Capri Holdings (CPRI) Fiscal Q2 2027 Earnings Call: Revenue and EPS Guidance Raised

Capri Holdings Limited (NYSE: CPRI) reported improved profitability in fiscal Q2 2027 despite lower revenue. Michael Kors remained under pressure from inventory delays and reduced promotions, while Jimmy Choo delivered double-digit growth. Unless otherwise stated, financial figures are presented on a non-GAAP basis.

Key Takeaways

• Total revenue declined 5.5% year over year to $809 million, while operating income rose 55% to $31 million and diluted EPS improved to $0.42 from a $0.03 loss.
• Gross margin expanded 230 basis points to 63.3%, supported by higher full-price sell-throughs, brand mix and lower tariff rates than in fiscal Q2 2026.
• Michael Kors revenue fell 8.6% to $663 million. Product availability was constrained by inventory delays, while markdown inventory was reduced by roughly 40% and promotional activity by about 50%.
• Jimmy Choo revenue increased 11.5% to $146 million, with growth across footwear and accessories. Sales rose 24% in the Americas and 13% in EMEA but declined 7% in Asia.
• Capri raised fiscal 2027 guidance to approximately $3.42 billion in revenue and $2.20 in diluted EPS. Management expects operating income of about $175 million, up 50% year over year.
• The company repurchased $150 million of shares during the quarter and now plans $300 million of fiscal 2027 repurchases, $100 million above its previous guidance.

Key Financial Results

Michael Kors generated a 10.3% operating margin, up 20 basis points. Jimmy Choo’s operating margin improved 830 basis points to 1.4%, reflecting revenue leverage and expense discipline.

Business and Operating Performance

Michael Kors

Michael Kors revenue was affected by approximately $50 million of inventory delays that limited product availability. Results also included about $15 million of wholesale shipments that moved forward from the third quarter.

Company-operated retail sales declined by low double digits. The reduction in markdown inventory and promotional days weighed on revenue but supported higher average unit retail, stronger full-price sell-throughs and gross-margin expansion. Wholesale revenue declined by mid-single digits, although management reported positive comparable sales at wholesale partners.

Geographically, Michael Kors revenue declined 11% in the Americas, 5% in EMEA and 1% in Asia. EMEA was also affected by the conflict in the Middle East.

Management highlighted strong demand for newer products, including the Hamilton Soft handbag, Jennings Loafer and Piper Flex Ballet Flat. Demand for Hamilton Soft exceeded internal expectations, prompting the company to pursue additional inventory. Michael Kors’ global customer database increased 8% year over year, while its TikTok shop generated sales at almost four times management’s original expectation.

Capri has completed approximately 50 Michael Kors store renovations and expects to complete about 25 more during the fiscal year. Management also plans to open 50 to 75 new Michael Kors stores in fiscal 2028, citing higher traffic and revenue at renovated locations.

Jimmy Choo

Jimmy Choo posted a second consecutive quarter of double-digit revenue growth. Accessories increased by double digits, led by the Bon Bon and Cinch franchises, while newer Bar and Curve products continued to gain traction. Both casual and dress footwear contributed to growth.

Revenue increased 24% in the Americas and 13% in EMEA but declined 7% in Asia. Wholesale grew by strong double digits and benefited from approximately $5 million of shipments moving from the third quarter into the second quarter.

Jimmy Choo’s global consumer database expanded 7%. Management said its strategy remains focused on growing accessories, broadening casual footwear and attracting new and younger consumers.

Management Guidance

Management expects Michael Kors revenue trends to improve sequentially in the third quarter and return to growth in the fourth quarter. The outlook assumes continued new-product introductions, holiday assortments, higher marketing investment, store renovation benefits and a moderating impact from quality-of-sale actions.

For fiscal Q3 2027, Capri expects revenue of just over $1 billion, including $830 million from Michael Kors and $175 million from Jimmy Choo. Operating income is projected at approximately $90 million, with diluted EPS of $0.95. The forecast reflects the $20 million of wholesale shipments that shifted into the second quarter and increased foreign-exchange pressure.

Longer term, management continues to target $4 billion of Michael Kors revenue with an operating margin in the low-20% range. It sees Jimmy Choo reaching $800 million in revenue with a low-double-digit operating margin. These are management targets rather than fiscal 2027 guidance.

Risks and Points to Watch

• Michael Kors continues to face freight delays from Asia. Capri is using airfreight where necessary, increasing logistics costs and creating potential holiday-season stockouts for high-demand products.
• Foreign-currency headwinds have increased, according to management, and are incorporated into the revised fiscal 2027 and third-quarter outlooks.
• Second-half gross-margin expansion is expected to be lower than in the first half because Capri will anniversary some quality-of-sale benefits, face higher average tariff rates and lap a fiscal Q4 2026 tariff refund.
• Reduced markdown inventory and promotional activity are improving sale quality but remain a near-term revenue headwind.
• Asia remained weak for Jimmy Choo, while the Middle East conflict affected Michael Kors’ EMEA performance.
• Inventory is expected to increase during the second half to support anticipated revenue growth.

Analyst Q&A Highlights

• Management attributed Michael Kors’ monthly sequential improvement to stronger new-product sell-throughs, better inventory availability and increasing engagement from younger customers. It expects the full-price channel to return to positive growth during fiscal Q3.
• Outlet performance accelerated during the quarter across revenue, traffic and product searches as a larger proportion of new merchandise reached the channel.
• Management expects wholesale to return to growth in fiscal 2028 and indicated that wholesale could represent roughly 20% to 25% of the business, depending on partner health. Capri is developing approximately 100 shop-in-shops across current and next fiscal year openings.
• Capri sees further average-unit-retail opportunities through selective price increases, particularly in outlets, while maintaining product value and full-price sell-throughs.
• Management said Jimmy Choo is not for sale and reiterated its view that the brand can become a significant revenue and operating-profit contributor.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Greetings, and welcome to the Capri Holdings Limited Second Quarter Fiscal 2027 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Jennifer Davis. Please go ahead.

