CPRI

Capri's FY2026 looks like a recovery on the surface — net income swung to +$137M (+111.6%) and diluted EPS to $1.14 — but the quality is poor. Operating income was just $23M on $3.47B of revenue, a 0.7% operating margin, so almost all of that 'profit' sits below the operating line. The MD&A confirms why: the Board sold Versace to Prada (agreement April 2025, closed December 2025) and reports it as discontinued operations across all periods. The reported net income is flattered by that divestiture, not by the underlying Michael Kors / Jimmy Choo business, which on a continuing basis is barely profitable. At a 16.7x P/E the stock screens cheap, but against ~$23M of operating income the $2.19B market cap is closer to ~95x operating earnings — the multiple only looks reasonable because of non-operating gains.

The trajectory is the core problem. Revenue has fallen four straight years — $5.65B → $5.62B → $4.14B → $3.62B → $3.47B (-4.1% this year) — a roughly 39% top-line decline from the FY2022 peak, reflecting the Versace carve-out but also genuine Michael Kors brand fatigue. Luxury-grade 62.3% gross margins remain intact, which is the asset worth preserving, but it is not translating into operating profit. The balance sheet shows the strain of the last two years' losses: stockholders' equity collapsed 78.3% to just $80M against $3.15B of liabilities (a 39x liabilities/equity ratio), so the headline 171% ROE is a denominator artifact, not a sign of capital efficiency. Cash is thin at $135M and operating cash flow fell 72.6% to $77M.