Capri Holdings, the parent company of Michael Kors and Versace, has significantly reduced its profit forecast for the year and paints a pessimistic picture for 2024. The company attributes the decrease in demand for its luxury handbags and apparel to a slowdown in department store sales, leading to a drastic 24% drop in its shares.
While luxury brands have generally performed well during a period of high inflation, industry experts are warning that accessible luxury brands like Michael Kors may face more challenges due to their younger and less affluent customer base. This demographic is more susceptible to economic downturns, which could impact their purchasing power. In fact, Capri reported a 6% decline in sales for the third quarter, with a significant 20% drop in revenue from its wholesale channel, including department stores and other retailers.
In contrast, LVMH, the parent company of Louis Vuitton, reported a 9% increase in sales during the holiday quarter, indicating sustained strong demand at the high-end of the fashion market. Analysts suggest that retailers, including luxury brands, have been cautious about their inventory levels, leading to a more conservative approach to purchase orders.
Michael Kors, the largest brand under Capri Holdings, experienced a 4.5% decline in revenue, amounting to $777 million in the Americas during the third quarter. Furthermore, in Asia, the brand’s revenue dropped by almost 18% due to China’s decision to dismantle its zero-COVID policy. This resulted in a surge of infections and a decrease in foot traffic in stores.
As a result of these challenges, Capri has revised its annual sales forecast from $5.70 billion to $5.56 billion. The company has also lowered its anticipated earnings per share from $6.85 to $6.10. In the third quarter, Capri earned $1.84 per share, falling short of the predictions made by analysts, who estimated earnings per share of $2.22.
Looking ahead to the fiscal year 2024, Capri expects earnings per share of $6.40 on revenue of $5.8 billion. However, analysts have projected higher earnings per share of $7.24 on revenue of $6.03 billion. This difference in expectations suggests that the company may face ongoing difficulties in the years to come.
In conclusion, Capri Holdings finds itself operating in a challenging market environment with declining demand and shifting consumer preferences. In order to regain momentum in the luxury fashion industry, the company will need to adapt its strategies to cater to the evolving needs and expectations of its customer base.
Useful links:
1. https://www.businessoffashion.com/articles/news-analysis/luxury-brands-brace-for-economic-uncertainty-in-2022
2. https://www.forbes.com/sites/walterloeb/2022/01/27/as-luxury-retailers-report-full-year-and-holiday-sales-figures-learn-how-they-did-it/?sh=4ec944097f1f
