Capri Holdings Earnings Call: Debt Reset, Growth Delayed
Capri Holdings ((CPRI)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Capri Holdings’ Earnings Call Balances Strategic Progress With Near-Term Strain
Capri Holdings’ latest earnings call struck a cautiously optimistic tone, as management highlighted a significantly strengthened balance sheet, improving underlying profitability and brand momentum at Jimmy Choo, even while acknowledging persistent revenue declines, regional softness and margin pressure from tariffs. Executives leaned on a clear narrative: the heavy lifting on deleveraging and strategic cleanup is largely done, but it will take time—likely until fiscal 2027—for those efforts to translate into a sustained return to revenue and earnings growth.
Balance Sheet Transformation: Versace Sale Slashes Net Debt
The most striking development was Capri’s balance sheet reset following the completed sale of Versace for roughly $1.4 billion in cash. The company ended the quarter with $154 million in cash and $234 million of debt, leaving net debt at about $80 million versus approximately $1.6 billion just one quarter earlier. This dramatic deleveraging materially enhances financial flexibility, reduces balance-sheet risk and gives Capri more room to invest in brand initiatives and store renovations without the overhang of heavy leverage.
Earnings Per Share Climbs Despite Top-Line Pressure
Diluted earnings per share rose about 30% to $0.81 for the quarter, a notable achievement given that total revenue fell. Management attributed the EPS lift to tighter expense control, margin improvements excluding tariffs and more disciplined promotion activity. The result underscores that Capri is managing profitability effectively in a challenging demand environment, even while its headline operating margin remains under pressure.
Underlying Gross Margin Improves When Tariffs Are Stripped Out
Capri reported a 70-basis-point improvement in underlying gross margin at the company level once tariff impacts are excluded. By brand, underlying gross margin at Michael Kors expanded by 60 basis points and at Jimmy Choo by 80 basis points. These gains were driven by healthier full-price sell-throughs and reduced discounting, indicating that product reception and pricing power are quietly improving beneath the surface of reported numbers distorted by tariff costs and mix shifts.
Jimmy Choo Emerges as a Bright Spot
Jimmy Choo stood out as the growth engine this quarter, with revenue up 5% reported (1.9% in constant currency), beating internal expectations. Retail comps turned positive in the low-single-digit range and wholesale posted double-digit growth, including roughly 23% growth in the Americas. Key categories such as the Bonbon group and casual and footwear offerings delivered double- to high-single-digit gains. The consumer database grew 8% year over year, signaling expanding brand reach, and operating margin improved to 1.8% from -3.8%, even though full-year guidance still points to a loss-making margin profile.
Michael Kors: Healthier Full-Price Trends and Stronger Engagement
At Michael Kors, management emphasized improved dynamics in the full-price channel despite broader revenue declines. Full-price sales in those channels grew in the low double digits, average unit retail (AUR) moved higher and the mix skewed toward healthier, non-promotional sales. Digital and marketing initiatives are gaining traction: influencer posts doubled versus last year, with impressions and engagement up about 300%, and the Michael Kors consumer database expanded 8% year over year. The brand also posted three consecutive quarters of improving online traffic, suggesting that the brand’s relevance is holding up even as the company pulls back on promotions and off-price distribution.
Cost Discipline Supports Margins
Operating expenses fell by $32 million compared with the prior year, generating roughly 80 basis points of expense leverage. This cost discipline has been a key driver of the company’s ability to grow EPS and cushion the impact of weaker revenue and higher tariff costs. Management highlighted ongoing efforts to streamline operations and maintain tight control over spending, allowing Capri to redirect capital toward strategic initiatives like store renovations and brand-building.
Investing in Retail: Store Renovations Show Early Payoff
Capri is leaning into a multi-year retail upgrade, with plans to renovate roughly half of its store fleet as well as key department store locations over a three-year period. Early results from renovated stores are encouraging, with meaningful increases in traffic and sales versus the prior year. The company sees these investments as critical to elevating brand perception, improving the customer experience and supporting full-price selling—key levers for restoring top-line growth and margin expansion over time.
