Capri Holdings (CPRI) Up 54.9% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Capri Holdings (CPRI). Shares have added about 54.9% in that time frame, outperforming 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 catalysts.
Capri Holdings Q2 Earnings Beat Estimates, Down Y/Y
Capri Holdings Limited reported better-than-expected second-quarter fiscal 2021 results. Moreover, the company swung back to profits following a loss in the last reported quarter. However, the top and the bottom line declined from the year-ago quarter’s levels. We note that revenues fell across the company’s three brands.
This designer, marketer, distributor and retailer of branded apparel and accessories reported adjusted quarterly earnings of 90 cents per share that surpassed the Zacks Consensus Estimate of 7 cents owing to better-than-anticipated revenues, continued gross margin expansion and expense reduction initiatives. However, the bottom line declined nearly 22.4% from $1.16 reported in the year-ago quarter.
Revenues came in at $1,110 million, which beat the Zacks Consensus Estimate of $947.4 million. However, the top line declined 23% from the prior-year quarter’s levels. On a constant-currency basis, total revenues were down 24.6%. Nonetheless, the rate of revenue decline decelerated on a sequential basis.
The top line includes revenue contribution of $793 million from Michael Kors, down 27.2% year on year. Revenues from Jimmy Choo amounted to $122 million, down 2.4% year over year. Revenues from Versace were $195 million, down 14.5% from the prior-year quarter’s levels. Sales in retail channel decreased approximately 17%.
Nevertheless, management indicated that e-commerce operations were strong in the reported quarter, and surged 60% year over year. Further, it witnessed positive sales in Mainland China across all brand houses.
Adjusted gross profit fell 20.2% year over year to $701 million. Nevertheless, adjusted gross margin expanded 220 basis points (bps) to 63.2% due to higher full-price sell-throughs and selective price increase resulting in higher AURs. Additionally, gross margins benefited from a higher mix of retail versus wholesale revenues.
The company reported adjusted operating income of $182 million, which reflected a decline of 9.9%, while adjusted operating margin expanded 240 bps to 16.4%. We note that adjusted operating expenses fell 23.3% to $519 million.
Markedly, the company remains pleased with its second-quarter results as the top- and bottom-line metrics surpassed expectations. Additionally, the company is on track with innovations to attract new customers across brands. However, management refrained from providing any guidance for fiscal 2021 owing to lack of visibility regarding economic fundamentals and tourism flows amid the pandemic situation.
Other Details
Capri Holdings ended second-quarter fiscal 2021 with cash and cash equivalents of $238 million, net receivables of $344 million, total debt of $1,781 million and shareholders’ equity of $2,199 million. Total inventory at the end of the quarter under review was $930 million, down 13% year over year. This reflects the aggressive inventory reduction the company implemented at the beginning of the pandemic including inventory repurposed for upcoming seasons.
As of Sep 26, 2020, the company had 1,261 retail stores, which included 828 Michael Kors stores, 227 Jimmy Choo stores and 206 Versace stores.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
Currently, Capri Holdings has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Capri Holdings has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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