Capri Holdings

On Sept. 22, Capri's shares rose 6% after a Women's Wear Daily report said the firm has been speaking with potential buyers. The report suggests that a deal is not imminent.

Why it matters: Tapestry offered to buy Capri for $57 per share in 2023, but the deal collapsed in 2024 after US government opposition. The deal's end was especially painful for Capri as its sales and profitability have since fallen, and its share price has been trading around multiyear lows. Over the past two years, we have speculated that Capri would eventually be sold as a whole or in parts. In 2025, Capri sold struggling luxury label Versace to Prada for $1.375 billion, leaving the firm with Michael Kors and Jimmy Choo. Michael Kors has been in decline, but we think Capri is taking the proper steps to return the brand to sales growth and improve its operating margins. Meanwhile, we forecast Jimmy Choo will achieve sales growth and positive operating income in the current fiscal year.

The bottom line: No-moat Capri's shares are extremely undervalued relative to our unchanged $45.50 per share fair value estimate. We think Capri will eventually be sold, but we are uncertain if it can receive a fair offer until Michael Kors' results improve. Versace was sold for 1.6 times sales, and our fair value estimate currently values Capri at around this level. However, improvement to our long-term segment operating margin assumptions of 12% and 20% for Jimmy Choo and Michael Kors, respectively, is years away. Even so, we think an offer would come at a sizable premium to the current market price, which values Capri at a mere 0.5 times sales. Like Versace, Jimmy Choo would be desirable to a luxury firm, while Michael Kors' handbag share and cash flow could attract a financial buyer.

We hold our fair value estimate on Capri’s shares at $45.50 after the firm reported fiscal 2027 first-quarter results that were close to our forecast.

Capri's sales fell 3.5% as a 7.1% decrease from Michael Kors offset a 10.5% rise from Jimmy Choo. Gross margin increased 2 percentage points to 65% and adjusted operating margin improved to 3.6% from 2.5%.

For fiscal 2027, we forecast a 2% sales decline (2% growth previously) as Michael Kors’ sales are expected to be hit by inventory shortages and soft sales in Europe and the Middle East due to weak tourism and the Middle East war. We forecast a 4% sales decline for Michael Kors (down from 1% growth prior) and 6% sales growth for Jimmy Choo (up from 4%). However, our adjusted EPS forecast is only slightly reduced to $2.15 from $2.19. Based on our forecast, our fair value estimate values Capri at 21 times and 17 times EPS and EV/EBITDA, respectively.

In the long run, we forecast compound average annual sales growth rates of 4% for Jimmy Choo and 2% for Michael Kors. We project 1% annual growth for Michael Kors in the mature markets of the Americas and Europe, the Middle East, and Africa but 2% in higher-growth Asia. For Jimmy Choo, we forecast 6% growth rates in the Americas and Asia but only 2% growth in EMEA.

After an adjusted operating margin of just 3% in fiscal 2026, we forecast Capri's operating margin will improve to 12% in about four years. This projection is based on segment operating margins of 20% and 12% for Michael Kors and Jimmy Choo, respectively. Indicative of their poor market positioning, these operating margins are relatively modest for luxury brands. With the divestment of Versace, Michael Kors is expected to generate 85%-90% of Capri’s operating profit over the next 10 years.

Capri sold Versace to Prada for nearly $1.4 billion in cash. The deal lowered Capri’s sales and cash flow in the long run, but the negative impact of this cash flow loss was largely offset by the cash received. Versace had a 20% sales decline and an operating loss of about $54 million in fiscal 2025.

We assign a no moat rating to Capri. We do not believe either Michael Kors or Jimmy Choo has established a competitive advantage in the form of an intangible brand asset or a cost edge. Michael Kors accounts for more than 80% of Capri’s sales and nearly all its operating profit, but the brand has been in decline. We believe it lacks the differentiated product and prestige necessary for consistent premium pricing in women’s handbags and other main product categories.

Evidencing Capri’s lack of a competitive edge, its operating margins and adjusted returns on invested capital, including goodwill, have declined precipitously. Between fiscal years 2015 and 2026, the company’s adjusted operating margins plummeted to 3% from 29%, and its adjusted ROICs including goodwill dropped to just 3% from 39%. These declines in returns are attributable to weakness in Michael Kors as well as the troubled acquisitions of Jimmy Choo and Versace (sold at a loss in fiscal 2026).

We forecast Capri’s ROICs will improve from their current low levels as Michael Kors’ sales stabilize, and its operating margins improve. Specifically, we forecast its adjusted ROICs including goodwill to exceed its 11% estimated weighted average cost of capital at an average of 16% over the next decade. However, we expect returns will remain below both peak levels and those of many others in the luxury space. Moreover, there is high uncertainty about the durability of these returns.

