The downward spiral of Capri’s sales continued in the first quarter of this fiscal year, which an analyst described as an “exceptional decline” that was worse than the wider slowdown of the luxury market.
The company’s revenue slid 6 per cent on a reported basis and 7.7 per cent on constant currency to $797 million during the quarter ended June 30.
According to GlobalData MD Neil Saunders, this comes off the back of a 13.2 per cent decline in the prior year and a string of declines before that.
The analyst noted that there has been a slowdown in the luxury market, but Capri’s results are way worse than this decline.
“This is especially so as the accessible part of the market in which Capri operates has seen modest growth over the past quarter; this puts Capri at odds with other groups like Tapestry and Ralph Lauren,” Saunders said.
“It underlines the fact that Capri has not yet managed to stem customer defections and the erosion of brand value that has plagued it for many years,” he added.
Although the results excluded the numbers from Versace amid its sale to Prada, performance at Michael Kors and Jimmy Choo was not good. Compared to the same period in 2019, sales for the two main brands are down by 42.9 per cent.
“This is an exceptional decline, the blame for which must be placed at the feet of management,” the analyst stressed.
During the quarter, Michael Kors’ revenue dropped 5.9 per cent off the back of a 14.2 per cent dip in the prior year. According to Saunders, the brand pulled back on wholesale distribution and closed some underperforming stores as necessary corrections, but these do not account for the bulk of the deterioration.
“Rather, this comes from the erosion of customers who are not inspired and are increasingly overlooking Michael Kors. The problem here is one of brand position and image and, unfortunately, engineering a solution is not easy,” he elaborated.
At Jimmy Choo, revenue was down 6.4 per cent off the back of a 5.5 per cent decline last year.
“The footwear market has been challenging for all players as more consumers have deprioritized shoes in favor of accessories and garments. Jimmy Choo has partly offset this by leaning more into accessories, but more work is needed to round out the offer,” Saunders commented.
On the bottom line, Capri reported an attributable net income of $53 million compared to a loss of $14 million in the prior year.
For the full year, the company expects revenue of approximately $3.375 to $3.45 billion.
Saunders believes the current fiscal year will be one of decline, and that there is unlikely to be any revenue growth before 2027.
“The sale of Versace will bring a financial windfall that can be used to pay down debt and stabilize finances. However, this does not negate the responsibility of management to lay out a clear vision for its brands and to execute consistently and with speed,” he concluded.
