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Operator
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Michael Kors fiscal 2012 third-quarter earnings results conference call. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. As a reminder, today's conference is being recorded.
And now, I would like to turn the conference over to Ms. [Krystyna Lack], Vice President and Treasurer. Please go ahead.
Krystyna Lack - Vice President & Treasurer
Good morning and thank you for joining us for Michael Kors third-quarter earnings call. Presenting on today's call are John Idol, Chairman and Chief Executive Officer; and Joe Parsons, Chief Financial Officer and Chief Operating Officer.
Before we begin, let me remind you that certain statements made on this call may constitute forward-looking statements made pursuant to and within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 as amended, which forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ from those that we expect. Those risks and uncertainties are described in today's press release and in the Company's prospectus filed with the SEC.
Investors should not assume that the statements made during the call will remain operative at a later time and the Company undertakes no obligation to update any information discussed on the call. In addition, during this call we will make reference to certain non-GAAP financial measures, included adjusted net income and adjusted diluted earnings per share. A reconciliation of these non-GAAP financial measures to net income and earnings per share is included in today's press release, a copy of which is available on the Investor Relations section of the Company's website at www.MichaelKors.com.
I will now turn the call over to Michael Kors' Chairman and Chief Executive Officer, Mr. John Idol.
John Idol - Chairman & CEO
Thank you, Christina. Good morning and welcome to our third-quarter fiscal 2012 earnings call. With me today is Joe Parsons, Chief Financial and Chief Operating Officer. I will begin the discussion with a brief overview of the quarter and share with you some highlights on our strategic growth plans. Joe will then provide a detailed review of our third-quarter financial performance and an outlook for our fourth-quarter and full fiscal year.
Michael Kors is positioned as a global, jet-set, luxury lifestyle brand. We are pleased that our strategies have resulted in both revenue and earnings growth across all our business segments. We operate in the fast-growing, luxury marketplace, which we believe will continue to contribute to our global expansion. Our multi-channel segment strategy, unique design, and strong infrastructure have provided the platform for growth. Our strong balance sheet will enable us to execute our growth strategies, led by opening of freestanding stores and shop-in-shops globally.
During the third quarter, we continued to execute on our five growth strategies. First, in North America, our fashion assortment of lifestyle merchandise, increased brand awareness and exceptional jet-set, in-store experience, have resulted in 23 consecutive quarters of comparable store sales growth. Second, we continue our retail store rollout in North America. Third, we are converting wholesale department stores into branded shop-in-shops. Fourth, we are continuing to expand our European presence through retail and wholesale door openings. Fifth, we are developing our business in Japan, which is in the startup phase.
I would now like to review a few financial highlights about our third quarter, then discuss our segments, and finally discuss our operations by region. Our total revenues in the quarter grew 68% to $374 million as a result of strong performance in all segments of our Luxury business; Retail, Wholesale, and Licensing. We delivered gross margin expansion of 240 basis points to 59% as a result of our increased retail and European businesses as a percent of the sales mix, which have higher gross margins. Our operating income totaled $65 million for the quarter or $86 million, excluding one-time charges that Joe will explain in more detail. This compares to $45 million in last year's third quarter.
For our segments, we grew our retail sales by 83% over the prior-year in the third quarter to $199 million. Our comparable store sales in the quarter grew 38%. We believe that this comp store performance reflects our brand's strength, merchandise assortment, and exciting store experience. Retail sales growth was also driven by 75 store openings since the third quarter of last year, including 28 store openings during the third quarter. We ended the quarter with 231 retail stores. Our new stores achieved strong sales results and provide a clear vision for our future retail expansion.
Our Wholesale segment sales increased 55% to $155 million. Our product assortment continues to be well received by department store and specialty store customers, and we are experiencing strong sell-throughs. As of December 31, we are in approximately 2,300 doors in North America and Europe. Our Licensing segment revenues increased 44% to $20 million. We have experienced double-digit increases at Retail in our watch business, and additionally, we launched jewelry in the fall of 2011 and we are pleased with the initial results.
For our operations by region. In North America, revenues increased 61% to $343 million for the quarter. Our comp store sales increased by 38%, which is on top of a 60% increase in the third quarter of last year, and we opened 19 stores during the quarter. We've continued to convert department store locations in North America into branded shop-in-shops, which significantly increases sales volumes in each door where a shop is installed. Our strong momentum continued in Europe where revenues increased by 229% to $28 million. Our same-store sales increased by 34% and we opened three stores during the quarter. We continued to open wholesale doors, primarily specialty shops and sell-throughs maintained a strong pace.
