Raymond James Initiates Capri Holdings & Tapestry With Outperform Ratings

Raymond James analyst Rick Patel initiated coverage on Capri Holdings Ltd CPRI with an Outperform rating with a price target of $65.
Capri operates a portfolio of global premium brands, including Michael Kors (70% of revenue), Versace (19%), and Jimmy Choo (11%).
Products are distributed globally through three primary channels including retail (67%), wholesale (29% of revenue), and licensing (4%).
At its July 2022 Investor Day, the company set an ~$8.0 billion revenue target in the future, which the analyst interprets as roughly five years, implying a 7% revenue CAGR from FY22-FY27. Street estimates reflect a CAGR of +4% from FY22-FY25.
Related: Capri Holdings' Q2 Highlights: Earnings Beat, Higher Inventory Levels, $1B Stock Buyback & More
Macro has worsened since Investor Day, and the analyst expects slower near-term growth in FY23 given softness in the Wholesale channel, wallet share pressure from increased promotions, uneven COVID trends in China, and FX pressure.
The analyst sees FY24 driven by the momentum of core strategies, the re-opening/strengthening of China, and ongoing benefit from improving freight costs.
Despite macro uncertainty, Rick Patel is encouraged to see underlying strength at Michael Kors Direct-to-Consumer, Versace, and Jimmy Choo.
In recent years CPRI has strengthened its brand portfolio by improving the premium orientation of Michael Kors (its primary cash generator) while driving strong growth at Versace and Jimmy Choo.
While the analyst believes growth for MK is muted in the near-term, the company has the potential to drive strong growth and expand operating margins for Versace and JC by scaling under-penetrated categories and geographies.
Analyst Rick Patel also initiated coverage on Tapestry Inc TPR with an Outperforming rating and a $44 price target.
Tapestry was originally founded as Coach in 1941 and is comprised of the Coach brand (74% of revenue), Kate Spade (22% of revenue), and Stuart Weitzman (5% of revenue).
The analyst is attracted to Tapestry’s long-term growth drivers, potential to improve margins beyond FY23, Total Shareholder Return (TSR) focus that aims to reward investors beyond operating performance, its diversified business model, which helps to lessen volatility, and its discounted valuation.
Also Read: Tapestry's Q1 Earnings Manages To Beat Street View; Cuts Annual Guidance On FX Pressure
The company strengthened during COVID, and the analyst views its historically executed well across product innovation, technology, and marketing to continue.
The analyst notes TPR has room to increase AUR further, given the spread between its pricing and European luxury competitors.
Price Action: CPRI is trading lower by 0.54% at $55.45, and TPR shares are trading lower by 0.25% at $35.84 on the last check Tuesday.
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