Capri Must Rebuild Each of Its Brands After Proposed Sale Fails and Results Deteriorate

Capri is led by Michael Kors (68% of fiscal 2024 sales), a major brand in the attractive midtier handbag market. However, we believe it lacks the brand strength to provide an economic moat for Capri, rating poorly on the criteria that Morningstar uses to evaluate luxury brands, such as conspicuousness of consumption, pricing power, and control over distribution. Powered by store openings and retail expansion during 2010-15, Michael Kors became one of the largest American handbag producers in sales and units. However, the brand’s sales were only $3.5 billion in fiscal 2024, down from a peak of $4.7 billion in fiscal 2016, due to markdowns at third-party retail, store closures, and weakness in some categories. While Capri has reduced distribution of the label to limit discounting of its bags, it now faces challenges such as slowing consumer spending on apparel and accessories, inflation, and lower wholesale orders.