Today's decrease in Capri Holdings' share value could be attributed to various reasons.
In its initial financial report post the blockage of its merger with Tapestry's parent company, Capri Holdings (CPRI, down 10.4%) delivered less than ideal news to investors, falling short of estimates during its Q2 earnings report.
At 2:39 p.m. ET, the stock experienced a 10.4% decrease in value following this new information.
Capri fails to meet expectations
The firm, responsible for Michael Kors, Jimmy Choo, and Versace, reported a reduction in quarterly revenue to $1.08 billion, decreasing by 16.4% from the expected $1.18 billion. This slump was attributed to a global decline in demand for luxury fashion items, leading to retail sales dropping by high single digits and a double-digit decrease in wholesale revenue.
The company did however manage to add 10.9 million new customers to its database, marking a 13% increase compared to the previous year.
Maintaining a steady gross margin at 64.3%, the rise in favorable sales channels was balanced out by an increase in markdowns. Adjusted operating income saw a significant decrease, tumbling from $157 million to $32 million, resulting in an adjusted operating margin of 3%.
In terms of earnings, Capri's adjusted EPS dropped from $1.13 to $0.65, missing the anticipated $0.75.
Regarding the recent court-approved blocking of its merger with Tapestry, CEO John Idol expressed disappointment and explained that Capri and Tapestry had jointly submitted an appeal notice.
What's to come for Capri?
Management announced it would not hold a conference call due to the ongoing dispute over the Tapestry merger appeal.
The merger was halted, following a district court's decision to sidle with the FTC's assertion that the agreement would result in significant reduction of competition within the handbag market. Capri's shares experienced a significant dip upon the revelation of this information.
Should the appeal be unsuccessful, there seems to be potential for the stock to fall further, given the current state of the business.
Investors may be wary of further financial losses, as Capri's disappointing Q2 earnings report, which fell short of expectations, could potentially impact their decision to invest in finance. The company's struggles with decreased revenue and earnings, along with the halted merger with Tapestry, might deter potential money inflows.
With Capri's adjusted EPS missing the anticipated mark and the merger appeal yet to be decided, there's a possibility of the company requiring additional funds for its operations, potentially making it an appealing target for investors seeking investment opportunities in challenging market conditions.
