fantastic. Okay, great. And then, Tom, I wanted to just talk for a second about the Michael Kors operating margin. I think you've got a target to expand the Michael Kors division operating margin above the 20% level. Can you talk about the levers to get you there? Sure. We see levers on both gross margin and SG and A to drive to 20% to 25%, which is of course above historical levels for Michael Kors. So on gross margin, it's really 2 things that are driving it, improved full price sell throughs, which is supported by the expansion of signature penetration. And in the second quarter, we were at 40% signature for accessories and our goal is to be over 50%. We're also increasing that in footwear and ready to wear. So signature supports better margin flow through and we've already been seeing that over the past several quarters. The second item for gross margin is the price increases about 10% to 15%, primarily in accessories and we're executing them both this year and through the balance of next year. Kimberly, when we look at the next piece on SG and A, we see clear opportunities. We've already streamlined the organization and we're going to continue to reduce expenses to align our cost base with our business size. In addition, we also announced the new fleet optimization program. That's going to directly reduce SG and A expenses as we close stores over this and the next fiscal year, about 150 stores. And closing those stores actually increases profitability because they're all unprofitable at this point. Great. Excellent. That all sounds very promising. And John, I wanted to talk about the revenue for Michael Kors for just a second. And 1 of the questions we get from investors a lot on the Michael Kors business is just the wholesale exposure. So can you just talk about the role of wholesale for the Michael Kors brand and its ultimate size within that $4, 000, 000, 000 brand revenue target? Certainly. Kimberly, I think we've talked on a number of conference calls recently that last year for the group, the country group, wholesale represented onethree of the company's revenues. This year for Capri, it will represent approximately 25%, and we think year, it will not next year, but the next couple of years, it will go down to about 20% and then stabilize at that level. The Michael Kors wholesale business is slightly larger than the group level, although getting pretty close to it recently. And I think we identified when we gave the new $4, 000, 000, 000 target that 1 of the reasons why we reduced the target was the size of the wholesale business would contract about $500, 000, 000 over the next couple of years. So we think that wholesale and by the way, I want to continue to say, as I've always said, we've fantastic partners. So whether that's Macy's or Dillard's or Bloomingdale's or Neiman's and Saks, carry our products or whether it's Gallery Lafayette or Harrods or any of our great partner stores around the world, we think that that's a very prestigious business to be in and a great distribution channel for us. But as you well know, that channel is contracting. There's been bankruptcies in North America, there are stores closings going on in North America. So that will just naturally contract. I want to also point out that at most of our partners today, we're at least 40% of our revenues in the wholesale channel coming from e commerce, and in many cases, it's much higher than that. Of course, it's going to be even further amplified during COVID. But we were already moving towards a much more digital presence and prominence with our partners. And I believe that lastly, what I've told everyone on our calls recently is people continue to think that wholesale for us is only North America and that's actually not accurate. It's a piece of it. And then we have a very large European wholesale business for all companies across the group. And then we had a very large business in the travel retail industry, which unfortunately, as you know, is basically 0 today. Now the good news for us is, while we will see some contraction in some of the wholesale partners, both in North America and Europe, as that contraction starts to happen, we believe the wholesale business will return in the travel retail industry. So that's when you get that kind of flattening out to that 20% level. So again, just to remind everyone, this year will be 75% owned and operated around the globe. Next, the following year or 2 after that, we'll be at the 80%. So while and we believe it's a very important and profitable business for us, it is not our core business. And I think there's been a misunderstanding about that, I think, by the industry that we are so dependent on that business. It's clearly an important piece, but it is no longer what it may have been 3 or 4 years ago. Yes, makes perfect sense. Okay. And we've got some margin questions here coming through the webcast, Tom. So I'm going to throw these your way. First here, how durable are the fiscal 2021 gross margin gains? We're obviously seeing low inventory levels and selective low inventory levels at your brand, particularly Michael Kors in selective price increases. And so how durable do you think the gross margin gains are, number 1? And what are the gross margin drivers for Capri and Michael Kors after the current fiscal year? Sure, happy to help with that. First, we believe they're very durable. In our Q2, the majority of the gross margin expansion came from stronger full price sell throughs and the pricing actions. So it really gives us confidence that we'll be able to continue to expand gross margin in the back half of this year and through next year. For fiscal 2021, we continue to expect gross margin expansion of 150 basis points for the year. Expect to see a little less in the second half than the first half, giving a little lower benefit from channel mix. But expansions is expected in both the Q3 and the Q4. And importantly, we expect all 3 brands to expand gross margin in the second half of the year. So longer term, when we look at the drivers, it's as we've talked about a little bit for this and some other questions, it's increasing penetration of accessories that Versace and Jimmy Choo as a key driver, driving higher full price sell throughs across our businesses and then the select pricing increases at Michael Kors and Jimmy Choo. So there are other items, but these are really the key drivers. Excellent. And that relates to this next question coming through the webcast. Is the company going to buy inventories conservatively for the fall of 2021, despite your expectation for very strong demand environment? I think, John, you talked about this. So are you going to buy inventory conservatively in order to continue to focus on margins over volume? Or do you maybe think you've got an opportunity involved? Both? So I think what everyone needs to understand is going into the fall season of this year, we were able to cancel some amount of inventory, not as much as we wanted to. But in the holiday season, we canceled a tremendous amount of We're going to be We're going to be chasing our signature business in Michael Kors. So there's certain areas that are if we had to go back and look at the crystal ball, we would do differently. So when I said to you we're feeling good about the fall season, we do not believe that next year the company will return to pre COVID levels. So I want to be clear about that from a revenue standpoint in totality. We clearly believe that the year post our fiscal 'twenty 3, and I've publicly said this, we believe revenues will be higher than pre COVID levels, and we also believe earnings per share will be higher than pre COVID levels. So we're very confident in where we're going in fiscal 'twenty 3. 