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Why Capri Holdings Stock Was Falling Today

Source The Motley Fool

In its first earnings report since its merger with Coach parent Tapestry was blocked, Capri Holdings (NYSE: CPRI) had more disappointing news for investors after it missed estimates in its fiscal second-quarter earnings report.

As of 2:39 p.m. ET, the stock was down 10.4% on the news.

Image source: Getty Images.

Capri comes up short

The parent company of Michael Kors, Jimmy Choo, and Versace said that revenue in the quarter fell 16.4% to $1.08 billion, which missed estimates at $1.18 billion. The company blamed the decline on weak global demand for fashion luxury goods. Retail sales were down by high single digits, while wholesale revenue declined double digits.

Management noted that the company added 10.9 million new customers across its databases, representing 13% growth from the year before.

Gross margin held steady in the quarter, going from 64.4% to 64.3% as a favorable channel mix was offset by more markdowns. Adjusted operating income tumbled from $157 million to $32 million, or an adjusted operating margin of 3%.

On the bottom line, its adjusted earnings per share fell from $1.13 to $0.65, which missed the consensus at $0.75.

Commenting on the recent blocking of its merger with Tapestry, CEO John Idol said, "We are disappointed with the decision, and consistent with our obligations under the merger agreement, Tapestry and Capri have jointly filed a notice of appeal."

What's next for Capri?

Management said it would not provide or hold a conference call due to the pending appeal of the merger with Tapestry.

The merger was blocked after a district court agreed with the Federal Trade Commission that the deal would significantly reduce competition in the handbag industry. Capri stock plunged when that news came out.

If the appeal fails, the stock looks likely to head lower, especially considering the current trajectory of the business.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Tapestry. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.

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