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Capri Holdings: Time To Load Up On This Cheap Luxury Brand Stock

Mar. 07, 2023 7:00 AM ETCapri Holdings Limited (CPRI)PVH61 Comments
Prati Management profile picture
Prati Management


  • Macy’s said last week on their earnings call that their luxury business is very strong. This has been expressed by companies domestically and in Europe.
  • Moncler also reported last week saying European business accelerated. This is 30% of CPRI's and 70% of PVH’s business. But beyond Europe, luxury competitors LVMH and Kering hit new highs daily.
  • China setting growth at 5% vs. 5.5% is positive as 5.5% would have increased the risk of inflation. China reopening gives CPRI and PVH a boost as Chinese tourists begin travelling.
  • CPRI was oversold as investors focused on the decline in Michael Kors in their wholesale business, which was communicated on the prior call.
  • Investors once again have a chance to buy CPRI at a ridiculously cheap valuation. At ~$48 per share, it is a gift and my most compelling idea and largest single position.

Versace Store Sign In Milan

Massimo Merlini

Capri Holdings (NYSE:CPRI) had been on my radar for a while, but I started to do a deep dive in late 2019. After looking at the historical financials and looking at the history and earnings calls, I bought a core

This article was written by

Prati Management profile picture
Richard Prati has nearly 40 years of equity analysis and investment experience and spent nearly 20 years on Wall Street in various positions including the co-founding of American Technology Research and ultimately selling the company in 2008. Experience in public and private global equity analysis and investing. BS in Economics from Vanderbilt and MBA from the University of Rochester.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of CPRI either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (61)

Is it still time to load up ?
Prati Management profile picture
Looking at luxury this morning - Richemont (maker of Cartier) blew out numbers and demonstrated broad-based growth with Q4 organic sales +22% (vs consensus +12%) and FY23 EBIT a 5% beat. The stock is well-owned and well-liked and still trades at 19.5x 2023 and 17.2x 2024 calendar earnings vs the luxury sector average of ~24x and ~21x respectively. Prada also had strong numbers with Q1 23 retail organic sales up 23% YOY, accelerating sequentially, and reporting April is ACCELERATING FURTHER. CPRI is the most compelling.
Prati Management profile picture

BN 05/11 23:35 Asia Shares Set for Mixed Open After Bonds Rally: Markets Wrap
Luxury Rally Boosts Europe Stocks; US Futures Gain: Markets Wrap
2023-05-12 12:28:51.323 GMT

By John Viljoen
(Bloomberg) -- Stocks rose as investors found confidence in
strong earnings from Cartier maker Richemont and signs that US
lawmakers are making progress on a deal to raise the debt-
ceiling. The dollar strengthened.
Richemont gained as much as 7.8% to a record, fueling a
broad rally across European luxury stocks. S&P 500 futures edged
higher after President Joe Biden and House Speaker Kevin
McCarthy postponed a meeting on the debt ceiling that was
planned for Friday. The delay reflects headway in staff-level
discussions, according to people familiar with the talks.
“We believe that they will find a deal — we need to
remember negotiations have only just started,” said Marie Jacot-
Cardoen, chief executive officer of Edmond de Rothschild Asset
Management France, on Bloomberg Television. “It is likely
political antagonism will increase before deal is reached, but
we believe a compromise will be found.”
BeaBaggage profile picture
@Prati Management Richmont, LMVH and Kering have the currency (high share prices) to go after Capri and Tapestry to bring brands like Versace, Jimmy Choo, Kors, Coach and Kate Spade into their mix.

