Capri Holdings Ltd, the parent company of Michael Kors, has revised its sales and profit forecasts for the holiday season. The company attributes the downward adjustment to the ongoing Covid-19 restrictions and uncertainty in the global economy, particularly in China. Despite luxury brands successfully passing on higher costs to affluent consumers, the challenging market conditions in China, including sporadic business and movement restrictions, have hindered a full recovery.
The company reported a significant drop in revenue from mainland China in the second quarter, with a decline of a “high teens” percentage. This downward trend has continued in recent months due to reduced store traffic. While Capri did not disclose its total revenue from China, it is typically the third largest market for luxury companies, behind the United States and Europe. Other luxury brands, such as Gucci and Canada Goose, have also experienced setbacks in their China sales.
Interestingly, Michael Kors products are also facing a slowdown in demand at U.S. wholesale retailers. Analyst Jessica Ramirez suggests that “affordable” luxury brands like Michael Kors are more susceptible to a decline in demand induced by inflation, compared to premium brands like Versace.
Consequently, Capri has adjusted its sales forecast for the holiday quarter to $1.53 billion, down from the original estimate of $1.65 billion. The profit outlook has also been lowered to $2.20 per share from $2.45 per share. Despite this news, the company’s shares saw a rise of approximately 2%. This boost can be attributed to the company’s better-than-expected earnings report and the announcement of a new $1 billion share buyback program.
Useful links:
1. Capri Holdings’ revenue by segment
2. Challenges luxury brands face in China’s market reopening
