Tariffs or not, Michael Kors won’t be passing on the cost to consumers for now.
Capri Holding Ltd.’s chairman and chief executive officer John D. Idol told Wall Street analysts during his first-quarter earnings conference call Wednesday that “our intent is not to raise prices. We believe that…Michael Kors, the brand, will return to flat and even positive comp store growth in the back half of the year. And we think it’s very important that we continue to maintain our pricing strategy that we have, both domestically and globally.”
Even though the company’s percentage of footwear and ready-to-wear made in China is a significant piece of those two categories, Idol said the company doesn’t feel it would see any impact on earnings, even if the tariffs were to climb to 25 percent.
“We believe we have enough opportunity to mitigate some of those issues,” the CEO said.
In a Nutshell: While Idol may be optimistic about the strategic initiatives to reposition its core Kors brand for growth, the fact remains that first-quarter results saw North American sales slow at department stores and at the company’s own retail doors. Capri still sees growth in the men’s category, and in growing the brand’s Signature line. Signature is basically the updated version of the MK logo line.
“We are absolutely seeing traction in the business, in particular in accessories,” Idol said adding that the company has seen the line do well at its own retail stores. “It’s really helping the business considerably and so we want to stay on the strategy.”
As for whether the company can hit its North American goal? Idol is optimistic about doing so and soon.
He told analysts: “We also stated that our comparable store sales in Asia and in Europe remain positive, and we’re seeing great growth in those two regions. We think we’re going to be able to achieve the same thing in North America, and that’s going to be coming pretty quickly.”
The focus for the core Kors brand is on positioning it for future growth via the development of the Asian market and by accelerating the business in its men’s category.
“Overall, we remained encouraged by the continued progress we’re making with Michael Kors to ultimately return the brand to growth,” Idol said. “We believe these efforts will support better results for the entire brand, including a sequential improvement and comparable sales in the second half, and solidify Michael Kors as the foundation of our group.”
As for Kors’ other luxury brand siblings, Idol said they “have significant opportunity to expand in accessories and footwear,” and that Capri is already working on initiatives at Versace and Jimmy Choo to grow both areas. The two brands are also looking at increasing revenues through a global retail expansion strategy.
Net Sales: For the quarter ended June 29, total revenue was up 11.9 percent to $1.35 billion from $1.20 billion.
Gross profit was $834 million, while gross margin was 62 percent.
By business segment, Versace posted revenue of $207 million and saw comparable store sales increase in the double digits on a constant currency basis. The operating loss for the quarter was $3 million. At Jimmy Choo, revenue fell 8.7 percent to $158 million, while comps were flat, also on a constant currency basis. Sales at Michael Kors fell 4.8 percent to $981 million. On a constant currency basis, total revenues fell 3 percent as comps fell in the low single digits.
Earnings: Capri reported net income of $45 million, or 30 cents a diluted share, versus net income of $186 million, or $1.25, a year ago. On an adjusted basis, diluted earnings per share was 95 cents for the quarter.
Wall Street was expecting 90 cents on revenues of $1.37 billion.
For the year, the company estimated diluted EPS at $4.95, but lowered revenue guidance to $5.8 billion due to in part to lower revenue from its Michael Kors business. For the second quarter, diluted EPS was guided to the range of $1.21 to $1.26, on revenues of $1.45 billion.
CEO’s Take: Idol, who has noted that Fiscal 2020 will be an investment year for Capri Holdings, said, “We are investing in Versace and Jimmy Choo to position these preeminent luxury houses for long term revenue growth and margin expansion. We are also executing on our strategic initiatives at Michael Kors to return the brand to growth.”