Good morning, everyone, and thank you for joining us on Capri Holdings Limited's first quarter fiscal 2020 conference call. With me this morning are 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 these statements made today during this call will remain operative at a later time, and the company undertakes no obligation to update any information discussed on the call. In addition, certain financial information discussed today will be presented on a non-GAAP basis.
These non-GAAP measures exclude certain items related to transaction, transition, and integration costs associated with the Jimmy Choo and Versace acquisition, restructuring, and non-cash impairment charges. Unless otherwise noted, all financial information on today's call will be presented on a non-GAAP basis, and all comparable store sales numbers will be presented on a constant currency basis. To view the corresponding GAAP measures and related reconciliation, please view the earnings release posted on our website earlier today at capriholdings.com. I would like to turn the call over to Mr. John Idol, Chairman and Chief Executive Officer.
Thank you, Jennifer, and good morning, everyone. As we outlined in our recent Investor Day presentation, Capri Holdings' strategy is to focus on international fashion luxury brands that are leaders in style and trend. The foundation of our strategy is innovation and fashion leadership, led by the design visions of Donatella Versace, Sandra Choi, and Michael Kors. With the resources and investment that our group will provide, both Versace and Jimmy Choo are positioned for significant growth. We believe both luxury brands have significant opportunity to expand in accessories and footwear. Supported by our group expertise, we are already executing on initiatives with both houses to rapidly develop these categories. Additionally, both Versace and Jimmy Choo will increase revenues with global retail expansion.
At Michael Kors, we continue to execute on our plans to position the brand for future growth by continuing to develop the Asia market and accelerating growth in our men's category. With the power of Versace and Jimmy Choo, and strength of Michael Kors, we believe our three iconic founder-led fashion luxury brands position Capri Holdings to accelerate revenue to $8 billion over time and deliver multiple years of earnings growth. Turning to Capri Holdings' first quarter results, revenues of $1.35 billion increased 12% year-over-year. Earnings per share of $0.95 exceeded our expectations. Based on first quarter performance and our plans for the remainder of the year, we are reaffirming our earnings outlook for fiscal 2020 of approximately $4.95 per share, which includes the impact of the strengthening U.S. dollar and additional tariffs on imports from China.
Starting with the House of Versace, one of the most storied luxury brands in the world, we were very pleased with first quarter results. Revenues of $207 million and double-digit comparable store sales growth were both ahead of our expectations. Versace's strong momentum is a reflection of the enthusiastic customer response to our spring line. Seasonal offerings incorporated the iconic codes of the house, while we continued to focus on expanding our core lines to create a solid base for long-term results. Both women's and men's ready-to-wear, as well as active footwear, continued to be key drivers of growth. In women's ready-to-wear, dresses featuring Versace's iconic safety pin and reimagined Barocco prints performed well in the quarter. For the men's line, customers responded to seasonal versions of our classic prints, while fashion innovation helped drive strong outerwear sales.
In accessories, we saw a positive response to our new introductions in smaller-sized bags, capitalizing on market trends. We were pleased with the strong performance of the new Versace vintage logo offerings. Turning to footwear performance, it was led by the continued expansion of fashion active. The introduction of Cross Chainer performed well and built on the success of our Chain Reaction line. In terms of brand awareness and engagement, Versace enjoyed a strong presence across multiple events and regions. On the red carpet, Versace's presence at the Met Gala was exceptional, with the Atelier dressing Jennifer Lopez, Alex Rodriguez, Kendall Jenner, Kylie Jenner, Serena Williams, Idris Elba, and Henry Golding. The Atelier's extensive presence on the Met's red carpet was further amplified on social media by sharing the design and artistry in the creation of each dress worn at the event.
As a result, Versace was the most engaged brand across all social media channels for the gala. In Asia, we opened our China World Beijing flagship during the quarter, Versace's largest store in the region. The store features our new retail concept, which is part of the brand's global fleet renovation program that recently debuted in several major international locations. We have seen strong results from our new store formats. In addition, we announced our first Asia brand ambassador, Yang Mi, a celebrated actress and singer with approximately 100 million followers across social media. These initiatives further amplify the vibrant image of the brand in the region, where we continue to see strong growth. Capping off the quarter, Versace played an integral role celebrating the 50th anniversary of WorldPride in New York City.
Donatella Versace was named a Stonewall Inn Ambassador, honoring her commitment to promote and defend diversity, equality, and inclusivity all over the world. Taking the stage at the Stonewall Inn 50th anniversary celebration, Donatella was one of the main speakers and shared the stage with Lady Gaga, who wore a custom-made rainbow flag-inspired Versace Atelier look designed for the occasion. Donatella was also the honorary guest of the Stonewall Inn float during the famous parade that closed the month-long celebration, which was capped off with a concert by Madonna, who also wore Versace Atelier. Our total media coverage was extensive, and during the quarter, Versace's Instagram followers grew to 18.6 million, an increase of 41% over prior year. Additionally, Donatella's Instagram personal following reached 4.4 million. Overall, we could not be more pleased with the continued momentum and strong start to the year from Versace.
