Capri Holdings’ (CPRI, Financial) stock price performance could be boosted by the growth potential of recently acquired Versace. New stores and investment in the brand are expected to improve sales growth. Jimmy Choo’s expansion into Asia and improved accessories penetration may further catalyze the company’s sales performance.
The increasing popularity of the group’s loyalty program could boost user engagement. Continued innovation within its product lines has the potential to increase brand loyalty.
Although recent sales performance has disappointed and the macroeconomic outlook is uncertain, investment in digital opportunities may be able to provide the business with a competitive advantage. Having declined 37% in the last year versus a 6% fall for the S&P 500, the stock seems to offer recovery potential.
Acquisitions
The acquisition of Versace could boost the company’s financial performance. The business unit is expected to deliver double-digit revenue growth, as well as a 50% rise in Ebitda, in the current fiscal year. Capri Holdings believes that Versace could grow revenue from $850 million to $2 billion over the long run. To achieve this, it plans to open 30 new stores next year. An expansion of Versace’s accessories and footwear business is expected to take place. It will also accelerate its omnichannel capabilities, while increasing total marketing spend.
Recent acquisition Jimmy Choo is expected to meet its $1 billion revenue target over the medium term. In the most recent quarter it delivered double-digit revenue growth, while comparable store sales grew in the low single digits as a result of improved footwear sales. Since the acquisition, the Jimmy Choo store base has increased 33% to 200 stores. It will seek to expand to 250 stores, with an emphasis on Asia. Accessories penetration is improving, and the company is planning to accelerate the pace of new collections in the next calendar year.
Strategy
Innovation is set to catalyze the company’s sales growth. Its watch and jewelry segment has outperformed the broader market as a result of the launch of new products such as the Access Runway watch. It offers new features such as a heart rate monitor and the ability to make payments using Google Pay. It has also released novelty pieces in its sportswear segment such as leather varsity jackets and trucker jackets that have proved popular with customers. Further novelty items are expected to be released alongside increasing innovation across its Michael Kors brand.
Capri Holdings has recorded a 25% increase in its customer database in the last year to 32 million. Its KORSVIP loyalty program has over 1 million members in the U.S. It provides customers with invitations to members-only events, early access to product launches and the opportunity to accrue points from the submission of product reviews. Loyalty program members have higher transaction metrics and stronger engagement levels compared to non-members.
Risks
The performance of the business in the most recent quarter was disappointing. Its Michael Kors brand recorded flat revenue growth compared to the same period from the previous year. Group sales growth of 9% was down on the 26% recorded in the previous quarter. The potential for increasingly protectionist trade policies between the U.S. and China could lead to challenging operating conditions as the business seeks to expand across Asia.
In response to an uncertain macroeconomic outlook, the company is investing in improving the customer experience. Its Kors Connect initiative provides sales associates in its stores with the ability to augment in-store selection with products available online. This has doubled sales penetration versus its old technology. It is investing in its e-commerce capabilities, expanded shipping to 15 new countries last quarter. It has also grown its social media audience 12% in the most recent quarter, while further investment in its omnichannel capacity could differentiate its offering from sector peers.
Outlook
Although the macroeconomic outlook may continue to hold back its sales growth in the near term, an improved competitive position from investment in digital growth opportunities could offset this. Having underperformed the S&P 500 in the last year, the stock could offer turnaround potential.
Read more here:Ă‚
Michael Kors Falls on Disappointing Sales
Michael Kors Acquires Italian Designer Versace, Announces Name Change
