Executive Summary / Key Takeaways

• Capri Holdings is undergoing a significant strategic reset, divesting its Versace brand to focus resources and investment on reigniting growth at Michael Kors and building momentum at Jimmy Choo, aiming for revenue targets of $4 billion and $800 million respectively over time.
• Recent financial performance has been challenged by softening global luxury demand, wholesale channel declines, and acknowledged missteps in prior brand repositioning efforts, resulting in a Fiscal 2025 revenue decrease of 14.1% and an operating loss of $752 million, including significant impairment charges.
• The company is implementing a Global Optimization Plan to streamline operations and reduce costs, alongside strategic initiatives focused on product innovation, pricing architecture adjustments, leveraging its growing customer database through enhanced data analytics and clienteling, and investing in retail store renovations.
• The pending sale of Versace for $1.375 billion is expected to substantially reduce debt, significantly lower interest expense, and provide capital for reinvestment in the core brands and potential future share repurchases, strengthening the balance sheet for the path ahead.
• While Fiscal 2026 guidance anticipates a further revenue decline (totaling $3.3 - $3.4 billion excluding Versace) and continued operating margin pressure (around low single digits for MK and negative mid-single digits for JC), management expects trends to improve throughout the year, positioning the company for a return to revenue growth and margin expansion in Fiscal 2027 and beyond.

A Luxury Portfolio in Transition: Setting the Scene

Capri Holdings Limited stands as a global fashion luxury group, currently anchored by its iconic Michael Kors and Jimmy Choo brands, following the recent strategic decision to divest Versace. Born from the foundation of the Michael Kors brand over four decades ago, the company expanded its footprint and market positioning through the significant acquisitions of Jimmy Choo and Versace, transforming into a multi-brand luxury house. This evolution, formalized with the name change to Capri Holdings in 2018, was intended to leverage collective expertise, particularly in the lucrative accessories and footwear categories, and build a diversified global presence.

The company operates through distinct segments for each brand, distributing products globally via a multi-channel network encompassing company-operated retail stores (including full-price boutiques and outlets), e-commerce platforms, and a significant wholesale presence through leading department and specialty stores, as well as licensing partners. This diversified model provides broad consumer reach, though it also exposes the company to varying market dynamics and competitive pressures across channels and geographies.

At its core, Capri's strategy has centered on building brand desirability, designing innovative fashion luxury products, and delivering exceptional consumer experiences. This is supported by investments in operational infrastructure, including distribution facilities and a multi-year ERP system implementation aimed at enhancing efficiency and standardizing processes across the group. The company also emphasizes its commitment to corporate social responsibility, focusing on governance, environmental impact, community engagement, and philanthropy.

Operational Foundation and Technological Enablers

Capri Holdings relies on a robust operational framework to support its global business. Manufacturing is primarily outsourced to independent third-party contractors, predominantly located in Asia for Michael Kors and Europe (especially Italy) for Versace and Jimmy Choo. This multi-supplier approach provides flexibility and scalability, though it introduces risks related to supply chain disruptions, labor practices, and geopolitical factors. To enhance control and expertise, the company has strategically acquired luxury footwear manufacturing facilities in Italy, aiming for manufacturing synergies and improved development capabilities across its brands.

Distribution is managed through a network of facilities globally, including owned and leased centers in North America, Europe, and Asia, utilizing both company-operated and third-party logistics. This infrastructure is critical for efficiently delivering products to retail stores, e-commerce customers, and wholesale partners.

Underpinning these operations is a significant investment in information technology. The company is currently engaged in a multi-year Enterprise Resource Planning (ERP) system implementation. While the company appears to lack proprietary product technology in the sense of unique material science or manufacturing processes that provide a quantifiable performance advantage over competitors' products, the strategic focus on IT infrastructure and data analytics represents a crucial technological differentiator for Capri.

The ERP system aims to upgrade and consolidate legacy systems across finance, supply chain, inventory, point-of-sale, and other functions. The stated goals are to create operational efficiencies, standardize business processes, and improve reporting. This initiative, part of the broader Capri transformation program, requires significant investment but is expected to strengthen internal controls and automate manual processes.

Beyond the ERP, the company emphasizes its enhanced data analytics and digital capabilities. These are leveraged to grow the e-commerce business (which represents approximately 19% of net revenues and has been the fastest-growing channel), improve omni-channel capabilities, and foster deeper connections with consumers through targeted marketing and clienteling initiatives. The ability to analyze consumer data is seen as a key tool to tailor merchandise, personalize experiences, and empower sales associates, ultimately aiming to increase store sales densities and drive higher full-price sell-throughs.

