What happened
Shares of Capri Holdings (CPRI -3.04%) jumped 23.2% this week after the company reported great earnings for the third quarter, according to data from S&P Global Market Intelligence. The luxury fashion group, which owns Versace, Jimmy Choo, and Michael Kors, beat the consensus estimates from Wall Street on adjusted earnings per share (EPS) and revenue.
So what
On Nov. 3, Capri Holdings released its financial results for the third quarter ending in September. Revenue increased 17% to $1.3 billion, and adjusted EPS came in at $1.53. Both numbers beat the consensus analyst estimates for the company, which is likely why the stock is up so much this week.
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Capri Holdings is seeing strong growth from its Versace brand. The segment increased revenue 45% to $282 million in Q3, with an operating margin of 19.5%. The company's largest business, Michael Kors, is also seeing solid growth, with revenue of $881 million in Q3, up 11% year over year.
For its full-year 2021 results, Capri Holdings is expecting to hit $5.4 billion in sales with an operating margin of 18%. If the company hits these targets, then Capri Holdings will do close to $1 billion in operating income this year. This high level of profitability has allowed Capri Holdings to return cash to shareholders through share repurchases. In Q3, management repurchased $100 million of Capri stock and authorized a new $1 billion repurchase program.
Now what
Capri Holdings has a market cap of around $9.5 billion and $1.1 billion in long-term debt. If the company can hit its profit targets for 2021, the stock will trade at a price-to-operating income (P/OI) below 10. If you're confident in the durability of Capri Holdings brands, this could be a great time to take a position in the stock with the business trading at a discount to the broad market.
