Capri Holdings (CPRI 2.73%) delivered its fiscal 2025 fourth-quarter results on May 28, reporting revenue down 15% year over year to $1.0 billion and an operating loss of $33 million. The company, which in April announced a deal to sell its Versace unit to Prada, said it is pivoting to a renewed focus on the Michael Kors and Jimmy Choo brands as it targets revenue stabilization, significant cost reductions, and margin recovery.
Strategic Refocus via Versace Divestiture and Debt Reduction
Proceeds from the Versace sale have been earmarked to cut Capri’s debt to minimal levels, marking a significant shift from its current net debt of approximately $1.3 billion and leverage ratio of 3.2 net-debt-to-adjusted-EBITDAR (earnings before interest, taxes, depreciation, amortization, and rent).
“After careful evaluation, we concluded that the most effective way to maximize value at Capri Holdings is to focus our resources on the compelling growth opportunities within our Michael Kors and Jimmy Choo brands. This transaction also positions us to substantially reduce our debt levels and reinstate a share repurchase program in the future.”
— John Idol, Chairman and Chief Executive Officer
This capital structure overhaul will enhance the company’s financial flexibility, enabling greater investment in brand initiatives and potentially supporting medium-term shareholder returns through share repurchases.
Michael Kors Turnaround Driven by Heritage Positioning and Product Recalibration
In the fiscal fourth quarter, which ended March 29, Michael Kors’ revenue declined 16%, but sequential retail comp trends improved from a 15% decline to nearly flat early in the following quarter as new product franchises such as Leila, Dakota, and Bryant found strong consumer resonance; the global Michael Kors consumer database grew by 10% year over year. Full-price average unit retail trends in retail stores improved from high-single-digit percentage declines to mid-single-digit percentage declines, and turned positive in the quarter currently underway.
“[W]e were down approximately 15% comp in Michael Kors retail last quarter. And we are almost flat at this point. So there has been a significant step change in the performance of Michael Kors at retail, led by our full-price business.”
— John Idol, Chairman and Chief Executive Officer
Strong early results from the company’s disciplined return to brand heritage and optimal price-value are evidence of a potential inflection in its core retail performance, and support Capri Holdings’ medium-term $4 billion revenue target for Michael Kors.
Tariff Impacts and Gross Margin Outlook Present Near-Term Earnings Headwinds
The company’s sourcing mix for Michael Kors is geographically diversified, with only 5% of U.S. production volume from China, while Jimmy Choo items are primarily made in Italy. Management projects a $60 million increase in cost of goods sold from tariffs, but the company has plans to mitigate the impact of those import taxes over time.
In fiscal Q4, Michael Kors’ gross margin was 58.6%, a 220 basis-point decline compared to the prior-year period, and Jimmy Choo’s gross margin of 66.2%, was down from 70.1%. The company’s guidance for fiscal 2026 is for gross margin in the 61% to 61.5% range, versus 62.2% last year.
“What is happening now is there is an overlay for the tariff impact in fiscal 2026. And that as I noted in the prepared remarks was about $60 million higher costs on an unmitigated basis. And if I just do the math, between prior expectations of 50 basis points, that tariff amount is about down 150 plus. So we get to, at a midpoint, down 100 basis points for gross margin for the year. And that is before we really get traction on the mitigation activities. Our goal is to fully mitigate over time the tariff impact.”
— Tom Edwards, Chief Financial and Chief Operating Officer
Persistent pressure on margins from tariffs, even with the company’s mitigation plans, could constrain near-term EPS growth and delay its full earnings recovery until the company’s cost pass-through or sourcing countermeasures take hold.
Looking Ahead
Management provided a revenue guidance range of $3.3 billion to $3.4 billion (Michael Kors: $2.75 billion to $2.85 billion; Jimmy Choo: $540 million to $550 million), gross margin of 61% to 61.5%, operating income of around $100 million, and diluted EPS of $1.20 to $1.40. The company has committed to approximately $110 million in capital expenditures, primarily for store renovations, and expects to complete the Versace sale and substantially reduce its debt in the second half of calendar 2025. Leadership reiterated its aspiration to return to revenue growth and double-digit operating margins over the medium term.
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