8-K: Capri Holdings Exceeds Q2 Expectations, Announces $1B Buyback

Capri Holdings Limited reported second-quarter fiscal 2026 results that exceeded expectations for revenue, gross margin, and operating income, alongside the approval of a new $1 billion share repurchase program.

Summary

• Capri Holdings Limited announced its second fiscal quarter 2026 results, ending September 27, 2025, with revenue, gross margin, and operating income exceeding internal expectations.
• Total revenue for continuing operations was $856 million, a 2.5% decrease on a reported basis and 4.2% in constant currency compared to the prior year.
• The company reported a net loss of $34 million, or $(0.28) per diluted share, from continuing operations, and an adjusted net loss of $4 million, or $(0.03) per diluted share.
• A higher than anticipated effective tax rate negatively impacted adjusted net income by $24 million, or $0.20 per share.
• The Board of Directors approved a new three-year share repurchase program of up to $1.0 billion, expected to commence in fiscal 2027.
• The sale of the Versace business to Prada S.p.A. for $1.375 billion in cash is expected to close in the fiscal third quarter, with proceeds intended to repay the majority of the company's debt.
• Michael Kors revenue decreased 1.8% to $725 million, while Jimmy Choo revenue decreased 6.4% to $131 million.
• The company provided fiscal year 2026 outlook, expecting total revenue of approximately $3.375 billion to $3.45 billion and diluted earnings per share of approximately $1.20 to $1.40.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. While the company reported year-over-year declines in revenue and profitability, it explicitly stated that key metrics (revenue, gross margin, operating income) exceeded internal expectations, and trends are improving sequentially. The approval of a significant share repurchase program and the imminent closing of the Versace sale, with plans to reduce debt, are strong positive strategic signals for future financial health and shareholder returns.

Positives

• Revenue of $856 million, gross margin of 61.0%, and operating income (adjusted operating margin of 2.3%) exceeded internal expectations for the quarter.
• Trends showed sequential improvement across the business.
• The Versace sale is on track to close in fiscal Q3, expected to generate $1.375 billion in cash, which will be used to repay the majority of debt.
• A new three-year share repurchase program of up to $1.0 billion was approved, signaling confidence and a commitment to returning capital to shareholders, expected to begin in fiscal 2027.
• Net inventory decreased by 2.8% year-over-year to $766 million, indicating improved inventory management.
• Jimmy Choo's gross margin improved to 70.2% from 68.6% in the prior year.

Negatives

• Total revenue decreased 2.5% on a reported basis and 4.2% in constant currency compared to the prior year.
• Gross margin declined to 61.0% from 62.3% in the prior year, negatively impacted by tariffs (approximately 130 basis points).
• Reported loss from operations increased to $(12) million from $(6) million in the prior year.
• Adjusted income from operations decreased to $20 million from $37 million in the prior year.
• Net loss from continuing operations was $(34) million, compared to net income of $42 million in the prior year.
• Adjusted net loss was $(4) million, compared to adjusted net income of $76 million in the prior year, representing a significant decline.
• Adjusted diluted loss per share was $(0.03), a significant decline from adjusted diluted earnings per share of $0.64 in the prior year.
• A higher than anticipated effective tax rate negatively impacted adjusted net income by $24 million or $0.20 per share.
• Free cash flow was negative $(46) million for the quarter.
• Net debt increased to $1.64 billion from $1.58 billion last year.
• Michael Kors revenue decreased 1.8% reported and 3.3% constant currency, with operating income declining to $73 million from $87 million.
• Jimmy Choo revenue decreased 6.4% reported and 9.3% constant currency, with operating loss increasing to $(9) million from $(5) million.

Risks

• Macroeconomic pressures and general uncertainty regarding the overall future economic environment.
• The imposition or threat of imposition of new or additional duties, tariffs, or trade restrictions on product importation.
• Changes in fashion, consumer traffic, and retail trends.
• Fluctuations in demand for products.
• Loss of market share and increased competition.
• Risks associated with operating in international markets and global sourcing activities, including currency fluctuations, disruptions, or delays in manufacturing or shipments.
• Departure of key employees or failure to attract and retain highly qualified personnel.
• Levels of cash flow and future availability of credit.
• Ability to successfully execute growth strategies or cost reduction measures.
• The risk of cybersecurity threats and privacy or data security breaches.
• Reductions in the wholesale channel.
• High consumer debt levels, recession, inflationary pressures, and general economic, political, business, or market conditions.
• The impact of epidemics, pandemics, disasters, or catastrophes.
• The ability to successfully execute the proposed sale of Versace to Prada and other risks related to the transaction.
• Extreme weather conditions and natural disasters.
• Acts of war and other geopolitical conflicts.
• The risk of any litigation relating to the company's previously proposed merger with Tapestry, Inc., the termination of the merger agreement, and/or public disclosures related thereto.

