Michael Kors, Versace Parent Company Logs $219 Million Profit as Luxury Sector Rebounds

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Capri Holdings Ltd. is starting to show tangible signs of a comeback.

The fashion group — parent company to the Michael Kors, Versace and Jimmy Choo brands — revealed quarterly earnings Friday morning before the market opened, improving on top-line revenues and logging $219 million in profits as the luxury sector continues to demonstrate strength. The company raised its full-year guidance as a result, causing shares of Capri Holding to surge nearly 14 percent at the start of Friday’s session.

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Now, John D. Idol, Capri’s chairman and chief executive officer, said the company will continue to raise prices, helping push all three brands further into the luxury space, even as accessible luxury competitors are upping promotional activity.

“We don’t have the inventory to do that,” Idol told analysts on Friday morning’s conference call. “So [more promotional activity] won’t happen. And not only that, [but also] we just wanted to go in the opposite direction. As you heard, we raised prices on Michael Kors and we raised prices again for the spring season next year. So, it’s prices are going to go up considerably. And also in Jimmy Choo. So, we’re going in the opposite direction and I hope I can kind of close the door on that conversation. Because I know everyone’s waiting for that to happen again [and] that won’t happen for us given the way we’ve purchased products and given where we think our brand is positioned. We are going up, not down.”

In the most recent quarter, there was strength in accessories, such as handbags at Jimmy Choo, party dresses, bridal, MKGO, Michael Kors men’s business and all categories at Versace, including a capsule collection with Lady Gaga that sold out within hours.

“We are having trouble keeping up with demand, which is not something we ever anticipated,” Idol said on the call. “It says something about the position we are in right now. So the good news is that the pillars that we’ve kind of put in place today are already absolutely resonating with customers. And interestingly, they’re resonating with a younger customer as well.”

That explains why, during the three-month period ending June 26, total revenues increased 178 percent to $1.25 billion, up from $451 million a year ago, during the pandemic.

By brand, Michael Kors, the firm’s largest, logged $871 million in revenues, up from $307 million the same time last year. Revenues at Versace were $240 million, compared with $93 million a year ago, while sales at Jimmy Choo topped $142 million, up from $51 million during 2020’s first quarter.

The company registered $219 million in profits as a result, compared with losses of $180 million last year.

“We were pleased by our first-quarter performance, which reflected the strength of Capri Holdings’ three global fashion luxury houses,” Idol said in a statement. “All of our luxury houses significantly exceeded our revenue and earnings expectations for the quarter, as they continued to deepen consumer desire and engagement. As a result of this encouraging start to the year, we are raising our fiscal 2022 revenue and earnings outlook.”

The results were a noticeable difference from last quarter’s losses of $182 million. But Idol made the case at an investor day in June that the company stands to grow to $7 billion in revenues by paying down debt, opening more stores, growing the accessories business across the portfolio and attracting new, younger shoppers. Capri would even consider the possibility of more acquisitions in the future.

“Capri raised its [full-year] guidance, which still assumes decelerating trends, suggesting ongoing conservativism,” Simeon Siegel, managing director and senior retail analyst at BMO Capital Markets, wrote in a note. “Additionally, net debt declined $133 million quarter-to-quarter, further bridging the gap between [enterprise value] and market cap. Bottom line: buy the stock; numbers keep going up and shares are too cheap.”

Capri is now expecting second quarter revenues to be about $1.25 billion, or $5.3 billion for the year. The firm also anticipates full-year diluted earnings per share to be $4.50 each.

The retailer has 1,261 brick-and-mortar stores, or 820 Michael Kors, 233 Jimmy Choo and 208 Versace locations. On the conference call, Idol said consumers are starting to return to physical stores for their shopping needs.

“And it is not just happening in our retail stores,” he said. “People are absolutely returning to shopping in department stores, which I have to tell you is really exciting to see.

“On the brick-and-mortar, we’re pleased with what we see happening in North America, in terms of traffic,” continued Idol, pointing out that revenues rose 480 percent in the Americas last quarter, year-over-year. “We’re also happy with what we’ve seen happening in China. [In] Europe, we all wish things would go a little faster. So, I would say, you know, we are optimistic, but cautiously optimistic on the actual brick-and-mortar traffic part of the business.”

Meanwhile, online shopping continues to tick upwards across all three brands, with revenues surging 60 percent during the quarter, year-over-year.

“The e-commerce business for us is growing rapidly in basically every region of the world and we want to continue to spend the money to fuel that business,” Idol said. That includes reinvesting between $25 million and $30 million in marketing, e-commerce and regional growth initiatives.

“And what is great about that is that we can do two things,” Idol said. “First of all, it can drive customer engagement. Secondly, we will have databases [of customer information.]”

The company ended the quarter with $1.2 billion in long-term debt and $356 million in cash and cash equivalents.

Shares of Capri, which closed up 1.27 percent Thursday to $50.05 a piece, are up more than 227 percent, year-over-year.

“Looking forward, we are confident in the growth opportunities for Versace, Jimmy Choo and Michael Kors as the world continues to recover from the impact of the global pandemic,” Idol said. “As we execute on our strategic initiatives, Capri Holdings is positioned to deliver multiple years of revenue and earnings growth.”

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