In Japan, we are in the startup phase. Our revenues increased to $3 million and we opened 6 shops during the quarter. As a part of brand-building initiatives, the Company held its first significant launch event in the US Embassy in Tokyo in connection with the opening of our Roppongi Hills Flagship store. The event garnered substantial press coverage of Michael's appearance. Looking forward, the Luxury segment continues to grow globally and our positioning as an American, lifestyle, luxury brand will enable us to continue our global expansion.
Now I would like to talk about our business by region. Starting with North America, our comparable store sales continue to be strong and we expect to drive low, double-digit growth as we continue to increase brand awareness, introduce new and innovative merchandise, and provide a superior customer experience. We will continue our store rollout in North America to expand our Retail segment. We expect to open 30 to 40 retail stores annually, and believe that we can ultimately reach 400 locations in this region.
In our Wholesale business, we will increase sales as we continue to convert department store doors to shop-in-shops. Consistent with our Retail segment, we have experienced strong, double-digit comp increases, and we believe that we can continue at a low, double-digit pace in North American wholesale channel. In Europe, we will continue our Retail and Wholesale growth. We have 29 retail stores, including concessions, and we are on track to open 10 to 15 retail stores annually. Despite the difficult economic environment in Europe, we continue to perform very well and are excited about our prospects to build a Pan-European, luxury accessories business along with our other businesses. We believe that we can ultimately have 100 retail stores in this region.
We established our Japan business in September 2010, and as I stated earlier, we are in the early stages of our growth. We believe that there is a strong potential for the Michael Kors brand in Japan, and that we could ultimately have 100 retail stores in this region. In summary, this is a very exciting time for our Company. Michael Kors has strong and expanding global recognition as a brand that embodies the jet-set lifestyle that consumers aspire to. We believe that we are uniquely positioned to continue to build our global, luxury lifestyle brand, and that we have a tremendous opportunity for growth.
Now, I will turn the call over to Joe Parsons for additional analysis of our results.
Joe Parsons - CFO & COO
Thank you, John. Good morning. I will begin with a review of our fiscal third-quarter financial results, followed by our outlook for the fourth quarter and fiscal year. Total revenue grew 67.9% to $373.6 million for the third quarter of fiscal 2012 as compared to $222.5 million in the third quarter of last year with mid to high, double-digit increases in each of our Retail, Wholesale, and Licensing segments.
Retail net sales increased 82.8% to $199.4 million as compared to $109.1 million for the third quarter of last year, driven by comparable store increases of 38% and the opening of 75 stores since the third quarter of last year. This comp performance was led by the strength of the accessories and watch categories. Wholesale net sales grew 55% to $154.6 million for the third quarter, compared to $99.8 million for the same period last year. The growth was primarily the result of increased sales of our accessories line as we continue to convert North American department stores' doors to shop-in-shops.
Sales in our European Wholesale operations almost tripled during the quarter to $14.8 million as compared to the third quarter last year, due largely to an increase in doors from 246 to 478. In our Licensing business, royalty revenues rose 44.0% to $19.6 million for the third quarter of fiscal 2012, as compared to $13.6 million for the third quarter last year, primarily driven by continued strength in watches.
Gross profit increased 75.1% to $221.9 million during the third quarter, as compared to $126.8 million for the third quarter of fiscal 2011. Gross profit as a percentage of total revenue increased to 59.4% during the third quarter, as compared to 57.0% in the third quarter of last year. The increase in gross margin was primarily the result of higher sales in our Retail business relative to Wholesale, as the Retail business maintains a higher gross margin.
Total operating expenses were $157.3 million in the third quarter of fiscal 2012, as compared to $81.8 million for the third quarter of fiscal 2011. As a percentage of revenue, total operating expenses increased to 42.1%, as compared to 36.8% for the three months ended January 1, 2011. SG&A expenses were $143.4 million for the third quarter, compared to $75.5 million for the third quarter of last year. SG&A expense as a percentage of total revenue increased to 38.4% from 33.9%.
The increase in the SG&A expense was driven by one-time charges of $15.9 million related to equity compensation for periods prior to the third quarter and $5.2 million in IPO-related costs. The remainder of the increase was primarily due to higher retail occupancy and salary costs related to new store openings and an increase in corporate employee-related costs associated with additions to our corporate staff to support our North American and international growth, as well as the infrastructure, professional fees, and other costs required as a public company.
Depreciation and amortization expense increased 66.7% to $10.6 million during the third quarter, primarily due to new stores, shop-in-shop locations, and investments in IT to support growth. We also recorded a non-cash impairment charge of $3.3 million in the third quarter of fiscal 2012. As a result of these factors, operating income grew 43.7% to $64.6 million or 17.3% of total revenue, as compared to $44.9 million or 20.2% of revenue for the 3 months ended January 1, 2011. Excluding the one-time charges mentioned earlier, operating income would have been $85.7 million or 22.9% of total revenue, as compared to 20.2% of total revenue in the third quarter of last year.
