Capri's tariff hit compresses margins as U.S. turnaround faces Q3 test
Bottom Line Impact
Absent rapid tariff mitigation and inventory rebalance, Capri faces 200-250 bps near-term margin compression and heightened promo risk that could weigh on revenue quality and brand equity, partially offset by a $1b buyback and sequential improvement at Michael Kors.
Key Facts
6- Quarterly gross margin was 61.0% vs 62.3% y/y, with tariffs driving a 130 bps negative impact
- Q3 gross margin guide: down 200-250 bps, implying an approximate $17m-$21m hit on $856m quarterly revenue
- Adjusted EPS was -$0.03 vs consensus +$0.13 (LSEG), as revenue reached $856m vs $825.7m expected
- Tariff rates: 20% on Vietnamese imports, ~40% on goods routed through Vietnam, ~47% on Chinese imports (down from 57%)
- Unmitigated tariff impact estimated at ~$85m in FY26; announced $1b share repurchase program
- Michael Kors revenue declined 1.8% vs -5.9% prior quarter, indicating sequential improvement
Time Horizons
Key Roles Affected
Executive Summary
Capri posted an unexpected loss and flagged a 200-250 bps gross margin headwind in Q3 as tariff-laden inventory flows through, despite a top-line beat and a $1b buyback. The unmitigated tariff burden of $85m in FY26, coupled with a U.S.-centric mix, elevates near-term margin risk but creates urgency to re-source, re-price, and rebalance inventory to protect profitability during the turnaround.
Actionable Insights
Immediate Actions (Next 30-90 days)
Implement duty mitigation now: activate FTZs, duty drawback, tariff engineering, and reclassification to recover 30-60 bps of gross margin within 2 quarters.
Rationale: Q3-Q4 guide implies a $17m-$21m quarterly drag; customs optimization provides the fastest path to cash margin relief ahead of re-sourcing.
Role affected:CFO
Urgency level:immediate
Deploy a 3-5% selective price increase on high-conversion, low-elasticity SKUs and newness capsules, while ringfencing core icons from heavy promos; A/B test in 50-100 stores and online.
Rationale: Targeted pricing can offset 25-40% of tariff impact without eroding traffic if paired with perceived value upgrades.
Role affected:CMO
Urgency level:immediate
Short-term Actions (6-12 months)
Shift 15-20% of U.S.-bound volume from Vietnam/China to Mexico, Morocco, India, and EU within 6-9 months; lock multi-year capacity with dual-sourcing on top 50 SKUs.
Rationale: Reducing exposure to 40-47% tariff lanes can recapture 70-100 bps of gross margin by FY26 and de-risk election-cycle trade volatility.
Role affected:COO
Urgency level:short-term
Cut Q3-Q4 tariff-heavy inventory mix by 10-15 pts and pull forward carryover icons made in tariff-light origins; tighten buy plans and reduce weeks of supply by 2-3 weeks.
Rationale: Inventory rebalancing reduces promo risk and preserves AUR while tariff-exposed inventory clears.
Role affected:Chief Merchandising Officer
Urgency level:short-term
Risks & Opportunities
Primary Risks
- Tariff escalation or policy volatility increases the FY26 burden beyond $85m
- U.S. demand softness triggers higher markdowns, compounding gross margin compression
- Execution risk in re-sourcing leads to quality or lead-time slippage, missing key floorsets
Primary Opportunities
- Customs optimization and nearshoring recover 80-120 bps of margin by FY26
- Portfolio focus post-Versace enables deeper investment in Kors hero franchises and Jimmy Choo elevation
- Buyback supports EPS stability and investor confidence during transition