Jennifer Davis

Good morning, everyone, and thank you for joining us on Capri Holdings Limited Second Quarter Fiscal '27 Conference Call. With me this morning are John Idol, Capri's Chairman and Chief Executive Officer; and Tyler Reddien, Capri's Chief Financial Officer and Chief Operating Officer.

Before we begin, let me remind you that certain statements made on today's call may constitute forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those we expect. Those risks and uncertainties are described in today's press release and in the company's SEC filings, which are available on the company's website. Investors should not assume that the statements made during this call will remain operative at a later time, and the company undertakes no obligation to update any information discussed on today's 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 items associated with impairment charges, transaction-related costs, store renovation plan expenses, Capri transformation costs as well as restructuring and other expenses. To review the corresponding GAAP measures and related reconciliations, please review our latest earnings release posted to our website earlier today at capriholdings.com.

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

John Idol

Thank you, Jennifer, and good morning, everyone. We are encouraged by the momentum building at both Michael Kors and Jimmy Choo. Over the past several seasons, we have been focused on elevating brand desirability, strengthening our product assortments, creating deeper connections with consumers and we are seeing evidence that those efforts are gaining traction globally.

New fall product introductions are generating some of the strongest full price sell-throughs we have seen in years underscoring the strength of our innovative product designs and the positive consumer response to our collections. At both our luxury houses, the benefits of our strategic initiatives are becoming increasingly evident, reinforcing our expectation that Capri will return to revenue growth in the second half of the year.

Based on our second quarter performance, and our expectations for the remainder of the year, we are increasing our fiscal 2027 revenue and earnings per share guidance. Looking ahead, we believe the progress we are making across both our luxury houses, provides a strong foundation for sustainable long-term growth.

Turning to our second quarter results. We are encouraged by the progress we made throughout the quarter, with trends improving sequentially each month, resulting in revenue, operating income and earnings per share that were above our expectations. Total company revenue was $809 million, down 5.5% versus last year, while operating income increased 55%. This strong profit growth contributed to earnings per share of $0.42 versus a loss of $0.03 per share last year.

Looking at second quarter performance by brand, starting with Michael Kors. Revenue decreased 8.6% year-over-year, ahead of our expectations due primarily to a shift in wholesale shipment timing. Revenue was impacted by approximately $50 million due to inventory delays, which constrained product availability. As fall assortments began to arrive later in the quarter, sales trends improved sequentially each month, driven by the positive consumer response to our new product arrives. Additionally, as anticipated, revenue was impacted by our continued focus on improving quality of sale.

Looking at Michael Kors revenue by channel. In our own retail channel, sales declined low double digits as anticipated. We had approximately 40% less markdown inventory available for sale and reduced promotional activity by approximately 50%, both of which created a meaningful headwind to revenue during the quarter. While these actions reduced revenue, they supported higher full price sell-throughs, growth in AURs and gross margin expansion.

As we have previously mentioned, the majority of these actions are now behind us, giving us increased confidence in the trajectory of the business going forward. In our full-price channel, sales decline as we continue to focus on quality of sale. With new product arriving and the impact from our quality of sale initiatives moderating we expect the full price channel to return to growth in the back half of the year.

In our outlet channel, while revenue declined, trends improved sequentially from the first quarter, and a broader assortment of new styles began [ arrival ], with additional newness planned throughout the season and into the spring, we anticipate further sequential revenue improvement through the back half of the year. In our wholesale channel, revenue declined mid-single digits, exceeding our expectations due in part to a timing shift from the third quarter into the second quarter. At point of sale, we were pleased to once again see positive comparable sales trends with our wholesale partners as consumers responded favorably to our new product introductions.

Turning to brand awareness and consumer engagement. We continue to reinforce Michael Kors modern Jet Set Lifestyle position through our brand vision of traveling the world in style, bringing the joy of travel and the discovery of new destinations to our consumers each season. For fall, we traveled to London with brand ambassadors, Suki Waterhouse Danny Ramirez and JCT. Set against the city's distinctive energy, the campaign highlights the season's key fashion statements reflecting the blend of polish individuality and the effortless style that defines the Michael Kors aesthetic.

The campaign introduced New Hero handbag silhouettes, including the Fulton soft a relaxed version of one of our most enduring icons. The campaign also showcased fresh interpretations of Laila and Nolita, as we evolve our iconic styles with compelling new design details. To amplify our brand storytelling, we continue to enhance our social media strategy. by strengthening our presence across a broader range of platforms as well as expanding both the scale and reach of our influencer partnerships.

During the quarter, we launched a Michael Kors shop on TikTok, creating a seamless path from discovery to purchase on a platform that plays an increasingly important role in how younger consumers engage with fashion. Early performance has exceeded our expectations generating strong engagement and sales while further expanding our reach with a new generation of luxury consumers. Together, these efforts are helping to strengthen Michael Kors relevance while fostering more authentic and meaningful connections with Gen Z consumers.

Additionally, Michael Kors iconic runway shows continue to serve as a powerful halo for the brand reinforcing the House's leadership in fashion luxury. The spring 2027 show held at the Museum of Modern Art's Sculpture Garden in New York attracted a high-profile audience of celebrities and global influencers. The event generated significant impressions globally, extending the shows reach well beyond the runway. Collectively, these activities helped drive an 8% year-over-year increase in the Michael Kors global customer database, attracting new and younger consumers and expanding our ability to build deeper, more personalized relationships with consumers around the world.

