CPRI — Capri Holdings Limited · 2026-09-05 · Verdict: WATCH · Conviction 3

Price $13.24 (screen row, universe_under2b.csv, screen dated 2026-09-04; no live quote available) · Mkt cap $1.504B (113,609,022 shares) · EV $1.728B · EV/FY27 guided operating income 10.2x (screen said 74.6x EV/EBIT) · FCF yield 8.9% on FY26 actuals (screen said 0.9%) · Net debt $224M plus $1.054B of lease liabilities · ADV $61.1M Sources read: 10-K filed 2026-05-27 for FY2026 ended 2026-03-28 (Items 1, 1A, 7), 10-Q filed 2026-08-05 (quarter ended 2026-06-27), DEF 14A 2026-06-16, 8-Ks 2026-04-09, 2026-05-27, 2026-06-16, 2026-06-25 and 2026-08-05, Form 4s trailing 12 months. No transcript was in the bundle, so quotes come from the release exhibits.

1. What the business actually does

Michael Kors is 83% of revenue, selling accessories, footwear and apparel through 673 stores, e-commerce, wholesale doors and licensees; Jimmy Choo is 17%, anchored in women's luxury footwear through 211 stores (10-K FY2026, Item 1). Versace was sold to Prada for $1.395B of gross cash on December 2, 2025 and is a discontinued operation in all periods (10-K FY2026, Item 7).

2. Why it is mispriced — the edge case

The screen's 74.6x EV/EBIT divides by GAAP FY2026 operating income of $23M, which absorbed $40M of impairments and $15M of restructuring (10-K FY2026, Item 7): a real post-restructuring artifact. But an edge case also needs someone selling for a bad reason, and there is none. Twenty-day volume is $61M a day, FMR owns 9.0% and Vanguard 5.1% (DEF 14A 2026-06-16), and the Tapestry merger that once distorted the register broke almost two years ago. The screen is wrong; the market is roughly right. That caps the verdict at WATCH.

3. Unit economics and growth

Revenue has gone $4.140B (FY24) to $3.621B (FY25) to $3.474B (FY26), the last down 4.1% reported and 6.2% constant currency; Michael Kors fell 4.7% to $2.874B, Jimmy Choo 0.8% to $600M. FY26 segment operating income was $312M for Michael Kors (10.9%) against a $22M loss at Jimmy Choo, less $212M of unallocated corporate cost. Store count went 1,003 to 930 to 884 (10-K FY2026, Item 7).

The key number is one the screen and the triage note both missed. After the Supreme Court's February 2026 IEEPA decision, Capri booked a $65M tariff refund receivable, of which $40M was recorded as a reduction to fiscal 2026 cost of goods sold and $25M as a reduction to inventory (8-K 2026-05-27, EX-99.1). All $40M landed in Q4, lifting gross margin to 64.8% from 59.9%; Michael Kors' Q4 operating income of $57M includes a $38M credit, so ex-credit Q4 segment profit was about $19M against $32M a year earlier. Capri's own adjusted FY26 operating income of $118M does not remove this item (8-K 2026-05-27, Schedule 7), leaving a clean base of roughly $78M, 2.2% of revenue, against $150M adjusted in FY25.

In Q1 FY2027 the halves diverged: Michael Kors revenue fell 7.1% to $590M with operating margin down to 9.3% from 9.9%, while Jimmy Choo grew 10.5% to $179M with margin up to 7.3% from 2.5% (10-Q 2026-08-05, MD&A). Consolidated operating income was $17M on $769M; net income of $70M came from $31M of interest income and an $18M tax benefit, not operations.

4. Balance sheet and capital allocation

Net debt is $224M at June 27, 2026 ($114M cash against $338M of debt) versus about $1.4B a year earlier (8-K 2026-08-05, Schedule 2). On June 24, 2026 the revolver was cut from $1.5B to $1.0B and extended to June 2031, secured by liens on substantially all US assets and registered IP (8-K 2026-06-25), retiring the July 2027 maturity risk flagged in the 10-K. Lease liabilities of $1.054B and $470M of inventory purchase obligations sit outside the screen's EV.

Capri repurchased $79M in Q4 FY26 and $50M in Q1 FY27 at about $19.31, roughly 46% above today's price, with $871M left, enough to retire 58% of the shares at $13.24 (8-K 2026-08-05). Insiders own 2.6%, Idol 2.2%, and there were zero open-market insider purchases in twelve months; the one sale was retiring director Stephen Reitman's 17,981 shares at $19.42, benign given his announced retirement (Form 4 2026-06-09; 8-K 2026-06-16). FY26 cash incentives paid at 200% of target in a year revenue fell 4.1%, on a plan whose only financial metrics were free cash flow and SG&A, with no revenue or margin gate (DEF 14A 2026-06-16).

