Capri Holdings Limited (CPRI) Q3 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Total company revenue Decreased 4% year-over-year to $1.025 billion. The decline was attributed to a decrease in retail sales and flat wholesale revenue.
Earnings per share (EPS) Increased approximately 30% to $0.81. The increase was driven by improved full-price sell-throughs and reduced promotional activity.
Michael Kors revenue Decreased 5.6% year-over-year. The decline was due to reduced promotional activity and prior design direction in product assortments.
Michael Kors retail sales by region Europe increased mid-single digits, while the Americas and Asia declined low double digits and low single digits, respectively. Sequential improvements were noted in trends.
Jimmy Choo revenue Increased 5% year-over-year. Growth was driven by strong brand momentum, holiday assortments, and double-digit wholesale revenue growth.
Gross margin 60.8%, a decline of 230 basis points year-over-year. Underlying gross margin expanded 70 basis points due to better full-price sell-throughs and reduced promotional activity, offset by higher tariffs.
Michael Kors gross margin 59.7%, down from 62.6% last year. The decline was due to higher tariff rates, but excluding tariffs, gross margin expanded 60 basis points.
Jimmy Choo gross margin 66.5%, up from 66.0% last year. The improvement was driven by higher full-price sell-throughs, with an 80 basis point expansion excluding tariffs.
Operating margin 7.7%, down from 9.2% last year. The decline was attributed to higher tariff rates.
Inventory $663 million, a 6.5% decline year-over-year. The decrease was due to lower units, partially offset by higher tariff rates and foreign currency exchange rates.
Net debt $80 million, significantly reduced from $1.6 billion in the prior quarter. The reduction was due to proceeds from the sale of Versace.
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Operating Highlights
Michael Kors new product introductions: Late in the quarter, more modern on-trend styles were introduced, generating higher full price sell-throughs and higher AURs. Smaller silhouettes like the Laila Extra Small Crossbody and Nolita Pochette performed exceptionally well, appealing to Gen Z consumers.
Jimmy Choo product strategy: Focused on developing accessories and expanding casual footwear. Bon Bon and Cinch groups showed high single-digit growth, while new introductions like curve and bar groups received positive early responses. Casual footwear sales increased mid-single digits.
Geographic performance for Michael Kors: Europe outperformed with mid-single-digit growth, while the Americas and Asia saw declines of low double digits and low single digits, respectively. Sequential improvements were noted in retail revenue trends.
Geographic performance for Jimmy Choo: Revenue increased 23% in the Americas, 3% in EMEA, and decreased 10% in Asia. Sequential improvement was observed in the full-price channel in Asia.
Store renovation plan: Michael Kors plans to renovate 50% of its store fleet and key department store locations over the next three years. Early results show meaningful increases in traffic and sales at renovated locations.
Debt reduction: Proceeds from the Versace sale were used to reduce debt significantly, ending the quarter with $80 million of net debt compared to $1.6 billion in the prior quarter.
Brand storytelling and consumer engagement: Michael Kors leveraged its Jet Set lifestyle narrative through campaigns and events, increasing its global consumer database by 8%. Jimmy Choo's campaigns, including the Sydney Sweeney holiday campaign, reached 150 million consumers and increased its global consumer database by 8%.
Focus on long-term growth: Capri Holdings aims to return to growth in fiscal 2027 through strategic initiatives, including better full price sell-throughs, sourcing cost efficiencies, and targeted price increases.
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Risk or Challenges
Revenue Decline: Total company revenue decreased 4% year-over-year, with Michael Kors revenue down 5.6% and regional declines in the Americas and Asia. This reflects ongoing challenges in maintaining sales growth.
Tariff Impact: Higher-than-anticipated tariffs negatively impacted gross margins, particularly for Michael Kors, which saw a decline in gross margin from 62.6% to 59.7%.
Retail Sales Pressure: Michael Kors retail sales declined mid-single digits, with store closures contributing to low single-digit negative impacts. Outlet channel revenue was also affected by reduced promotional activity.
Wholesale Sales Decline: Michael Kors wholesale sales decreased mid-single digits, reflecting challenges in maintaining demand in this channel.
Regional Performance Disparities: Revenue in the Americas decreased 7%, and Asia saw a 4% decline, highlighting regional challenges in driving growth.
Inventory Management: Inventory levels decreased 6.5% year-over-year, but higher tariff rates and foreign currency exchange rates are expected to offset these reductions.
Operating Margin Decline: Total company operating margin declined from 9.2% to 7.7%, driven by higher tariff rates and other cost pressures.
Jimmy Choo Asia Performance: Jimmy Choo's revenue in Asia decreased 10%, continuing a trend of negative performance in this region.
Debt Levels: While debt was significantly reduced following the sale of Versace, the company still faces financial pressures to maintain low debt levels and manage cash flow effectively.
