Capri Holdings Ltd. Q2 FY2023 earnings call

Management Statement and Operational Highlights

• Capri Holdings delivered strong revenue growth and record earnings per share in Q2.
• Introduced Emmanuel Gintzburger as the new Chief Executive Officer of Versace.
• Key product highlights:
  • Versace: Accessories sales in retail channel up ~60% for women's accessories; launched Greca Goddess pillar.
  • Jimmy Choo: Accessories sales in retail channel up over 30%; casual footwear sales up strong double digits.
  • Michael Kors: Introduced Empire Hardware and Art Deco logo design; opening 2 new Michael Kors flagship locations; launched Michael Kors Pre-Loved.
• Retail fleet: Opening 2 new Michael Kors flagship stores in NY and London; launched Michael Kors Pre-Loved for sustainability.

Segment Performance

• Versace: Revenue increased 9% on a reported basis and 28% in constant currency. Operating margin was ahead of expectations.
• Jimmy Choo: Revenue increased 4% on a reported basis and 15% in constant currency. Operating margin was better than anticipated.
• Michael Kors: Revenue increased 9% on a reported basis and 15% in constant currency. Operating margin was better than anticipated.
• Geography: Americas revenue up 15%; EMEA revenue up 3% reported/20% constant; Asia revenue down 2% reported/up 12% constant.

Guidance

• Cautious revenue outlook for remainder of fiscal 2023 due to uncertain macroeconomic environment, foreign currency headwinds, and COVID-related restrictions in China.
• Forecast Capri Holdings annual revenue ~$5.7 billion (approx 1% increase reported/7% constant currency).
• Full year revenue by brand: Versace ~$1.15B (6% reported/22% constant), Jimmy Choo ~$640M (4% reported/14% constant), Michael Kors ~$3.91B (-1% reported/2% constant).
• Full year operating margin expected ~18.3% (increase of 30 basis points from prior guidance). Reiterated diluted EPS guidance ~$6.85 for fiscal '23.

Risks

• Uncertain macroeconomic environment impacting revenue outlook.
• Foreign currency headwinds affecting revenue.
• Ongoing COVID-related restrictions in China continuing to impact Asia revenue.

Question and Answer

• Q: Notable softening in demand across brands, $100M Michael Kors wholesale reduction, inventory for holiday? A: Strong DTC performance; China experiencing slowdown due to COVID restrictions; wholesale slowing; adding sales associates in shop-in-shops; good inventory quality for holiday.
• Q: Gross margin better than expected, pricing initiatives, product cost inflation, freight? A: Price increases in Michael Kors over 3 years with positive consumer response; supply chain costs higher but strategic initiatives helping; expecting one last price increase in spring then pause, freight costs still an issue but improving.
• Q: Slowdown in wholesale vs DTC, data analytics? A: Strong DTC database growth (Versace up 40%, Jimmy Choo up 30%, Michael Kors up 17%); traffic holding in NA/EU but slowing in China; data analytics aiding clienteling and customer acquisition.
• Q: Balance sheet, interest expense? A: Focus on returning cash to shareholders via share repurchases; higher interest expense due to rising rates and variable rate revolver; manageable debt and balance sheet.
• Q: Industry promotions, inventory, pricing guardrails? A: Strategic focus on product innovation and brand elevation; confident in inventory quality for holiday; guardrails in place to protect pricing and brand integrity.
• Q: Inflation, store traffic, outlet vs full price? A: Store traffic relatively good, full price stronger than outlets; inflation concerns around interest rates, energy, food; cautious on Europe but hopeful for North America and Asia.
• Q: Wholesale, order book? A: Wholesale up in Q2 due to inventory delays; cautious in Q3 for Michael Kors; joint action plan with retail partners for inventory management.