Capri Holdings Stock Plunges: A Deep Dive into the Disappointing Results
Friday, Nov 8, 2024 3:41 pm ET
Capri Holdings (CPRI) shares took a nosedive today, falling by a whopping 25% as of 10:30 a.m. ET, pushing the stock below its 10-year trading level. The steep decline was triggered by the company's fiscal 2023 third-quarter results and guidance, which missed Wall Street's expectations. Let's delve into the reasons behind Capri Holdings' stock plummet and analyze the implications for investors.
**What Happened?**
Capri Holdings reported revenue of $1.51 billion for the quarter, marginally underperforming its guidance by 1%. However, the market's reaction was more extreme due to the deterioration in profit margins. The company's operating margin fell to 15.6% from 17.9% in the prior quarter, missing management's guidance of greater than 20%. This $78 million shortfall in income from operations was the primary driver of the stock's 25% decline.
Capri Holdings also lowered its full-year fiscal 2023 guidance, decreasing its revenue outlook from $5.7 billion to $5.56 billion. Management expects the problems pressuring its operating margins to worsen in the fiscal fourth quarter, with the operating margin dropping to 8.5%.
**Key Factors Behind the Deterioration in Operating Margins**
Capri Holdings' significant drop in operating margin in Q3 was primarily driven by issues in its wholesale business. The company's operating margin fell to 15.6% in Q3, down from nearly 18% in the fiscal second quarter, due to problems in this segment. This deterioration in profit margins resulted in a substantial shortfall in income from operations, with the company reporting $236 million, $78 million below management's previous guidance.
**Implications for Investors**
Capri Holdings' stock fell today due to disappointing quarterly results and guidance, with revenue marginally missing expectations and operating margins deteriorating. To understand Capri's performance better, we can compare it to its luxury fashion peers, such as LVMH and Kering.
In Q3 FY2023, Capri's revenue grew by 1% year-over-year (YoY) to $1.51 billion, while LVMH and Kering reported YoY growth of 12% and 14%, respectively. Capri's operating margin declined to 15.6% from 18% in the previous quarter, while LVMH and Kering maintained margins of 22% and 21%, respectively.
Capri's revenue growth lags behind its peers, and its profit margins are significantly lower. This suggests that Capri may be facing more challenging market conditions or operational issues. However, Capri's guidance for FY2024 revenue of $5.8 billion and an operating margin of 16.5% indicates a potential rebound. Investors should monitor Capri's performance and compare it to its peers to assess its long-term growth prospects.
In conclusion, Capri Holdings' stock fell today due to disappointing quarterly results and guidance, with revenue marginally missing expectations and operating margins deteriorating. While the company expects a rebound in the upcoming fiscal year, investors should closely monitor Capri's progress in addressing its operating margin issues and revenue growth. Despite the recent performance, Capri Holdings may still present an attractive entry point for long-term investors, given its low valuation compared to historical averages and industry peers.