Michael Kors’ parent company is dealing with logistics delays just like everyone else.
In a Nutshell: In-transit ocean cargo flowing from Asia to the U.S. and Europe is still facing “extremely long” delays, despite some improvement, Capri Holdings’ chief operating officer and chief financial office Thomas Edwards told investors during a first-quarter earnings call.
Delays at key ports are still running 30-plus days, chairman and CEO John D. Idol said. The company historically holds inventory for 90 days, but that’s up to six months now as a result of the backlogs. Most of Capri’s surplus core inventory is destined for the U.S. and EMEA markets.
Accessories and footwear are driving consumer interest and engagement. Michael Kors will raise prices again this fall and next spring after previous hikes. Versace is just starting to lift prices after Jimmy Choo elevate its MSRPs a year ago.
“We have not seen any consumer resistance to those increases,” said Idol, who thinks people “continue to use our accessories as a way to express themselves in terms of their fashion sensibility.”
Resale is giving shoppers the reassurance that their luxury purchase holds significant value should they choose to offload it at some point down the line, he said.
Capri isn’t wavering on its decision to stay out of the promotions game. “We’d rather give up the revenues. We’d rather walk away from some of the business,” Idol said, pointing to what the company learned about Michael Kors’ operating margin and gross margin performance after it cut back on sales.
Idol said any new acquisitions would likely target “a European luxury brand. We believe that’s where the value is and the sustained growth opportunity is for the group over many, many years.” This echoes comments from the company’s investor day last month when the CEO said he expects a small number of privately owned luxury businesses will be available in the next two to five years.
“We don’t want to do anything to distract from our strategic goals that we’re trying to execute against today. But if the right asset were to become available, we would certainly be in the mix. We know there are competitors who will also bid for those assets,” Idol said. “In the luxury world, these assets are not going to be inexpensive. They’re going to come with very high multiples on the purchase price. And you either pay for that asset or you don’t get the asset. It’s just that simple. So that’s how we would view it.”
At Versace, accessories are resonating with consumers.
“In women’s accessories, which are a key component of Versace’s growth strategy, sales in our retail channel increased approximately 80 percent versus the prior year,” he said. Women’s footwear sales in the company’s retail channel climbed 50 percent, driven by dress styles. The brand also saw strength in women’s and men’s ready-to-wear.
At Jimmy Choo, sales of women’s accessories in company-operated stores increased over 50 percent. Women’s accessories are among the fastest-growing categories for the brand, Idol said. Footwear sales in the same retail channel increased in the “strong double-digits,” with “strength in dress styles driven by a return to office, social events and special occasions.”
At Michael Kors, Idol said, “We have achieved our goal to grow signature penetration to 50 percent of revenue across all product categories.” In accessories, Signature sales were driven by updates in soft neutrals and jacquard materials. In footwear, consumers responded positively to seasonal flats and sandals. Men’s remained the best performing category with robust sales across accessories, footwear and apparel, he added.
Net Sales: Total revenue for the first quarter ended July 2 rose 9 percent to $1.36 billion from $1.25 billion.
By segment and region, Versace revenue rose 15 percent to $275 million, with the Americas rising 32 percent to $115 million, EMEA up 23 percent to $107 million and Asia down 20 percent to $53 million. Jimmy Choo revenue rose 21.1 percent to $172 million, with the Americas up 42 percent to $54 million, EMEA increasing 32 percent to $66 million and Asia slipping 4 percent to $552 million. Michael Kors revenue gained 4.8 percent to $913 million, with the Americas up 6 percent to $625 million, EMEA up 16 percent to $191 million and Asia falling 16 percent to $97 million.
Earnings: Net income slipped 8 percent to $201 million, or $1.40 a diluted share, from $219 million, or $1.41, in the year-ago quarter. On an adjusted basis, diluted earnings per share (EPS) was $1.50.
Wall Street was expecting $1.36 in adjusted diluted EPS on revenue of $1.29 billion.
For the second quarter, Capri guided earnings to the range of $1.55 in adjusted EPS on revenue of $1.40 billion. Versace revenue was forecasted at $300 million, while JImmy Choo revenue was guided to $140 million and Michael Kors at $960 million.
Third quarter was estimated at $2.45 in EPS on revenue of $1.65 billion. For the fourth quarter, the company forecasted $1.35 in adjusted EPS on revenue of $1.44 billion.
For Fiscal Year 2023, Capri’s guidance was $6.85 in adjusted EPS on revenue of $5.85 billion. Versace revenue was guided to $1.18 billion, Jimmy Choo at $650 million and Michael Kors at $4.03 billion.
CEO’s Take: “Better than anticipated results were driven by strong momentum across all three luxury houses reflecting the power of our brands as they continue to deepen consumer desire and engagement,” Idol said.