As apparel retailers buckle under intensified pressure brought on by the COVID-19 outbreak, several that cater to middle-income and budget-minded consumers have turned to bankruptcy and other restructuring measures. But quarterly results from Ralph Lauren and Capri in recent days demonstrate that clothing companies selling to higher-income customers aren't immune to its fallout, either.
Capri, which runs the Michael Kors, Versace and Jimmy Choo brands, on Wednesday reported that total Q1 revenue fell 66.5% year over year to $451 million and the company swung to a net loss of $180 million, from net income of $45 million last year. Earlier this week, Ralph Lauren said Q1 revenue fell 66% to $487 million, also swinging to a net loss of $128 million, from net income of $117 million a year ago. Neither company reported store comps, as physical locations spent much of the quarter locked down in an effort to stem the spread of the disease.
"With the results from both Capri and Ralph Lauren out, a clear pattern is emerging: the pandemic has deteriorated demand for apparel and accessories across the board, but nowhere more so than in the luxury sector," GlobalData Retail Managing Director Neil Saunders said in emailed comments, adding that a falloff in tourism has also depleted sales of upscale brands like these, as has the lower traffic to their outlet stores.
While stimulus checks and unemployment benefits shored up the incomes of wealthier households, even they put their disposable funds toward home goods, groceries and electronics, leaving apparel on the floor, Saunders noted. These customers have less need for upscale duds, with work and events relegated to video meetings if they're held at all, hitting Capri's brands particularly hard, analysts said.
"We believe the Jimmy Choo brand is less relevant as consumers turn to comfort as they embrace a new lifestyle," Jane Hali & Associates analysts said in emailed comments. Michael Kors had already been losing momentum before the pandemic, they said, adding that they “expect the brand to feel pressure from the department store sector, such as [Macy's]."
Michael Kors revenue in the quarter fell 68.7% year over year to $307 million, Jimmy Choo revenue fell 67.7% to $51 million, and Versace revenue fell 55.1% to $93 million, Capri said.
"Versace continues to have momentum as its style resonates with streetwear trends and a younger consumer," Jane Hali said. "The brand is better positioned across e-commerce platforms such as [Farfetch] and SSense."
Both companies did their best to make up for the lockdown through e-commerce and omnichannel fulfillment. In a statement, Capri CEO John Idol said the company is “particularly pleased with the strong growth of our eCommerce business, as well the sequential improvement in overall revenue trends through the first quarter and into July." In its press release, Ralph Lauren recorded a digital comp rise of 13%, with digital operating margin expanding more than 1,000 basis points year over year and digital wholesale sell-out performance "also up strongly to last year." The company said it launched BOPIS and curbside pickup in North America and expanded store-based fulfillment of online orders globally.
They both also kept a firm grip on inventory and protected margins. Net inventory at Capri as of June 27 was $948 million, a 7% decrease compared to the prior year. Gross profit there fell to $302 million from $834 million last year, and gross margin rose to 67%, up from 62%.
Inventory at the end of Ralph Lauren's quarter was down 22% year over year to $773 million. Gross profit there reached $349 million and gross margin expanded 730 basis points year over year to 71.5%. The company's new strategy, embarked upon well before the pandemic, seems on track, according to Jane Hali analysts.
"We believe their turnaround strategy suits the current retail climate," they said. "The brand's investment in DTC and partnerships with digital pure players are a positive, as they move away from department stores."