Future Outlook

Capri Holdings expects retail trends to improve in the back half of fiscal 2026, positioning the company to return to growth in fiscal 2027. For fiscal year 2026, the company anticipates total revenue between $3.375 billion and $3.45 billion, operating income of approximately $100 million, and diluted earnings per share of $1.20 to $1.40. Michael Kors is projected to have FY26 revenue of $2.8 billion to $2.875 billion with a high-single-digit operating margin, while Jimmy Choo is expected to have FY26 revenue of $565 million to $575 million with a negative mid-single-digit operating margin. For the third fiscal quarter of 2026, total revenue is estimated between $975 million and $1.0 billion, with diluted EPS of $0.70 to $0.80.

Management Comments

• "We are encouraged by our second quarter results. Trends continued to improve sequentially, which resulted in revenue, gross margin and operating income exceeding our expectations. This performance demonstrates the progress we are making as we execute against our strategic initiatives to energize our fashion luxury houses."
• "With the Versace sale expected to close in our fiscal third quarter, we are now fully focused on the growth of our two iconic brands Michael Kors and Jimmy Choo. We plan to use the proceeds of the sale to repay the majority of our debt, substantially strengthening our balance sheet and providing greater financial flexibility to both invest in our growth as well as return capital to shareholders in the future."
• "Given the encouraging signs of stabilization across our business and our planned reduction in debt levels, our Board of Directors has authorized a new $1 billion share repurchase program which the Company expects to begin implementing in fiscal 2027."
• "Looking ahead, we continue to expect retail trends to improve in the back half of fiscal 2026 positioning us to return to growth in fiscal 2027. Longer term we remain optimistic about the sustainable growth potential of both Michael Kors and Jimmy Choo."

Industry Context

The luxury fashion industry is currently navigating macroeconomic pressures and evolving consumer confidence. Capri Holdings' strategic decision to divest Versace and focus on Michael Kors and Jimmy Choo, coupled with a significant debt reduction plan, aligns with a broader industry trend of streamlining portfolios to enhance financial flexibility and concentrate on core, high-potential brands amidst a challenging retail environment. The sequential improvement in trends suggests a potential stabilization in the luxury market, though overall revenue declines indicate ongoing headwinds.

Legal Proceedings

• Risk of litigation relating to the company's previously proposed merger agreement with Tapestry, Inc., the termination of the merger agreement, and/or public disclosures related thereto.

Stakeholder Impact

• Shareholders: Potential benefit from the $1.0 billion share repurchase program and strengthened balance sheet post-Versace sale, aiming for future growth and capital returns.
• Creditors: Significant debt reduction expected from the Versace sale proceeds, improving the company's credit profile.
• Employees: Ongoing 'Capri transformation program' and 'Global Optimization Plan' may involve restructuring and other charges, potentially impacting personnel.
• Customers: Strategic initiatives are focused on energizing the Michael Kors and Jimmy Choo brands, aiming to improve customer experience and product offerings.

Next Steps

• Closing of the Versace sale to Prada S.p.A. in the fiscal third quarter of 2026.
• Repayment of the majority of the company's debt using proceeds from the Versace sale.
• Implementation of the $1.0 billion share repurchase program, expected to begin in fiscal 2027.
• Continued execution of strategic initiatives to energize the Michael Kors and Jimmy Choo brands.
• Expectation for retail trends to improve in the back half of fiscal 2026.
• Anticipated return to growth in fiscal 2027.

Key Dates

Recommendation

The company's Q2 FY26 results, while showing year-over-year declines in revenue and profitability, exceeded internal expectations for key metrics and demonstrated sequential improvement. The strategic divestiture of Versace, expected to close soon, will significantly reduce debt and provide financial flexibility. The approval of a $1 billion share repurchase program signals management's confidence and commitment to shareholder returns. However, the current operating environment remains challenging with ongoing revenue pressures and negative free cash flow. The outlook anticipates a return to growth in fiscal 2027, suggesting a period of transition. Given these mixed signals, a 'hold' recommendation is appropriate, allowing investors to observe the successful execution of the Versace sale, debt reduction, and the initial phases of the share repurchase program, as well as the anticipated improvement in retail trends.

Keywords

Capri Holdings, CPRI, Michael Kors, Jimmy Choo, Versace, Luxury Fashion, Financial Results, Share Repurchase, Q2 2026, Earnings, Retail, Apparel, Debt Reduction