Capri in the red amid ‘disappointing’ revenue decline

(Source: Versace/Facebook)

Capri has posted declines on both its top and bottom lines for the fourth quarter, making it one of the main underperformers in the premium space, according to an analyst.

The company’s total revenue plunged 8.4 per cent to $1.223 billion, which GlobalData MD Neil Saunders described as disappointing given a very weak prior year number.

“Such a rapid pace of deterioration cannot be blamed entirely on the softness in the luxury market as it is way in excess of the decompression seen across the wider sector. 

“As such, Capri stands out as being one of the main underperformers in the premium space, something we attribute to poor management and a lack of discipline across its brands,” Saunders elaborated.

On the bottom line, the company posted a net loss of $472 million for the quarter, primarily due to non-cash impairments. Profit was also negatively impacted by lower gross margins from excessive discounting.

At Michael Kors, sales declined by 9.7 per cent off the back of a 10.9 per cent decline in the prior year, with wholesale and retail sales both declining. “This speaks to the uneasy position of the Michael Kors label in the fashion market and the ongoing problems of ubiquity, which deter many customers from buying it,” the analyst said.

Versace sales fell 3.6 per cent, aligned with the performance of other labels and is driven entirely by the deterioration in the wholesale channel. Saunders expects the brand to swing back into growth when market conditions improve.

Sales at Jimmy Choo declined by 9.3 per cent amid a soft footwear market. The brand is also losing its share of audience and wallet as consumers have become pickier, according to Saunders.

The analyst believed the poor results might give Tapestry a pause for thought about its merger with Capri. The price being paid for Capri becomes more overweight with each passing quarter of negative numbers, he added.

For Capri, the deal would put its brands under the control of a disciplined management team, but the risk of the deal being called off remains due to the interference of the FTC, Saunders continued.

“This would leave Capri in a very difficult position that would necessitate a change in leadership and an overhaul of the current strategy.”

For FY24, Capri posted revenue of $5.17 billion, down from the prior year’s $5.6 billion. The company swung to a net loss of $229 million from a net income of $619 million in FY23. 

The firm did not provide financial guidance given the pending merger transaction.

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