While cache and tastes can change with the spring/fall seasonal offerings, having more brands not only brings G&A costs down but gives them power with retail. I think the trend will be more consolidation as one by one opportunities are disappearing to add brands into the fold of the big 3. Bea
Prati Management profile picture
TPR is up nearly 50% from Oct '22 lows.....it's incredible CPRI traded at its 52-
week low yesterday.
Mktneutralhedger profile picture
@Prati Management I did a re-check and on an ev/ebitda $TPR seems even cheaper anyway. When next earnings for $CPRI. I need to keep fingers crossed.
Prati Management profile picture
@Mktneutralhedger - Read my article from today on CPRI and PVH. I address the ev/ebidta concern near the bottom of the article. seekingalpha.com/...
Prati Management profile picture
Capri's main competitor for the Michael Kors brand (TPR) beats and raises this am. TPR - up 10% pre-market. That has been the area the street has been most concerned about. Investors should buy CPRI. They report in less than 3 weeks.
@Prati Management hopefully it’s not due to MK losing share. Luxury and high end retail results have been strong across the board so I am optimistic the bottom has been set.
Prati Management profile picture
@steventwolters - I think the bar is very low as well as expectations. The short interest has come up a lot. I think there will be a lot of people jumping in as we get closer along with short covering. Looking forward to the report.
Almost at full position. will buy some calls if it goes any lower.
Knife Catch’n profile picture
Luxury at a yard sale price point - starting to nibble
Prati Management profile picture
@Knife Catch’n - Yes, I agree. I am not sure what people who are selling CPRI here are thinking. It makes zero sense to me. Dirt cheap and doing very well but you would not know it by the stock action.
Knife Catch’n profile picture
@Prati Management I bought COTY in November when it was similarly undervalued. Recently sold that position at almost a double.

Used the proceeds to buy CPRI - filled my position in the last couple days. Looks to me like the same opportunity. Rinse and repeat 🔁
Thanks 🙏 do much!!!!
Prati, any thoughts on WRK’s earnings today? Thanks 🙏
Prati Management profile picture
@izzystetn - Yes. Good news. Good report. Good guidance. As you can see with the stock, it started up and then sold off. I think it is just relentless de-risking from large funds. Sentiment is worse than it was with COVID. I think we will see a big rally as people calm down over the banking situation and we are likely to see a rotation from mega-cap and tech into value stocks that are trading as though we are in the worst recession ever. Powell would not say "We are open to cutting" but he clearly said they are pausing. WRK has done a great job of restructuring the business and making things more efficient and cost-cutting. At valuations like this, I sleep well owning WRK.
Prati Management profile picture
Hugo Boss just beat earnings and guided up for the year. I buy CPRI and PVH as they are ridiculously cheap and will also report strong quarters and guidance.
@Prati Management in fairness, Boss is growing top line about 10% and if MK has another slip up, we're looking at a decent revenue shortfall (again) and EPS cut. Asia should be able to offset some of the weakness in North America but not all of it. If Idol was correct on the last call stating that the wholesale issues have been mostly accounted for AND MK retail continues to do okay (Mid Single digit ex- Asia), then this will quickly bounce after earnings. Capri in the sentiment penalty box until proven otherwise. Given MK historical issues, I don't fault investors but now we're back into aggressive buying territory for investors with a longer term viewpoint. Stock could see a 25% hit to EPS next FY and it'd still be quite cheap today.

Can't predict the future but I'll take the odds at this one sub-40 looking out a year or two.
Prati Management profile picture
@steventwolters - Capri has communicated that they are de-emphasizing wholesale. They are moving MK to more upscale and direct (better margins). Versace is growing nicely and is now being run far more efficiently. Donatella could have sold to anyone. She sold to CPRI because she believed in Idol's vision, approach, and scale. The management team is conservative and provided very cautious guidance, which I would argue is reasonable in this environment. But as we have heard from Hermes, LVMH, BOSS, Zegna, American Express, and many others, luxury remains very strong. China opening back up helps. I repeat - when the CEO buys $10mm in stock roughly a week before quarter-end, that should be a pretty great signal. And the CFO bought a decent slug as well. The stock was already cheap when it was approaching $70 in January. They continue with the share repurchase and we are seeing massive de-risking by investors and a flocking to mega-cap "safety" names. When CPRI reports in a few weeks, if the stock is still in the $30s, I think we see a massive re-rating - perhaps 40-50%. If the stock finds its way back into the mid-40s by the time they report, I still expect the stock will gap open a lot. PVH last quarter moved up 20% very quickly. I expect CPRI will be both more compelling and cheaper. We shall see very soon. I trimmed some energy and some mining stocks to make room to buy more CPRI. Eventually, dislocations like this get corrected. Luxury brands are scarce. Ultimately investors will figure this out. I think the Jeffries and Barclays downgrades are going to look very bad when CPRI reports. I think this selling is technical. Maximum fear is setting in. Is today the bottom? Who knows. But if not, I will buy more.
@Prati Management 3-4 years out this is an easy 2x from here which is typically my timeline. Tough stock since there really aren't catalysts outside of earnings 4x a year. Better suited for a private buyer.. down the road ;)
BeaBaggage profile picture
given LVMH and Kering stocks near all time highs it feels like getting Versace, Jimmy Choo and Michael Kors via $CPRI buy makes sense to tuck in and continue domination in luxury.
You always carry more weight in retail when you can offer a lot of products. Kors was on the red carpet at the MET with a design and he has a lot of respect in the fashion world and among the lux buyers. Under $40 now w CEO buying 10mil in shares, seems worth a nibble here for sure. Bea
Prati Management profile picture
@BeaBaggage - I sold some other positions to make CPRI bigger today. I agree with you; it is very compelling here. The downgrade is reactionary. I do not think it will age well.
BeaBaggage profile picture
@Prati Management Versace has cache w younger demos who who want to mimic their sports/music icons and is quite a plumb in here, guess we'll see. Thanx. Bea
Prati Management profile picture
@BeaBaggage - This valuation is unsustainable. Management will continue buying back stock. At 6x P/E, it is ludicrous.
Prati Management profile picture
So Raymond James upgraded CPRI last week to a Top Pick. Great call IMO. Today, Jeffries downgrades CPRI declaring macro concerns and weakness at MK. Truly incredible. CEO bought 10 million bucks of stock with 10 days left in the quarter. I wonder if he has any insight as to their execution. Hmmm. The guidance they provided already assumes wholesale down 30% for Michael Kors. China has been accelerating since they gave the guidance. This Jeffries "analyst" talks about risk to sentiment with a luxury stock trading at 6x EPS that has gone from $70 to $40…..what planet does she live on? Buying more - already my largest position.
@Prati Management it’s anyone’s (analaysts) guess as to the quarter to quarter performance right now on MK due to wholesale chop and resets across the board. They will cut expense out of the business as well which I look forward to seeing an update on.

