What happened
Shares of Capri Holdings (CPRI -3.82%), which owns the high-end Versace, Jimmy Choo, and Michael Kors labels, rose a swift 14.9% as trading began on Wednesday. The big move was likely driven by the company's fiscal third-quarter 2022 earnings release, which hit the market before it opened. But by roughly 10 a.m. ET today, the gain had already started to wither away, with the stock having given back about half of its earlier advance.
So what
Capri Holdings reported fiscal third-quarter 2022 sales of $1.61 billion, up 24% from the same period of fiscal 2021. Notably, that was up slightly from the $1.57 billion it brought in during the fiscal third quarter of 2020, before the pandemic. All in, it looks like the company has returned to a more normal level of sales. The top line also beat management expectations, with growth at all three of its luxury brands.
Image source: Getty Images.
On the bottom line, adjusted earnings per share (EPS) were $2.22 in the quarter, compared to $1.65 in the prior year. Analysts had been calling for $1.69 per share, so this was a notable beat. It's little wonder that investors bid the stock higher. Adding to the excitement, Capri Holdings also increased its full-year fiscal 2022 guidance: It is now targeting EPS of around $6, up from the $5.30 it was looking for just a quarter ago.
The news wasn't all good, however, which might be why the early gains didn't stick. For example, management highlighted a 400-basis-point gross margin headwind because of rising supply chain costs. And it noted that inventory levels at its stores have been lower than planned because of supply chain constraints, leaving it with a material amount of inventory "in transit." The luxury retailer stated that it lost out on sales during the quarter. The risks posed by inflation and supply chain issues are high on investors' minds today, so it's not too shocking that these issues might temper the initial burst of enthusiasm.
Now what
All in, Capri Holdings had a pretty good quarter, and it looks like it has managed to come back from the pandemic hit. But it isn't free and clear from the lingering impacts of inflation and the still-worrying global supply chain chaos. So it makes sense that investors were upbeat here, but it also seems logical that the early excitement didn't hold.