5. Management: what they said vs what they did

On May 27, 2026 Capri guided FY27 to "low single digit revenue growth," revenue of about $3.525B, operating income of about $190M, net interest and other income of $85M to $90M and EPS of about $2.15. Ten weeks later revenue was cut to about $3.4B (a decline, not growth), Michael Kors from $2.9B to $2.765B and operating income to about $170M, while net interest and other income was raised to about $100M and the share count lowered from 112M to 110M. EPS was held at $2.15: the operating line fell $20M and the hold came from the financing line and the buyback (8-K 2026-08-05).

6. Valuation

Guided FY27 EPS of $2.15 rests on $170M of operating income plus about $100M of net interest and other income, taxed in the low teens. Roughly 37% of pretax income is non-operating, largely net investment hedge carry (10-K FY2026, Item 7); strip it and operating EPS is about $1.34, or 9.9x. EV of $1.728B against $170M is 10.2x, and against the clean FY26 base of $78M it is 22x. Reaching $170M needs about $142M from the last three quarters after Q1's $28M adjusted, versus roughly $98M in the comparable FY26 period, on revenue guided down.

Bear (35%): $9. Operating income stalls near $90M as Michael Kors keeps shrinking, hedge income fades to $60M, EPS about $1.14 at 8x. Base (45%): $15. Operating income lands at $150M, non-operating $95M, EPS about $1.89; operating earnings at 10x plus hedge carry at 6x. Bull (20%): $22. Guide met, Jimmy Choo reaches mid-single-digit margin, buybacks take the count near 95M and FY28 EPS approaches $2.80 at 9x, discounted back a year. Probability weighted: $14.30, about 8% above $13.24.

Reverse DCF: at $13.24 the $1.728B enterprise value against roughly $136M of NOPAT (guided $170M operating income at a 20% normalized tax, $125M capex against $118M D&A) implies the market expects management to hit the FY27 guide and then compound operating profit about 2% a year in perpetuity at a 10% cost of capital; on the clean $78M base it implies about 6%. The price discounts success, not distress.

7. Catalysts and timeline

Q2 FY27 results in early November 2026, guided to just $10M of operating income and $0.20 of EPS, are the first test of a back-half-loaded plan. Collection of the last $16M of the IEEPA refund ($49M received as of July 31, 2026). Deployment of the $871M authorization far below the $19.31 already paid. The securities class action, dismissed without prejudice March 31, 2026 and re-pleaded April 30, 2026 (10-K FY2026, Item 1A).

8. Risks and pre-registered kill criteria

Michael Kors has shrunk 21% in three years and is guided down again; about $887M of other long-term liabilities is not broken out in this document set; tangible book is deeply negative behind $755M of goodwill and intangibles; new Section 301 tariffs of 10% to 12.5% took effect July 24, 2026. 1. Nine-month FY27 adjusted operating income below $120M when Q3 is reported (early February 2027), making the $170M guide unreachable. 2. Michael Kors constant-currency revenue down more than 5% year over year for two consecutive quarters. 3. A second cut to FY27 revenue or operating income guidance on the Q2 call. 4. Quarterly share repurchases below $40M while the shares trade under $16.

9. Verdict and one-paragraph summary

WATCH, conviction 3. Capri looks like a 6.2x post-restructuring stub with a repaired balance sheet, net debt down from $1.4B to $224M, a revolver extended to 2031 and an $871M buyback worth 58% of the market value. Two corrections take the shine off. First, $40M of the IEEPA tariff refund was booked as a credit to FY26 cost of goods sold and was not adjusted out of the company's own $118M of adjusted operating income, so the clean base is about $78M and the $170M FY27 guide is roughly a doubling on revenue guided down 2%, with $142M of it due in the last three quarters. Second, $100M of the $270M of guided pretax income is non-operating hedge and interest income, so the real multiple is 9.9x operating earnings and 10.2x EV, not 6.2x. Management also cut revenue guidance by $125M ten weeks after issuing it and held EPS with the financing line and a lower share count, while no insider has bought a share in twelve months and the company itself paid $19.31. Probability-weighted value of about $14.30 is 8% above the price, which is not enough; the Q2 print in early November decides it.

Research for discussion, not investment advice. Positions and sizing are the reader's decision.