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Capri Beats Profit Estimates as Fewer Holiday Discounts Boost Margins

Michael Michael Kors Fall 2020 campaign | Source: Courtesy
Michael Michael Kors Fall 2020 campaign | Source: Courtesy

Capri Holdings Ltd beat holiday-quarter profit estimates on Wednesday as the luxury fashion house boosted its margins by selling more products at full price and cutting manufacturing costs, sending its shares up nearly 7 percent.

The Michael Kors and Versace owner, however, forecast a surprise loss for the current quarter due to virus-driven store closures in Europe.

Capri has been selling more products through its own retail stores and e-commerce channels, lowering its dependence on COVID-19 battered department stores that often sell even luxury goods at discounted rates.

The company’s adjusted gross margin expanded 520 basis points in the third quarter, compared to a year earlier.

Capri also said it saw double-digit quarterly growth in Mainland China, which bodes well for a broader recovery in high-end fashion in other markets, once coronavirus restrictions are eased.

The company said it expects to return to pre-pandemic revenue and earnings levels by fiscal 2023, which starts next year.

Capri’s total revenue fell 17 percent to $1.30 billion in the third quarter ended Dec. 26 as store closures in major European markets and no holiday products line from its Jimmy Choo brand crimped sales. Analysts had estimated revenue of $1.33 billion, according to IBES data from Refinitiv.

The company said it expects a similar decline in revenue in the fourth quarter. Analysts estimate revenue to fall by 5.4 percent and profit to be at 66 cents per share.

About 50 percent of Capri’s stores in the Europe, Middle East and Africa region are still closed, the company said.

The company reported a third-quarter net attributable profit of $179 million, or $1.18 per share, down from $210 million, or $1.38 per share, a year earlier.

Excluding items, it earned $1.65 per share, beating analysts’ expectations of $1.01 per share.

By Uday Sampath in Bengaluru; editor: Dwivedi.

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