Capri has posted a double-digit sales drop for the second quarter, which has accelerated compared to that in the first quarter.
The company’s revenue for the quarter ended September 28 decreased 16.4 per cent to $1.08 billion, compared to the 13.2 per cent fall in the first quarter. On a two-year stack, sales were down 23.6 per cent.
“There is no reason to sugar coat it: this has been a car-crash of a quarter for Capri,” remarked Neil Saunders, MD of GlobalData.
While management has blamed softening demand in the luxury market for the deterioration, Saunders believes they need to own this ongoing failure to drive the sales line.
“One of the central problems is that management has completely taken its eye off the ball over the past year or so. With the prospect of an acquisition by Tapestry, the general feeling seems to be that there is no need to put too much effort into any turnaround program,” he explained.
At Michael Kors, sales were down 16 per cent, which Saunders described as a “sharper than average” dip compared to the current state of the market. “Michael Kors is a brand people are willing to forgo as times have become tougher. And with a lack of innovation and a murky and confused brand positioning, it is hardly surprising,” he added.
Jimmy Choo’s sales picked up a little thanks to better wholesale revenue. The brand’s retail channel remained weak and needed more efforts around marketing, according to the analyst.
At Versace, sales plummeted 28.2 per cent. Saunders believes the brand has drifted too far from delivering the styles its customers want and has lost some of its relevance as a result.
On the bottom line, the company’s net income was down from $90 million last year to $24 million.
“Overall, Capri will be hoping and praying that its merger with Tapestry eventually succeeds,” said Saunders. The deal is facing challenges from the FTC, but there is a chance that it could still go through, he continued.
If the takeover does not happen, however, the company will be left with two pathways, finding a new buyer or buckling down to start reinvigorating the brands, the analyst stated.
Finding a new buyer would be difficult, he said, especially since many would be deterred by the FTC’s action. “Capri would also be very unlikely to get the kind of premium that Tapestry offered from another buyer.”
For the second option, Saunders believes the current team does not have the right credentials or authority to do so – mainly because they have presided over decline for far too long.
