Capri Holdings Cuts 2023 Outlook After Q2 Results Face Impact From China

Shares for Capri Holdings were down more than 4% by markets close on Wednesday after the company announced a downgraded outlook for fiscal 2023.

The fashion house, which owns Michael Kors, Jimmy Choo and Versace, reported an 8.6% revenue increase to $1.41 billion in Q2. Net income was $224 million, or $1.63 per diluted share. Adjusted net income was $245 million, or $1.79 per diluted share. Gross profit was $951 million.

While Q2 earnings and revenues beat the expectations of analysts, Capri chairman and CEO John Idol said the downgraded outlook for fiscal year 2023 represented an “increasingly uncertain macroeconomic environment, foreign currency headwinds and the ongoing impact of COVID-related restrictions in China.”

For fiscal year 2023, Capri now expects total revenue of about $5.7 billion and diluted earnings per share of close to $6.85. Despite the downgrade, Idol said he is confident in the company’s ability to meet its longterm targets, which include a goal to reach $8 billion in annual revenue. This target, outlined at the company’s investor day in July, involves growing Michael Kors’ revenues to $5 billion, Versace revenues to $2 billion and Jimmy Choo’s revenues to $1 billion.

In Q2, Versace revenue was $308 million, up 9.2%. Jimmy Choo revenue was $142 million, up 3.6%. And Michael Kors revenue was $962 million, 9.2% compared to the prior year.

When it comes to Capri’s own direct-to-consumer channels, Idol said in. call with analysts that business in North America and Europe has been robust. However, sales have slowed down in China over the last month and a half.

“Things have actually gotten a little more difficult,” Idol said. “And that’s predominantly because of the Covid restrictions, and we are having various cities or malls open and close and it’s been causing a great deal of difficulty.”

He added that a slowdown in internal and domestic travel in China is also causing the company to take a more cautious approach as it awaits recovery in the region.

Idol said wholesale channels have also slowed down across the board, which has contributed to the company’s more cautious outlook as well.

As of Oct. 1, 2022 Capri inventories were $1.18 billion, up 36% from last year, which executives said puts the company in a good position to meet demand for the holidays.

“This compares to last year when we really didn’t have the inventory that we wanted or needed,” said CFO and COO Thomas Edwards in a call with analysts. “So we feel like we’re in a much better position.”

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