- It has become more apparent that Capri’s turnaround story has to be done with no moat and rather tiny margins moving forward as it tries to move back to profitability. It can’t currently do buybacks and has to deal with more declining revenue. Projected inflation and a likely case of consumer burnout make the luxury space a significant risk. Their largest brand, Michael Kors, is undoubtedly experiencing a decline and will require crucial strategic understanding to reverse this trend. However, they have shown their brands to be inherently valuable and could sell them off in the future. These guys sell for way less than their revenue, and going back to a 10-12% margin, which is less than pre-Covid, would leave this company still significantly undervalued even if it has to cut high single-digit percentages off of its per annum revenue. The company has essentially put in their old CEO, who directed Michael Kor’s prior growth (John Idol), back into play, looking for stability and then energy. Morningstar puts it thusly, “We think Michael Kors has growth potential in China as it is underpenetrated in the market relative to comparable apparel and accessories brands. Although China’s luxury market has been weak lately, it possesses the largest addressable population in the long run (Bain). However, Michael Kors’ sales in Asia have declined since the pandemic despite the addition of about 25 stores… At the end of December 2024, it had total short- and long-term debt of $1.5 billion, but it also had $356 million in cash and nearly $1 billion in available borrowing capacity under its revolving credit facility....Capri is highly dependent on Michael Kors, which produced 68% of its revenue and 96% of its operating profit in fiscal 2024, but the brand has been in decline. We believe it lacks the differentiated product and prestige necessary for consistent premium pricing in women’s handbags and its other main product categories…. We forecast Kors’ annual sales in EMEA over the next decade will remain below prepandemic levels as the European handbag market is saturated with local brands. We do not believe Michael Kors has a strong competitive position in its international markets…We anticipate Capri’s results will stabilize after this current repositioning process. After fiscal 2026, we estimate annual sales growth rates of 2%, 4%, and 8% for Michael Kors, Jimmy Choo, and Versace, respectively. We forecast Capri's operating margins will improve to 12% by fiscal 2029.”
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The user n385903 holds no position in NYSE:CPRI. Simply Wall St has no position in any of the companies mentioned. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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