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Capri Holdings Down 60% YTD: More Pain Ahead for the Stock?
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Capri Holdings Limited (CPRI - Free Report) is not immune to the effects of the coronavirus outbreak that compelled it to temporarily close vast majority of stores in North America and Europe. The impact of this was clearly visible on the company’s fourth-quarter fiscal 2020 results. The global fashion luxury group reported a negative earnings surprise in the quarter, with the top and the bottom line declining year over year. While Versace contributed to the top-line performance, revenues from Jimmy Choo and Michael Kors were disappointing.
Cumulatively, these factors dulled the shine of the stock. We note that shares of this Zacks Rank #5 (Strong Sell) company have plunged roughly 59.8% so far in the year, compared with the industry’s decline of 31.8%. So, is there more pain ahead for the stock? While the reopening of stores in a phased manner is definitely good news, the company has also cautioned that fiscal 2021 is likely to be meaningfully impacted by the coronavirus.
The company announced that since the stores have reopened, revenue performance has ranged between 50% and 75% of the prior-year levels. However, it informed that in first-quarter fiscal 2021, stores were closed for an average of about 55% of the period compared with 10% in the preceding quarter. Management envisions first-quarter revenues to fall approximately 70% from the prior-year period on account of significant store closures, the gradual recovery in revenues as stores reopen and low wholesale shipments.
Capri Holdings indicated that its department store partners have placed limited replenishment orders during the quarter, and as a result, it has not had a significant level of wholesale shipments. Further, travel retail, which is part of the wholesale channel, is bearing the brunt of decline in tourism.
Management projected a significant loss per share in the first quarter on account of the lower revenues and resulting deleverage. Industry experts believe that demand for high-end fashion clothing and accessories is likely to remain soft, as consumers will remain cautious regarding discretionary purchases. We note that the company expects loss per share in the first half of fiscal 2021 but anticipates to report earnings per share in the second half with gradual improvement in revenues trend across Americas, EMEA and Asia regions.
To address the challenges tied to the pandemic, Capri Holdings has been focusing on maintaining strong liquidity position in fiscal 2021. Notably, the company is cutting operating expenses by approximately $500 million, lowering capital expenditures by about $150 million and suspended the remaining $400 million share buyback plan. The company through efficient inventory management, expects to realize a cash flow benefit of approximately $400 million.
However, we note Thomas Edwards, CFO and COO said, “While we have made significant cost reductions, we do not expect they will be enough to offset the considerable decline in first half revenue.”
SpartanNash Company (SPTN - Free Report) has a trailing four-quarter positive earnings surprise of 17.1%, on average. It carries a Zacks Rank #1.
Sportsmans Warehouse Holdings (SPWH - Free Report) has a trailing four-quarter positive earnings surprise of 32.5%, on average. Currently, it carries a Zacks Rank #2 (Buy).
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Capri Holdings Down 60% YTD: More Pain Ahead for the Stock?
Capri Holdings Limited (CPRI - Free Report) is not immune to the effects of the coronavirus outbreak that compelled it to temporarily close vast majority of stores in North America and Europe. The impact of this was clearly visible on the company’s fourth-quarter fiscal 2020 results. The global fashion luxury group reported a negative earnings surprise in the quarter, with the top and the bottom line declining year over year. While Versace contributed to the top-line performance, revenues from Jimmy Choo and Michael Kors were disappointing.
Cumulatively, these factors dulled the shine of the stock. We note that shares of this Zacks Rank #5 (Strong Sell) company have plunged roughly 59.8% so far in the year, compared with the industry’s decline of 31.8%. So, is there more pain ahead for the stock? While the reopening of stores in a phased manner is definitely good news, the company has also cautioned that fiscal 2021 is likely to be meaningfully impacted by the coronavirus.
The company announced that since the stores have reopened, revenue performance has ranged between 50% and 75% of the prior-year levels. However, it informed that in first-quarter fiscal 2021, stores were closed for an average of about 55% of the period compared with 10% in the preceding quarter. Management envisions first-quarter revenues to fall approximately 70% from the prior-year period on account of significant store closures, the gradual recovery in revenues as stores reopen and low wholesale shipments.
Capri Holdings indicated that its department store partners have placed limited replenishment orders during the quarter, and as a result, it has not had a significant level of wholesale shipments. Further, travel retail, which is part of the wholesale channel, is bearing the brunt of decline in tourism.
Management projected a significant loss per share in the first quarter on account of the lower revenues and resulting deleverage. Industry experts believe that demand for high-end fashion clothing and accessories is likely to remain soft, as consumers will remain cautious regarding discretionary purchases. We note that the company expects loss per share in the first half of fiscal 2021 but anticipates to report earnings per share in the second half with gradual improvement in revenues trend across Americas, EMEA and Asia regions.
To address the challenges tied to the pandemic, Capri Holdings has been focusing on maintaining strong liquidity position in fiscal 2021. Notably, the company is cutting operating expenses by approximately $500 million, lowering capital expenditures by about $150 million and suspended the remaining $400 million share buyback plan. The company through efficient inventory management, expects to realize a cash flow benefit of approximately $400 million.
However, we note Thomas Edwards, CFO and COO said, “While we have made significant cost reductions, we do not expect they will be enough to offset the considerable decline in first half revenue.”
3 Stocks Topping the Chart
Big Lots , a Zacks Rank #1 (Strong Buy) stock, has a trailing four-quarter positive earnings surprise of 62.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
SpartanNash Company (SPTN - Free Report) has a trailing four-quarter positive earnings surprise of 17.1%, on average. It carries a Zacks Rank #1.
Sportsmans Warehouse Holdings (SPWH - Free Report) has a trailing four-quarter positive earnings surprise of 32.5%, on average. Currently, it carries a Zacks Rank #2 (Buy).
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>