Capri Holdings Limited (CPRI) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Total Company Revenue Decreased 2.5% year-over-year to $856 million. The decline was attributed to a higher-than-anticipated effective tax rate and valuation allowance position.
Michael Kors Revenue Decreased 2% year-over-year. Retail channel trends were consistent with the first quarter, while wholesale trends improved due to shipment timing. Revenue in the Americas decreased 7%, EMEA increased 4%, and Asia increased 25%.
Jimmy Choo Revenue Decreased 6% year-over-year. Retail sales improved sequentially, but wholesale revenue declined mid-teens due to shipment timing. Revenue in the Americas decreased 3%, EMEA declined 6%, and Asia decreased 12%.
Gross Margin Declined 130 basis points to 61%. Higher tariff rates negatively impacted gross margin by approximately 120 basis points.
Michael Kors Gross Margin Declined to 59.3% from 61.1% last year, primarily due to the impact of tariffs.
Jimmy Choo Gross Margin Increased to 70.2% from 68.6% last year, driven by channel mix and higher full-price sell-throughs.
Operating Expense Decreased by $8 million year-over-year, primarily due to a cost reduction program. However, as a percentage of revenue, it increased to 58.6% from 58.1% last year due to expense deleverage on lower revenue.
Operating Margin Total company operating margin was 2.3%, down from 4.2% last year. Michael Kors operating margin was 10.1%, down from 11.8%, and Jimmy Choo operating margin was negative 6.9%, down from negative 3.6%.
Tax Rate Increased to 112% due to delays in implementing a revised global tax structure, impacting net income by $24 million and earnings per share by $0.20.
Inventory Totaled $766 million, a 2.8% decline year-over-year, attributed to higher tariff rates and foreign currency exchange rates.
Net Debt Stood at approximately $1.6 billion, with cash of $120 million and debt of $1.8 billion.
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Operating Highlights
Michael Kors product updates: Introduced new accessories groups like Hamilton Moderne, Leila, and Nolita styles, which are performing well. Footwear trends improved with strong performance in fashion boots and casual footwear. Ready-to-wear revenue increased, driven by seasonal styles and outerwear.
Jimmy Choo product updates: Launched Bar Hobo handbag and Tylor loafer, with strong initial consumer response. Accessories like Bon Bon and Cinch groups performed well. Expanded casual footwear offerings, including Scarlett kitten heels and Jelly ballerina flats.
Geographic performance: Michael Kors saw revenue growth in Europe and Asia, with a 25% increase in Asia wholesale shipments. Jimmy Choo experienced sequential improvement in retail sales across all regions, though Asia revenue decreased 12%.
Brand awareness: Michael Kors achieved 5.5 billion impressions globally during New York Fashion Week and saw a 9% increase in its global consumer database. Jimmy Choo also saw a 9% increase in its consumer database, supported by influencer partnerships and localized brand experiences.
Store renovation plan: Michael Kors plans to renovate 50% of its store fleet over three years, including flagship locations in New York and London. Early results show increased traffic and sales.
Financial performance: Total company revenue decreased 2.5% to $856 million. Gross margin declined to 61%, impacted by tariffs. Operating margin was 2.3%, down from 4.2% last year.
Debt reduction and share repurchase: Proceeds from the Versace sale will be used to repay debt, with a new $1 billion share repurchase program authorized for fiscal '27.
Focus on growth: Strategic initiatives are aimed at stabilizing the business in fiscal '26 and returning to growth in fiscal '27, with investments in store renovations, technology, and digital enhancements.
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Risk or Challenges
Macroeconomic Environment: The company acknowledges the dynamic global macroeconomic environment, which could impact stabilization and growth efforts.
Tax Rate Challenges: A higher-than-anticipated effective tax rate negatively impacted net income by $24 million and earnings per share by $0.20 in the second quarter.
Revenue Decline: Total company revenue decreased 2.5% year-over-year, with Michael Kors and Jimmy Choo both experiencing revenue declines.