Income taxes were $27.3 million in the third quarter, as compared to $19.1 million for the three months ended January 1, 2011. Our effective tax rate for the three months ended December 31, 2011 was 41.2%, compared to 40.7% for the three months ended January 1, 2011. The increase in our effective rate resulted primarily due to increased income taxes applicable to certain of our non-US subsidiaries. Net income increased $11.2 million or 40.4% to $39.0 million during the three months ended December 31, 2011, compared to $27.8 million for the three months ended January 1, 2011. Excluding the aforementioned one-time, equity compensation and IPO-related expenses, net income was $53.6 million or $0.28 per diluted share. This compares to $27.8 million or $0.16 per diluted share based upon $179.2 million in weighted, average diluted shares for the third quarter of fiscal 2011.
Turning to the balance sheet, at December 31, 2011, cash and cash equivalents net of $15.5 million of borrowings under our credit facility were $90.1 million, as compared to $30.9 million at the end of the third quarter of last year. Inventory at the end of the quarter was $160.8 million, as compared to $106.0 million in the third quarter of last year. The 51.7% increase in inventory was primarily due to an increase in net sales in our Retail and Wholesale segments, as well as the addition of 75 stores since the third quarter of last year.
We expect to spend approximately $95 million to $105 million on capital expenditures during fiscal 2012, of which we have spent $56.8 million for the nine months ended December 31, 2011. The majority of these expected expenditures relate to new store openings [by end] for the year, with the remainder being used for investments in connection with building new shop-in-shops, build out of our new warehouse and material handling equipment, corporate offices and enhancing our information systems' infrastructure. We ended the quarter with 231 stores, including concessions. We are providing guidance for the first time. On a go-forward basis, we will provide guidance for the upcoming quarter and fiscal year that we are in, in our first through third-quarterly conference calls. During our fourth quarter call, we will provide guidance for the upcoming first quarter and upcoming fiscal year.
Now, I will provide an outlook for our fourth quarter. We anticipate total revenue in the range of $350 million to $355 million with a total Company comp store increases of 25% to 30%. We plan to open four stores in North America during the fourth quarter. In the Wholesale segment, we anticipate growing doors primarily in speciality shops in Europe as well as door expansion in North America. We anticipate that the gross margin will contract somewhat in the fourth quarter as compared to the fourth quarter of last year due to normalized markdowns in both the Retail and Wholesale segments, somewhat offset by the faster growth in our higher margin retail business as compared to the wholesale business.
Total operating expenses will continue to include public-company costs, including equity compensation expense, professional fees, staff costs, and other expenses. Excluding the aforementioned one-time charges, total operating expenses grew 66.5% in the third quarter of this year as compared to last year. And we anticipate a higher growth in the fourth quarter, as compared to the same period in the prior year as we have a full quarter of public-company costs. Assuming a tax rate of 40%, and 197 million diluted average shares outstanding, we expect that earnings per share in the fourth quarter to be in the range of $0.10 to $0.12. This implies a full-year net revenue range of $1.27 billion to $1.28 billion, with gross margin somewhat higher than the prior year.
Excluding the effect of the one-time charges for the nine months ended December 31, which impacted the diluted EPS by $0.09, we expect fiscal 2012 diluted earnings per share in the range of $0.74 to $0.76, assuming a 40% effective tax rate and 190 million diluted weighted average shares outstanding. As John said, Michael Kors is positioned as a global, jet-set, luxury lifestyle brand. Our strong balance sheet will enable us to execute our growth strategies led by the opening of free-standing stores and shop-in-shops globally.
Thank you for participating in this call. We will now open the call for questions.
Operator
Thank you. The question-and-answer session will be conducted electronically. (Operator Instructions) Kimberly Greenberger with Morgan Stanley.
Kimberly Greenberger - Analyst
Good morning and congratulations on a very fine quarter. John, I'm wondering, it looks like the December same-store sales really accelerated relative to the update we saw prior to the IPO. I'm wondering if you can talk to us about the performance through the holiday season, and how that informed your merchandising strategy here for calendar 2012. And then if you could just talk about the performance of the 75 new stores that you have opened over the past year, and how those new stores are performing relative to your expectations and plans. Thanks.
John Idol - Chairman & CEO
Sure. Third quarter was obviously, the performance was excellent for the Company, and December was quite strong, as you can see from the ending comp results; and that was driven by first and foremost our luxury leather, accessory business, both handbags and small leather goods. And then, we had again another very, very strong season with our watch sales in our lifestyle stores. And then really, the third area that drove the business was jewelry. Jewelry was excellent for us. So I think we've hit on another category that's going to be, quite frankly, explosive. So we felt that we, as an organization, executed both from a product level and also from an in-store sales experience. You know that's a very big focus for us, our whole jet-set initiative on the consumer experience inside of our store. And that really paid off for us on all levels. So we think -- and that strategy will remain in place, as you know, going forward on all the stores that we open.