Through our analytics capabilities, we are leveraging the strength of our extensive database and AI-driven insights to better understand evolving consumer preferences, deliver more relevant experiences and strengthen engagement across channels.

Turning to product. Guided by Michael Kors vision, our strategy is built around delivering on-trend fashion luxury products with standout style while celebrating our brand codes. In accessories, our focus on refreshing iconic franchises with modern design elements continue to gain traction with consumers supporting strong full price sell-throughs and creating meaningful excitement around new product introductions. Hamilton, Laila and Nolita anchored the assortments underscoring the enduring appeal of our iconic science.

The launch of the Hamilton soft during the quarter was a standout success, generating strong enthusiasm among consumers globally. It has quickly become one of the brand's best-selling styles with demand exceeding our expectations and our teams are actively chasing inventory to try and meet strong consumer demand.

Turning to footwear. We remain focused on building enduring franchises across both casual and dress categories. We are evolving the assortment with more on-trend styles expanding our casual offerings across categories such as loafers and flats that are resonating with consumers. New introductions, including our Jennings Loafer and Piper Flex Ballet Flat are emerging as top-performing styles. By balancing proven silhouettes with modern newness, we are creating products that resonate with consumers today while laying the foundation for future icons within the category.

Looking at ready-to-wear, the fall collection brought a modern urban edge to the assortment through elevated denim, on-trend wardrobing essentials and versatile day-to-evening dress. Consumers responded particularly well to our expanded outfitting categories, underscoring the appeal of fashion-forward styles that express Michael's distinctive point of view.

Turning to Mets. We are refining our sportswear assortments through a combination of established iconic styles and compelling new fashion introductions. In accessories, we are seeing increased consumer interest in the softer bag silhouettes, which are helping attract a new and younger consumer. As a result, men's sales trends improved sequentially relative to the first quarter.

Now I'd like to review our store renovation plan, a key component of our strategy to revitalize growth. In our new stores, we are creating a warmer, more residential environment that reflects the modern Michael Kors Jet Set lifestyle, and provides an elevated backdrop for our luxury products. Since launching the program, we have renovated 50 stores as we advance toward our goal of renovating 30 stores. As part of this initiative, we continue to expand our Jet Set lounge concept, an immersive retail experience designed to deepen customer engagement and increase store dwell time. Today, we have 7 jet set lounges across key flagship locations globally, and we are encouraged by the customer response.

We believe that our renovation plan will further strengthen brand desirability, deliver an elevated consumer experience and drive higher sales productivity. Early results remain encouraged with renovated locations generating higher traffic and revenues. Overall, we are encouraged by the progress we are making at Michael Kors. We expect [indiscernible] trends to improve sequentially in the third quarter and return to growth in the fourth quarter, driven by new product inductions, strong holiday gift-giving assortments, increased marketing investments, growing contributions for our store renovation program and a moderating impact from our quality of sale initiatives. Looking beyond fiscal '27, we remain excited about the potential for Michael Kors to return to sustainable growth and achieve $4 billion in revenue with operating margins in the low 20% range.

Now turning to Jimmy Choo. We were pleased with the brand's continued momentum. Second quarter revenue exceeded our expectations, increasing 11.5% over last year as our marketing and product initiatives attracted new and younger consumers while creating additional purchase opportunities for existing clients. In our own retail channels, sales increased mid-single digits, with trends in the Americas up double digits and EMEA increasing high single digits while Asia declined mid-single digits.

Turning to wholesale. Revenue grew strong double digits, benefiting from the earlier shipment of fall products this year. Trends at point of sale remained encouraging supported by positive consumer response to our fall assortments, which once again drove double-digit increases in North American department stores.

Turning to brand awareness and consumer engagement. Our storytelling continued to highlight the effortlessly alluring essence of Jimmy Choo and the sense of joy and confidence the brand inspires. During the quarter, our marketing strategy focused on expanding the brand's reach, deepening client connections and strengthening cultural relevance. For fall, we celebrated Jimmy Choo's 30th anniversary with 2 campaigns that reflected the house's distinctive blend of luxury, glamor, craftsmanship and playful spirit.

Our fall campaign assertive glamor was set in Milan's historic Palazzo Gallarati and highlighted the artistry behind the collection showcasing statement boots and fresh interpretations of our iconic Cinch and bar handbags. This was followed by the cheese you can't live without a campaign featuring influential fashion personality, Devon Lee Carlson whose distinctive style resonates with a new generation of luxury consumers. The campaign showcased key styles, including our Bon Bon and the Cinch handbags as well as our iconic Scarlett and Heloise footwear franchises, reinforcing Jimmy Choo's enduring desirability across generations.

By pairing compelling brand storytelling with influential talent, we are broadening our customer reach, attracting new clients and reinforcing Jimmy Choo relevance with the next generation of luxury consumers. At the same time, we are increasingly leveraging our advanced data analytics and AI insights to deepen consumer engagement and enhance the effectiveness of our marketing. Taken together, these initiatives are strengthening brand desirability, expanding our consumer reach and deepening our relationship with consumers through a more personalized engagement which contributed to a 7% year-over-year increase in Jimmy Choo's global consumer database.

Turning to product. Our strategy remains focused on building Jimmy Choo's accessories business and expanding its casual footwear assortment while reinforcing the house's distinctive luxury position. By extending the house's reach across categories and occasions, we are creating additional revenue opportunities by driving higher purchase frequency among existing consumers and attracting new clients to the brand.

