The news: Michael Kors owner Capri credited a sequential improvement in demand for its better-than-expected quarter and upgraded FY forecast.

• Total revenues for its Michael Kors and Jimmy Choo brands fell 6% to $797 million in fiscal Q1; analysts were expecting $773.1 million.
• Capri raised its FY revenue forecast to between $3.38 billion and $3.45 billion, up from $3.3 billion to $3.4 billion, on the back of stronger-than-anticipated sales at both of its brands.

Surpassing low expectations: In an otherwise difficult quarter for luxury, Capri’s bullishness stands out. But it has a lot of work to do to revive its brands—particularly Michael Kors, which, following the sale of Versace, now accounts for nearly 70% of revenues.

• Michael Kors improved sequentially in Q1, with sales down 5.9%—a considerable step up from the 14.2% drop in the year-ago quarter.
• But Q1 also marked the brand’s 11th-straight quarter of declining revenues, underscoring its fall from grace among luxury shoppers.
• Capri is working hard to turn the brand around: It is looking to reach both old and new customers by ramping up marketing, increasing its social media presence, and partnering with influencers.
• It is also veering away from previous attempts to position Michael Kors as more exclusive and is instead looking to draw shoppers with exciting designs that offer compelling value.

Our take: Capri’s Q1 may have beaten fairly conservative expectations, but the company is still highly vulnerable to the considerable headwinds buffeting the luxury industry.

• Tariffs. Like many of its apparel peers, Capri is exposed to tariffs of anywhere from 15% (on EU imports) to 50% (on shipments from India).
• Uncertainty. Demand in both the US and China, the two largest markets for luxury, is softening as economic volatility and unfavorable exchange rates reduce consumer sentiment and buying power.

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