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Controversial Versace T-shirt dents Capri's sales in China

FILE PHOTO: The logo of Michael Kors is seen on an outlet store in Metzingen
FILE PHOTO: The logo of Michael Kors is seen on an outlet store in Metzingen
By Aditi Sebastian and Uday Sampath Kumar

By Aditi Sebastian and Uday Sampath Kumar

(Reuters) - Capri Holdings Ltd <CPRI.N> blamed a controversy around a Versace T-shirt that labeled Hong Kong and Macau as countries for denting the luxury label's sales in China, adding it would now take a "very cautious" approach to its business in the country.

Versace, which Capri bought last year for about $2 billion, came under fire over the T-shirt in August, forcing the Italian luxury label and its artistic director Donatella Versace to apologize.

Versace had then said it had made a mistake and as of July 24 had stopped selling and destroyed the T-shirts.

"We've got a very cautious view of how we're planning the Greater China business in total for Versace for the balance of the year," Capri Chief Executive Officer John Idol said on a post-earnings call on Wednesday. Idol, however, did not give details on the new strategy.

He added that the brand would likely see a recovery only next year. In the latest reported quarter, Versace accounted for 16% of the company's total revenue.

The company also blamed protests in Hong Kong and higher expenses for a lower-than-expected second-quarter profit and forecast a dip in Hong Kong's contribution to total revenue in fiscal 2020.

"Hong Kong, for the company, has had a far more material impact than we had ever thought," Idol said.

Capri said comparable sales for Milan-based Versace was flat compared with a year earlier, while comparable store sales at Jimmy Choo declined in the mid-single digits.

Adjusted net income fell 7.8% to $177 million, or $1.16 per share, in the quarter ended Sept. 28, from a year earlier and missed analysts' expectation of $1.24 per share.

Total revenue rose 15.1% to $1.44 billion, in line with analysts' estimates, according to IBES data from Refinitiv.

The company's shares fell over 4% to $32.60 on Wednesday.

(Reporting by Aditi Sebastian and Uday Sampath in Bengaluru; Editing by Maju Samuel and Sweta Singh)