Wall Street Took These 2 Stocks to the Woodshed Wednesday

Investors got another case of the jitters on Wednesday, as major market indexes moved lower to give back a sizable part of their gains from Tuesday. Although the losses for the Dow Jones Industrial Average (^DJI 0.06%) were relatively modest, the S&P 500 (^GSPC -0.22%) and Nasdaq Composite (^IXIC -0.52%) posted somewhat more severe declines of more than 1%.

Data source: Yahoo! Finance.

As disappointing as the downward move was for bullish investors, the size of the decline paled in comparison to what shareholders in a pair of stocks suffered on Wednesday. Both Capri Holdings (CPRI -0.11%) and Lumen Technologies (LUMN) saw their shares fall more than 20% on Wednesday, and some fear the worst might not yet be over for both companies. Read on to learn more about why these two businesses are having a tough time.

Capri goes out of style

Shares of Capri Holdings finished the day down 24%. The parent company of Michael Kors, Jimmy Choo, and Versace reported fiscal third-quarter financial results for the period ending Dec. 31, and investors weren't happy with what the upscale retailer said.

Capri's financial numbers were weaker than in the year-ago period. Revenue of $1.51 billion was down 6% year over year, with strength in the U.S. dollar accounting for much of the decline. Despite an improvement in gross margin, however, higher expenses weighed heavily on Capri's bottom line. Adjusted net income of $240 million was down 29% from year-ago levels, working out to $1.84 per share in adjusted earnings.

The Michael Kors unit was by far the weakest, seeing sales declines even on a constant currency basis. By contrast, the Jimmy Choo concept saw improvement in both constant-currency revenue and operating income, while Versace saw sales jump 11.2% after adjusting for foreign exchange impacts.

Even a slightly more upbeat outlook for fiscal 2024 wasn't enough to convince shareholders of Capri's longer-term prospects. The retailer hopes revenue will rise from $5.56 billion in fiscal 2023 to $5.8 billion, but earnings growth is likely to be limited to mid-single-digit percentages, going from $6.10 per share in fiscal 2023 to $6.40 per share next year. With no end in sight to some of the headwinds facing luxury retail, Capri has now given back all of the hard-earned gains that the retail stock saw since October 2022.

Lumen goes dark

Elsewhere, shares of Lumen Technologies were down 21% on Wednesday. The telecom company has sought to pivot toward higher-growth areas, but investors remain skeptical of its turnaround efforts, and its fourth-quarter financial results didn't offer much comfort.

Lumen's financials weakened further. Revenue of $3.8 billion was down 5.5% from year-ago levels even after adjusting for divestitures, with weakness pretty much across the board. The mass-market and public sector segments suffered the worst declines, but enterprise customers also pulled back on spending. Adjusted pre-tax operating earnings were down by a third even excluding special items, with adjusted net income suffering a 19% drop.

Even worse, Lumen expects further declines in 2023. The company projected full-year adjusted pre-tax operating earnings of $4.6 billion to $4.8 billion, down from $5.54 billion in 2022 and $6.09 billion in 2021.

New CEO Kate Johnson said Lumen will concentrate on simplifying the business to invest and execute on high-growth opportunities that serve its customers better. Yet the stock has already dropped 80% since late 2018, and it's unclear whether Lumen's new direction will work out for shareholders.