Capri sales jump 24 per cent, higher prices to come
The owner of Michael Kors, Versace and Jimmy Choo beat analyst expectations despite ongoing supply chain disruptions and a lag in China.
Published February 2022
Capri Holdings, parent of Versace, Michael Kors and Jimmy Choo, said sales increased 24 per cent in the third quarter to $1.6 billion, beating expectations on gains across the US, Europe and Middle East as it signalled plans to raise prices across its brands.
Profits for the quarter increased 80 per cent, to $322 million, and the company raised its full year 2022 revenue guidance to $5.56 billion, just ahead of pre-pandemic levels of $5.5 billion. The company had previously warned sales wouldn’t rebound until 2023. Revenue last fiscal year dipped to $4.06 billion. The shares rose 4 percent in early trading.
“We are especially proud of our performance given the ongoing headwinds caused by the pandemic, including regional restrictions and supply chain challenges,” CEO John Idol said in a statement.
Supply chain disruptions resulted in higher inventory levels, markdowns and transportation costs, Capri said, but gains in the Americas, ahead 26 per cent, and Europe, ahead 35 per cent, as well as the Middle East and Africa, offset the costs. Asia was a laggard, increasing slightly by 3 per cent, hindered by a decline in mainland China, which Idol attributed to store closures, travel restrictions and city lockdowns.
“[Chinese customers] have concentrated their luxury spend on the ‘must have’ brands: Chanel, Hermès, Louis Vuitton, Dior,” says Bernstein analyst Luca Solca, adding that prices are higher in mainland China than in Europe or the US. “It has been a systematic observation that weaker brands have struggled the most in recapturing Chinese demand as it repatriated to the Mainland.”
European luxury rivals including LVMH reported sales gains in China in recent financial reports and have far outpaced pre-pandemic levels. While Capri sales exceeded analyst and company expectations, the company said inventory fell short of demand in the past quarter and has plans in place to improve inventory management as supply chain disruptions are expected to continue, according to Tom Edwards, Capri CFO. “The supply chain situation will carry on. We don’t see it improving. One strategy is to get core products in earlier. We missed demand.”
All of Capri’s fashion brands grew revenue in the double-digits for the quarter.
Versace, which Michael Kors acquired in 2018 for $2.12 billion to form Capri Holdings, reported a revenue increase of 34 per cent on constant currency to $251 million for the quarter. The brand’s new La Greca collection has performed strongly, according to Idol, while accessories sales doubled. Idol said that $2 billion in annual sales at Versace is within reach, with growth driven by increasing Versace’s leather goods business. The company also plans to increase prices at all three brands.
“There will be Versace price increases. All of the luxury industry is raising prices. We’ll be positioning Versace at a higher price point than it is today,” said Idol, who didn’t specify the timeline or percentage of the increases.
Michael Kors, which accounts for 70 per cent of Capri sales, increased revenue by 21 per cent on constant currency to $1.18 billion. CEO Josh Schulman, who will succeed Idol as Capri CEO in September, noted the ongoing “premiumisation” of Michael Kors as contributing to sales increases but added Asia is underpenetrated compared to competitors with opportunity to at least double revenue, Schulman said to investors on Wednesday. Jimmy Choo, which Capri said it plans to turn into a billion-dollar brand, increased quarterly sales by 43 per cent on constant currency, to $178 million.
“All of Capri is benefiting from strategy moves they made during the pandemic,” says Jessica Ramirez, retail analyst at Jane Hali & Associates. At Michael Kors in particular, she says, “Inventory is in a better place, their markdowns are better and now they’re talking about increasing prices. That has all been needed.”
Looking ahead, Idol said Capri will work on lowering inventory levels. The brand is on the lookout for future acquisitions particularly European luxury brands.
“We’re active in research,” Idol said. “We don’t see anything in the near term, but if something becomes available we will be involved in those dialogues and conversations. We are interested in expanding our luxury portfolio, which means we will be only looking at European brands.”