Louis Vuitton – Capri warns sales revival not expected until 2023

Capri, the owner of Versace, Michael Kors and Jimmy Choo, says its sales decline eased in the third quarter but warned the business wouldn’t return to pre-pandemic revenue levels until 2023.

The resurgence of the virus in China and the government’s request to limit travel during Chinese New Year has brought new uncertainties to the luxury company’s outlook.

“We don’t know what that will mean,” said CEO John Idol on a call with investors Wednesday. “Business will still be strong, but maybe not as intense given the cautious nature. That gives us a bit of pause. As we look at the future, we think the next quarter will be bumpy.”

Overall, Capri’s brands Versace, Michael Kors and Jimmy Choo have rebounded from the worst impacts of the pandemic on retail sales as the company beat analyst expectations. Capri reported a revenue decline of 17 per cent to $1.3 billion for the third quarter, while gross profit fell from $932 million the year prior to $848 million. Revenue fell at Michael Kors and Jimmy Choo by 18.6 and 26.7 per cent, respectively, while revenue at Versace was flat at $195 million. After projecting a 70 per cent drop in revenue in the first quarter of 2021, some sales have been recouped driven by improvements in the Americas and Asia. In Europe, 40 per cent of the company’s stores are closed, affecting sales rebound in the region. E-commerce sales helped offset store losses, increasing by 65 per cent across the portfolio.

Capri’s results are reflective of global industry trends: increased investments in direct retail and online sales have helped carry luxury brands’ recovery, while early rebounds in Asia have offset declines in Europe due to stifled tourist traffic. But the company’s rebound has been slower than other luxury names. LVMH reported at the end of January, for instance, that its fashion and leather goods division rose by 18 per cent in its most recent quarter. After a difficult 2020, the year ahead is looking up for luxury overall: Bain predicts 15 per cent luxury growth in 2021, following a forecast decline of 23 per cent last year. Idol points to the global vaccine rollout as reason to hold out hope for an improved second half of the year.

“The shining star”

Significant investments in e-commerce capabilities including customer experience, distribution, store order fulfilment and clienteling tools drove online sales in the quarter, leading to positive results. After a 60 per cent increase in the second quarter, third quarter e-commerce sales were up 65 per cent.

“E-commerce has been the shining star,” said Idol during the investors call. “‘Omni’ capability is a great strength across the group.” The company plans to continue investments in the channel, while specific costs associated with bolstering e-commerce were not shared, with focus on building the internal customer database across brands. First-time brand customers have been added at a double-digit rate, according to the company.

Growing Versace

Capri’s ambitions to grow Versace into a $2 billion brand, announced last year, is something Idol said would come “in time”. Nine new Versace stores opened in the quarter, bringing the store total to 217, while direct retail sales grew in the low double digits with sales in Asia and the Americas offsetting declines in Europe and the Middle East. The brand’s e-commerce sales grew in the triple digits, although Capri doesn’t disclose specifics.

Donatella Versace’s digital avatar and storefront at ComplexLand in September drove six million impressions, according to Capri. Combined with a CGI film and partnership with GQ in China, the brand saw an 18 per cent year-over-year increase in the brand’s global database, representing new customer acquisition. Idol called Versace the “largest growth opportunity” for Capri Holdings, and said that in time, Versace and Jimmy Choo will account for 40 per cent of total company revenue.

“The consumer is resonating with the [Versace] brand. But if you look at the grand scheme, Versace doesn’t make up a large part of the portfolio, so we continue to be hesitant,” says Jessica Ramirez, retail analyst at research firm Jane Hali and Associates.

price strategy and wholesale outlook

Capri’s other two brands, Michael Kors and Jimmy Choo, have been harder hit by wholesale challenges and store closures. Jimmy Choo sales were affected by the brand’s decision not to release a holiday collection in light of overall footwear sales declines. Ready-to-wear, a dark spot at the beginning of the company’s fiscal year, showed some signs of rebound that Idol said is expected to pick up in the second half of 2021. “There will be a return to normalcy,” he told investors.

Idol said that Michael Kors prices will be raised, as the brand has been “undervalued” — a practice that other brands including Chanel and Louis Vuitton have seen success with, but can be a risky bet. He projected that department stores and other wholesale channels will rebound in the later half of the year, which Ramirez says is “not technically realistic, given where they were before the pandemic”.

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