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Capri to Close 50 Kors Doors, Buy Factories and Spend on Versace Growth

Capri Holdings Ltd.’s chief executive officer John D. Idol described the year that just ended as a “transformational” one for the company after closing in December on its $2.1 billion purchase of the Versace fashion house. Looking ahead, he referred to fiscal 2020 as an “investment year,” which means Capri will be spending money to expand Versace’s growth prospects. The company also closed 100 doors in the fiscal year just ended and expects to shutter 50 additional doors for the Michael Kors brands during fiscal year 2020.

In a Nutshell: Idol said his “luxury group delivered both double digit revenue and adjusted earnings per share growth” in fiscal 2019, which marked the addition of the Versace brand, strong results at Jimmy Choo and continued execution of Michael Kors’ three strategic growth pillars in product innovation, brand engagement and customer experience. In regards to the new fiscal year, Idol said the company’s initiatives will deliver strong revenue growth for Capri Holdings and that all three founder-led brands position the company to deliver “multiple years of earnings growth.”

During the company conference call to Wall Street analysts, Idol said the Versace streetwear offerings were resonating with both women and men, and that the brand continues to dress celebrities on the red carpet. Another hit for Capri is the Jimmy Choo brand, which the CEO said continues to dominate the red carpet. The brand also saw an increase of 26 percent in its Instagram followers, which now total 10 million.

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At Michael Kors, Idol said its Bancroft group remains a customer favorite in the accessories category, while fashion items featured in the brand’s Bella Hadid campaign resonated with consumers in women’s ready-to-wear. In men’s accessories, strong growth was led by its pebble leather racing group, he said, adding that backpacks were top sellers in the quarter. Separately, in the watch category, Idol said it continues to remain “more challenged with declines above historical levels. We continue to focus on accelerating our fine jewelry line to offset watch declines longer term.”

Moreover, the database reach of the Michael Kors brand was 36 million customers in the quarter, reflecting a 27 percent gain over last year. The company also grew the global social media audience for the brand by 9 percent to more than 45 million followers, the CEO said.

During the call, Idol also said it has closed Versace’s Collection and Versus lines, and that Capri, as it focuses on positioning the Italian luxury brand for long-term growth, is in the process of buying factories, but didn’t provide any further details.

Net Sales: For the fourth quarter ended March 30, revenues rose 13.9 percent to $1.34 billion from $1.18 billion.

By business segment, Versace posted revenue of $137 million, but its operating loss was $11 million and operating margins was down 8 percent. Jimmy Choo reported revenue of $139 million, up 28.7 percent from the prior year, while comparable store sales rose in the mid single digits. It also posted an operating loss of $8 million and its operating margin was down 5.8 percent. Michael Kors saw revenue slip 0.4 percent to $1.07 billion, as comps decreased 1 percent. It posted operating income of $166 million and the operating margin was 15.5 percent, although both were down versus the year-ago quarter in which operating income was $195 million and operating margin was 18.2 percent.

By segment, Versace’s volume was $66 million in the EMEA, or Europe, Middle East and Africa, whiles sales reached $49 million in Asia and $22 million in the Americas. At Jimmy Choo, revenue in the EMEA was $73 million, $45 million in Asia and $21 million in the Americas. And Michael Kors revenue was $702 million in the Americas, followed by $215 million in the EMEA and $151 million in Asia.

As of the end of fiscal 2019, Versace operated 188 doors, Jimmy Choo had 208 stores and Michael Kors still had 853 units. During the conference call to Wall Street analysts, Tom Edwards, chief financial officer and chief operating officer, said the company will spend $300 million in fiscal 2020 to open 30 Versace stores, 30 for the Jimmy Choo brand and 40 for Michael Kors, as well as for store remodels and IT expenditures. Edwards disclosed that 100 doors were closed during fiscal 2019 for the Michael Kors brand and that 50 more doors are slated to close in the fiscal year that just started.

Earnings: Net income fell to $19 million, or 13 cents a diluted share, from $44 million, or 29 cents, in the year-ago quarter. On an adjusted basis, diluted earnings per share was 63 cents.

Wall Street was expecting diluted EPS of 61 cents on revenues of $1.33 billion. Even though Capri managed to beat the Street’s fourth quarter estimates for adjusted EPS and revenues, investors were focused more on first quarter guidance. Investors sent shares down nearly 10 percent to $35.00 in mid-afternoon trading after the company provided guidance that was lower than the Street’s forecast of diluted EPS of $1.23 on revenues of $1.44 billion.

For the first quarter, the company guided diluted EPS to between 85 cents and 90 cents, on total revenues estimated at $1.36 billion. By business segment, Capri projected Versace revenue of $200 million on comparable stores sales growth in the mid-single digits. The parent company said it plans to “rapidly expand Versace’s luxury business, including increasing strategic investment to enhance brand engagement, expanding Versace’s retail fleet globally and launching omnichannel capabilities.” At Jimmy Choo, revenue was expected to be flat to the prior year, with comps growth in the low single digits. Capri plans to grow the accessories business and grow the brand’s store fleet. At its Michael Kors brand, Capri forecasted revenues to be moderately below the prior year on comps in the negative low single digits. It plans to increase brand engagement by leveraging the social media presence of its namesake designer and expand its Kors VIP loyalty program.

For Fiscal 2020, the company guided diluted EPS at $4.95 on total revenues of $6 billion. By segment, Capri expects revenue of $900 million at Versace, on comparable sales growth in the mid single digits. At Jimmy Choo, it forecasted revenue of $650 million on comps in the mid single digits. At its Michael Kors brand, Capri estimated revenue of $4.45 billion on a flat comps projection.

CEO’s Take: According to Idol, “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 dollars 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.”