We are aggressively executing against our growth initiatives and investing in the brand and remain confident in our goal to accelerate growth and achieve $2 billion in revenue. Moving to Jimmy Choo. Revenue declined 9% reported and 6% on a constant currency basis. Retail revenues increased double digits in the quarter and comparable store sales were flat. As previously anticipated, wholesale revenues declined during the quarter. These results were slightly lower than we anticipated due to the pound weakening in the quarter and later demand fulfillment in our key active footwear category. Jimmy Choo continued to deliver comparable sales growth in footwear led by the design vision of Sandra Choi. The brand introduced new seasonal updates of our core groups across all classifications while continuing to focus on the rapidly expanding fashion active category. The recently introduced Diamond and Rain sneakers both continued to exceed our expectations.
As previously stated, demand has been stronger than anticipated, and we are working to fill backlogs for both Diamond and Rain. We anticipate being back in an appropriate inventory position in Q3. In accessories, we continue to build our new collections, introducing Madeline during the quarter, and the initial results are very encouraging. Additionally, we are excited about the future introduction of our first JC signature group, Varenne. We believe comparable store sales and accessories will begin to show growth later in the year, supported by these two new introductions. In terms of brand awareness and engagement, Jimmy Choo continued to dominate the red carpet with celebrities such as the Duchess of Cambridge, Gemma Chan, Dua Lipa, Emily Blunt, Priyanka Chopra, Amal Clooney, and Lady Gaga.
Jimmy Choo built on the positive response to Gemma Chan wearing the Shiloh pump at the Oscars and used this platform for a broad social media campaign around the launch of a capsule collection of our most iconic red carpet-worthy shoes and evening clutches. In Asia, the brand partnered with Ambassador Victoria Song Qian to design and launch a bespoke capsule collection. Supported by a social media campaign on Weibo and WeChat, the capsule was very successful. We also expanded our online presence in China during the quarter, launching our own brand website and opening a Jimmy Choo store on WeChat. During the quarter, Jimmy Choo's Instagram followers grew to 10.5 million, an increase of 25% versus last year. Looking at Jimmy Choo more broadly, we are pleased with the significant progress of our investment initiatives, retail store fleet expansion, and accessories product development.
We look forward to the brand's growth for the remainder of the year and beyond as we build towards our goal of $1 billion in revenue. Turning to Michael Kors brand. First quarter revenue declined 5% on a reported basis and 3% on a constant currency basis compared to prior year. Revenue was below last year, primarily due to unfavorable foreign currency translation and lower Americas wholesale shipments. Comparable store sales declined in the low single digits in line with our expectations. We delivered positive comparable store sales growth in Asia and Europe, while comparable sales declined in the Americas. Excluding the impact of watch declines, comparable sales would have been positive. Moving to our product performance. Michael's vision continues to create energy, excitement, and engagement with our customers. In accessories, the Michael Kors Collection iconic Bancroft group remains a customer favorite.
New shapes such as disco pouch, medium shoulder, and mini satchel have received a positive response. In our MICHAEL Michael Kors line, our recently introduced Cece, which features an elegant fold-over silhouette and lock and key detailing, quickly grew into a top performer during the quarter. We saw strong success with the launch of our new Manhattan group. Manhattan was also featured in a collaboration with Japanese celebrity Tsubasa Honda. Our Michael Kors signature styles continued to enjoy increased consumer demand, and we saw strong comparable sales growth in this classification. We continue to improve our inventory position in signature with penetration increasing to the mid 20% range. However, we remain under inventoried and plan to grow this signature to approximately 30% of our retail accessory sales by the end of the year.
Moving to footwear, performance was driven by fashion active, which was led by our Georgie, Billie, and Allie sneakers. Our customers responded well to seasonal color combinations, new soft colors presented in luxury mixed media materials, and novelty detailing. Signature continued to perform well across all classifications with a strong response to our signature printed denim fabrics as well as lighter, more subtle signature mixes. In women's ready-to-wear, dresses remained our largest platform with strong customer response to Michael's summer collection, featuring medallion lace with applique details, studded floral motifs combined with luxe artisanal texture fabrics, as well as metallic foil prints that evoke an elegant Mediterranean charm. Beyond dresses, fashion outerwear continued to trend positively with bestsellers including our iconic leather motorcycle jacket and an oversized anorak offered with trademark hardware detailing.
In our men's business, the accessories collection continued to be a key strategic focus and is performing well. Growth was led by backpacks including our core Grayson and Henry groups, as well as our newly introduced Brooklyn mesh backpack trimmed with leather and sporting a suede bottom and neon accents. Sportswear also performed well with the Greenwich Polo remaining a top seller. Additionally, our recently introduced sport capsule collection featuring signature taping and bold color choices continued to perform well globally. In our watch category, we continued to innovate in fashion watches, launching the Whitney and Runway Mercer, which feature feminine details and semi-precious accents. We also introduced our new Access Sofie smartwatch with heart rate monitoring and new sport features. Despite these initiatives, the overall watch category remains more challenged with declines remaining above historical levels.