Have to look on a longer duration here to see the value which no one cares to do these days. I’d follow the CEO and CFO buying action more than anything. MKT neutral commented on the other article that this name is better for a private owner someday, fully agree and I’m sticking around for the longer term. The volatility on this name is great for selling long dated way OOTM covered calls when CPRI has its big surges. 5-7 years out you can get to EPS well north of $10.

My personal expectations, Versace grows 10% YoY with operating margins closer to 25% in that period.

MK hangs around $4000b with slight growth over 5 years and OM in the 24% range.

JC grows to $900 with 13% OM.

Company buys back another 10-12mm shares through 2023 then flips to debt Paydown for the next 18 months, then resuming aggressive buybacks if the price is right or looks for another brand.
Prati Management profile picture
From the American Express call - seekingalpha.com/...

" March was a record spending month for us. Overall, it was the highest month we ever had in the history of the company. So feel free to elaborate on that, Jeff. But millennials have been a big part of our growth story, and if you go back pre-pandemic, they represented about 20% of our billings. Now they represent 30% of our billings, and they are growing at, I mean, last quarter they grew at 30%, this quarter they grew at 28%. And we're acquiring 60% of our new cards acquired."

"Based on our performance to date, we are reaffirming our full year guidance of delivering between 15% and 17% revenue growth and earnings per share of between $11 and $11.40. We remain committed to focusing on achieving our aspiration of delivering sustainable revenue growth greater than 10% and mid-teens EPS growth as we get to a more steady-state macro environment."

"Well, on the consumer side, just look at sequentially, consumer in the fourth quarter grew 15%. We’re growing 16%. So there was really no slowdown there."

"...international is back to our fastest growing segments. So, we’ll keep watching it, but really happy with the consumer."
@Prati Management Compare Brunello Cucinelli (publicly traded) and Versace- both have nearly identical expected financials/operating margins over the next 12-24 months, yet Brunello Cucinelli sports an enterprise value of 5.5x NTM revenue. If you put the same multiple on Versace, you get today's entire CPRI market cap, and then you get MK and JC for free.

Keep in mind that Versace has been hit hard by the strong dollar, and underlying revenue/volume is already closer to the $1.2-1.3b range whereas Brunello Cucinelli was the recipient of a weaker Euro.

