Capri Holdings, the parent company of esteemed luxury brands including Michael Kors, Versace, and Jimmy Choo, has significantly reduced its annual profit forecast and presented a somber outlook for 2024. The corporation attributes the decline in demand from department stores for its high-end handbags and apparel as the primary reason for this development, ultimately causing its shares to plummet by 24%.

Although luxury brands have been able to endure the impact of high inflation in the past year, experts anticipate that accessible luxury brands like Michael Kors will face even greater challenges due to their younger and less affluent customer base, which is more vulnerable to economic downturns.

Capri has reported a 6% decline in sales in the third quarter, primarily driven by a substantial 20% decrease in revenue from its wholesale channel, which comprises department stores and various other retailers. In contrast, LVMH, the owner of Louis Vuitton, reported a 9% increase in sales during the holiday quarter, indicating that demand for high-end fashion remains robust.

Analysts believe that retailers have exhibited caution when it comes to their inventory levels, leading them to be more hesitant with their purchase orders. This cautious approach has affected brands like Michael Kors, which experienced a 4.5% decline in revenue in the Americas, amounting to $777 million in the third quarter. In Asia, the brand’s revenue dropped by nearly 18% due to China’s decision to abandon its zero-COVID policy, leading to a surge in infections and subsequently decreasing store traffic.

Consequently, Capri has adjusted its annual sales forecast from $5.70 billion to $5.56 billion and revised its earnings per share guidance from $6.85 to $6.10. For fiscal 2024, the company anticipates earnings per share of $6.40 on revenue of $5.8 billion, while analysts predict earnings per share of $7.24 on revenue of $6.03 billion.

The downward revision in forecasts and the weaker performance of Capri’s brands emphasize the challenges faced by luxury fashion retailers in an unpredictable and volatile market. With economic uncertainties and shifting consumer trends, the industry must adapt and strategize in order to maintain growth and profitability.

Links:
1. Forbes: How Michael Kors Lost Its Mojo and What It Must Do Now to Get It Back
2. Business of Fashion: Luxury Fashion’s Biggest Problems