Capri Holdings Limited (CPRI): Navigating the Changing Luxury Landscape

Published on March 13, 2025 | Ticker: CPRI

Business Overview and History

Capri Holdings Limited (CPRI) is a global fashion luxury group that owns three iconic brands - Versace, Jimmy Choo, and Michael Kors. Over the years, the company has weathered various challenges, from macroeconomic headwinds to brand repositioning efforts, as it strives to solidify its position in the highly competitive luxury market.

Capri Holdings was incorporated in the British Virgin Islands on December 13, 2002, as Michael Kors Holdings Limited. The company's initial focus was on the design, marketing, distribution, and retail of branded women's and men's accessories, apparel, and footwear under the Michael Kors brand name. In 2016, the company faced challenges due to a shifting retail landscape and changing consumer preferences, which impacted its Michael Kors brand. This led to a focus on elevating the brand through product innovation, marketing initiatives, and optimizing its retail footprint.

The company changed its name to Capri Holdings Limited in 2018 and expanded its portfolio of luxury brands through the acquisitions of Versace and Jimmy Choo. Versace, founded in 1978 by Gianni Versace, is known for its iconic Italian glamour and luxury fashion. Jimmy Choo, founded in 1996, is a leading global luxury accessories brand known for its high-end women's shoes, handbags, and other accessories.

The acquisition of Versace in 2018 for $2.1 billion marked a significant milestone, as Capri sought to bolster its luxury credentials and capitalize on the iconic Italian fashion house's strong brand recognition. This strategic decision was seen as a way to diversify the company's offerings and capitalize on the continued strength of the luxury market. However, integrating Versace and streamlining operations across the group's three brands proved challenging at times.

Despite these obstacles, Capri has demonstrated resilience and the ability to adapt to changing market conditions. The company has invested heavily in digital capabilities, data analytics, and supply chain optimization to better serve its customers across its portfolio of iconic luxury brands. Through disciplined execution and a focus on brand elevation, Capri has established itself as a leading global fashion luxury group.

Financial Performance and Ratios

Capri's financial performance has been mixed in recent years, as the company navigates the evolving luxury landscape. In the fiscal year ended March 31, 2024, the company reported total revenue of $5.17 billion, a decline of 8% compared to the prior year. Net income for the same period was a loss of $229 million, down from a profit of $616 million in the previous year.

The company's gross profit margin for fiscal 2024 stood at 64.4%, a decrease of 60 basis points year-over-year, reflecting the impact of lower full-price sell-throughs across the group. Capri's operating margin also declined, from 12.1% in fiscal 2023 to 7.0% in fiscal 2024, primarily due to the significant impairment charges recorded during the year.

Financials

Despite the recent challenges, Capri maintains a relatively strong balance sheet, with a debt-to-equity ratio of 2.92 as of December 28, 2024. The company's cash and cash equivalents stood at $356 million at the end of the third quarter of fiscal 2025, providing it with the financial flexibility to weather near-term headwinds and invest in its strategic initiatives.

For the fiscal year 2024, Capri reported annual revenue of $5.17 billion and a net loss of $229 million. The company generated annual operating cash flow of $309 million and free cash flow of $120 million.

In the most recent quarter (Q3 FY 2025), Capri reported quarterly revenue of $1.26 billion and a net loss of $546 million. The year-over-year revenue decreased by 12%, primarily due to softening demand for fashion luxury goods globally and strategic initiatives at Versace and Michael Kors that did not perform as expected.

Performance by Geographic Markets:

The Americas (US, Canada, Latin America) accounted for 55% of total revenue in FY 2024.
EMEA accounted for 29% of total revenue in FY 2024.
Asia accounted for 16% of total revenue in FY 2024.

Liquidity

The company's liquidity position remains stable, with $356 million in cash and cash equivalents as of December 28, 2024. This provides Capri with a buffer to navigate the current challenging market conditions and invest in its strategic initiatives.

Additional liquidity metrics include:

Available Credit Line: $1.5 billion revolving credit facility, with $978 million available as of December 28, 2024
Current Ratio: 1.21
Quick Ratio: 0.59

Segmental Performance

Capri's three main business segments - Versace, Jimmy Choo, and Michael Kors - have each faced unique challenges in recent years.

The Versace brand, which accounts for approximately 18% of the company's total revenue, saw a 15% year-over-year decline in the third quarter of fiscal 2025. This was attributed to softening global demand for fashion luxury goods, as well as the brand's ongoing repositioning efforts to elevate its luxury positioning. For the three months ended December 28, 2024, Versace segment revenue decreased $34 million, or 15.0%, to $193 million compared to the prior year period. Versace's loss from operations was $21 million for the three-month period, compared to a loss of $14 million in the prior year, with the operating margin decreasing from a loss of 6.2% to a loss of 10.9%.

For the nine months ended December 28, 2024, Versace segment revenue decreased $153 million, or 20.0%, to $613 million compared to the prior year period. Versace recorded a loss from operations of $41 million for the nine-month period, compared to income from operations of $24 million in the prior year, with the operating margin decreasing from 3.1% to a loss of 6.7%.

