Welcome to Capri Holdings Limited Third Quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll now turn the conference over to Jennifer Davis, Vice President of Investor Relations. Davis, you may now begin. Good morning, everyone, and thank you for joining us on Capri Holdings Limited Third Quarter Fiscal 2023 conference call. With me this morning are Chairman and Chief Executive Officer, John Idol, and Chief Financial and Chief Operating Officer, Tom Edwards. Before we begin, let me remind you that certain statements made on today's call may constitute forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those we expect. Those risks and uncertainties are described in today's press release and in the company's SEC filings, which are available on the company's website. Investors should not assume that these statements made during this call will remain operative at a later time, and the company undertakes no obligation to update any information discussed on the call. Unless otherwise noted, all financial information on today's call will be presented on a non-GAAP basis. These non-GAAP measures exclude certain costs associated with COVID-19 related charges, the impact of the war in Ukraine, ERP implementation costs, Capri transformation costs, impairment charges, restructuring and other charges. To view the corresponding GAAP measures and related reconciliation, please view the earnings release posted to our website earlier today at capriholdings.com. I would like to turn the call over to Mr. John Idol, Chairman and Chief Executive Officer. John? Thank you, Jennifer. Good morning, everyone. Overall, our performance in the third quarter was more challenging than we anticipated. Many aspects of our business performed well. In particular, we were pleased with the continued growth in our own retail channel across all three of our luxury houses. This is a testament to the strength of our powerful, iconic brands, Versace, Jimmy Choo, and Michael Kors, as well as the success of our strategic initiatives. We were disappointed with the performance of our global wholesale revenue in the quarter. Revenue in Mainland China declined significantly due to the surge in COVID cases as the country reopened. Turning to third quarter performance in more detail. Revenue decreased 6% on a reported basis and 1% in constant currency. Total company retail sales increased mid-single digits globally in constant currency. New customer acquisition was a key driver of growth as we added more than 12 million new names to our database versus the prior year. This is the largest year-over-year increase in our history. The growth in our own retail channel, as well as our large and growing customer database, demonstrates the strength and desirability of our brands. However, sales in our wholesale channel declined approximately 20%, driven largely by Michael Kors. Operating margin of 16.9% was below prior year. This reflected the sales mix shift between retail and wholesale, as well as increased marketing expense to support growth and build longer-term brand equity. As a result, earnings per share of $1.84 were below our expectations. Now looking at third quarter group revenue trends by geography. In the Americas, revenue decreased 4% with mid-single-digit growth in retail, offset by significant declines in our wholesale channel. In EMEA, revenue decreased 2% on a reported basis, increased 9% in constant currency. This was driven by strong retail revenue, partially offset by weaker trends in wholesale. In Asia, revenue decreased 20% on a reported basis and 8% in constant currency. This reflects strong results in Japan and Southeast Asia, offset by a nearly 40% decline in Mainland China. Moving to third quarter revenue trends by brand. Starting with Versace. Revenue decreased 1% on a reported basis, increased 11% in constant currency compared to prior year. Excluding Mainland China, revenue increased 21% in constant currency. We were pleased that revenue was better than anticipated and operating margin was in line with our expectations. Turning to product, starting with accessories, which are a key component of our growth strategy. Women's accessories was the strongest performing category, with sales in our retail channel up over 40% versus prior year. We were pleased with the response to our Greca Goddess pillar, which is continuing to gain traction. With our three pillars, La Medusa, Virtus, and Greca Goddess, we are making significant progress in our goal to position Versace as a leading luxury leather house. Another component of our growth strategy is to expand footwear. Versace continued to gain authority as a women's luxury footwear brand as we expanded our core offerings with the introduction of the Pin-Point collection, a new range of statement pumps characterized by a curved metal stiletto heel. Men's and women's sneakers also performed well, driven by our Trigreca, La Greca, and Odissea styles. Moving to brand awareness and consumer engagement. Versace continued to deepen consumer desire through powerful storytelling. The holiday campaign was inspired by Versace's deep roots within the worlds of theater and the arts. Model Lily McMenamy embodied high Versace drama while highlighting holiday gift offerings. Our marketing initiatives continue to focus on Versace's Italian luxury heritage. This helped contribute to an over 40% increase year-over-year in Versace's global consumer database. Overall, we were pleased with the performance of Versace as we continue to execute our strategic initiatives. Looking forward, we remain confident in the luxury house's long-term growth potential as we reinforce Versace's brand codes, significantly grow accessories and footwear, as well as renovate our store fleet. Moving to Jimmy Choo. Revenue decreased 6% on a reported basis, but increased 3% in constant currency compared to prior year. Excluding Mainland China, revenue increased 10% in constant currency. While revenue was below our expectations, primarily impacted by China, operating margin was better than anticipated. Turning to product. Starting with accessories, which are a key component of our growth strategy. Women's accessories was the strongest performing category, with sales in our retail channel up high single digits versus prior year. Seasonal updates to our iconic Bon Bon and Varenne styles performed exceptionally well. Women's footwear sales grew, driven by dress footwear