'twenty 2, again, because of the spring season being a bit bumpy and certain businesses not returning like travel retail and whatnot, we know the revenues will be impacted. So I think 1 of the great things that we've done over all the years that we've run our company is we've had a tremendous inventory management system in place. And we've worked on that very carefully with our supply chain and all of our manufacturing partners. So I think we'll take that same perspective, but what I want to say is that we do believe fall season will be coming back. So we do believe that that's going to be revenues will be higher than this year, both for the 3rd and 4th calendar quarter, which we're going to be really focusing on and taking an opportunistic point of view on that to take market share for all of our companies. Okay, excellent. I'm going to try to squeeze 1 in here on SG and A. Tom, this 1 is for you. Are there discrete expense items which were permanently reduced at the height of the pandemic? And is there an opportunity for future expense efficiency as you look across your luxury brand portfolio? Thanks, Kimberly. And the answer is really yes to both. So this year, we expect SG and A to be down about $350, 000, 000 And for next year, anticipate about $150, 000, 000 of the savings will flow through. And that includes about $100, 000, 000 of FX headwinds due to a weaker dollar that we saw come through just recently. And we're achieving these permanent savings by streamlining the organization, including headcount reductions and other actions, reducing discretionary spending that's really not essential to growing the business. And of course, the new fleet optimization program. But even looking beyond those actions, we believe there are additional expense reduction opportunities across the luxury brand portfolio we're just beginning to realize. And these synergies come from multiple areas, including manufacturing, warehousing and distribution, IT, finance. So we believe that there is more to come and we're really focused on managing closely our SG and A expense. Okay, great. We're getting near the end here. So I'll just try to squeeze 1 more from the webcast. John, this I think is on and it's maybe for John or Tom, on the price increases you're taking. Are they price increases on like for like items? Or are you benefiting on your average selling prices because of the SKU rationalization efforts that are in lean inventory that are actually pushing AUR higher? I'll grab that 1, Tom. So I would say it's 3 things. Number 1, we're absolutely taking price increases, both at Michael Kors and at Jimmy Choo. We know we are considerably below our competitors' pricing. And therefore, we're going to catch up. And it's going to be most of it will be complete by the end of next calendar year. And by the way, at Michael Kors, it's been going on for probably about a year prior even prior to COVID, we've been raising prices. So we feel really good about that. And as I said, been no customer resistance for that. And in fact, our full price selling is going higher. So to kind of answer your average AUR, there's 2 things that are happening to the AUR. Number 1, that we are selling larger bags again. So that's backpacks, that's totes and certain top handled satchels are really coming back in a very nice way for us. And so that's taking AUR up. And secondly, full price sell throughs. And that's really being driven by Signature, not only in our accessories world, but we're seeing it in our footwear world where it's running 25% to 30% in many categories. In our ready to wear world, how we're starting to see it happen as well. And I'd tell you that, that was a bit of a surprise to us. So we're really going after that. And that also gives us, for the earlier question, some more comfort when we do take inventory positions, it's on product that we know will have longevity inside company. So gross margin is absolutely going to grow each of the next sequential 2 fiscal years for sure in the 'twenty 2 and 'twenty 3. We're looking at very nice margin increases and, of course, operating margin expansion. But I want to add 1 last thing to all of that. 1 of the things that I think Tom and his team have done a brilliant job with is our cash management during this whole situation. We did not go out and take on debt at the early part of the pandemic. We've been able to operate with a modified credit agreement, which we didn't even use the modifications and still remain under our covenants prior to the modification. And the company is generating cash this year. And interestingly enough, we're going to generate a lot of cash next couple of years, and we'll be paying down debt pretty significantly and being operating this company in a position where if another luxury asset becomes available for us, we would consider that. Again, it would have to it would be only a European luxury asset to help continue to position this company on its journey to be a prominent luxury goods house. And so I just wanted everyone to know on this call that we're really creating a very solid, sustainable platform inside the organization, 1 that we can grow from. Fantastic. Well, I we're up on time. I do want to give John, I do want to give you the final word here. But I want to first apologize to all of the investors. There were an absolute flood of questions coming through the webcast here. We will make sure to get those questions over to Jennifer Davis' capable hands and she can respond directly back to you on those. But John, in our final minute here, I just wanted to see if there was sort of a key message you wanted to leave our audience with today. Yes. I think that this company has really been transitioned from when it was originally just Michael Kors to now Capri Holdings. And we have 2 additional incredible assets that absolutely can grow. And we believe that we're putting targets out that are not unrealistic, especially by what our competitors are available to achieve over a multiple year horizon. We also think that by resetting the goal and really the profitability expectations for Michael Kors, we continue to have this robust solid base inside the company and we think we're positioned to really have significant revenue and earnings per share growth over the next few years. And Kimberly, I want to thank you for hosting us today. It was absolutely our pleasure. Thank you, John. Thank you, Tom. And on behalf of Morgan Stanley, I just want to thank all of you for tuning in today. If you have any follow-up questions, please reach out. Thanks and have a great rest of your day.