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For Capri Holdings, the worst is yet to come

For Capri Holdings, the worst is yet to come

Due to Covid-19 crisis, the luxury group Capri Holdings, owner of the iconic brands Michael Kors, Versace and Jimmy Choo, is expecting a 70% drop in sales in the first quarter ended June, after an initial 11.3% drop in turnover in the fourth quarter 2020/21 ended March. The threat is severe and weighs on the company, which may close nearly 200 stores worldwide over the next two years.

 

Capri Holdings has already lost $551 million because of Covid-19

 

Based on fourth quarter results, Capri’s total revenue fell 11.3% to $1.19 billion in the three months ended March 28, slightly higher than the analysts’ average estimate of $1.12 billion.

 

The company reported a net loss of $551 million in the fourth quarter of its fiscal year 2020, compared to a profit of $19 million a year earlier.

 

Although closures only occurred for approximately two weeks in the quarter ending March 28, depreciation charges – including $351 million for the Jimmy Choo brand, $137 million of store damage, $92 million of higher inventory reserves and $30 million of restructuring charges – had a significant impact on results.

 

The COVID-19 pandemic has dramatically impacted the entire world,” John Idol, Capri’s chairman and chief executive officer, told analysts in a conference call on Wednesday, July 1, when he expected a different story for the group. “Entering fiscal 2020, we expected this to be an investment year to fund strategic initiatives and position our luxury houses for revenue and operating margin growth.”

 

The decline in sales is still going on … and leads to fear the worst

 

The negative effect announced is expected to be even more dramatic in the current quarter: Capri Holdings is expecting a further 70% drop in sales, while analysts were expecting a 46.7% drop, according to Refinitiv.

 

The reason for this is that traffic is much less dense than usual: although approximately 90% of the company’s store network has reopened (about 70% of the 455 stores in the Americas and 98% of the 816 stores in Europe, the Middle East, Africa and Asia), management said that traffic in these reopened stores represents about 50-75% of the previous year’s traffic.

 

Customers are probably going to be less in stores over the next few years until we get a vaccine and until people feel more comfortable shopping outdoors” Capri Chief Executive Officer John Idol said on a call with analysts.

 

These are losses that the group – which houses Michael Kors, Versace and Jimmy Choo brands – is worried it won’t be able to afford in the future.

 

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While we have made significant cost reductions, we do not expect they will be enough to offset the considerable decline in the first half of fiscal year 2021 revenue” Thomas Edwards, executive vice president, chief financial officer and chief operating officer of Capri, said on the call.

 

In response, the luxury group announced that it may permanently close up to 170 stores, primarily Michael Kors, over the next two years and reduce capital expenditures by approximately $150 million in fiscal 2021 to ease the pressure, while focusing on expanding the footwear and accessories business.

Nevertheless, management reiterated Capri’s positive financial position, stating that the company expects to end the current quarter with approximately $1.1 billion in cash and $1.8 billion in debt.

 

We believe in the future and making investments in luxury takes time. Fashion and luxury speak to deep-seated desires for self-expression and creativity and we have no doubt that it will remain long after the global shutdown is behind us […] We view our opportunity to resume growth at 2022.″ John Idol concluded.

 

Read also > CAPRI HOLDINGS IS CUTTING EXECUTIVE AND BOARD MEMBER PAY, CUTTING COSTS AS IT WORKS TO COMBAT EFFECT OF COVID-19

 

Featured photo : © Versace

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