What happened

Shares of Capri Holdings (NYSE:CPRI) were gaining today after the Michael Kors parent delivered a better-than-expected second-quarter earnings report in spite of headwinds from the COVID-19 pandemic. Though revenue in the quarter fell sharply, the company still posted a solid adjusted profit for the period.

As of 11:17 a.m. EST, the stock was up 8.3%.

Three handbags on display in  a store

Image source: Getty Images.

So what

Capri, which also owns Jimmy Choo and Versace, said revenue in the quarter declined 23% to $1.11 billion, which was well ahead of estimates at $924.9 million. The company benefited from growing e-commerce sales, which increased sequentially, and strong performance in China, which saw positive sales growth. Jimmy Choo was the best-performing of its three brands as revenue there only fell 2.4%.

The company also succeeded in effectively controlling costs as part of initiatives related to COVID-19, including cutting down on advertising spending, and adjusted operating margin actually rose 240 basis points to 16.4%. As a result, adjusted earnings per share only fell modestly, from $1.16 to $0.90, which easily beat expectations of just $0.04. It was also a significant improvement from a sharp loss in the fiscal first quarter.

"We were pleased with our second quarter results, with revenue and earnings surpassing our expectations," CEO John Idol said in a statement. "Our performance demonstrates the power and desirability of the Versace, Jimmy Choo and Michael Kors brands."

He added, "As the world continues to emerge from this crisis, we are increasingly optimistic about the outlook for the fashion luxury industry and Capri Holdings."

Now what

Due to uncertainty around the pandemic, the company declined to give guidance for the current quarter or the rest of the fiscal year, but the results show that the consumer discretionary stock is much better positioned during the pandemic than retail partners like department store chains as it can easily shift to selling through the online channel, and because China, which has recovered from the pandemic much faster than the U.S., is a key source of business.

Management also deserves credit for effectively cutting costs, and actually improving profitability in the midst of the crisis.

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