Executive Summary / Key Takeaways

• Capri Holdings is undergoing a significant strategic pivot, divesting Versace to Prada for $1.38 billion to focus entirely on re-energizing its core Michael Kors and Jimmy Choo brands and substantially reducing debt.
• Early indicators suggest strategic initiatives are gaining traction, with Michael Kors' full-price retail comparable store sales turning positive in Q2 Fiscal 2026, driven by refined pricing and compelling new product.
• The company is prioritizing investment in brand elevation through store renovations and advanced data analytics, aiming for sustainable revenue and earnings growth in Fiscal 2027, supported by gross margin expansion and operating expense leverage.
• Despite macroeconomic headwinds and tariff impacts, Capri Holdings projects full-year Fiscal 2026 revenue between $3.375 billion and $3.45 billion, with diluted EPS between $1.20 and $1.40, reflecting diligent cost management.
• A new $1 billion share repurchase program, authorized post-Versace sale, signals a commitment to enhanced shareholder returns and a strengthened balance sheet.

A Strategic Reset: Focusing on Core Luxury

Capri Holdings Limited, a global fashion luxury group, is embarking on a transformative journey, recalibrating its portfolio and strategy to unlock the full potential of its Michael Kors and Jimmy Choo brands. This strategic pivot follows the anticipated sale of its Versace business to Prada S.p.A. (PRDSY) for $1.38 billion in cash, a move expected to significantly de-lever the balance sheet and provide substantial financial flexibility. The company's history, spanning over four decades with the iconic Michael Kors brand, has seen it evolve into a multi-brand entity, but recent market dynamics and internal strategic missteps have necessitated a sharpened focus.

The luxury fashion industry operates within a dynamic global economic environment, characterized by inflationary pressures, geopolitical instability, and evolving consumer spending habits. Purchases of discretionary luxury items are particularly sensitive to these macroeconomic conditions. In this competitive landscape, Capri Holdings positions itself in the accessible to mid-tier luxury segments, with Michael Kors and Jimmy Choo catering to distinct consumer preferences. While larger luxury conglomerates like LVMH and Kering dominate the high-end, aspirational luxury market with robust brand portfolios and consistent growth, Capri Holdings competes directly with peers such as Tapestry Inc. in accessible luxury and Burberry Group PLC (BBRY) in certain apparel and accessories categories.

Capri Holdings' overarching strategy is to build brand desirability through compelling storytelling, exciting fashion luxury products, and engaging omnichannel consumer experiences. This involves a renewed emphasis on each brand's unique DNA, supported by strategic pricing adjustments and targeted marketing. The company's foundational strengths lie in its established brand recognition, global distribution network, and a growing reliance on technological differentiation.

Technological Edge: Data Analytics Driving Consumer Engagement

A critical, yet often understated, differentiator for Capri Holdings is its investment in advanced data analytics capabilities and the replatforming of its e-commerce infrastructure. The company has invested over $100 million in these areas over the last couple of years, and these investments are now yielding tangible returns. This core technology provides a significant competitive advantage by enabling deeper consumer understanding, anticipating purchasing behavior, and facilitating more informed strategic decisions.

The benefits are quantifiable: Michael Kors' global consumer database increased by 9% year-over-year, while Jimmy Choo's saw a similar 9% year-over-year expansion. These increases are directly attributed to the enhanced data analytics capabilities, allowing for more personalized connections with consumers and reigniting brand desirability. For investors, this technological edge translates into a stronger competitive moat, as it enhances customer loyalty, optimizes marketing spend, and improves inventory management efficiency. The ability to leverage a global consumer database exceeding 90 million for Michael Kors, for instance, allows for targeted campaigns and product development, directly contributing to higher full-price sell-throughs and improved margins. This strategic use of data analytics is foundational to Capri's long-term growth strategy, enabling it to adapt more quickly to consumer trends and operational challenges than competitors relying on less sophisticated insights.