Guidance Tightened as Capri Maps a Path to FY 2027 Recovery
Capri narrowed its fiscal 2026 guidance to revenue of $3.45–$3.475 billion, implying a subdued near-term trajectory, with Michael Kors expected at $2.86–$2.875 billion and Jimmy Choo at $590–$600 million. Management is targeting a gross margin of about 61% and operating income around $100 million, with Michael Kors operating margin in the high single digits and Jimmy Choo in the negative low single digits for the year. Operating expenses are projected slightly above $2.0 billion, net interest income at $85–$90 million, and diluted EPS between $1.30 and $1.40 on roughly 120 million shares. Inventory is expected to end the year roughly flat to last year despite lower unit counts, reflecting higher tariffs and FX. While near-term guidance embeds continued margin and revenue headwinds, Capri reiterated that it expects gross-margin expansion and a return to revenue and earnings growth in fiscal 2027, driven by better full-price sell-throughs, sourcing efficiencies and targeted price increases.
Revenue and Margin Headwinds Temper the Story
Despite the strategic progress, Capri’s revenue and reported margin trends remain a clear concern. Total revenue fell 4% to $1.025 billion, down 5.9% in constant currency. GAAP gross margin declined 230 basis points year over year to 60.8%, largely due to higher-than-expected tariffs and the mix of new product, which added roughly 50 basis points of incremental tariff drag. The consolidated operating margin slipped to 7.7% from 9.2%, while Michael Kors’ operating margin declined to 13.9% from 16.2%. Management acknowledged that, for Jimmy Choo, operating margin is still expected to be in the negative low single digits for the full year, underscoring near-term profitability pressure even amid top-line growth.
Michael Kors and Regional Weakness Weigh on Results
Michael Kors, the core brand, remains under pressure. Revenue declined 5.6% on a reported basis and 7.3% in constant currency, with both global retail and wholesale down mid-single digits. Regionally, Michael Kors sales fell 9% in the Americas, rose 6% in EMEA and slipped 1% in Asia. At the total company level, the Americas declined 7%, EMEA grew 5% and Asia fell 4%. Jimmy Choo’s Asia revenue was down roughly 10%, highlighting persistent softness across parts of the Asia-Pacific region and underscoring the challenge of reigniting growth in two major global geographies simultaneously.
Inventory, Wholesale Risk and Strategic Revenue Trade-Offs
Capri ended the quarter with inventory of $663 million, down 6.5% year over year, and expects year-end levels to be roughly flat with last year. A planned reduction in units, offset by higher tariff and FX rates, suggests unit sales may remain constrained in the near term, limiting the speed of any top-line rebound. The company also recorded a $15 million reserve tied to a wholesale customer bankruptcy, affecting Michael Kors, Jimmy Choo and other brands, underscoring some risk in wholesale collections. In addition, management has deliberately reduced promotional activity and cleaned up off-price distribution, including cutting Daigou sales at outlets. These moves are weighing on current revenue—particularly in outlets and the Americas—but are intended to strengthen brand equity and pricing power over time.
Capri’s earnings call painted the picture of a company that has taken decisive steps to repair its balance sheet and protect brand integrity, but is still wrestling with weak demand in key regions, higher tariffs and pressured operating margins. Investors will likely view the massive debt reduction, underlying gross margin improvement and Jimmy Choo’s momentum as meaningful positives. Yet the continued revenue decline at Michael Kors, regional softness in the Americas and Asia, and cautious fiscal 2026 outlook all signal that the turnaround will be gradual. Management’s reiterated goal of returning to growth in fiscal 2027 sets a clear timeline—and the next few quarters will be watched closely for evidence that today’s strategic sacrifices are laying the groundwork for tomorrow’s sustainable recovery.
