Capri Holdings Cuts 2027 Sales View Despite Stronger Profitability

First-quarter fiscal 2027 results showed why profitability remains the brighter part of the story. Revenues fell 3.5% year over year to $769 million, but gross margin expanded 200 basis points to 65%. Adjusted operating income rose 40% to $28 million and adjusted earnings increased 34% to 67 cents per share.

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Capri’s revised outlook reflects pressure at Michael Kors, which generated $590 million in first-quarter revenues, down 7.1% year over year. For fiscal 2027, the company now expects Michael Kors revenues of about $2.765 billion. The reduction includes a $50 million hit from second-quarter inventory delays, $50 million from softer EMEA trends and $35 million from foreign currency headwinds.

Management expects the inventory issue to be temporary and is using more air freight to accelerate receipts. Michael Kors inventory was down about 25% year over year at quarter-end, partly because Capri intentionally reduced markdown merchandise. The company still expects Michael Kors revenues to return to growth in the second half as new products, increased marketing and store renovations gain traction.

Jimmy Choo provides a counterweight to the weakness at Michael Kors. First-quarter revenues increased 10.5% to $179 million, with growth across regions and channels. Operating margin improved 480 basis points to 7.3%, and Capri expects the brand to generate about $635 million in fiscal 2027 revenues and return to profitability.

Capri is also relying on cost discipline to protect earnings. The company reduced its fiscal 2027 operating expense outlook by $70 million to about $2 billion and expects gross margin of roughly 64%, compared with 62.3% last year. Lower promotions and better full-price sell-throughs helped first-quarter margins, though tariffs, inflation and weaker consumer confidence remain risks.

The competitive backdrop adds another layer to the execution challenge. Tapestry, Inc. TPR, the parent of Coach and Kate Spade New York, has continued to emphasize brand building and international growth, making it a relevant benchmark for Capri’s efforts to improve product desirability and full-price demand. American Eagle Outfitters, Inc. AEO offers a broader discretionary-apparel comparison, with its latest quarter showing higher revenues and a sharp improvement in gross margin as the company worked through prior inventory pressures.

Capri’s balance sheet is in a stronger position after the Versace sale. Net debt stood at $224 million at the end of the first quarter, down from about $1.5 billion a year earlier. The company generated $48 million in free cash flow and repurchased about $50 million of shares during the quarter, leaving $871 million under its authorization.

The bottom line is mixed. Capri is demonstrating better earnings quality through higher full-price selling, margin expansion and lower expenses, but the lowered sales forecast shows that the turnaround has not yet translated into a stable top line. Michael Kors remains the key swing factor because it represents most of the company’s revenue base.

CPRI currently carries a Zacks Rank #3 (Hold), along with a Value Score of A, Growth Score of B, Momentum Score of D and VGM Score of A. The favorable Value and VGM scores support the stock’s value profile, while the weaker Momentum Score points to a less favorable near-term trading setup. With a Zacks Rank #3, the current combination supports a measured stance as investors watch for firmer evidence of sustained revenue recovery.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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