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Is Capri Holdings making money from Luxury Fashions?

Capri Holdings Ltd (NYSE: CPRI) could be the perfect stock for those who think income inequality is growing. Capri owns Versace, Jimmy Choo, and Michael Kors.

Capri’s share price shows Mr. Market is among those who think income inequality will grow. The Capri (CPRI) share price grew from $15.35 on 10 July 2020 to $53.11 on 13 July 2021. Hence, Capri’s share price rose by $37.76 during a pandemic.

I think Capri Holdings investors bet that income inequality will grow. Recent data shows income inequality growth is a safe bet.

Capri’s market grows with income inequality

The investors hope Capri’s market will expand as the number of millionaires on Earth grows. Data shows this hope is valid.

The number of people with $1 to $5 million in wealth worldwide rose from 10.795 million in 2012 to 17.667 million in 2019, Inequality.org estimates. In addition, Capgemini estimates there were over 19 million high net worth individuals worldwide in 2019. A high net worth individual has over $1 million in wealth.

The number of people with $1 to $5 million in wealth worldwide rose from 10.795 million in 2012 to 17.667 million in 2019, Inequality.org estimates. In addition, Capgemini estimates there were over 19 million high net worth individuals worldwide in 2019. A high net worth individual has over $1 million in wealth.

How Much Money Does Capri Make?

Although Capri’s market is growing. The company loses money.

For example, Capri Holdings (CPRI) reported a quarterly operating loss of -$139 million on 31 March 2021. The quarterly operating income fell from $167 million on 31 December 2020 and rose from -$536 million on 31 March 2020.

Conversely, the quarterly gross profit rose from $660 million on 31 March 2020 to $689 million on 31 March 2021. In contrast, the quarterly revenues rose from $1.192 billion on 31 March 2020 to $1.197 billion on 31 March 2021.

Moreover, Capri generates tiny amounts of cash. It reported a quarterly operating cash flow of $111.37 million on 31 March 2020 to $78.59 million on 31 March 2021. Furthermore, the quarterly ending cash flow fell from $355 million on 31 March 2020 to $5 million on 31 March 2021.

Impressively, Capri pays its debts. Notably, the quarterly financing cash flow fell from $54.58 million on 31 March 2020 to -$66.42 million on 31 March 2021. Consequently, Capri’s total debt fell from $4.367 billion on 31 March 2020 to $3.446 billion on 31 March 2021.

What Value Does Capri Holdings Have?

Capri Holdings (CPRI) lost value during the pandemic year. For example, Capri’s Total Assets fell from $7.946 billion on 31 March 2020 to $7.481 billion on 31 March 2021.

Similarly, Capri’s cash and short-term investments fell from $592 million on 31 March 2020 to $232 million on 31 March 2021. Thus, Capri has less value and less cash because of the pandemic.

My guess is the collapse of brick and mortar retail and air travel because of the COVID-19 pandemic devastated Capri’s business. To explain, most of Versace and Jimmy Choo’s sales are at luxury stores.

Did COVID-19 kill Capri’s business?

Many rich people travel long distance to shop at those stores. For instance, wealthy Americans travel to Rodeo Drive in Beverly Hills and wealthy Latin Americans travel to Miami to shop. Similarly, rich people from around the globe fly to Paris or Milan to shop.

However, those people did not travel because of COVID-19. Similarly, COVID-19 closed many shopping venues. Consequently, Stockrow estimates Capri’s revenues shrank by -66.49% in the quarter ending on 30 June 2020.

In contrast, those revenues grew by 0.42% in the quarter ending on 31 March 2021. In 2020, Capri suffered four quarters of revenue shrinkage. For example, the revenue growth shrank by 11.31% in the quarter ending on 31 March 2020 and 17.12% in the quarter ending on 31 December 2020.

Betting on income inequality is not a good growth strategy for luxury brands

I conclude that Capri has not adapted to the modern retail ecosystem. Instead of selling on Amazon (AMZN) Capri sells through brick and mortar stores, for example.

 

Hence, Capri misses out on Amazon’s massive growth. In particular, Amazon Prime’s market grew from 150 million members worldwide in January 2020 to 200 million global subscribers in January 2021, DigitalCommerce 360 estimates.

 

Therefore, I consider Capri Holdings (CPRI) a lousy stock that is incapable of growth. I cannot justify the $54.84 Mr. Market paid for Capri on 9 July 2021. My prediction is that Capri’s share price will collapse.

 

I think investors need to avoid Capri until its management figures out how to adapt to today’s retail market. I conclude Capri shows that betting on income inequality is not a good growth strategy for luxury brands.

 

 

 Originally published at https://marketmadhouse.com on July 13, 2021.