Updated May 28 4:15 p.m. ET
Capri Holding is trying to put the last year — with its sharp losses and declining sales — behind it and move forward in turnaround mode, sans Versace.
The company started the fiscal year with plans to be bought out by Tapestry Inc., only to see that exit fall apart and to pivot to a deal to sell Versace to Prada for $1.4 billion.
John Idol, chairman and chief executive officer, told analysts on a conference call that the sale, expected to close in the second half of the calendar year, would help Capri both ease its debt load and repurchase shares in the future.
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“A strengthened financial foundation will enable us to more aggressively invest in reinvigorating the Michael Kors brand,” Idol said. “With our new strategic initiatives in place, our strong balance sheet and focused senior leadership team, we are well positioned to accelerate the growth trajectory of both Michael Kors and Jimmy Choo.
“We are optimistic about our path forward,” he said. “While the macro environment has become more challenging with uncertainty around tariffs, we remain focused on executing against our strategic initiatives that are designed to improve current sales trends and position the company for future growth.”
Even so, it’s a difficult market for a turnaround and Capri is working itself out of a significant deficit.
The company’s fiscal fourth-quarter net losses expanded to $645 million, including a $545 million non-cash tax valuation allowance taken against deferred tax assets, $119 million of which was related to Versace. Losses tallied $472 million a year earlier.
Adjusted losses totaled $581 million and compared with income of $50 million a year ago.
Revenues fell 15.4 percent to $1 billion for the quarter. By brand:
- Michael Kors’ revenues decreased 15.6 percent to $694 million.
- Jimmy Choo’s declined 2.9 percent to $133 million and sources said the shoe brand might still be spun off, potentially to cofounder Tamara Mellon.
- Versace fell 21.2 percent to $208 million.
Investors found some solace in the report and sent shares of Capri up 2.8 percent to $18.04 on Wednesday.
But Neil Saunders, managing director of GlobalData, was starkly critical of the overall sales decline.
“The market has not fallen by anywhere near that degree, and very few other retailers are showing this kind of deterioration,” Saunders said. “As such, we pin the blame for the downswing firmly on Capri and its management team. The very blunt truth is that they have mismanaged their brands and have done very little to add the polish required to drive consumer interest and sales. This slide has been going on for far too long and it is now showing up in the numbers in a dramatic fashion.”
Despite the sharp decline in sales, Capri’s inventories were up 1 percent at the end of the quarter, reflecting $60 million of goods that were brought in earlier than planned in a sourcing landscape that’s been disrupted by President Donald Trump’s trade war.
“We continue to expect trends to improve throughout fiscal 2026, positioning us to return to growth in fiscal 2027 and beyond,” Idol said. “We are confident in our ability to grow Michael Kors to $4 billion in revenue and Jimmy Choo to $800 million in revenue, while restoring operating margins to the double-digit range.”
This year, Capri expects its revenues to total $3.3 billion to $3.4 billion, without Versace. Michael Kors accounts for $2.75 billion to $2.85 billion of that.
That would mark some stabilization for Michael Kors, which logged sales of $3 billion last year and $3.5 billion a year before.
Michael Kors’ has been closing stores and tightening up its wholesale distribution, looking to sharpen its presentation as it launched new marketing in February that reconnects the business with its Jet Set narrative.
“We began to see encouraging signs of progress stemming from our new brand storytelling and product initiatives during the fourth quarter,” Idol said. “In our own retail channel, we saw a sequential improvement in March that accelerated into the first quarter.
“We continue to believe that one of our most valuable assets and key differentiators is our founder and chief creative officer, Michael Kors,” Idol said. “As a world-renowned fashion designer, his iconic runway shows cast a powerful halo over the brand.”
The company plans to renovate half of Michael Kors’ stores over the next three years with a new concept that the CEO described as having a “modern and warm residential aesthetic.”
Once the Versace deal is closed, Capri will have a much cleaner balance sheet and more room to operate.
Thomas Edwards, chief financial and chief operating officer — who after eight years is leaving Capri to take on the same role at Macy’s Inc. — said Capri will have “minimal net debt remaining on our balance sheet” after the Versace deal.
Edwards also said that the company is fairly well insulated from the worst of the trade war, with most of Michael Kors’ goods originating in Vietnam, Cambodia and Indonesia.
Including both Michael Kors and Jimmy Choo, China, which is subject to the highest tariffs, accounts for about 5 percent of goods bound for the U.S.
“Assuming a 10 percent baseline tariff and a 30 percent tariff on imports from China, we estimate the impact of tariffs on products shipped into the United States would increase our cost of goods sold by approximately $60 million in fiscal 2026 on an unmitigated basis,” Edwards said. And Capri is working within its supply chain to reduce those costs.
All-in-all it was a very hard quarter, but there was room for some optimism.
Simeon Siegel, an analyst at BMO, said: “There are clearly many puts/takes and margins disappointed, but we believe the most important points are management signaling troughing Michael Kors revenues, guiding EPS better just as the balance sheet is about to look dramatically cleaner” following the Versace sale.