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01/10 16:26
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals several negative factors: a significant revenue decline, negative operating margins, and a net loss. Although there is optimism for Michael Kors' retail performance and wholesale partnerships, the overall outlook is tempered by high debt levels, supply chain challenges, and economic headwinds. The reinstatement of the share repurchase program is positive but contingent on debt reduction. The Q&A section shows some positive sentiment but lacks clarity on key issues. Given these factors and a market cap of ~$3.8 billion, a negative stock price reaction of -2% to -8% is likely.
Total Revenue $1 billion, decreased 15% year-over-year due to softening demand for fashion luxury goods globally, store closures, and reductions in the wholesale channel.
Michael Kors Revenue Decreased 16% year-over-year, impacted by global retail sales decline and store closures.
Jimmy Choo Revenue Decreased 3% year-over-year, with global retail sales declining high single digits.
Gross Margin 61%, declined 170 basis points year-over-year, primarily due to inventory actions taken to ensure a more current inventory position.
Michael Kors Gross Margin 58.6%, compared to 60.8% last year, decline driven by lower full-price sell-throughs on older styles.
Jimmy Choo Gross Margin 66.2%, compared to 70.1% last year, decline primarily due to inventory actions and the acquisition of a second footwear factory.
Operating Margin Negative 3.2%, compared to positive 6.4% last year, reflecting lower revenue.
Michael Kors Operating Margin 4.6%, compared to 14.1% last year.
Jimmy Choo Operating Margin Negative 7.5%, compared to negative 5.8% last year.
Net Loss $581 million, resulting in diluted loss per share of $4.90, primarily due to a non-cash tax valuation allowance.
Inventory $869 million, a 1% increase year-over-year, due to early receipt of inventory.
Cash $166 million.
Debt $1.5 billion, resulting in net debt of approximately $1.3 billion.
Leverage Ratio Net debt to adjusted EBITDA was 3.2 times at the end of fiscal 2025.
New Product Launches: During the fourth quarter, several new accessories groups were launched, including the Laila, Dakota, and Bryant groups, which are experiencing strong full-price sell-throughs.
New Footwear Styles: The Diamond Flex sneaker was launched, featuring an ultra-soft construction and flexible sole, becoming the fastest selling sneaker in Jimmy Choo's history.
Market Expansion: Jimmy Choo plans to introduce three new accessory collections priced between $500 and $1,000 to appeal to a broader base of luxury consumers.
Store Renovation Plans: Over the next three years, Capri Holdings plans to renovate approximately 50% of the Michael Kors store fleet to drive sales recovery.
Operational Efficiencies: The company is implementing a store optimization program, which includes store closures and renovations to improve store productivity.
Cost Reduction Initiatives: Operating expenses decreased by $25 million due to cost reduction programs, although higher variable costs and unfavorable foreign currency impacted overall expenses.
Strategic Shift: The pending sale of Versace to Prada Group allows Capri Holdings to focus on growth opportunities within Michael Kors and Jimmy Choo, aiming to reduce debt and enhance shareholder returns.
Brand Storytelling Initiatives: Capri is focusing on brand desirability through storytelling, with Michael Kors launching a new Jet Set storytelling campaign to engage consumers.
Competitive Pressures: The company is facing challenges due to a continued softening demand for fashion luxury goods globally, which has negatively impacted revenue.
Regulatory Issues: Uncertainty around tariffs is a significant concern, with potential increases in costs due to tariffs on imports from China, estimated to impact cost of goods sold by approximately $60 million in fiscal 2026.
Supply Chain Challenges: The company is managing risks related to its supply chain, with a diversified sourcing strategy to mitigate tariff exposure and ensure consistent supply.
Economic Factors: The macro environment has become more challenging, affecting overall sales trends and consumer spending.
Debt Levels: The pending sale of Versace is expected to reduce debt levels significantly, but the company currently has a high net debt of approximately $1.3 billion.
Store Closures: Store closures as part of the optimization program have negatively impacted retail sales.
Foreign Currency Fluctuations: The weakening of the U.S. dollar is expected to modestly increase both revenue and operating expenses.
Pending Sale of Versace: Capri Holdings announced the pending sale of Versace to Prada Group, allowing the company to focus on growth opportunities within Michael Kors and Jimmy Choo.
Debt Reduction and Share Repurchase: The sale of Versace is expected to substantially reduce debt levels and reinstate a share repurchase program in the future.
Brand Desirability Initiatives: The company is focused on building brand desirability through storytelling, product innovation, and an engaging omnichannel consumer experience.
Store Renovation Plans: Capri plans to renovate approximately 50% of the Michael Kors store fleet over the next three years, costing around $350 million.
Product Strategy: The company aims to create exciting fashion designs and enhance core styles to drive higher full-price sell-throughs.
Omnichannel Strategy: Capri is leveraging data analytics and digital capabilities to grow e-commerce revenues and increase store sales densities.
Wholesale Business Stabilization: The company is focused on stabilizing and returning its wholesale business to growth.
Fiscal 2026 Revenue Guidance: Total company revenue is expected to be between $3.3 billion and $3.4 billion, with Michael Kors revenue between $2.75 billion and $2.85 billion, and Jimmy Choo revenue between $540 million and $550 million.
Fiscal 2026 Gross Margin Guidance: Gross margin is anticipated to be approximately 61% to 61.5%.
Fiscal 2026 Operating Income Guidance: Expected operating income is around $100 million.
Fiscal 2026 Capital Expenditures: Anticipated capital expenditures are approximately $110 million, including store renovations and IT investments.
First Quarter Revenue Guidance: Total company revenue is expected to be between $765 million and $780 million.
First Quarter EPS Guidance: Expected diluted earnings per share is approximately $0.10 to $0.15.
Share Repurchase Program: The company plans to reinstate a share repurchase program in the future after reducing debt levels following the sale of Versace.
Debt Reduction: Proceeds from the sale of Versace will be used to significantly reduce debt, which is expected to enhance shareholder returns.
The earnings call revealed stabilization in Michael Kors' business and strategic initiatives driving positive full-price comps. However, the company faces challenges with tariffs, outlet repositioning, and geographic uncertainties, particularly in Japan and China. The guidance reflects increased expenses and slightly positive operating margins, but the lack of specific geographic guidance and challenges in key markets temper enthusiasm. The market cap suggests a moderate reaction, leading to a neutral stock price movement prediction.
Despite some challenges like declining operating margins and no expected growth in certain channels this year, the earnings call highlights positive elements. The sale of Versace will reduce debt and potentially boost shareholder returns. The company is focusing on strategic initiatives like store renovations, product innovation, and pricing strategies, which are expected to improve margins and growth in the future. Positive consumer engagement and improved sell-throughs for Michael Kors, alongside the promising outlook for Jimmy Choo, suggest a positive stock price movement in the short term.
The earnings call presents a challenging outlook, with declining revenues, negative operating margins, and high debt levels. Despite some positive indicators in retail sales, the weak financial performance and tariff impacts overshadow these. The Q&A reveals optimism in Michael Kors' retail but lacks clarity on mitigating tariff impacts. The reinstatement of a share repurchase program is positive, but overall, the financial health and guidance concerns lead to a negative sentiment. Given the market cap, the stock is likely to react negatively, potentially in the -2% to -8% range.
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