The 75 new stores performed basically at or above our plans. And I think I had mentioned to you in previous times that we've talked with investors, et cetera, we actually, over the last 3 to 4 years, continue to look at legacy stores. And legacy stores are cooping at the same rates as even some of the new, 1-year opened stores. Again, we think that's a testament to, first and foremost, Michael Kors himself and the designs that he and our design teams put forth, the product in total, the selling experience, and then also of course, the brand awareness and what our teams are doing from a marketing and communication to our customers, everything from obviously our traditional print media to what we are doing with our website and then lastly social media. We think we are doing a pretty amazing job with that. So again, you wrap all that together; and I think that's what's driving the business in the stores; and of course our traffic is up dramatically, continuing on a year-on-year basis.
Kimberly Greenberger - Analyst
Of the 38% comp, would you say the vast majority of that comp was driven by higher traffic and conversion relative to the prior-year?
John Idol - Chairman & CEO
It's a little bit of both. Traffic is up over 20% and conversions are up as well.
Kimberly Greenberger - Analyst
Okay. Great. Last question on inventory. It looks like inventory is still growing well below your sales pace, yet your forward, gross margin guidance is for some pressure as you assume normalized mark-down rates. Does that -- feel to you like, likely given the momentum in your business, does it feel conservative to you? It just strikes us that perhaps we would have seen maybe some pressure in the December quarter on higher sourcing costs and also the normalizing mark-down's. But the normalized mark-down's have been a little bit evasive and we're just wondering how you're feeling just in general about that particular line on your go-forward guidance.
John Idol - Chairman & CEO
Sourcing costs have not been a significant issue for us to date. Obviously, last year when there was more pressure in the apparel part of the business, particularly cotton, we did feel it there. But in the accessories piece of the business, we have obviously had cost increases, but they've been small relative to our growth and what we've been able to do from a sourcing standpoint. We were one of the very early companies, a few years ago, and we have moved production out of China. We have done that consistently for some time. So that's really not causing pressure. Again, we anticipate more, what I call, normalized mark-down's, both at our own full-priced, our own retail stores, and at the department stores. So at this point in time, our guidance would be as Joe had indicated earlier.
Kimberly Greenberger - Analyst
Okay, thanks, and good luck here for spring.
John Idol - Chairman & CEO
Thank you, Kimberly.
Operator
Michelle Tan with Goldman Sachs.
Michelle Tan - Analyst
Great, thanks. I was wondering, John, if you could give us a little more color on the jewelry opportunity. I know you just launched it, but how big is the business through holiday relative to what you are doing in watches; and how big do you think it can ultimately become relative to the watch category?
John Idol - Chairman & CEO
First off, good morning. I'm going to be somewhat careful, because I think 9 o'clock, Fossil's got a phone call; and I don't want to take away their thunder at all. I think we told you guys when we went out on the road show, we would ultimately like it, jewelry, to represent 5% of our sales in our freestanding stores. We are well on track to achieve that quicker than we had actually anticipated. We don't know how high is high because we ran out of product, quite frankly, because of the sell-through's. And as you know in life, the 80/20 rule, 80% of our business was done at 20% of our style, so we do believe that, that business long-term can, as I said, represent approximately 5% of our business in our retail stores. And I will let Fossil answer how big they think that can be as it relates to a wholesale percent to their sales.
I think you know Fossil had reported publicly before that Michael Kors will achieve approximately $300 million in shipments from Fossil. Again, we believe that positions this jewelry business to be a very sizable business long-term.
Michelle Tan - Analyst
That makes sense. I would think that the category potentially is even larger than what the watch category looks like? So perhaps the opportunity could ultimately be even bigger than you guys have laid out. (multiple speakers)
John Idol - Chairman & CEO
I will just say one thing to you. Just like we did in the watch business, when we really entered this business with Fossil, who, I might add, is just an absolutely spectacular partner, we really broke new ground, where the average price point of fashion watches was probably 50% less than what we really entered the category at. So again, same thing in jewelry. We're entering in the fashion jewelry business at a much higher price point than is traditionally out there. Again, assuming that the consumer responds, and the initial results are that they are, then we think we will actually even create a bit new strata in that business, which will bode well for the whole industry.
Michelle Tan - Analyst
Great. I think Kimberly asked this already in some form, but my other question was kind of looking at this spring and how you're thinking about the opportunities. Anything you would really highlight for us as being, beyond jewelry, the biggest incremental, year-over-year focus for you from a product standpoint and any initial reads you can give us on how the consumer is responding beyond the obvious holiday gifting period.
