Capri Holdings Limited (CPRI Quick QuoteCPRI - Free Report) reported second-quarter fiscal 2027 results, with revenues declining but adjusted earnings improving year over year. Both metrics surpassed the Zacks Consensus Estimate. Stronger full-price selling, margin expansion and continued growth at Jimmy Choo supported profitability. The company raised its fiscal 2027 outlook.

CPRI's Q2 Performance: Key Insights

Adjusted earnings were 42 cents per share against a loss of 3 cents in the year-ago quarter. The figure topped the Zacks Consensus Estimate of 21 cents.

Revenues declined 5.5% year over year to $809 million from $856 million but exceeded the consensus estimate of $782 million.

CPRI's Q2 Results Reflect Improving Business Trends

Revenues declined 4.9% year over year in constant currency. Results benefited from approximately $20 million in wholesale shipments that shifted from the third quarter into the second quarter.

Management highlighted sequential monthly sales improvement at both brands. New fall collections generated encouraging full-price sell-throughs, while inventory delays and reduced promotional activity continued to weigh on Michael Kors' revenues.

Capri reported earnings of 25 cents per share against a loss of 28 cents a year earlier. Net income from continuing operations totaled $27 million, up from a $34 million loss. Adjusted net income reached $45 million against a loss of $4 million in the prior-year period.

Capri's Margin Gains Support Operating Profit

Gross profit declined 1.9% year over year to $512 million from $522 million. Gross margin expanded 230 basis points to 63.3% from 61%, benefiting from higher full-price sell-throughs, favorable brand mix and lower tariff rates.

Selling, general and administrative expenses decreased 4.6% to $459 million from $481 million. Cost-saving initiatives and lower variable expenses helped offset inflationary pressures. However, SG&A expenses increased to 56.7% of revenues from 56.2%, reflecting expense deleverage as revenues declined.

Operating income totaled $10 million against an operating loss of $12 million a year earlier. Adjusted operating income increased 55% to $31 million from $20 million. Adjusted operating margin expanded 150 basis points to 3.8% from 2.3%, reflecting improved merchandise profitability despite lower revenues.

CPRI Sees Mixed Regional Revenue Performance

Americas revenues declined 9% year over year to $447 million from $491 million. The decline primarily reflected weakness at Michael Kors, including inventory constraints and reduced promotional activity.

EMEA revenues remained flat at $261 million, while Asia revenues decreased 2.9% to $101 million from $104 million. Management cited the impact of the Middle East conflict on Michael Kors' EMEA operations, alongside inventory-related pressures.

Capri's Michael Kors Sales Remain Under Pressure

Michael Kors revenues fell 8.6% year over year to $663 million from $725 million. Constant-currency revenues declined 8%. Americas revenues declined 11.4% to $405 million, EMEA revenues dropped 4.6% to $185 million and Asia revenues decreased 1.4% to $73 million.

Inventory delays constrained product availability, while roughly 40% less markdown inventory and a 50% reduction in promotional activity pressured sales. Management cited an approximately $50 million inventory shortfall relative to its plan. Approximately $15 million in earlier-than-expected wholesale shipments partially offset these headwinds.

Michael Kors’ own retail sales declined in the low-double-digit range, while wholesale revenues decreased in the mid-single-digit range. Nevertheless, comparable sales at wholesale partners’ points of sale remained positive.

Gross profit declined 5.1% to $408 million from $430 million. Gross margin expanded 220 basis points to 61.5%. Higher full-price sell-through and lower tariff rates supported gross margin, partly offset by increased airfreight use resulting from inventory delays. Operating income fell 6.8% to $68 million, while operating margin improved 20 basis points to 10.3%.

New handbags, including Hamilton Soft, generated strong demand. The company has renovated 50 stores toward its 300-store target, with renovated locations recording higher traffic and revenues. Michael Kors’ global customer database increased 8% year over year.

CPRI Benefits From Jimmy Choo's Growth Momentum

Jimmy Choo revenues increased 11.5% year over year to $146 million from $131 million, supported by demand across footwear and accessories. Constant-currency revenues advanced 12.2%. Revenues included approximately $5 million of wholesale shipments that shifted from the third quarter into the second quarter.

Americas revenues rose 23.5% to $42 million, while EMEA revenues climbed 13.4% to $76 million. Asia revenues declined 6.7% to $28 million. Accessories registered double-digit growth, supported by the Bon Bon and Cinch franchises. Footwear revenues grew in the high-single-digit range, while the brand’s global customer database increased 7%.

Gross profit increased 13% to $104 million from $92 million, while gross margin expanded 100 basis points to 71.2%. Operating income reached $2 million against a loss of $9 million a year earlier. Operating margin improved 830 basis points to 1.4%. The operating margin improvement primarily reflected expense leverage on higher revenues, supported by disciplined expense management.

Capri Reports Positive Cash Flow & Lower Net Debt

Capri ended the quarter with cash and cash equivalents of $125 million and total borrowings of $461 million. Net debt stood at $336 million compared with $1.6 billion a year earlier.

Inventory declined 7% year over year to $712 million. Operating cash flow totaled $51 million, while capital expenditures were $15 million, resulting in free cash flow of $36 million. Management expects inventory to build during the second half to support anticipated revenue growth.

The company repurchased approximately 10.3 million shares for $150 million during the quarter, leaving $721 million available under its repurchase authorization. The average repurchase price was approximately $14.56 per share. Capri increased its planned fiscal 2027 share repurchases to $300 million, up $100 million from its prior guidance.

CPRI’s Q3 Outlook

For the third quarter, Capri anticipates revenues of approximately $1.005 billion, comprising $830 million from Michael Kors and $175 million from Jimmy Choo. Adjusted operating income is projected at $90 million, with adjusted earnings of 95 cents per share.

The third-quarter revenue outlook incorporates the $20 million of wholesale shipments pulled forward into the second quarter: $15 million at Michael Kors and $5 million at Jimmy Choo. It also reflects greater foreign currency headwinds.

Third-quarter operating margins are expected in the mid-teens range for Michael Kors and the low-to-mid-single-digit range for Jimmy Choo. Capri projects net interest and other income of approximately $25 million, an effective tax rate in the mid-teens range and approximately 103 million weighted average diluted shares outstanding.

Management expects consolidated revenue growth to resume in the second half of fiscal 2027, supported by new products, increased marketing investments and improving consumer engagement. For Michael Kors specifically, management expects sequential revenue improvement in the third quarter and a return to revenue growth in the fourth quarter. Jimmy Choo is expected to deliver revenue growth and return to profitability for the full fiscal year.

CPRI Raises Fiscal 2027 Outlook

Capri raised its fiscal 2027 revenue outlook to approximately $3.42 billion from $3.4 billion. Adjusted operating income guidance increased to $175 million from $170 million, while adjusted earnings guidance rose to $2.20 per share from $2.15.

Michael Kors revenues are expected to reach $2.77 billion, with operating margin in the low-double-digit range. Jimmy Choo revenues are projected at $650 million, with operating margin in the low-single-digit range.

Capri continues to expect full-year gross margin of approximately 64% compared with 62.3% last year and adjusted operating expenses of approximately $2 billion. The outlook also assumes net interest and other income of about $100 million, an effective tax rate in the low-teens range and approximately 108 million weighted average diluted shares outstanding. Fiscal 2027 capital expenditures are expected to total approximately $100 million.

CPRI Stock Past Three-Month Performance

Image Source: Zacks Investment Research

Shares of this Zacks Rank #3 (Hold) company have gained 14.1% over the past three months against the industry’s 7.4% decline.

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