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Michael Kors, Versace Parent Company Loses $182 Million

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Capri Holdings Ltd. continues to navigate the pandemic with mounting losses.

The fashion group — parent company to the Michael Kors, Versace and Jimmy Choo brands — revealed quarterly earnings Wednesday morning before the market opened, falling short on top-line revenues at the Michael Kors and Versace brands and posting a $182 million loss for the quarter. Still, the company’s progress — and positive outlook for the future — was enough to tame investor fears. The stock closed up 3.14 percent to $54.60 a share Wednesday as a result.

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“Looking back on fiscal 2021, the COVID-19 pandemic has had a profound effect on the entire world. The unprecedented challenges tested our business and industry in ways we could never have imagined,” John D. Idol, Capri’s chairman and chief executive officer, said in a statement. “Despite these challenges, we were encouraged by the performance of all three of our luxury houses, with revenue and earnings significantly exceeding our expectations. These results are a testament to the strength of our brands as well as the dedication, resilience and agility of the entire Capri Holdings team.”

The CEO added on Wednesday morning’s conference call with analysts that the company is now positioned to grow to $7 billion in revenues.

“During the year, we reevaluated and refined Capri Holdings’ strategic direction to ensure the company emerges from the pandemic stronger and more profitable,” Idol said.

Still, the company lost $182 million in the most recent quarter quarter ending March 27. That’s on top of a $552 million loss a year earlier.

Total revenues for the three-month period were $1.19 billion, roughly the same as last year.

By brand, revenues at Michael Kors the company’s largest brand were $838 million for the quarter, down from $872 million a year earlier. Jimmy Choo registered $124 million in sales for the quarter, up from $107 million the same time last year, while Versace had $235 million in sales, up from $213 million a year earlier.

Tailwinds included the firm’s e-commerce business, where sales increased 80 percent during the quarter. Strength in Mainland China, which increased triple digits during the quarter, the Michael Kors’ men’s business, wholesale in North America and accessories and footwear at Versace were also growth drivers.

“Versace represents the largest growth opportunity for Capri Holdings, as we continue to believe revenue will increase to $2 billion,” Idol said on the call. “We’re on the right track. We know what we’re doing. [Versace] has really, I think, been cleaned up and more importantly has a very clear product strategy and vision and that’s resonating with the consumer.”

For the year, the company logged more than $4 billion in total revenues, down from $5.5 billion in 2020’s fiscal year. Full-year revenues at Michael Kors were $2.9 billion, down from $4.1 billion a year earlier. Sales at Jimmy Choo totaled $418 million for the year, compared with $555 million a year earlier, and Versace revenues were $718 million for the full year, compared with $843 million a year earlier.

Capri Holdings added to its losses for the full year, with $62 million more in losses. That’s in addition to a loss of $225 million a year earlier.

“The key takeaway is that Versace and [Michael Kors] appear to be gaining momentum and [management] expressed confidence in both brands reaching [long-term] financial goals faster than previously thought,” Ike Boruchow, senior retail analyst at Wells Fargo, wrote in a note. “While we admit the [Jimmy] Choo brand is a laggard, we see enough juice in the [Michael Kors]/ Versace [brands] to drive the stock higher in the [near-term.]”

His firm rated Capri’s stock “overweight” and set a new, higher price target of $75 a share.

Even so, headwinds abound, including higher transportation costs, as well as the travel and European businesses.

Europe is not back by any stretch of the imagination,” Idol said on the call. “We’ll be lucky if Europe is in a healthy place by the second half of our fiscal year. I’m not trying to be negative. I’m just trying to say it just takes time. And remember, Europe doesn’t have the same levels of stimulus being provided as North America does. So again, we’re just cautious about what we see happening there.”

The company ended the quarter with $1.2 billion in long-term debt and $232 million in cash and cash equivalents. The retailer also ended the quarter with 1,257 stores, or 820 Michael Kors, 227 Jimmy Choo and 210 Versace locations. Approximately 60 percent of the company’s stores in Europe, the Middle East and Africa and 40 percent in Canada were closed during the quarter. Idol said increased clienteling services have also helped drive growth.

The firm is now expecting its revenues to be more than $1 billion in each quarter for the 2022 fiscal year, or in the range of $5.1 billion for the full year. Capri Holdings will host an Investor Day on June 29 to discuss its future initiatives.

“During the year, we reevaluated and refined Capri Holding’s strategic direction to ensure the company emerges from the pandemic stronger and more profitable,” Idol said. “For Versace and Jimmy Choo, we reaffirmed our long-term plans and are even more enthusiastic about the prospects of these luxury houses. For Michael Kors, we recalibrated our plans to further elevate the brand positioning and deliver higher profit margins.

“We’re going to lay out some of those longer-term strategic goals and some more detailed timing around them [at the Investor Day],” he continued. “Again, we don’t have a crystal-clear vision as you can only imagine. We’re still coming out of the pandemic.”

But Idol added, “Looking forward, we remain optimistic about the outlook for the fashion luxury industry and Capri Holdings. As the world starts to recover from the pandemic, we are confident in our growth opportunities for Versace, Jimmy Choo and Michael Kors. We believe our three luxury houses position Capri Holdings to deliver multiple years of revenue and earnings growth, as well as increase shareholder value.”

Shares of Capri Holdings are up nearly 206 percent, year-over-year.