On Thursday, Bernstein analysts maintained their Market Perform rating and $22.00 price target for Capri Holdings (NYSE:CPRI). The decision comes after the company predicted negative sales growth and low single-digit percentage (LSD%) margins for another year, which led to a 10% decline in the stock on Wednesday. According to InvestingPro data, the stock has fallen 16.37% in the past week alone, with analyst targets ranging from $19 to $52.11. This drop effectively erased the previous gains fueled by the anticipation of a potential sale of the Versace brand.
The analysts noted that despite the setback, the prospect of divesting Versace—and possibly Jimmy Choo—remains the most favorable scenario, potentially unlocking a 24% increase in value. However, they cautioned that until such a transaction occurs, the slower underlying growth is likely to dampen investor sentiment and impact the stock's valuation. InvestingPro analysis reveals the company maintains impressive gross profit margins of nearly 64%, though revenue declined 12.34% in the last twelve months. Subscribers can access 8 additional key insights about CPRI's financial health.
Capri Holdings' management has had to reconsider their strategy due to the challenges faced. After initially elevating their brands and reducing wholesale distribution, they observed a decline in demand in 2024, as higher-income consumers reduced spending and sought more affordable options. In response, the company is now shifting gears to expand its presence in the Wholesale market, lowering prices, and targeting a wider audience of shoppers looking for value in the affordable luxury segment. This strategic pivot comes as InvestingPro data shows the stock has declined over 53% in the past year, though analysts project a return to profitability this fiscal year.
The analysts highlighted that this move by Capri Holdings' management is a retreat from their previous brand elevation efforts, which involved increasing prices and cutting back on wholesale channels during the 2022-23 period. The change in direction aims to stabilize sales by appealing to consumers who are increasingly price-conscious yet still interested in premium and luxury items. With a current ratio of 1.21, the company maintains adequate liquidity to support this strategic shift.
In other recent news, Capri Holdings Limited experienced a downturn in its Q4 earnings, falling short of analyst estimates. The luxury fashion group, which owns brands such as Versace, Jimmy Choo, and Michael Kors, reported adjusted earnings per share of $0.45, notably lower than the anticipated $0.68. Revenue also saw a decrease, dropping 11.6% YoY to $1.26 billion, aligning with estimates.
Versace, Jimmy Choo, and Michael Kors all reported declines in sales, with Versace experiencing the most significant drop of 15%. The company's adjusted operating margin also contracted from 12.1% to 6.0%, reflecting expense deleverage on lower revenue.
In light of these recent developments, Capri Holdings has stated its intent to reevaluate strategic initiatives to improve current sales trends. Looking forward, the company projects fiscal 2025 revenue of approximately $4.4 billion and adjusted operating income of about $100 million. For fiscal 2026, the company anticipates revenue of around $4.1 billion and adjusted operating income of approximately $150 million.
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