Michael Kors lacks the brand strength to provide a moat. Founded in 1981, it was a niche handbag and apparel brand for many years until new owners came in and opened hundreds of company-owned stores and expanded distribution in department stores. Between fiscal years 2007 and 2016, its yearly sales skyrocketed to $4.7 billion from just $200 million. By 2016, however, oversaturation had brought widespread discounting of its bags and other products. Between 2015 and 2025, Michael Kors’ share of the US luxury handbag market plummeted to 11% from 29% (Euromonitor).

In our view, Michael Kors compares unfavorably with other apparel and leather goods brands (such as narrow-moat Tapestry’s Coach) under our evaluation criteria. As much of its merchandise is priced well below that of upscale competitors, we do not regard Michael Kors as a true luxury brand. At a high level, Morningstar uses four factors to determine the brand power of luxury brands: pricing power, conspicuousness of consumption, investment value, and control over distribution. Using a scale of high, moderate, and low, we rate Michael Kors as low in every category except control over distribution, which we rate as moderate.

Michael Kors’ limited pricing power is the main factor in our no moat rating for Capri. Although some of its bags carry high price points, most of them are priced at less than $500, and they are often discounted.

Further, we think Capri’s efforts to control Michael Kors’ distribution have met with mixed success. While the total number of wholesale doors that carry its products has fallen, Michael Kors still has significant exposure to US department stores that commonly discount its merchandise. As for its own distribution, Michael Kors has been closing full-price stores while opening outlets, a sign that it struggles to sell merchandise at full price consistently.

One of Michael Kors’ weaknesses is that it lacks the international appeal of peer brands, having produced just 35.5% of its revenue outside the Americas in fiscal 2026. For example, it generated a mere $308 million in sales in Asia in fiscal 2026, down from $555 million in fiscal 2019. Michael Kors is more established in Europe, the Middle East, and Africa, but has had some of the same problems as in the US and has been closing stores. Between fiscal years 2017 and 2026, the number of Michael Kors stores in EMEA declined to 138 from 201. We forecast the brand’s annual sales in EMEA will remain below prepandemic levels for at least the next 10 years as the European handbag market is saturated with native brands.

Ultimately, Capri has been unable to develop Michael Kors’ marketing and merchandise to keep up with a dynamic marketplace. Plans are now in place for store renovations and new advertising and products that should lift results by the end of this decade, but a competitive edge remains elusive.

Similarly, we do not think Jimmy Choo provides a brand-based advantage. Founded in London in 1996, Jimmy Choo is one of the better-known luxury women’s footwear brands with shoes that typically carry retail prices between $500 and $1,000 per pair. Under our rating system for luxury brands, we rate Jimmy Choo’s control over distribution as high, pricing power as moderate, but conspicuousness of consumption and investment value as poor.

Despite its luxury positioning, Jimmy Choo is a niche brand; its fiscal 2026 sales were only $600 million. Moreover, the brand posted operating losses in both fiscal years 2025 and 2026. As with Michael Kors, Jimmy Choo’s profitability has been negatively affected by promotional pricing in US department stores and a lack of trendy merchandise. Capri has tried to increase sales of Jimmy Choo accessories since its acquisition, but success has been limited. Over the next few years, we think Capri’s investments will lift Jimmy Choo’s annual segment operating margins to 12%, but this is still a low level for a luxury brand.

Capri does not have a brand intangible asset or any other factor that could provide a moat. It has no production cost advantage over rivals as it does not own factories. Specifically, Michael Kors, like many competing apparel and accessories firms, outsources its products to third-party factories in Asia, while most Jimmy Choo merchandise is produced by third-party manufacturers in Italy. Further, there are no switching costs in Capri’s key categories of women’s handbags, apparel, and shoes, and no network effect.

Capri has retired much of its debt from the proceeds of the Versace sale. Moreover, the divestment of this troubled brand allows management to focus on improving the health of its two remaining brands.

Michael Kors is one of the largest brands in terms of units and sales in the high-margin and growing handbag space. It is also a diversified apparel label.

Jimmy Choo is one of the best-known women’s luxury footwear brands. It has sales and margin growth opportunities in attractive markets.

Jimmy Choo’s sales growth and profitability have been inconsistent. Despite diversification efforts, Jimmy Choo remains highly dependent on women’s luxury footwear.

Michael Kors has struggled with declining market share, and its profitability has fallen dramatically. Although turnaround efforts are being made, we believe widespread discounting has degraded the value of the brand.

China and other parts of Asia are important and fast-growing luxury markets, but Capri has low sales and visibility in these areas compared with many peers.