Why Shoes Were a Big Story in Capri’s Standout Third Quarter Earnings

Capri Holdings Ltd. shares jumped 7% on Wednesday after fiscal third quarter earnings beat estimates after a healthy holiday season.

Capri Holdings reported on Wednesday morning that its third quarter net revenue rose 24% to $1.6 billion. Net income was $322 million, compared to $179 million in the same quarter in 2020. Adjusted net income was $339 million.

On its earnings calling on Wednesday, Capri Holdings chairman and CEO John D. Idol said: “Capri Holdings’ strong holiday results are a testament to the strength of our brands as well as the hard work and dedication of all our employees around the world. I am especially pleased that we were able to deliver these results, while navigating the ongoing headwinds associated with the pandemic, including regional restrictions and supply chain challenges.” For all three of the company’s luxury brands – Versace, Jimmy Choo, and Michael Kors – footwear played a role in successful beating earnings estimates in the quarter.

Versace’s revenue rose 29% to $251 million in the third quarter. Every category performed well, with a special shoutout to footwear. Women’s footwear saw double-digit gains. The Trigreca and La Greca sneaker styles were big wins for the brand. Versace also saw a positive response to the new men’s Greca labyrinth trainer featuring a chunky Greca pattern sole.

Maluma Stars in Versace’s Latest Men’s Campaign
Maluma stars in Versace’s latest men’s campaign.
CREDIT: Courtesy of Versace

“Overall, Versace’s third quarter results speak to the strength of the brand and reinforced our confidence in our ability to grow the house to at least $2 billion in revenue,” noted Idol. “With the launch of La Greca, we now have the key building blocks in place to realize the full potential of this powerful brand. We are more optimistic than ever about Versace’s future growth opportunity.”

At Jimmy Choo, revenue increased 47% to $178 million in the quarter. Footwear sales increased double digits in the quarter, driven by a recovery in dress footwear styles as people engaged in social activities, enjoyed special occasions and celebrated the holidays. Casual styles also performed well, from shearling slippers embellished with delicate pearls and crystals to combat boots with crystal embellishments. The brand also saw growth in sneakers with positive consumer reaction to its new Memphis trainer. “We are encouraged by the progress we are making towards our goal of growing revenue at Jimmy Choo to $1 billion over time,” Idol said.

And at Michael Kors, revenue increased 20% to $1.18 billion. While sales were up, CFO Thomas J. Edwards admitted on Wednesday’s call that “revenue growth would have been even greater” for Michael Kors if the brand had more product available to meet consumer demand. “We estimate inventory constraints had a mid-single-digit impact on Michael Kors’ third quarter growth rate,” said Edwards.

In the quarter, overall “Signature” business represented 41% of the assortment compared to 35% last year. In accessories, Signature penetration was even greater. Accessories sales in Michael Kors’ retail channel increased double digits globally, as consumers responded to fresh updates for holiday. Moving to footwear, Michael Kors saw strong performance in boots and booties that featured iconic branding elements and signature details. “There are certain classifications in footwear, whether it’s our trainers or dress classification or boot classification, where we have real product authority,” said Kors CEO Josh Schulman, who will succeed Idol at Capri.

kendall jenner, michael kors collection, spring summer 2022
Kendall Jenner posing for the Spring 2022 Michael Kors Collection.
CREDIT: Courtesy of Michael Kors

“Overall, we are extremely optimistic about the future growth of Michael Kors. The strategies we put in place prior to the pandemic have been generating strong consumer demand as well as attracting new and younger consumers. Additionally, we are driving higher profitability as we continue to elevate the brand positioning,” added Idol.

As for inventory, Edwards circle backed on the issue stating on the call that Capri expects inventory to increase relative to prior year. “We will continue to tightly manage inventory, but levels need to increase to support revenue growth and ensure we meet consumer demand, and we are also initiating a new program where we expect to receive core product earlier,” Edwards noted. “This will enable us to better meet consumer demand as well as reduce transportation costs. As a result, inventory growth is expected to outpace sales growth for the next 12 months.”

Looking ahead, the company raised its full year guidance and now expects a total revenue of about $6.1 billion. For the fourth quarter, Edwards noted that he anticipates total company revenue of approximately $1.4 billion, including approximately $75 million associated with the 53rd week at Jimmy Choo and Michael Kors. “We forecast Versace revenue of approximately $310 million, Jimmy Choo revenue of approximately $140 million and Michael Kors revenue of approximately $950 million,” he added.

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