I already discussed the stock of Capri Holdings twice last year, prior to and after the failed takeover attempt by Tapestry. Capri’s stock fell even below my lower target of 20 USD from initially 35 USD. Now, sitting around 15 USD and having announced the sale of troubled Versace, many things have changed, requiring a reassessment of the case. If the sale goes through, the balance sheet flips from net debt to net cash at current figures. Also, loss-making Versace will stop to be a burden for the group. Is the third time now finally the charm?
Summary and key takeaways from today’s Weekly
– Capri Holdings plans to sell its unprofitable Versace brand to Prada, boosting liquidity and shedding a loss-making segment.
– The market has not repriced the stock on the news of the Versace sale, while weak luxury demand and tariff risks limit upside potential.
– Recent debt restructuring provides breathing room but restricts flexibility and Capri pledged their lifeblood as collateral.
My first two analyses of Capri Holdings (ISIN: VGG1890L1076, Ticker: CPRI, see here and here) both resulted in a cautious stance, not to rush things through. Although the stock looked cheap already on those occasions, I was proven right.
Shares trade now for less than half compared to my first assessment.
Not only is the stock now optically cheaper. Over the last weeks, news dropped that Capri will sell the once-under-high-hopes acquired brand of Versace to Prada (ISIN: IT0003874101, Ticker: 1913 in Hongkong) for almost 1.4 bn. USD. Will Versace thrive under an Italian leadership? I don’t know.
But this move could prove to be a game-changer for Capri, as not only will Capri receive a big cash infusion. It will also get rid of a loss-making disappointment. Assuming the sale goes through, Capri Holdings will be in an entirely different position compared to now.
The market has barely reacted, though.
That’s a bit unusual. At least, that’s my assumption, many observers had hoped for a strong revaluation higher under the sum-of-the-parts theory. But it didn’t happen, at least for now.
Is the market missing something?
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both as per 29 April 2025 market close – since August 2022
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Getting rid of two problems, but…
Around three weeks ago, on 10 April 2025, Capri confirmed the previous rumors by announcing a definitive agreement to sell the Italian brand Versace to another big Italian name, Prada.
This is insofar interesting, as not even two full months ago, on 19 February 2025, Capri on its investor day was still planning with Versace for the long-term future.
Just to give you one example, but there was an entire section dedicated to Versace.
These plans have aged quickly, so let’s focus on the status quo.
As a reminder, Capri had acquired Versace on 31 December 2018 for 1.8 bn. EUR which was 2.2 bn. USD back then (see here).
Now, it will sell Versace for 1.375 bn. USD – or almost 40% below the acquisition price.
Speak of value destruction shareholder value creation.
The much lower agreed upon price is easily explained.
Back then at the time of the deal, Capri had the big vision to revive the struggling Italian powerhouse. Over “the long-term”, Capri wanted to push Versace to yearly sales of 2 bn. USD.
The following screenshot from the press release as of the deal closing shows that.
Easier said than done, though.
In FY 2020 until 28 March 2020, i.e. in the first full year under Capri’s roof after the acquisition, Versace generated sales of 843 mn. USD. A bit distorted by the events of 2020, this figure might have been a bit below potential.
But back-the-envelope, the goal was to roughly double sales over time.
I think that’s fair to say.
It came differently.
Not only has management missed its ambitious target by a wide margin, but Versace has not shown any growth at all over almost five years.
Versace’s sales are now at best where they were in the fiscal year 2020.
Whether exactly there or a bit higher or lower is not important. The following is more important, I think.
The brand, despite its glamorous name, is still loss-making.
Although there were some non-cash impairments in the current fiscal year (went until March 2025, reporting will be some time in May), in the year before the results weren’t convincing, either.
When thinking about luxury names, one of the first thoughts I get is “high-margin business”. Far from it, that’s the reality.
As Capri has been struggling as a whole, and especially Versace not being able to impress, the idea that Capri overpaid for Versace is certainly not overdone.
Together with the weak results, low profitability, missed growth targets (inflation-adjusted Versace has lost ground), a turnaround that is still turning around and an overall struggling luxury market that went from high-growth to low- to no-growth (see here, here or here), I would say that Capri even made a good deal with ~1.4 bn. USD.
Honestly, this is not sarcastic.
A small risk remains: The deal is announced, but the cash has not flown, yet!
It is theoretically possible that the sale to Prada will be cancelled, for whatever reason. Capri has first-hand experience on this front, as its own sale to Tapestry (ISIN: US8760301072, Ticker: TPR) wasn’t allowed to go through.
It was an intra-American sale and under a different administration. Now, we are dealing with an entirely new setup. The odds are probably much more towards a successful closing, but it cannot be wrong to have the precedent from above at least in the back of the head.
Anyway, this was the reason Capri’s stock cratered into the basement.
It is not often that you see a profitable company fall by 50% in a single session.
From above 40 USD to around 20 USD is quite a chunk.
But what about the rest to below 15 USD – another good 25% down?
First, in early-February Capri announced their latest Q3 2025 results. They weren’t good as the company continues to suffer from a weak market environment. Sales were down a cool 11% quarter over quarter (2024 vs. 2023) and adjusted for asset impairments, operating earnings were down by roughly a third.
