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On Friday, Capri Holdings (NYSE:CPRI), a global fashion luxury group, had its stock price target lowered by a Telsey Advisory Group analyst to $26.00, down from the previous target of $42.00. Despite this adjustment, the firm maintained a Market Perform rating on the stock.
The downgrade in the price target comes after Capri Holdings agreed to a takeover by TPR in August 2023 for $57 per share, valuing the deal at $8.5 billion. Since then, the company has experienced a significant decline in sales and profitability. Over the last twelve months ending June, revenues dropped by 9%, and earnings per share plunged by 49% to $2.79.
The analyst pointed out that Capri Holdings has faced numerous challenges, including the poor execution of a new e-commerce platform for the Michael Kors brand in the Americas. Additionally, the company has been contending with a slowdown in global demand and persistent difficulties in the wholesale channel. These issues have arisen during a period that could be described as potentially distracting for the organization due to the ongoing acquisition process.
The report also notes that Capri Holdings has lost valuable time in which it could have made strategic moves to rejuvenate the Michael Kors brand and enhance profitability at its Jimmy Choo and Versace divisions. This may have resulted in the company falling behind competitively in the marketplace.
The new stock price target is based on an 8.9x multiple on the firm's two-year forward earnings per share estimate of $2.91. This multiple is compared to the three-year average next twelve months (NTM) multiple of 8.7x and the five-year average of 9.2x. The analyst expressed concern over the earnings deterioration and the unclear strategies or outlook for the company moving forward.
Capri Holdings is scheduled to report its fiscal second quarter results after market close on November 7, with only a press release and no conference call.
In other recent news, Capri Holdings' planned merger with Tapestry (NYSE:TPR) has been halted by a U.S. court decision. The $8.5 billion merger, which aimed to strengthen the U.S. luxury market, was blocked due to concerns from the Federal Trade Commission (FTC) that it would reduce competition and potentially increase prices for consumers. The court's ruling has caused Capri's shares to plummet, while Tapestry's stock saw a rise.
In other developments, Capri Holdings was downgraded from Buy to Neutral by a Citi analyst due to the legal challenges faced by the company and the uncertainty surrounding the FTC's opposition to the Tapestry/Capri deal. These are the recent developments in the ongoing saga involving these two luxury brands.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Capri Holdings' current financial situation, providing context to the analyst's downgrade. Despite the challenges outlined in the article, InvestingPro Tips suggest that net income is expected to grow this year, and analysts predict the company will return to profitability. This optimism contrasts with the company's recent performance, as InvestingPro data shows a revenue decline of 8.75% over the last twelve months.
Capri Holdings' market capitalization stands at $4.9 billion, significantly below the $8.5 billion valuation in the TPR takeover agreement. The company's impressive gross profit margin of 64.22% highlights its ability to maintain pricing power in the luxury segment, despite recent headwinds.
The stock's volatility, as mentioned in an InvestingPro Tip, is evident in its strong 24.89% return over the last three months, juxtaposed against a 17.2% year-to-date decline. This volatility aligns with the uncertain outlook described in the analyst report.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Capri Holdings, providing a deeper understanding of the company's financial health and market position.
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