Capri Holdings (CPRI, Financial) shares experienced a significant drop, falling by 7.55% today after the release of its fiscal second-quarter earnings report, which missed market expectations. This decline in share price reflects investor disappointment with the company's performance and forward-looking challenges.
During the fiscal second-quarter, Capri Holdings reported a revenue decline of 16.4%, hitting $1.08 billion, falling short of the expected $1.18 billion. The company attributed this drop to a weak global demand for luxury fashion goods. Retail sales decreased in the high single digits, while wholesale revenue fell by double digits. Despite these challenges, Capri (CPRI, Financial) managed to add 10.9 million new customers, marking a 13% increase from the previous year.
The company's gross margin slightly decreased from 64.4% to 64.3%, which the management attributed to a favorable channel mix being offset by increased markdowns. However, adjusted operating income dropped significantly from $157 million to $32 million, which negatively impacted the adjusted operating margin, lowering it to 3%.
Despite the efforts to stabilize its business, Capri (CPRI, Financial) faced disappointing adjusted earnings per share, which fell from $1.13 to $0.65, missing the consensus estimate of $0.75. Furthermore, the company's stock has been pressured by the blocking of its merger with Tapestry, a decision upheld by the FTC due to concerns over reduced competition in the handbag sector.
According to the GF Value assessment, Capri Holdings is considered significantly undervalued, with a GF Value of $48.72. The company's market capitalization stands at approximately $2.394 billion, with a price-to-book ratio of 1.52, suggesting the stock is trading relatively close to its three-year lows in terms of valuation metrics. Current challenges such as high volatility with a 1-year change of -58.79% and a price change of -60.55% year-to-date reflect cautious sentiment in the market.
Going forward, Capri Holdings' management has opted not to provide guidance or hold a conference call due to the ongoing appeal concerning the merger decision with Tapestry. If the appeal is unsuccessful, additional downward pressure could be expected on the stock, coupled with existing business headwinds.
