It has been about a month since the last earnings report for Capri Holdings (CPRI). Shares have added about 0.6% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Capri Holdings due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Capri Holdings Beat on Q4 Earnings & Sales
Capri Holdings Limited maintained its positive earnings surprise streak for the 16th successive quarter, when it reported fourth-quarter fiscal 2019 results. Also, revenues came ahead of the Zacks Consensus Estimate, following two straight quarter of miss. While the top line grew year over year, bottom line remained flat with the year-ago period.
Management highlighted that sturdy performance of Jimmy Choo contributed to the results. Capri Holdings has been steadily firming its position in the luxury fashion space, as evident from the acquisition of Jimmy Choo and Versace. These brands along with Michael Kors will help augment revenues to $8 billion in the long term.
Let’s Delve Deep
The company delivered adjusted earnings of 63 cents that surpassed the Zacks Consensus Estimate by a couple of cents and came in line with the year-ago period.
Total revenues of $1,344 million surged 13.9% from the prior-year period and also beat the Zacks Consensus Estimate of $1,333.7 million. On a constant currency basis, total revenues were up 16.5%.
Top line includes revenue contribution of $1,068 million from Michael Kors, down 0.4% and $139 million from Jimmy Choo, up 28.7% year over year. Revenue from Versace came in at $137 million. On a constant currency basis, comparable store sales fell 1% for Michael Kors, while the metric increased mid-single digits for Jimmy Choo.
Adjusted gross profit increased 12.1% to $798 million, however, adjusted gross margin contracted 90 basis points to 59.4%. Adjusted operating income declined 18.8% to $125 million, while adjusted operating margin shrunk 380 basis points to 9.3%. The company expects first-quarter fiscal 2020 operating margin to be about 13%.
Other Details
Michael Kors ended the quarter with cash and cash equivalents of $172 million, long-term debt of $1,936 million and shareholders’ equity of $2,429 million, excluding non-controlling interest of $3 million.
Management incurred capital expenditures of $46 million during the quarter and expects the same to be approximately $300 million in fiscal 2020 on store openings, store remodels and IT expenditures. The company intends to lower debt load by more than $500 million during the fiscal year.
As of Mar 30, 2019, there were 1,249 stores — 853 Michael Kors stores, 208 Jimmy Choo stores and 188 Versace. The company plans to open approximately 30 Versace, 30 Jimmy Choo and 40 Michael Kors stores in fiscal 2020. As a part of fleet optimization program, the company has already closed 100 Michael Kors stores and plans to close 50 more stores in fiscal 2020.
Guidance
Management now envisions first-quarter 2020 revenue to be approximately $1.36 billion, a double-digit increase and operating margin of 13%. The company now forecast earnings in the range of 85-90 cents, including dilution from Versace of about 15 cents.
Management forecasts first-quarter 2020 revenues from Michael Kors to be moderately below the prior year with comparable store sales likely to fall in low single digits. Operating margin is expected to be lower than the year-ago period. Revenue from Versace is estimated to be approximately $200 million with comparable store sales projected to increase in the mid-single digits.
Jimmy Choo revenue is projected to be approximately flat with the prior year, reflecting unfavorable foreign exchange impact and a shift in wholesale shipment timing that benefited the fourth quarter. Comparable store sales are expected to improve in the low single digits with operating margin likely to be below prior year on account of revenue timing and increased investments.
For fiscal 2020, management projects total revenue to be approximately $6 billion and operating margin of approximately 15.5%. Management envisions earnings to be $4.95 per share, including dilution from Versace of about 25 cents.
Management projects revenues from Michael Kors to be approximately $4.45 billion with comparable store sales expected to be approximately flat. Operating margin is likely to be stable compared with the prior year. Revenue from Versace is estimated to be about $900 million with comparable store sales expected to increase in the mid-single digits. Operating margin is expected to be positive low single digits.
Jimmy Choo revenue is projected to be approximately $650 million with comparable store sales expected to improve in the mid-single digits. Operating margin is likely to improve marginally from the prior year.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -17.08% due to these changes.
VGM Scores
Currently, Capri Holdings has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, 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 C. 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.
Capri Holdings Limited (CPRI): Free Stock Analysis Report
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