Factors Shaping Capri Holdings (CPRI) Q4 Earnings Outcome

Capri Holdings Limited CPRI, formerly known as Michael Kors Holdings Limited, is slated to release fourth-quarter fiscal 2019 results on May 29. In the trailing four quarters, this designer, marketer, distributor and retailer of branded apparel and accessories has outperformed the Zacks Consensus Estimate, with an average positive earnings surprise of 18.5%. In the last reported quarter, the company has a positive earnings surprise of 12.1%.

The Zacks Consensus Estimate for the quarter under review is pegged at 61 cents, suggesting a decline of 3.2% from the year-ago period. We note that the Zacks Consensus Estimate has remained unchanged in the last 30 days. The consensus estimate for revenues stands at $1,334 million, indicating an improvement of about 13.1% from the year-ago quarter.

Factors Likely to Influence Performance

Capri Holdings’ commitment toward deploying resources to expand product offerings, build “shop-in-shops”, and upgrading its information system and distribution infrastructure is likely to drive sales in the to-be-reported quarter. Moreover, “Runway 2020” plan, cost containment efforts, inventory management, accretive acquisitions such as that of Jimmy Choo and Versace, and focus on the e-commerce platform also bode well.

The company is also expanding its product mix beyond handbags, into men’s, footwear and women’s ready to wear. The company is focused on enhancing business from the men’s category either through standalone stores or by adding offerings in existing lifestyle outlets in North America, Europe and Asia.

However, we note that MK Wholesale and MK Licensing revenues have been declining for quite some time now. During the third quarter of fiscal 2019, MK Wholesale revenue fell 8.3% owing to the company’s strategy to lower inventory and raise full price sell through during the festive season. Meanwhile, MK Licensing revenue decreased 9.9% year over year. Management highlighted that continued decline in fashion watches and lower jewelry revenue hurt the results. Any softness in these will impact the upcoming quarterly results.

Moreover, costs associated with investments in e-commerce expansion, technological advancements and global infrastructure (including new store openings and international expansions) remain a threat to margins. Management had earlier guided fourth-quarter operating margin to come in at 10.3%, suggesting a decline of 280 basis points from the prior-year period.

Capri Holdings Limited Price, Consensus and EPS Surprise


Capri Holdings Limited Price, Consensus and EPS Surprise

Capri Holdings Limited price-consensus-eps-surprise-chart | Capri Holdings Limited Quote

What the Company Guided?

Management had earlier projected fourth-quarter fiscal 2019 total revenue to be about $1.33 billion. Revenues from Michael Kors are expected to be approximately $1.07 billion, including a low-single digit fall in comps close to the upper end of the range. Jimmy Choo revenue is projected to be about $130 million, including low-single digit growth in comps. Versace revenue is estimated to be approximately $130 million. The company forecast earnings in the range of 56-61 cents, including dilution from Versace of about 15 cents.

For fiscal 2019, management had previously forecast total revenue to be approximately $5.22 billion. Michael Kors revenue is estimated to be roughly $4.51 billion, including a low-single digit fall in comps. Revenues from Jimmy Choo and Versace are expected to be about $580 million and $130 million, respectively. Operating margin is now expected to be roughly 17.3%. Management envisions earnings in the band of $4.90-$4.95 per share, including dilution from Jimmy Choo of approximately flat to 5 cents and from Versace of about 15 cents.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Capri Holdings is likely to beat estimates this quarter. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Capri Holdings has a Zacks Rank #2 but an Earnings ESP of 0.00%, which makes surprise prediction difficult.

3 Stocks With Favorable Combination

Here are three companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Abercrombie & Fitch ANF has an Earnings ESP of +0.26% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel GIII has an Earnings ESP of +5.35% and a Zacks Rank #3.

Costco COST has an Earnings ESP of +2.10% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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