We are focused on accelerating the distribution of our fine jewelry line to offset watch declines longer term. During the quarter, we saw a sequential improvement in jewelry sales driven by strong performance of collections featured in our Bella Hadid spring marketing campaign, including Kors Love and Mercer Link offerings. With respect to brand awareness and customer engagement, we continue to benefit from Michael Kors' personal and extensive global presence. At the Met Gala, Michael dressed a wide array of celebrities, including Gigi Hadid. We are also excited to announce that Gigi will be the new face of Michael Kors' Wonderlust fragrance campaign. This new relationship will build on our successful fashion campaigns with Bella Hadid.
By partnering with both Bella and Gigi, two of the most highly recognized fashion icons in the world, with a combined Instagram following of 74 million. We are further deepening our connection with Millennial and Gen Z consumers. Turning to WorldPride in New York, Michael was at the forefront of celebrating his lifelong support for the LGBTQ+ community. Michael sponsored a celebration at the Stonewall Inn in support of God's Love We Deliver, which highlights his philanthropic commitment to support those in need. In June, we launched MKGO Rainbow, a capsule collection celebrating Pride across all categories of men's and women's businesses. As a result, the company was able to raise significant funds to support LGBTQ+ organizations.
Reflecting on our strong brand communication initiatives, we increased our global social media audience by 9% to over 46 million followers and expanded our database by 25% to approximately 36 million customers, both demonstrating the strength and desirability of the Michael Kors brand. Overall, we remain very encouraged by the continued progress we are making with Michael Kors to ultimately return the brand to growth. We believe these efforts will support better results for the entire brand, including a sequential improvement in comparable sales in the second half, and solidify Michael Kors as the foundation of our group. In conclusion, we are pleased with the start to the year. We are investing in Versace and Jimmy Choo to position these preeminent luxury houses for future revenue growth and margin expansion. Additionally, we continue to execute on our strategic initiatives at Michael Kors.
The combined power of our three fashion luxury houses gives us the confidence in our ability to achieve our long-term goals. Let me turn the call over to Tom.
Thank you, John. Starting with first quarter results, revenue of $1.35 billion increased 12% compared to last year, driven by incremental revenue from Versace, partially offset by lower results from Jimmy Choo and Michael Kors. Net income of $145 million and diluted earnings per share of $0.95 were ahead of our expectations and included $0.08 dilution from Versace. Looking at revenue performance by brand, Versace revenues were $207 million, and comparable store sales increased double digits compared to prior year, both ahead of our expectations. Comparable sales continued to be driven by strong ready-to-wear and active footwear performance. Versace ended the quarter with a global luxury fleet of 196 retail stores, a net increase of eight from the prior quarter as we begin to accelerate our retail expansion. Turning to Jimmy Choo, revenues during the quarter were $158 million, a 9% decrease compared to the prior year.
On a constant currency basis, total revenue declined 6% versus the prior year. These reported results were below our expectations, reflecting unfavorable foreign exchange translation, lower wholesale shipments, and flat comparable store sales driven by late active footwear deliveries. Jimmy Choo ended the quarter with a global fleet of 215 retail stores, a net increase of 24 from the prior year. Turning to Michael Kors, total revenue of $981 million declined 5% compared to last year on a reported basis and 3% on a constant currency basis. Comparable sales declined in the low single digits, in line with expectations. Excluding watches, which continued to be a significant headwind in the quarter of approximately 170 basis points, comparable sales would have been positive. Comparable sales grew in Asia and Europe, offset by declines in the Americas. Global e-commerce benefited comparable sales by 130 basis points.
Michael Kors ended the quarter with a global fleet of 853 retail stores, a net increase of six from the prior year. Turning to total company margin performance. Gross margin was 62.4%, approximately flat compared to the prior year. Total company operating expense increased to $129 million compared to the prior year, reflecting $142 million in expense related to the addition of Versace, partially offset by lower expenses at Michael Kors. As a percentage of revenue, operating expense increased 500 basis points to 48.3%, reflecting the addition of Versace. Total company operating margin of 14.1% was ahead of our expectations. This compares to 19.4% last year, reflecting the addition of the Versace business and anticipated lower operating margins for Jimmy Choo and Michael Kors. Versace's operating margin was 1.4%, which was above our expectations due to higher revenue.
Versace's first quarter operating margin was expected to be low due to normal seasonality and additional brand investments. Jimmy Choo's operating margin was 7% during the quarter compared to last year's margin of 14.5%. While we'd expected a lower operating margin due to revenue timing and higher investments, actual results were further impacted by lower than anticipated revenue in the quarter. Michael Kors' operating margin of 20.5% was above our expectations. Our tax rate for the quarter was 18.1% compared to 9.9% in the prior year, primarily reflecting lapping the tax benefit related to employee equity compensation recorded in the prior year quarter. Turning to our balance sheet. We ended the quarter with $160 million in cash and cash equivalents and $2.4 billion of debt.
