Capri Holdings' Leaner Portfolio After Versace Sale Support FY26 Inflection: Analyst
Telsey Advisory Group analyst Dana Telsey reiterated the Market Perform rating on Capri Holdings Limited (NYSE:CPRI), raising the price forecast from $17 to $20.
On Wednesday, the firm reported a fourth-quarter adjusted loss of $4.90 per share, missing the Street view of a 14-cent loss.
Quarterly sales of $1.035 billion (down 15.4% year over year) outpaced the analyst consensus estimate of $986.57 million. On a constant currency basis, total revenue decreased 14.1%.Telsey writes that results were mixed, with a smaller-than-expected sales decline balanced by a more significant drop in gross margins.
Since reporting Q3 FY25 in February, Capri has made several notable announcements, including long-term brand-specific targets at its Investor Day, the departure of longtime CFO/COO Tom Edwards, and the $1.375 billion sale of Versace to Prada.
Telsey considers these significant developments for a company navigating a delicate phase following the failed acquisition attempt by Tapestry, Inc. (NYSE:TPR) in late 2024.
Management has reaffirmed its goal of stabilizing operations through FY26, with a return to growth anticipated in FY27.
However, Telsey points out that substantial effort is still required, particularly at Michael Kors, Capri's largest brand, which has posted ten straight quarters of revenue declines.
While the company absorbed a sizable loss on its Versace investment, the sale is expected to enhance margins, improve the balance sheet, and create room for potential share buybacks.
Still, the analyst notes that the macro environment remains difficult for the remaining MK and Jimmy Choo brands, and Capri has considerable work ahead as it seeks to reset its brand portfolio and rebuild momentum over the next two years.
Telsey notes that for fiscal 2026, most of Michael Kors' production will be sourced from Vietnam, Cambodia, and Indonesia, while Jimmy Choo will continue to rely largely on manufacturing in Italy.
As a result, only about 5% of Capri Holdings' total U.S. production volume is tied to China. Under current tariff assumptions, 10% general and 30% for imports from China, the company expects an unmitigated cost impact of approximately $60 million, which could reduce gross margin by around 100 basis points.
At the same time, recent weakness in the U.S. dollar is projected to offer slight benefits to both sales and operating expenses in FY26, Telsey adds.
Telsey now projects the company's FY26 revenue to drop by 24.3% to $3.36 billion, a sharper decline than the previously projected 7.7% fall. Despite the steeper top-line decline, Telsey has raised the FY26 EPS estimate to $1.33, up from the prior $1.02 forecast.
For FY27, Capri Holdings anticipates a return to revenue growth, supported in part by operating margin expansion.
Telsey attributes this expected margin improvement to expense leverage stemming from ongoing cost-cutting initiatives, which should help the company rebuild profitability as it stabilizes its business.
Price Action: CPRI shares are trading higher by 1.66% to $18.34 at last check Thursday.
Read now:Photo by T. Schneider via Shutterstock
Date
Firm
Action
From
To
Mar 2022
Telsey Advisory Group
Maintains
Market Perform
Feb 2022
Morgan Stanley
Maintains
Overweight
Feb 2022
Credit Suisse
Maintains
Neutral
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This article Capri Holdings' Leaner Portfolio After Versace Sale Support FY26 Inflection: Analyst originally appeared on Benzinga.com
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