styles as people engaged in social activities, enjoyed special occasions, and celebrated the holidays. Sneakers also performed well with positive consumer reaction to our new Diamond Maxi. During the third quarter, Jimmy Choo launched its successful capsule collaboration with Timberland. Sandra Choi partnered with New York native designer Shanel Campbell of Harlem's Fashion Row to reimagine Timberland's iconic yellow boot. The collection celebrated urban glamour and the eclecticism of New York's dynamic community. This exciting collaboration generated over 50 million impressions across social media, as well as strong product sell-throughs. Turning to brand awareness and consumer engagement. For holiday, our campaign celebrated the playful energy of the party season in London's Claridge's Hotel, where Jimmy Choo designed the 2022 Christmas tree. The unveiling of the Jimmy Choo tree was attended by celebrities and friends of the house, including Iris Law, Sienna Miller, and Daisy Lowe. Posts by attendees generated approximately 7 million impressions across social media. Our marketing initiatives continue to underpin our focus on glamour. This helped contribute to a 20% year-over-year increase in Jimmy Choo's global consumer database. We were pleased with the progress at Jimmy Choo as we continue to execute on our strategic initiatives. Looking forward, we remain confident in the luxury house's long-term growth potential as we reinforce Jimmy Choo's brand codes, significantly grow accessories, and expand our casual footwear offering. Now turning to Michael Kors. Revenue decreased 7% on a reported basis and 4% in constant currency compared to prior year. We were pleased with the continued growth in our own retail channel, with constant currency sales up low single digits despite greater declines in Mainland China. However, we were disappointed with Michael Kors wholesale, which declined approximately 25% during the quarter. Operating margin was below prior year due to the sales mix shift between retail and wholesale, as well as increased marketing expenses in our retail channel. To provide some additional color around wholesale, revenue at POS declined in the mid-teens as sales lagged trends in our own retail channel. We had anticipated a sequential improvement at POS during the holiday shopping season, but that did not materialize. Therefore, we shipped less into the channel as we did not want to end up with excess inventory, which would result in additional markdowns. As you know, we have been elevating the Michael Kors brand and product. We believe our elevation strategy is working well, particularly in our own retail channel. We continue to believe that elevating Michael Kors is the right strategy for the brand. Turning to product. In accessories, sales in our own retail channel increased low single digits globally. Consumers responded positively to core iconic collections featuring Michael Kors signature and hardware. We drove newness and excitement in signature with seasonal updates featuring metallic logo prints. As a result, signature represented approximately 55% of accessory sales during the quarter. Looking at footwear, we continue to believe we can significantly expand Michael Kors footwear to drive incremental revenue. Footwear sales in our retail channel increased low double digits as we delivered exciting fashion featuring iconic hardware branding elements and signature detailing. Men's remains one of the strongest performing categories in retail, and we remain enthusiastic about our opportunity to expand the accessories collection. Men's third quarter retail sales increased strong double digits globally, led by signature product. In December, Michael Kors collaborated with Italian luxury sportswear brand, Ellesse, for a second time to create a sporty and glamorous ski capsule collection. The collaboration created energy and excitement, generating approximately 140 million impressions on social media as well as solid sell-throughs. Now, turning to brand awareness and consumer engagement. For holiday, our consumer communication embodied Michael Kors' signature glamour and optimism infused with the joy of the season. Bella Hadid captured the jet set chic glamour of Michael's designs for the season's festivities. Additionally, in Asia, we amplified the campaign with renowned Chinese model, He Cong. Our marketing initiatives continued to underpin our jet set storytelling. This helped contribute to a 17% year-over-year increase in Michael Kors' global consumer database, demonstrating the strength and desirability of the brand. Overall, we were disappointed with the performance of Michael Kors in the third quarter. Given lower wholesale revenue, we recognize the need to reset our operating expense structure. We are beginning to take measures to better align operating expenses with the change in revenue by channel. Looking forward, we remain focused on our long-term growth initiatives to elevate the Michael Kors brand and reinforce our jet set codes. We anticipate future growth driven by our own retail channel, where we can leverage our brand momentum and personalized connections with consumers to drive revenue growth. Looking ahead to the fourth quarter for Capri Holdings, we expect continued momentum in our own retail channel, driven by each of our brand's strategic initiatives. In the wholesale channel, we now anticipate an even greater sequential decline relative to the third quarter. Due to weakness in our wholesale POS performance during the third quarter, which has continued into the fourth quarter, we are further reducing shipments into this channel. Turning to fiscal 2024 for Capri Holdings, we anticipate total revenue and earnings growth in the mid-single digits. In our own retail channel, we anticipate solid growth driven by our strategic initiatives, clienteling, and personalized strategies, as well as a recovery in China as the country reopens. In the wholesale channel, we expect revenue to decline in the mid-teens, with trends normalizing in the back half of the fiscal year. Looking forward, we remain focused on executing our strategic initiatives to drive sustainable future growth. Our three powerful iconic brands have enduring value and strong brand equity. We remain confident in our ability to achieve our long-term revenue and operating margin targets over time due to the resilience of the luxury industry, the strength