Capri (CPRI) - 2025 Q1 - Quarterly Report

General Information Capri Holdings Limited's Form 10-Q filing details for the quarter ended June 29, 2024, including registrant status and outstanding shares Filing Details Basic identification and filing details for Capri Holdings Limited's Form 10-Q, including registrant status and outstanding shares - Capri Holdings Limited filed a Form 10-Q for the quarterly period ended June 29, 2024[2] - The registrant is a large accelerated filer[2] - As of July 31, 2024, Capri Holdings Limited had 117,789,174 ordinary shares outstanding[2] Special Note on Forward-Looking Statements This section addresses forward-looking statements, outlining inherent risks and uncertainties, particularly regarding the pending Tapestry merger and FTC lawsuit Forward-Looking Statements and Risks Forward-looking statements are subject to various risks and uncertainties, including the pending merger with Tapestry and the FTC lawsuit - Forward-looking statements are prospective in nature and subject to risks and uncertainties that could cause actual results to differ materially[4] - Key risks include changing fashion and retail trends, fluctuations in demand, high consumer debt, recession and inflationary pressures, increased competition, supply chain disruptions, cybersecurity threats, and general economic/geopolitical conditions[4] - A significant risk is the outcome of the U.S. Federal Trade Commission's (FTC) lawsuit attempting to block the pending merger with Tapestry, Inc[4] PART I FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements and management's discussion and analysis for Capri Holdings Limited Item 1. Financial Statements Unaudited consolidated financial statements, including balance sheets, statements of operations, shareholders' equity, cash flows, and detailed accounting notes Consolidated Balance Sheets The consolidated balance sheets provide a snapshot of Capri Holdings Limited's financial position as of June 29, 2024, and March 30, 2024, showing a slight decrease in total assets and liabilities, and a minor reduction in total shareholders' equity Consolidated Balance Sheets (Millions $) | Metric | June 29, 2024 (Millions $) | March 30, 2024 (Millions $) | | :----- | :------------------------- | :-------------------------- | | Total Assets | 6,617 | 6,689 | | Total Liabilities | 5,035 | 5,089 | | Total Shareholders' Equity | 1,582 | 1,600 | - Cash and cash equivalents increased from $199 million to $213 million[6] - Inventories, net, increased from $862 million to $902 million[6] Consolidated Statements of Operations and Comprehensive (Loss) Income For the three months ended June 29, 2024, Capri Holdings Limited reported a significant decline in total revenue and a shift from net income to a net loss compared to the same period in the prior year Consolidated Statements of Operations and Comprehensive (Loss) Income (Millions $) | Metric | Three Months Ended June 29, 2024 (Millions $) | Three Months Ended July 1, 2023 (Millions $) | Change (Millions $) | Change (%) | | :----- | :------------------------------------------ | :----------------------------------------- | :------------------ | :--------- | | Total Revenue | 1,067 | 1,229 | (162) | (13.2)% | | Gross Profit | 689 | 812 | (123) | (15.1)% | | (Loss) Income from Operations | (8) | 80 | (88) | NM | | Net (Loss) Income attributable to Capri | (14) | 48 | (62) | NM | | Basic EPS | (0.11) | 0.41 | (0.52) | NM | | Diluted EPS | (0.11) | 0.41 | (0.52) | NM | - Comprehensive (loss) income attributable to Capri shifted from $38 million income in July 2023 to a $43 million loss in June 2024[7] Consolidated Statements of Shareholders' Equity The consolidated statements of shareholders' equity show a decrease in total equity attributable to Capri from $1,599 million at March 30, 2024, to $1,579 million at June 29, 2024, primarily due to net loss and other comprehensive loss, partially offset by share-based compensation Consolidated Statements of Shareholders' Equity (Millions $) | Metric | Balance at March 30, 2024 (Millions $) | Net (Loss) Income (Millions $) | Other Comprehensive Loss (Millions $) | Share-based Compensation Expense (Millions $) | Repurchase of Ordinary Shares (Millions $) | Balance at June 29, 2024 (Millions $) | | :----- | :----------------------------------- | :----------------------------- | :------------------------------------ | :------------------------------------------ | :----------------------------------------- | :------------------------------------ | | Total Equity of Capri | 1,599 | (14) | (29) | 26 | (3) | 1,579 | - Accumulated Other Comprehensive Income decreased from $161 million to $132 million[9] Consolidated Statements of Cash Flows For the three months ended June 29, 2024, net cash provided by operating activities significantly increased, while cash used in investing activities remained stable and cash used in financing activities saw a slight increase compared to the prior year Cash Flow Activity (Millions $) | Cash Flow Activity | Three Months Ended June 29, 2024 (Millions $) | Three Months Ended July 1, 2023 (Millions $) | | :----------------- | :------------------------------------------ | :----------------------------------------- | | Operating Activities | 83 | 40 | | Investing Activities | (52) | (50) | | Financing Activities | (9) | (3) | | Net Increase (Decrease) in Cash | 17 | (16) | - Capital expenditures decreased from $50 million