Updates: CPRI Divestment & BBW Earnings Opportunity + HIMS Trade Idea
Taking a look at the CPRI trade w/ new info and why BBW is looking good after that earnings print
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For today’s update, we’re going to over
Update on the Capri (CPRI) divestment of Versace to Prada (HKG: 1913)
The recent Build-A-Bear (BBW) earnings release and why the 8% give-back after earnings sets up a great LT opportunity
A HIMS trade idea for those still looking to get involved on the short side
The below will be shared in that order so feel free to skip around if one pertains more to you than others.
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Cheers.
Update Regarding CPRI Divestment
Earlier this year in January, we shared with you our trade idea for Capri (CPRI) regarding the value unlock that could come from them divesting both Versace and Jimmy Choo (below).
In that trade idea, we highlighted the price that buyers (assumably Prada) would be willing to purchase Versace and Jimmy Choo for. However, while we were initially bullish on the divestment, John Idol during their February earnings call alluded that the company is focusing on returning the brands to growth (i.e. no divestment).
The stock sold off and has been treading along since. Though this was the case just a short month ago, two weeks ago, word broke out that Prada is indeed eyeing the assets and continuing with the deal so far after “no risks came up during diligence” and the value they’re assigning Versace is €1.5 billion ($1.6 billion).
This is a good sign to us given our conservative approach to the value of these assets in our math from the original report above. A recent reorganization at Versace also makes us believe that the deal is still alive and not just a PR stunt.
We’ll first go into the reorganization news and why we see that as bullish followed along by the updated divestment math factoring in CPRI’s recent earnings.
Disclaimer: We’re long CPRI.
Versace Reorganization
First off, you have to acknowledge that investing in apparel is hard. The reason we don’t invest in apparel, at least not at the moment, is because trends change on a dime, and unless your creative director can keep up or set the trend, it’s a hard business.
It’s with no surprise that Versace has been struggling as of late. LTM sales peaked at the end of CY Q2’22 at just under $1.2 billion and have since been in decline to a reported $877 million as of CY Q3’24.
You could say that it’s consumer preferences. You could say it’s just the market. Realistically, you could say the creative director has lost touch with consumer tastes which is the reason why people are buying it like they used to.
We think it’s mainly the latter as other luxury brands have been able to stabilize and/or bounce back. On March 13th, the WSJ reported that Donatella Versace was going to step down on April 1st and become the new brand ambassador. This is a big deal for a few reasons.
It shows that CPRI is open to making drastic changes to bring the brand back to growth.
The replacement for Donatella, Dario Vitale, was a design director from Miu Miu, which Prada conveniently owns.
This first point is important because you’re effectively kicking out not just someone who’s been with the brand for decades but someone whose name is literally that of the brand and then the second point because it could be a “feeder” move.
Feeder meaning that an acquiring company is putting in place a management figure/team ahead of the acquisition taking place so that change can start happening sooner rather than later. While we don’t know if that’s the exact reason, we know that Dario did very well at Miu Miu before he left in January 2025 (~15 years in total there).
Dario has a track record in fashion (RTW) and a track record with a Prada-owned brand which would add confidence from the Prada side about potentially executing a turnaround with the brand if they acquired it.
UBS also noted that
“The aesthetics of the minimalistic Prada and ‘maximalist’ Versace ‘are polar opposites’ and wouldn’t run the risk of cannibalization.”
So just with this reorg, it sounds like the confidence of Prada coming in and taking over seems more “real”, we won’t go as far as saying more “likely”, than it was just a few weeks ago.
But while this is the qualitative side of things, we need to look at the new math given how perhaps just one of these assets will be sold (Versace) vs both (Versace + Jimmy Choo).
In our prior note, we highlighted the previous deal transactions and what they traded at. We’ve included below for quick reference.
We tried to value the assets on an EBITDA basis but considering they don’t make much money since they’re currently on the decline, we had to pivot to using sales multiples.
Based on the Bloomberg report, it seems that Prada could be purchasing Versace for €1.5 billion ($1.6 billion) which implies that they could be paying 1.8x LTM sales. This is a far cry from the 3.5x that CPRI paid for the asset but clearly they haven’t done a good job since acquiring it.
The math below highlights what we think the value of CPRI (RemainCo) would be post a Versace sale. Given the value that could be assigned, based on reports, and no multiple re-rating (0.9x sales) and we’re left with a $2.6 billion EV company with negative net debt (excluding operating leases) or $2.4 billion on 7.4x RemainCo EBITDA.
If the market decides that the multiple shouldn’t crater, then the stock should see a healthy bump from the divestment of Versace (due to cash on the BS and ability to reinvest) which could yield an upside of anywhere between ~19 and 40%.
Should Jimmy Choo be sold too, which L’Ecomica thinks the price could rise to €2 billion ($2.1 billion) if that’s the case (though we think unlikely), then the upside could be >50%.
Mind you, this is contingent on not just the deal happening, but the market beliveing that sales and margins will stabilize into FY’26 (CY’25/26) and that a multiple collapse can be avoided on the RemainCo financials.
Timing wise, we think that since talks have been going on since late 2024 when news first broke out and we just got the “rumored update” the other week, we could hear an announcement in the next month or so. Probably beginning of Q2 to scaling into mid-quarter.
Either way, we still stand by the thought that CPRI should return to a single name brand and that the recent Donatella news being replaced by ex-Miu Miu (Prada brand) is bullish news for the divestment.