Capri Swings to a Profit as Michael Kors Sales Keep Sliding

The print: profit on lower sales

Capri swung to a profit in the quarter ended September 26. Revenue came in at $809 million, down 5.5% from a year ago and above the $781 million consensus. Adjusted EPS was $0.42 against $0.21 expected. Adjusted net income was $45 million versus roughly $23 million estimated, and the company booked GAAP net income of $27 million after a $34 million loss in the same quarter last year.

Operating margin turned positive at 1.2%, against negative 1.4% a year earlier. Free cash flow was $36 million, a swing from negative $46 million. The quarter was better than the market modeled, but the top line still shrank.

Michael Kors is where the problem sits

Michael Kors revenue was $663 million, down 8.6% reported and 8.0% in constant currency. That is a worse trend than the 1.8% decline in the same quarter last year. About $15 million of the quarter came from wholesale shipments that landed earlier than planned. Strip that out and the underlying decline is closer to 10.6%.

The Americas did the damage. Michael Kors sales there were $405 million versus $457 million, an 11.4% drop. EMEA slipped to $185 million from $194 million and Asia was flat at $73 million against $74 million. Brand gross margin rose 220 basis points to 61.5%, helped by more full price sell-through and lower tariff rates. Operating margin edged up to 10.3% from 10.1%.

Jimmy Choo carried the margin story

Jimmy Choo revenue rose to $146 million from $131 million, about 11.5%. Its operating margin moved to 1.4% from negative 6.9%. That swing explains a large part of why consolidated operating income improved while the largest brand shrank.

Corporate expense also fell to $47 million from $53 million, and total SG&A came down to $459 million from $481 million. The earnings beat rests on cost control, tariff relief and a turnaround at the smaller brand. None of those fix a falling Michael Kors top line.

Guidance: EPS up a touch, revenue down

Capri guided Michael Kors to roughly $2.77 billion for the year with an operating margin in the low double digits. Jimmy Choo is guided to about $650 million. Third quarter revenue is guided to about $1.005 billion, with Michael Kors near $830 million. That figure absorbs the $15 million of shipments pulled into the second quarter. Reports put the full-year EPS target at $2.20, a small lift, while WSJ reports the annual revenue forecast went down on Michael Kors weakness.

A higher EPS target alongside a lower sales target means the company is leaning on gross margin and expense discipline. That works until full price sell-through stalls or tariff relief fades. Michael Kors needs to stabilize the Americas for the margin math to hold past this fiscal year.

What the options market has to price

Earnings premium collapses once the number is out. The question for CPRI now is whether realized movement in the next few sessions exceeds what implied volatility (the market's priced-in move) charged going in. A $0.21 EPS beat is a 100% surprise on paper, but it is about $22 million of adjusted net income on a small base. Treat the headline as noisy.

We don't have clean read on dealer gamma (how much stock dealers must buy or sell as price moves) in CPRI strikes after the print, and single stock flow around earnings is often hedge legs on stock positions. Check the [Options Heatmap](/optionsheatmap) for where open interest clusters before reading any call buying as directional. A beat on margin with falling sales is the kind of setup where early strength can fade once the guidance detail gets absorbed.

The next hard data point is the fiscal third quarter report. Michael Kors needs to land near the $830 million guide with Americas revenue back above $400 million. A second straight Americas print below that level, or a further cut to the $2.77 billion Michael Kors target, would break the margin-led recovery case.