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Capri Holdings (CPRI) Q3 Earnings Miss, Revenues Decline Y/Y

Capri Holdings Limited CPRI reported lower-than-expected third-quarter fiscal 2023 results, wherein the top and bottom lines declined on a year-over-year basis. A tough operating environment weighed on the company’s performance. Management highlighted that the soft global wholesale business resulted in expense deleverage and a lower operating margin.

Following dismal results, Capri Holdings trimmed its fiscal 2023 sales and earnings view. The company’s fiscal 2024 forecast also came below analysts’ expectations. The sluggish demand for luxury items and pandemic-related restrictions in China hurt the company’s performance.

Shares of this global fashion luxury group were down during the pre-market trading hours on Feb 8, 2023. This Zacks Rank #3 (Hold) stock has fallen 5.2% in the past year compared with the industry’s decline of 21.4%.

Let’s Delve Deeper

This designer, marketer, distributor and retailer of branded apparel and accessories posted adjusted quarterly earnings of $1.84 per share, which showcased a sharp decline from the adjusted earnings of $2.22 reported in the year-ago period. The quarterly earnings missed the Zacks Consensus Estimate of $2.21.

Capri Holdings Limited Price, Consensus and EPS Surprise
Capri Holdings Limited Price, Consensus and EPS Surprise

Capri Holdings Limited price-consensus-eps-surprise-chart | Capri Holdings Limited Quote

Total revenues of $1,512 million fell short of the Zacks Consensus Estimate of $1,539 million and decreased 6% year over year. On a constant-currency basis, total revenues declined 0.5%.

The adjusted gross profit decreased approximately 4.2% year over year to $1,003 million. However, the adjusted gross margin expanded 120 basis points (bps) to 66.3%.

The company reported an adjusted operating income of $256 million, down from $359 million in the prior-year quarter. The operating margin shrunk 540 bps to 16.9%.

Segment Details

Revenues from Versace decreased 0.8% year over year to $249 million during the quarter under discussion. Women’s accessories retail sales increased 40%. The operating margin contracted 310 bps to 9.6%.

Jimmy Choo’s revenues came in at $168 million, down 5.6% from the prior-year period. Women’s accessories retail sales grew in the high single digits. The operating margin expanded 170 bps to 10.7%.

Revenues from Michael Kors fell 7.2% year over year to $1,095 million. Women’s accessories retail sales grew in the low single digits. The operating margin shriveled 550 bps to 22.9%.

Other Details

Capri Holdings ended the quarter with cash and cash equivalents of $281 million, net receivables of $372 million, long-term debt of $1,521 million and total shareholders’ equity of $2,223 million. During the quarter, the company repurchased roughly 5.7 million shares for approximately $300 million.

As of Dec 31, 2022, the company had 1,294 retail stores. These include 827 Michael Kors, 242 Jimmy Choo and 225 Versace stores.

Guidance

Capri Holdings now estimates revenues of approximately $5.56 billion for fiscal 2023, down from the prior projection of $5.7 billion. It guided earnings per share of approximately $6.10, down from the prior forecast of $6.85. The current view indicates a decline from the adjusted earnings of $6.21 reported in fiscal 2022.

The Zacks Consensus Estimate for fiscal 2023 revenues and earnings is pegged at $5.72 billion and $6.87 per share, respectively.

Management projected a modest gross margin expansion and an operating margin of approximately 16%. The company had earlier guided the operating margin to be roughly 18.3%.

The fiscal 2023 top-line projection assumes revenues of approximately $1.1 billion from Versace, $610 million from Jimmy Choo and $3.83 billion from Michael Kors. Management anticipates an operating margin of approximately 15%, 4% and 22% for Versace, Jimmy Choo and Michael Kors, respectively, for the fiscal year.

Management envisions fourth-quarter fiscal 2023 revenues to be roughly $1.275 billion. It projected earnings per share in the band of 90-95 cents compared with the adjusted earnings of $1.02 reported in the fourth quarter of fiscal 2022. The company expects its operating margin to be approximately 8.5%.

For the fourth quarter, Capri Holdings anticipates revenues of approximately $280 million from Versace, $130 million from Jimmy Choo and $865 billion from Michael Kors.

For fiscal 2024, the company expects total revenues of $5.8 billion and earnings of $6.40 per share, with an operating margin of 16.5%. The Zacks Consensus Estimate for fiscal 2024 revenues and earnings currently stands at $5.98 billion and $7.22 per share, respectively.

The fiscal 2024 top-line projection assumes revenues of approximately $1.25 billion from Versace, $650 million from Jimmy Choo and $3.9 billion from Michael Kors. The company expects the operating margin in the mid-teens range for Versace, a high-single-digit range for Jimmy Choo and a low-20% range for Michael Kors.

Stocks Hogging the Limelight

Here we have highlighted three better-ranked stocks, namely Casey's General Stores CASY, Urban Outfitters, Inc. URBN and Arhaus ARHS.

Casey's, one of the leading convenience store chains in the United States, carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Casey's current financial-year sales and EPS suggests growth of 21.5% and 21.9%, respectively, from the year-ago period. Casey's has a trailing four-quarter earnings surprise of 7.2%, on average.

Urban Outfitters, a leading lifestyle product and services company, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 18%.

The Zacks Consensus Estimate for Urban Outfitters’ current financial-year revenues suggests growth of 5% from the year-ago reported figure.

Arhaus, which operates as a lifestyle brand and premium retailer in the home furnishing market, carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 16.1%.

The Zacks Consensus Estimate for Arhaus’ revenues and EPS suggests growth of 54% and 26.1%, respectively, from the year-ago reported figure. Arhaus has a trailing four-quarter earnings surprise of 112%, on average.

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