This quarter marked the implementation of the new lease accounting standard for Capri Holdings. We recorded right-of-use lease assets of approximately $1.7 billion and liabilities of approximately $2.2 billion. For the quarter, we also recognized a $97 million store impairment charge, primarily related to new lease assets recorded in connection with the updated lease standard and predominantly impacting the Michael Kors retail fleet. Looking at inventory, we ended the quarter with $1 billion compared to $697 million last year, with the increase primarily reflecting the addition of Versace inventory of $202 million. Jimmy Choo inventory increased 9% compared to the prior year, reflecting anticipated revenue growth. Michael Kors inventory increased 19%.
We expected inventory to be elevated this quarter, partly due to lapping an 11% decline in the prior year, as well as reflecting higher in-transit inventory and an increase in signature and core accessories products as we build these classifications to higher mix levels. Going forward, we expect smaller increases but continue to anticipate inventory will be above prior year over the next few quarters. Now turning to our capital allocation. Our first priority remains debt repayment, and we expect to pay down approximately $500 million during the fiscal year. Additionally, our board has authorized a new $500 million share repurchase program, further demonstrating the strength of our cash flow and providing capacity to return cash to shareholders over the longer term. Now I'd like to turn to our guidance.
For full year fiscal 2020 for Capri Holdings, we now expect revenue of approximately $5.8 billion compared to our prior estimate of $6 billion. Approximately half of this reduction is driven by additional unfavorable foreign exchange translation due to the strengthening of the U.S. dollar against multiple currencies, and half is related to reduced Michael Kors revenue in the Americas, which is predominantly associated with the wholesale channel. We believe the largest proportion of the revenue reduction will occur in the third quarter. For the year, we continue to expect an operating margin of approximately 15.5%, interest expense in a range of $15 million-$25 million, an effective tax rate of approximately 14%, and weighted average shares outstanding of 153 million, resulting in diluted earnings per share of approximately $4.95, including anticipated Versace dilution of approximately $0.20.
Also included in our guidance is the impact of the recently announced U.S. tariffs on China, which now include ready-to-wear and footwear. Turning to our second quarter guidance, we expect total company revenue of approximately $1.45 billion, a double-digit increase from prior year. We forecast Versace revenue of approximately $220 million and mid-single digit growth in comparable sales. For Jimmy Choo, we expect revenue of approximately $125 million and comparable sales to be flat for the quarter. For Michael Kors, we expect revenue moderately below prior year and comparable sales to be flat for the quarter. Our second quarter operating margin is expected to be approximately 15%. For Versace, we expect a slightly positive operating margin reflecting favorable seasonality and revenue growth, partially offset by increased investments to support our growth initiatives. For Jimmy Choo, we expect a negative operating margin in line with normal seasonality.
Michael Kors brand operating margin is expected to be lower than prior year, but a more moderate reduction from prior year compared to first quarter performance. Interest expense is expected to be approximately $5 million. Our effective tax rate is expected to be approximately 11%. We forecast weighted average shares outstanding of 153 million, resulting in diluted earnings per share in the range of $1.21 to $1.26, including Versace dilution of approximately $0.05. To give some color on second half earnings, I would like to provide an update on our Q3 and Q4 expectations. In Q3, we anticipate earnings per share to decline in double digits versus prior year. This is driven primarily by the previously mentioned revenue reduction, which is proportionally higher in the third quarter due to lower Michael Kors wholesale shipments in the Americas.
Looking at the fourth quarter, we expect earnings per share to be approximately double compared to prior year. This increase will be driven by the benefit of an additional month in the quarter for Versace, higher operating margins for Jimmy Choo and Michael Kors, and a lower tax rate. In conclusion, we remain on a path to deliver our earnings commitment for fiscal 2020 while investing and executing against the strategic initiatives that position our global luxury group to achieve meaningful long-term revenue and accelerated earnings growth. Now, I will open up the line for questions.
Thank you. If you would like to ask a question, please signal by pressing *1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press *1 to ask a question. We will take our first question from Paul Lejuez from Citi. Please go ahead. Your line is open.
Hey, thanks, guys. I think you've given us the percentage of handbags that come from China in the past. Can you remind us what % of apparel and footwear are sourced from China today, versus where you see that going based on any adjustments you might have made? Then also, since you reduced the dilution number for Versace, can you just talk about what drove that? Curious, what's the reason you expect comps to slow to mid-single digits this quarter after running up double digits in 1Q? Thanks, guys.
Good morning, Paul. Paul, let me address this. I think there's three questions. I'll let Tom take the dilution one, then I'll come back to the Versace comps. Number one, the percentage of footwear and ready-to-wear that is made in China today, while it represents a more significant piece of those two categories, we do not feel, even if the tariffs were to go to the full 25%, that that would impact our earnings. We believe we have enough opportunity to mitigate some of those issues. As you saw, we just did with the increase of the 10% on those categories. We're comfortable that both in this year and as we move forward, that will not impact our earnings projections. I also might add our intent is to not raise prices.