The "so what" for investors regarding this technology focus is its potential to improve operational efficiency, reduce costs over the long term, enhance the customer experience in an increasingly digital retail landscape, and provide data-driven insights to refine product strategies and marketing efforts. While not a product-level moat, this investment in digital and operational technology is intended to strengthen the foundational capabilities needed to support future growth and compete effectively in a complex global market.

Competitive Landscape and Strategic Positioning

Capri Holdings operates within the highly competitive global personal luxury goods industry, facing intense rivalry from both established European luxury conglomerates and other American accessible luxury brands. Key publicly traded competitors include giants like LVMH (LVMUY) and Kering (PPRUY), which operate across multiple luxury segments with vast resources and global scale, as well as more direct competitors in the accessible luxury space like Tapestry (TPR) (owner of Coach and Kate Spade) and, until recently, Prada (PRDSY) (which has now acquired Versace).

Compared to LVMH and Kering, Capri's brands, particularly Michael Kors, are generally positioned at more accessible price points, targeting a broader consumer base. While Versace and Jimmy Choo compete more directly in the higher-end luxury segments, they lack the historical scale and diversified portfolio breadth of the European giants. LVMH and Kering benefit from superior operational efficiency stemming from their immense scale and sophisticated supply chains, often resulting in higher gross and operating margins. Their extensive resources also enable larger marketing budgets and faster innovation cycles in certain product categories.

Against Tapestry, a direct competitor in the accessible luxury handbag and accessories market, Capri's Michael Kors brand competes head-to-head. While both companies focus on this segment, Tapestry has shown strong customer acquisition capabilities and a focus on appealing to younger demographics. The competitive dynamics here revolve around brand desirability, pricing strategies, product innovation, and effective multi-channel distribution. Tapestry's operational costs can be lower due to supply chain efficiencies.

Prada, having acquired Versace, now strengthens its position in the high-end luxury market. While CPRI's remaining brands (MK and JC) will no longer directly compete with Versace under Prada's ownership, Prada's overall strength and focus on premium branding and innovation set a high bar in the broader luxury landscape.

Capri's competitive advantages lie in the distinct identities and strong consumer recognition of its remaining brands, particularly Michael Kors' established presence in North America and Europe and Jimmy Choo's authority in luxury footwear. The company's growing global customer database, fueled by marketing and digital engagement, is a key asset for driving direct-to-consumer sales. Furthermore, the strategic decision to significantly reduce debt post-Versace sale positions Capri with a stronger balance sheet compared to some competitors, potentially freeing up capital for investment and shareholder returns.

However, Capri faces competitive disadvantages, notably recent operational inefficiencies and revenue volatility, particularly in the wholesale channel, which has impacted profitability and cash flow generation. The acknowledged missteps in brand repositioning also highlight challenges in consistently executing strategy in a rapidly evolving market. The general availability of manufacturing contractors also lowers barriers to entry for new competitors.

In response to these competitive forces, Capri is strategically positioning itself by refocusing Michael Kors on its core Jet Set heritage and adjusting its pricing architecture to better align with consumer value perception, aiming for higher full-price sell-throughs. For Jimmy Choo, the focus is on expanding high-potential categories like accessories and casual footwear and broadening the pricing architecture to capture a wider luxury consumer base ($500-$1000 range for new fall collections). Initiatives focus on engaging new and loyal consumers and enhancing the retail experience. The global consumer database for Jimmy Choo increased 11% year-over-year in Q4 FY25. The long-term goal is to grow Jimmy Choo revenue to $800 million over time. The company is also implementing a Global Optimization Plan, including store closures (approximately 75 planned for FY26, primarily MK), global headcount reductions, office consolidation, and supply chain/back-office efficiencies, to streamline operations and reduce costs.

Recent Financial Performance and Challenges

Capri Holdings' recent financial performance reflects the challenging global luxury market and internal strategic adjustments. For the fiscal year ended March 29, 2025, total revenue decreased by $728 million, or 14.1%, to $4.44 billion, compared to $5.17 billion in Fiscal 2024. This decline included a net unfavorable foreign currency impact of $32 million. On a constant currency basis, revenue decreased by 13.5%.