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Guidance & Outlook
Revenue Expectations: Revenue for fiscal '26 is expected to be between $3.45 billion and $3.475 billion. Michael Kors revenue is anticipated between $2.86 billion and $2.875 billion, and Jimmy Choo revenue is expected between $590 million and $600 million.
Gross Margin Projections: Gross margin for fiscal '26 is anticipated to be approximately 61%. Gross margin expansion is expected in fiscal '27, driven by better full price sell-throughs, sourcing cost efficiencies, and targeted price increases.
Operating Income and Margins: Operating income for fiscal '26 is anticipated to be approximately $100 million. Michael Kors operating margin is expected in the high single-digit range, while Jimmy Choo operating margin is projected in the negative low single-digit range.
Earnings Per Share: Fiscal '26 diluted earnings per share are expected to be between $1.30 and $1.40.
Inventory Levels: Year-end inventory levels for fiscal '26 are expected to be approximately flat compared to the prior year, with a decrease in units offset by higher tariff rates and foreign currency exchange rates.
Fiscal '27 Growth Expectations: The company expects a return to revenue and earnings growth in fiscal '27, supported by strategic initiatives, gross margin expansion, and disciplined expense management.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What are the drivers of the slight sequential improvement in retail sales for Michael Kors between the second and third quarter?
A:The improvement is driven by better full-price selling, higher AURs, higher gross margins, and reduced promotional activity in both full-price and outlet channels. The company has also restructured its pricing architecture and focused on standout styles and new product flows. Additionally, the reduction of daigou sales is expected to result in a healthier business.
Q:What is the expected progression for Americas retail sales in the fourth quarter?
A:The company expects continued sequential improvement in retail sales in the fourth quarter and anticipates returning to revenue growth in FY '27.
Q:How is the company planning for revenue growth next year, and what are the factors affecting gross margins?
A:The company is cautiously optimistic about revenue growth, driven by better full-price sell-throughs, higher AURs, and reduced promotional activity. Units are expected to be down due to inventory management and tariffs. Gross margin expansion is expected through tariff mitigation efforts, sourcing efficiencies, and targeted price increases.
Q:What are the key initiatives for Jimmy Choo, and how is it performing?
A:Jimmy Choo has shown strong results, with initiatives focusing on consumer desire, social media channels, influencers, and clienteling. Accessories and casual business have seen sequential improvements, and the brand is expected to return to growth with operating margin expansion next year.
Q:What is the potential for operating margin expansion for Michael Kors and Capri Holdings in FY '27?
A:The company expects low single-digit revenue growth, stable SG&A, and gross margin expansion, leading to operating margin expansion. Michael Kors is seeing improvement in retail business and wholesale POS performance, while Jimmy Choo is performing well in wholesale and accessories.
Q:What is the mix of sales between outlet and full-line stores for Michael Kors, and how is the outlet channel performing?
A:The company does not break out the mix but sees opportunities in both channels. The outlet channel is being cleaned up with new product flows and reduced core product. Gross margin expansion in the outlet channel is expected in the second half of the calendar year.
Q:What is the company's approach to marketing spend and its impact?
A:The company is spending just north of 8% on marketing, focusing on influencers, TikTok, and social media channels. This is expected to drive growth for next year.
Q:What are the trends in Michael Kors' Signature offering and its penetration?
A:Signature products currently represent approximately 40% of sales, down from a peak of 50%. The company is balancing Signature with other materials like leather and suede, which are trending stronger.
Q:What are the company's plans for free cash flow and balance sheet management?
A:The company has reduced net debt to $80 million and plans to invest in store renovations, technology, and digital enhancements. A $1 billion share repurchase program will commence in FY '27.
Q:What is the long-term margin outlook for Michael Kors and Jimmy Choo?
A:Michael Kors aims to reach a 20%+ operating margin over time, supported by revenue growth and cost control. Jimmy Choo is expected to achieve double-digit margins as its accessories business grows.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the exact mix of sales between outlet and full-line stores for Michael Kors, as well as the precise timeline for gross margin inflection in the outlet channel. Additionally, while optimistic about long-term margin goals, they did not provide a concrete timeline for achieving these targets.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AURs Kors
Americas digit
Asia region
Auria Crystal
Azia
Hotel Stories
Kors sale
Kors term
Versace
York City
activation brand
boot
brand spirit
campaign brand
client
connection consumer
consumer response
demand
digit Americas
digit increase
digit price
dress style
event
holiday campaign
holiday style
icon Laila
improvement price
improvement trend
increase price
introduction
mix
narrative
point sale
price channel
price sale
sale channel
throughs AURs
trend digit
trend fashion
value consumer
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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Capri Holdings Limited (CPRI) Q3 2026 Earnings Call Transcript
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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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