We believe that, as we stated in our prepared remarks, that Michael Kors, the brand, will return to flat and even positive comp store growth in the back half of the year. We think it's very important that we continue to maintain our pricing strategy that we have both domestically and globally. As we've been saying, we are absolutely seeing traction in the business, and particularly in accessories. We're seeing a pretty good rebound at the more signature inventory we get into our own retail stores. It's really helping the business considerably. So we want to stay on the strategy. I might also add that we're seeing traffic inside our stores really level off, which is a great sign. The marketing initiatives that's being led by our teams here, Michael and also Francesca Leoni, are really taking hold with Bella Hadid and now the announcement of Gigi.
We're re-engaging with certain customers that may not have been focused on the brand in the past. We're feeling really good about the initiatives that we're taking, and we're seeing that reflect. As you know, we also stated that our comparable store sales in Asia and in Europe remain positive, and we're seeing great growth in those two regions. We think we're going to be able to achieve the same thing in North America, and that's going to be coming pretty quickly. I'll turn the second part over on dilution to Tom.
Sure, Paul. When you look at Versace's performance in Q1, we had expected dilution of around $0.15. It came in much better at $0.08. That's really driven by the better sales performance, higher comparable sales as well. We're flowing through that mostly to the year, moving from $0.25 dilution to $0.20 with a slight piece not going through due to the FX headwinds from the U.S. dollar. I feel we're really reflecting a great start to the year for Versace in that full-year dilution outlook, which is much lower than what we had anticipated when we were originally discussing this acquisition.
Yeah, turning to the Versace comps, again, we're very, very pleased with what we saw in the quarter, which was ahead of our expectations. I can't tell you that we hopefully won't be in the same position when we're on this call in a few months from now. We are certainly planning the business aggressively. I think that we are going to take a conservative approach always with the luxury businesses to just see good, steady, solid growth. Mid to high single digits is where we will always be thinking about the Versace business. I think we're very comfortable with that range. It can go higher, et cetera, but we're well-positioned to do that.
The other thing that we will also do with Versace, which is exactly what we did with Jimmy Choo, and we talked about this in our prepared remarks, we're going to start to wind out of some of the current accessories collections, where we're introducing the new Barocco V logo, which you saw on the runway. The Virtus bag which has already, before we've even tried to accelerate this, is really getting some very nice reaction. We're going to do a little tweaking on that side. As I've told you before, that takes us about 12 months, exactly more or less what we've gone through with Jimmy Choo.
By the way, if you get a chance to go into the Jimmy Choo store, the new Varenne collections have arrived in not only the accessories, but in the footwear, and we're really pleased with the early results that we're seeing from those signature collections in the store. I think we're executing just right on the mark for what we had planned for Jimmy Choo, and we'll be doing the same thing in Versace. Thank you, Paul.
Thanks, John. Good luck.
If you find that your question has been answered, you may remove yourself from the queue by pressing the star key, followed by the digit two. We will now take our next question from Matthew Boss from JPMorgan. Please go ahead. Your line is open.
Great. Thanks. John, maybe can you speak to the health of the accessible luxury handbag category? Specifically, what changed over the past three months in North America wholesale relative to your prior outlook? Then just larger picture, what are you seeing in terms of traffic trends, channel inventories, and promotional activity today in North America?
Okay. A lot more questions. Very good, Matt. First thing, good morning. The accessible luxury category, I think we see it as the following. We still see it growing mid-single digits in Asia. We feel good about that. The category is still growing there. In Europe, I think we're actually seeing a little acceleration in the category, which is something we feel really good about. Where I have had multiple quarters of comp store increase in our Europe business, and very clearly our accessories business is healthy there. Again, both product and the marketing based around Bella Hadid. In North America, I think the accessible luxury category is actually down slightly. I think some of that is a little bit of lack of innovation, which I think we're now starting to see some really good reaction to.
Again, in our prepared remarks, I talked about the fact that we have now three new collections, that being Manhattan, Cece, and Whitney, that are really doing well inside of our stores. Quite frankly, it's been a while since we've had three strong collections all simultaneously performing on top of the signature styles. I think we will begin to lead some of that rebound for the category. I think you're going to see that happening relatively quickly. I think the consumer wants innovation, and they'll respond when there is innovation. In terms of channel, we definitely see the North American department store channel as the weakest channel for us around the world. I think there we are behind on the strategy that we have in our own stores. They are significantly below the 20% mark in our signature category.
We believe we will get the department store channel caught up. I'd say it's probably going to be more like fourth quarter. We're working very hard. It's not easy to just turn that production in terms of the kinds of quantities that we're talking about as quickly, but our partners are very encouraged by what they're seeing. They're also seeing excellent sell-throughs in this category for us. I can't tell you when I see that channel turning positive because I just don't know. This, by the way, relates to accessories. In our men's sportswear business, our women's ready-to-wear, and our footwear business, we're seeing pretty good responses in all three of those categories in that channel. I can't tell you when this channel is going to turn more positive in accessories.