This performance was significantly impacted by a slowdown in demand for luxury fashion goods globally, coupled with the effects of strategic initiatives at Versace and Michael Kors that did not perform as expected. Segment-wise, Versace revenue decreased 20.3% to $821 million, Jimmy Choo revenue decreased 2.1% to $605 million, and Michael Kors revenue decreased 14.4% to $3.02 billion in Fiscal 2025 compared to Fiscal 2024.

The shift in revenue mix and lower full-price sell-throughs contributed to a 100 basis point decrease in gross profit margin, falling to 63.6% in Fiscal 2025 from 64.6% in Fiscal 2024. While operating expenses decreased by $2 million, or 0.1%, to $3.58 billion, they increased significantly as a percentage of total revenue, rising to 80.5% in Fiscal 2025 from 69.2% in Fiscal 2024, primarily due to expense deleverage on lower sales.

The company reported a loss from operations of $752 million in Fiscal 2025, a substantial increase from the $241 million loss in Fiscal 2024. This includes significant impairment charges of $797 million in Fiscal 2025 (compared to $575 million in Fiscal 2024), primarily related to Versace and Jimmy Choo goodwill and intangible assets, triggered by the termination of the Tapestry merger, a decline in share price, softening demand, and declining operating results.

Net loss attributable to Capri was $1.18 billion in Fiscal 2025, compared to a net loss of $229 million in Fiscal 2024. This includes a significant income tax provision of $452 million in Fiscal 2025, primarily related to recording a full valuation allowance against the company's net deferred tax assets due to the cumulative loss over the past three years.

Liquidity remains supported by cash flows from operations and available credit facilities. Net cash provided by operating activities was $281 million in Fiscal 2025, down from $309 million in Fiscal 2024. Capital expenditures were $128 million in Fiscal 2025. As of March 29, 2025, consolidated indebtedness stood at approximately $1.5 billion, primarily under the revolving credit facility and term loans. The company was in compliance with its debt covenants.

Strategic Pivot and Future Outlook

In response to recent performance and the termination of the Tapestry merger, Capri Holdings has reevaluated its strategic direction, culminating in the decision to sell the Versace business to Prada for $1.375 billion. This move is central to the company's future strategy, allowing it to focus resources on its two remaining luxury houses, Michael Kors and Jimmy Choo.

For Michael Kors, the strategy involves a clear refocus on the brand's Jet Set heritage, adjusting the pricing architecture to align with historical levels that resonated strongly with consumers, and rebuilding core and signature assortments. The company is investing in dynamic new marketing plans, leveraging data analytics and its growing customer database (up 10% year-over-year in Q4 FY25) to drive consumer engagement and increase store productivity through renovations (approximately 50% of the fleet over three years, costing around $350 million). The long-term goal is to grow Michael Kors revenue to $4 billion over time. Early signs from new accessory groups like Leila, Dakota, and Bryant, priced in the $200-$400 range, show strong full-price sell-throughs and are attracting new consumers. Retail comparable store sales trends improved sequentially from a mid-teens decline in Q4 FY25 to near flat in Q1 FY26 quarter-to-date, with AUR turning positive in full-price retail.

Jimmy Choo's strategy centers on reinforcing its glamorous DNA, expanding its accessories business (targeting approximately 30% of revenue over time from ~20% in FY25), and growing its casual footwear offering (sneakers are already ~10% of footwear sales). The company is broadening its pricing architecture for accessories to appeal to a wider luxury consumer base ($500-$1000 range for new fall collections). Initiatives focus on engaging new and loyal consumers and enhancing the retail experience. The global consumer database for Jimmy Choo increased 11% year-over-year in Q4 FY25. The long-term goal is to grow Jimmy Choo revenue to $800 million over time.

The company is also implementing a Global Optimization Plan, including store closures (approximately 75 planned for FY26, primarily MK), global headcount reductions, office consolidation, and supply chain/back-office efficiencies, to streamline operations and reduce costs.

Looking ahead, Capri Holdings has provided guidance for Fiscal 2026, which will exclude Versace (reclassified as discontinued operations). Total company revenue is expected to be between $3.3 billion and $3.4 billion. This includes an approximate $100 million negative impact from foreign currency and a $60 million impact from planned store closures. Excluding these items, retail revenue is expected to be approximately flat. Wholesale revenue is anticipated to decline low double digits or high single digits in constant currency, a sequential improvement from Fiscal 2025.

