Versace Exit Is Capri's Big Bet On Michael Kors Revival, Says Analyst

Telsey Advisory Group analyst Dana Telsey reiterated a Market Perform rating on the shares of Capri Holdings Ltd CPRI and lowered the price forecast from $23.00 to $17.

Capri announced yesterday it will sell the Versace brand to Prada for $1.375 billion in cash, with the deal expected to close in the second half of 2025, pending regulatory approval.

The company said proceeds will strengthen its balance sheet, boost investment in Michael Kors, and support debt reduction and share buybacks. Capri bought Versace in 2018 for $2.12 billion.

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The Versace sale had been anticipated, as reports of Capri seeking a buyer had circulated for months, with Prada emerging as a likely suitor. The $1.375 billion price tag falls within earlier estimates, said the analyst.

While Capri originally paid 22x EBITDA in 2018, evaluating the current deal is challenging due to Versace's weak margins. So the analyst estimates Prada is paying roughly 22x FY24 EBITDA and 1.6x trailing sales.

According to the analyst, the sale of Versace is seen as a logical move by Capri after the failed Tapestry Inc. TPR acquisition, allowing the company to raise capital, enhance margins and reinforce its balance sheet.

Although Capri is selling Versace at a loss, the deal is expected to boost overall company margins and free up funds to support revitalization efforts for Michael Kors.

Parting with Versace eliminates a once-expected growth catalyst, and questions remain about Michael Kors’ future profitability due to ongoing challenges in wholesale and promotional markets, noted the analyst.

CPRI Price Action: Capri Holdings shares traded lower by 0.62% at $14.54 at publication Friday.

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