of our portfolio, and the talented group of employees executing our strategic initiatives. Before turning the call over to Tom, I would like to welcome Cedric Wilmotte as our new Chief Executive Officer of Michael Kors. Cedric has proven himself to be a versatile leader within our luxury fashion group. As president of Michael Kors EMEA for over 13 years, as well as the interim CEO of Versace for the last year, and the COO of Versace currently, the board, Michael, and I are confident that Cedric's leadership will help to further accelerate Michael Kors' strategic initiatives and brand momentum. Importantly, Cedric's appointment ensures that we have three experienced and talented CEOs at each of our luxury fashion houses. I am confident that we now have the right management team in place to execute our long-term strategic initiatives. Now let me turn the call over to Tom. Thank you, John, and good morning, everyone. Overall, we were disappointed in our performance in the third quarter. While we were pleased with the continued growth in our own retail channel across all three of our luxury houses, revenue in our wholesale channel declined significantly, which resulted in expense deleverage and a lower operating margin. Turning to third quarter revenue in more detail. Total company revenue of $1.5 billion decreased 6% versus prior year and 1% in constant currency, which was below our expectations. Looking at revenue performance by brand. At Versace, revenue decreased 1% on a reported basis but increased 11% in constant currency compared to prior year. Global retail sales increased in the mid-single digits in constant currency. By geography, total revenue in the Americas decreased 4%. Revenue in EMEA increased 14% on a reported basis and 28% in constant currency. Revenue in Asia decreased 19% on a reported basis and 11% in constant currency, driven by greater declines in mainland China. For Jimmy Choo, revenue decreased 6% on a reported basis but increased 3% in constant currency compared to prior year. Global retail sales increased low single digits in constant currency. By geography, total revenue in the Americas increased 6%. Revenue in EMEA increased 1% on a reported basis and 14% in constant currency. Revenue in Asia decreased 24% on a reported basis and 13% in constant currency, driven by greater declines in mainland China. At Michael Kors, revenue decreased 7% on a reported basis and 4% in constant currency compared to the prior year, impacted by the decline in wholesale. Looking at Michael Kors revenue by channel, global retail sales increased low single digits in constant currency. This was driven primarily by a double-digit increase in e-commerce sales, with e-commerce penetration increasing 300 basis points versus prior year. Wholesale revenue declined approximately 25% compared to prior year. Turning to Michael Kors revenue by geography, sales in the Americas decreased 5%, driven by the decline in wholesale. Revenue in EMEA decreased 11% on a reported basis and 1% in constant currency, also driven by a decline in wholesale. Revenue in Asia decreased 18% on a reported basis and 5% in constant currency, driven by greater declines in mainland China. Looking at total company margin performance. Gross margin expanded 120 basis points to 66.3%, driven by moderating inbound transportation costs, price increases, and channel mix. Operating expense as a percent of revenue was 49.4% compared to 42.8% last year, reflecting several factors primarily driven by the Michael Kors brand. The significant decline in wholesale revenue resulted in deleverage as the wholesale channel has a low variable cost structure. As planned, we increased our marketing investments to support brand-building activities across the group. Third, e-commerce sales increased double digits, which resulted in higher variable costs. Due to the operating expense deleverage, total company operating margin declined to 16.9% compared to 22.3% last year and was below our expectations. At Versace, operating margin of 9.6% was in line with our expectations and compared to 12.7% last year. At Jimmy Choo, operating margin of 10.7% was ahead of our expectations and compared to 9% last year. At Michael Kors, operating margin of 22.9% was below our expectations and compared to 28.4% last year. Our tax rate for the quarter was 3% compared to last year's rate of 8.1%, primarily due to the release of a valuation allowance on U.K. deferred tax assets. Turning to our balance sheet. We ended the quarter with cash of $281 million and debt of $1.54 billion, resulting in net debt of $1.26 billion. As part of our ongoing commitment to return cash to shareholders, we repurchased approximately $300 million worth of shares in the third quarter. Looking at inventory, we ended the quarter with $1.19 billion, a 21% increase over last year. This represents a sequential deceleration compared to the prior quarter. We continue to expect inventory levels at the end of the fourth quarter to be below prior year. Turning to guidance. Looking at the fourth quarter, we are more cautious in our revenue outlook in the face of an increasingly uncertain macroeconomic environment. We now anticipate total company revenue of approximately $1.275 billion. This represents a decline of 15% on a reported basis, reflecting a mid-single digit decline in retail. For wholesale, we had planned the channel down, but we are now planning it down further and forecast an approximate 35% decline. On a 52-week constant currency basis, total company revenue would be down 8%, including an increase in retail revenue in the mid-single digits. For fourth quarter revenue by brand, we forecast Versace revenue of approximately $280 million. This represents a decline of 11% on a reported basis, with a low single-digit decline in retail and an approximate 30% decline in wholesale. On a constant currency basis, Versace revenue would be down 7%, including a low single-digit increase in retail revenue. As a reminder, Versace reports on a one-month lag. The significant declines in mainland China in December will be included in fourth quarter results. For Jimmy Choo, we forecast revenue of approximately $130 million. This represents a decline of 16% on a reported basis, with a low double-digit decline in retail and an approximate 40% decline in wholesale. On a 52-week constant currency basis, Jimmy Choo revenue would be down 7%, including a low