Capri Holdings (NYSE:CPRI) – mrkt cap $5.5B; Price $43.73; trailing P/E 6.4
PASS. Capri Holdings is a fashion company that owns Michael Kors, Versace, and Jimmy Choo. CPRI has lagged peers with its share prices staying flat over the last decade. This was due to Kors diluting their brand by over expanding into wholesalers such as Macys and Nordstroms (revenue from wholesale increased almost 4x from 2012 to 2016!). Owner-operator John Idol is committed on returning Kors to a premium aspirational luxury brand by using the same playbook as peer fashion brand Coach: elevating the brand through increased quality, reducing wholesale footprint making it more exclusive, and increasing prices. CPRI’s other brands Versace and Jimmy Choo fortunately do not suffer from the same brand impairment; CPRI plans to grow them in a measured fashion by increasing both the store footprint and brand extensions. We have initiated a small weighting in Capri Holdings.
Ralph Lauren Corp (NYSE:RL) – mrkt cap $7.95B; Price $120.40; trailing P/E 16.2
MORE RESEARCH NEEDED. RL is an iconic brand that has struggled to grow in large part due to its closure of discount outlets stores and reduction in wholesale distribution. Bears believe brand equity is impaired–we don’t think so. RL’s plan to grow sales includes several measures: 1. RL aims to increase penetration of women’s wear sales, which currently account for approximately 30% of the company’s sales 2. RL plans to increase its DTC retail presence in Asia 3. Finally, RL plans to increase its millennial penetration through a significant increase in digital ad spend. This strategy has seen signs of traction, but we are still in the early stages of a full analysis.
Yellow Corp (NAS:YELL) – mrkt cap $100mm; Price: $1.93; trailing P/E 4.6
PASS. Yellow Corporation is in the hyper cyclical trucking industry (‘Less Than Truckload’ shipping). The industry is currently in a cyclical downturn and overleveraged companies like Yellow are starting to burn cash–roughly $40mm a year. We estimate the company owns hard assets (12,000 tractors, 33,000 trailers, 167 terminals) worth north of $2.6B and their debt (along with unfunded pension liabilities and other liabilities) is currently ~$2.2B. This would bring equity value to ~$400mm and the current market cap is $100mm, almost a 3X ROI. Equity holders also retain some security against unfriendly management policies given they are invested alongside the US Treasury who is a major shareholder at 30% ownership (yes, you read that correctly). There is potential upside but without a catalyst to unlock value we will remain on the sidelines.