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Why Capri Holdings Is a Buy This Season

By Jennifer Saibil - Dec 17, 2019 at 12:30PM

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With gift-giving season upon us, the luxury designer group that owns Michael Kors, Versace, and Jimmy Choo is in a good position to see higher sales.

It's the most wonderful time of the year for retailers, who typically do their best business in the holiday season. Capri Holdings (CPRI -7.07%) is looking forward to the shopping blitz like many other companies.

What do you want for the holidays this year?

If you answered a luxury gift item, you're not alone.

A Deloitte study found that higher-income customers account for 60% of holiday sales. No surprises there, but definitely opportunities for luxury brands, as the shoppers are most likely to spend on clothing and accessories. While they're also more likely to spend that money online, 36% is still being spent in store.

Capri Holdings is the owner of upscale brand names Michael Kors, Versace, and Jimmy Choo. One of the advantages for a company like Capri is its brand assortment. In a similar move to Tapestry, which was Coach before it acquired Kate Spade and Stuart Weitzman, handbag and accessories maker Michael Kors acquired shoes and accessories brand Jimmy Choo in 2017 and fashion house Versace in 2018, turning it into the highest-end U.S. designer conglomerate. So far, in addition to giving it a new name, the new brands are also giving the company a boost.

Woman's hand on a handbag.

Image source: Getty Images.

Capri is following the right script, offering a powerful digital experience, including mobile apps, and strengthening physical presence while allowing each brand's marketing to define and enhance its unique image.

Luxury is having a hard time

Retail is flummoxed right now, and it's not just the luxury brands that are trying to figure things out. While some of the low-end apparel and accessories retailers, such as Target and Walmart, are hitting all-time revenue highs, there doesn't seem to be any niche that's immune from the powerful changes in global shopping trends.

However, Capri, high on the high-end scale, with a 15% increase in revenue for the second quarter of fiscal 2020, is doing better than the many other retail brands that have seen decreasing revenue, such as Tapestry.

It's not like this everywhere. LVMH Moet Hennessy is a European upmarket fashion conglomerate that's one of the most valuable companies across the continent. Capri may be trying to follow in its footsteps, and it sees a future where each of its brands brings in over $1 billion in sales.

The lowdown on the brands

Brand

Q2 Revenue

Q2 Growth

Q1 Revenue

Q1 Growth

Michael Kors

$1.09 billion

(4.2%)

$981 million

(4.8%)

Versace

$228 million

0%

$207 million

N/A

Jimmy Choo

$125 million

7.8%

$158 million

(8.7%)

Data Source: Capri Holdings second-quarter report.

The strategy behind diversifying the brand assets makes sense, since the company can hedge its bets across divisions. In fact, that's what played out in the 2020 second quarter: Kors did the worst of all. Let's look at the first quarter as well.

Michael Kors has seen declining growth over the past two quarters, and its new sister brands are evening things out. The company was expecting the decline in Michael Kors, despite a rise in overall comps, and also expecting it to be offset by gains for Jimmy Choo, which turned around this quarter.

The second quarter was not as rosy as a sales hike would indicate, with earnings per share of $1.16, a drop from $1.27 a year ago. The company had seen a few problems in the Hong Kong market, including an unfortunate T-shirt recall for Versace and slow performance for Jimmy Choo, but it's moving past that with stronger sales in that region this quarter for both brands.

After the second-quarter earnings release, CEO John Idol reiterated that the company is on track for its 2020 guidance. With the holiday shopping season in full swing, all three brands should see improvement, and investors in this consumer discretionary stock should see positive movement as well.

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Stocks Mentioned

Capri Holdings Limited Stock Quote
Capri Holdings Limited
CPRI
$39.16 (-7.07%) $-2.98
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$124.13 (1.25%) $1.53
Target Corporation Stock Quote
Target Corporation
TGT
$149.95 (-2.57%) $-3.95
Tapestry, Inc. Stock Quote
Tapestry, Inc.
TPR
$30.04 (-4.03%) $-1.26
LVMH Moët Hennessy - Louis Vuitton, Société Européenne Stock Quote
LVMH Moët Hennessy - Louis Vuitton, Société Européenne
LVMUY
$118.38 (-0.70%) $0.83
LVMH Moët Hennessy - Louis Vuitton, Société Européenne Stock Quote
LVMH Moët Hennessy - Louis Vuitton, Société Européenne
LVMHF
$591.00 (-0.34%) $-2.00

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