The Ratings Game: Michael Kors is bouncing back and Versace is in vogue, driving optimism for Capri
Capri Holdings Ltd. stock has soared nearly 31% over the past month as analysts anticipate continued growth across the company’s three brands, Michael Kors, Versace and Jimmy Choo.
“Cowen views Capri as a global new luxury platform,” Cowen analysts wrote in a note published Monday.
“Recent Versace brand momentum is an early sign of how Capri has been creating value and successfully executing on accretive M&A. Capri is making meaningful strides in Kors turnaround through innovative Signature product and inventory management. Jimmy Choo’s accessories progress is in earlier innings, but poses additional upside to Capri’s earnings growth prospects.”
shares rallied last week after the company reported fiscal second-quarter earnings and revenue that beat Wall Street expectations. While company executives went on to say that Capri, like most other consumer companies, is experiencing delays and other problems brought on by the global supply chain bottleneck, the company is enjoying favor from customers.
“Looking at group revenue trends by geography, revenue growth continued to exceed our expectations in the Americas and would have been even stronger if not for inventory constraints” said Chief Executive John Idol on last week’s earnings call, according to a FactSet transcript.
“Consumer demand for our brands was healthy and benefited from an increase in social gatherings.”
Cowen analysts see opportunity for the company in China, in accessories and other areas of the business.
“Continued Versace success, and elevating Kors brand should drive increasing investor confidence in Capri’s ability to execute on future M&A and realize the long-term vision of transforming Capri into a prominent luxury group in the ranks of LVMH and Kering,” said Cowen.
Cowen rates Capri stock outperform with an $80 price target, up from $75.
JPMorgan upgraded Capri after the earnings announcement, moving its stock rating to overweight from neutral and raising its price target to $77 from $62. Analysts attributed the upgrade to stability at the Michael Kors brand, growth at the Versace brand and a “structurally improved model post-pandemic.”
Accessories were also a highlight for JPMorgan with analysts noting that the global total addressable market (TAM) for the category is about $70 billion. Idol said on the earnings call that women’s accessories was a strong category for the company.
“With our three iconic pillars, we are confident in our ability to position Versace as a leading luxury leather house. We are making significant progress in our goal to expand accessories revenue to $1 billion over time,” Idol said.
Wells Fargo analysts see the Michael Kors brand stabilizing after costs were restructured and merchandise became more focused. Moreover, the company is shutting unprofitable stores in North America and Europe while opening new locations in China and other parts of Asia.
“As the luxury category continues to improve and positively inflect into 2021, we believe investors’ will begin to place more focus on the Versace and Choo assets in the Capri portfolio,” Wells Fargo said.
“Both brands are arguably two of the most well recognized and highly regarded brands in the luxury space and are ideally positioned to capitalize on the outsized growth of the category.”
Wells Fargo rates Capri stock overweight with a $90 price target.
MKM Partners said a global tourism revival, the reopening of all European stores and “a smaller, yet more profitable, wholesale business” bode well for Capri.
“One of the critical actions and silver linings from the pandemic was a 40% cut in choice count at Michael Kors and significant inventory reductions overall, which drove full-price selling and contributed to the 570 basis point and 660 basis point improvement in gross margin in 1Q and 2Q, respectively, on a two-year stack,” wrote MKM analysts.
MKM rates Capri stock buy with an $85 price target.
Capri shares have advanced nearly 55% for the year to date, outpacing the benchmark S&P 500 index
which is up 25.3% for the period.