Tariff Impacts: Higher tariff rates negatively impacted gross margin by approximately 120 basis points.
Wholesale Shipment Timing: Revenue was affected by shipment timing, particularly in the wholesale channel, which caused fluctuations in quarterly performance.
Store Renovation Costs: The company plans to invest $350 million over the next three years in store renovations, which could strain financial resources in the short term.
Debt Levels: The company has $1.6 billion in net debt, which it plans to reduce using proceeds from the Versace sale, but this remains a financial risk until executed.
Jimmy Choo Performance: Jimmy Choo's revenue decreased 6.4%, with wholesale revenue declining mid-teens, indicating challenges in this brand's performance.
Inventory Management: Year-end inventory levels are expected to increase slightly, which could pose risks if demand does not align with inventory levels.
Operating Margins: Operating margins for both Michael Kors and Jimmy Choo declined, with Jimmy Choo operating at a negative margin.
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Guidance & Outlook
Revenue Expectations: The company expects total revenue for fiscal 2026 to be between $3.375 billion and $3.45 billion, with Michael Kors revenue between $2.8 billion and $2.875 billion and Jimmy Choo revenue between $565 million and $575 million. For the third quarter, total company revenue is expected to be between $975 million and $1 billion.
Gross Margin Projections: Full year gross margin is anticipated to be approximately 60.5% to 61%. The company expects gross margin declines to moderate through the remainder of the year, reflecting traction from strategic initiatives, sourcing cost efficiencies, and targeted price increases. Third quarter gross margin is expected to decline by approximately 200 to 250 basis points versus the prior year.
Operating Margin Projections: For fiscal 2026, Michael Kors operating margin is expected to be in the high single-digit range, while Jimmy Choo's operating margin is anticipated to be in the negative mid-single-digit range. For the third quarter, Michael Kors operating margin is expected to be in the low teens range, and Jimmy Choo's operating margin is expected to be in the negative low to mid-single-digit range.
Capital Expenditures: The company plans to invest approximately $350 million over the next three years in store renovations, technology, digital enhancements, and other brand-building initiatives.
Debt Reduction and Share Repurchase: Proceeds from the Versace sale will be used to significantly reduce debt. A new $1 billion share repurchase program has been authorized and is expected to begin in fiscal 2027.
Market Trends and Business Segment Performance: Retail trends are expected to improve in the back half of fiscal 2026, positioning the company to return to growth in fiscal 2027. Long-term, the company remains optimistic about the sustainable growth potential of Michael Kors and Jimmy Choo.
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Shareholder Return Plan
Share Repurchase Program: The Board of Directors has authorized a new $1 billion share repurchase program, which the company expects to begin implementing in fiscal '27.
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Key Q&A
Q:Could you speak to global reception that you're seeing to the Michael Kors full price retail repositioning, elaborate on drivers of full price channel comps turning positive in the second quarter? And then just any change in momentum in October or opportunity you see for the brand versus a year ago during holiday?
A:John Idol highlighted stabilization in the Michael Kors business, with full price comps turning positive due to strategic initiatives. Key drivers include modern jet set marketing, influencer-driven storytelling, standout style products, and strategic price architecture. Accessories, particularly Leila, Nolita, and Hamilton Moderne bags, drove growth. Renovated stores and the new Jet Set Lounge concept also contributed. Challenges include reduced promotional activity in outlet stores, but the focus remains on quality of sales and increasing AURs.
Q:I wanted to dive a little bit deeper into the outlet business as you reposition promotionality and product. What's the profile of the consumer that's engaging with you in North America today? Are you seeing any signs of price sensitivity or stronger or weaker engagement in any particular income or age cohort as you execute the outlet repositioning? And how should we be thinking about the time line and path to improvement for total North America given the green shoots that you're seeing in the full price channel today?
A:John Idol noted that Gen Z consumers are more price-sensitive, and strategic pricing architecture is helping attract them. Outlet business is being repositioned with higher prices, reduced promotions, and new product introductions, which will roll out more significantly in Q4 and fiscal '27. The daigou business is being reduced, impacting outlet performance. North America retail channel for Michael Kors is expected to return to positive growth in the second quarter of next year.
