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Capri Holdings (CPRI) Down 4.3% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Capri Holdings (CPRI - Free Report) . Shares have lost about 4.3% in that time frame, outperforming 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 catalysts.

Capri Holdings Q1 Earnings Top, Revenues Up Y/Y

Capri Holdings Limited reported better-than-expected first-quarter fiscal 2023 results, despite a challenging backdrop. Both the top and the bottom lines improved on a year-over-year basis. The company was encouraged by the performance of all three luxury brands.

Consumers’ return to active social lifestyles has spurred demand for luxury apparel and accessories, and Capri Holdings has benefited from the same. The company has been deploying resources to expand offerings, upgrade distribution, create seamless omni-channel and digital capabilities, and deepen customer engagement.

Let’s Delve Deeper

This designer, marketer, distributor and retailer of branded apparel and accessories posted adjusted quarterly earnings of $1.50 per share that showcased an improvement from adjusted earnings of $1.42 reported in the year-ago period, reflecting better-than-anticipated revenues, gross margin and operating margin. The quarterly earnings also handily beat the Zacks Consensus Estimate of $1.34.

Total revenues of $1,360 million comfortably surpassed the Zacks Consensus Estimate of $1,277 million and increased 8.5% year over year. On a constant-currency basis, total revenues rose 15.2%. Excluding Mainland China, revenues jumped 15% on a reported basis.

By geography, revenues in Americas and EMEA increased 11% and 21%, on a reported basis. In Asia, revenues decreased 14% on a reported basis, reflecting a mid-30% decline in Mainland China revenues.  

Adjusted gross profit increased approximately 5.5% year over year to $900 million, however, adjusted gross margin contracted 190 basis points to 66.2% due to anticipated higher supply chain costs. The company reported an adjusted operating income of $251 million, down from $261 million in the prior-year quarter. The operating margin shrunk 230 basis points to 18.5%.

Segment Details

Revenues from Versace increased 14.6% year over year to $275 million during the quarter under discussion. Excluding Mainland China, revenues were up 28%. Women’s accessories retail sales increased 80%. The operating margin decreased 110 bps to 18.9%. By geography, total revenue in the Americas increased 32%. Revenue in EMEA increased 23% on a reported basis or 40% in constant currency. Revenue in Asia decreased 20% on a reported basis or 9% in constant currency, reflecting increases in Japan and Southeast Asia, offset by an expected decline in China.

Jimmy Choo revenues came in at $172 million, up 21.1% from the prior-year period. Excluding Mainland China, revenues rose 32%. Women’s accessories retail sales grew 50%. The operating margin expanded 330 bps to 11%. By geography, total revenue in the Americas increased 42%. Revenue in EMEA increased 32% on a reported basis or 51% in constant currency. Revenue in Asia decreased 4% on a reported basis but increased 3% in constant currency, reflecting increases in Japan and Southeast Asia, partially offset by a decline in China.

Revenues from Michael Kors grew 4.8% year over year to $913 million. Excluding Mainland China, revenues advanced 9%. The operating margin shriveled 330 bps to 24.3%. By geography, total revenue in the Americas increased 6%. Revenue in EMEA increased 16% on a reported basis or 30% in constant currency. Revenue in Asia decreased 16% on a reported basis or 10% in constant currency, reflecting strong increases in Japan and Southeast Asia, offset by a decline in China.

Other Details

Capri Holdings ended the quarter with cash and cash equivalents of $221 million, net receivables of $394 million, long-term debt of $1,382 million and total shareholders’ equity of $2,378 million.

During the quarter, the company repurchased roughly 6.1 million shares for approximately $300 million. As of Jul 2, 2022, the remaining availability under the share buyback program was $700 million.

As of Apr 2, 2022, the company had 1,265 retail stores, including 821 Michael Kors, 236 Jimmy Choo and 208 Versace stores.

Guidance

Capri Holdings estimates revenues to be approximately $5.85 billion for fiscal 2023, up from $5.654 billion reported in fiscal 2022. It guided earnings per share of approximately $6.85, which indicates an increase from adjusted earnings of $6.21 reported in fiscal 2022.

Management projected gross margin to be roughly flat and operating margin to be approximately 18% (versus 19% in fiscal 2022).

The fiscal 2023 top-line projection assumes revenues of approximately $1.175 billion from Versace, $650 million from Jimmy Choo and $4.025 billion from Michael Kors. Management anticipates an operating margin of approximately 16%, 5% and 24% for Versace, Jimmy Choo and Michael Kors, respectively, for the fiscal year.

Management envisions second-quarter fiscal 2023 revenues to be roughly $1.4 billion, up from $1.3 billion in the year-ago period. It projected earnings per share of approximately $1.55, which suggests an increase from adjusted earnings of $1.53 reported in second-quarter fiscal 2022. The company expects its operating margin to be approximately 17% (versus 18.5% in the prior-year quarter).

For the second quarter, Capri Holdings anticipates revenues of approximately $300 million from Versace, $140 million from Jimmy Choo, and $960 million from Michael Kors. The company expects operating margin in the mid-teens for Versace, slightly positive for Jimmy Choo and low to mid 20% range for Michael Kors.

For the third quarter, the company expects revenues to be $1.65 billion and adjusted earnings to be $2.45 per share with adjusted operating margin of 22%. This compared with revenues of $1.609 billion, adjusted operating margin of 22.3%, and adjusted earnings of $2.22 per share in the year-ago period.

For the fourth quarter, the company expects revenues to be $1.44 billion and adjusted earnings to be $1.35 per share with adjusted operating margin of 14%. This compared with revenues of $1.492 billion, adjusted operating margin of 14.2%, and adjusted earnings of $1.02 per share in the year-ago period.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Capri Holdings has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile 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

Capri Holdings has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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