Michael Kors Conference Call Highlights

reported its third quarter earnings on Tuesday. Shares of the company are down 8 percent. Below are the key highlights from its conference call. • Our strong second quarter financial performance demonstrates the momentum behind the Michael Kors brand. • We delivered both revenue and earnings per share growth in excess of 40%, with strong results across our operating segments. • We attribute this success to our fashion leadership, our jet-set luxury experience at retail and great execution by the entire Michael Kors employee team. • Second quarter, revenue exceeded $1 billion, an increase of 43% over the prior year. • In addition, gross margin expanded 20 basis points, while income from operations grew 38% and operating margin was 29%. • We attribute our solid results to the continued execution of our growth strategies, which include first, expanding our global retail presence through new store openings and expansions in key locations. • Second, driving increased comparable store sales at our retail stores and wholesale shop-in-shops with great fashion product and a luxury shopping experience. • Third, continuing the conversion of department store doors globally into branded shop-in-shops that embody the jet-set Michael Kors experience. • Fourth, building an e-commerce platform that will be rolled out globally following our U.S. e-commerce site launch in early September. • Fifth, growing our international business through regional partnerships. And sixth, expanding market share across categories including women's ready-to-wear, women's footwear, jewelry, and men's wear. • Now turning to our segment performance for the quarter. • Retail net sales increased 39%, driven by a 121 net new store openings since the second quarter of last year, and global comparable store sales growth of 16.4%. • We ended the quarter with 473 company-owned retail stores and continued to see the potential for 700 company-owned retail stores worldwide, not including men's locations. • In addition, we are strategically expanding or relocating select stores to enable us to more prominently present our women's footwear, ready-to-wear, watches and jewelry. • Lastly, we now have 176 additional locations operated through our licensing partners, which further expands our presence globally and brings our total store count to 649 locations worldwide. • Our wholesale segment experienced strong performance during the second quarter, with net sales increasing 46%, driven primarily by strength in our accessories and footwear businesses, as well as our women's ready-to-wear. • The growth was also driven by the expansion of our European business and the conversion of 299 wholesale doors globally into branded shop-in-shops, in accessories, footwear, women's wear and men's wear. • We ended the second quarter with 1,969 shop-in-shops worldwide. • For fiscal year 2015, we continue to expect to convert approximately 750 department store doors into shop-in-shops across all categories globally. • Turning to our licensing segment, revenues grew 43%, primarily driven by our watch business as well as our jewelry offering. • We opened an additional 35 watch and jewelry shop-in-shops in department stores worldwide during the quarter and now have 190 watch and jewelry shops globally. • Revenue in North America grew 30% to $802 million, driven by the opening of 19 new stores and a comparable store sales increase of 10.8%. • North American traffic was slower than we had anticipated. • We are now on track to open approximately 50 stores in the region this year. • At the end of the quarter, we operated 320 stores in North America and we continue to believe that this market can support 400 retail locations excluding potential men's locations. • We remain excited about the opportunities in the e-commerce channel. • The transition of our U.S. e-commerce site in early September went smoothly, and since the launch, we have seen strong growth with a net sales increase of approximately 70% over last year. • Importantly, the new website allows us to engage existing and new customers with the Michael Kors' lifestyle and create innovative ways to keep the brand at the forefront of consumers' minds. • In fact, our Facebook fans have grown 80% to 16 million in the quarter. Our Instagram followers have grown more than 150% to over 3 million. • Our Twitter fans have grown 55% to over 2 million. • And our emerging base of Weibo followers has grown over 150% in the quarter to almost 0.5 million. • We look forward to launching our e-commerce site for Canada in calendar 2015 followed by Europe and Japan in calendar 2016. • In Europe, revenue increased 109% to $238 million and comparable store sales grew 41.1%. • We opened 10 stores in the region and ended the second quarter with 111 retail locations across Europe. • We are now on track to open approximately 50 stores across Europe during fiscal 2015 and continue to believe that the region can support 200 Michael Kors retail locations. • In the wholesale business, we continued to see strong performance in both department and specialty stores with particular strength in accessories. • In addition, European wholesale comparable store sales were similar to or greater than our retail comp. • We view Europe as a very exciting piece in our long-term growth strategy.

• We believe that Europe is the center of luxury brands and this move will better align us with our peers as we continue to expand our brand and presence globally. • This change will have no impact in our incorporation status, as we will remain a BVI company. • Turning to our outlook, for the third quarter of fiscal 2015, we expect total revenue to be between $1.27 billion and $1.3 billion, assuming a low double-digit comp store increase. • We expect diluted earnings per share to be in the range of $1.31 to a $1.34, assuming a tax rate of 32.5% and 208.3 million shares outstanding. • We expect gross profit margin of approximately 60.5% and operating margin of approximately 31.5%.