Capri Holdings stock looks attractive for high-end retailer

Shares of luxury fashion brand Capri Holdings Limited (NASDAQ: CPRI) fell (-37%) over the year. With high-end, high-end brands like Versace, Michael Kors, and Jimmy Choo, Capri Holdings caters to the high-income demographic. High-end consumers are helping to drive double-digit sales gains while peers are experiencing single-to-negative revenue growth, suffering from inflationary pressures and rising logistics costs. These households tend to weather recessions and economic downturns with more resilience than low-income households. It also allows Capri a longer track to follow consumer spending trends. However, the company lowered its guidance choosing to err on the side of caution despite achieving the highest revenue, gross margin and EPS levels in its history. The company was able to boost gross margins despite COVID-related restrictions in China, conflict in Ukraine and supply chain costs rising 14.2% above expectations. The shares are trading at just 6X forward. While the Americas and EMEA posted 30% and 33% growth, Asia only posted 2% growth due to COVID restrictions in China, which led to the closure of nearly 40% of its stores. The lifting of the lockdowns should result in a rebound in the second half of the calendar year. Cautious investors looking for a cheap entry into a luxury brand retailer can watch for opportunistic declines in Capri Holdings shares.

MarketBeat.com - MarketBeatQ4 Fiscal 2022 Earnings Release

On June 1, 2022, Capri Holdings released its fiscal fourth quarter 2022 results for the quarter ending March 2022. The company reported earnings per share (EPS) of $1.02 excluding one-time items, exceeding analyst consensus estimate of $0.82. of $0.20. Revenue grew 24.6% year-over-year (YoY) to $1.49 billion, beating estimates of $1.41 billion. The Company authorized a new two-year $1 billion share buyback program to replace its $500 million buyback program. Capri Holdings CEO John Idol commented, “Looking to fiscal 2023, we expect to achieve another year of record revenue and earnings per share. Longer term, we are confident in our ability to resume double-digit revenue increases as we move beyond the impact of the current macroeconomic situation. The strength of Versace, Jimmy Choo and Michael Kors and the proven resilience of the luxury market reinforce our optimism for the future and our ability to achieve $7 billion in revenue and a 20% operating margin over time. ."

Downward orientation

Capri Holdings lowered its Q1 2023 EPS guidance to $1.35 from consensus analyst estimate of $1.45 on revenue of $1.3 billion from $1.35 billion according to analysts' estimates. The company lowered EPS for fiscal 2022 to $6.85 from $6.57 consensus analyst estimate on revenue of $5.95 billion from $6.08 billion analyst estimate.

Takeaways from the conference call

The Idol CEO highlighted how the company expertly handled supply chain issues and COVID restrictions to pull off the best quarter in company history. Revenue continued to grow 30% in the Americas and would have been higher without inventory restrictions. Revenues increased 33% in EMEA, with robust domestic demand despite turbulence in Ukraine. Asia posted the slowest growth at just 2% due to COVID lockdowns in China as a strong start to the quarter quickly foundered with nearly 40% of its stores temporarily closed or having reduced opening hours . He thinks the company will go beyond macroeconomic benefits...