Michael Kors: Reclaiming the Jet Set Aesthetic

The Michael Kors brand, a cornerstone of Capri Holdings, is undergoing a significant revitalization. After a period of strategic missteps that saw the brand attempt to elevate price points too quickly and reduce its signature product offering, alienating its core consumer, Michael Kors is refocusing on its heritage. The new strategy emphasizes a "modern jet-set lifestyle," communicated through compelling "Hotel Stories" marketing campaigns featuring global ambassadors like Suki Waterhouse and JC-T. This storytelling aims to reignite brand desirability and has already led to a "further increase in brand affinity" among consumers.

Operationally, the brand is refining its pricing architecture to align with historical, successful levels. This has resulted in "full price channel comps turning positive in the second quarter" of Fiscal 2026, a significant milestone. New accessory groups such as Hamilton Moderne, Leila, and Nolita, priced in the $200-$400 range, are experiencing "strong full price sell-throughs," driving growth in the full-price channel. The brand is also seeing "stronger engagement with millennials and Zs," indicating a successful broadening of its appeal. While full-price average unit retail (AURs) are "down slightly" due to strategic price adjustments, the increase in sell-throughs is a positive trade-off.

The outlet channel, however, faces ongoing challenges. Revenue here has been impacted by a deliberate strategy to reduce promotional activity and a past over-reliance on core/basic styles. Management is "strategically raising prices in the outlet business" and reducing promotional intensity, which is expected to impact revenue in the near term but improve AURs and brand health long-term. New, more on-trend product is slated for Q3 and Q4 Fiscal 2026, and the company plans to introduce full-price "Icons" product into the outlet channel in September, a strategy that has proven successful for other brands. The "real shutdown" of the daigou business, accounting for "over 60% of the decline" in the outlet segment, is a deliberate move to enhance brand health.

Michael Kors is also investing heavily in its retail footprint, planning to renovate approximately 50% of its store fleet and key department store locations over the next three years, with an estimated cost of $350 million. Early results from renovated flagships in London and New York, featuring new "Jet Set Lounges," show "significant increases in traffic and sales." The company expects to close 75 underproductive Michael Kors stores in Fiscal 2026, largely completing its store rationalization program. While North America retail is not expected to return to positive growth until Q2 Fiscal 2027, the overall trajectory is positive.

Jimmy Choo: Expanding Beyond Footwear

Jimmy Choo, known for its distinctive glamour and daring spirit, is strategically expanding its product offering to capture a broader segment of the luxury market. While retail sales improved sequentially in Q2 Fiscal 2026, declining low single digits, wholesale revenue decreased mid-teens due to shipment timing. The brand's focus on developing accessories and expanding casual footwear is gaining traction.

In accessories, the Bon Bon and Cinch groups continue to perform strongly. New introductions like the Curve group and Bar Hobo group, strategically priced "under $1,500," are seeing "strong initial consumer response" and attracting new customers. This move addresses a perceived gap in the luxury market, where "significant pricing increase in the upper end of luxury" has led to "customer resistance." Jimmy Choo is also making strides in casual footwear, with growth in flats, low heels, and the Diamond Flex sneaker, alongside the successful launch of the Jelly ballerina flat retailing at $395. This diversification aims to leverage the brand's strong equity and design authority to achieve a revenue target of $800 million over time and improve operating margins. The company's vertical integration, producing "over 50% of our own product in-house" across two factories in Italy, provides a strong operational foundation and quality control.

Financial Performance and Outlook

Capri Holdings' recent financial performance reflects the ongoing strategic adjustments and a challenging macroeconomic environment. For the three months ended September 27, 2025 (Q2 Fiscal 2026), total revenue decreased 2.5% to $856 million on a reported basis, a sequential improvement from the prior quarter. Michael Kors' revenue decreased 1.8% to $725 million, while Jimmy Choo's declined 6.4% to $131 million.

Gross profit for the quarter decreased 4.6% to $522 million. Michael Kors' gross profit margin declined by 180 basis points, primarily due to "the unfavorable impact of recently enacted U.S. import tariffs." Conversely, Jimmy Choo's gross profit margin increased by 160 basis points, driven by "favorable channel mix and higher full price sell-throughs." Selling, general and administrative expenses decreased 3.2%, benefiting from "cost savings initiatives" at Michael Kors and reduced corporate expenses from completed "Capri transformation projects." The company reported a loss from operations of $12 million, compared to $6 million in the prior year. Net interest income improved by $7 million, attributed to "higher interest income from our net investment hedges and lower effective interest rates on our outstanding debt." The net loss from continuing operations was $34 million.

