Capri Profits Plummet Ahead of Acquisition by Tapestry
Softening demand and challenges tied to a new e-commerce platform for Michael Kors hit the business hard in the second quarter.
Capri Holdings took a big hit in the second quarter as softening consumer demand and a hitch with a new e-commerce system hurt sales ahead of the company's planned takeover by Tapestry Inc. next year.
Net income for the fiscal second quarter fell 59.8 percent to $90 million from $224 million a year earlier. Adjusted earnings fared slightly better and declined 45.7 percent to $133 million.
Revenues for the quarter ended Sept. 30 declined 8.6 percent to $1.3 billion from $1.4 billion. The company's retail sales logged a high-single-digit decline while its wholesale business saw a low-double-digit drop with softer demand in the Americas.
At Michael Kors, sales fell 8.6 percent to $879 million with weaker demand and a new Americas e-commerce platform creating “greater than anticipated challenges” and costing the brand about $50 million in sales. The impact from the e-commerce switch is lessening, but will also weigh on the quarter.
The e-commerce system was implemented in July, shortly before the company's Aug. 10 deal to be bought by Tapestry at an enterprise value of $8.5 billion. Shares of the company stock slipped 2 percent to $47.24 in after-hours trading on Thursday, significantly below the $57 deal price, showing some investor unease.
Versace revenues fell by 9.1 percent from the prior year to $280 million in the second quarter, while Jimmy Choo's take slipped by 7 percent to $132 million.
“Capri Holdings' second-quarter results were below our expectations due to macro-economic headwinds as well as e-commerce implementation related challenges,” said John Idol, chairman and chief executive officer.
“Despite near-term challenges, we remain focused on executing our strategic initiatives to drive long-term sustainable growth at all three of our luxury houses,” Idol said. “Versace, Jimmy Choo and Michael Kors continued to resonate with consumers as evidenced by the 11.4 million new consumers added across our databases, representing 15 percent growth over the last year. This reflects the strong brand equity and enduring value of our three iconic houses.”
Given the pending deal with Tapestry, which Capri shareholders signed off on last month, the company did not issue any financial guidance.
But Idol said: “We look forward to the successful completion of the merger transaction with Tapestry in calendar year 2024. We are confident that this combination will deliver value to our shareholders as well as provide new opportunities for our dedicated employees around the world as Capri Holdings becomes part of a larger and more diversified company. By joining with Tapestry, we will have greater resources and capabilities to accelerate the expansion of our global reach while preserving the unique DNA of our brands.”