The public markets continue to misprice CPRI and ultimately several years down the road this will be a hot name for a take-out. Luxury is ultimately a longer term game through brand positioning and economic cycles, but I think CPRI is smart to continue their aggressive buyback program in lieu of a dividend. The earnings power of this business over a tail duration (5-6 year) is substantial (12-15$) even if only baking in minimal market share gains.
Prati Management profile picture
@steventwolters - 100% agreed. Excellent commentary. Amazing to me that the "analyst" at Jefferies downgraded CPRI today. She should have read the Raymond James analyst upgrade from last week. CPRI is going to have a massive gap-up if the stock is trading at these levels when they report.
Healthcare Junkie profile picture
@steventwolters Why noone bought it at these crazy cheap levels? Are their brands not premium enough? The middle class will maybe suffer the most in a deep recession. MKs target group.
Prati Management profile picture
CPRI - Capri Holdings raised to Strong Buy at Raymond James ahead of earnings. Excellent to see the Raymond James retail analyst on the ball. This is a great and timely upgrade. CPRI remains ridiculously undervalued and the cheapest luxury brand company to be found anywhere trading at a ~20%+ FCF Yield. Investors should be buying this stock with both hands while it remains free money under $50 per share.
Prati Management profile picture
Hermes just crushed the print. Luxury remains strong. Good for CPRI and PVH.
Healthcare Junkie profile picture
@Prati Management Luxury is maybe not equal luxery. Super rich are a class of its own. I guess the goods they consume are never out of favor. "Lower luxery" has alot more competition i think.
Prati Management profile picture
LVMH just reported revenue growth of 18% vs consensus of 9%. That is enormous! The high-end consumer clearly remains strong. That augers well for CPRI and PVH.
Prati Management profile picture
Final Update Prior to the Easter Weekend - I have received a lot of inquiries as to why CPRI and PVH have remained weak despite consistently good data points suggesting their business remains very strong. I think people continue to sell retail names aggressively without differentiating between individual names. For example, PVH just reported and gave guidance that assumes a massive deceleration in sales even though there is no sign of sales slowing in their business – so they have left an enormous cushion in the anticipation of a recession to continue and they will still have upside to estimates. In addition, the guidance assumes a Euro that is lower than today and the Euro is likely to strengthen from here as the US Fed will likely pause before other central banks do. In addition, the management team is executing beautifully on their margin improvement strategy which will raise margins by 50% over the next 2 to 3 years independent of macro (from 10% to 15%). Finally, the concern about the US is not really relevant to PVH as they make all their money internationally. Regarding CPRI, it is shocking that the stock is not recovering. They guided a 30% decline in wholesale shipments in the US which is way more than a reasonable recession. It was incredibly conservative and they are spending less on wholesale anyway as they have better margins on direct sales. In addition, the luxury market is very strong as will be seen next week when Hermes and LVMH report. Finally, CPRI (and PVH) will benefit massively from China’s reopening and return of tourism. All this while both of these companies buy back their own stock at a very aggressive pace while their balance sheets are clean. The other two data points on retail in the last week 1. JPM upgraded Macy’s because their top-ranked analyst just met with management and they confirmed guidance 2. Insiders at KSS also loaded up on their stock. So, there remains a big disconnect here. I continue adding to my very oversized position in CPRI and adding a little on the PVH pullback. When the data points begin to emerge, I believe we will see a big surge in CPRI and PVH.
Prati Management profile picture
I am adding to CPRI because several banks have now met with the global luxury players in Europe and are saying that Q1 is on fire. I like that the CEO stepped up and bought $10 million in stock recently and another executive bought some stock as well. PVH held its gains since it recently put up a great quarter. I think CPRI has a lot of catching up to do.
PVH has presented yesterday fanastic figures, share plus 20%, i think that this will also have an effect on CPRI and the next quarterly figures will be very positive
Prati Management profile picture
@Roli Beck - I concur. PVH is my second largest holding after CPRI, but yesterday grew quickly to become nearly the same size! I expect investors and analysts will realize that the strength PVH is seeing will also benefit CPRI as China continues to gain strength and the higher-end consumer continues to spend. CPRI was simply too conservative on their last call regarding guidance. It was certainly nice to see the CPRI executives stepping up to buy substantial stock in the open market last week. I also would bet the company has stepped up its share buyback this quarter while the stock was in the low $40s.
Prati Management profile picture
CEO of CPRI just bought $10 million worth of stock. Pretty nice vote of confidence.
@Prati Management Capri Holdings eyes China with strategic investment increase: ww.fashionnetwork.com/...
Prati Management profile picture
Germane to CPRI - Hugo Boss said on their call two days ago that they were positively surprised about the acceleration in demand in China.
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