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Capri Holdings' Shares Fall Again After Its Bond Rating Gets Cut to Junk Status

By John Rosevear - Apr 2, 2020 at 4:40PM

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With its Versace, Jimmy Choo, and Michael Kors stores closed, the luxury fashion house is hoarding cash.

What's happening

Shares of Capri Holdings (CPRI -0.74%) fell sharply for the second day in a row on Thursday, after Fitch Ratings cut the bond rating of the luxury fashion company from investment grade to junk. 

Capri Holding closed at $8.13 a share on Thursday, down 8.8% from Wednesday's closing price. Its shares have lost almost 40% of their value in the last week. 

So what

In a note on Wednesday, Fitch Ratings said that it has cut Capri Holdings' long-term debt rating from BBB-, the lowest investment-grade level, to BB+ -- a "speculative" or "junk" level -- with a negative outlook.

Luxury handbags in a store window.

Image source: Getty Images.

Fitch justified the move by saying that it is concerned about how the business interruption from the coronavirus pandemic will affect the company, as well as the implications of a recession that last into 2021. If conditions develop as it expects, Fitch said that Capri's  revenue in 2020 could be as much as 25% lower than it was in 2019.

All that said, Fitch does not fear that Capri is in danger of going bust. The analysts noted that Capri said it expected to have about $800 million in total liquidity at the end of March, including about $500 million in cash and $300 million available via its line of credit. Against that, it has $48 million in loans due at the end of 2020, and then no other debt due (aside from its line of credit) until 2023.

Now what

For the moment, Capri's directly owned Versace, Jimmy Choo, and Michael Kors stores in North America and Europe are all closed, and will remain shuttered at least through April 10. The company has promised to continue paying its store employees during that period, but it hasn't yet said whether it will keep doing so indefinitely. Its e-commerce operations remain open for the time being.

Capri's next earnings report will likely be released late in May; investors may have to wait until then to get a clearer picture of the company's situation and outlook.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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