Dive Brief:
- Capri Holdings revenue decreased 16.4% to $1.08 billion for the second quarter of fiscal 2025, according to a Thursday earnings release. Total company retail sales declined high-single-digits and wholesale revenue decreased double-digits.
- Jimmy Choo revenue grew 6.1% year over year, with revenue in the region comprising Europe, the Middle East and Africa up 25%, offset by an 8% drop both in Asia and the Americas. Meanwhile, Versace saw a revenue decrease of 28.2%, with regional revenue falling 33% in the Americas, 28% in EMEA and 20% in Asia.
- Revenue at Michael Kors, the company’s biggest brand, dropped 16% year over year. Revenue at the brand dropped by double digits in every region, with the highest loss in Asia, which fell 43%.
Dive Insight:
Neil Saunders, managing director of GlobalData, said Capri’s Q2 results spell trouble for the company.
“There is no reason to sugar coat it: this has been a car-crash of a quarter for Capri,” he said in emailed comments. “The sales decline, which was already pronounced, has accelerated.”
Saunders noted that on a two-year stack, sales at the company are down “by an eyewatering 23.6%.” He added that although management attributed the challenges to softening demand in the luxury goods section, that was not convincing.
“This is the same tired excuse that is rolled out every quarter and we do not buy it at all,” Saunders said. “Spending in the overall luxury market has weakened, but it has not declined by anywhere near the kind of slump Capri is posting. So, management needs to own this ongoing failure to drive the sales line.”
Saunders also said that the prospect of an acquisition by Tapestry Inc. has led Capri’s management to stop putting effort into a turnaround plan.
“Unfortunately, the view that the problems and issues would become Tapestry’s responsibility is now in doubt thanks to the FTC’s kiboshing of the deal,” Saunders said.
However, that proposed merger between Tapestry and Capri, originally announced in August 2023, was blocked by the Federal Trade Commision last month.
“We are disappointed with the decision, and consistent with our obligations under the merger agreement, Tapestry and Capri have jointly filed a notice of appeal,” John D. Idol, chairman and CEO of Capri, said in the release.
Saunders said that while the acquisition is still possible, “the prospects of this [are] slim, at best.”
“As a result, Capri is in a pickle,” Saunders added. “Its business is in a worse state than ever, it has no real coherent plan to remedy the problems, and there is no white knight coming to save it.”
Saunders said that if the Tapestry acquisition doesn't happen, Capri’s management likely has two pathways forward. One would be to find another buyer, he said, although he added that that might prove difficult “since many would be deterred by the FTC’s action” and it’s unlikely another buyer would offer Capri the same premium Tapestry extended.
“The second possibility is to buckle down and start doing the heavy lifting of reinventing and reinvigorating the brands,” Saunders.
However, he added that Capri’s current team doesn’t have the right credentials or authority to accelerate a turnaround, because they presided over the company’s declines for too long.
“Overall, Capri will be hoping and praying that its merger with Tapestry eventually succeeds,” Saunders said. “But a business should not be run on hopes and prayers and should always have a back up plan.”