single-digit increase in retail revenue. For Michael Kors, we forecast revenue of approximately $865 million. This represents a decline of 15% on a reported basis, with a mid-single digit decline in retail and an approximate 35% decline in wholesale. On a 52-week constant currency basis, Michael Kors revenue would be down 5%, including a mid-single digit increase in retail revenue. Looking at operating margin. We anticipate fourth quarter operating margin of approximately 8.5%. This reflects continued gross margin expansion, offset by operating expense deleverage, primarily due to the sales mix shift between retail and wholesale. We expect this across all three brands. For Versace, we now anticipate an operating margin of approximately 10%. For Jimmy Choo, we now expect an operating margin in the negative mid-teens. For Michael Kors, we now anticipate an operating margin in the mid-teens. Turning to our expectations around certain non-operating items. We forecast net interest expense of approximately $11 million. We expect an income tax benefit with a rate of approximately -20%, driven primarily by the resolution of an uncertain foreign tax position, as well as anticipated mix of earnings in lower tax jurisdictions. We expect weighted average shares outstanding of approximately 126 million. As a result, we now anticipate diluted earnings per share of approximately $0.90-$0.95. Now I would like to take a moment to share high-level thoughts around our preliminary expectations for fiscal 2024. We are providing this outlook given the material change in wholesale trends. We currently expect fiscal 2024 revenue of approximately $5.8 billion, a 4% increase versus fiscal 2023, driven by continued growth in our own retail channels across all brands. We anticipate retail revenue will increase in the low double digits, primarily driven by growth in Asia as China reopens. Excluding Asia, we expect retail revenue to increase in the mid-single digit range driven by our strategic initiatives. In the wholesale channel, we expect revenue to decline in the mid-teens range. Together with our partners across all three of our brands, we are taking a more cautious approach to planning the business due to the uncertain macroeconomic environment. We now anticipate wholesale penetration will decline from 27% of revenue in fiscal 2023 to approximately 23% of revenue in fiscal 2024. Looking at our operating expenses. Because of the anticipated decline in wholesale revenue, we recognize the need to reset our expense structure. We plan to proactively manage expenses while also continuing to make strategic investments, particularly in marketing, to drive long-term growth. Looking at fiscal 2024 operating margin, we expect modest expansion to 16.5%, reflecting gross margin expansion partially offset by expense deleverage. We expect an effective tax rate in the mid-teens, as well as higher interest expense, largely offset by lower share count. As a result, we anticipate EPS of approximately $6.40. I would like to discuss our expectations regarding the cadence of fiscal 2024 revenue and earnings between the first and second half of the year. Looking at revenue in our own retail channel, we anticipate growth throughout the year. In wholesale, we expect significant declines in the first half, with trends normalizing in the back half of the year as we anniversary the declines in fiscal 2023. Relative to prior year, this will result in lower margins in the first half of fiscal 2024, with margin expansion expected in the back half of the year. Looking at our expectations by brand. For Versace, we anticipate revenue of approximately $1.25 billion and an operating margin in the mid-teens range. For Jimmy Choo, we expect revenue of approximately $650 million and an operating margin in the high single-digit range. For Michael Kors, we anticipate revenue of approximately $3.9 billion and an operating margin in the low 20% range. In conclusion, while we are disappointed with our third quarter results and our fourth quarter guidance, we remain optimistic about the long-term growth potential for Versace, Jimmy Choo and Michael Kors. Our powerful brands have enduring value and proven resilience, reinforcing our confidence in the ability to deliver strong revenue and earnings growth over time. Now we will open up the line for questions. Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question today, please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. That we may address questions from as many participants as possible, we ask that you please limit yourself to one question. One moment please, while we poll for questions. Thank you. Thank you. Our first question comes from the line of Matthew Boss with J.P. Morgan. Please proceed with your question. Great, thanks. John, maybe a couple questions. First, larger picture. Could you speak to overall category demand for accessories that you're seeing today, maybe relative to pre-holiday, if there's been any change? How best to explain the difference that you're seeing between direct to consumer and wholesale as it relates to the overall health of your brand portfolio? Do you believe the reset in revenues for next year appropriately covers you for nearly any scenario from a macro perspective? Thanks. Thank you, Matt. Good morning. Obviously, we are very disappointed with our third quarter results, mainly driven by the wholesale channel. We are pleased, as we said in our prepared remarks, with our own retail channel, which showed strength really across the globe with the exception of China, which had further declines than we had anticipated, and that was due to the reopening. And I think we have said that we had more stores shut down at certain points during the fourth quarter in China than we did at any point during the pandemic. That was quite difficult. And, and we have seen an uptick in the business there, especially in January. We're feeling strong and good about our own retail channel and how we're able to communicate and clientele and work directly with the consumer. Of course, you also saw that in our database growth, where we had the largest growth ever in the company's history. We've consistently grown the database at all three of those luxury brands, every single quarter in the double-digit range. I think that speaks to the strengths of the brands, the way the consumer is reacting to our strategic initiatives, and that's everything