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Here’s What Impacted Capri Holdings’ Fourth-Quarter Margins

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Why gross margin contracted

Capri Holdings (CPRI) generated a lower gross as well as operating margin in the fourth quarter of fiscal 2019, which ended on March 30. The company’s gross margin declined about 120 basis points to 59.0% in fiscal 2019’s fourth quarter. On an adjusted basis, Capri Holdings’ gross margin declined to 59.4% compared to 60.3% in fiscal 2018’s fourth quarter. The company’s gross margin was adversely impacted by the expected contraction in Michael Kors’ gross margin, partially offset by a benefit from the acquisition of Versace.

Capri Holdings’ operating margin declined to 3.0% in fiscal 2019’s fourth quarter from 7.4% in the fourth quarter of 2018. The company’s adjusted operating margin contracted to 9.3% in the fourth quarter of fiscal 2019 compared to 13.1% in the prior-year quarter.

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Lower margins across its three brands adversely impacted the company’s overall operating margin. Versace’s adjusted operating margin was -4.4% in the fourth quarter, as only two months of the brands’ results were included and also due to additional investments associated with the brand. Jimmy Choo’s adjusted operating margin was -5.8% and was adversely impacted by seasonality and additional investments. However, Jimmy Choo’s adjusted operating margin improved on a YoY basis when compared to -14.8% in fiscal 2018’s fourth quarter.

Michael Kors’ operating margin contracted 270 basis points to 15.5% due to lower gross margin and increased expenses associated with store expansion efforts. Overall, the company’s operating margin declined to 14.0% in fiscal 2019 compared to 15.9% in fiscal 2018 on a reported basis.

Margin outlook

Capri Holdings expects to deliver adjusted operating margin of about 15.5% in fiscal 2020. Versace’s operating margin is expected to be in positive low single digits in fiscal 2020. The company expects a modest increase in Jimmy Choo’s operating margin. Michael Kors’ operating margin is expected to be flat in fiscal 2020.

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