Bags boost due at Versace, Choo; new energy as Kors unveils Bella Hadid ads says Capri
Capri Holdings reported mixed Q3 results on Wednesday with broadly flat revenue but improving margins and high expectations for the future due to its Versace buy.
While its main results announcement was short on detail, its later conference call with analysts filled in plenty of gaps. And it’s no surprise, given the strength Michael Kors has in accessories, that the company wants to build on the category for Versace and Jimmy Choo, which group CEO John Idol said were “underdeveloped” in accessories at present.
“Both Versace and Jimmy Choo are underdeveloped brands versus their potential,” he said. “With the resources and investment our group will provide, both will be positioned for significant growth. In particular, our expertise in luxury accessories will help accelerate this underdeveloped category.”
The company is already “in the process” of doing that as it works towards being an $8bn revenue powerhouse.
But that’s the future, what about the quarter just gone and that flat revenue? The firm’s $1.44bn turnover saw higher revenue from Choo but a 4% decline at Kors (with its comp sales down around 2.4%).
The big Kors brand problem was the watch category in which its business is huge and so can skew the figures either up or down, depending on its performance.
WATCHES WEAK, BUT SHOES, RTW STRONG
In its watch and jewellery segment, there was actually both good news and bad. Reaction to its new fine jewellery line was “encouraging” and the Michael Kors Access smartwatch continued to outperform the broader category. In fashion watches, customers “continued to respond well to slim silhouettes, particularly those in luxury leather band offerings.”
But the wider fashion watch sector continued to see declines globally and the company isn’t immune to this trend. It now expects not only on-going declines in Q4, but that those falls will be faster than it had foreseen.
However, accessories were stronger and for Michael Kors, the Bancroft bag group remained “a customer favourite,” particularly in colour blocking styles. The new Mia small shoulder satchel with novelty jewel detailing was another hit. In the Michael line, Whitney bags remained best-sellers. Its Michael Kors signature styles were also standouts during the quarter.
Signature “represented 19% of our retail fleet sales during the quarter and we plan to grow [it] to approximately 30% over the next year,” Idol added, also explaining that it didn’t have enough signature product in the quarter.
That contributed to comp sales in accessories declining in the low single-digits year-on-year, although the company saw an improvement compared to Q3 as it increased inventory levels. Looking ahead, it will continue to focus on fashion innovation and “[we] believe our inventory levels as well as our signature mix will be in [a] more appropriate position” for Q4.
In footwear, it launched the Alexis Suede platform with metallic leather trim that was featured in its holiday campaign and “has been resonating well with customers.” And the fashion active category and the newly launched Olympia sneaker, which was featured in colour blocking was “well received”. Texture and embellishment helped drive continued strength in its bestselling sneakers and overall, comp sales in footwear increased in double-digits.
Meanwhile, in women's RTW, its Michael Kors collection “experienced one of its best seasons in the company's history,” as the new marketing campaign “successfully drew new younger consumers to the brand.”
Its holiday campaign, which focused on luxury assortments of dresses and outerwear that were “glamorous, embellished and party-ready performed well”. Comp sales in women's RTW increased in the mid-single-digits.
And in the men's business, customers responded to its luxury shearling and grained leather moto jackets. Streetwear-inspired signature items were strong for holiday gifting and men's accessories grew, with backpacks the best-sellers, led by its signature MK Group.
And the firm is expecting continued growth in its men's business especially as it will be launching a new men's footwear line in the autumn, featuring active and modern hybrid streetwear styles.
The second iteration of its still-new MKGO activewear capsule collection, Bold, delivered good news too. Inspired by streetwear, it launched in October for both women and men and “saw very strong sell-throughs.”
And all of the above is being helped by strong marketing for the brand as a whole. The company saw rising brand engagement from its Binx Walton AW18 ad campaign and for spring, Bella Hadid is the new face of the brand. She “instantly telegraphs the lifestyle, attitude and mood that is quintessentially jetset," John Idol said.
BUOYANT JIMMY CHOO
Meanwhile, Jimmy Choo had a strong quarter with revenue growing in mid-single-digits on a reported basis and high-single-digits constant currency. Comp sales grew in the low-single-digits, driven by strength in footwear, but partly offset by weaker handbag performance. Strong performers were knee-high, biker and ankle boots and in fashion active, the Norway sneaker was a best seller.
It also recently launched its Diamond sneaker, that has a clear sole, silver laces and is offered in crystal shimmer suede, with a Swarovski edition also available. Diamond “has immediately become an iconic offering and generated strong consumer response,” we were told.
The label received a big boost from its appearances on many celebrity feet in recent months with Kate Middleton, Margot Robbie, Kate Moss, Kaia Gerber, Cara Delevingne and Priyanka Chopra, all photographed wearing its shoes as part of its wider marketing approach.
And talking of marketing, the Diamond sneaker launch was supported by a breakout social media campaign, focused on the most influential streetwear digital platforms. Separately, its new Asia brand ambassador, Victoria Song Qian continued to generate “high engagement” in China.
And with Kaia Gerber as the face of Choo's spring campaign, the company is expecting lots more attention for the brand. Idol said the firm is “very encouraged by the continued growth of Jimmy Choo and [is] excited about its future prospects.”
And Versace? Well, the firm’s brand new buy has only just joined the Capri Holdings family so wasn’t part of the results. But idol said that “on a standalone basis, Versace continued to experience strong growth” with double-digit revenue and comp sales increases in the quarter. “We've already begun working with Donatella Versace and CEO Jonathan Akeroyd on the execution of our strategic vision,” he added.
This means boosting exposure via initiatives such as the first ever Versace New York fashion runway show in December that received heavy press coverage.
Capri continues to see Versace as an eventual $2bn brand, which would mean more than doubling its current sales, and it will do this by building on its luxury runway momentum; enhancing its “powerful and iconic communications messaging"; increasing its global retail footprint from around 200 to 300 stores; accelerating its e-tail development; and “expanding men's and women's accessories and footwear from 35% to 60% of Versace’s revenues.”
Idol really talked up how “nimble” the brand is. “Even though, it is a luxury company deeply rooted in the precise manufacturing of luxury, it's a fashion company and can move very nimbly and is really very much in touch with the culture of what is happening,” he said.
And one key factor in its favour is also that “Versace does approximately 50% of its business in men’s, and the men's luxury market is one of the strongest in the world right now. We intend on building on that even further.”
What was particularly interesting too, for all three of the brands, is that the company said that while Asia was a strong region, Europe with all its challenges was too, especially for the Kors business.
Idol said: “We really pulled back the inventories inside the stores [there]. The marketplace is less promotional than the North American marketplace and we were really able to capitalise on a disciplined approach to how we presented the product to the consumer. We're also seeing increased traffic in our stores in Europe, which is a very positive sign. Customer engagement is up significantly in the marketplace. We saw some weakness in Germany, but beyond that, we really saw very positive reaction in all the markets in Europe.”
He added that the firm still has “a bit more cleaning up to do” on European wholesale, the transformation of which is at a slightly earlier stage than in America. But “midway through next year, we’ll start to see that business turn.”
He admitted the company had too much markdown inventory at the end of the season, which wasn’t good for brand perception. But it’s fully focused on boosting the brand in the region. And Michael Kors himself will be key to helping to drive the Europe business. “We've got some exciting initiatives that are going to also amplify Michael in person and his view of fashion in the Europe marketplace,” Idol explained.
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