Michael Kors parent Capri's stock crushed after company swings to fourth-quarter loss

By Ciara Linnane

Capri earnings were again hit by weak sales to department stores that hit Michael Kors hard

Capri Holdings Ltd.'s stock fell 11% Wednesday, after the parent of the Michael Kors, Versace and Jimmy Choo brands swung to a loss in its fiscal fourth-quarter as revenue slid more than 10%.

Revenue fell at all three brands, and the company (CPRI) highlighted a challenging environment in its home market, contrasting with strength in China. Other retailers have highlighted the recovering Chinese market this earnings season, which was still mostly shut down a year ago due to COVID lockdowns.

"While we recognize that there are near-term uncertainties in the Americas, we are encouraged by the strong trends in Asia and continued growth in EMEA," CEO John Idol said in a statement.

On a call with analysts, Idol said earnings were hit by weakness in the wholesale business -- sales to department stores -- for a second straight quarter. At Michael Kors, wholesale orders were down in the double digits in the back half of the year, he said.

Capri has been elevating that brand and positioning its bags and accessories as more high-end products, removing them from stores that were discounting heavily. But consumers facing inflationary pressures for other items have remained cautious and in the case of shoppers at departments stores, are balking at high prices.

"We see that," he said. "And we are staying with our elevation strategy. "

The company is waiting to see how two new prototype Michael Kors stores, one in Miami and the second in Vancouver, perform once they open in the next 60 days, he said.

"If we like what we see initially, which we think we will, we are going to go on a very significant store remodeling program for the Michael Kors brand on a global basis," he said.

The company posted a net loss of $34 million, or 28 cents a share, for the quarter to April 1, after income of $81 million, or 54 cents a share, in the year-earlier period. Its adjusted per-share earnings came to 97 cents, ahead of the 94 cent FactSet consensus.

Revenue fell 10.5% to $1.335 billion, but topped the $1.278 billion FactSet consensus.

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Net inventory was down 3.6% to $1.057 billion.

Versace revenue fell 13% to $274 million in the quarter, while Jimmy Choo revenue was down 3.2% to $151 million. At Michael Kors, revenue fell 10.9% to $910 million.

The company is now expecting fiscal 2024 revenue of about $5.7 billion, matching the FactSet consensus. It expects EPS of about $6.40, ahead of the $6.24 FactSet consensus.

However, the guidance is back-end loaded. The company expects revenue of $2.6 billion for the first half and $3.1 billion for the second. It expects EPS of $2.50 for the first half and $3.90 for the second.

Jefferies analysts said the quarterly cadence "implies significant second-half infection."

"We note second-half operating margin guide of 19.5% (14.8% consensus) would be +100bps vs. the second half in record earnings year of FY22 and the highest second-half operating margin% since the 2015-2016 time frame," they wrote in a note.

Jefferies has a hold rating on the stock.

The company repurchased about 8.4 million shares in the quarter for about $400 million. As of April 1, it has $400 million remaining availability in its stock buyback program.

The stock has fallen 38% in the year to date, while the S&P 500 has gained 9.5%.

See also:Coach parent Tapestry's stock soars as strong China sales boost earnings

-Ciara Linnane

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06-01-23 0812ET

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