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Coronavirus has hit the luxury fashion industry as concerns about disruption has sent both Michael Kors owner, Capri, and Burberry shares plummeting.
Capri, which owns Michael Kors, Versace and Jimmy Choo, has been forced to close 150 of its 225 Chinese stores and its shares have fallen almost six per cent to $£31.34 at the time of writing, after an almost ten per cent rise on Wednesday.. The group has had to slash its revenue guidance by $100 million for the fourth quarter and full year in light of the virus outbreak, which has swept across China. Capri’s adjusted fourth quarter revenue is now $1.3 bn and earnings per share guidance is between 68 and 73 cents.
While Capri’s third quarter earnings and revenue beat expectations, analysts already had some concerns, particularly about the Michael Kors brand. Analysts, UPS, said they do not believe Capri will stabilise Michael Kors, and analysts Cohen said that while they were impressed by the brand’s progress in men’s shoes and jewellery, they believe investors will ‘need to see consistent positive comps performance at Michael Kors to become more constructive on the stock.”
Revenue for Michael Kors fell 5.1 per cent to $1.211 billion over the quarter, despite being Capri’s biggest brand by sales, however analysts were quick to note that strong performances at Versace and Jimmy Choo were in Capri’s favour.
British brand Burberry has become another fashion victim in the current global crisis as coronavirus fears have knocked ten per cent off its share price.
Its share price has fallen another one per cent this week, now standing at 2017.00p at the time of writing. With a sizable focus on China, and the market playing a key role in its latest growth plans, the spread of the virus could hit Burberry hard.
Last month the luxury brand raised its full year guidance for the year after it saw a three per cent revenue rise for the third quarter, from £711m in the same period last year, to £719m.
So, could the latest share price drop represent a good entry point for investors or is the disruption likely to cause further chaos? The brand derived 40 per cent of its revenues from Asia last year and it has already seen sales slump in Hong Kong after political disruption and recent protests. So far, the latest collections by new designer Ricardo Tisci have boosted global sales, managing to offset much of the disruption that Burberry has faced. But analysts’ opinions are divided about whether the brand can withstand more issues from the spread of the virus. Patrick O’Brien from GlobalData said: “While it has done well to keep margins stable despite the disruption caused to its Hong Kong operations by the protests there, the coronavirus poses an even greater threat to it, bearing in mind that China is a central part of its strategy.
Analysts at Exane BNP Paribas, however, have suggested that the weakness could present an opportunity for investors in the sector and others have pointed out that Burberry’s shares are currently trading on 23 times earnings.
While coronavirus will undoubtedly have a short-term impact on the brand, the general consensus seems to be that investors might not need to panic about the longer-term growth plans just yet.
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