We were pleased with the strong consumer response to our fall collection, which reflected Sandra Choi's design vision of reimagining the house's iconic codes through a contemporary lens while remaining true to Jimmy Choo's heritage of glamor and craftsmanship. The collection resonated with consumers across both accessories and footwear. During the quarter, accessories increased double digits versus last year. Our iconic Bon Bon and Cinch franchises delivered robust growth while newer franchises, bar and curve continued to gain traction, broadening the reach of the brand.

Turning to footwear. We were pleased with our performance across both casual and dress styles. In casual footwear, we were encouraged by the strong response to versatile silhouettes, such as the Margot Flat and Scarlett Kitten Heel which reflect our focus on expanding the brand's presence across a broader range of occasions. Our core dress category also delivered strong growth, driven by continued demand for our iconic styles, such as Azia and Sacora as well as newer styles, including Faiz. The strong performance across the assortment underscored the enduring appeal of Jimmy Choo's signature glamour.

Finally, I would like to take a moment to congratulate Sandra Choi, who will be honored with a special recognition award by the British Fashion Council at the 2026 Fashion Awards in London. This prestigious recognition celebrates Sandra's extraordinary creative leadership over the past 30 years, and her contributions to the broader fashion industry. As Jimmy Choo celebrates its 30th anniversary, this is a particularly meaningful honor and a testament to Sandra's remarkable vision and enduring influence on the brand.

Looking ahead, we are increasingly confident in Jimmy Choo's trajectory. Our marketing is attracting new audiences and our product strategies are expanding the brand across categories as well as occasions. We continue to expect Jimmy Choo to return to profitability in fiscal 2027, supported by revenue growth, gross margin expansion and disciplined expense management. Over the long term, we believe the brand can achieve $800 million in revenue and operating margins. in the low double-digit range.

In conclusion, we're encouraged by the progress we are making across Michael Kors and Jimmy Choo. We continue to expect total company revenue to return to growth in the second half of fiscal 2027, supported by exciting new product introductions, increased investments in marketing, and our focus on elevating the consumer experience. The actions we are taking are strengthening our fashion luxury houses and positioning Capri to deliver sustainable growth and create meaningful value for shareholders over time.

Before turning the call over to Tyler, I would like to thank our approximately 11,000 employees around the world, whose dedication, passion and talent are instrumental to the progress we are making.

Now Tyler will take you through our second quarter results and guidance in more detail.

Tyler Reddien

Thank you, John, and good morning, everyone. We are encouraged by the progress we made through the second quarter with trends improving sequentially each month at both Michael Kors and Jimmy Choo. As anticipated, the arrival of new product and improving inventory availability at Michael Kors contributed to stronger performance as the quarter progressed. At Jimmy Choo, momentum continued driven by strength in both footwear and accessories. As a result, we delivered revenue, operating income and earnings per share above our expectations.

Looking at our second quarter results in more detail. Total company revenue of $809 million decreased 5.5% on a reported basis and 4.9% in constant currency compared to the prior year. Looking at revenue performance by brand. Michael Kors revenue of $663 million decreased 8.6% on a reported basis and 8% in constant currency compared to the prior year. Revenue was impacted by inventory delays discussed last quarter, which constrained product availability as well as our actions to reduce markdown inventory by roughly 40% and and promotional days by about 50%.

As inventory constraints eased and new fall product began arriving, trends improved sequentially each month throughout the quarter. Second quarter results also benefited from around $15 million of earlier-than-expected wholesale shipments that shifted from the third quarter into the second quarter.

Looking at total Michael Kors revenue by geography. Revenue in the Americas decreased 11%, impacted by inventory delays and our planned reduction in markdown inventory and promotional activity. In EMEA, revenue declined 5% and impacted by the broader effects of the ongoing conflict in the Middle East as well as inventory delays. In Asia, revenue declined 1%, impacted by inventory constraints.

Turning to Jimmy Choo. Revenue of $146 million increased 11.5% on a reported basis and 12.2% in constant currency compared to the prior year. Results benefited from approximately $5 million of wholesale revenue associated with earlier-than-expected shipments, which shifted sales from the third quarter into the second quarter. Looking at total Jimmy Choo revenue by geography, sales increased double digits in the Americas and EMEA, with the Americas up 24% and EMEA up 13%. Sales in Asia declined 7%.

Now looking at total company margin performance. Gross margin of 63.3% increased 230 basis points versus last year, driven primarily by higher full price sell-throughs, brand mix and lower tariff rates versus the second quarter of fiscal '26. By brand, Michael Kors gross margin of 61.5% increased 220 basis points versus last year driven primarily by higher full-price sell-throughs and lower tariff rates, partially offset by greater use of airfreight given the inventory delays. Jimmy Choo gross margin, 71.2% increased 100 basis points versus last year, primarily due to higher full-price sell-throughs.

Total company operating expenses decreased $21 million due primarily to cost savings initiatives and lower variable expenses more than offsetting inflationary cost pressures. As a percentage of revenue, operating expense was 59.5% compared to 58.6% last year, reflecting expense deleverage on lower revenue. Total company operating income of $31 million represented operating margin expansion of 150 basis points year-over-year to 3.8%, driven by higher gross margins. This was ahead of our expectations due to both the timing of wholesale shipments and disciplined expense management.

Looking at operating margin by brand, Michael Kors' operating margin of 10.3% was above our expectations and increased 20 basis points compared to last year, with higher gross margins more than offsetting expense deleverage on lower revenue. Jimmy Choo operating margin of 1.4% was above our expectations and increased 830 basis points compared to the prior year, primarily driven by expense leverage on higher revenue and disciplined expense management. Net income was $45 million or $0.42 per diluted share versus a loss per share of $0.03 last year.

Now turning to our balance sheet and cash flows. Our balance sheet remains strong. We ended the second quarter with cash of $125 million and debt of $461 million, resulting in net debt of $336 million, down from $1.6 billion last year. During the quarter, we remained committed to returning capital to shareholders, repurchasing $150 million worth of shares. We repurchased 10.3 million shares in the quarter, reducing our share count by approximately 9%.

