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Why Capri Holdings Stock Fell despite Beating Q4 Estimates

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Q4 results

Capri Holdings (CPRI) stock fell 9.8% on May 29 even after the company’s results for the fourth quarter of fiscal 2019 exceeded analysts’ expectations. The fourth quarter of fiscal 2019 ended on March 30. The company’s stock declined as the guidance issued for the first quarter of fiscal 2020 lagged expectations.

Capri Holdings’ fourth-quarter revenue grew 13.9% on a year-over-year basis to $1.34 billion and came in ahead of analysts’ forecast of $1.33 billion. Excluding the impact of currency headwinds, the revenue of the luxury brands house grew 16.5%.

 

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Capri Holdings’ top-line growth was driven by a 28.7% rise in Jimmy Choo’s revenue to $139 million and a $137 contribution from Versace (acquired on December 31, 2018). Jimmy Choo’s revenue growth was driven by the addition of new stores, a favorable shift in the timing of a wholesale shipment of $10 million from fiscal 2020’s first quarter, and continued strength in footwear.

However, revenue from the company’s largest brand, Michael Kors, declined 0.4% to $1.07 billion with same-store sales declining 1.0% in the fourth quarter. Continued weakness in watches and jewelry negatively impacted the brand’s same-store sales by 170 basis points. The brand’s same-store sales declined in the Americas region and offset the growth in Europe and Asia. Capri Holdings’ fourth-quarter adjusted EPS of $0.63 was flat on a YoY basis and exceeded analysts’ expectation of $0.61.

Q1 outlook

Capri Holdings expects its EPS in the first quarter of fiscal 2020 in the range of $0.85 to $0.90. This guidance takes into account dilution of about $0.15 due to investments associated with the Versace brand. The company’s first-quarter earnings are also expected to be adversely impacted by unfavorable currency headwinds, higher investments associated with the Jimmy Choo brand, and a decline in the operating income of Michael Kors due to lower wholesale and licensing revenue.

Capri Holdings’ EPS guidance lagged analysts’ expectation of $1.23. The company’s first-quarter revenue forecast of $1.36 billion was also lower than analysts’ expectation of $1.44 billion. The company expects Michael Kors’ revenue to decline moderately in the first quarter.

Capri Holdings stock was down 7.5% on a year-to-date basis as of May 29, lagging the 11.0% rise in the S&P 500 Index.

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