Capri Holdings Limited (CPRI) is a global designer, marketer, distributor, and retailer of branded women’s and men’s apparel, footwear, and accessories. The company is headquartered in London and operates through three segments: Versace; Jimmy Choo; and Michael Kors.
Over the past three years, CPRI’s revenues have exhibited a 1.8% CAGR, while its EBITDA has grown at 4.9% CAGR. The company increased its net income at a 34.9% CAGR during the same period.
Despite an uncertain macroeconomic environment and other headwinds, CPRI maintained its earnings per share guidance for the year, reflecting higher gross margin expectations, diligent expense management, and reduced share count due to its ongoing share repurchase program.
During the fiscal second quarter, ended October 1, 2022, CPRI repurchased approximately 7.1 million ordinary shares for roughly $350 million in open market transactions. Since the end of the second quarter, the company has repurchased another 2.3 million ordinary shares for approximately $100 million.
Let’s closely examine the factors that make it worthy of investment.
Solid Financials
For the fiscal second quarter, ended October 1, 2022, CPRI’s revenue increased 8.6% year-over-year to $1.41 billion. During the same period, the company’s adjusted gross profit and adjusted income from operations also increased 7.8% and 16.2% year-over-year to $948 million and $280 million, respectively.
Consequently, CPRI’s adjusted quarterly net income came in at $245 million, or $1.79 per share, up 4.3% and 17% year-over-year, respectively.
Excellent Capital Allocation by Management
CPRI’s trailing 12-month gross profit margin of 65.38% is higher than the industry average of 35.46%. Also, the company’s trailing-12-month EBITDA margin and net income margin of 20.40% and 14.10% comfortably exceed the industry averages of 11.11% and 5.14%, respectively.
Additionally, CPRI’s trailing-12-month ROCE, ROTC, and ROTA of 34.90%, 11.28%, and 11.50% are significantly higher than the respective industry averages of 12.92%, 6.59%, and 4.54%.
Encouraging Street Expectations
Analysts expect CPRI’s revenue and EPS for fiscal 2023 to increase 1.1% and 10.2% year-over-year to $5.71 billion and $6.84, respectively. Both metrics are expected to keep increasing over the next two fiscal years to come in at $6.30 billion and $7.93, respectively.
Moreover, CPRI has also impressed by surpassing consensus estimates in each of the trailing four quarters.
Positive Momentum in Price Action
Due to bullish sentiments, CPRI’s stock has gained 6% over the past month and 26.2% over the past six months to close the last trading session at $56.43, above its 50-day and 200-day moving averages of $51.82 and $48.20, respectively.
POWR Ratings Reflect Promise
CPRI’s investment credentials are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CPRI has a B grade for Sentiment and Quality, consistent with optimistic analyst estimates and impressive profitability.
CPRI is ranked #9 of 66 stocks in the Fashion & Luxury industry.
Click here for additional POWR Ratings for CPRI’s Growth, Value, Momentum, and Stability.
Bottom Line
CPRI had accounted for prolonged covid restrictions in China while maintaining its EPS guidance for the fiscal year. Despite the recent surge in infections, China is reversing its stance on Covid restrictions and opening up its borders, which bodes well for the company.
In addition, CPRI’s exceptional management and relative immunity of its luxury brands to a likely economic slowdown keep the company in good stead and make it worthy of investment.
How Does Capri Holdings Limited (CPRI) Stack up Against Its Peers?
While CPRI has an overall POWR Rating of B, which equates to a Buy, investors could also consider looking at its B-rated industry peers: Hugo Boss AG (BOSSY), Chico's FAS, Inc. (CHS), and J. Jill, Inc. (JILL).
CPRI shares were trading at $55.58 per share on Wednesday afternoon, down $0.85 (-1.51%). Year-to-date, CPRI has declined -14.37%, versus a -19.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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