Negative momentum is not advantageous.
Second and what followed later were the recession and tariff discussions that are crippling the stock until this day. The reason is that Capri’s biggest market is the US with more than 50% of sales generated there. Import tariffs will be painful, no matter how high.
With this as a prelude so to speak, let’s assume the sale of Versace goes through.
In this case, later this year Capri will receive ~1.4 bn. USD in cash. Looking at the latest balance sheet, we see that this cash infusion would be a game changer by flipping finances from net debt to net cash (currently ~1.2 bn. USD net debt vs. ~1.4 bn. USD in cash coming).
Also, by selling Versace, some of the leasing liabilities will vanish respectively go over into Prada’s hands. All in all, this will massively improve the financial situation for Capri. That is safe to say.
With the disappearance of a loss-making segment, the remaining company, consisting of Michael Kors and Jimmy Choo, should be a more profitable entity.
There are rumors that Capri could be willing to sell Jimmy Choo, too.
Assuming a similar ~1.7x sales multiple, this could be another billion, give or take. Jimmy Choo is also showing very weak profitability. It could be this figure, but it could also be less. If a deal were to be done, the remaining company would consist only of Michael Kors – exactly as it did before management went on a shopping spree to acquire both brands to turn them around.
As there is currently nothing concrete, I wanted to have mentioned that, but I am not banking on it. It could happen, it could not happen. Also, if the economy turns further south and / or tariffs will be in place, this can have dramatic influence on any outcome.
So, a new remain-co (including Michael Kors and Jimmy Choo) with a modest net cash position would based on the latest numbers achieve sales in the ballpark of ~3.5 bn. USD.
Keep in mind the latest figures are backwards looking.
With an operating margin of then 10–12%, operating earnings could be 350–400 mn. USD. Compared to a current market cap of only 1.7 bn. USD and no financial net debt, the multiple would be only 4–5x.
The valuation of a dying company.
Looking at free cash flow which naturally is more interesting for me, we see that over the first nine months, Capri generated 442 mn. USD in operating cash flow. However, this figure was strongly pushed up by higher payables, i.e. Capri paying its suppliers later. Subtracting payables and capital expenditures, the more realistic number is rather closer to 150–200 mn. USD in FCF.
Let’s say 200 mn. as this was over three quarters with a seasonally weaker first calendar-quarter coming on top.
That would be an EV / FCF of ~8x.
Still not much, but not that cheap like 4–5x operating earnings might suggest.
From a more optimistic perspective, much of the bad stuff seems to be already priced in. This makes it an interesting case, at least on the surface.
I was even for a brief moment considering to make a member-exclusive report of it. But I need high and full conviction. There were two things that first made me hesitate and then to make a final decision against writing a report.
The first aspect is, the backwards-looking numbers do not leave that much of a margin of safety. Were the stock trading post-deal figures for an EV / FCF of say 5x, I think it might be worth a try. But 8x is the multiple of a company that is not growing and modestly shrinking, i.e. exactly what the remain-co would likely do.
That seems to be fairly priced.
In the wake of a weak economic environment and tariff uncertainties, I do not see much upside to be honest. Such cases are not to make 10% or 20%, but there must be a much higher potential payout for a more attractive risk and reward setup. The risk is rather to the downside, especially if sales continue to nosedive and cash flow dries up.
But there was a second, bigger thing. What I do not like are negative surprises, hidden somewhere in the fine print.
And this is exactly what has killed the deal here for me. Yes, it happens that I read such stuff.
What happened post the reporting period?
In February 2025, Capri Holdings restructured its debt with a new 2.2 bn. USD credit agreement. The new financing includes a 700 mn. USD term loan (fully drawn) and a 1.5 bn. USD revolving credit line. Both are due 1 July 2027. Capri used these funds to repay a 450 mn. USD short-term loan due in November 2025 and a 450 mn. EUR loan tied to Versace.
This extends Capri’s repayment timeline from 2025 to 2027, easing short-term financial pressure and boosting liquidity.
So far so good.
However, the loans are secured by nearly all of Capri’s assets, especially the intellectual property, meaning lenders can claim them if Capri defaults. Also, proceeds from asset sales, like a planned 1.4 bn. USD Versace divestiture, may need to repay the term loan unless reinvested. Effectively, Capri won’t be able to freely decide what to do with the sale proceeds.
All in all, they bought time, but at the expense of limiting flexibility despite the extra breathing room. This is clearly not from a position of strength and could be very interesting in the case of an ongoing tough operating environment. Capri will report their full fiscal year results soon in May. I will have an eye on them.
But at this stage, there is too much fishy and the valuation has not reached no-brainer territory for me. It is amazing that a stock that has fallen so much, might still not be cheap enough.
That’s why I remain on the sidelines.
Conclusion
Capri Holdings plans to sell its unprofitable Versace brand to Prada, boosting liquidity and shedding a loss-making segment.
The market has not repriced the stock on the news of the Versace sale, while weak luxury demand and tariff risks limit upside potential.
Recent debt restructuring provides breathing room but restricts flexibility and Capri pledged their lifeblood as collateral.
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