Shares of Capri-Owner Michael Kors Plummet After Luxury Revenue Falls

Capri Holdings, which owns Michael Kors, plunged 20% in early trading Wednesday after missing earnings expectations and cutting profit forecasts.

‍

Fashion companies have outperformed many other industries last year despite decades-high inflation rates, but consumers seem to be limiting their spending on luxury items as a result of rising prices. It has been predicted by some industry experts that brands such as Michael Kors, which have a younger and less wealthy customer base, would suffer a disproportionately bigger hit than higher-priced brands such as Hermès because of this recession.

‍

The company's performance was as follows:

• Earnings per share: $1.84 compared to analysts' expectations of $2.22.
• Revenue: $1.51 billion, compared to the $1.53 billion expected by analysts.

‍

In comparison to the same period last year, revenue for the apparel manufacturer fell by 6% from the previous year. In terms of net income, Capri reported that it earned $225 million in the previous year, down from $322 million the previous year.

‍

Michael Kors' revenue is down seven percent year over year to $1.1 billion, Jimmy Choo's revenue is down five percent to $168 million, and Versace's revenue is down eight percent to $249 million. Michael Kors' revenue is down seven percent year over year to $1.1 billion.

‍

A double-digit decline in revenue was reported by all three divisions in Asia following China's unwinding of its policy of zero-covid, which resulted in lower store traffic and lower sales.

‍

As of Dec. 31, Capri reported a 21% increase in its net inventory, totaling $1.19 billion, a 21% increase from the previous month. By the end of the current quarter, the company expects to bring down levels by utilizing additional promotional activity in order to lower the levels.

‍

In an earnings release issued by the company, CEO John Idol stated that overall, the company's performance in the third quarter had been more challenging than expected. “It has been quite disappointing to see the performance of our global wholesale business during the quarter, which as a result has resulted in a deleverage of expenses and a reduction in operating margins."

‍

Idol stated that the company has begun adjusting operating expenses to “better align operating expenses with the change in revenue.”

‍

Refinitiv reports that Capri expects $5.56 billion in sales for the full year of 2023, below analyst expectations of $5.72 billion. Compared to a previous forecast of $6.85 for earnings per share for the full year, the company lowered its forecast to $6.10 from $6.85.

‍

Capri also forecast earnings per share of $6.40 on approximate revenues of $5.8 billion for the fiscal year 2024, underestimates. A Refinitiv survey of analysts predicted earnings per share to be $7.24 and revenue to be $6.03 billion, according to those analysts.