The Group Experienced Net Losses Amid Plans to Defend Against Regulatory Challenge of Tapestry Acquisition
Capri Holdings is navigating financial difficulties while preparing for a regulatory challenge to its $8.5 billion acquisition by Tapestry Inc. The company reported a net loss of $14 million, or 11 cents per share, for the first quarter, a significant drop from the $48 million profit, or 41 cents per share, recorded a year ago.
The recent quarter’s losses were attributed to $10 million in expenses related to a transformation and efficiency program and $4 million in costs associated with the Tapestry deal, among other smaller expenses. When these costs are excluded, adjusted earnings stood at 4 cents per share, falling short of analysts’ expectations of 59 cents per share. Analysts did not have any guidance from the company to work with, complicating their forecasts.
Revenue for the quarter ending June 29 fell 13.2% to $1.07 billion, down from $1.23 billion the previous year. The company stated it has been “diligent” in managing inventories, which decreased by 23% compared to a year earlier—a more significant reduction than the sales decline.
The sales decline reflects broader challenges in the fashion industry, with wholesale revenue experiencing a high-teens decline and retail performing slightly better, with a low-double-digit drop.
“Overall, we were disappointed with our first-quarter results as performance continued to be impacted by softening demand globally for fashion luxury goods,” said John D. Idol, Capri’s chairman and chief executive officer. “We are continuing to manage our operating expenses and inventory levels carefully in light of the challenging global retail environment.”
Despite these challenges, Idol highlighted the continued consumer interest in the company’s brands. “Versace, Jimmy Choo and Michael Kors continued to resonate with consumers as evidenced by the 12.6 million new consumers added across our databases, representing 15 percent growth versus last year,” he noted. “This reflects the strong brand equity and enduring value of our three iconic houses.”
However, individual brand performance showed difficulties. Versace’s revenues dropped 15.4% to $219 million, resulting in an operating loss of $17 million. Michael Kors saw a 14.2% decrease in revenue to $675 million, with an operating income of $75 million. Jimmy Choo’s revenue fell 5.5% to $173 million, yielding an operating income of $4 million.
Capri agreed to the Tapestry buyout a year ago. Tapestry, which owns Coach, Kate Spade, and Stuart Weitzman, aims to apply its successful strategies from Coach to Michael Kors and Capri’s other brands. However, the Federal Trade Commission has challenged the acquisition, viewing it as a bid to dominate the accessible luxury market.
“Capri intends to vigorously defend this case alongside Tapestry and we look forward to the successful completion of the pending acquisition,” Idol said. “This combination will deliver value to our shareholders as well as provide new opportunities for our dedicated employees around the world as Capri Holdings becomes part of a larger and more diversified company.”