Investor Destination

Why Capri Holdings Stock Popped Today?

What happened?

Shares of Capri Holdings (NYSE: CPRI) the parent of Michael Kors, spiked 8% today after it announced its second quarter results. The company generated $1.1 billion in revenue. Its gross margin was 64.0%, compared to 60.6% in the prior year.

Why?

Despite COVD headwinds, the company performed significantly better than expected. While its revenue declined 23% compared to last year, revenue improved sequentially. The management took decisive actions to reduce costs and manage inventory, which helped the company improve margins and generate diluted EPS of $0.81 vs. last year's $0.41. The company has increased its full-year revenue guidance. However, it is still expecting its full-year revenue to decline by 30% compared to last year.

Due to the pandemic, consumers cannot spend on experiences, so they are spending on luxury items, benefiting Capri Holdings. The company has increased its full-priced sales and improved gross margins. For the last several years, the retail industry has been struggling and was very promotional. Increasing full-priced sales during the pandemic is a pleasant surprise.

Now what?

The pandemic has accelerated retail transformation. Retailers who can successfully adapt to digital transformation have a better chance of surviving this downturn. This quarter experienced robust e-commerce growth, which accelerated sequentially and grew approximately 60% compared to the prior year. All three of Capri's brands have a strong social media presence, and its marketing strategy utilizes influencers to maintain that strong presence.

Today, consumers might be deriving happiness through luxury purchases, but macroeconomic uncertainties negatively impact consumer spending. While the global economy is recovering faster than expected, the full recovery will be longer and bumpier. With three strong brands and a robust digital presence, the company will survive this downturn; however, it might be a slow recovery.

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