Michael Kors Owner Uses Cost Cuts to Cool Fears Over Sales Drop

(Bloomberg) -- Capri Holdings Ltd., owner of the Michael Kors and Versace luxury brands, said sales for the quarter that just ended likely fell about 70%, but eased investors’ concerns by laying out a plan to free up more than $1 billion.

The upscale retailer said it’s curbing expenses this fiscal year as coronavirus lockdowns shut stores and sap demand for handbags and high heels. Measures include a $500 million cut in operating costs and a $150 million reduction in capital spending.

Amid the turmoil, management is also conducting a review of all retail locations to assess profitability and plans to close 170 stores, mostly under its Michael Kors brand, over the next two years.

The company said on a call with analysts Wednesday that Capri has reduced its corporate workforce globally and implemented salary reductions, but did not specify how many employees were impacted by the cuts.

“It’s the right thing because we have to get through this,” Chief Executive Officer John Idol said. “It’s a very difficult period of time.”

Capri shares rose as much as 7.7% on Wednesday in New York.

Idol said the first quarter, which ran through June 30, would be the low point in terms of revenue and earnings for the fiscal year, with the plan being to return to sales gains next year.

Bullish Expectations

The CEO also tried to paint a picture of a company still bullish on its prospects for long-term growth. He said he sees Jimmy Choo increasing annual sales from $555 million to $1 billion “over time.” He laid out a similar vision for Versace, with the brand eventually more than doubling revenue to $2 billion. Those gains would include adding about 170 stores combined for both divisions.

Meanwhile, Michael Kors, its largest banner, is having its store fleet rationalized after sales fell about 8% last year. That decision followed a period of heavy discounting and overexposure for the brand.

Luxury brands have been reeling from lockdowns that began in China and spread across much of the globe during the first half of the year. The likes of Louis Vuitton owner LVMH have said they’re seeing signs of recovery in key markets as stores reopen. Capri said the recovery in Asia has been slowed by travel restrictions, but that China performed better than other countries.

The company reported adjusted earnings per share for the fourth quarter of 11 cents, down from 63 cents a year earlier and below analysts’ estimate of 15 cents. It said it’s unable to provide guidance for the current financial year.

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