What happened
Shares of fashion apparel company Capri Holdings (CPRI 1.85%) fell on Wednesday after the company released financial results for its fiscal fourth quarter of 2023. As of 1 p.m. ET, Capri Holdings stock was down 10% and hitting 52-week lows.
So what
In Q4, which ended April 1, Capri Holdings had revenue of $1.3 billion, which was down 10.5%. However, don't blame the decline in revenue for the stock's performance today. Revenue of $1.3 billion was about 5% higher than management's guidance.
Rather, Capri Holdings stock is down because of its profitability -- or rather its lack thereof. The company had a loss from operations of $40 million compared to operating income of $119 million in the prior-year period. For perspective, management had guided for an 8.5% operating margin in Q4, which would have equated to operating income of over $100 million.
To be fair, Capri Holdings had a $130 million impairment charge in Q4 which pulled down its operating income on an accounting basis. Without this, financial results would have been much closer to expectations.
Now what
For fiscal 2024, Capri Holdings' management expects revenue of $5.7 billion, a 16.5% operating margin, and earnings per share (EPS) of $6.40. For perspective, in fiscal 2023, the company had revenue of $5.6 billion, an operating margin of 12%, and diluted EPS of $4.60. Therefore, management is guiding for modest top-line growth but major improvements in profitability year over year.
Moreover, management for Capri Holdings is rewarding shareholders with profits through share repurchases. It spent $400 million in Q4 and still has $400 million of buyback authorization remaining.
For me, Capri Holdings stock isn't my highest conviction idea for a market-beating investment. That said, the company is still growing, profits should rebound, and shareholders are getting rewarded, which leads me to believe the market is overreacting to its financial results today.
