Versace

Capri Holdings Ltd.’s recovery cheered Wall Street during Thursday’s early morning hours after the retailer revealed better-than-expected quarterly earnings

The fashion group — parent company to the Michael Kors, Versace and Jimmy Choo brands — beat quarterly sales estimates and increased profits. Company shares closed up 8.55 percent to $25.27 Thursday as a result.

“Our performance demonstrates the power and desirability of the Versace, Jimmy Choo and Michael Kors brands,” John D. Idol, Capri’s chairman and chief executive officer, said in a statement. “Through creativity and innovation, our luxury houses inspire excitement and passion, creating an emotional connection with our consumers. We are also attracting new consumers to each of our luxury houses as evidenced by the double-digit increase in our consumer databases.”

Total company revenues for the three-month period ending Sept. 26 declined 23 percent to $1.1 billion, down from $1.4 billion the same time last year. But Capri still managed to widen its profits to $121 million, compared with $73 million a year ago. A noticeable improvement from a company that lost a combined $731 million in the last two quarters. 

In the most recent quarter, Michael Kors, Capri’s largest business, had top-line sales of $793 million, down from more than $1 billion a year ago. The brand pulled in a profit of $190 million, down from $222 million last year. Versace, which the company bought in December 2018, had revenues of $195 million, compared with $228 million a year ago. Profits were $20 million, up from just $9 million last year. At Jimmy Choo, revenues were $122 million, compared with $125 million last year. The luxury footwear brand managed to break even, compared with a loss of $10 million a year ago. 

While things like travel retail may be on the decline for the foreseeable future, Idol told analysts on Thursday morning’s conference call that luxury is making a comeback. 

“Consumers are spending at higher rates on luxury products as there has been reduced spending on experiences due to travel restrictions,” Idol said.

“Luxury is enduring, as it creates an emotional connection with consumers, inspiring excitement and passion in those who value design, innovation, as well as exceptional quality,” he continued. “The industry has proven resilient with sales, historically recovering rapidly following economic downturns and global health crises.”

By category, Versace showed strength in men’s wear and fashion athletic footwear, along with the Barocco V pattern, while Jimmy Choo sold out of its $5,500 Jimmy Choo x Timberland Swarovski crystal-studded boots almost immediately. The company expects the brands’ revenues to grow to $1 billion and $500 million, respectively, over the next several years.

At Michael Kors, large handbags and footwear, in addition to men’s accessories and outerwear, performed well during the quarter. 

“It’s really nice to see big backpacks selling again,” Idol said. “We see the greatest softness in women’s ready-to-wear and men’s ready-to-wear and that’s really across the group.”

Meanwhile, total company e-commerce sales increased 60 percent during the quarter, year-over-year. Other bright spots included positive sales in Mainland China during the last three months. (Idol said the fastest recovery is happening in Asia.)

“We continue to see opportunity in [Capri] and expect upward revisions on already inexpensive valuation to prove compelling,” Simeon Siegel, managing director and senior retail analyst at BMO Capital Markets, wrote in a note. Notably, the Americas sales for Versace and Jimmy Choo were both up [year-over-year] as we continue to expect high-end consumers to help luxury spending in the absence of travel. Additionally, management highlighted positive global retail sales at Versace. We expect revenue to continue its improving trajectory.”

The company ended the quarter with $1.5 billion in long-term debt and $238 million in cash and equivalents. Capri has 1,261 brick-and-mortar units around the globe, including 828 Michael Kors stores, 227 Jimmy Choo stores and 206 Versace stores. Idol said the company plans on reducing its overall store count by closing unprofitable Michael Kors locations.

Capri is not providing forward-looking guidance, but Thomas Edwards, executive vice president, chief financial officer and chief operating officer of Capri, said on the call that the company expects revenues to decline by approximately 30 percent for the year.

“An improvement versus our prior expectations,” Edwards said. 

The fashion group also plans to reduce its exposure to wholesale — from about 30 percent of overall company revenues in 2019 to approximately 20 percent over the next few years — as the company continues to open Versace and Jimmy Choo stores and grow its e-commerce businesses.

“Our feeling is that in North America, digital will represent at a point in time over the next couple of years between 40 percent and 50 percent of the overall revenues for the brands in North America,” Idol said on the call. “[In] Europe, we don’t see that type of trajectory. We see something that will probably get us to a 30 percent level over the next few years. And in Asia, as you know, it’s a much smaller piece of the business today, low single digits. But we do think that that will kind of be in that 10 percent to 15 percent range again, over the next few years.

“The COVID-19 pandemic continues to profoundly impact the entire world,” Idol continued. “As the world continues to emerge from this crisis, we are increasingly optimistic about the outlook for the fashion luxury industry and Capri Holdings. We have an incredible portfolio of luxury houses, each with their rich heritage, exclusive DNA and strong brand loyalty. We are uniquely positioned to drive multiple years of strong growth as we continue to execute on our strategic initiatives.”

Shares of Capri Holdings are down more than 25 percent year-over-year.

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