John Idol - Chairman & CEO
As Joe said earlier, we are looking at 25% to 30% comp store sales growth in the first quarter, which is, by industry standards, I think that still puts us close to best-in-class. And obviously to do that, we have to drive that with increased store traffic, which, again, with our marketing initiatives, we think we are absolutely doing. And then from a product standpoint, we are very pleased with the initial results again of our logo. As you recall, we said ultimately we think that business could represent about 25% of our sales; and we saw very, very, very strong results from that category. So that would be a driver for us.
And secondly is small leather goods. Again, we saw triple-digit, comp store increases in that category. We see that continuing on. We believe we are very under penetrated in that classification. And again, it gives us another reason for a multiple sale. To someone coming in and buying a handbag, we want to sell them a wallet or if it's a younger girl coming in for, maybe, a birthday gift or whatnot. So it really gives us an opportunity to talk multiple times to the customer. And so, those two categories will really help drive some of this comp store increase, in particular in the spring season.
Michelle Tan - Analyst
Great. And remind us where the logo category is today for you?
John Idol - Chairman & CEO
On the road show, we said it was kind of in that 5% to 10% category; and we would like to get it up to 25%. We are north of the 5% to 10%. We're not quite at the 25%. We are well on our way to achieving our objective.
Michelle Tan - Analyst
Excellent, thanks very much, good luck, guys.
John Idol - Chairman & CEO
Thank you.
Operator
Brian Tunick with JPMorgan.
Brian Tunick - Analyst
Thanks, congrats, guys. First question on the spending side, just trying to figure out where are you from the infrastructure in Europe and Japan, where are you in the key, hire ramp-up. John, you mentioned the marketing spend. And I know you talked about wanting to ramp-up the spend. Where did that shake out for holiday as a percentage of sales or new media? And then a question then on real estate. How many leases have you guys signed already for next year? And how are you thinking of them between A and B malls?
John Idol - Chairman & CEO
I'm going to repeat. I think you asked -- first off, good morning, Brian.
Brian Tunick - Analyst
Good morning, John.
John Idol - Chairman & CEO
I think you asked three questions about spend. You asked about infrastructure, you asked about media, and you asked kind of about leases.
Brian Tunick - Analyst
Yes.
John Idol - Chairman & CEO
I'm going to let Joe Parsons answer the first one regarding infrastructure.
Joe Parsons - CFO & COO
We're in the process now of moving to our new warehouse. It's going to be moved in three phases. We have just completed the first phase. And the other two phases will be sometime during the spring. We have not yet -- we have talked about putting a new warehouse management system in to this group. We have not done that yet. That will also be coming this spring. Those are the two, big things that we are looking at. In terms of other movement, we have moved our Secaucus office into a larger single facility; and we think that we are underway to have kind of the complete infrastructure to continue growing.
John Idol - Chairman & CEO
Obviously there's other initiatives from a system's standpoint that are going on in the Company. As you recall, again from the road show, this Company when it went public really wasn't a Company that had to go back and then kind of catch up with a tremendous amount of systems' investment. But at the same point in time, we said to you we were going to continue to invest in appropriate systems, from planning systems for the Company, from new systems to support our growth in both Europe and Japan, so there's a lot of additional systems work that's going on in the Company that we think is good investment for the management of our business going forward. On the media side, we did intend on -- and we did -- spend more on the media during the third quarter. We didn't get quite up to the levels that we're anticipating, but we do anticipate getting to the more [folsom] levels for next year.
When I say next year, it really begins calendar year, because we will start to see more magazine advertising. As I said, we're spending a lot more money on the communications on our website in terms of email blasts, et cetera. And we are spending a lot of money on social media. Lisa Pomerantz joined us, our Company, about 6 months ago and has really taken us to a whole, new platform in terms of where we are in social media. We think we will break over one million Facebook fans by the May or June time period. We are over 0.5 million on Twitter fans today. And I believe Michael is now the second-largest designer followed on Twitter in the world, which is really extraordinary.
And we are really building out the staff and infrastructure to be involved with all these different communication areas. And we are also beginning to ramp up for e-commerce in Japan and in China. And so, there's a lot that's going on behind that to get ourselves ready. You'll start to see all that spending coming on. We don't have as many of the people in place, again, as we had hoped or anticipated to at this point in time, but that will all be ramping up over the next three to six months, as we had told you, as we go along.
