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Michael Kors Owner Posts $551 Million Loss, Braces for 70% Revenue Hit

Michael Kors’ parent company expects revenue to nosedive 70 percent in its fiscal 2021 first quarter, though reopened stores are showing signs of recovery.

In a Nutshell: Capri Holdings, which also owns Versace and Jimmy Choo, projected a 70 percent year-on-year decline in fiscal 2021 revenues for the first quarter, when 55 percent of its global store base was closed to curb the coronavirus outbreak. Between the store closures, gradual revenue recovery at reopening stores and low wholesale shipments, the luxury firm estimates that the sizable revenue slide would drive a “significant loss per share in the first quarter.”

“These are unprecedented times as the COVID-19 pandemic has dramatically impacted the entire world,” said John D. Idol, chairman and CEO in reporting the company’s fourth-quarter fiscal 2020 results.

Idol also denounced racism and addressed action designed to advance the Black community, given ongoing social unrest. “While we foster an inclusive environment where employees of diverse backgrounds are welcomed, valued and celebrated, there is more work that we can do to increase diversity at all levels inside our company,” he said. “We are working on significant initiatives to create change within Capri Holdings.”

Net Sales: Total revenue for the three months ended March 28 fell 11.3 percent to $1.19 billion from $1.34 billion.

For the quarter, gross profit was $631 million and gross margin was 52.9 percent.

By brand, Versace revenue was $213 million, an increase of 55.5 percent from a year ago, but it also posted an operating loss of $2 million. Jimmy Choo revenue declined 23 percent to $107 million, with an operating loss of $23 million. At Michael Kors, revenue tumbled 18.4 percent to $872 million, though operating income totaled $139 million.

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Revenue at reopened stores have reached 50 percent to 75 percent of prior year level, with stronger trends in Mainland China, where 98 percent of stores are open, on top of 98 percent in EMEA and 70 percent in the Americas. “Results have improved since initial reopenings across all regions,” said Capri, which expects the vast majority of remaining Americas doors reopened by the end of the second quarter beginning July 1.

Global e-commerce revenue rose in the fourth quarter, while growth accelerated in the first quarter of fiscal 2021 to a “strong double-digit increase compared to prior year,” Capri said.

On the wholesale front, Capri said department store partners have “placed limited replenishment orders during the quarter [and the company] has not had a meaningful level of wholesale shipments. Additionally, travel retail, which is included in the company’s wholesale channel, continues to be impacted by significant decline in tourism.”

For the year, revenue rose 6.0 percent to $5.55 billion from $5.24 billion.

Earnings: The net loss was $551 million, or $3.69 a diluted share, against net income of $19 million, or 13 cents, in the year-ago quarter. On an adjusted basis, earnings per share were 11 cents.

Wall Street was expecting adjusted diluted EPS of 14 cents on revenue of $1.12 billion.

Because of lack of visibility due to the ongoing pandemic, macroeconomic fundamentals and tourism, Capri said it couldn’t estimate financial and operating results and won’t be providing guidance for fiscal year 2021.

As for financial strength, the company said it quickly took action to reduce expenses and maintain a strong liquidity position. The company also amended its revolving credit and term loan facility and entered into a new $230 million 364-day revolving credit facility to further improve its financial flexibility and liquidity position. With the new facility, it expects to end the first quarter of fiscal year 2021 with $1.1 billion of liquidity and total borrowings outstanding of $1.8 billion, compared with $900 million of liquidity and $2.2 billion of borrowings at the end of the fourth quarter of fiscal 2020.

For the year, the loss was $223 million, or $1.48 a diluted share, against net income of $543 million, or $3.58, for the year ended March 30, 2019.

CEO’s Take: “Looking at fiscal 2020, we were pleased with the progress of our strategic initiatives across the company. Prior to the impact of COVID-19, our earnings per share outlook was largely on track with our expectations. While we expect fiscal 2021 to be significantly impacted by the effects of the virus, we are encouraged as we reopen our stores globally with initial revenue exceeding our expectations…. We remain confident in the long-term opportunities for each of our unique luxury brands and believe Capri Holdings is poised to resume its growth trajectory in fiscal 2022,” Idol said.