But I'll try to put it to good use.

Over the past week, we've initiated several positions in our portfolio, and today I want to talk about one in particular: CAPRI Holdings (currently representing 1% of the fund).

While the name of the company might not immediately ring a bell, I'm confident that our female readers will be well acquainted with the group's brands. As for our male audience, they're likely familiar with these labels through their wives, daughters, or significant others (or even just friends!).

CAPRI owns Versace, Jimmy Choo, and Michael Kors—three entities that have merged under the CAPRI umbrella. Previously, Michael Kors stood on its own until the acquisitions of Jimmy Choo in 2017 and Versace in 2018 led to the consolidation under CAPRI Holdings.

Since 2003, the company has been managed by John D. Idol. This is crucial, as Idol is an excellent CEO - with a quality track record - and was notably behind LVMH's takeover of Donna Karan in 2001 (he was CEO at the time) when the iconic brand was in dire financial straits. So he's no stranger to complex situations, and has a proven ability to turn businesses around when the going gets tough.

Let's take a leap back in time to last week, precisely February 8th – the day of the earnings release. CAPRI's stock plummeted by 25% on the New York Stock Exchange for a simple reason: operating margins fell well below what was announced by management and anticipated by the market (from 21% to 16% year-over-year, primarily due to lower-than-expected performance in the wholesale segment).

At first glance, it might not seem like an opportunity, but in our eyes, it's an excellent investment opportunity. By breaking down the three divisions, here's what we found for the past 12 months:

– Versace : Sales of $1.1 billion, operating profit of $190 million

– Jimmy Choo : Sales of $650 million, operating profit of $30 million

– Michael Kors : Sales of $3.9 billion, operating profit of $900 million

Applying luxury valuation metrics to Versace and Jimmy Choo (around 3.5x sales and 20x operating profit), these two brands are valued at between $4 billion and $6 billion, independently of Michael Kors. At the current stock price, this implies a valuation of only $2 billion to $3 billion for the Michael Kors brand alone (approximately 0.75x sales for the past 12 months and only 3x operating profit).

This strikes us as an extremely low price to pay, especially in view of the company's announced transition to a more direct-to-consumer (DTC) business model with higher margins. With an exceptional CEO and already factored-in negative expectations, it presents an excellent investment opportunity according to our criteria at Monocle.

It just goes to show that in these sentiment-driven markets, some gems can emerge. All you have to do is take a stroll in Paris during Fashion Week to find them!

Have a great week,

Max

Market and portfolio focus

Behaviour:

In the past week (from 2/10 to 2/17), there haven't been any significant changes in the fund or the markets.

Lines:

Capri: Initiated a 1% position in the portfolio (as mentioned above).

Alphabet: Initiated a 5% position in the portfolio. Following the recent decline in stock price, the company is trading at 20X its earnings (which historically seems quite cheap) and should offer a credible alternative to Microsoft's ChatGPT in the future. Furthermore, its dominant position in search engines provides an excellent valuation cushion.

Activision: Sold the entire position (previously representing 3.5% of the fund) following Berkshire Hathaway's sales of the stock.