This post was originally published on this site
Capri Holdings Ltd. CPRI, +1.19% continued its stock rally on Friday, up 2% for the day and 11.5% for the week after better-than-expected earnings were bolstered by improved margins, particularly at the Michael Kors brand.
“Given our strategic initiatives to increase full-price sell-throughs and selectively raise prices, gross margins and earnings were significantly above our expectations,” said Chief Executive John Idol during the fiscal third-quarter earnings call this week, according to a FactSet transcript.
Idol highlighted gross margin expansion of 520 basis points, which gave adjusted earnings per share of $1.65 a boost.
Revenue fell to $1.303 billion, which missed the FactSet consensus. Revenue at the Michael Kors brand fell 18.6% to $986 million, Versace was flat at $195 million and Jimmy Choo tumbled 26.7% to $121 million.
“Michael Kors is evolving into a smaller, but more profitable brand,” wrote Wells Fargo analysts led by Ike Boruchow.
“Michael Kors is shrinking its low-margin North American wholesale business, and shuttering unprofitable doors (150 set for closure in North America), which should provide a significant lift to margins over the next 18-to-24 months. Further, increasing penetration of the higher margin signature line and accessories category, as well as price increases, and rationalizing SKU counts should also lead to further margin expansion.”
Wells Fargo rates Capri stock overweight with a $60 price target.
For fiscal 2022, the company anticipates further improvement.
“All of our luxury houses should benefit as people begin to feel comfortable returning to more normalized routines,” said Thomas Edwards, Capri’s chief financial officer, on the call.
“In terms of gross margins, we anticipate 100 basis points of improvement in fiscal 2022 driven by price increases at Jimmy Choo and Michael Kors as well as higher full-price sell-throughs.”
For the fourth quarter, the company said it expects “a slight loss per share.”
BMO Capital Markets focused on the opportunities that the challenges of the pandemic have afforded.
“We have been vocal about our belief that the pandemic provided a (hopefully) once-in-a-lifetime opportunity to refashion businesses for the future by focusing on reducing dilutive sales through a promotional pullback and this continued commitment to AUR lift is encouraging,” wrote analysts led by Simeon Siegel.
BMO rates Capri stock outperform with a $48 price target.
UBS analysts warn that they don’t expect the Michael Kors brand to grow in fiscal 2021. But the future is looking up.
“[G]iven easy compares, we anticipate FY22 is better,” wrote analysts led by Jay Sole.
“We believe the Michael Kors brand is nearing the completion of a transition to a more on-trend brand. This likely allows it to grow at least in line with the global market. If this happens, the brand likely delivers low-single digit-plus percentage or better normalized annual sales growth, starting in FY23.”
UBS rates Capri stock buy with a $62 price target, up this week from $57.
Capri shares have gained 51.2% over the last year while the benchmark S&P 500 index SPX, +0.39% is up 16.8% for the period.