In terms of leases, we are in the same place again. I would say that kind of 85% to 90% of the leases are all done and in place for our fiscal '13. Some of the ones that kind of move around again are the European leases, as I had mentioned to you. It's not like we're dealing with the large, mall developers here in the US. You're dealing with individual owners of buildings. But we are making very good progress, and we hope to have some very nice announcements for you on that level. So, US, no issues with getting the pipeline filled for our store growth. Europe, it's just a little bit of a different situation where we can't forecast it as accurately. And Japan, the pipeline to be able to fill that is not an issue at all. Again, there's over 150 locations in department stores for us to be able to open concessions there.
Brian Tunick - Analyst
Terrific, thanks so much.
John Idol - Chairman & CEO
Okay, thank you, Brian.
Operator
Jeff Klinefelter with Piper Jaffray.
Jeff Klinefelter - Analyst
Yes, good morning. Congratulations, everyone, on a great quarter. I wanted to ask you two quick questions, John and the Team. First of all, in the domestic shop-in-shop business, talked about the strength of that business and how it's helping to drive the productivity. I was wondering if you could just update us again on how many you currently have domestically and what the expectation is for the addition of those shop-in-shops as we go into next year or maybe on an annualized basis, any compare and contrast and performance between a shop-in-shop and a regular wholesale door? And one other question would be on Europe. And again if you could just help us with the compare/contrast so far in your European business categories that are performing well there versus North America? Any differences that you see would be helpful, thank you.
John Idol - Chairman & CEO
Great. First off, good morning, Jeff. The shop-in-shop roll-out is predominantly in North America for the moment. Europe is there, but it's just not as many doors as from an opportunity standpoint. As we said to you, we think there is over 1,000 fixture able doors in the US. And we are about a quarter of our way there. By the way, in some of those doors, you may have more than one Michael Kors shop-in-shop. You may have a handbag shop, you may have a women's ready-to-wear shop, and you may have a footwear shop. But we don't necessarily count that as three, even though you will look at that. So when I tell you there's 1,000 fixture able shop-in-shops, there are multiple businesses that we can fixture inside of there.
But kind of staying focused on the accessories piece, the handbag piece, which is the bigger piece, we are about a quarter of the way into that development. And as I think I had mentioned to you previously, we think that we will open up about 100-plus a year for accessory shop-in-shops. And we get a 1-to-3 lift typically when we put in a shop, into those locations. We will not be reporting on a quarterly basis how many we are tracking on, so I just want to let you know that. But you can assume that we will talk annually to a number that we think that we will attain.
And then, I just want to add that, that number may accelerate slightly, because the department stores are having such strong performance from the Michael Kors accessories brand. Macy's and Dillard's and Lord & Taylor and Bloomingdale's, they're all requesting more shop-in-shops. There is a chance that, that number could go up over 100 by a fair amount. So, we are looking at that. (multiple speakers)
Jeff Klinefelter - Analyst
John, just one quick question, did you say it goes up approximately 3 times the volume of a regular wholesale door?
John Idol - Chairman & CEO
Yes, that's correct.
Jeff Klinefelter - Analyst
Thank you.
John Idol - Chairman & CEO
And actually, we had a pretty good third quarter in our women's ready-to-wear. Our women's sportswear business was healthy, and so we are also seeing shop-in-shop expansion in that business as well. And then in Europe, from a category strength standpoint, clearly handbags is number 1. We believe we were one of the top-selling, accessible, luxury handbag brands in Europe. I would put us in the top three there. And again we know what our competitors are doing, and so we think we are really performing at a very, very high level of productivity. And we were also very pleased with our women's apparel business, which also is tracking very, very nicely in terms of its development and growth there. So we see the opportunity in both of those categories.
Again, shop-in-shops are a little bit more limited for us over in Europe just because of the department store environment. There's not as many doors that we will be selling as opposed to specialty stores. And as I said to you in the previous meeting, long-term women's ready-to-wear will be a very important business for us in Europe, because there ultimately is 1,500 to 2,000 doors that we can be in with women's ready-to-wear throughout Europe.
Jeff Klinefelter - Analyst
Great, thank you very much.
Operator
Randy Konik with Jefferies.
Randy Konik - Analyst
John, can you just talk, maybe remind us, for those that didn't hear it on the IPO road show, or what have you. Just remind us of what you see as the core consumer for your product. And when you talked about the Facebook fans, the Twitter followers, and then obviously the strong comps, can you talk about how you see the consumer, what consumer you are adopting, what additional consumer you are adopting, maybe a different, older, younger person? And then are you seeing any differences in the types of products that the consumers are buying by channel possibly by the Kors stores versus the wholesale versus the Internet? I'm just trying to get some perspective on the broadening of the consumer set here and the rapid adoption of the brands. Thanks.
