Capri Holdings Exceeds Q3 Expectations; Shares Up 7.8%

Multinational fashion holding company Capri Holdings Ltd. (CPRI) delivered robust third-quarter results on the heels of a reopening economy and solid holiday season sales.

All three of the company’s luxury chains, namely Versace, Jimmy Choo, and Michael Kors, reported strong momentum in the quarter. The company also hiked its full-year adjusted earnings guidance to a record high and provided an optimistic outlook for FY23.

Shares hit an all-time high of $70.63 on the news and ended the day up 7.8% at $66.30 on February 2.

Robust Results

Capri’s adjusted earnings per share (EPS) of $2.22 was significantly higher than analyst estimates of $1.68 per share. The adjusted EPS even came in 34.5% higher than the prior-year quarter numbers.

Similarly, revenue rose 24% year-over-year to $1.6 billion and outpaced Street estimates of $1.47 billion. During the quarter, Versace revenue climbed 29% to $251 million; Jimmy Choo revenue jumped 47% to $178 million; and Michael Kors revenue grew 20% to $1.18 billion.

CEO Comments

Chairman and CEO of Capri, John D. Idol, said, “We are especially proud of our performance given the ongoing headwinds caused by the pandemic, including regional restrictions and supply chain challenges. Capri Holdings results are a testament to the dedication and agility of our teams across the globe.”

“We are raising fiscal 2022 revenue and earnings guidance based on the strength across all our luxury houses… This outlook reflects the success of our ongoing strategic initiatives as well as continued recovery from the global pandemic. Longer-term the power of Versace, Jimmy Choo, and Michael Kors position Capri Holdings to deliver multiple years revenue and earnings growth,” Idol concluded.

Upbeat Guidance for Q4, FY22, and FY23

For the full year Fiscal 2022, Capri forecasts revenue of $5.56 billion, exceeding consensus estimates of $5.41 billion. Total revenue forecast includes Versace revenue of $1.08 billion, Jimmy Choo revenue of $600 million, and Michael Kors revenue of $3.88 billion.

Furthermore, diluted EPS for FY22 is expected at $6.00, exceeding consensus estimates of $5.35 per share.

Additionally, for Q4, Capri projects revenue of $1.4 billion, which includes Versace revenue of $310 million, Jimmy Choo revenue of $140 million, and Michael Kors revenue of $950 million. Diluted EPS for Q4 is projected at $0.80.

Moreover, the company also gave a preliminary outlook for fiscal year 2023. For FY23, Capri expects total revenue of $6.1 billion and diluted EPS of $6.60.

Shareholder Rewards

During Q3, the company repurchased $200 million worth of shares and as of December 25, 2021, it has approximately $800 million of share repurchase authorization remaining.  

Analysts’ View

Impressed by Capri’s solid performance, Guggenheim analyst Robert Drbul lifted the price target on the stock to $90 (35.7% upside potential) from $77 and maintained a Buy rating.

Commenting on his bullish outlook for the stock, Drbul said, “We believe that management’s initiative to reduce promotional activity and increase AURs to drive higher revenues and higher margins is working, as seen in CPRI’s most recent results. We continue to believe that this brand portfolio is well-positioned in the reopening process and for multiyear growth of sales and earnings.”

Having said that, the analyst believes that Capri’s higher exposure to the Chinese retail market would continue to benefit in the 2H22, particularly following the Winter Olympics, and interest in stimulating consumer spending.

With 10 Buys and 2 Holds, the CPRI stock commands a Strong Buy consensus rating. The average Capri price target of $81.92 implies 23.6% upside potential to current levels. Shares have gained 63.3% over the past year.

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