Gross margin for Fiscal 2026 is anticipated to be approximately 61% to 61.5% for the combined Michael Kors and Jimmy Choo business (compared to 62.2% in FY25), reflecting the estimated unmitigated impact of tariffs ($60 million increase in COGS assuming 10% baseline and 30% China tariffs), partially offset by strategic initiatives. Operating expense is expected to be around $2 billion, reflecting the removal of Versace and cost reduction initiatives, though modestly increased by foreign currency. Full-year operating income is projected around $100 million. Michael Kors operating margin is anticipated in the low single digits, and Jimmy Choo operating margin in the negative mid-single-digit range. Net interest income is expected between $85 million and $90 million, reflecting lower debt levels post-Versace sale. Diluted earnings per share are guided between $1.20 and $1.40. Capital expenditures for Fiscal 2026 are projected at approximately $110 million.

Management expects trends to improve throughout Fiscal 2026 as strategic initiatives gain traction, positioning the company for a return to revenue growth and margin expansion in Fiscal 2027 and beyond.

Risks and Challenges

Despite the strategic pivot and future optimism, Capri Holdings faces several significant risks and challenges. Macroeconomic pressures, including inflation, rising interest rates, and general economic uncertainty, continue to weigh on consumer spending for discretionary luxury items globally. Changing fashion trends and consumer preferences require constant adaptation in product design and marketing; failure to respond effectively could negatively impact brand image and sales.

Intense competition from larger, more diversified luxury conglomerates and nimble accessible luxury brands poses a continuous threat to market share and profitability, potentially leading to pricing pressure. The reliance on foreign manufacturing contractors and global sourcing activities exposes the company to risks related to supply chain disruptions, labor costs, and geopolitical events.

Import restrictions, tariffs (such as the recently announced US tariffs on goods from key sourcing countries), and potential retaliatory measures could increase costs, necessitating price increases that may impact consumer demand, or limit sourcing options. While mitigation efforts are underway, full offset is not guaranteed in the near term.

The wholesale channel remains a challenge, with anticipated declines in Fiscal 2026. Consolidations or financial difficulties among wholesale partners could further reduce revenues and increase credit risk. The success of retail stores is dependent on consumer traffic, which can be impacted by economic conditions, travel patterns, and shifts to online shopping.

Operational risks include potential disruptions or delays in IT systems (including the ongoing ERP implementation), cybersecurity threats, and the ability to effectively execute the Global Optimization Plan and achieve planned cost savings.

The pending sale of Versace, while strategic, carries risks related to its completion (subject to regulatory approvals) and potential disruption to the Versace business or relationships with stakeholders during the transition period.

Finally, the company's ability to fully utilize its deferred tax assets is dependent on generating sufficient future taxable income, and a valuation allowance has been recorded, which could impact future results if not reversed. Shareholder litigation related to the terminated Tapestry merger also represents an ongoing legal risk.

Conclusion

Capri Holdings stands at a pivotal juncture, strategically reshaping its portfolio through the planned divestiture of Versace to sharpen its focus on the Michael Kors and Jimmy Choo brands. This move, while reflecting the challenges faced in integrating and growing the three houses under one roof amidst a turbulent market, is designed to unlock value by concentrating resources, significantly reducing debt, and enabling targeted investment in the core strengths of its remaining brands.

The recent financial performance underscores the headwinds from a softening global luxury market and the impact of strategic missteps and wholesale channel pressures. However, the underlying narrative is one of a company acknowledging challenges and implementing a comprehensive plan to reset its foundation. The strategic initiatives for Michael Kors and Jimmy Choo, centered on leveraging brand heritage, optimizing product and pricing, enhancing the customer experience through digital capabilities and store renovations, and streamlining operations, offer a clear roadmap for future growth.

While the Fiscal 2026 outlook reflects continued near-term pressures, particularly from anticipated wholesale declines and tariff impacts, management's expectation for improving trends throughout the year and a return to revenue growth and margin expansion in Fiscal 2027 and beyond provides a forward-looking perspective. The successful execution of the Versace sale and the subsequent strengthening of the balance sheet will be critical enablers of this trajectory. For investors, the story of Capri Holdings is now one of a focused luxury group betting on the revitalization of Michael Kors and the continued ascent of Jimmy Choo, backed by a leaner structure and enhanced financial flexibility, navigating a competitive landscape with a renewed strategic clarity.