Capri Holdings Ltd. Q1 FY2023 earnings call

Management Statement and Operational Highlights

• The year started better-than-anticipated with strength across all 3 luxury houses. 12 million new names added to databases over the last year.
• Versace had 15% revenue growth on a reported basis, driven by strong retail sales in accessories and footwear, and success of Fendace collaboration.
• Jimmy Choo saw 21% revenue growth on a reported basis, with strong retail sales in accessories and footwear, and effective brand awareness and consumer engagement through storytelling and influencer activities.
• Michael Kors had 5% revenue growth on a reported basis, achieved 50% signature penetration, and saw success in products with new MK hardware codes, as well as strong sales in various categories including ready-to-wear and collaborations like the Michael Kors Ellesse capsule collection.

Segment Performance

• Versace: Revenue of $275 million increased 15% on a reported basis or 30% in constant currency compared to prior year. Global retail sales increased double digits. By geography, Americas revenue increased 32%, EMEA revenue increased 23% on a reported basis or 40% in constant currency, and Asia revenue decreased 20% on a reported basis or 9% in constant currency. Versace ended June with 208 global retail stores.
• Jimmy Choo: Revenue of $172 million increased 21% to prior year or 30% in constant currency. Global retail sales increased strong double digits. By geography, Americas revenue increased 42%, EMEA revenue increased 32% on a reported basis or 51% in constant currency, and Asia revenue decreased 4% on a reported basis but increased 3% in constant currency. Jimmy Choo ended the quarter with 236 global retail stores, a net increase of 3 from prior year.
• Michael Kors: Revenue of $913 million increased 5% on a reported basis or 9% in constant currency. Global retail sales increased in the low single digits. By geography, Americas revenue increased 6%, EMEA revenue increased 16% on a reported basis or 30% in constant currency, and Asia revenue decreased 16% on a reported basis or 10% in constant currency. Michael Kors ended the quarter with 821 global retail stores, a net increase of 1 from prior year.

Guidance

• Full Year: Maintaining Investor Day outlook. Reduced full year revenue by $100M due to USD strength. Anticipate $50M less revenue from Mainland China in second half. Forecast Capri Holdings revenue ~$5.85B (+3% reported/+10% constant). Versace revenue ~$1.175B (+8% reported/+24% constant), Jimmy Choo revenue ~$650M (+6% reported/+13% constant), Michael Kors revenue ~$4.025B (+2% reported/+6% constant). Gross margin flat to fiscal '22, operating margin ~18%. EPS ~$6.85.
• Second Quarter: Anticipate total company revenue ~$1.4B (+8% reported/+16% constant). Expect revenue in Mainland China to be down ~20% year-over-year. Versace revenue ~$300M (+7% reported/+26% constant), Jimmy Choo revenue ~$140M (+3% reported/+9% constant), Michael Kors revenue ~$960M (+9% reported/+14% constant). Operating margin ~17%.

Risks

• Near-term macro uncertainties.
• Challenges in the China market due to restrictions, store openings/closing, reduced hours, and dramatic decline in intercountry travel.
• Elevated supply chain costs that are expected to remain through the year.

Question and Answer

Q: Brooke Roach on geographic regions and North American handbag market A: John Idol discussed strong performance in North America and EMEA, positive travel impact, optimism for Japan and Southeast Asia in Asia, and challenges in China due to restrictions and travel declines but long-term optimism for China market.

Q: Omar Saad on inventories A: Thomas Edwards and John Idol talked about planned inventory levels, design calendar adjustments to address supply chain delays, and the balance between core and fashion inventories, with confidence in inventory levels moderating sequentially.

Q: Matthew Boss on accessories category A: John Idol discussed accessories and footwear growth as key drivers, price increases with no consumer resistance, and promotional rationality being more relevant in North America for Michael Kors but not for Versace and Jimmy Choo.

Q: Kimberly Greenberger on gross margin A: Thomas Edwards explained that gross margin was below prior year due to higher supply chain costs, but strategic initiatives continued to deliver, with supply chain costs expected to moderate in the back half of the year while strategic initiatives support margins.

Q: Irwin Boruchow on M&A A: John Idol stated focus on executing growth strategies, capital allocation to share repurchases as the best use of capital, interest in European luxury brands as potential targets, and no interest in licensing structures.