John Idol - Chairman & CEO
Our core customer is really 35 years old. That is our biggest customer, resides in that category. And then our second biggest -- call it the 30 to 40-year-old customer, but we use the 35 as the target. And then our second biggest category is really that 18 to 25-year-old, which has been the fastest growing category for us over the past 3 years just in terms of sheer numbers. We believe that obviously traditional media and our web business helps us continue to drive our core customer, and I might add we are also mailing millions of catalogs a year. I hope many of you have seen that. While that sounds like an old-school methodology, we really see the lift in our own freestanding stores and our web business dramatically when we dropped the catalog multiple times per year.
So we are going to continue to increase circulation on the catalogue and use that. We're going to start to use it in Europe and ultimately we will use it in Japan as well. But the social piece is really driving that younger customer into our stores. And I believe that we see that Michael's relationship through Twitter and through Facebook, where quite frankly it is Michael doing the tweets or Michael putting together different things that he wants to talk to his loyal customers or fans about, really has become a whole issue of engaging that customer; and them understanding the brand more broadly than just as another designer brand. That we think has really helped drive that younger customer into the store, and we are trying to do that. Again, it's kind of in the 20% range for us, so it's not like we're trying to only have a young teen customer in the store. That's not our goal. But we do think it's balanced, because as this young woman grows with us, she is going to be a loyal customer in the future. So we think it's very, very important how we are marketing as well as how we are creating this store experience when the customer kind of puts those two things together. They get that whole jet-set sensibility.
Randy Konik - Analyst
Okay. How long will it be before you get back into the position that your happy with? Also, separately, just wondering about price points, are you thinking about price points next year? Do you have opportunities to take them higher? If you could share your thoughts on that as well. Thanks guys.
John Idol - Chairman & CEO
Sure. I would say jewelry was the -- and we did run low on certain categories in the handbag world, just only as we sold out too quickly. We believe we will be back in stock, more or less are back stock as we speak. I think again we told you on the road show, we kind of on best sellers can get back into it in, let's say 6 to 8 weeks time period. So, I think we have best selling items back in the store, and jewelry we are actually caught up on deliveries there as well. But you can see from the inventories obviously we had better sell-through's than we had anticipated and that's why the inventories are below the sales. And, I'm sorry, there was a second question. So the first one was on --.
Randy Konik - Analyst
The second one was on price points.
John Idol - Chairman & CEO
We have over the last 5 years, have worked really hard to maintain the kind of core price points for us. So in the handbag world it's really -- the sweet spot for us is kind of the $348 to $398, that is where our big volume comes from. And then in the SLG's we are in that $100 to $150 range. Those are our areas. We think, we are not really focused on trying to get expansion, I've talked to you about this before, of margin, as much as we want to continue to have the customer coming in. We are more interested in getting our UPT's, or unit per transaction up in the stores, and we think that if the customer has this great experience with what they buy, that we will get it in gross margin and top line. We are not really focused on expansion on margin expansion at this point.
Randy Konik - Analyst
What percentage of your business is done at that $348 to $398 versus above the $398? And how has that changed over time?
John Idol - Chairman & CEO
It's remained relatively similar. I'm going to give you an estimate. I apologize. I don't have that number right off the top of my head. But I believe we are doing about 25% to 30% of our business over the $400 category. I am in the zone there; it's not 100% accurate. But remember, in our lifestyle stores also we have our collection handbag business. So we sell luxury handbags in our lifestyle stores which are everything from $698 all the way through $5,000, and it is real first-line product. Everything from the finest skins from around the world to finest leathers and hardware. So we have always had a business in that; and we like that because again it pushes our average transaction up in the stores.
Operator
Erika Maschmeyer with Robert W. Baird.
Erika Maschmeyer - Analyst
Thanks, good morning. And I will also add my congratulations on a very strong first-quarter out of the gate. First question, could you talk a little bit about apparel and footwear category sales? Have you seen any differences in North America versus Europe? Besides I know it's a bigger category in general for you than your work has the potential to be. And then have you seen any impact on outerwear and sweaters, boots from the warm weather that we have had?
John Idol - Chairman & CEO
Okay. On the Europe side, it's interesting you mention that. In Europe, potentially the ready-to-wear and footwear actually we have more door opportunities than we do in handbags from a wholesale distribution standpoint in Europe. That's predominantly again because the wholesale business in handbags is really limited to more departments and a handful of top specialty stores. Most of the specialties stores in Europe focus on ready-to-wear and they will have limited footwear in those stores, and/or there's obviously footwear specialty stores. And again, in order of how we did in Europe, handbags, small leather goods, outstanding. I might add watches, outstanding. Women's ready-to-wear was really our second category and footwear was, I will say, our third category.
We are doing well with it. It probably doesn't have the same velocity levels that we have in the US, and that's really more of a product differentiator. The European customer wants a shoe that has a little bit more fashion, a little bit more design into that. I think we've got that balanced for the go-forward. But that's really true for us in everything that we do in Europe. Much more fashion-forward customer and much less price sensitive; and they want quality design and more fashion than the US customer. So that is on that.
