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01/10 16:23
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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.
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 mid-teen declines in global retail sales and double-digit declines in wholesale.
Jimmy Choo Revenue Decreased 3% year-over-year, with high single-digit declines in global retail sales but high teens growth in wholesale.
Gross Margin 61%, declined 170 basis points year-over-year primarily due to 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 adjustments and the acquisition of a second footwear factory.
Operating Margin Negative 3.2%, compared to positive 6.4% last year, reflecting lower revenue and expense deleverage.
Michael Kors Operating Margin 4.6%, down from 14.1% year-over-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, with early receipt of inventory helping to mitigate tariff impacts.
Cash $166 million, with debt of $1.5 billion, resulting in net debt of approximately $1.3 billion, higher than anticipated due to earlier inventory receipts and weaker US dollar.
Leverage Ratio Net debt to adjusted EBITDAR was 3.2 times at the end of fiscal 2025.
New Product Launches: During the fourth quarter, Capri Holdings launched several new accessories groups, including the Leila, Dakota, and Bryant groups, which are experiencing strong full-price sell-throughs.
New Footwear Styles: Jimmy Choo introduced the Diamond Flex sneaker, which has become the fastest selling sneaker in the brand's history.
Market Expansion: Jimmy Choo plans to introduce a wider offering of accessories priced between $500 and $1,000 to attract a broader base of luxury consumers.
Store Renovation Plans: Capri Holdings plans to renovate approximately 50% of the Michael Kors store fleet over the next three years, with an estimated cost of $350 million.
Cost Reduction Initiatives: The company is implementing cost reduction initiatives, including store closures and global headcount reductions, to improve operational efficiency.
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 storytelling to engage consumers, with Michael Kors launching a new JetSet storytelling campaign to reconnect with its heritage.
Earnings Miss: Capri Holdings reported an EPS of $-4.90, significantly missing expectations of $-0.16, indicating financial instability.
Pending Sale of Versace: The sale of Versace to Prada Group may lead to a reduction in debt but also indicates a strategic shift that could impact brand identity and revenue.
Macroeconomic Challenges: The company faces a challenging macro environment with uncertainty around tariffs, which could affect costs and consumer spending.
Tariff Impact: Estimated tariff impacts could increase cost of goods sold by approximately $60 million in fiscal 2026, affecting profitability.
Supply Chain Risks: The company relies on diversified sourcing, but any disruptions in key regions could impact production and costs.
Declining Revenue: Overall revenue decreased by 15%, with significant declines in both Michael Kors (16%) and Jimmy Choo (3%), indicating weak demand for luxury goods.
Store Closures and Renovations: Ongoing store closures as part of optimization efforts may negatively impact sales in the short term.
Foreign Currency Fluctuations: Weakening of the US dollar is expected to modestly increase both revenue and operating expenses, adding to financial uncertainty.
High Debt Levels: The company ended the quarter with $1.5 billion in debt, which poses a risk to financial stability and operational flexibility.
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 brands.
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 Growth Initiatives: Capri is focused on building brand desirability through storytelling, product innovation, and enhancing omnichannel consumer experiences.
Store Renovation Plans: Over the next three years, Capri plans to renovate approximately 50% of the Michael Kors store fleet to drive sales recovery.
Product Strategy: Capri is committed to creating exciting fashion designs and enhancing core styles to drive higher sell-throughs.
Consumer Engagement: The company aims to engage new and existing consumers through modern interpretations of brand heritage and storytelling.
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.
Gross Margin Expectations: Gross margin is anticipated to be approximately 61% to 61.5% for fiscal 2026.
Operating Income Projection: Full-year operating income is expected to be around $100 million.
Capital Expenditures: Capri anticipates capital expenditures of approximately $110 million in fiscal 2026.
First Quarter Revenue Guidance: Total company revenue for the first quarter is expected to be between $765 million and $780 million.
Diluted EPS Expectations: Diluted earnings per share for fiscal 2026 is expected to be between $1.20 and $1.40.
Share Repurchase Program: The company plans to reinstate a share repurchase program in the future after the sale of Versace, which is expected to reduce debt levels significantly.
Debt Reduction: Proceeds from the sale of Versace will be used to reduce debt, leading to a stronger financial foundation and enabling future share repurchases.
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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