Couldn’t have asked for a better quarter from CPRI. What we saw from the results and heard from management gave us even greater confidence in the multi-year call we laid out yesterday in our Black Book (CLICK HERE for our deck and presentation). While we were expecting a beat for this quarter, weren’t expecting the company to absolutely annihilate the consensus by $0.86 (printed $0.90 vs a $0.04 consensus). We saw sequential upside in revenue and margin at each division – it’s clear that there’s a clear recovery taking place and the company will come out of Covid more profitable than it went in. Though we’ll take the 2Q beat, we want to be crystal clear about something…this upside is just the beginning. Even though numbers will go up after this print, we think that people are still grossly underestimating the growth and underlying margin trajectory of the portfolio, and ultimately the earnings power of CPRI. The company did a solid job in keeping a lid on this year’s numbers, but for the life of me, without modeling a painful step backward in the business, I can’t get to the full year ‘guidance’ (no EPS guide, but gave enough components to get there). That ‘guide’ probably explains why the stock is up less than $2 when EPS estimates are likely to go higher by about $1 – a paltry 2x multiple on incremental earnings. The current consensus has the company earning $1.25 for the balance of the year. We think it’ll do that in the third quarter alone – with another $0.70 in 4Q (ending March). For next year we took up our Street-high estimate by $0.50 to $3.66, and are looking at roughly an incremental buck per year in EPS growth for the next three years. The reality is that within 12-months, the narrative should change in a way that will get people wondering about the timing for when the company will get to $5-$6 in EPS. We still think this name doubles over 12 months, and is a 3-bagger in 3-years. Check out our Best Idea Long deck for more details as to why.
CPRI VALUATION FRAMEWORK
WE’LL REITERATE WHAT WE SAID YESTERDAY
