Wall Street Cautious on Capri After Seeing Its Outlook
John Idol said Capri Holdings has the brands, the growth vectors and the plan to keep expanding — but Wall Street is getting antsy as weakness in North America continues to hang over the company.
Shares of Capri, corporate parent to Michael Kors, Versace and Jimmy Choo, fell 11.3 percent to $35.10, leaving the company with a market capitalization of $4.4 billion after its fiscal fourth-quarter report on Wednesday.
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Capri logged net losses for the quarter and declining sales, while also trimming $100 million from its fiscal 2024 revenue outlook.
Idol — who is chairman, chief executive officer and chief architect of the portfolio of brands — warned last year that luxury sales were cooling off in America.
And the U.S. chill is clearly continuing on into summer while Europe and Asia show much stronger results.
“We definitely saw a sequential decline in North America,” Idol told analysts Wednesday on a conference call. “We saw it first in the North American department stores, and it wasn’t just the Michael Kors piece of the business. We saw it on the luxury side as well with Versace and Jimmy Choo. And we saw that accelerate in the first calendar quarter of this year.”
That jives with reports from the other big players in luxury, which are looking to offset weakness in the U.S. with a resurgence in China.
“We are starting to see some movement with spring merchandise and some of the summer deliveries,” Idol said of North America. “We see the consumer getting a little bit more confident. I don’t want to say there’s a step change of any significance. But we see them responding definitely to newness that’s being delivered inside the stores, and that’s across all three of the houses.”
Business will start looking better in the fall as the company laps weaker performance last year.
“We’re up against softer comparables in the back half of the year,” Idol said. “While we still think North America will have some just minor increases, we think that Europe and Asia will continue to move forward in a very positive manner.”
Now the company has to get from here to there.
Impairment charges of $118 million pushed Capri to fiscal fourth-quarter net losses of $34 million, or 28 cents a diluted share. This compared with earnings of $81 million, or 54 cents, a year earlier.
Adjusted earnings per share slipped to 97 cents from $1.02 a year earlier, but came in 3 cents ahead of the 94 cents analyst expected, according to FactSet.
Revenues for the three months ended April 1 fell 10.5 percent to $1.34 billion for a 3 percent decrease on a constant currency basis. Despite the decline, net revenues came in $57 million ahead of the $1.28 billion analysts expected.
On a constant currency basis, Michael Kors’ revenues fell 2.2 percent to $910 million during the quarter, while Versace declined 8.6 percent to $274 million and Jimmy Choo gained 5.6 percent to $151 million.
But Idol is playing the long game and said the full year marked continued progress with record revenue for both Versace, $1.1 billion, and Jimmy Choo, $633 million. (Kors logged revenues of $3.9 billion, down from $4 billion a year ago.)
Idol said the company accelerated its growth in accessories across the board with Versace leading with an increase of more than 40 percent. The company’s footwear business is also growing at all three brands. And 12.6 million new names were added to Capri’s consumer database, an increase of 18 percent.
“We remain confident that we have the right strategies in place to grow Versace to at least $2 billion in revenue over time,” he said, adding he was also “confident” Choo would hit $1 billion and “optimistic” that Kors would top $5 billion.
Overall, Capri’s net revenues slipped 0.6 percent to $5.6 billion last year, which translated into a high-single-digit increase in constant currencies.
For fiscal 2024, the company said net revenues would rise to $5.7 billion — but that marked a downgrade from the company’s prior forecast of $5.8 billion due to changes in currency prices and weakness in North America.
Brooke Roach, an analyst at Goldman Sachs, described the company’s fourth-quarter results and outlook as “better-than-feared.”
But a lot still has to go right for Capri to hit its goal.
“We believe this updated outlook will be met with some skepticism given the magnitude of the acceleration in sales, margin and EPS guided in [the fiscal second half versus the first half], especially in light of the materially weaker outlook for [the first quarter] which at 70 cents is approximately half of consensus [estimates] at $1.41,” Roach said.
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