Versace Sale Would Support Parent Capri Holdings Lean Portfolio: Analyst

Core Viewpoint - Telsey Advisory Group analyst Dana Telsey maintains a Market Perform rating on Capri Holdings Limited (CPRI) and raises the price forecast from $17 to $20, despite the company reporting a larger-than-expected adjusted loss in Q4 [1][2]. Financial Performance - Capri Holdings reported a fourth-quarter adjusted loss of $4.90 per share, missing the expected loss of 14 cents, while quarterly sales reached $1.035 billion, a decline of 15.4% year over year, but exceeding the analyst consensus estimate of $986.57 million [1][2]. - On a constant currency basis, total revenue decreased by 14.1% [1]. Strategic Developments - The company has made significant announcements since Q3 FY25, including long-term brand-specific targets, the departure of CFO/COO Tom Edwards, and the $1.375 billion sale of Versace to Prada [2][3]. - These developments come after a failed acquisition attempt by Tapestry, Inc. in late 2024, with management aiming to stabilize operations through FY26 and anticipate a return to growth in FY27 [3]. Brand Performance - Michael Kors, Capri's largest brand, has experienced ten consecutive quarters of revenue declines, indicating substantial efforts are needed for recovery [3][4]. - The sale of Versace is expected to enhance margins and improve the balance sheet, allowing for potential share buybacks, although challenges remain for the Michael Kors and Jimmy Choo brands [4]. Production and Cost Implications - For FY26, most of Michael Kors' production will be sourced from Vietnam, Cambodia, and Indonesia, with only about 5% of total U.S. production tied to China [5]. - Under current tariff assumptions, the company anticipates a cost impact of approximately $60 million, potentially reducing gross margin by around 100 basis points [5]. Future Projections - Telsey projects FY26 revenue to decline by 24.3% to $3.36 billion, a sharper drop than the previously estimated 7.7% fall, while raising the FY26 EPS estimate to $1.33 from $1.02 [6]. - For FY27, Capri Holdings expects a return to revenue growth, supported by operating margin expansion due to ongoing cost-cutting initiatives [7].