Capri Holdings (NASDAQ: CPRI) Stock a Luxury Retail Recovery Play

Luxury fashion brand retailer Capri Holdings Limited NASDAQ: CPRI  stock is starting to rebound on the wider time frame charts as global economic restarts improve consumer sentiment. The Company operates three primary luxury brands Michael Kors, Versace and Jimmy Choo. While shares plummeted along with the S&P 500 index NYSEARCA: SPY during the peak of the COVID-19 pandemic, they continue to lag the benchmark index during the recovery. With shares still trading under half its pre-COVID-19 February highs, opportunistic entries for prudent risk-tolerant investors are still present as retail sales continue to improve.

Q1 FY 2021 Earnings Release

On Aug. 5, 2020, Capri released its first-quarter fiscal 2021 results for the quarter ending June 2020. The Company reported a non-GAAP diluted loss of (-$1.04) per share beating consensus analyst estimates for a loss of (-$1.11) per share, by $0.07 per share. Revenues for the quarter fell 66.5% year-over-year (YoY) to $451 million still beating consensus estimates for $429.17 million. Retail channel sales fell (-60%) while whole sales fell (-80%) YoY. Management was very blunt about the lack of visibility still stemming from the impacts of COVID-19 preventing it from providing further financial guidance for fiscal full-year 2021. However, Capri CEO, John Idol, commented they were “encouraged by trends across all three luxury houses… please with strong growth of our eCommerce business, as well as the sequential improvement in overall revenue trends through the first quarter and into July.”

Conference Call Takeaways

Capri ended the quarter with $1.1 billion of liquidity, after taking a loss of (-$162 million) from operations compared to an income of $64 million YoY. Inventories fell (-7%) YoY as margins improved by 480 basis points to 67.2% due to cost-cutting and cash preservation measures combined with an initiative to increase full-price sell-through and raise prices selectively across its luxury brands notably with the Michael Kors brand. Tourist travel-related sales were severely impacted by COVID-19. Versace brand Virtus accessory sales were encouraging. Fashion activewear was a bright spot with Jimmy Choo sandals, flat and active. Bags, accessories, and fashion comfort wear were bright spots. The emphasis on social media marketing utilizing celebrities like Bella Hadid, Sandra Choi, and Kate Moss helped drive Michael Kors social media to 49 million followers up 6% YoY and reaching nearly 45 million customers, up 17%.

Purposely Setting the Bar Low?

The bearish sentiment initially projected by management could be an indirect lowballing attempt out of an abundance of caution. However, retail sales have been steadily improving despite the surge of hotspots causing certain geographies to implement rollbacks in the bar and restaurant space. The Company remains confident in the prospects of raising Versace revenues to $2 billion with mid-teens margins, Jimmy Choo sales to $1 billion composed of 50% accessories and return to revenue growth and profitability for Michael Kors all “in time”. The Company noted that China is experiencing a “more rapid recovery as luxury sales are benefiting from domestic demand.” The vast majority of the Company stores will be open in Q2 but still expects a (-40%) decline in total sales YoY with retail sales performing “significantly better” than wholesale and ultimately a recovery to (-35%) of YoY sales by Q4.

COVID-19 Vaccine Silver Bullet

While experts warn that a COVID-19 vaccine is not a silver bullet, for markets it is. Markets are impacted by narrative and driven by sentiment. The FDA approval of a vaccine will immediately bolster positive sentiment which is the key driver for higher share prices in the epicenter stocks which include consumer apparel retailers. Capri has set the bar low moving forward, which makes it more conducive to stronger upside momentum as retail sales numbers improve, COVID-19 cases fall and on the FDA approval of a vaccine. These are the three key catalysts to monitor moving forward. In the meantime, prudent investors should monitor opportunistic pullback entries during this period of uncertainty. Investors can use peers PVH Holdings NYSE: PVH and Ralph Lauren NYSE: RL to gauge the sentiment of the luxury retailer group, which CPRI is still lagging.

 CPRI Price Trajectories

Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for CPRI stock. The monthly rifle chart triggers a market structure low (MSL) buy above $17.21. The weekly rifle chart triggered its MSL buy above $14.40. The monthly rifle chart is forming a mini pup above its 5-period moving average (MA) at $15.62 which sets up the channel tightening recovery towards its 15-period MA at $25.39. This requires the weekly stochastic to cross up to commence this journey to the upside trajectories of $20.80, $22.51, $25.39 and the $27.41 Fibonacci (fib) level. While the weekly rifle chart is in this make or break period, it can provide opportunistic pullback levels at the $15.60 fib, $14.65 fib and $14.27 fib. As mentioned earlier, CPRI have be watch with higher-end retail brands PVH and RL.