from the marketing to the actual product itself. You saw in all three of our categories, we had growth in accessories. That really speaks to, I think, the strength of the category. I think you've also seen from many of the other reports that have happened with other luxury houses in the world, the category is strong. In terms of what happened in the wholesale category, and I'd say that's more of a North America issue, where Europe performed better, although still not up to our anticipation. You know, we have been, this is really more of a Michael Kors issue. We've been elevating the brand, both in positioning the way we're marketing it, the way that we have really elevated many of the products in terms of the quality, in terms of the design, and in terms of the pricing. Right? Our pricing is up on average close to 25% since we started our price increases in 2019. I do think that the consumer was more cautious during the holiday season. We saw strong performance in our own stores through Black Friday, and then that kind of consisted right afterwards. We did not see the same rate, pace and rate for at the in particular, the North American wholesale channel. That channel has not kept up the pace of the growth all throughout the year. We thought that part of that was an inventory issue where we thought if we could get in a better inventory position, which we did think we were in, come the third quarter of the calendar year, as we had shipped, you saw in our first two quarters, had very strong wholesale shipments. That was really to get our inventories back in line in that channel. The performance just never came from that consumer. You know, there is a possibility that the pricing increases that we've taken are impacting that channel differently than it's impacting our own channel. We have multiple tiers inside of our pricing, but all of our pricing has gone up. What we did see as a positive in both the North American and the European channels is where we had put our own selling staff back into the stores, we saw a fairly significant delta between the performance in those doors that had our own staffing in it and those doors that did not. We intend on as a part of our investment, continued investment in the wholesale channel, to take that level of staffing up. We talked about it once before. We said we'd see how that goes. There's clearly been a positive result, especially in top-tier doors. We intend on continuing to invest in that. Again, in terms of category demand, we think the category continues to grow. I do have to say that the category was impacted across the department store channel, in particular, in North America. We saw it at all locations. That was disappointing. We had expected that to really have an uptick especially during the holiday season. That, unfortunately, did not happen. In terms of our forecast, Matt, look, you know, all we can do is provide the best guidance. I think we gave very fulsome guidance. We do believe that we're gonna continue to see strength in our own retail channel. That seems to be consistent with what we see happening. We do think that the reopening of China in particular will add additional opportunity for revenue in our own retail channel. We do see some small additional increase in the travel retail channel. Again, in particular in Asia, we think that will rebound. I think we're feeling comfortable with that. We've planned the business to be down quite significantly in our fourth quarter and into the first quarter of next year for our quarters. That's really to offset where we were restocking the wholesale channel. That's on a global basis. We've planned for again, a slightly higher decline in Q2. The back half of the year, we've planned it more or less flat, which will still be a stacked year-on-year decline. We've said wholesale would be down in the mid-teens. By the way, that's across the group. That's just not Michael Kors. We're seeing our partners, at multiple levels, in the wholesale area, be more conservative in their planning, given some concerns around the consumer and how they might respond, in general. I think we're taking a very prudent point of view. Lastly, as Tom said in his prepared remarks, we're going to adjust our investments and our spend accordingly. The wholesale business for us was a profitable business and does not have a lot of fixed costs associated with it. Therefore, we'll have to make some adjustments inside of our own operations, and we're hard at work at that right now. I think the takeaway for us is we have three incredibly strong brands with Versace, with Jimmy Choo, and Michael Kors. We believe that these are very strong brands. And we believe that our strategic initiatives are very solid, and we're gonna stay true to those to that vision. I think that worked for us as we went through COVID-19, and we're gonna stay with that strategy as we go through this kind of change in how we're gonna be running the business given a lower wholesale business that has lower associated costs up against it, and we'll continue to work our model accordingly. Thank you very much for that question, Matthew. Our next question is from the line of Omar Saad with Evercore ISI. Please proceed with your question. Hi, good morning. This is Warren Cheng on the line for Omar. I just wanted to dig in a little bit further on the 4Q sales guidance. It's a pretty big step down even from the 3Q change. Just to clarify, is that all coming on the wholesale side, or did you change the outlook on the retail side too? Also, just if I look geographically, and focusing on China, you know, I think we all understand what happened just in December for China. Looking past December, have your expectations for China changed there versus three months ago? Hi, it's Tom here. Thanks for the question. For Q4, we've really taken a more cautious outlook due to the increasingly uncertain macroeconomic environment and also, as John mentioned, inflation impacting consumer confidence. What we've seen there is a big step down in wholesale, down 35% versus prior year, and Mainland China down 35%. In total, if I do that, on an absolute dollar basis, that's pretty much the whole reduction versus our prior year for the quarter. We still expect retail to grow mid-single digits. This is a slight change in our China outlook because we do have opportunity next year, we believe, as they are reopening. As they've taken away all the