FINANCIAL ANALYSIS

CONTENTS
1. EXCUTIVE SUMMARY...............................................................................................................................3
2. FINANCIAL ANALYSIS...............................................................................................................................3
2.1. RATIOS....................................................................................................................................................3
2.2. SHARE PRICE.........................................................................................................................................4
2.3. OUR EXPOSURE....................................................................................................................................4
3. CREDIT REPORT.........................................................................................................................................4
4. CONCLUSION................................................................................................................................................4
5. KEY COMPANY INSIGHTS........................................................................................................................5
6. ANNEXURE....................................................................................................................................................5
6.1. PROFIT AND LOSS STATEMENT.......................................................................................................5
6.2. BALANCE SHEET STATEMENT.........................................................................................................5
6.3. D&B REPORT.........................................................................................................................................6

EXCUTIVE SUMMARY
 The company had a quick turnaround in Q2, 2020 compared to Q1,2020 mainly because of selling more products
at full price and cutting down inventories.
 Gross Profit margin seems to be very healthy which implies that direct costs are properly monitored.
  The company has a healthy liquidity position which means that it can rely on its current assets to finance the
current liabilities.
 It can be noticed that the future does not look bright, because of unhealthy financing structure giving that it relies a
heavily on long term debts.

FINANCIAL ANALYSIS

RATIOS

 Total revenue for the quarter fell 23% to $1.11 billion from $1.44 billion, but company has managed to come up to
64% of gross profit margin.
 The company initiated increase in full price sell-throughs and selectively raise prices, generating higher average
retail process to increase gross margin.
 Operating profit margin and net profit margin has substantially increase from Q1 to Q2 due to over 100% increase
in revenue in the later quarter.
 Finance cost decreased from 4% to 1% of sales from Q1 to Q2 due to repayment of long-term debt which was
burrowed to purchase Versace in 2018.
 Around three years ago the ROE were 30%, but they've fallen to 5.5% in the latest quarter. Given the business is
employing more capital while profits have slipped, this is a bit concerning.

 Company seems to be able to meet its short term obligations with the current assets including inventory.
 Capri ended the last quarter with $238 million in cash and the company can cover only 45% of current liabilities
cash and current assets excluding inventory.

 The Asset Turnover ratio declines from $1.69 (2018) to $0.92(2020). This further declines to $0.18 (2020 Q2)
which shows that newly added assets are not generating enough sales.
 Compared to previous years Capri has significantly higher payable days which can be adversely affect Hela since
Capri is one of our customer
 Higher inventory days in Q2 (209 days) shows that the stocks are not moving faster as expected.

 The company’s existing lease obligation, which relates to stores, corporate locations, warehouses and equipment
are subject to the new standard (ASU 2016-02) and resulted in recording of lease obligation and right to use of
assets for operating leases on the balance sheet from 2019 onwards
 The lease liability and loan taken to purchase Versace has increased the gearing ratio drastically 2019 onwards.
SHARE PRICE
 The share price of the Capri plunged during Q1 due to COVID impact ($15 in June), however there is a positive
recovery in September increasing to $18. In Q2 Capri has achieved positive EPS of +$0.81 compared to Q1 EPS -
$1.21

OUR EXPOSURE
 MK consist of approximately 4% of Hela’s revenue in the FY 2020/21
 Our exposure towards MK, would be as following as at 23rd February 2021.

Number of Days 0-30 31-60 61-90 Over 90 Total $

Debtors Outstanding 722,182 507,061 - - 1,229,243
RM in Stock 73,073 21,853 76,635 29,466 201,027
FG in Stock 152,736 2,087 - - 154,823
RM-Goods in Transit - - - - 948,855

 The credit period granted for MK would be 90 days.

 Long outstanding RM in house is due to advanced RM POs raised as vessel delays during the pandemic.

CREDIT REPORT
 D&B Rating: N 2 (The company has a negative financial strength with a lower than average risk of business
failure)
 D&B Maximum Credit: $12,000 (Recommended credit exposure at any given time)
 D&B Failure Score: 56 out of 100 (Moderately low probability of failure)
 D&B Delinquency Score: 17 out of 100 (Likelihood that a business will pay its obligations late within the next 12
months)

Please find the full D&B report at the Annexure

CONCLUSION
 In conclusion the analysis reveals that Capri Holdings is in a position to meet the current obligations in the next 12
months considering the ratio analysis and the D&B report score.
 However, the company might have long term liquidity issues due to the company has acquired significant debt to
acquire Vasace which will bring strong revenue growth to the company in the future.

KEY COMPANY INSIGHTS

Additional Information found in Q2 Investor call

Michael Kors has struggled to provide revenue growth in recent years, which some have attributed to a weak brand identity.
Capri plans to close as many as 170 MK stores over the next two years and focus more on digital channels. Nonetheless, they
see significant growth opportunities for MK’s men’s business, as well as in China.

Given the surge in Versace’s revenue over the past year, Capri are confident they can increase the brand’s sales to US$2
billion over the medium term. This will be focused on the accessories and footwear businesses, which they expect will
eventually account for 60% of the brand’s revenue. To support this, they plan to gradually increase the number of Versace
retail stores from 200 to 300 and develop the brand’s ecommerce presence. Capri also expects to gradually increase the retail
store footprint of Jimmy Choo.
Source: Q2 Investors Call
Other Information

CPRI stock gained 26% moving from about $36 to $45 in the last 12 months, due to better-than-expected fiscal Q2 (ended
Sept), the announcement of two Covid vaccines, and the U.S. federal elections. That said, we believe the company stock
could potentially slump going forward due to this revenue and stock price mismatch.

This is taking into account a lackluster revenue growth of Capri’s Michael Kors brand which represents over two-thirds of its
business and almost its entire operating profit. A disappointing year-over-year 8% decline in MK revenues in FY 2020 (year
ended March 2020) and flat revenue growth in both FY 2019 and FY 2018 even before the pandemic signal weakness in the
brand. MK continues to represent a drag on the company’s business as it has lost its target audience attempting to be too
many things at once.

Source: Forbes.com

ANNEXURE
PROFIT AND LOSS STATEMENT

BALANCE SHEET STATEMENT

D&B REPORT
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