I can tell you that we're working hard, and our partners are working very much alongside of us. In terms of traffic, as I commented before, we've now seen two quarters where traffic has stabilized in our own stores. We're actually seeing some growth in traffic in the stores. We saw a little bit last month. Something's happening. Something's starting to turn. Again, we feel really good about that inside the stores. I believe, again, part of this is driven by product and also part of it's being driven by our exciting marketing campaigns. Promotional activity remains about the same as it's been from where we were before. I don't really see that as impacting the business positively or negatively. This is about product, about marketing, about engaging the customer and exciting them in this category again. Thank you very much, Matt.
Thanks for all the color.
We will now take our next question from Kimberly Greenberger from Morgan Stanley. Please go ahead. Your line is open.
Great. Thank you so much. Good morning. John, I had a couple of questions on Michael Kors and Jimmy Choo. In the Kors brand, when do you think the wholesale destocking might be finished? Do you think that's sometime this fiscal year, or do you think we'll continue to see a destocking of the Americas wholesale channel into next year as well? In terms of the margin performance for the Kors brand here this quarter, the 180 basis point decline, was that pretty exclusively gross margin driven, or if you have any margin color there, that would be helpful. The revenue for Jimmy Choo, the wholesale decline, was that strictly timing or are you seeing any destocking in the wholesale channel? We're just wondering if there's going to be a little bit of a catch-up perhaps in upcoming quarters. Last question on the share count guide.
Tom, I'm not entirely sure I understand the share count guidance. I think you said $153 million for the year. The first quarter was $152 million. I'm just not sure why that goes up. Thank you so much.
Okay. That's a lot of questions, Kimberly. Good morning. Number one, I would not call what is happening in North America Michael Kors accessories to be a wholesale destock. The performance has been negative on a comp store basis. Whereas last year, we were actually trying to put less stock into the stores to have less promotional activity. This is more of an issue of us getting the right product in the stores, exciting the consumer, and we believe that's going to be led by, first and foremost, our Signature collections, which are performing very well. As I said to you, the department store channel is running five, six points behind us in our own freestanding stores, and we're working very hard to get them back in position. They're on board with us, we're all aligned.
Secondly is more and better product from us in terms of excitement, and I think we're there. I think you're starting to see some very interesting product come from Michael and the design teams, and we're seeing that positive response. We're having strong sell-throughs on various groups. As we've said, again, in our prepared remarks, we believe in our own channel, we will return to flat to positive comp store starting next quarter. We're feeling good about that. Clearly, the department store channel is having some traffic issues. We can only hope that begins to mitigate. We're very excited about what we're seeing in our own stores in terms of traffic, and that's in North America in particular.
We can't sit here and tell you when that is going to turn around, per se, but I think we're feeling positive about the actions that we're taking. I'm going to jump to the Jimmy Choo. The wholesale revenue number, as you recall from last quarter, we had said we shifted about $10 million into last quarter. Just we're changing the flows on the deliveries on the product, and that's so we can get the product on the floor a little earlier and have a little higher sell-through. That is working for us. We do have a negative, and that is that the active footwear business in luxury, as you know, is a substantial piece of business. When we bought Jimmy Choo, that was not one of their core focuses.
We have subsequently made that a core focus for the company. We have two very successful products, one being our Diamond sneaker and also our Rain sneaker. We got caught off guard. That is moving much more quickly than we had anticipated. We anticipate that the sneaker category could represent 20% of sales for Jimmy Choo, which, by the way, is still below our luxury competitors in terms of development of that classification. Given that we are, quite frankly, we're out of stock in many cases. We weren't able to deliver to our own retail stores. That impacted some of our wholesale shipments in the quarter. We believe that'll all begin to return as early as next quarter, and we'll be back on track for a double-digit growth in the next quarter.
I want to caveat that all by whatever happens to the pound, because the pound is definitely having some very significant effect on Jimmy Choo's results. As you know, it's devaluing quickly against the U.S. dollar. I will turn over the margin performance question to Tom and the share count.
Sure. Good morning, Kimberly. With regard to the share count, we typically issue stock incentives for management around the June timeframe. You would see that it really impacted dilution or the share count on a fully diluted basis coming in our second quarter. Now with regard to Kors margin, we're talking now and guiding to operating margin, and I'd like to talk a little bit at that level and then provide a little color commentary, perhaps on some of the components. As I mentioned in the prepared remarks, Kors operating margin was ahead of expectations this quarter. When you look at it compared to two prior quarters, it's an improving trend.
We expect that to continue to improve through the year and will be supported in large part by our inventory initiatives to build Signature, which as you've noted, will help support the gross margin, as that will reduce our needs to do any markdowns as we have done in the past or as many. We have cost control on the SG&A side that has really helped the margin this quarter. When you look at the broader ability to hold our $4.95 EPS for the year, it's largely driven by effective cost control across the business. We see the beginnings of that in this first quarter with Michael Kors.
Great. Thank you so much.
Thank you, Kimberly.