restrictions, and the COVID cases have surged, that has created, I think, a near term, pullback in traffic and results. Thank you. Thank you. Our next question comes from the line of Ike Boruchow with Wells Fargo. Please just give us your question. Hey, good morning, John and Tom. Good to hear from you guys. I guess, John, if you could just clarify, two quick questions on wholesale. I believe, based on your answer to Matt, that you're kinda talking about next year, wholesale being basically down 30 in the first half and flat in the back half. I think you said Q2 should be worse than Q1. If I heard that right, could you just, could you just clarify why that would be? Then just within the wholesale cost structure, obviously it's a little out of whack because of the declines. How quickly can... Do you think it will take, or how much time do you think it will take to kind of align the cost structure so that you feel like you're in a good position go forward from a profitability perspective, out of that channel? Sure, Ike. It's Tom here. I'll take those. For wholesale, Q1, Q2 next year. Overall, as you mentioned, we'll be down 15% for the year. We expect declines in the first half as we are anniversarying the restocking in fiscal 2023, and that's gonna be more weighted to the first quarter. The first quarter in wholesale will be down more than the second quarter on a year-over-year basis. Hopefully that answers the first question. And then in terms of aligning costs, as we mentioned, wholesale has a lower variable cost structure. We are working on a number of initiatives to reduce expenses, have embedded those into our guidance, and we're recalibrating the rate of spend across all our divisions and reducing non-revenue generating expenses, in corporate, for instance, and also a rigorous evaluation of other expenses not directly linked to consumer engagement, revenue, and other areas that are driving the business. That said, we are going to continue to invest, particularly in marketing, but also in areas like e-commerce and digital, that we know drive engagement, allow us to use that large database and growing database. Ike, I wanna clarify one thing, and I understand why you ask the question. We are planning at retail the business down with our partners across the group in the wholesale channel in the first half of calendar year and the back half of calendar year. This is at retail sales, not wholesale, at retail, so it's POS. We are planning the business roughly flat. And there might be some exceptions to that, you know, whether it's Jimmy Choo planned up slightly. In terms of impacting the total company, we think that that's the right way to view how... what may happen with the consumer in the back half of the year. We think that's prudent with Michael Kors given that there was such a high decline in the channel during the back half of the year. You know, I might add one other thing too in terms of color. We did not have that decline last year. In calendar 2021, we actually had a very strong performance with the Michael Kors brand in the wholesale, in particular department store channel. This was as I said, this could be caused by some of the price increases that we've seen happen. We can't speak to what staffing levels were in the stores, et cetera, but we know where we put our own people in. We know in our own stores where we have our own teams in place, we are doing I think a very good job connecting with the consumer. We also know that when you have database grow the way that we saw. By the way, those are predominantly consumers who are actually purchasing from us. Usually when the database is growing, they have made a purchase from us. That shows us that there's tremendous interest in all three of these brands. Again, we feel confident, and I know that it's not gonna be easy for many of you on this call and people listening in, given this step change in the wholesale business. Again, we continue to look at the strength and the power of these three houses. We're gonna have to pivot a little more quickly than we had anticipated because we always have wanted the wholesale business to get down to around 20% of the company sales. This just happened a little faster than we would have anticipated. I think we've shown we can be nimble and really move forward quickly. I think you can expect to see some of the fruits of our initiatives around rebalancing certain costs in areas to happen relatively quickly. Thank you. Our next question is from the line of Alex Straton with Morgan Stanley. Please proceed with your question. Great. Thanks for taking my question. Good morning. I wanted to focus on gross margin here. It appears to have held in quite nicely. Perhaps could you just share your observations on the promotional environment in the quarter, as well as the assumptions you have embedded in the modest expansion guidance going forward? Thanks. Thank you, and good morning, Alex. I think the better news in our report was first, our performance at our own retail stores. Second, again, the database growth showing the health and the response of the consumer to our brands. I think the gross margin also. You know, we had a number of things that impacted the gross margin, positively. Again, we've had this sequential price increase. We told you either two calls ago or last call, we are not going to be taking any more price increases. There's a little bit of it that will flow through in the first half of the year. We're stopping the price increases across the group. For the time being, we're gonna take a pause. We also took fairly significant price increases at Jimmy Choo and Versace as well. We think we're in a good place in terms of where our pricing is right now, and part of that's reflecting in the gross margin. Tom will speak to some of the other areas that have also impacted it positively. I think that you'll see two things next year. Again, you'll see a little bit of some of the freight and the benefit that will start to show up a little bit more in next year. Secondly, there'll be a channel mix as retail becomes a bigger part, that'll also show up in the gross margin. Let me have Tom speak to this year and next year. Sure. I'm happy to give a little more color on Q3. It's very similar trends for Q4. As John mentioned, we did see moderating inbound freight costs. We benefited from the price increases that are still ongoing, but will stop in the