Less might really be more — just ask John Idol.
Capri Holdings Ltd., which Idol leads as chairman and chief executive officer, offered something of a tableau of fashion’s holiday season with its third-quarter results.
Profits and sales bounced back strongly despite supply chain backups, prices rising and COVID-19 restrictions hurting the business in China. The annual outlook was raised and growth is projected to continue next year.
Idol told analysts on a conference call Wednesday that the company’s brands have been “really not trying to introduce too much” to avoid having goods that need to be cleared through the stores.
“That’s one of the things that — coming through COVID-19 — really helped us to reduce the [stock keeping units] across all the companies by over 30 percent,” said the CEO, referring to the brands under the Capri umbrella.
Idol pointed to Versace as an example.
“We’re seeing very strong AUR growth at Versace, and that’s really driven by the accessories business and the full-price selling and sell-throughs that are happening in that business,” he said. “So AUR growth is quite significant at Versace, and it’s really driven by those two things. Accessories and much, much better full-price sell-throughs because we’re not over on ready-to-wear, which always has higher markdown rates.”
It’s a relatively new kind of slimming for fashion, which for years sought to give consumers more options. And it’s a look that’s taking hold across much of the industry.
“Some companies are going to go further, just to be more focused…the consumer is responding to that,” Idol said.
Clearly, coming to market with just two-thirds of the assortment is working at Capri.
The company’s third-quarter net income increased 80 percent to $322 million, or $2.11 a share, from $179 million, or $1.18, a year earlier, when the industry was navigating its first Christmas of the pandemic. Adjusted earnings of $2.22 a share easily exceeded the $1.69 analysts projected. Revenues for the three months ended Dec. 25 advanced 23.6 percent to $1.6 billion from $1.3 billion.
Investors liked what they saw and pushed shares of Capri up by as much as 14.9 percent Wednesday to a new 52-week high of $70.63, before settling some. The stock closed up 7.8 percent to $66.30, giving the company a market capitalization of $10 billion.
Capri’s inventories at the end of the quarter were down 24 percent — including goods that were stuck in transit. Coming into the holiday season, the company warned that the disruptions in the global supply chain had pushed delivery dates on goods back 45 to 60 days, with the Michael Kors brand the hardest hit in the portfolio.
Now Capri is going to rebuild its inventory, but it’s going to keep its focus with a program that will have it getting core looks earlier to fulfill shopper demand.
But even with tighter assortments, the company is bringing in a bigger customer base.
Idol said Versace, Jimmy Choo and Michael Kors added a combined 11.5 million new consumers to their databases over the last year.
• Michael Kors’ revenues rose 20 percent to $1.2 billion with operating income of $335 million for the quarter.
• Versace posted a 29 percent increase in revenue to $251 million with operating income of $32 million.
• Jimmy Choo’s revenues jumped 47 percent to $178 million, driving operating income of $16 million.
Third-quarter revenues in the Americas rose 26 percent (and would have been higher if the company could have gotten more of its inventory to stores). Sales increased 35 percent in the Europe, Middle East and Africa region.
But sales in Asia were up just 3 percent, with improving trends in Japan, South Korea and Southeast Asia partially offset by trends in mainland China.
“There’s some bumps in the road in China,” Idol said. “You’ve all heard about it, certain travel restrictions that are going on right now and certain lockdowns in the cities. But again, we think that’s something we will get through. You’re going to see bumps in the road in certain territories as we have flare-ups with the pandemic. But the consumer is very strong from what we can see, especially around accessories and footwear.”
Accessories is a category very much in focus at Versace, which Idol reiterated is on its way to $2 billion in sales annually — that means the brand, expected to post revenue of $1.1 billion this year — is only about half as big as it’s expected to be.
“The real discussion is going to be around how much bigger is it going to be than that,” Idol said. “Versace belongs in the category of some of the most important luxury brands in the world. The brand recognition and the love for this brand is nowhere near the performance.
“We are turning this not into just a luxury house driven by runway and rtw, but this is now a luxury leather goods house,” he said.
For the full fiscal year, Capri is looking to post revenues of $5.6 billion with diluted earnings per share of $6, where analysts were looking for revenues of $5.4 billion and earnings of $5.35.
Next year, the company has revenues of $6.1 billion and EPS of $6.60 penciled in.
The Capri portfolio could also grow some more as Idol reiterated that the company is still looking at acquisitions, with a particular eye toward European brands.
But the baton is also being passed to Joshua Schulman, who is CEO of the Michael Kors brand but will step up to become CEO of Capri in September.
Schulman is inching his way into the dialogue with Wall Street and spoke a little bit about Capri’s opportunity ahead on the call.
“I am impressed with the incredible portfolio of luxury houses, each with their own rich heritage, exclusive DNA, and strong consumer loyalty,” Schulman said. “Capri is unique, with three brands led by the design visions of Donatella Versace, Sandra Choi and Michael Kors. Each of these original founders are iconic figures and have powerful voices to communicate with their fans. I am confident in the strong growth potential for Capri Holdings.”
Wall Street will be looking for Schulman to deliver on that potential.
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