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Versace Owner Talks When Next M&A Deal Might Come

When Versace’s parent company closes out next year with “very, very little debt”—or at least, that’s the plan—it’ll leverage that financial footing to see what’s available on the M&A front, potentially expanding its luxury holdings beyond its three household nameplates.

Capri’s strategy to trim debt to just $300 million by the close of fiscal 2023, chairman and CEO John Idol told investors during a virtual presentation Tuesday, would put the company in an “excellent position” to execute “additional luxury acquisitions,” which would mark its first since taking over Versace in 2018.

The London- and New York-based company, which also operates Michael Kors and Jimmy Choo, is feeling good about the future after strong first-quarter sales sparked a revenue forecast revision for fiscal 2022, which began on March 28.

Capri now expects $5.15 billion in revenue, up from $5.10 billion, with adjusted earnings per share seen between $3.80 and $3.90 instead of $3.70 to $3.80. “We believe where we sit today is that Capri Holdings has an extremely bright future,” Idol said.

Before it sizes up the M&A market for new prospects, Capri will focus on nurturing Versace and Jimmy Choo and is “getting close” to accelerating growth and both labels, Idol said. “That gives us great confidence in our ability to look at at least one additional European luxury acquisition in the future,” he said, adding that Capri will have the necessary capital structure, management team, and resources in place to pounce on the right opportunity.

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“That is not going to necessarily be something that is going to be the high focus for us, but it is going to be a very significant option that will be on the table if an asset becomes available that we think that will fit inside of our portfolio,” Idol noted.

Idol reiterated plans for raising prices at Michael Kors, where he’s also CEO, come fall and spring. Accessories will be a top focus at Versace and Jimmy Choo, bringing them closer to par with Kors’ prowess in handbags and similar accoutrement, and also shoring up margins.

“We’re not looking to try and oversell accessories,” Idol pointed out,describing plans for “mid-single digits” growth as a “very healthy place for them to go.”

Michael Kors

Kors, celebrating its 40th anniversary this year, aims to grow its Signature collection to 50 percent of the overall business, or $2 billion up from $1 billion. It’s also striving to reach $500 million apiece in men’s (currently $200 million) and the MKGO active-casual line (now $250 million).

Idol said growing the Kors customer file to 75 million from 51 million will help e-commerce revenue reach $1 billion from $590 million today, while the brand could achieve $4.4 billion in annual volume by fiscal 2023 from the $2.9 billion in sales it does today. Kors wants to redistribute its product mix, pulling back slightly on accessories (from 66 down to 57 percent), bumping women’s ready-to-wear up 3 percent to reach 15 percent, growing men’s to 10 percent from 6 percent, and getting footwear up to 15 percent, 2 percent above its current level. Licensing, however, will stay the same.

Idol, who said the “world is beginning to heal from the unprecedented global pandemic,” believes higher vaccinations will encourage an uptick in global travel in fiscal 2023 and drive a “return to pre-pandemic revenue levels” in many of Capri’s “large and important regions.”

Versace

Versace, known for its loud, eye-catching patterns, will continue developing signature motifs like the new La Greca as well as La Medusa and Virtus, said brand CEO Jonathan Akeroyd. But the label also wants to make sneakers a larger portion of its footwear category, seizing on the enduring popularity of the comfortable silhouette. Though just 25 percent of Versace’s business today, Capri sees accessories driving 50 percent of its merchandise, helping to establish the nameplate as a destination for luxury leather and fueling its journey to $1 billion from a current $200 million base.

The brand also wants to rejigger its category mix, aiming to dial back women’s RTW’s current 20 percent share by 5 percent and men’s RTW’s 32 percent share by 17 percent. Footwear will step up by 1 percent to drive 15 percent of merchandise, while licensing will decline from 9 percent to 5 percent.

Akeroyd said Versace could reach a stated goal of $2 billion in revenue—up from $720 million—by more than quintupling its digital commerce from its current $90 million mark and adding 90 new stores on top of the 210 it operates. The brand, he added, will lean on localized marketing to foster growth across Asia, America and the EMEA (Europe, Middle East and Africa) region.

Jimmy Choo 

Though Jimmy Choo has built a devoted following around its ultra-feminine silhouettes, casualization is the name of the game for the Bella Hadid-approved brand. Hannah Colman, CEO of the red carpet-favorite label, addressed ambitions to make casual shoe styles like sneakers, Wellingtons and snow boots 35 percent of Jimmy Choo’s footwear volume, and get e-commerce to $200 million in revenue from $60 million—part of a broader ambition to inflate today’s $418 million in total revenue to the $1 billion mark. There’s also an opportunity to do more in accessories, which Colman sees reaching 30 percent of revenue, or $300 million from a $90 million starting point. What’s more, Jimmy Choo seems to be branching out as a full lifestyle label, with a ready-to-wear capsule and jewelry collection—dropping in March next year, Colman said—waiting in the wings. Beauty, limited to lip products at the moment, is set to roll out additional offerings, which are likely to appear in some of the 300 stores it aims to operate, up from 227 today.

These category tweaks will help Jimmy Choo trim footwear to 60 percent of its mix from 73 percent, and bump accessories from 13 percent to account for 30 percent. Men’s and licensing are seen holding steady at 7 percent and 3 percent, respectively.

Financial update

Tom Edwards, chief financial and operating officer for the luxury holding firm, told investors that Capri is aiming for $5.15 billion in fiscal 2022 revenue, up from $4.1 billion from the end of fiscal 2021. In fiscal 2023, Capri is looking at annual volume of $5.19 billion, and $7 billion in the years ahead, with Kors driving the lion’s share of the business. Still, Kors share, he said, will likely dip to 63 percent from 72 percent, with Versace making up 26 percent and Jimmy Choo filling in the remaining 11 percent.

Kors will continue to reduce its brick-and-mortar presence, with a goal of whittling down its 820-store fleet to about 700.

Capri continues to allocate capital toward investing in the business and paying down debt, which totaled $1.1 billion at the close of fiscal 2021 and should shrink to $800 million in the next fiscal year before reaching $300 million in the following year.