Capri Holdings Ltd. is in growth mode, but investors may not think it’s happening fast enough.
For the three-month period ending March 30, the company’s total revenue was $1.34 billion, up from $1.18 billion a year ago. That’s a 13.9 percent increase. But net income fell to $19 million, down from $44 million in the same period last year.
“Fiscal 2019 was a transformational year for Capri Holdings,” John Idol, the company’s chairman and chief executive officer, said in a statement. He added that improvements to the company included several significant investments.
Perhaps the largest among them was the acquisition of luxury fashion house Versace. The deal, which closed in January when the company officially changed its name to Capri Holdings, totaled $2.1 billion. While the Versace name still carries a lot of equity, some investors are worried it may take too long to see a return.
“Versace has a lot of sales, but it’s not a very profitable business,” said UBS analyst Jay Sole. “Part of the investment, or the idea behind the investment on Capri’s part, is they feel like they can improve the profitability of the company. The market is somewhat skeptical. In the first year, the deal is actually going to cost them money to own Versace. The market looks at that and says, ‘What’s the [immediate] impact right away? It’s negative. You’re losing money.’ There’s a lot of disagreement on that.”
In fact, last quarter’s results are the first to include Versace, which had revenues of $137 million, but an operating loss of $11 million. Meanwhile, both revenues and income fell at the core Michael Kors brand. Revenues decreased 0.4 percent to $1.06 billion, down from $1.07 billion last year, while income was $166 million for the quarter, down from $195 million during fiscal year 2018’s fourth quarter.
Jimmy Choo continued to be a bright spot for the company, with $139 million in sales for the quarter, up from $108 million — a 28.7 percent increase.
“Looking ahead, fiscal [year] 2020 will be an investment year for our group, and we believe our initiatives will deliver strong revenue growth for Capri Holdings,” Idol said. “Longer term, our three brands position Capri Holdings to accelerate revenue from $6 billion to $8 billion, which will be led by Versace and Jimmy Choo, with Michael Kors remaining a strong foundation for Capri Holdings. We expect to grow Versace from $900 million to $2 billion in revenue, expand Jimmy Choo from nearly $600 million to $1 billion in revenue, while building Michael Kors from $4.5 billion to $5.0 billion in revenue. Taken together, we believe our three iconic, founder-led fashion brands position Capri Holdings to deliver multiple years of earnings growth.”