Back to top

Image: Bigstock

Capri Holdings (CPRI) Down 5.3% Since Last Earnings Report: Can It Rebound?

Read MoreHide Full Article

It has been about a month since the last earnings report for Capri Holdings (CPRI - Free Report) . Shares have lost about 5.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Capri Holdings due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Capri Holdings’ Q2 Earnings Top Estimates, FY22 View Up

In spite of a challenging backdrop, Capri Holdings Limited reported stronger-than-anticipated second-quarter fiscal 2022 results, wherein both the top and the bottom lines improved meaningfully on a year-over-year basis. The company was encouraged by the performance of all three luxury brands. Impressively, management raised fiscal year revenues and earnings per share view.

Quite apparent, the fashion and apparel space is brimming with optimism, courtesy of rapid inoculation drive and relaxation in pandemic-induced restrictions. The gradual return to active social lifestyle, events and occasions have spurred demand, and Capri Holdings looks well-poised to tap the same.

Let’s Delve Deep

Capri Holdings posted adjusted quarterly earnings of $1.53 per share that showcased a sharp improvement from earnings of 90 cents reported in the year-ago period. The quarterly earnings also handily beat the Zacks Consensus Estimate of 95 cents. Better revenue performance and margin expansion aided bottom-line results.

Total revenues came in at $1,300 million that comfortably surpassed the Zacks Consensus Estimate of $1,260 million and surged approximately 17% year over year. On a constant-currency basis, total revenues rose 15%. Retail sales increased 20% driven by sturdy e-commerce sales as well as solid store sales. E-commerce sales rose double digits, building upon meaningful gains attained last year.

By geographical regions, revenues in the Americas and EMEA increased 20% and 25%, respectively versus the prior year. In Asia, revenues were approximately flat due to the continued restrictions in Japan, Southeast Asia and Australia, as well as new travel and other regional restrictions in China. However, revenues in mainland China rose, despite greater restriction.

Adjusted gross profit increased approximately 25% year over year to $879 million, while adjusted gross margin expanded 440 basis points to 67.6%. This reflected increased full price sell-throughs and select price increases at Jimmy Choo and Michael Kors. The company reported adjusted operating income of $241 million compared with $182 million in the year-ago quarter. Markedly, operating margin increased 210 basis points to 18.5%.

Segment Details

Revenues from Versace increased 45% year over year to $282 million. Notably, e-commerce sales were up double digits. Operating margin increased 920 basis points to 19.5%. Jimmy Choo revenues came in at $137 million, up 12% compared with the prior year. E-commerce sales rose in double digits. The segment operating income was $1 million and operating margin was 0.7% compared to break even in the prior year. Revenues from Michael Kors grew 11% year over year to $881 million. E-commerce sales increased double digits. Operating margin expanded 100 basis points to 25%.

Other Details

Capri Holdings ended the quarter with cash and cash equivalents of $234 million, net receivables of $358 million, long-term debt of $1,104 million and total shareholders’ equity of $2,600 million. During the quarter, the company repaid about $200 million of debt. During the quarter, the company repurchased roughly 1.8 million shares for approximately $100 million. The board of directors approved a new share repurchase program of up to $1 billion. This new two-year program will override the current $500 million share buyback program, which had $250 million of availability remaining. As of Sep 25, 2021, the company had 1,271 retail stores, which included 823 Michael Kors, 237 Jimmy Choo and 211 Versace stores.

Outlook

Capri Holdings now envisions revenues to be approximately $5.4 billion for fiscal 2022 compared with the previous forecast of $5.3 billion. The company also raised earnings guidance to $5.30 per share from its prior view of $4.50. We note that the company had reported revenues of $4,060 million and earnings per share of $1.90 in fiscal 2021. Management expects gross margin expansion of 250 basis points owing to full price sell-throughs and select price increases, which more than offset a higher-than-expected supply chain cost. It guided operating margin of approximately 18% for fiscal 2022.

Fiscal 2022 top-line projection assumes revenues of approximately $1.06 billion from Versace, $575 million from Jimmy Choo, and $3.765 billion from Michael Kors. Management anticipates operating margin in the mid-teens range for Versace, to be slightly negative for Jimmy Choo, and in the mid 20% range for Michael Kors.

Management envisions third-quarter revenues to be roughly $1.46 billion versus $1.3 billion reported in the year-ago period. It projected operating margin of approximately 20% and guided earnings of $1.65 per share, in line with prior year. For the third quarter, Capri Holdings anticipates revenues of approximately $235 million from Versace, $145 million from Jimmy Choo, and $1.08 billion from Michael Kors. The company expects operating margin in the low-double-digit range for Versace, in the negative mid-single digit range for Jimmy Choo, and in the high 20% range for Michael Kors.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 10.31% due to these changes.

VGM Scores

Currently, Capri Holdings has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Capri Holdings has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Capri Holdings Limited (CPRI) - free report >>

Published in