Key Takeaways
- Capri Holdings jumped 17% after fiscal second-quarter adjusted EPS of $0.42 doubled the $0.21 consensus and it raised its outlook.
- A higher gross margin and interest income drove the beat, while revenue fell 5.5%.
- Third-quarter revenue guidance came in below consensus, leaving the second half’s return to growth to the March quarter.
- Tapestry and Ralph Lauren report next week, a test of whether full-price demand held up for Kors’ rivals.
Capri Holdings (CPRI) jumped 17% today after its fiscal second-quarter adjusted EPS of $0.42 doubled the $0.21 consensus. It also raised its full-year EPS outlook to about $2.20, above the $2.12 consensus.
CEO John Idol said “trends improved sequentially each month” at Michael Kors and Jimmy Choo. That matters beyond Capri: Tapestry (TPR) has grown its Coach brand while Kors shrinks, and Ralph Lauren (RL) is leaning on the same full-price selling.
Margins did the heavy lifting
Gross margin rose 230 basis points to 63.3%. Capri credited full-price selling, brand mix and lower tariffs. It had also topped 64% in the two quarters through June:
Interest income rose to $31 million from $17 million a year earlier.
Revenue still has to turn
Revenue fell year over year in each of the four quarters through June:
The September quarter made it five in a row, with revenue down 5.5% to $809 million and Kors down 8.6%. About $20 million of those sales were wholesale shipments pulled from the December quarter, which Capri guided to about $1 billion of revenue, below the $1.02 billion consensus and last year’s $1.03 billion.
The full-year outlook implies second-half revenue just 1% above last year’s, so the March quarter has to do the growing.
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What it means for Kors’ rivals
Kors’ sales in the Americas fell 11% to $405 million. In Tapestry’s quarter to June, Coach grew 15% and North America revenue rose 7% in constant currency. If Kors really is turning, Tapestry’s report next week will show whether that growth slows.
Ralph Lauren also credited full-price selling for its June-quarter gross margin, which rose 140 basis points to 73.7%. Did that hold through September, as it did at Capri?
Cheap, if the growth shows up
Capri traded at 8.5x forward earnings at yesterday’s close, below its five-year average of 11x. Today’s jump still leaves it under 10x:
My take: At this multiple, Capri doesn’t need much growth. But Kors is still shrinking, so I’d wait for the March quarter.
So what is Capri stock actually worth?
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Disclaimer:
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