While the Versace handbags and Jimmy Choo flats sold by Capri Holdings (CPRI 2.10%) come with some hefty price tags, the parent company's stock is trading at bargain-bin levels.
Capri has been a strong performer since the lows of March 2020, but began to sell off this March along with the broader market and fears that the war in Europe and lockdowns in China would hurt consumer demand in regions where the company has a strong presence.
But Capri just reported its fourth-quarter and full-year results for fiscal 2022, and and the company is firing on all cylinders -- growing revenue, earnings per share, and margins. Here's why Capri looks like a solid investment opportunity going forward.
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Record results
For the year, the company increased revenue by 39%, setting a new record. The company did this while increasing margins and profits. Earnings per share grew by 230% to $6.21, the highest level in the company's history. The company also increased its customer database by 11.5 million , which is a good development as it can use it to engage with customers and encourage repeat purposes.
In terms of the fourth quarter, Capri grew revenue by 25% year-over-year, nudged adjusted gross margins up to 63.7%, and increased earnings per share 170% year-over-year to $1.02.
CEO John Idol says that looking forward, the company expects 2023 to be another record year for earnings and revenue, and hailed the resilience of the luxury market. The company expects revenue of $5.95 billion in 2023, up from $5.65 billion in 2022. This number is slightly below what some analysts were expecting, but Capri is confident in its ability to return to double-digit revenue growth going forward.
Versace strength
In the past, there was some concern that Michael Kors was carrying the brand while Versace was treading water. But it looks like the Italian luxury house is back with a vengeance, increasing revenue by 50% for the year and surpassing $1 billion in sales for the first time. The company did this while improving margins to the highest level in its history, and also increased its global database of customers by 35%. As mentioned above, this expanding database is a valuable asset for increasing engagement with customers.
But Versace isn't stopping here -- Idol says that the company's goal is to grow Versace to $2 billion in annual revenue over time. While acknowledging that China has been a challenge for the company because of the lockdowns, it also represents a large opportunity going forward. Idol says that the company will be opening a new flagship store in Shanghai, the largest city in China, in August or September, so China could soon turn from a headwind into a growth driver for the company.
Clearance rack valuation
With shares down 40% from their 52-week high, Capri is trading at a notably cheap valuation. Shares of Capri fetch just under 11 times earnings and an even cheaper six times next year's earnings. The stock trades at a strikingly low price-to-earnings-growth (PEG) ratio of just 0.2; a PEG ratio of under 1 is widely accepted to mean that a stock is inexpensive.
While Capri does not pay a dividend, it is returning capital to shareholders via share buybacks. It repurchased $300 million of shares during the fourth quarter. In addition, Capri just announced a massive share repurchase authorization of $1 billion, which equates to nearly 15% of the company's current market capitalization.
Is Capri a buy?
In conclusion, Capri looks like it is hitting all the right notes, increasing revenue while expanding margin and earnings per share. The company is adding a significant number of new customers into its database, and Versace looks like it is becoming a real growth driver for the company.
This growth is all available for a very modest valuation, and with the added bonus of a large share buyback program kicking in. Capri Holdings looks like a solid buy going forward.
