Capri Holdings: Designer Fashion Brands Still Facing Headwinds (NYSE:CPRI)

Capri Holdings Limited (CPRI) is an apparel marketer and retailer focusing on premium and luxury fashion through a brand portfolio that includes “Versace,” “Jimmy Choo” and “Michael Kors.” This year’s pandemic has represented a significant disruption to the company’s operations as lockdown measures forced the temporary closure of the company’s nearly 1,300 worldwide store locations pressuring sales which fell by 67% year over year in the last quarter. While the stock has rallied off the lows this year, shares are still down over 45% in 2020, amid the financial impact and ongoing uncertainties related to recovery. Notably, we highlight the recent resurgence of coronavirus cases along with limited international travel to tourist shopping destinations as ongoing headwinds. Ahead of the upcoming fiscal 2021 Q2 earnings release, we are taking a cautious view on shares of CPRI and see risks tilted to the downside.


CPRI Financials Recap

The company last reported its results for the period through June 27 in early August. The takeaway from the report is that April likely represented a low point for the operating environment as management highlighted sequentially improving trends in recent months as most stores reopened.

As mentioned, sales in Q1 fiscal 2021 fell by 66.5% y/y, although the product mix and pricing led to the gross margin reaching 67%, up from 62% in the period last year. Still, considering the reduced sales volumes, the EPS loss of $1.21 reversed a profit of $0.30 in the period last year.

By segment, Michael Kors – representing over two-thirds of the business – saw sales fall by 68.7% year over year. On the other hand, the smaller Versace group which contributes about 21% of total sales fared slightly better, with sales declining by 55.1%. All three brands, including Jimmy Choo, generated negative operating margins. Some of the positives the company is focusing on are the trends in e-commerce with gains for all brands and omnichannel growth, which includes sales on mobile and alternative platforms.

(Source: Company IR)

It’s worth noting that despite the challenges, the balance sheet position remains supported by a strong liquidity profile. Capri ended the last quarter with $207 million in cash and $1.1 billion in total liquidity, including credit lines. Net debt reported at $1.6 billion has declined over the past year.

(Source: Company IR)

Company Guidance and Consensus Estimates

While Capri is not offering full-year earnings guidance, management is estimating fiscal 2021 revenues at $3.6 billion, down 35% year over year, which would include the recent Q1 results and gradual recovery over the next few quarters.

In the longer term, the company maintains a positive outlook pointing to underlying momentum in Asia where regional sales have been stronger. Capri intends to continue its expansion plans targeting more stores for Versace and Jimmy Choo, while consolidating the Michael Kors brand.

(Source: Company IR)

In terms of consensus expectations, the market estimates for fiscal 2021 revenues at $3.7 billion is slightly ahead of the company guidance. The market also expects CPRI to

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