Capri Tops Earnings Forecasts, But Lowers Guidance on Wholesale Headwinds at Michael Kors

Capri Holdings is gearing up for an “investment year” at its newer brands, Versace and Jimmy Choo, but flagship label Michael Kors is still struggling with exposure to the troubled mall segment.

The group reported fourth quarter and full year fiscal 2019 earnings on Wednesday, and beat expectations on earnings and revenue for the quarter while lowering its revenue outlook for fiscal 2020.

Adjusted earnings for the three months ended Mar. 30, 2019 were $0.63 per diluted share, compared with the consensus estimate of $0.61 per share. Revenue for the quarter increased 16.5% on a constant currency basis to $1.344 billion, ahead of the $1.33 billion forecast by Wall Street.

For the first time, Capri broke out revenues for Versace, which it acquired in late 2018 in a $2 billion deal. Sales at the Italian luxury house were $137 million for the quarter, with an adjusted operating loss of $6 million. Jimmy Choo revenues were $139 million, an increase of 35.1% from the prior year on a constant currency basis, though it too saw an adjusted operating loss of $16 million. Comparable store sales at the shoe and accessories brand were up by mid single digits.

Michael Kors revenues edged up 1.8% on a constant currency basis to $1.068 billion, but comparable store sales declined 1.0%. The brand’s operating income was $166 million, down from $195 million last year.

The group’s adjusted earnings per share for full year 2019 were $4.97, an increase of 10% from the prior year.

In a statement, Capri Holdings Chairman and CEO John D. Idol called the year “transformational” for the company, pointing to its Versace acquisition, the continued growth at Jimmy Choo (which it acquired in July 2017 for $1.2 billion) and Michael Kors’ ongoing implementation of “three strategic growth pillars of product innovation, brand engagement and customer experience.”

“Looking ahead, Fiscal 2020 will be an investment year for our group, and we believe our initiatives will deliver strong revenue growth for Capri Holdings,” he said. “Longer term, our three brands position Capri Holdings to accelerate revenue from $6 billion to $8 billion dollars, which will be led by Versace and Jimmy Choo, with Michael Kors remaining a strong foundation for Capri Holdings.”

That foundation, however, isn’t as stable as some investors would like: The group lowered Michael Kors’ revenue outlook to approximately $4.45 billion, citing unfavorable foreign currency impact and weaker-than-expected wholesale revenue. The Chinese yuan has taken a beating from the U.S.-China trade war, and continued provocations from President Trump — including a threat to add a 25% tariff to another $300 billion worth of Chinese goods, including shoes and other consumer products — indicate that the troubles are likely not over yet. Brexit uncertainties — which are also ongoing — have likewise knocked the British pound.

For fiscal 2020, the group expects total revenue of about $6.0 billion, and diluted earnings per share of $4.95. It forecasts revenue of approximately $900 million at Versace and approximately $650 million at Jimmy Choo, and comparable store sales growth in the mid-single digits for both.

The company’s stock price sank 8% in pre-market trading.

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