As we are limited by time, please pose just one question. We will now take our next question from Michael Binetti from Credit Suisse. Please go ahead. Your line is open.
Hey, guys. Thanks for all the detail here today. I wanted to see if I could ask you just a question on the guidance as you laid it out between the third quarter and fourth quarter. Tom, that was fairly interesting detail. With the EPS down the way that you pointed to in the third quarter, would you mind helping us think about how Michael Kors revenues track in the third quarter, if those will be down to a similar extent? Should we be thinking double digits, or should we be thinking more like maybe the high single-digit revenue declines and get to the rest of the EPS that you pointed to on sales deleverage?
I also wanted to ask you on Jimmy Choo. I apologize if I missed this, but with the comps in the first quarter and the guidance for flat in the second quarter, is the mid-single-digit comp for the year still valid at Jimmy Choo? Is it still valid ex currency, if that's an impact? I know the U.K. probably factors into that a little bit. Thank you.
I'll take the comp guidance on Jimmy Choo first, and I'll let Tom discuss the guidance for the year in Michael Kors. Good morning, Michael. In Jimmy Choo, again, the inventory issue, we've got to get back into inventory in the trainer category. As we said in our prepared remarks, we believe we'll be back in inventory in Q3. I don't want to say either way whether we think that the mid-single digits or low single digits is going to be what we're going to achieve. We're going to have comp store growth, and a little bit of that's just going to depend on the development of the accessories in the back half of the year, which we are feeling very good about.
As we also said, initial reaction to Madeline, which I think many of you have probably seen either in store or online, we're off to a great start on that group. Varenne, while it's only in the past few weeks, the sales associates are very excited. We're absolutely selling bags. What's interesting is we're selling footwear. The new boot that came out with the JC signature on it and our new pump with the JC signature on are both retailing very well. I think it bodes well for us. I think we feel good about what we have. Again, I want to remind everyone, this currency situation with the GBP is something we believe we will be dealing with for at least the next year as the U.K. goes through Brexit.
It's a little hard for us to sit here and be as 100% specific on some of the Jimmy Choo numbers. I might also add they're not for the moment as material for us in terms of earnings. While it's important, it's not going to be the key for us. Next year, obviously, both Jimmy Choo and Versace start to become a much more significant part of our earnings growth story. Again, we'll be watching the currency very closely, but our current forecasts include what we believe is going to happen for the strength of the U.S. dollar.
Thanks.
Michael, with regard to Q3 and Michael Kors, we did want to provide some color on the EPS directionally for Q3 and Q4. We thought it was important given the change in revenue overall for the year and how it paces out in the quarters. While we're not going to provide specific guidance at this point on revenue, I would say that the Michael Kors wholesale, looking at all the quarters, that will be the quarter that will be most impacted by this reduction given the holiday timing and seasonality of that business. The reduction in EPS versus our prior guidance is related directly to that, while the cost savings that we are generating are flowing through our quarters at a more even level through the year.
Yes. Also Q4, I think as previously stated, that includes Versace's December because they're on a one-month lag, and that is a very profitable quarter for them. That also impacts our Q4. When you're looking at your modeling, that's one of the other reasons why Q4, we get the lift as well as Tom had mentioned previously. We are going to see margin expansion from Michael Kors, in particular in the fourth quarter related to inventory positioning and the quality of that inventory positioning. Additionally, we've been getting certain additional manufacturing cost reductions, which will start to flow through as well. We're feeling very good about where the margin story in the company is going to be going, in particular in the back half of the year.
All right. Thanks a lot for all the help, guys.
Thank you, Michael.
I will now take our next question from Lorraine Hutchinson from Bank of America. Please go ahead. Your line is open.
Thank you. Good morning. I wanted to follow up on the Jimmy Choo accessories launch. Can you just give a little bit more detail on your discussion of the initial results being very encouraging? Also, is that the factor that you think will drive the comps back up to positive in the back half? Is it your better distribution on the athletic or athleisure side? What exactly do you think will drive that resurgence in comp at Choo?
First off, good morning, Lorraine. Yeah, two answers to that. Number one, we've been very transparent. Comp store sales and accessories for Jimmy Choo has been down basically almost since the first quarter we bought the company, and we did that purposely. We've been flushing out the old product, and really the new design team's product arrived in the beginning of spring. We just don't have enough density of collections inside the store to really comp what we were doing clearing and to have enough breadth of product. Again, if you take a minute to go into one of our stores, I think we are well past that at this point. The stores look terrific. We're very proud of where we've gotten to in this point. I'd say that will be a very important step change for us.
We expect that to really start happening over the next 30 to 60 days because the Varenne collection is there. We've turned on the Kaia Gerber marketing, which is online. You can see it very vibrantly. We have pop-up shops that are happening in Japan, in China, in Europe. There's a lot of activity both in the physical retail stores, in our department store partners, and in social media to activate that new signature collection. I'd say, that in itself will be a very positive thing. Secondly, clearly, we already had comp store growth this quarter in footwear. By getting back in stock with our active, we think that will further enhance that performance inside of our own stores. As I said before, we're expecting double-digit growth in total retail sales and wholesale together for the group next quarter.
