The coronavirus pandemic has undoubtedly been the catalyst to the economic downturn that has prevailed for the past few months. Many companies have been affected, including multinational fashion company Capri Holdings Ltd (NYSE: CPRI). Let's take a look at how the company has been coping this year, especially its handling during the viral outbreak.
The company owns and operates multiple high-profile brands that have a huge following across the globe. This includes Michael Kors, Jimmy Choo, and Versace. Here’s Capri's fourth-quarter performance for its fiscal year 2020 ended March 31.
1Q 2021 4Q 2020 4Q 2019 FY 2020 FY 2019
Total revenue $451 million $1.2 billion $1.34 billion $5.55 billion $5.24 billion
Gross profit $302 million $631 million $793 million $3.27 billion $3.18 billion
Gross margin 67.0% 52.9% 59.0% 59.9% 60.69%
Income from operations -$162 million -$536 million $40 million -$192 million $735 million
Operating margin (32.6)% (45.0)% 3.0% -3.44% 14.03%
Net Profit -$180 million -$551 million $19 million -$223 million $543 million
EPS -$1.04 -$3.69 $0.13 -$1.48 $3.62
Out of the $1.2 billion total revenue that the company enjoyed during the quarter, Versace contributed $213 million, Michael Kors earned $872 million and Jimmy Choo brought in $107 million. The operating incomes for Versace, Michael Kors, and Jimmy Choo were -$2 million, $139 million, and -$23 million respectively.
Judging by the above chart, it is clear that the COVID-19 impact was not as pronounced in the first three months of 2020, or at least Capri was not as affected. The company, however, announced in March that it would close all the stores that it operates directly. This includes Michael Kors, Jimmy Choo and Versace stores in Europe and North America. The closure of those stores was announced just after Mid-March.
Meanwhile, the demand for the company’s products in mainland China, especially Versace products, experienced a significant decline in February 2020. They experienced a surge in demand in Macau and Hong Kong. This was before the coronavirus sent the markets spiraling down. Versace t-shirts describing Macau and Hong Kong as countries were quite popular in the protests that took place in Hong Kong earlier this year. The popularity of Versace products resulted in a 9.2% boost in revenue in Capri’s Q4 of its fiscal year 2020.
The company also released its latest financials for the first quarter of its fiscal year 2021 ended June 27, 2020. The report revealed that the company’s revenue for the quarter was $451 million which was a 66.5% decline from the corresponding quarter in the previous year. The decline was also less than what the company expected. The gross profit during the recent quarter was $302 million with a 67.0% gross margin. In comparison, the company’s gross profit in the same quarter of the corresponding year was $834 million with a gross margin of 62.0%.
The closure of Capri’s stores due to the coronavirus pandemic
As noted earlier, the coronavirus has been the most negatively disruptive force that the markets have seen in years. Capri was forced to shut down most of its stores across the world as governments implemented restrictions and requirements for non-essential businesses to shut down. Of course, Capri was affected since it is in the fashion market, not an essential need. Fast forward to the end of May, and Capri was among the quickest companies to reopen their stores. A quick reopening meant that the company could bounce back quickly to take advantage of the available opportunities in the market.
The company had already reopened more than 50% of its stores across the world as governments eased the COVID-19 restrictions. This includes all of its 288 stores located in China. It also reopened roughly 70% of all its stores in Asia by early June, and this was strategic because those are among the company's best performing stores. Most of the stores in other regions, including Africa, Europe, and the Middle East, had reopened by July. Only 15 percent of Capri stores were reopened in North America. This was likely due to the George Floyd protests and civil unrest happening at the time.