future, and the channel mix with a higher retail versus wholesale. We were not more promotional, but given a better inventory position compared to last year, we did have more normalized level of promotional or markdown sales. Some additional headwinds included regional mix. As we've been saying over the past several quarters, Asia is a lower percentage of revenue and is a higher margin, as well as the stronger dollar, which has hurt us through the year on a margin perspective. As we look at next year, retail will be a larger portion of the business. We expect a rebound in China, which will be a tailwind, and freight as well. And this is in addition to the strategic initiatives on our brands, which over the past several years have driven significant improvements in gross margin across our brands, all of our brands. Wholesale, as John mentioned, in the first half, it's going to be a headwind because of deleverage with that low variable cost base. As we normalize in the back half, those other areas will shine through. I might also add that we feel that FX will probably not be a headwind or a tailwind next year. We're expecting it to more or less normalize. It'll still be a headwind in the first two quarters. By the time we get to the back half of the year, it should be normalized or just a very minor tailwind. Hopefully that some of that noise will start to come out of the performance numbers. As you know, it's been a significant headwind for us this year. Thank you, Alex. The next question is coming from the line of Brooke Roach with Goldman Sachs. Please proceed with your question. Good morning. Thank you so much for taking our question. John, I know you mentioned pricing as a potential explanation of what could be driving additional weakness in wholesale. Along those lines, can you talk about the momentum that you're seeing across your business within various income demographic cohorts or price tiers of your product architecture? Is there any difference in sell-through trends or sell-out trends in your own retail business in outlet versus mainline stores, particularly in North America? Separately, you've had nice growth in your consumer database. Can you talk to the repeat purchase activity that you're seeing from customer cohorts that were acquired over the last few years that may be more price sensitive? Thank you. Good morning, and thank you, Brooke. Brooke, the overall, what's very interesting about our database and the consumer in the database, we actually reviewed this yesterday. This is also in particular to Michael Kors. We're still dealing with a fairly high income demographic in the Michael Kors database, and it hasn't changed a lot over the last five, six, seven years, which we think is a good sign, where, you know, there's been a concern, does a lower income consumer be driven more towards the brand? Did we lose any brand equity with the more higher income consumer? So far, that has not been the case. What's also interesting is, while we do have crossover between the channels, between e-commerce and our stores, the crossover is not as great as we continue to anticipate. The good news for us is, and probably 60% of our database growth, and it's pretty consistent across the group, is coming through the e-commerce channel. It's not cannibalizing the store customer. So we think that's a very healthy mix. And you can see, you know, as Tom mentioned, we significantly accelerated our marketing activities across all three of our houses during the quarter. That was a very, you know, distinct decision on our part to do that. We knew that many of our competitors in Europe and North America would also be accelerating their spend. We thought to be competitive from a mindshare standpoint that we had to really make sure that our brands were shining through. The good news for that is these databases are So sizable that in certain ways, some of our direct consumer marketing costs may be coming down a little bit next year. That's because we're gonna be able to mine the existing databases. We've seen a acceleration on repeat customers inside. We've been able to really through our data analytics tactics get those consumers lapsed and repeat to transact with us more regularly. We feel that there is an opportunity for us to create some leverage in next year given the size of the databases at all three of the companies and how we can start to leverage that. Again, we're still going to invest, as Tom said, in overall marketing across the group. We think that's one of the most important initiatives to be competitive again with the European luxury houses as well as the North American competitors who have very strong brand statements. We have to continue to invest in that, and we're gonna continue to invest in our stores, renovations, et cetera. Lastly, we think that our clienteling initiatives, we're really gonna step that up over the next two years. It's gonna take us more time to get to a place where we feel that that's going to be a competitive advantage for us. It's again, a very important part of our strategy across the group. Thank you very much, Brooke. The next question is from the line of Paul Lejuez with Citigroup. Please proceed with your question. Hey. Thanks, guys. Just a couple of quick ones. Curious if you can talk about transactions versus ticket within the DTC business that you saw in the quarter and what you expect going forward. Free Cash Flow assumptions or F-24. Just China, the assumption in the first half or second half of 2024. Thanks. Good morning, Paul. Thank you. Paul, we really didn't see a lot of change in transaction or UPTs. That wasn't an issue for us. We did see a small decline in the ticket, that was really more of a result of We saw a shift to a return to smaller bags. I would say we saw that across the group, where there was much more cross bodies, small leather goods. You know, we benefited during COVID, over a lot of larger bags selling, where people were needing to put more things in larger bags. Actual retail price of units was not down, but the actual transaction was slightly down, and that was more because of, we've seen a double-digit increase in our small leather goods business, and we classify our cross bodies in that category, which really reflected, I think, people enjoying the holidays, going out and partying, dressing up. Unit sales were slightly higher than actual retail performance, and that's driven by a lean