Capri Faces Brand Challenges in Q3

Capri Holdings Limited (NYSE:CPRI), a global fashion luxury group known for its brands Versace, Jimmy Choo, and Michael Kors, released its third-quarter earnings on February 5, 2025. The company faced significant headwinds as it reported adjusted EPS of $0.45—a notable miss against analysts’ expectations of $0.657. The revenue of $1.26 billion exceeded forecasts of $1.255 billion by $6 million but was down 11.6% from the previous year. Overall, the quarter reflected operational challenges, with declines in profitability, particularly hurting its brand segments.

Source: Analyst estimates for the quarter provided by FactSet.

Understanding Capri's Business

Capri Holdings operates three renowned fashion brands: Versace, Jimmy Choo, and Michael Kors. It is deeply involved in the luxury sector, offering products ranging from high-end handbags and shoes to accessories and ready-to-wear clothing. The company’s diversified brand portfolio aims to reduce risk and capture growth opportunities across its market segments.

Recently, Capri has focused on bolstering its e-commerce capabilities and expanding in high-growth regions, particularly Asia. It sees accessories as a core growth driver, given their significant contribution to total revenue. Additionally, the company emphasizes innovation and strategic leadership as key factors for success in a competitive fashion market.

Key Developments in the Quarter

The recent quarter was marred by a weaker-than-expected EPS, highlighting profitability issues. Capri reported a $0.45 EPS, a steep drop from the previous year’s $1.20. Despite a modest revenue beat—reporting $1.26 billion against a $1.255 billion estimate—total revenue fell 11.6% year-over-year. Declines across its key brand segments contributed to the mixed performance.

Versace's revenue was down by 15% to $193 million, accompanied by an operating loss of $21 million. The brand's challenges were linked to expense deleverage in the Americas and Asia, regions that reported notable revenue pressure. Jimmy Choo experienced similar difficulties with a 4.2% drop in revenue to $159 million and a $6 million operating loss, driven by a sharp 17% decline in Asian markets.

The Michael Kors segment, while still the largest, reported a 12.1% revenue decline to $909 million. Its operating margin shrank from 21.2% to 16.2%, further indicating operational hurdles. This reduction in profitability across brands underscores a critical need for strategic adjustments.

Other significant metrics included their net debt improvement to $1.12 billion from $1.60 billion the previous year, indicating successful deleveraging amidst financial pressure. However, adjusted operating margin fell to 6.0% from 12.1% the prior year due to an unfavorable cost structure and decreased revenue.

Looking Ahead

Management outlines a cautious yet optimistic outlook. It plans to focus on core growth drivers, emphasizing a return to operational improvements in fiscal year 2026 and aiming for growth by 2027. Continued investment in digital and omni-channel capabilities remains a priority given shifting consumer preferences.

Going forward, stakeholders should closely watch any notable improvements in Capri's brand performances and market expansions, particularly in Asia. The company's ability to counteract declines in key metrics with its strategic initiatives will be crucial for future earnings performance. Any adjustments in guidance could impact investor sentiment and forecast expectations.

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