On a comp store basis, flat, maybe slightly better than that. That's really going to be a function of those two things happening. The new Virtus and a broader assortment of accessories and the return to active inventory. Thank you, Lorraine.
Thank you.
We will now take our next question from Erinn Murphy from Piper Jaffray. Please go ahead. Your line is open.
Great. Thank you. Good morning, John and Tom. I guess my question is around Greater China. I would love if you could talk a little bit more about what you're seeing across the three brands in the portfolio. Have you seen any unrest or change in trend with unrest in Hong Kong? As it relates to the Chinese tourists, maybe talk about what you're seeing into the United States from that cluster of consumer and then into the European market. Thank you.
Good morning, Erinn. Yeah, a couple of things. All three brands experienced very strong and positive growth in China during the quarter. We remain encouraged. I would say not only China, but I think you have to talk about the Asia market in total. Because we see a tremendous amount of traffic that is taking place in the Asia market from Chinese consumers because they travel to Japan and Korea and to Malaysia, and et cetera. Again, we see that those markets are remaining healthy and strong for the company. In fact, in Michael Kors in particular, we were very excited. I talked about in our prepared remarks with the collaboration we had with Tsubasa Honda in Japan, and that really lifted our business in Japan.
Again, many of these influencers and collaborations that we talk about on the calls are extremely important to increasing brand engagement, but also activating consumer sales. We see, as we've talked about in the past, that resonates into that customer either traveling or living in non-Asian markets. Again, we see a halo and a lift from that. Our best-selling Manhattan bag in Michael Kors was actually launched in Japan first. Very exciting how we're seeing some of the activities take place. Our business is healthy in Europe in most of the brands. The Chinese tourist is down a little bit in Europe in general, but it's not a significant number that we're looking at today. Lastly, in North America, it's not a very big business for us in total.
There is a business which takes place a little bit more in Michael Kors than other brands, which is the Daigou business, where product is bought here and transferred to be resold in China. It's a business. It's not a significant business for us. It is a business, and I'd say that business has weakened as you've seen very much consumers in China spending more money on the mainland. There's just more activity happening on the mainland in particular. Lastly is obviously Hong Kong is an issue, and it appears to be getting worse, not better. I can't tell you what the implications of that will or won't be because we just don't know. We have a very strong and significant business there with all of our brands, and it does concern us.
Again, in the total scheme of things, it won't be material to the overall group, but it definitely impacts in that region itself.
Thank you.
Thank you very much, Erinn.
We will now take our next question from Oliver Chen from Cowen and Company. Please go ahead. Your line is open.
Thank you. Good morning, great execution on the Pride product and partnerships. John, I had a bigger picture question. We're working a lot with a lot of recommerce and resale companies, there's innovation happening there as well as subscription. What are your thoughts on how this may manifest in your business and how you're thinking about that as well as the topic of sustainability? Just key topics that we think are important for the future of retail. Thank you.
First off, good morning, Oliver. Two things. On resale, I think it is clearly an active market. We believe, and I think we were one of the first companies to talk about it three years, four years ago. There's no question that resale in North America impacted the Michael Kors accessories business. There is a substantial amount of product that is resold on numerous websites, which we do not do business with directly. We don't sell those companies directly. You can find our product on there, and it is consumers reselling accessories in particular. That, we believe, has had an impact on the overall performance of the accessible luxury market in North America. As you know, on the luxury side, it is a growing business. There are a few people who are active in it.
We're new into the greater piece of the luxury business as part of our total revenues. I can't comment to what that will or won't mean for us. We know it exists, we know it's there, and we'll continue to watch it carefully. There's other channels as, again, you're aware, who are the subscription models, et cetera. Michael Kors has a relationship with Stitch Fix, and it's been working really quite well. We think it's another way to activate and engage and excite a customer for us. We'll be very slow in our looking at these different opportunities or ways to engage with the customer. There's something that has to be looked at carefully. In terms of sustainability, the corporation has been for years working on multiple different initiatives inside the company, in particular in Michael Kors.
Now that we're a group, I think you'll see, in the future, some fairly significant statements coming out from the group on our group-level sustainability initiatives. We look forward to sharing those thoughts and objectives and goals with you and our consumers at large. Thank you, Oliver.
Thank you. Best regards.
I want to take this opportunity to thank everyone for joining us this morning. As I said in our earlier prepared remarks, we are very pleased with the way that we started out the year. We know that we have initiatives and objectives that we need to execute upon. We feel that the teams that are here and at all of our founder-led companies are very focused and have the support and leadership to be able to execute on those initiatives. We're also very pleased to be able to reaffirm our earnings guidance for the year in light of multiple challenges that we had faced. Again, we feel very positive about what's going to happen in the back half of the year, in particular for the Michael Kors brand and it returning to flat/positive comp store growth.
Again, we're very excited and look forward to reporting to you on our future initiatives on our next call. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.