The Jimmy Choo segment, representing roughly 14% of total revenue, reported a 4% decline in the third quarter, impacted by the overall slowdown in luxury demand. The brand's focus on expanding its accessories and casual footwear offerings has shown some promise, with the Cinch Bag and casual styles performing well during the period. For the three months ended December 28, 2024, Jimmy Choo segment revenue decreased $7 million, or 4.2%, to $159 million compared to the prior year period. Jimmy Choo recorded a loss from operations of $6 million for the three-month period, compared to income from operations of $4 million in the prior year, with the operating margin decreasing from 2.4% to a loss of 3.8%.

For the nine months ended December 28, 2024, Jimmy Choo segment revenue decreased $9 million, or 1.9%, to $472 million compared to the prior year period. Jimmy Choo recorded a loss from operations of $7 million for the nine-month period, compared to income from operations of $11 million in the prior year, with the operating margin decreasing from 2.3% to a loss of 1.5%.

The Michael Kors brand, Capri's largest segment at 68% of total revenue, experienced a 12% decline in the third quarter. The company's efforts to reposition the brand, including reducing its signature product offering and attempting to appeal to a younger audience, did not resonate with its core customer base, leading to the underperformance. For the three months ended December 28, 2024, Michael Kors segment revenue decreased $125 million, or 12.1%, to $909 million compared to the prior year period. Michael Kors recorded income from operations of $147 million for the three-month period, compared to $219 million in the prior year, with the operating margin decreasing from 21.2% to 16.2%.

For the nine months ended December 28, 2024, Michael Kors segment revenue decreased $378 million, or 14.0%, to $2.32 billion compared to the prior year period. Michael Kors recorded income from operations of $309 million for the nine-month period, compared to $518 million in the prior year, with the operating margin decreasing from 19.2% to 13.3%.

Outlook and Guidance

For the fourth quarter of fiscal 2025, Capri expects total revenue to decline by approximately 20% year-over-year to $975 million, with the Versace, Jimmy Choo, and Michael Kors brands projected to generate $200 million, $125 million, and $650 million in revenue, respectively. This includes a $25 million foreign currency headwind and $15 million impact from store closures. The company anticipates retail sales to decline in the mid-teens, excluding the impact of foreign currency and store closures, while wholesale revenue is expected to decline approximately 30%.

The company anticipates a flat gross margin in the fourth quarter compared to the prior-year period, as it continues to navigate the challenging macroeconomic environment and the impact of its strategic initiatives. Capri expects to report an operating loss of $25 million for the quarter.

For the full fiscal year 2025, Capri expects revenue of approximately $4.4 billion and operating income of approximately $100 million.

Looking ahead to fiscal 2026, the company has provided preliminary guidance, forecasting total revenue of approximately $4.1 billion, including a $100 million negative impact from foreign currency and $60 million from planned store closures. Capri expects retail revenue to be approximately flat versus fiscal 2025, excluding the impact of FX and store closures, while wholesale revenue is projected to decline low double digits or high single digits in constant currency.

By brand, Capri expects Versace revenue of approximately $800 million (including a $25 million negative FX impact), Jimmy Choo revenue of approximately $550 million (including a $15 million negative FX impact), and Michael Kors revenue of approximately $2.75 billion (including a $60 million negative FX impact).

The company anticipates modest gross margin expansion in fiscal 2026, with momentum building through the year. Operating expenses are expected to decline approximately $200 million, including $150 million of new cost reduction initiatives. Capri forecasts operating income of approximately $150 million for fiscal 2026.

For fiscal 2027, Capri expects to return to revenue growth, with continued operating margin expansion.

Risks and Challenges

Capri faces several risks and challenges that could impact its future performance. The ongoing softness in global luxury demand, particularly in China, poses a significant threat to the company's growth aspirations. The brand repositioning efforts at Versace and Michael Kors also carry execution risks, as the company navigates the delicate balance between elevating its luxury positioning and maintaining the appeal of its core customer base.

Additionally, the highly competitive nature of the luxury market, with the presence of well-established European conglomerates, presents a constant challenge for Capri to differentiate its brands and capture market share.

The company's reliance on its wholesale channel, which has been in decline, also necessitates a successful execution of its strategy to stabilize and potentially grow this revenue stream.

Geopolitical tensions, trade uncertainties, and the potential for further macroeconomic disruptions, such as recessions or inflationary pressures, could also weigh on Capri's performance in the coming years.

Recent Developments

The company recently terminated a merger agreement with Tapestry, Inc. in November 2024 after the U.S. Federal Trade Commission filed a lawsuit to block the transaction. This was a significant distraction for the management team over the past year and may have impacted the company's ability to fully focus on its strategic initiatives.

Conclusion

Capri Holdings has navigated a turbulent period as it seeks to solidify its position in the evolving luxury landscape. The company's diversified brand portfolio, anchored by the iconic Versace, Jimmy Choo, and Michael Kors labels, provides a foundation for growth, but execution risks and macroeconomic headwinds continue to challenge the company's performance.

As Capri embarks on its strategic initiatives to reposition its brands, improve operational efficiency, and strengthen its balance sheet, investors will closely monitor the company's ability to adapt to the changing market dynamics and deliver sustainable long-term growth. The company's success in this endeavor will be crucial in determining its future trajectory within the competitive luxury industry.

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