The news: Port congestion in Asia will cost Michael Kors about $50 million in sales this quarter, parent company Capri Holdings said during its August 5 earnings call. The company cut its full-year revenue outlook to roughly $3.4 billion from the $3.525 billion it guided to in May.
For the quarter, the delay is the largest single item Capri names, against $15 million from Europe, $10 million from currency, and $10 million from wholesale timing.
“Towards the end of the first quarter, we started to see receipts be delayed with longer transit times, due primarily to congestion at certain ports in Asia,” CFO Tyler Reddien said on the call.
But the $50 million is Capri’s own estimate, for a quarter that does not close until late September. The quarter itself beat the plan. Revenue of $769 million and a Capri-wide gross margin of 65%, up 200 basis points, both came in ahead of forecast, though Michael Kors revenue fell 7.1%.
What changed: Michael Kors spent the past year pulling back on promotions and clearance stock to lift prices and margin. The brand’s gross margin rose 280 basis points to 63.9% from 61.1%, which Capri said came from “higher full-price sell-throughs and lower tariff rates.”
“The company has never owned this less amount of inventory in clearance and markdown,” CEO John Idol said on the call.
Capri ended the quarter with $624 million of inventory, down 20% from a year ago and down roughly 25% at Michael Kors. Idol put that decline at “about a 50/50 split” between the deliberate markdown reduction, which he sized at about $50 million of markdown inventory, and the unplanned port delays.
That split describes the fall in inventory dollars. So it says nothing about how the $50 million revenue shortfall divides between goods that arrived late and goods that would not have sold.
Capri has not broken out which goods were delayed. But Idol described a Michael Kors outlet channel running with limited new product, which he called disappointing, and the clearance stock that would once have filled those racks is gone.
How it works: Capri’s annual filing says nearly all Michael Kors products were made in Asia last fiscal year, with the primary factories for US-bound goods in Vietnam, Cambodia, Indonesia and Bangladesh.
Global port congestion hit a four-year high in late June, with almost 11% of the world’s container fleet waiting at anchorage. That's according to Linerlytica data reported by the Journal of Commerce.
Kuehne+Nagel’s port updates show where the pressure sat in late July:
Vietnam: yard density above 90% at Vung Tau, where vessels waited a day to a day and a half for a berth, and above 80% at Ho Chi Minh City.
South China: Yantian and Shekou reopened after Typhoon Noul but were still working through backlogs, with limited terminal appointments and congested roads.
The congestion came from bad weather and vessel bunching, according to the Journal of Commerce. Carriers respond by rolling cargo to later sailings and skipping congested ports, which is how a berth delay measured in days becomes a missed delivery window measured in weeks.
Those figures describe conditions at the ports, though. That Capri’s own containers sat in them is the company's account, not something the port data shows.
By the numbers: Capri named three headwinds against its full-year outlook.
$50 million from the delayed receipts
$50 million from softer demand in Europe, the Middle East and Africa
$35 million from currency
Those total $135 million against a guidance cut of about $125 million, so the figures are rounded rather than exact.
Capri guided to about $780 million in revenue and $0.20 in earnings per share for the current quarter, with the $50 million hit embedded. But it held its full-year earnings outlook at about $2.15 per share, offsetting the lost revenue with $70 million in cost savings.
Capri is separately recovering what it paid under the IEEPA tariffs the Supreme Court struck down in February. It booked a $65 million refund receivable and collected $49 million of it through July 31, according to its quarterly filing.
The competition: Most of retail brought its holiday stock in early, according to the National Retail Federation’s August forecast. “We had an early peak season this year as retailers brought in merchandise ahead of tariff changes in late July,” said Jonathan Gold, the group’s vice president for supply chain and customs policy.
Imports ran 7.6% below last year in July and are tracking 4.2% lower in August, and the NRF expects retailers to be well stocked for the season. But those are aggregate US import volumes, and Capri has not said how its own order timing compares.
Steven Madden’s disruption is a different one, in the Middle East rather than Asia, though the response is the same. “We’re also using more air to chase product,” CFO Zine Mazouzi said on the company’s July 30 call. He was describing an effort to restock best sellers after ocean routes into the company’s international markets were disrupted.
Madden put $0.06 per share of freight cost into its second-half guidance.
The counter: Capri planned the inventory cut, Michael Kors revenue fell 7.1%, and the company is lowering its outlook, so it has an obvious reason to point at the ports.
CFO Reddien said the delays started “towards the end of the first quarter,” but the 7.1% decline covers the whole quarter, so congestion cannot explain a fall that was already underway. And the margin strategy works by selling fewer units at higher prices, which produces a revenue shortfall that is hard to tell apart from goods arriving late.
Capri books $50 million of soft demand in Europe, the Middle East and Africa as a separate line. Both figures are round, identical in size, and forward-looking. So if demand is weak there, it is fair to ask how cleanly anyone can split goods that arrived late from goods that would not have sold.
What’s next: Capri is paying to move the goods faster. “We are taking action to accelerate receipts where possible, including selective use of air freight,” Reddien said. Idol added that the company is working with its freight forwarders to get product onto faster vessels.
Forwarders report shippers on the India lane already moving from ocean to air to get around maritime bottlenecks.
Capri expects inventory to normalize “as we progress through the second quarter and into the beginning of the second half,” per Reddien, in time for the holiday season. Idol said he thinks the company will be in a good position in the third quarter.
Capri reports its second quarter in November. That print shows whether revenue came in near $780 million and whether inventory normalized on schedule.
