Capri Holdings ((CPRI)) has held its Q4 earnings call. Read on for the main highlights of the call.
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Capri Holdings’ recent earnings call revealed a mixed sentiment, highlighting both achievements and challenges. While there were significant advancements in brand engagement and strategic initiatives for Michael Kors and Jimmy Choo, these were overshadowed by notable revenue declines, a current net loss, and hurdles related to tariffs and the Asian market.
Sale of Versace to Prada Group
Capri Holdings announced the pending sale of Versace to the Prada Group, a strategic move aimed at reducing debt levels and potentially reinstating a share repurchase program. This transaction is expected to bolster the company’s financial foundation, allowing it to concentrate resources on enhancing the Michael Kors and Jimmy Choo brands.
Positive Trends at Michael Kors
Despite facing a 16% revenue decline, Michael Kors exhibited signs of recovery with a 10% year-over-year increase in its global consumer database. The brand also experienced a sequential improvement in March that extended into the first quarter, driven by new storytelling and product initiatives that are beginning to resonate with consumers.
Growth in Jimmy Choo Accessories
Jimmy Choo reported strong performance in its new accessory styles, including its fastest-selling day bag in five years. The brand’s global consumer database grew by 11% year-over-year, reflecting a positive trend in consumer engagement.
Improvement in Full-Price Sales
Michael Kors saw robust full-price sell-throughs in new accessories groups, with consumers responding positively. This led to an increase in average unit retail (AUR) in full-price retail stores, indicating a healthy demand for the brand’s offerings.
Overall Revenue Decline
Capri Holdings experienced a 15% decrease in overall revenue, with Michael Kors down 16% and Jimmy Choo down 3%. This decline was attributed to a softening demand for luxury goods and store closures, highlighting the challenges faced in the current market environment.
Net Loss and Operating Loss
The company reported a net loss of $581 million and an operating loss of $33 million, primarily due to a non-cash tax valuation allowance. This financial setback underscores the challenges Capri Holdings is currently navigating.
Challenges in Asia
Revenue in Asia saw a significant decline, with Michael Kors experiencing a 31% drop and Jimmy Choo a 16% decrease. These figures highlight the difficulties the company is facing in the Asian market, which is crucial for its growth strategy.
Tariff Impact
Capri Holdings anticipates that tariffs will increase the cost of goods sold by approximately $60 million in fiscal 2026, affecting gross margins. This presents an additional challenge for the company as it seeks to maintain profitability.
Forward-Looking Guidance
During the earnings call, Capri Holdings provided guidance focusing on strategic initiatives for fiscal 2026 and beyond, following the pending sale of Versace. The company expects fiscal 2026 revenue to range between $3.3 and $3.4 billion, with Michael Kors contributing $2.75 to $2.85 billion and Jimmy Choo $540 to $550 million. Gross margins are projected to be between 61% and 61.5%, with operating income around $100 million, and diluted earnings per share between $1.20 and $1.40. The company plans to use proceeds from the Versace sale to significantly reduce debt, aiming for minimal net debt. Despite a challenging macro environment, Capri Holdings remains optimistic about growth prospects for fiscal 2027 and 2028.
In summary, Capri Holdings’ earnings call painted a picture of mixed sentiment, with both positive strides and significant challenges. The sale of Versace to Prada Group is a pivotal move aimed at strengthening the company’s financial position. While Michael Kors and Jimmy Choo showed promising trends, the overall revenue decline and net loss highlight the hurdles ahead. The company’s forward-looking guidance reflects a strategic focus on growth and debt reduction, offering a cautiously optimistic outlook for the future.