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Michael Kors owner Capri Holdings cut its forecasts on Wednesday as it warned of a $100 million hit to revenue due to the coronavirus outbreak in China, which has led to 150 store closures and travel restrictions on high-spending tourists.
However, strong holiday-quarter demand for its Versace dresses and handbags in Europe and the Americas sent the shares of the fashion house up 8%.
The company’s stock has fallen about 20% since the start of the year, mainly due to the fallout of the epidemic in China,
which has killed more than 490 people and forced businesses to shut stores and factories.
The virus outbreak is the latest setback for Capri in the region, where a rapidly growing upper middle class represents a
critical market for luxury fashion labels.
Months of protests in the shopping hub of Hong Kong led sales in the Chinese-ruled city to plunge, while a controversial
Versace T-shirt that labeled Hong Kong and Macau as countries dented demand for the brand in mainland China.
The company said the health emergency in the world’s second largest economy would impact sales in other regions as more countries continue to restrict travelers from China.
Starbucks Corp and Levi Strauss & Co have also forecast a hit to their near-term profit as they have shut about half their stores in China.
“This is going to be a very tough period for luxury brands as they are likely to see a significant drop in sales through at
least the following quarter on top of the recent slowdown,” said Ben Cavender, managing director at China Market Research Group in Shanghai.
Capri cut its annual revenue forecast to $5.65 billion from $5.8 billion and profit forecast to $4.45 to $4.50 per share
from $4.95 per share.
New designs from Donatella Versace featuring her brother Gianni’s signature and the company’s “Barocco V” logo brought in new consumers and powered a 9.2% rise in holiday-quarter revenue. Analysts were expecting a 6.9% increase.
“Donatella’s design vision and her marketing prowess are working exactly the way that we had envisioned when we acquired the company,” Chief Executive Officer John Idol said.
Versace, which was bought by Capri in 2018 for about $2 billion, made $195 million in revenue in the third quarter.
Excluding items, Capri earned $1.66 per share, beating expectations of $1.59 per share.