Updated 1:33 p.m. ET Oct. 30
It always helps to have a trend to follow.
More from WWD
-
Kim Kardashian Continues to Climb Into White Platforms for the 'All's Fair' Season Two Press Tour
-
Taylor Swift Adds Extra Jewels to Her Nashville Songwriters Hall of Fame Look With Jimmy Choos
Shares of Capri Holdings shot up 15.9 percent to $18.61 on Friday after John Idol, chairman and chief executive officer, turned in second-quarter results that supported the promise of a Michael Kors and showed continued strength at Jimmy Choo.
Capri's quarterly sales fell 5.5 percent, but gross margins improved and earnings per share were double what analysts forecast.
Wall Street is starting to buy into the idea that Michael Kors can successfully connect with younger consumers and tread the brand elevation path that helped competitors Ralph Lauren and Coach become two of the best performers in the American fashion industry.
But there's still a long way to go — both in Capri's market capitalization and its business reinvention.
Capri has a lot of ground to make up.
Before Friday's stock jolt, shares of Capri were down 34.2 percent for the year so far. And even after the post-earnings rally, the company had a market cap of about $2.2 billion.
That's about one-tenth of the valuations enjoyed by both Ralph Lauren Corp. and Coach-parent Tapestry Inc., which each have market caps of $23 billion.
But both of those companies have spent years focusing on higher-priced goods, fewer price promotions and whizbang marketing.
Idol, who helped grow Michael Kors from a bankrupt designer business to a multibranded player leaning on handbags, recognizes the approach and told analysts on a conference call that it works for Capri too.
"Over the past several seasons, we have been focused on elevating brand desirability, strengthening our product assortments, creating deeper connections with consumers and we are seeing evidence that those efforts are gaining traction globally," Idol said.
"In our own retail channel, sales declined low-double digits as anticipated," he said. "We had approximately 40 percent less markdown inventory available for sale and reduced promotional activity by approximately 50 percent, both of which created a meaningful headwind to revenue during the quarter.
"While these actions reduced revenue, they supported higher full price sell-throughs, growth in AURs and gross margin expansion," he said. "The majority of these actions are now behind us, giving us increased confidence in the trajectory of the business going forward."
Capri's Q2 Take
Revenues for the quarter tallied $809 million, a 4.9 percent decline in constant currencies. The numbers were flattered by roughly $20 million in sales attributed to earlier-than-expected wholesale shipments, including $15 million of Michael Kors sales and $5 million of Jimmy Choo 's take.
Michael Kors' revenue of $663 million equated to an 8 percent decline in constant currencies. Jimmy's Choo's sales of $146 million were up 12.2 percent from a year earlier, in constant currencies.
Gross margins rose to 63.3 percent from 61 percent a year ago, a bump the company attributed to "higher full-price sell-throughs, brand mix and lower tariff rates."
Adjusted earnings tallied $45 million, or 42 cents a diluted share — well ahead of both the 3 cent loss recorded a year earlier and the 21 cent profit analysts had penciled in, according to Yahoo Finance. Net income of $27 million compared with year-ago losses of $34 million.
A 'Super Time'
"We're starting to see this undertone that Michael Kors is back," Idol crowed to analysts. "Have you seen Michael Kors? Look at this product."
He said the brand has fewer markdown its own doors, which are being renovated, and that special attention is being paid to handbags and accessories.
"We know there's market share to be regained and taken," he said. "The industry, and in particular, some of the other luxury European luxury brands, are having a bit of a struggle right now. And we actually think this is a super time for us to be able to resonate with consumers who are being a bit more choiceful.
"We can see that with some other brands around the world who are enjoying the fruits of that success," the CEO said. "So we think the timing is right for us. The product is getting, not exactly where we want it to be, but pretty close, storytelling is in good shape."
More Michael
Michael Kors ended the quarter with 655 stores, down 36 from a year earlier.
But the company has been starting to lean back into the market with a few new stores as it presses its new look and approach.
"Next year, we're going to open between 50 and 75 brand new stores," Idol said.
Michael Kors has also been honing a warmer, more residential feel in its stores. Already, it's renovated 50 doors this year and plans to spruce up another 25 more before 2027.
"We are starting to get confidence given especially the renovations and the results we're seeing with higher traffic and higher revenues," Idol said. "That's an exciting growth opportunity for us as we look out to fiscal year 2028."
TikTok Shop
And Michael Kors is finding its way to new customers.
"During the quarter, we launched a Michael Kors shop on TikTok, creating a seamless path from discovery to purchase on a platform that plays an increasingly important role in how younger consumers engage with fashion," Idol said. "Early performance has exceeded our expectations generating strong engagement and sales while further expanding our reach with a new generation of luxury consumers."
Idol said the shop drove nearly four-times as much business as originally anticipated.
"That's exciting," he said. "That's new. That's young, that's Gen Z. We're seeing it on some other platforms that we're engaging with as well."
The Fashion Winds of Change
When asked on the conference call about the formal feel taking hold in fashion, Idol said it was good for both Michael Kors and Jimmy Choo.
"We are definitely seeing the fashion winds shift," he said. "We've always been a bit more I'll say, slightly dressed up. We've been slightly more glamorous, both of our companies and we think the winds are going in our favor."
Michael Kors sneakers, for instance, used to account for 30 to 35 percent of the company's footwear business, but Idol said that will probably go down to a 20 to 25 percent share.
The Path Ahead
For the full year, Capri is expecting sales to slip by about 1.4 percent to $3.42 billion with diluted earnings per share of roughly $2.20, a nickel ahead of the $2.15 the company had forecast.
In September, WWD reported that Capri has attracted the interest of some would-be buyers although no deal was on the immediate horizon.
As the company's results get stronger, it will have more options and more traction to pursue its turnaround.
Tyler Reddien, chief financial and operating officer, said on the call: "Our second-quarter results exceeded our expectations, and our increased outlook reflects the confidence we have in the trajectory of the business. We are encouraged by the consumer response to our new product introductions and the progress we are seeing across both Michael Kors and Jimmy Choo. Looking ahead, we remain focused on executing our strategic initiatives strengthening our luxury houses and positioning Capri to deliver sustainable growth and value creation for our shareholders."
Best of WWD
-
Harvey Nichols Sees Sales Dip, Losses Widen in Year Marred by Closures
-
Nike Logs $1.3 Billion Profit, But Supply Chain Issues Persist
Sign up for WWD's Newsletter . For the latest news, follow us on Facebook , Twitter , and Instagram .