As of September 26, 2026, we had $721 million of availability remaining under our share repurchase authorization. Inventory at quarter end was $712 million, a 7% decline year-over-year, in line with our expectations. We continue to expect inventory to build throughout the back half of the year to support our anticipated revenue growth.

Turning to guidance. Based on our second quarter results and our expectations for the balance of the year, we now anticipate fiscal 2027 revenue of approximately $3.42 billion despite increasing foreign currency headwinds. By brand, we now anticipate Michael Kors revenue of $2.77 billion. We expect revenue trends to improve sequentially in the third quarter and returned to growth in the fourth quarter, driven by new product introductions strong holiday gift-giving assortments, increased marketing investments, growing contributions from our store renovation program and a moderating impact from our quality of sales initiatives.

At Jimmy Choo, we now anticipate revenue of $650 million, reflecting the momentum we are seeing across the brand. For the year, we continue to anticipate gross margin of approximately 64% compared to 62.3% last year. Operating expenses are still expected to be approximately $2 billion. Accordingly, we now expect full year operating income to be approximately $175 million a 50% increase over last year. By brand, we continue to anticipate Michael Kors operating margin in the low double-digit range and Jimmy Choo returning to profitability with operating margin in the low single-digit range.

Turning to certain nonoperating items. We expect net interest and other income of approximately $100 million and an effective tax rate in the low teens range with fluctuations in quarterly tax rates due to our valuation allowance position. We now anticipate weighted average shares outstanding of approximately $108 million, reflecting share repurchases of $300 million during fiscal 2027, a $100 million increase versus prior guidance. This increase underscores our confidence in future growth and value creation, while also reflecting our commitment to returning capital to shareholders. Based on these assumptions, we expect to generate diluted earnings per share of $2.20, representing 45% growth over the prior year.

Turning to third quarter items, we expect total company revenue of just over $1 billion. This outlook includes the impact of the $20 million of wholesale shipments that shifted from the third quarter into the second quarter as well as greater foreign currency headwinds. By brand, we anticipate Michael Kors revenue of $830 million and Jimmy Choo revenue of $175 million. We expect third quarter operating income of approximately $90 million.

In terms of operating margin by brand, we anticipate Michael Kors operating margin in the mid-teens percent range and Jimmy Choo operating margin in the low to mid-single-digit percent range. Looking at certain nonoperating items. We expect third quarter net interest and other income of approximately $25 million. We anticipate an effective tax rate in the mid-teens range and weighted average shares outstanding of 103 million. As a result, we expect to generate diluted earnings per share of $0.95.

In closing, our second quarter results exceeded our expectations, and our increased outlook reflects the confidence we have in the trajectory of the business. We are encouraged by the consumer response to our new product introductions and the progress we are seeing across both Michael Kors and Jimmy Choo. Looking ahead, we remain focused on executing our strategic initiatives strengthening our luxury houses and positioning Capri to deliver sustainable growth and value creation for our shareholders.

Now we will open up the line for questions.

Operator

[Operator Instructions] Our first question will come from Matthew Boss with JPMorgan.

Question-and-Answer Session

Matthew Boss

Nice to see the improvement. So John, at Michael Kors, could you speak to the drivers of sequential month-over-month improvement that you saw in the quarter and elaborate on exit rate trends in September and October that support your confidence for positive revenue growth in the back half, while continuing to pull back on the level of promotions.

John Idol

Thank you, Matt, and good morning, and good morning to everybody on the call that we were very pleased to see how the Michael Kors business had month-over-month sequential revenue improvement during the quarter. There was a number of things that happened for us. First, we continue to flow exciting new fashion on-trend product. The teams, the design teams, led by Michael, are starting to very significantly hit trends in the marketplace and you're seeing that in both accessories. And now we're starting to see that in footwear as well.

And as you've heard me say in some of the previous calls, footwear has been a drag for us. And now with the Jennings Loafer that I talked about in my prepared remarks, the Piper sale, these things are starting to show very strong full-price sell-throughs. We saw sell-throughs on things like soft Hamilton. We haven't seen that for, I don't know, 5 or 6 years. And as Tyler mentioned as well, we are literally chasing inventory on certain products in both accessories and now some in footwear. So we feel great that the consumer is really engaging with our storytelling they are loving our new product introductions. And we're seeing, by far, the best kind of trend for us for newer and younger customers.

I might also add that we saw, during the quarter, search for Michael Kors handbags really significantly increase. Again, we haven't seen this in quite some time. So all the indicators are showing that these are more than just green shoots. In certain cases, they're turning into a significant volume opportunity. So everything I talked to you about there was really on the full price channel in the outlet channel. As you know, we started introduced a few new sales there.

Our new Sammy silhouette in particular, has started out to become 1 of the best-selling styles in that channel or groups in that channel. This is what we were hoping for, and we're seeing the results of that. And as we progress through the quarter, we said we'd get to about 75% in this quarter of new product in the outlet channel, we're well on our way to do that.

And what's also exciting, we did all that with our markdown and promotional strategy down by 50%. I want to reemphasize that again 50%. That is a very, very big pullback. And we're proud of what the teams have done inside of our stores and our department store partners are also embracing this strategy to sell more Michael Kors at full price that's driving higher AURs. We can see that right across the globe. And so we're seeing this whole strategy of really giving great value to the customer kind of play through.

And then the last thing, another very big headwind, as you know, we had 40% less markdown inventory which when the customer went to look for things at certain prices, it just wasn't there. And that's not an easy thing to go through. But we've made a decision. We're sticking to it, and we're really seeing the results of that. So the inventories in our third quarter and fourth quarter are going to be in a much different complexion than they were at this time last year. which will be much healthier.