And then the impact on outerwear. Clearly, like everyone else, the outerwear sales were impacted. We don't -- ready-to-wear in our lifestyle stores is kind of around 10% of the business. So it was not a huge component. Interestingly enough, we did a lot of business in faux furs, which was just a big fashion trend, as I'm sure you're aware. So our outwear category, when you look at it from our actual performance, we had an excellent season, but it was more driven by specialty items that were more fashion and less actual wearing to keep you warmer.
Operator
Omar Saad with ISI Group.
Omar Saad - Analyst
Thanks, good morning. My one question is really revolving around the brand's positioning internationally. You talk a little bit about the brand awareness level in Europe and Japan and progress you've made in terms of raising the awareness and positioning the brand around this jet-set, luxury lifestyle and the work that needs to be done there. And in that context too, given the rise in global travel and tourism, could you talk about your strategy if you have any in terms around travel retail? Thanks.
John Idol - Chairman & CEO
Sure. I think we told you before that our brand awareness in the United States amongst the group that we study runs at approximately 70%. That same brand awareness in Europe as around 35%. We just got recent studies back. So that I think answers the question of how much work we have to do. But again, we like that. We think that, that just shows nothing but opportunity for us to build. And clearly, once we got above that 50%, 55%, 60% in the US, you just saw the business trajectory take off, because so many more people knew the brand.
So that's where there'll be considerable more advertising spend that we are putting forward in Europe to help build that brand awareness. Europe is an expensive proposition, because in the US, you have titles or publications or different media outlets socially that cover America. Where in Europe, the only thing consistent about the EEC is that it's not consistent. So we have to do something slightly different in Germany and slightly different in France and slightly different in the UK and Italy and Spain; and that actually becomes more expensive on a per capita basis. But again we are committed to that. We think we've got of a very good strategy.
Japan is a different story. Michael has a reasonable brand awareness there. It's around 25% to 30%. That was because Onward Kashiyama had the brand in the marketplace for some 10 years, so it's not that Michael Kors is not known, but he was not known as an accessories designer. As you may or may not recall, we shut the business down in Japan at the end of December with Onward Kashiyama. Started up the accessories business in September of '10; and now we are positioned on the ground floor of most department stores and/or in the luxury accessories area, which sometimes is on the second floor, next to everything from Gucci and Prada and Coach and other brands of that ilk. People in the marketplace don't know Michael Kors as an accessories designer. So we believe that, that is going to take us 3 to 5 years to really create a level of brand awareness related to the product that we're most interested on, on focusing on to make that happen.
And then lastly in travel retail, we are having outstanding results. We are in Incheon Airport, Changi Airport, Heathrow Airports. We're opening JFK momentarily. We have probably about seven other airports that are lined up ready to go, and will be opening between now and the end of the year. So we are aggressively moving on the airport strategy; and our customers are responding very positively to the Michael Kors luxury brand in that travel setting.
Operator
Corinna Freedman with Wedbush Securities.
Corinna Freedman - Analyst
My question relates to current sales trends. It seems like there's an incremental marketing campaign around Valentine's Day with some window advertising. I'm wondering if that's new for this year? And if there's any color you can give us on the outlet business? Thanks.
John Idol - Chairman & CEO
Sure. We're very proud of our Valentine's Day campaign; and again our marketing team did an extraordinary job in putting that together. And we literally think there will be millions of people between our own website, between Facebook, between Twitter, Pentwist, all the different social media outlets that they have really worked incredibly hard to develop this 360 degree campaign. And of course, it's what are you falling in love with? And we've actually seen other companies hash-tagging our site to actually drive customers to their site, because of what's happening with our campaign. So I think you can look forward to more of those exciting initiatives. And again, we have Michael's voice. Michael is a real person who is really helping with all of this as well. That's been an outstanding thing for us.
And then our outlook business continues to trend at similar levels to our lifestyle business. And again, it has been an excellent business for us; and we use that to exit product from our lifestyle stores and then of course we also manufacture for that channel as well. But again, we intend on keeping a lid on that business because we don't want to turn the Company into something that it is not, which it is first and foremost a luxury accessory Company on a global basis.
Operator
I'm sorry. This does conclude the conference call question-and-answer session. I'll turn things back over to Mr. John Idol for any further concluding remarks.
John Idol - Chairman & CEO
I would like to thank everyone for taking the time to join us this morning. And we look forward to talking to you on the next call to report our future results. Thank you very much.
Operator
Once again, everyone, this will conclude today's program. Thank you for joining us. Please enjoy the rest of your day.