Michael Kors parent Capri’s stock slides 27% after profit misses by a wide margin amid wholesale struggles

While the company saw growth in its own retail channel for its three luxury houses, the global wholesale business — orders from department stores — was disappointing and resulted in lower spending and lower operating margins, he said.

According to the FactSet transcript, Idle told analysts the North American wholesale channel for Michael Kors was down 25% on the company’s earnings call.

Capri CPRI,
-23.58%
has been elevating that brand and positioning its bags and accessories as more high-end products, removing them from stores that were offering deep discounts. Prices have risen 25% since 2019, he said. But consumers facing inflationary pressures for other items were cautious heading into the holiday season, he said.

He added that revenue from China, the main market, has also declined sharply due to the increase in COVID cases after the government ended its zero-COVID policy. Prior to this, he said, more stores were closed in China than at any other time during the pandemic.

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“We have also begun taking measures to better align operating expenses with changes in revenue by channel,” he added. “At the same time, we will continue to make strategic investments to drive long-term growth.”

Retail analysts at Wells Fargo said the earnings-per-share miss was the first real surprise of this earnings season.

“Wholesale is largely a fixed-cost business, resulting in significant margin erosion,” analysts led by Ike Borucho wrote in a note to clients. “Capri expected POS (point of sale) trends to improve from the second quarter, and they actually worsened – and with late cancellations, expenses could not be contained.”

Still, the bank is sticking with its overweight rating on the stock, noting that direct-to-consumer trends remain healthy, inventories are “OK” and weak guidance “materially de-risks numbers from here on.” “

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Capri reported net income of $225 million, or $1.72 per share, for the quarter, down from $322 million, or $2.11 per share, in the year-ago period. Adjusted earnings per share came in at $1.84, well below the $2.22 FactSet consensus.

Revenue fell 6% to $1.51 billion, also below the $1.53 billion FactSet consensus.

By segment, Versace’s revenue fell 0.7% to $249 million, Jimmy Choo’s revenue fell 5.6% to $168 million and Michael Kors’ revenue fell 7.2% to $1.095 billion.

For fiscal 2023, the company is expecting revenue of approximately $5.56 billion and EPS of approximately $6.10. FactSet is calling for revenue of $5.72 billion and EPS of $6.87.

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Chief Financial Officer Thomas J. Edwards said the company was more cautious in the fourth quarter due to an increasingly uncertain macro environment.

“We now anticipate total company revenue of approximately $1.275 billion,” Edwards told analysts. “This represents a 15% decline on a reported basis, reflecting a mid-single-digit decline in retail.”

For the wholesale channel, the company expects revenue to decline by around 35%, he said.

“Along with our partners across all three of our brands, we are taking a more cautious approach to business planning due to the uncertain macroeconomic environment,” Edwards said.

He added that the company expects that to come down from 27% of revenue in FY2023 to about 23% of revenue in FY2024.

He added that the company is expecting mid-single-digit revenue and earnings growth in FY2024.

Capri stock has fallen 26% over the past 12 months, while the S&P 500 SPX,
-1.11%
9% has fallen. The stock has fallen about 52% from its all-time high of $99.84 hit on February 25, 2014, according to Dow Jones market data.