Capri Holdings (CPRI) Q2 2026: $1B Buyback and Tariff Headwinds Shape Path to Fiscal 27 Recovery

November 4, 2025 | By EarningsIQ Research

Capri Holdings enters a critical transition as the Versace sale nears completion, freeing capital for debt reduction and a $1 billion buyback, while tariff-driven margin pressure and a focus on quality of sales define near-term results. Management’s strategy hinges on full-price channel momentum, outlet repositioning, and store investments to stabilize Michael Kors and Jimmy Choo ahead of a targeted return to growth in fiscal 27. Execution on pricing, product, and inventory discipline will determine the durability of this inflection.

Summary

• Capital Structure Reset: Versace sale proceeds enable substantial debt paydown and $1B share repurchase authorization for fiscal 27.
• Margin Compression Watch: Tariffs drove most of the gross margin decline, but strategic pricing and product mix are offsetting some pressure.
• Full-Price Channel Focus: Positive comps in full-price Michael Kors and sequential improvement at Jimmy Choo underpin the growth recovery narrative.

Performance Analysis

Capri Holdings’ Q2 2026 results reflect a business in strategic transition, with total revenue down 2.5% year-over-year to $856 million from continuing operations, as Versace is now classified as discontinued. Michael Kors, the dominant brand (over 80% of revenue), saw sales decline 1.8%, with full-price retail comps turning positive globally, offset by ongoing outlet and wholesale softness. Jimmy Choo, contributing roughly 17% of revenue, posted a 6.4% decline, though retail trends improved sequentially, especially in the full-price channel.

Gross margin fell by 130 basis points to 61%, nearly all attributable to higher tariffs, while Jimmy Choo’s margin rose on better channel mix and full-price sell-through. Operating margin compressed to 2.3% (from 4.2%), with Michael Kors at 10.1% and Jimmy Choo still negative. The Americas lagged (-7% revenue), while EMEA was stable and Asia surged for Michael Kors, aided by wholesale timing. Inventory discipline and cost control are evident, with inventories down 2.8% and opex reduced by $8 million year-over-year.

• Tariff-Driven Margin Erosion: Tariffs accounted for 120 basis points of the gross margin decline, with further pressure expected in Q3 and Q4.
• Channel Divergence: Full-price retail outperformed, while outlet and wholesale remain headwinds, especially in North America.
• Sequential Improvement in Key Segments: Both Michael Kors and Jimmy Choo showed improving retail trends, supporting management’s stabilization narrative.

Capri’s financials highlight a business stabilizing at lower levels, with strategic levers now shifting towards brand health, inventory quality, and capital return, rather than top-line acceleration.

Executive Commentary

Strategic Positioning

1. Capital Structure Overhaul and Buyback Commitment

The Versace divestiture is transformative, as Capri will use proceeds to pay down most of its $1.8 billion debt, reducing net leverage and freeing up cash flow. The board’s authorization of a $1 billion share repurchase program, slated for fiscal 27, signals confidence in a leaner, more focused portfolio and is a major capital allocation shift for shareholders. This move also positions Capri to weather macro volatility and invest in organic growth without balance sheet overhang.

2. Brand Health and Channel Realignment

Full-price channel performance is now the company’s core health metric. Michael Kors full-price comps turned positive, driven by refreshed product, modernized pricing, and digital-first storytelling. Outlet strategy is being overhauled, with reduced promotions and a pivot to fashion-forward assortment, though management warns of near-term sales drag as consumers adjust to higher average unit retails (AURs). Wholesale is stabilizing, but remains pressured by off-price clean-up and timing shifts.

3. Store Experience and Productivity Investments

Capri is prioritizing physical retail reinvention, with plans to renovate 50% of its store fleet and key department store locations over three years. The Jet Set Lounge concept, an in-store café experience, is designed to increase dwell time and brand immersion. Early results from renovated flagships in New York and London show significant traffic and sales lifts, supporting further investment in experiential retail.

4. Product and Pricing Architecture

Strategic pricing resets, especially in Michael Kors’ ready-to-wear and accessories, are driving improved full-price sell-through and attracting younger, more price-sensitive Gen Z consumers. Jimmy Choo is expanding its accessories and casual footwear lines, launching new groups at accessible luxury price points to broaden appeal and drive growth in underpenetrated categories.