And then the last thing I just want to end on is we did hold this up against the backdrop of having $50 million less than we had planned. In terms of inventory, I think our sales would have been much better had we had that inventory. As you know, we've been experiencing certain delays in Michael Kors from Asia on our transportation that's getting better. And we've also supplemented that with air shipment, et cetera, to help us have that inventory here, especially for the holiday season.

And again, our confidence is really based around that as to how we look at Q3 for us. We think we're set up really in a great way with all the new product flowing and also some incredible holiday gift programs and some fun things to excite the customer with. So thank you very much for your question, Matt, and have a great holiday season.

Operator

Our next question will come from Brooke Roach with Goldman Sachs.

Brooke Roach

John, I was hoping we could dig a little bit deeper into the trends that you're specifically seeing at Michael Kors Americas outlet, was the sequential improvement that you saw in the quarter and quarter-to-date something that you also saw in outlet as that new product was flowing? And what are your latest thoughts on getting Michael Kors America's outlet back to consistently positive comp growth in that channel.

And finally, one question on the Hamilton slouch. Saw that, that was just restocked. It's great to see. How quickly can you chase into some of these products that are working that are outperforming your expectations?

John Idol

Brooke, I might add that, first off, Jimmy Choo had an outstanding quarter. And this is a second quarter of a row for Jimmy Choo of double-digit growth, which is really quite extraordinary. And interestingly, we saw the similar -- we saw the quarter accelerate as we went through. And so pretty much we're seeing the same thing at Michael Kors and at Jimmy Choo. So that's really what we think is a great trend for us to see happen as we head into the all-important holiday season.

In terms of Michael Kors outlet, interestingly enough, we actually saw a slightly stronger acceleration in the outlet stores. And I think we said if we didn't -- we saw acceleration in revenue throughout the quarter, traffic throughout the quarter and then this search through the quarter. So all 3 of those indicators were quite strong. And probably not surprisingly, in the outlet side, we were receiving a much bigger percentage of news there versus our full price, and that was something that we had been waiting for.

I would also add that in the full price business, that is where we have the greatest percentage of decline in markdown inventory, which we knew was going to have this impact on revenues during the quarter. I think I had said that not only in first quarter commentary, but I mentioned in the fourth quarter that we were going to take this very big pullback on markdowns in our -- kind of our big summer clearance sale. So again, I think we're seeing the right trajectory heading into the fall season.

As it relates to Hamilton, Brooke, I wish I could sit here and tell you how quickly we can get back into these things. The sell-throughs, I would say, surprised us. And by the way, those sell-throughs are actually an A for us first, and then it just kind of rippled right across the globe. And so we're moving as fast as we possibly can. I'm sure you're going to see some outs on a number of things as we go through the holiday season because the product isn't really highly desirable. And what's also really exciting about Hamilton Soft in particular, is the influencer community is driving a lot of this interest if you go online and follow some of the influencers, they're just organically talking about this product.

And we're starting to see this undertone that Michael Kors is back. Have you seen Michael Kors look at this product, and that's all being naturally driven. On top of that, I think you can see in our storytelling, one of the things that we've really looked at very carefully is our handbag business and accessories business. And we're putting an even greater priority on that above and beyond some of our other categories in the company. We know there's market share to be regained and taken.

As you know, the industry, and in particular, some of the other luxury European luxury brands are having a bit of a struggle right now. And we actually think this is a super time for us. to be able to resonate with consumers or being a bit more choiceful. And we can see that with some other brands around the world who are enjoying the fruits of that success. So we think the timing is right for us. The product is getting -- not exactly where we want it to be, but pretty close storytelling is in good shape.

And then, of course, the last thing I just have to talk about is our store program. We're really thrilled with the results. We have approximately 50 stores that we've completed in our renovation so far. We've got about another 25 or so to go this year to complete on our renovations. And I'm excited to say to you that next year, we're going to open between 50 and 75 brand-new stores. I mentioned to you previously that we are starting to get confidence given especially the renovations and the results we're seeing with higher traffic and higher revenues. And so we will be opening new Michael Kors freestanding stores that we've actually opened a few this year. And that's an exciting growth opportunity for us as we look out to fiscal year '28. Thank you, Brooke.

Operator

We'll go next to Simeon Siegel with Guggenheim Partners.

Simeon Siegel

John, just recognizing the ongoing proven quality of sales you're talking about and that we can see judo you have a view on what the right size for Michael Kors wholesale should be and just recognizing the point-of-sale comments how you're thinking about when the sell-in when we -- the order of magnitude we should think about as the selling improves?

And then just Tyler, the gross margin was great to see. How are you thinking about the specific drivers for the gross margin for the back half? And then how should we think about that longer term?

John Idol

Simeon, the wholesale business is -- as you know, if we go back 6, 9 months ago, the wholesale business was trailing the full-price business really in North America and Europe. And in some ways, it's not only caught up to it. Some places, it's actually ahead of it quite interesting, and we're seeing this not only in North America, but we're seeing it in Europe, in particular in Europe where some of the -- again, the luxury brands that we sit on the same floors with are starting to see some difficult sales results and consumers are doing the Michael Kors product.

And by the way, I want to add the Jimmy Choo product, which, as you know, Jimmy Choo is now on its second or third consecutive quarter of double-digit increase in accessories. So the wholesale channel for us, we believe, is going to return to growth next year with a very healthy growth. Our partners are excited about us. We're opening approximately 100 shop-in-shops that were in construction. Some of that will get completed this year, some of that will get completed next year. And the new shopping shops that are going in, not only look beautiful, but the results are great. and we're pushing that quite hard.

