Capri Holdings Ltd. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Post-merger termination, the company reevaluated strategic initiatives and long-term growth plans, with Investor Day on February 19th to share details.
• Versace: Repositioning efforts emphasized luxury and craftsmanship, VICs grew double-digit, but missteps in repositioning impacted retail and wholesale; future focus on injecting energy into assortment and adjusting pricing.
• Jimmy Choo: Product strategy focused on accessories and casual footwear, strong performance in specific items, collaborative campaigns with Sailor Moon, and marketing initiatives driving database growth.
• Michael Kors: Refocused on heritage, adjusted pricing, saw growth in eyewear and fragrance, implemented dynamic marketing plans to modernize jet set heritage, and aimed to optimize product balance.

Segment Performance

• Versace: Revenue decreased 15% compared to prior year. In Q3, revenue was approximately $200 million. The brand's repositioning efforts aimed at luxury and craftsmanship showed some positive aspects like VIC growth but had missteps affecting retail and wholesale.
• Jimmy Choo: Revenue decreased 4% compared to prior year. Q3 revenue was around $125 million. Product strategy focused on accessories and casual footwear, with strong performance in certain items and collaborative campaigns driving engagement.
• Michael Kors: Revenue decreased 12% compared to prior year. Q3 revenue was approximately $650 million. The brand refocused on heritage, adjusted pricing, saw growth in eyewear and fragrance, and had dynamic marketing plans to modernize its jet set heritage.

Guidance

• Q4: Anticipates revenue decline 20% to $975 million, including foreign currency and store closure impacts. Retail sales forecasted to decline mid-teens, wholesale to decline ~30%.
• Full year fiscal 2025: Forecasts revenue of approximately $4.4 billion and operating loss of $25 million in Q4.
• Fiscal 2026: Expects revenue stabilization and margin expansion. Versace, Jimmy Choo, and Michael Kors have specific revenue expectations, with expense reduction initiatives driving margin improvement.
• Fiscal 2027: Aims to return to revenue growth with operating margin expansion driven by gross margin improvement and additional cost reductions.

Risks

• Softening demand for fashion luxury goods globally, especially a significant decline in China.
• Impact of store optimization program and ongoing reductions in the wholesale channel.
• Missteps in brand repositioning efforts at Versace and Michael Kors affecting results.
• Uncertainty in the recovery of the Chinese market affecting overall performance.

Question and Answer

• Q: Simeon Siegel asks about the competitive and promotional environment, wholesale sell-in/sell-through divergence, and gross margin guide. A: John Idol and Tom Edwards discussed the competitive landscape, gross margin expectations, and progress in the wholesale business.
• Q: Robert Drbul asks about pricing initiatives and marketing plans. A: John Idol discussed pricing adjustments, marketing repositioning for Michael Kors, and product strategy changes.
• Q: Irwin Boruchow asks about revenue trajectory lumpiness and portfolio considerations. A: Thomas J. Edwards and John Idol discussed revenue progression, wholesale recovery, and the portfolio focus on growth strategies.
• Q: Brooke Roach asks about retail improvement assumptions. A: John Idol discussed product innovation, marketing initiatives, and database growth as drivers of retail improvement.
• Q: Oliver Chen asks about quiet luxury and store segmentation. A: John Idol discussed Versace's luxury repositioning, store distribution balance, and Michael Kors' heritage modernization.
• Q: Paul Lejuez asks about CAPEX and leadership. A: Thomas J. Edwards and John Idol discussed CAPEX plans, store closures, and leadership stability.
• Q: Dana Telsey asks about store changes and marketing spend. A: John Idol discussed store closure plans, marketing spend allocation, and focus on store renovations.