For the full Fiscal 2026, Capri Holdings reiterates its revenue guidance of $3.375 billion to $3.45 billion, with Michael Kors revenue between $2.8 billion and $2.875 billion, and Jimmy Choo revenue between $565 million and $575 million. Full-year gross margin is anticipated to be approximately 60.5% to 61%. The unmitigated tariff impact is estimated at approximately $85 million for the full year, with the "hardest effect" expected in Q4 Fiscal 2026 and Q1 Fiscal 2027. However, management expects to mitigate "the majority of the impact from higher tariffs" in Fiscal 2027 through sourcing optimization, cost efficiencies, and modest price increases. Operating expenses are projected at approximately $2 billion, leading to an operating income of approximately $100 million. Diluted earnings per share are expected to be between $1.20 and $1.40.

The company's liquidity remains robust, with primary sources including cash flows from operations and available credit facilities. The $1.38 billion proceeds from the Versace sale are earmarked to "significantly reduce debt," substantially strengthening the balance sheet. Net cash used in operating activities was $13 million for the six months ended September 27, 2025, primarily due to timing of payments and a decrease in net income, partially offset by lower inventory purchases.

A new $1 billion share repurchase program, expected to commence in Fiscal 2027, underscores confidence in future cash flow generation and commitment to shareholder returns.

Competitive Positioning and Risks

Capri Holdings operates in a competitive luxury market where larger players like LVMH (LVMUY) and Kering (PPRUY) benefit from greater scale, brand diversification, and often higher profitability margins. While Capri's brands, particularly Michael Kors, occupy the accessible luxury segment, they face intense competition from both direct rivals like Tapestry Inc. (Coach, Kate Spade) and indirect players, including fast-fashion retailers and e-commerce giants. The company's strategy of offering "more entry levels of luxury" for Michael Kors and expanding into lower price points for Jimmy Choo accessories directly addresses "customer resistance" to the "significant pricing increase in the upper end of luxury" seen from some competitors.

Capri's competitive advantages include its strong multi-brand portfolio, global distribution channels, and the aforementioned advanced data analytics capabilities. However, vulnerabilities include dependence on fashion trends, which can lead to revenue volatility, and supply chain risks, particularly from tariffs. The recent imposition of U.S. import tariffs, impacting products from countries like Vietnam, Cambodia, Indonesia, and Bangladesh (where Michael Kors products are primarily manufactured), is a significant headwind. While Jimmy Choo's production is largely in Italy, Michael Kors' gross margin has been directly affected.

The company is actively managing these risks through sourcing optimization and cost efficiencies. The termination of the Tapestry Inc. (TPR) merger, while initially disruptive, has allowed Capri to regain focus and accelerate its independent strategic initiatives. Litigation related to the terminated merger remains a risk, potentially incurring "substantial costs."

Conclusion

Capri Holdings Limited is at a pivotal juncture, shedding its Versace asset to sharpen its focus on the enduring potential of Michael Kors and Jimmy Choo. The strategic re-engagement with Michael Kors' heritage, coupled with a refined pricing architecture and significant investment in store renovations and data analytics, is already yielding positive results, as evidenced by the turnaround in full-price comparable store sales. Jimmy Choo's expansion into broader accessory and casual footwear price points further diversifies Capri's revenue streams and caters to evolving consumer preferences.

The anticipated debt reduction from the Versace sale will provide a robust financial foundation, enabling sustained investment in brand-building initiatives and future shareholder returns. While macroeconomic uncertainties, particularly tariffs, present near-term challenges, management's proactive mitigation strategies and disciplined expense management are expected to stabilize the business in Fiscal 2026. The outlook for Fiscal 2027 projects a return to revenue and earnings growth, driven by the traction of these strategic initiatives, gross margin expansion, and operating leverage. Capri Holdings' commitment to reclaiming the core essence of its luxury brands, underpinned by technological leadership in data analytics, positions it for a compelling long-term growth trajectory in a discerning market.