Q:On the tariffs, could you let us know what's baked in on tariffs for both 3Q and 4Q? And on wholesale, could you comment roughly what's the growth rate for MK wholesale ex shift? How are you viewing that channel just organically ex shifts into 3Q and 4Q from a revenue standpoint?
A:Rajal Mehta stated that the full-year tariff impact is expected to be $85 million, with Q3 gross margins down 200-250 basis points due to tariff-impacted inventory. John Idol mentioned a $20 million wholesale shipment timing shift to Q2, with wholesale point-of-sale sales improving to single-digit declines. The focus remains on quality of sales, raising AURs, and reducing off-price channels.
Q:Last quarter, you commented that in the full price channel, you've kind of stabilized the assortment in terms of price points and selection. Are you still seeing AUR increases in full price? Can you comment a little bit on volume versus AUR that's driving that positive full price comp? And then in the guidance for the back half of kind of minus high single digits for Michael Kors, what's embedded in that?
A:John Idol clarified that full price AURs are slightly down due to strategic price adjustments, but full price sell-throughs are significantly up. Rajal Mehta confirmed that full price comps are expected to remain positive in the second half, with wholesale and outlet performance driving overall negative results.
Q:Can you help us with your expectations for revenue by geography as we think about the back half? What's the right way to think about the progress being made in the Americas and EMEA? And Asia did quite well in Q2 for Michael Kors. What would you attribute that to? And how sustainable do you think that growth is?
A:John Idol noted that Europe is the best-performing region for Michael Kors, with stable outlet business and strong product reception. Asia, particularly China, is showing moderate improvement, with best-selling products aligning globally. Jimmy Choo is performing well in North America, with stable growth in Europe and challenges in Japan and China.
Q:What team do you need in place as you continue to move the company forward from where we are? And can you expand a bit on sort of the net interest income, the currency hedging as you look into the future and how the company is positioned from that?
A:John Idol expressed confidence in the current team, including Michael Kors and strong global teams. Rajal Mehta explained that net investment hedges provide income, and debt reduction from the Versace sale will lower interest expenses, leaving minimal debt on the balance sheet.
Q:Review of Unclear Management Responses
A:Management avoided providing specific revenue guidance by geography for the back half, citing a policy of not guiding by geography. Additionally, while they acknowledged challenges in Japan and China for Jimmy Choo, they did not provide detailed plans or timelines for addressing these issues.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Bar Hobo
Bon
Consumers
Hobo handbag
Kors
New York
Rome
Versace
York flagship
accessory price
actor
assortment
autumn
brand ambassador
client
comp price
consumer response
destination
experience
fashion brand
fashion standout
glamor
group price
improvement trend
jet lifestyle
outlet channel
partnership
price channel
quality sale
region
response style
shipment timing
sign
standout style
store renovation
style pricing
style trend
timeless
trend fashion
trend price
CPRI Transcript
Capri Holdings Limited (CPRI) Q4 2026 Earnings Call Transcript
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The earnings call summary reveals a decline in key financial metrics, including revenue, gross margin, operating income, and net income, indicating a weakening financial performance. Despite no new strategic initiatives or partnerships, the Q&A section provided no additional positive insights. The stock's market cap suggests moderate sensitivity to earnings news, and the absence of guidance adjustments or shareholder return plans further supports a negative sentiment. Therefore, a negative stock price reaction of -2% to -8% is anticipated over the next two weeks.
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The earnings call indicates strong brand momentum, sequential retail sales improvement, and a significant reduction in net debt. The company is optimistic about future revenue growth and margin expansion, with strategic initiatives in place for both Michael Kors and Jimmy Choo. The $1 billion share repurchase program and improved financial health further support a positive outlook. Despite some margin declines due to tariffs, overall sentiment is positive, suggesting a stock price increase of 2% to 8% over the next two weeks.
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Frequently Asked Questions
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