Dive Brief:
- Capri Holdings Limited reported Q2 earnings of $1.29 billion on Thursday, representing an 8.6% decrease from $1.41 billion during the same period the previous year.
- A new e-commerce platform for Michael Kors, implemented in July, created “greater than anticipated challenges,” which the company said “negatively impacted Michael Kors revenue by approximately $50 million in the quarter.” The company added that although “trends have begun to improve” it anticipated that Q3 revenue would also be impacted, though it said it expected that the “situation will be fully resolved during the fourth quarter.”
- Softening sales in the Americas hit every Capri brand. Michael Kors revenue dropped 8.6%, with revenue in the Americas falling 13.5%. Versace revenue declined 9.1%, with the Americas reporting a 20% dip. Meanwhile, Jimmy Choo revenue fell 7%, with an 11.6% drop in the Americas.
Dive Insight:
The earnings come ahead of a planned merger with rival Tapestry Inc., which itself posted only modest Q1 gains on Thursday. Once the deal between the two firms is complete in 2024, the resulting luxury house will be the fourth largest in the world, and “the number one player in the accessible luxury handbag market in the US by a wide margin,” according to Wells Fargo analysts.
While a weakening luxury market is hitting even the world’s largest firms, problems for Capri began well before consumers began tightening their purse strings.
The company’s long term debt in Q2 reached $2.08 billion, up 8.6% from the $1.92 billion reported in its Q1 earnings, and up 31.7% from the $1.585 debt reported in Q2 last year.
The purchase, which will merge Capri’s three brands with Tapestry’s Coach, Kate Spade and Stuart Weitzman brands, should help with some of that debt. To pay for it, Tapestry has secured $8 billion in bridge loans, and the purchase will be funded by senior notes, term loans and excess Tapestry cash.
Once the dust settles, Tapestry’s new holdings will amount to a combined share of around 5.1% of the global luxury goods market, according to Wells Fargo analysts.
Earlier this month, Capri filed a notice with the SEC stating that both it and Tapestry each received a request for additional information and documentary materials from the Federal Trade Commission in connection with the FTC’s review of the pending transaction.
Capri board members approved the sale last month during a special meeting of shareholders.
Capri said in its Q2 release that in light of the proposed merger with rival Tapestry, it “does not intend to provide financial guidance.”
"Capri Holdings' second quarter results were below our expectations due to macro-economic headwinds as well as Ecommerce implementation related challenges,'' John D. Idol, Chairman and CEO, said in the Q2 earnings release. “In early July, we implemented a new Ecommerce platform for Michael Kors in the Americas. While we are excited about the long-term benefits, the transition negatively impacted our second quarter results. Additionally, during the quarter consumer demand for fashion luxury goods softened primarily in the Americas.”
Idol said the company looked forward to the successful completion of the Tapestry merger in 2024.
“We are confident that this combination will deliver value to our shareholders as well as provide new opportunities for our dedicated employees around the world as Capri Holdings becomes part of a larger and more diversified company,” he said. “By joining with Tapestry, we will have greater resources and capabilities to accelerate the expansion of our global reach while preserving the unique DNA of our brands.”
