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Strong China sales fail to ease European Covid pain for Capri

Capri Holdings is expected to post a fourth straight fall in quarterly revenue on Wednesday as the blow from fresh lockdowns in Europe eclipses a China-driven recovery in sales of its luxury handbags and apparel.

A spike in coronavirus infections from late last year forced many European governments to put their economies back into lockdown, keeping consumers away from stores during the crucial holiday shopping season.

Capri not only has to deal with store closures in Europe and sluggish department store traffic due to the pandemic, but also a “stale” Michael Kors brand image, Jane Hali & Associates retail analyst Jessica Ramirez said.

Context

Investors will be hoping that Capri’s Versace and Jimmy Choo brands can emulate fashion giant LVMH’s growth in China, which helped cushion some of the pandemic’s impact in other markets.

Sales of luxury goods in China have been rising since the easing of Covid-19 measures in the second half of 2020, sparking hopes that one of the world’s biggest markets for high-end fashion could ease the pain of companies suffering in regions where the virus continues to rage.

The Fundamentals

* Capri Holdings is expected to report a 15.2 per cent decline in quarterly revenue to $1.33 billion when it reports results on Feb. 3, according to the mean estimate of 18 analysts, based on Refinitiv data.

* Analysts on average expect a 23.7 per cent fall in Capri’s third-quarter Europe revenue, according to Consensus Metrix.    

* The analyst mean estimate for Capri is for earnings of $1.01 cents per share. For the same quarter last year, the company reported earnings of $1.66 per share.    

Wall Street Sentiment

* The current average analyst rating on the company’s shares is “buy” and the breakdown of recommendations is 14 “strong buy” or “buy,” 11 “hold”.

* Wall Street’s median 12-month price target for Capri Holdings Ltd is $46​, about 10.4 per cent above its last closing price of $41.65.

* The company’s shares have gained over 40 per cent in the last 12 months.  

  • Reporting by Uday Sampath in Bengaluru; Editing by Aditya Soni, of Reuters.

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