This luxury brand is firing on all cylinders. Is this a buy for retail investors?
Ohile Versace handbags and Jimmy Choo flats sold by Capri Holdings (NYSE: CPRI) come with high price tags, shares of the parent company are trading at bargain levels.
Capri has been a strong performer since March 2020 lows, but started to sell off in March along with the wider market and fears that the war in Europe and lockdowns in China will hurt consumer demand in regions where the company has a strong presence.
But Capri has just released its fourth-quarter and full-year results for fiscal 2022, and the company is firing on all cylinders — growing revenue, earnings per share and margins. Here’s why Capri looks like a solid investment opportunity going forward.
For the year, the company increased revenue by 39%, setting a new record. The company did this while increasing its margins and profits. Earnings per share rose 230% to $6.21, the highest level in company history. The company has also increased its customer database by 11.5 million, which is a good development as it can use it to interact with customers and encourage repeat checks.
In the fourth quarter, Capri grew revenue 25% year over year, pushed adjusted gross margins up to 63.7% and increased earnings per share 170% year over year. other at $1.02.
CEO John Idol said looking ahead, the company expects 2023 to be another record year for earnings and revenue, and praised the resilience of the luxury market. The company is forecasting revenue of $5.95 billion in 2023, down from $5.65 billion in 2022. That’s slightly lower than some analysts expected, but Capri is confident in its ability to return to double-digit growth. revenue figures in the future.
The strength of Versace
In the past, there were fears that Michael Kors would wear the brand as Versace tread water. But it looks like the Italian luxury house is back in full force, boosting revenue by 50% for the year and topping $1 billion in sales for the first time. The company did this while improving its margins to the highest level in its history, and also increased its global customer database by 35%. As mentioned above, this expanding database is a valuable asset for increasing engagement with customers.
But Versace doesn’t stop there — Idol says the company’s goal is to grow Versace to $2 billion in annual revenue over time. While acknowledging that China has been a challenge for the business due to lockdowns, it also represents a great opportunity for the future. Idol says the company will open a new flagship store in Shanghai, China’s largest city, in August or September, so China could soon turn from a headwind into a growth engine for the company.
Valuation of liquidation racks
With shares down 40% from their 52-week high, Capri is trading at a particularly cheap valuation. Capri shares are earning just under 11 times earnings and even less than six times earnings next year. The stock trades at a surprisingly low price-to-earnings growth (PEG) ratio of just 0.2; a PEG ratio of less than 1 is widely accepted to mean that a stock is inexpensive.
Although Capri does not pay a dividend, it returns capital to shareholders through share buybacks. It repurchased $300 million of stock during the fourth quarter. Additionally, Capri just announced a massive $1 billion stock buyback authorization, which equates to nearly 15% of the company’s current market capitalization.
Is Capri a buy?
In conclusion, Capri seems to be hitting all the right notes, increasing revenue while increasing margin and earnings per share. The company is adding a significant number of new customers to its database, and Versace seems to be becoming a real growth engine for the company.
This growth is fully available at a very modest valuation, and with the added bonus of a major share buyback program getting underway. Capri Holdings looks like a solid buy going forward.
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Michael Byrne has no position in any of the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.