Also interesting, we haven't talked about it in a long time, but our international airport and duty-free business is also starting to grow. Again, we've got strong interest from our partners who want to open up new Michael Kors locations and renovate the existing ones. And that's a very strong business for us that we think could also add to our wholesale development.

So I think all indicators are pointing in that direction. And I would say, Simeon, for whether it's Michael Kors or Jimmy Choo, somewhere in the 20% range, 25% range. That's typically what you think of for a wholesale business. Again, it just depends on the health of the partners and where that stands around the world. As you probably know, there's been quite a bit of consolidation in the wholesale world in terms of certain stores in Europe, not being here any longer are struggling, et cetera, and then certain players in the duty-free business that have, again, either going on business or are struggling. And I think we're starting to see that all stabilize now. And so we're quite hopeful about the development of the wholesale business on a go-forward basis.

Tyler Reddien

I'll jump in on the second part of the question. So in terms of gross margin for the second half, we are expecting that we'll see a bit of a pullback in the expansion year-over-year relative to the first half. But we are going to ultimately see significant expansion in gross margin in the second half as well, primarily driven by higher full price sell-throughs that are helping us with -- and higher AURs at both Michael Kors and Jimmy Choo.

There are some headwinds, though, that are pulling back that growth relative to the first half, first of which were anniversarying some of the benefits of the quality of sales initiatives as we look at the back half of the year. We also are expecting that second half tariff rates on average will be a bit higher than they were in the first half as we saw -- as we've seen tariffs kind of kick in.

And the other thing is that we also are -- will be anniversarying the tariff refund in the fourth quarter of 2026. So net-net, our gross margin expansion is expected to be slightly less in the second half, and that's reflected in our guidance. But we continue to expect gross margin expansion consistent with our strategy, increasing full price sell-throughs as well as AURs.

Operator

[Operator Instructions] We'll move next to Adrienne Yih with Barclays.

Adrienne Yih-Tennant

It is really nice to see the gross margin inflection. You could absolutely see it first new stores and then kind of a little bit later on the last 4 to 5 weeks happening clearly in the outlet. So congrats there. John, can you talk higher level, there is a fashion shift, and I know you see this globally. There's a fashion on the landscape, apparel, footwear is getting more stylized, it's becoming more formalized. This has historically boded well for kind of accessories in general. And the industry people that we talk to think that this is only building into next year and that we're calling on the verge of sort of a breakout moment to more mass adoption.

So wondering your thoughts on that and how it impacts both the accessories at both brands? And then secondly, with regard to the reengagement of the customer, are these cohorts largely new customers? Can you give us some color on age demo or are they reactivated lapsed customers or a combination of both?

John Idol

Thank you, Adrienne. Adrienne, yes, we are definitely seeing the fashion wins shift. And I might add that this is good for Jimmy Choo and for Michael Kors. As you know, we've always been a bit more I'll say, slightly dressed up. We've been a slightly more glamorous both of our companies and we think the wins are going in our favor.

I think you've seen -- we'll start with Jimmy Choo. Jimmy Choo, we had a strategy to, number one, grow our accessories business. We're well on the way for that. We have 4 platforms now that all are growing significantly. And so we're super excited about that. And we are actually growing market share in the luxury handbag business. We can see it. We know it. We see how consumers are responding to us. So that could be an even bigger opportunity then we probably have even sized our goals. So more to come on that.

Again, quite exciting. We're starting to open shop-in-shops in department stores with Jimmy Choo. Many of those are concession shops that we run. And that puts us on par with obviously all the best luxury players in the world. So super excited about that.

Second thing at Jimmy Choo is really our casual footwear business, which we're starting to get the great traction on that, and we talked about that in our prepared remarks. But what's really also happening simultaneously is our dress footwear business is back. And this, Adrienne, to your point, is people are getting a little more dressed up. Also, there's another change leg with pants, et cetera, are getting slightly skinnier. There's a return to some level of a version of glamour and sexy and that type of [indiscernible] styling. And so that's going to bode really, really well for Jimmy Choo. And now that we've got a foundation in some of these more casual platforms we're there for that other platform. We've always been there.

And in terms of Michael Kors, we see the same thing happening. One of the things that really has impacted the Michael Kors footwear business was our sneaker business which used to account for some 30% to 35% of our business. That will go down to probably closer to 20% to 25% of our business. And so we're making that up with more dress and not just casual, but also breath, which is something we historically have had a big positioning in. And I think some of our competitive brands don't have that same positioning that we have to be able to flex to that trend part of the business. So really excited about -- if it continues this way, this could be a tailwind for both Jimmy Choo and Michael Kors.

And then lastly, on the customer. We're seeing -- again, it's very similar Jimmy Choo and Michael Kors, we're attracting new younger customers. They're not all Gen-Z, they're millennials and younger millennials and and they're definitely engaging with the brand. And I would say at Michael Kors, in particular, the Gen Z consumers, they almost didn't know who we were. So we're in kind of an interesting spot where, on the one hand, we need more. We need to educate them more. One of the exciting things we did during the quarter was to open the TikTok shop. This is going much more business I would say almost 4x from what we had originally anticipated. That's exciting. That's new. That's young, that's Gen Z. And also, we're seeing it on some other platforms that we've engaging with as well.

So it's starting to come with those consumers, and they're starting to now understand the brand story of what Michael Kors is. It's the Jet Set traveling the world in style, your style experiencing the way that you want to experience it. And so that storytelling is resonating, and we're excited about what that means for us for the future. So thank you, Adrienne.

Adrienne Yih-Tennant

That's great. And let pass our congrats on to Sandra, please.

