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Capri Holdings (CPRI) Q3 Earnings: What Awaits the Stock?

Zacks Equity Research
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Capri Holdings Limited CPRI, formerly known as Michael Kors Holdings Limited, is slated to release third-quarter fiscal 2019 results on Feb 6. In the trailing four quarters, this designer, marketer, distributor and retailer of branded apparel and accessories has outperformed the Zacks Consensus Estimate, recording average positive earnings surprise of 24.8%. In the last reported quarter, the company delivered a positive earnings surprise of 16.5%.

The Zacks Consensus Estimate for the quarter under review is pegged at $1.58, reflecting a significant decline from $1.77 reported in the year-ago period. We note that the Zacks Consensus Estimate has increased by a penny in the last seven days. The Zacks Consensus Estimate for revenues stands at $1,458 million, up about 1.3% from the year-ago quarter.

Factors Likely to Influence Performance

Capri Holdings’ commitment toward deploying resources to expand product offerings, build “shop-in-shops”, and upgrading its information system and distribution infrastructure is likely to drive sales. Moreover, “Runway 2020” plan, cost containment efforts, inventory management, accretive acquisitions such as that of Jimmy Choo and Versace, and focus on the e-commerce platform bode well.

Management envisions third-quarter fiscal 2019 total revenue to be around $1,460 million, comprising incremental revenue of $165 million from Jimmy Choo. Retail revenue for Michael Kors is expected to grow in the low-single digits.

The company is also expanding its product mix beyond handbags, into men’s, footwear and women’s ready to wear. The company is focused on enhancing business from the men’s category either through standalone stores or by adding offerings in existing lifestyle outlets in North America, Europe and Asia.

Analysts hinted that Europe is likely to remain a challenging market for the company as it continues to reduce inventory to drive higher full price sell-through. Moreover, management had earlier projected wholesale revenue to decline in the high-single digits, and licensing revenue to fall in the mid-teens during the third quarter. The company had also previously forecast third-quarter earnings in the band of $1.52-$1.57 per share (including approximately 4-6 cents of accretion from Jimmy Choo) with comps expected to decline in the low-single-digits.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Capri Holdings is likely to beat estimates this quarter. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Capri Holdings has an Earnings ESP of +0.29% but a Zacks Rank #4 (Sell), which makes surprise prediction difficult.

3 Stocks With Favorable Combination

Here are three companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Foot Locker FL has an Earnings ESP of +2.90% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Five Below FIVE has an Earnings ESP of +0.45% and a Zacks Rank #2.

Dillard's, Inc. DDS has an Earnings ESP of +14.44% and a Zacks Rank #3.

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