5. Data-Driven Consumer Engagement

Capri’s consumer database now exceeds 90 million, enabling advanced analytics and personalized marketing. Social media campaigns and influencer partnerships are boosting brand affinity and engagement, as evidenced by Michael Kors’ 5.5 billion global impressions during New York Fashion Week and a 9% YoY increase in its consumer database.

Key Considerations

Capri’s quarter underscores a deliberate pivot from revenue growth to brand health, margin protection, and operational discipline as the company prepares for a post-Versace, two-brand future.

Key Considerations:

• Debt Paydown and Buyback Timeline: The Versace sale will rapidly deleverage the balance sheet, with buybacks commencing in fiscal 27—timing and execution are critical for shareholder value.
• Tariff and Currency Volatility: Tariffs drove nearly all of the gross margin decline, with further headwinds expected through Q4; FX remains a modest inventory and pricing headwind, especially in Japan and Europe.
• Outlet Channel Repositioning: Reduced promotional activity and a shift away from core basics will depress near-term sales, but are essential to rebuild brand equity and AURs.
• Geographic Divergence: Europe and Asia are outperforming, while North America remains the laggard; Asia’s sustainability is tied to product resonance and macro conditions in China.
• Leadership Stability: With an interim CFO and recent organizational disruption, execution risk remains until permanent leadership is cemented.

Risks

Capri faces persistent risks from tariff escalation, continued macro uncertainty, and consumer price sensitivity, especially in North America’s outlet channel. Execution risk is elevated as the company transitions leadership and implements large-scale store renovations. Delayed recovery in wholesale and outlet channels, or failure to sustain full-price momentum, could undermine the fiscal 27 growth narrative.

Forward Outlook

For Q3, Capri guided to:

• Total revenue between $975 million and $1 billion
• Michael Kors revenue between $825 and $845 million (impacted by a $20 million wholesale timing shift)
• Jimmy Choo revenue between $150 and $155 million
• Gross margin decline of 200 to 250 basis points (vs. 63.2% last year), with operating margin of 7% to 8%

For full-year 2026, management reiterated guidance:

• Total revenue of $3.375 to $3.45 billion
• Gross margin of 60.5% to 61% (would have expanded ex-tariffs)
• Operating income of ~$100 million
• Diluted EPS of $1.20 to $1.40

Management expects:

• Sequential improvement in retail, but North America will not return to positive comp until fiscal 27
• Gross margin expansion and operating leverage in fiscal 27 as tariff impact abates and strategic initiatives gain traction

Takeaways

Capri’s Q2 marks an inflection point, with stabilization in full-price channels and a decisive capital structure reset. Margin pressure from tariffs and outlet repositioning will weigh on near-term results, but the foundation is being laid for a cleaner, more profitable business in fiscal 27.

• Brand Health Now Paramount: Full-price momentum and product innovation are offsetting outlet and wholesale drag, but require sustained execution.
• Balance Sheet Transformation: Versace proceeds will enable aggressive debt reduction and shareholder returns, reducing financial risk and increasing flexibility.
• Fiscal 27 Is the Real Test: Investors should watch for sustained full-price comp growth, margin expansion as tariffs roll off, and tangible outlet channel recovery.

Conclusion

Capri Holdings is navigating a complex reset, balancing near-term margin headwinds with long-term brand and capital structure improvement. Execution on pricing, product, and retail experience will be the key determinants of whether the company can translate stabilization into durable growth and value creation in fiscal 27 and beyond.

Industry Read-Through

Capri’s results highlight the critical importance of channel mix, pricing architecture, and capital discipline for accessible luxury players facing tariff and macro headwinds. Retailers relying on promotional outlet models face structural challenges as consumers become more price sensitive and tariffs compress margins. Brand storytelling, data-driven marketing, and experiential retail are proving essential to reignite consumer engagement. Competitors should note the operational drag of off-price channels and the necessity of balance sheet flexibility in a volatile environment. The sector’s recovery will likely hinge on similar pivots toward full-price focus, product innovation, and disciplined capital allocation.

CPRI Consumer Discretionary Luxury Retail Brand Health Tariffs Outlet Capital Allocation Store Renovation