Capri Holdings saw shares trade about 3% higher in Wednesday premarket activity after Baird moved the stock to an Outperform rating following a sharp one-day selloff.
Baird characterized Tuesday's roughly 13% decline as excessive in light of Capri's latest results, which produced modest upside versus the firm's estimates and left management's outlook intact. The analyst argued the market move seemed to be led more by a lack of an immediate catalyst to change sentiment than by deteriorating business fundamentals.
After the decline, Capri was trading near 9 times forward EBITDA, a multiple Baird labeled undemanding given depressed earnings. The firm left its $26 price target unchanged and said the recent pullback creates a more attractive risk-reward profile. While Baird emphasized that a full turnaround will not be immediate, the analyst highlighted early progress at key brands, easing margin pressures and an improving balance sheet as supportive signs.
On results, Capri's fiscal third-quarter performance modestly exceeded Baird's expectations. Sales and EBIT were about 2% ahead of the firm's estimates, and earnings per share topped expectations by roughly 4%. Baird attributed the EPS beat in part to lower operating expenses and a reduced tax rate.
Gross margin, however, came in slightly below forecasts. Excluding Versace, gross margin fell by 230 basis points year on year, though management indicated the result remained inside its previously stated guidance range and attributed part of the weakness to a larger-than-expected mix of goods affected by tariffs.
Baird noted continued sequential improvement at Michael Kors in global retail sales and wholesale point-of-sale trends. Retail full-price performance was mixed: management said overall sales weakened quarter on quarter as promotional activity was reduced, even as non-discounted items grew by double digits - a development management described as evidence of renewed brand engagement. Baird suggested that this dynamic may have contributed to the negative market reaction.
Investors also questioned why management did not raise the high end of Michael Kors revenue guidance after the quarter's upside. Baird said the quarterly beat was likely influenced by wholesale timing and that management's view of the full-year revenue range remained unchanged.
Looking ahead, Capri's fourth-quarter margin guidance implies a sharper sequential improvement, with the year-on-year margin decline narrowing to approximately 60 basis points. Management expects this improvement as full-price sell-through strengthens and tariff mitigation measures - including pricing actions taken in February - begin to take effect.
Baird projects Capri will return to revenue growth in fiscal 2027. The firm cited improving retail trends, reduced pressure in wholesale channels and continued investments in the brands as the primary supports for that recovery timeline.
Contextual takeaway - Baird's upgrade frames the recent share-price volatility as an overreaction to timing and sentiment dynamics rather than a fundamental deterioration, and the firm kept its valuation target steady while identifying operational signs that may undercut downside risk.