Capri Holdings (CPRI) Up 1.9% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Capri Holdings (CPRI). Shares have added about 1.9% 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 Q3 Earnings Beat Estimates, Sales Miss

Capri Holdings Limited reported mixed results for third-quarter fiscal 2021, wherein the bottom line beat the Zacks Consensus Estimate while the top line missed the same. Also, the top and the bottom line declined from the year-ago quarter levels.

Nevertheless, management indicated that e-commerce operations were strong in the reported quarter, increasing 65% on a sequential basis. Further, it witnessed positive retail sales in Asia across all luxury houses, driven by double digit growth in Mainland China.

Let’s Delve Deep

This designer, marketer, distributor and retailer of branded apparel and accessories reported adjusted quarterly earnings of $1.65 per share that surpassed the Zacks Consensus Estimate of $1.04. However, the bottom line dipped nearly 0.6% from $1.66 reported in the year-ago quarter.

Revenues came in at $1,302 million, which lagged the Zacks Consensus Estimate of $1,338 million. Moreover, the top line declined 17.1% from the prior-year quarter. On a constant-currency basis, total revenues were down 19.5%. Nonetheless, the rate of revenue decline decelerated on a sequential basis. This reflected stronger-than-anticipated results in the Americas and Asia regions partly offset by tough operating environment in the EMEA region due to additional restrictions and store closures.

Looking at revenue trends by channel, total company retail sales fell 10%. But this reflects a sequential improvement from a 17% decline witnessed in the second quarter. In the wholesale channel performance at the point of sale also improved sequentially.

The top line includes revenue contribution of $986 million from Michael Kors, down 18.6% year on year. Revenues from Jimmy Choo amounted to $121 million, down 26.7% year over year. Revenues from Versace were $195 million, flat with the prior-year quarter levels.

Adjusted gross profit fell 9.7% year over year to $843 million. Nevertheless, adjusted gross margin expanded 520 basis points (bps) to 64.7%. The company reported adjusted operating income of $257 million, which reflected a decline of 2.7%, while adjusted operating margin expanded 290 bps to 19.7%.   

The company is pleased with its third-quarter results, with revenues surpassing management’s expectations. Additionally, the company is on track with innovations to attract new customers across brands and drive double-digit growth in customer databases. Management is also encouraged about the outlook for the fashion luxury industry. In fact, it expects revenue and earnings per share to surpass the pre-pandemic levels by fiscal 2023.

However, management refrained from providing any guidance for fiscal 2021 owing to lack of visibility regarding macroeconomic fundamentals and tourism flows amid the pandemic situation.

Other Details

Capri Holdings ended third-quarter fiscal 2021 with cash and cash equivalents of $229 million, net receivables of $369 million, long-term debt of $1,243 million and shareholders’ equity of $2,355 million. Total inventory at the end of the quarter under review was $789 million, down 18% year over year.

As of Dec 26, 2020, the company had 1,279 retail stores, which included 831 Michael Kors stores, 231 Jimmy Choo stores and 217 Versace stores.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -105.97% due to these changes.

VGM Scores

At this time, Capri Holdings has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Capri Holdings has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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