in by the consumer into that category of product. I'll turn over the cash flow to Tom. Sure. With regard to cash flow, you asked about last year, but just to comment on this year, we're at Free Cash Flow of approximately $450 year- to- date, and our Q3 was even above that. We had an incredibly strong cash flow quarter. We would anticipate next year that we'll have similar cash flows. That has always been a strength of the company, that we're generating strong Free Cash Flows across our brands. Our balance sheet is extremely strong. We noted in my prepared remarks, net debt of $1.26 billion, and our leverage ratio is very solid and low. We feel very comfortable with the strength of both our balance sheet and our cash flow, and we're using that to redeploy and purchase shares to return cash to shareholders. When we look at our capital allocation priorities, still number one, invest in the business. Number two remains returning cash to shareholders. Pay down debt, which we have done over time and managed very carefully. As regards to China in fiscal 2024, we expect it to grow at an outsized rate compared to the overall growth of retail. I think we had mentioned the retail business we expect to be up double digits, driven first by Asia, mainly reflecting China, and excluding that up mid-single digits across the remainder of the world. Thank you, guys. Good luck. Our next question is from the line of Simeon Siegel with BMO Capital Markets. Please proceed with your question. Thanks. Hey, everyone. Morning. I apologize if I missed it, but John, would love to hear your opinion on whether you think domestic department store weakness is more broader consumer demand and traffic versus the stores attempt to reduce their own inventory. Just trying to think through how big of an industry pressure point you think it might be and how long it might last. Then, Tom, if I can, how are you thinking about the Michael Kors EBIT margins versus the pre-pandemic? To the earlier point about wholesale having little fixed costs and just any help on thinking through decremental margins on wholesale from the lower revenues. Thank you. Simeon, first off, good morning. You know, number one, I wanna say that our partners both in North America and in Europe have been terrific partners. We worked very closely together all through the pandemic and exiting the pandemic. You know, the first half of last calendar year, we had tremendous difficulties filling the inventory needs of the department stores. As I said to you, coming out of calendar 2021, we actually had a very strong holiday season with that channel and we were depleted in inventories. We didn't really get caught up in terms of inventory at retail until almost August of this past year. The inventories got to retail. We did not see any type of a significant step change in the channels. We were, as I said, very hopeful. We did run some tests with additional staffing in the stores, which worked well for us. We just didn't see the conversion with the consumer in that channel. I can't tell specifically whether it was our prices or not, but we just know the channel didn't deliver in our category, and obviously the biggest category being the accessories part of it. I don't know whether this is gonna continue or not. We've seen a continuing weakness, as I've said, through January. We've taken, again, the very prudent step. We do not wanna put additional inventory into the channel to cause markdowns, which we think will cause brand erosion, and we've worked too hard to get ourselves to this point. We've said we would suffer the inventory declines and the wholesale shipment declines, if that meant preserving the brand. I think we're gonna continue to do that. We know that we're on the right track with elevating Michael Kors. We know we're on the right track with Versace, and I think you're gonna see some very powerful things happen at Versace here momentarily. We've announced our fashion show on March 10th out in California, in Los Angeles. Our new CEO, Emmanuel Gintzburger, is hard at work and he's making some incredible strides along with Donatella. I think you're gonna see a real step change in terms of what the product looks like, where we're going marketing-wise. We're extremely enthusiastic about what's happening there. Jimmy Choo has been on a pretty good trajectory through the year. In fact, I do need to call out that Jimmy Choo did have a very strong retail performance during the holiday season. Our partners are very concerned about where the consumer is gonna be next year and has taken a step change down, even with our performance on being conservative on inventory. We're, quite frankly, we're okay with that. We don't wanna have excessive markdowns in these stores. We think that's the wrong place for us to end up. We have to be focused on if you're going to believe in a luxury company and long-term brand health, then you've got to stay committed to what your strategy is. I think ourselves and our management team are committed to that. I'll turn it over to Tom. Timmy, with regard to Michael Kors operating margin long term, we continue to believe in the mid 20% range operating margin goal for the Michael Kors brand. Near term, there's definitely a step change in the wholesale revenue, and we will adjust our cost structure to address that. We've already begun to rebalance the cost base. As we look at 2024, as I mentioned, in the first half, the wholesale declines will create deleverage. The initiatives, the growth in retail, China and Asia becoming a larger portion of the mix again as they recover and a little freight tailwinds, we believe, along with our strategic initiatives, will get us back on that path. Thank you, Simeon. Great. Thanks so much. Best of luck for the rest of the year. I'd like to thank everyone for joining our call this morning. Again, we are very disappointed in our results for the third quarter and our guidance for the fourth quarter. That being said, we believe in the strength of our three luxury houses. We believe that we have a very good plan for fiscal year 2024 on a go-forward basis that will continue to embrace and support the strengths of each of these three phenomenal brands. We believe that we will return to the type of growth that we expect in the future. Thank you very much for your support, and we look forward to keeping you updated. Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.