Capri Tops Q2 Estimates, But Trims Sales Outlook
● Uncertainty, currency and China's COVID-19 restrictions are prompting more caution at the Versace and Michael Kors parent.
Capri Holdings Ltd. managed to catch some of the luxury wave through economic troubles in the second quarter but is becoming a little more cautious in its outlook, cutting back sales guidance for the year.
The company cut roughly $100 million out of its projection for wholesale revenues, a change driven by the Michael Kors brand.
John Idol, chairman and chief executive officer, said he wasn't going to give up the ground gained as the brand moved to a more elevated positioning.
“We've worked very hard over the last three years to elevate the Michael Kors brand, and we don't want to take a step backward,” Idol told analysts on a conference call.
For Capri, which is also parent to Versace and Jimmy Choo, playing at the higher end of the price spectrum has been a boon.
Second-quarter net income increased 12 percent to $224 million, or $1.63 a diluted share, from $200 million, or $1.30, a year earlier. And adjusted earnings of $1.79 a share came in well ahead of the $1.54 analysts projected on average.
Revenues for the quarter ended Oct. 1 rose 8.6 percent to $1.41 billion. On a constant currency basis, revenues increased 17.5 percent. In Asia, revenues decreased 2 percent with a 12 percent increase in constant currencies. Mainland China saw high-teen declines on a net basis and a low double-digit drop in constant currency.
Versace's revenues rose 9.2 percent to $308 million for the quarter, with a 27.7 percent gain in constant currencies. Michael Kors' revenues also rose 9.2 percent, to $962 million, or 14.6 percent i n constant currencies. Jimmy Choo's revenues rose 3.6 percent to $142 million, a 15.3 percent rise in constant currencies.
But the economic realities of the world are closing in, even higher up the price spectrum.
Idol said: “While we remain confident in our long-term growth potential, we are now more cautious in our revenue outlook for the remainder of fiscal 2023 due to an increasingly uncertain macroeconomic environment, foreign currency headwinds and the ongoing impact of COVID-19-related restrictions in China. Accordingly, we will carefully manage our business by focusing on profitability and controlling expenses.”
The company held steady on its profit outlook for the year, projecting earnings per share of $6.85.
Investors traded shares of the firm down 4.4 percent to $44.86 during a down day for the market on Wednesday.
However, Capri is now looking for revenue of $5.7 billion, below the
$5.85 billion projected in August and representing a net increase of 1 percent, or a rise of 7 percent in constant currencies.
Thomas Edwards, chief financial officer and chief operating officer, said: “While we continue to see solid trends in our own retail channel across all three brands, guidance now includes an approximate $100 million reduction in revenue from the wholesale channel primarily driven by Michael Kors.
The remainder of the reduction is split evenly between the impact of foreign currency exchange rates and increased restrictions in China.”
Idol added that the company has seen some wholesale slowing over the last few weeks.
“We don't know whether that's a shift in consumer behavior,” he said. “We don't know whether that's a result of less stimulus checks. We're not really sure what that is. But we've taken a more cautious view. This is probably more of a Michael Kors issue than anything, we'd rather have less inventory in the channel. We'd rather preserve our margins.”
Like other fashion companies, Capri is wrestling with a host of macro economic woes that are beyond the control of any one company or industry.
“In terms of the inflation, I think that what we hear anecdotally from people in the stores is — more here in North America — they're concerned about interest rate rises,” Idol said. “And they're concerned about some of the costs. Many people are incurring costs again going back to work and commuting and all those expenses where they didn't have a lot of that this time last year.
“In Europe, we're hearing a great deal of caution around energy,” he said. “Energy costs are up substantially in Europe. And so we would have thought things would have slowed down a little bit in Europe, and we haven't seen that yet. That doesn't mean that it's not going to come. But again, we're going to keep our eye closely on that.”
While Idol watches all that, Capri also had a little something extra to entice shareholders. The firm boosted its share repurchase program to $1 billion, replacing the prior buyback, which had $250 million of availability remaining.