John Idol

We will. We will. She deserves it. Of course, she got her OBEs, well, we don't want to forget about that. That's another really exciting thing. And deserves a big -- I hope she's listening to call Sandra, you deserve a big shout out. And by the way, the Jimmy Choo product, why is JimnyChoo successful, some of the things I talked to you about. But Jimmy Choo is successful because the product is fantastic right now. So please go in and shop for your [indiscernible] family and yourself.

Operator

And our next question will come from Rick Patel with Raymond James.

Rakesh Patel

I was hoping you can talk about the opportunity you see around AUR. The work around party of sales has been a tailwind. But is that how do we think about the potential to elevate the business further. Curious about the opportunities you see across the product assortment and marketing that can keep the positive AUR momentum going.

John Idol

Thank you, Rick. So I'm going do -- I'll go half and half, I'll give Tyler a part of this as well. Rick, the first thing is, as you know, again, about 2 years ago, less than that we went in and reset our strategic pricing across the group. And as I said, across the group, we did that at Jimmy Choo certain products, and we did it at Michael Kors very, very heavily. And I think that has definitely boded well for the full price sell-throughs in the company. We're trying to give the product at the price that we know that the customer will be excited about, and we'll show value.

But I will tell you, simultaneously, we've started to raise prices in outlet. I think you've heard us talk about that. That seems to be going well. And there will be some level of -- we could take some minor price increases at Michael Kors full price. We'll take a few more selectively where we think there's opportunity for us to not slow revenue but also gain margin because as we look forward, while we're happy about the margin gains that we made they're not good enough. We have much higher aspirations and I'll let Tyler talk about our aspirations in particular for next year.

Tyler Reddien

Yes. Thanks, John. And I think as John mentioned, we absolutely we are anniversarying our quality of sales initiatives, and that provides us with a tailwind in terms of AUR, but we do see continued opportunity to increase AUR even further as John mentioned. But ultimately, this is about driving gross margin and driving margin across the business. And we do see significant opportunities in terms of gross margin expansion. We are targeting to improve our gross margins substantially as we go through not only in fiscal '27 but beyond. We see opportunities in terms of Michael Kors to continue increase full price sell-throughs, expanding gross margins as well as looking for efficiencies across our distribution and logistics network.

And with Jimmy Choo, we see significant opportunities to improve our gross margin, both in terms of improving our overall full price sell-throughs, but also really optimizing around both our manufacturing as well as our logistics and distribution network. So we are expecting and we're working towards significantly improving gross margins going forward beyond just fiscal '27, which will ultimately support sustainable long-term earnings growth.

John Idol

Rich, just one last thing, too. I want to make sure everyone understands. We're excited about Jimmy Choo. I answer this question regularly. So I'm wondering if anybody wants to ask the question. Jimmy Choo is not for sale in the company and Jimmy Choo, we think is a opportunity. As we've said in our prepared remarks, we think it's a business that can be $800 million. I think we're getting excited about even thinking bigger than that. And if you look at that as a low double-digit type of operating margin in that company, that will be a significant contributor to us. So we're super excited about what Jimmy Choo can do for us also from an operating margin and what the accessories opportunity is something that could be bigger than we've all thought about.

Operator

We'll go next to Mark Altschwager with Baird.

Mark Altschwager

First, John, with the Q3 Michael Kors guide, down about 1.5%, excluding the wholesale timing. Does that assume that October trends hold or further improvement in the holiday. And is the full price channel positive yet quarter-to-date.

John Idol

Yes, sure. So Mark, we don't talk about trends month by month. But what I mean to tell you is that there's absolutely a sequential improvement plans throughout the quarter. like we saw in the last quarter. And one of the biggest issues for that in Michael Kors is the flow of product. And so as I said to you, we were $50 million short what we wanted in Q2. That product is coming in, in Q3. I am sure you're hearing we're not the only company that continues to have issues with getting freight out of Asia. So we think we're going to be in good shape. We're supplementing with air where we need to. It's not flowing exactly as we'd all love it to be. But we're going to be okay.

And so I think that this is just -- the assumption is that we continue to flow great new product that our marketing initiatives, as you've seen, take hold, and we see this continued trend on search. And I want to give a big shout out to our creative teams, not just our design teams, but I think our creative look and just really spectacular in terms of the way we're really leaning into younger demographics in our creative and the product and the way that we're really highlighting our accessories and bags.

I also want to give a big shout out to the Jimmy Choo teams. I hope you've seen the creative really change there over the past 12 months, and that's given a big push to the business because Jimmy Choo used to from a creative standpoint, probably be more dressed and more glamor and more evening and more event. And now you see this whole new casual side of Jimmy Choo and it's driving new and younger customers into the into our stores.

So I think we're going to continue to see a sequential build throughout the quarter. And remember, this does assume that Michael Kors full price does return to positive during the quarter. And so I think we're quite confident that, that will take place.

So thank you all for joining us today. In closing, we're pleased with the progress that we are making at both Michael Kors and Jimmy Choo. Our strategic initiatives are having a clear impact on returning Capri to revenue and earnings per share growth. This foundation gives us the confidence in our ability to return to growth in the second half of the year. For the full year, our estimated operating income will increase by 50% and our earnings per share up 45%. These anticipated results show a significant recovery in fiscal '27.

Looking towards fiscal '28, we anticipate Capri will return to growth with both Michael Kors and Jimmy Choo growing globally for the year. Driven by our exciting brand storytelling at our luxury houses, attracting new and younger consumers continue to introduce exciting new untransition products and accelerating new store openings and our store renovation program. Giving exciting consumer experience. These focused initiatives will drive sustained revenue and earnings growth at Capri. We look forward to update you on our future growth on our next call. In the meantime, we wish you and your families a happy and healthy upcoming holiday season. Thank you.

Operator

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.