Luxury fashion is having a moment — just not the kind anyone wants. Capri Holdings, the company behind Michael Kors, Jimmy Choo, and Versace, reported fiscal fourth-quarter results on Wednesday that beat Wall Street's earnings expectations, thanks in part to some tariff-related tailwinds. But the sales picture was softer, and the company's outlook for the coming year suggests the luxury slowdown isn't over yet.

Let's start with the numbers. Capri reported adjusted earnings of 22 cents per share for the quarter ended March 28, comfortably ahead of the 11 cents analysts were looking for. Revenue came in at $796 million, down 3.7% from a year ago and just a hair below the $796.4 million consensus. So, a beat on the bottom line, a slight miss on the top — the kind of mixed bag that keeps investors guessing.

The big story in the quarter was gross margin. Capri's gross profit rose to $516 million from $495 million, and the gross margin expanded to 64.8% from 59.9%. That's a huge jump, and it wasn't just because of better pricing or product mix. The company got a $40 million reduction in cost of goods sold tied to expected refunds related to IEEPA tariffs. In plain English: the U.S. government is expected to refund some tariffs Capri paid, and that money flowed straight to the bottom line. It's a one-time benefit, but it sure made the quarter look better.

Operating cash flow for the full fiscal year was $197 million, with free cash flow of $134 million. Capri ended the quarter with $135 million in cash and $357 million in borrowings. The company also bought back about 4 million shares for $79 million during the quarter, leaving $921 million still available under its buyback authorization. That's a sign management thinks the stock is cheap — but the market wasn't so sure on Wednesday.

Brand by Brand: Michael Kors and Jimmy Choo

Capri's portfolio is a tale of two brands right now. Michael Kors, the workhorse, saw revenue fall 5.5% to $656 million (down 8.4% on a constant-currency basis). Gross profit rose to $424 million, and gross margin improved to 64.6% from 58.6%, again helped by that $38 million tariff refund benefit. Operating income was $57 million, and the operating margin expanded to 8.7% from 4.6%. So, margins are getting better, but sales are still sliding.

Jimmy Choo, on the other hand, posted a 5.3% revenue gain to $140 million, flat on a constant-currency basis. Gross profit edged up to $92 million, but gross margin slipped a bit to 65.7% from 66.2%. The bigger issue: the segment posted an operating loss of $20 million, double the $10 million loss a year ago. The operating margin went to negative 14.3% from negative 7.5%. So, Jimmy Choo is growing, but it's costing more to do so.

The Outlook: Cautious Optimism

Looking ahead, Capri's guidance is a mixed bag. For the first quarter of fiscal 2027, the company expects earnings of 40 cents per share, above the 34 cents analysts expect. But revenue is forecast at $750 million, below the $789.7 million consensus. For the full year, Capri sees earnings of $2.15 per share, topping the $1.79 estimate, but revenue is projected at $3.525 billion — down from a prior target of $4.4 billion and just below the $3.532 billion analysts were looking for.

So, earnings are coming in better than expected, but the top line is getting a haircut. That's partly because Capri is being realistic about the luxury demand environment. The company said gross margin should expand by about 200 basis points, driven by pricing actions, better product mix, and efficiency gains. Operating income is expected to rise about 60% year over year to roughly $190 million, thanks to operating leverage.

One bright spot: Jimmy Choo is expected to return to profitability in fiscal 2027, supported by cost reductions and improving brand momentum. Capri also plans to refurbish about 100 stores and upgrade roughly 150 department store locations to elevate the retail experience. That's a big investment, but it signals confidence in the brand's long-term potential.

Capri also reiterated its long-term targets: $4 billion in revenue for Michael Kors and $800 million for Jimmy Choo. Those are ambitious numbers given current trends, but they show management is playing the long game.

Market Reaction

Despite the earnings beat, Capri shares were down 4.86% at $17.60 at the time of publication on Wednesday. The market is clearly focused on the softer sales outlook and the broader uncertainty in luxury demand. But with a strong balance sheet, a buyback program, and a plan to invest in stores, Capri is positioning itself for a recovery — whenever that comes.