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Why Capri Holdings Stock Is Surging Today

By John Rosevear - Aug 5, 2020 at 2:45PM

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Earnings weren't exactly great, but they were considerably better than expected.

What happened

Shares of Capri Holdings (CPRI 0.09%) were trading higher on Wednesday, after the company reported a narrower-than-expected quarterly loss and said that demand in China and online has been strong. 

Shares of the company, which owns the Michael Kors, Jimmy Choo, and Versace luxury brands, were up about 12.3% from Tuesday's close as of 2:30 p.m. EDT on Wednesday. 

So what

Capri Holdings reported earnings for the quarter that ended on June 27, the first quarter of its 2021 fiscal year, and the results were better than Wall Street had expected. 

On an "adjusted" basis, excluding one-time items, Capri lost $1.04 per share on revenue of $451 million. Wall Street analysts polled by Thomson Reuters had expected an adjusted loss of $1.11 per share on revenue of $427.3 million, on average. 

Luxury handbags in a store window.

Image source: Getty Images.

Capri said that sales of its Jimmy Choo and Versace brands in China were running about even from the year-ago quarter, suggesting that China's huge luxury-goods market was largely recovered from the effects of the COVID-19 pandemic as of the end of June. In addition, sales via its online storefronts have continued to run well above year-ago levels. 

Those factors, and the better-than-expected financial results, were likely the catalyst for Wednesday's rally. 

Now what

While China's outlook is good, Capri warned that sales in North America and Europe are still running well below year-ago levels. Though it declined to give detailed full-year guidance, it warned consumer discretionary investors that its revenue is likely to be down 40% in the current quarter, and down 35% for the full fiscal year, as those markets continue to work through the effects of the pandemic.

Capri confirmed that it continues to expect a return to growth in its next fiscal year.

 

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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