Capri Under Pressure After Versace-China Snafu

MKM Partners cut its price target on CPRI to $35 from $40

Deputy Editor
Aug 12, 2019 at 9:49 AM
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Capri Holdings Ltd (NYSE:CPRI) was in hot water over the weekend, after its Versace wing put out a T-shirt misidentifying Hong Kong and Macau as countries. The shirt came under scrutiny on Chinese social media, and has since been taken down, with an apology from Artistic Director Donatella Versace issued on Sunday. At last check, CPRI is down 3.7% at $30.01, and fresh off a new seven-year low of $29.80.

The snafu has sparked more than just criticism on social media, too. Chinese actress and brand ambassador Yang Mi said she would be dissolving her relationship with Versace. On the analyst front, MKM Partners slashed its price target to $35 from $40, and maintained its "neutral" rating.

Other analysts could follow MKM Partners' lead, though. Right now, half of the 20 analysts in coverage call CPRI a "buy" or better, and half say "hold." What's more, the consensus 12-month price target of $47.55 is at a 53.4% premium to current levels.

Considering Capri's recent behavior on the charts, more negative analyst attention wouldn't be surprising. In fact, the equity hit a low of $30.53 just last Friday, Aug. 9, a day after the luxury retailer reported lackluster quarterly revenue and cut its full-year sales forecast. Prior to that, CPRI shares were facing pressure at the 60-day moving average, which kept a tight lid on attempts to close their late-May bear gap.

Things have been a bit more bearish in the options pits, however, with CPRI's 10-day put/call volume of 0.49 sitting in the 77th percentile of its annual range on the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). While this ratio indicates that long calls were favored over puts on an absolute basis, the high percentile points to a healthier-than-usual appetite for CPRI puts over calls of late.

Echoing this is the Michael Kors parent's Schaeffer's put/call open interest ratio (SOIR) of 1.23, which is higher than all other reading from the past year. This suggests that short-term option players have never been more put-heavy during the past 12 months.

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