Why Capri Holdings Can Recover After 59% Slump
Capri Holdings' (NYSE:CPRI) plans to invest in its omnichannel offering could boost its stock price. The parent company of Jimmy Choo, Versace and Michael Kors is set to enhance the online and in-store experience for its customers, as well as increase the size of its store estate.
The stock has declined 59% in the last year compared to a 2% gain for the S&P 500 index. Its valuation and growth prospects suggest it has recovery potential.
Digital growth
The company's investment in its digital operations is set to catalyze its financial performance. For example, it plans to redesign the website of its Versace brand in the next financial year in order to improve customer engagement from the 800,000 online visits it receives per week. This will be completed in tandem with Capri's rollout of a global omnichannel offering in 2020 that is expected to enhance the customer experience.
The group is in the process of integrating a communication network in Japan called Line, as well as adding WeChat to its offering in China. Line and WeChat are similar to Instagram, and the company expects them to increase consumer interest in its brands among a wider range of age groups.
Store investment
The business plans to grow the size of its Jimmy Choo store estate from 208 units to 300 units over the long term. It will focus new store development in Southeast Asia, where rising incomes are expected to produce increasing demand for premium fashion products. In China, for example, sales of retail products such as those sold by Capri are forecast to grow at an annualized rate of 10.6% between 2019 and 2024.
Alongside store expansion, the business will continue to renovate existing stores. Currently, 77% of its Jimmy Choo stores have been refurbished, with their refreshed designs resonating with customers. This is expected to enhance the brand's competitive position and improve the customer experience.
Personalization
Capri is aiming to differentiate its offering versus sector peers through an increasing level of personalization for its customers. For example, its Jimmy Choo brand is partnering with jewellery brand Swarovski as part of the "Jimmy Choo X You" campaign that offers made-to-order shoes and handbags that can be personalized. This could lead to higher price points for the company's offering, as well as an increase to its gross margin.
The group is in the process of increasing commission levels for staff working in its stores. It expects this to lead to better-qualified staff members, as well as an enhanced shopping experience that may encourage higher levels of customer engagement.
Threats
The company's watch segment continues to experience challenging operating conditions. Capri expects sales of its watches to decline in the current year, with a global slowdown in the wider watch category being the main cause.
Despite the company's investment in new products such as its Michael Kors smartwatch, it has failed to gain market share in the smartwatch category versus rivals such as Apple (NASDAQ:AAPL) and Samsung. This contributed to a fall in revenue for the group's Michael Kors brand of 4.8% in the most recent quarter, with watch sales expected to act as a drag on the brand's future growth prospects.
In response, Capri will seek to offer increasingly innovative watches. For example, its Sofie smartwatch was released in the most recent quarter, offering heart rate monitoring and new sport features that could resonate with a wider range of consumers.
It also expects to deliver synergies following its acquisition of Versace in 2018. For example, Capri is currently combining logistics management across its brands, while it plans to implement an updated IT platform that will reduce costs across its back-office operations. This is expected to improve the company's margins through creating a simpler and more streamlined operation that can more easily adapt to changing consumer tastes across its key markets and product categories.
Outlook
The stock is forecast to post a rise in earnings per share of 8% in the next fiscal year. It trades on a forward price-earnings ratio of 6, which suggests it offers good value for money given its growth outlook.
Having underperformed the S&P 500 in the last year, Capri's growth strategy suggests that it has recovery potential.
Disclosure: the author has no position in any stocks mentioned.
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This article first appeared on GuruFocus.
