This quarter was always going to be a challenging one for Capri thanks to some tough prior year numbers and a slowdown in consumer demand. Unfortunately, this has come to pass with what is, quite honestly, a rather disappointing set of third-quarter numbers.
Overall revenue fell by 6 per cent, to $1.51 billion, which is the worst performance since the pandemic hit. Admittedly, some of this is down to unfavorable exchange rates, but even when these are factored in, revenue remains down by 0.5 per cent. Perhaps most disappointing is the fact that all brands saw revenue decline – including usually bright stars like Versace. Although it represents a clear deviation from a long period of growth, the downswing is perhaps unsurprising; after all, Capri had a stellar quarter last year as consumers bought with abandon and maintaining this level of spending was always going to be difficult.
The above noted, Capri’s revenue is down by 3.8 per cent on the pre-pandemic period of 2019. While some of this is down to a deliberate pullback on wholesale and some restructuring of the business, it nevertheless represents a very underweight performance relative to the wider market which has boomed over the period.
Going back to this quarter, the numbers are very jumbled across regions and brands. What is clear, however, is that North America and Asia are dragging down the results with revenue declines of 4 per cent and 19.6 per cent respectively. Asia is understandable as severe Covid restrictions in China for some of the trading period had a deleterious impact on consumer demand: one of the reasons why all brands saw similar levels of sales decline.
The softening in North America is more a function of consumers pulling back; however, as a lot of luxury is relatively immune to this trend, we feel that some of the issues are with Capri rather than being entirely down to wider economic factors. Europe performed better with a 3 per cent decline in revenue, most of which was down to unfavorable exchange rates as sales appear to be up on a constant currency basis.
At a brand level, despite the overall sales decline of 0.8 per cent, Versace remains the star player. The brand posted some strong growth in Europe and, on a constant currency basis, increased sales by 11.2 per cent. A strong fall and winter assortment, backed by some compelling marketing that took Versace back to its Italian roots, aided consumer awareness. With its traditional bold and colorful designs, Versace is very much attuned to the consumer mood of anti-bland.
Jimmy Choo had a reasonable quarter with sales down by 5.6 per cent overall, but up by 3.4 per cent on a constant currency basis. Sales in Asia were badly hit, but both North America and EMEA posted growth. Here a lot of the uplift is coming from the brand’s continued expansion into accessories – which consumers are prioritizing over clothing as they see them are more of an investment and a long-lasting purchase.
That leaves Michael Kors which, as per usual, is the laggard of the group. Revenue was down by 7.2 per cent and remained down by 3.6 per cent on a constant currency basis. As the weakest brand in the portfolio – and one that is most exposed to a more price-sensitive, relatively lower income profile – it is not surprising that it has been most battered by the slowdown. Unfortunately, it is also the largest part of group revenue so has a disproportionate impact on overall results. Although direct sales for Michael Kors held up better, wholesale has been an issue as retailers have cut orders as their own sales have dropped. This underlines the fact that Capri needs to take back more control over distribution as it refreshes and clarifies the brand over the year ahead.
