When mergers happen between well-known companies, it sometimes takes a new identity to make sure everyone saves face. The union of Michael Kors and Jimmy Choo didn't result in an immediate corporate name change, but when Versace got added to the mix late last year, the result was a decision to adopt the Capri Holdings (NYSE:CPRI) name.

Coming into Wednesday's fiscal third-quarter financial report, Capri investors wanted to see modest top-line growth even though they were ready to handle a decline in earnings from year-ago levels. Capri's first results under its new name weren't entirely satisfying, but they did point to the enthusiasm that the company has going into 2019.

Capri Holdings logo

Image source: Capri Holdings.

Capri's debut leaves something to be desired

Capri Holdings' fiscal third-quarter results weren't able to generate the buzz that some had hoped. Revenue of $1.44 billion was roughly flat compared to year-ago levels, continuing the massive deceleration from strong growth early in the fiscal year and missing the consensus forecast among those following the stock for about 2% growth on the top line. Adjusted net income eased lower by 3% to $264.7 million, and that worked out to adjusted earnings of $1.76 per share, easily topping the $1.58 per share that most investors had expected to see.

Some of the reason for the revenue growth slowdown was the fact that the Jimmy Choo acquisition is now more than a year old. The company got just a single month of incremental sales from Jimmy Choo, adding just $39.3 million to its top line. From a segment standpoint, the Choo unit stood out with mid-single digit percentage growth in revenue over its performance as a stand-alone company during the full year-earlier period. Operating income for the division was higher by about half a percent to $16.4 million.

Nevertheless, from a fundamental standpoint, the legacy Michael Kors unit kept faring poorly. Total revenue was down almost 4% during the quarter, driven primarily by a severe drop of 8% in its wholesale business. The retail portion of the segment reported a 15 drop in revenue, as Kors suffered a 2.4% drop in comparable-store sales during the period. Foreign currency impacts played a role in pulling down performance, but comps would still have been negative even on a currency-neutral basis. Licensing-related revenue was also weak, falling almost 10% from year-ago levels. Adjusted operating income levels were weaker for retail and licensing but slightly stronger on the wholesale front.

Geographically, Capri saw mixed results depending on the segment. For Kors, performance in the Americas and in Europe was weak, and Asian results were mixed at best. However, Choo saw its biggest gains in Europe and Asia, although the Americas also did reasonably well for that unit.

Capri has high hopes for 2019

CEO John Idol tried to explain the prospects for Capri Holdings going forward. "Jimmy Choo delivered strong performance as we continued to execute on our accelerated growth plans," Idol said, while "in Michael Kors, we remain focused on executing our Runway 2020 strategic initiatives and expect our efforts will return the brand to growth next year." The CEO also celebrated the completion of the Versace acquisition to flesh out its trifecta of fashion icons.

Capri's optimism showed up in its updated guidance for the full fiscal year, although not all of the movements in those numbers were positive. New expectations for revenue of $5.22 billion were up almost $100 million from its previous outlook, but the breakdown showed a few downbeat assessments. From Michael Kors, Capri expects revenue of $4.51 billion, based on projections for a low single-digit percentage drop in comparable-store sales for the year. Jimmy Choo, on the other hand, is seen pulling in $580 million despite the downward impact on unexpectedly strong foreign currency impacts. Versace should add another $130 million in revenue for the remainder of the fiscal year.

From an earnings perspective, Capri set a new range of $4.90 to $4.95 per share, down from its previous guidance for $4.95 to $5.05 per share. The company said that the Versace acquisition would cost the combined company about $0.15 per share on the bottom line, but solid results led to a boost of $0.05 per share from an operational standpoint.

Shareholders seemed happy about the news, and Capri shares were up 4% in pre-market trading following the announcement. It'll take time for the acquisitions that Capri has made to play out, but already, investors are excited that Versace and Jimmy Choo will be able to carry the company as it tries to get its Kors stores back in order in the long run.

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