Capri Holdings Is Cheap, But A Key Question Remains

Capri Holdings (CPRI) has become a poster child for the struggles of luxury retail in the post-pandemic era. After its Q4 2024 earnings missed estimates by a staggering 31%, shares plunged 10%, leaving the stock trading at a historic low. While the valuation now looks enticing—its forward P/E of 20.6 sits below the sector median—the critical question remains: Can Capri stabilize its brands and execute its turnaround plan before investors lose faith entirely?

The Valuation Puzzle

Capri’s stock price has cratered 40% over the past year, creating a stark contrast with its forward multiples. At $14.52, the company trades at just 14.6 times 2025’s consensus EPS of $0.99—a figure that’s been slashed repeatedly since early 2024. But this “cheapness” is relative: the luxury goods sector’s median forward P/E is 19.1, and Capri’s trailing P/E of 0.0 reflects negative earnings.

The disconnect between valuation and reality stems from Wall Street’s skepticism. Analysts have downgraded their 2025 EPS estimates by 38% over the past year, and the “Very Negative” Estimate Revisions Grade (13) signals persistent downward momentum. Yet, the average price target of $25.86 implies a potential 77% rebound if Capri meets its 2026 goals. The question is whether the company can justify that optimism.

The Numbers Tell a Bleak Story

Capri’s Q4 results were a disaster. Revenue fell 11.6% to $1.26 billion, with Michael Kors—the crown jewel—declining 13% globally. Management’s Q4 2025 guidance paints an even darker picture: a 20% revenue drop to $975 million, with $25 million in forex headwinds and $15 million from store closures.

The 2026 turnaround plan relies on $200 million in cost cuts to stabilize revenue at $4.1 billion. But with wholesale revenue projected to collapse 30%, and retail sales dropping mid-teens, execution risks loom large. Versace’s $200 million target and Jimmy Choo’s $125 million outlook feel optimistic given current trends.

Risks on Multiple Fronts

Foreign exchange pressures are a recurring theme. Capri faces $100 million in forex headwinds in 2026, compounding challenges in Europe and Asia. Meanwhile, store closures—$60 million in annualized losses—highlight a shrinking footprint.

Consumer demand is another wildcard. Luxury spending has softened as inflation and interest rates linger, but Capri’s brands face stiffer competition from faster-growing rivals like LVMH’s Celine and Gucci. Management’s “data-driven pricing” and focus on niche segments like fragrances (e.g., Michael Kors’ successful scent) offer hope, but these are small steps against a broader decline.

Why Investors Should Be Cautious

The stock’s underperformance versus the S&P 500 (which fell 0.6% while CPRI rose 0.4% post-earnings) underscores investor wariness. Even the “Moderate Buy” consensus is tinged with doubt: 5 of 11 analysts cut Q4 2025 estimates in the last month.

A critical red flag is the 2025 EPS consensus of $0.99. If Capri misses this again—a real possibility given its track record—the stock could sink further. Meanwhile, the sector’s median EPS Revisions Grade of “C” suggests broader industry malaise, but Capri’s “Very Negative” score singles it out as a high-risk bet.

The Bottom Line: Cheap, But Not a Buy Yet

Capri’s valuation offers a tempting entry point, but the path to recovery is littered with obstacles. The company needs to:
1. Stop the bleeding: Reverse the 15% revenue decline in 2025 and stabilize margins.
2. Execute cost cuts: Deliver $200 million in savings without sacrificing brand quality.
3. Reignite demand: Turn around Michael Kors and Jimmy Choo while defending Versace’s gains.

Until these steps materialize, the stock remains a gamble. At current prices, investors are betting on 2026’s $150 million operating income—yet that target relies on $4.1 billion in revenue, which would still be 20% below 2023 levels.

The key question—whether Capri can transform cheapness into value—hasn’t been answered. For now, the odds favor caution.