In spite of a challenging backdrop, Capri Holdings Limited (CPRI Quick QuoteCPRI - Free Report) reported stronger-than-anticipated second-quarter fiscal 2022 results, wherein both the top and the bottom lines improved significantly 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.

John D. Idol, chairman and CEO, said, “We remain confident in the strength of our luxury houses and are pleased to be raising revenue and earnings guidance for the year. Our new outlook reflects both stronger revenue performance as well as greater than anticipated gross margin expansion driven by the execution of our strategic initiatives. The success of these initiatives is currently offsetting the COVID-19 related industry headwinds including supply chain delays and increased transportation costs.”

Let’s Delve Deep

This designer, marketer, distributor and retailer of branded apparel and accessories 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.

Adjusted gross profit increased approximately 25% year over year to $879 million, while adjusted gross margin expanded 440 basis points to 67.6%. 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 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 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. It projected operating margin of approximately 20% and guided earnings of $1.65 per share.

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.

We note that shares of Capri Holdings were up during the pre-market trading session on Nov 3. This Zacks Rank #4 (Sell) stock has fallen 3.5% in the past six months compared with the industry’s decline of 17.3%.

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