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Retailers and brands catering to wealthy customers aren’t entirely immune to the current macroeconomic challenges, which could get even tougher next year if recessionary fears are realized. Still, upper-income households are fairly well insulated from inflation and other financial difficulties, and that’s showing up in the sales figures at higher-end stores.

This year so far, 95% of luxury brands in the U.S. and Europe generated positive growth, according to recent research from Bain & Co. Globally, the luxury market could grow 21% this year to reach €1.4 trillion ($1.45 trillion at press time).

Luxury is entering a post-streetwear phase, and brick-and-mortar stores are regaining their importance, according to Bain analysts. “A deliberate (and effective) ‘elevation strategy’ has driven a progressive price increase across the industry (driving around 60% of the 2019-2022 growth) without damaging volume growth,” according to Bain’s press release.

For now, the strong U.S. dollar is taking some of the wind out of the segment’s sails. And the pandemic is interfering with the success many luxury brands have been enjoying in China in recent years, as lockdowns there continue. Much of this played out in recent reports from luxury players Capri, Tapestry and Ralph Lauren.

Capri

At Capri, which runs Versace, Jimmy Choo and Michael Kors, total Q2 revenue rose 8.6% year over year to $1.41 billion; adjusted for currency translations, total revenue rose 17.5%. Gross profit rose 7.6% to $951 million, net income rose 12% to $224 million, and gross margin contracted somewhat to 67.4%, from 68% last year.

By brand, compared to the same period last year, Versace revenue rose 9.2% to $308 million; Jimmy Choo revenue rose 3.6% to $142 million; and Michael Kors revenue rose 9.2% to $962 million. The latter is benefitting from an effort to elevate product and raise prices, Capri CEO John Idol told analysts. During the quarter, the Michael Kors brand also launched “Michael Kors Pre-Loved,” an online marketplace for buying and selling gently used items from the brand.

The company enjoyed particular strength in North America and Europe and at full-price stores compared to online or outlet stores, Idol said. The company is also adding more sales associates in department stores in those regions, after cutting back due to the pandemic, which is leading to “a very significant uplift in the business,” he said.

Capri is lowering its outlook for the rest of the fiscal year, however, “due to an increasingly uncertain macroeconomic environment, foreign currency headwinds and the ongoing impact of COVID-related restrictions in China,” Idol also said.

GlobalData Managing Director Neil Saunders is similarly wary of the company’s near term. 

“Capri’s results highlight the continued resilience of the luxury sector where, despite numerous economic challenges, consumers continue to spend relatively freely,” he said in emailed comments. Overall, we think Capri is in a good position. However, we are very cautious about the next quarter as we think softer demand and poor exchange rates will damage growth.”

Ralph Lauren

Ralph Lauren, reportedly worn by the president’s granddaughter and her groom at their White House wedding over the weekend, beat expectations in its most recent quarter, with revenue up 5% to $1.6 billion. The apparel brand mostly maintained its outlook for its full fiscal year, with slight adjustments in light of the strong dollar, according to its press release. The company expects net revenue to rise by high single-digits, with adjusted operating margin at the low end of its previous range of between 14% and 14.5%.

Profits tumbled, with net income down 22.1% to $150.5 million. Operating expenses were up 7% year over year, mostly due to marketing investments and higher compensation and selling expenses to support increased revenues and fuel long-term growth, the company said. Retail sales rose 1.9% to $917 million and wholesale rose 8.9% to $619.5 million. 

Adjusted for currency headwinds, the brand’s revenue was up closer to 13%, which Saunders called “good progress for the brand across most of the geographies in which it trades.”

That includes China, which Wells Fargo analysts noted “was a surprise bright spot” for the brand in the period, with revenues there up 30%.



Read More: Luxury retailers power through despite strong dollar, shaky economy

2022-11-21 14:00:00

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