to $43 million[13] - Cash paid for business acquisitions, net of cash acquired, was $9 million in the current period, with none in the prior period[13] Notes to Consolidated Financial Statements Comprehensive notes detail accounting policies, merger status, revenue, assets, liabilities, debt, equity, and subsequent events for the financial statements Note 1. Business and Basis of Presentation Capri Holdings Limited is a global fashion luxury group operating three reportable segments: Versace, Jimmy Choo, and Michael Kors. The interim financial statements are unaudited, prepared under U.S. GAAP, and consolidate Versace's results with a one-month lag - Capri Holdings Limited owns and operates the Versace, Jimmy Choo, and Michael Kors brands[15] - The company operates in three reportable segments: Versace, Jimmy Choo, and Michael Kors[15] - The interim consolidated financial statements are unaudited and prepared in accordance with U.S. GAAP, with Versace's results consolidated on a one-month lag[16] Note 2. Merger Agreement Capri's all-cash merger agreement with Tapestry faces an FTC lawsuit to block the transaction, which the company is vigorously defending - Capri entered into an Agreement and Plan of Merger with Tapestry, Inc. on August 10, 2023, for an all-cash acquisition[18] - The merger has been approved by the boards of directors of Capri and Tapestry and by the shareholders of Capri[19] - The U.S. Federal Trade Commission (FTC) filed a lawsuit on April 22, 2024, to block the merger, which Capri and Tapestry are vigorously defending[19] Note 3. Summary of Significant Accounting Policies This note details significant accounting policies, including estimates, seasonality, cash, inventories, derivatives, leases, EPS, and recent pronouncements - The company experiences seasonality, with greater sales in the third fiscal quarter (holiday season) and lowest sales in the first fiscal quarter[21] - Derivative financial instruments, including forward foreign currency exchange contracts, net investment hedges, and fair value hedges, are used to manage exposure to foreign currency fluctuations[24][28][29] - The company adopted ASU 2022-04 (Supplier Finance Programs) retrospectively in Fiscal 2024 and is evaluating ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes) for future impact[38][40][41] Note 4. Revenue Recognition Capri recognizes revenue when control of goods or services is transferred to customers across its retail, wholesale, and licensing channels. The note details accounting for sales returns, gift cards, loyalty programs, and provides a disaggregation of revenue by segment and geographic location - Revenue is generated through three primary channels: retail (stores, e-commerce), wholesale (department stores, specialty stores), and licensing (product and geographic arrangements)[42] - Total Revenue by Segment (Millions $) | Segment | Three Months Ended June 29, 2024 (Millions $) | Three Months Ended July 1, 2023 (Millions $) | | :------ | :------------------------------------------ | :----------------------------------------- | | Versace | 219 | 259 | | Jimmy Choo | 173 | 183 | | Michael Kors | 675 | 787 | | Total Revenue | 1,067 | 1,229 | - Total Revenue by Geographic Location (Millions $) | Geographic Location | Three Months Ended June 29, 2024 (Millions $) | Three Months Ended July 1, 2023 (Millions $) | | :------------------ | :------------------------------------------ | :----------------------------------------- | | The Americas | 573 | 632 | | EMEA | 305 | 372 | | Asia | 189 | 225 | | Total Revenue | 1,067 | 1,229 | Note 5. Receivables, net Receivables, net, primarily consist of trade receivables and amounts due from licensees, presented net of allowances for discounts, markdowns, operational chargebacks, and credit losses. The allowance for credit losses increased slightly Receivables, net (Millions $) | Metric | June 29, 2024 (Millions $) | March 30, 2024 (Millions $) | | :----- | :------------------------- | :-------------------------- | | Trade Receivables | 277 | 360 | | Receivables due from licensees | 15 | 19 | | Less: Allowances | (47) | (47) | | Total Receivables, net | 292 | 332 | - Allowance for credit losses was $15 million as of June 29, 2024, up from $13 million at March 30, 2024[57] Note 6. Property and Equipment, net Property and equipment, net, decreased slightly to $573 million as of June 29, 2024, from $579 million at March 30, 2024, with leasehold improvements and computer equipment being the largest components. Depreciation and amortization expense for the quarter was $36 million Property and Equipment, net (Millions $) | Category | June 29, 2024 (Millions $) | March 30, 2024 (Millions $) | | :------- | :------------------------- | :-------------------------- | | Leasehold improvements | 537 | 535 | | Computer equipment and software | 298 | 279 | | Construction-in-progress | 62 | 82 | | Total property and equipment, net | 573 | 579 | - Depreciation and amortization of property and equipment was $36 million for the three months ended June 29, 2024, compared to $34 million in the prior year[58] Note 7. Intangible Assets and Goodwill The company's intangible assets, excluding goodwill, totaled $1,378 million as of June 29, 2024, with indefinite-lived assets making up a significant portion. Goodwill increased to $1,108 million due to the acquisition of Calzaturificio Sicla S.r.l Intangible Assets and Goodwill (Millions $) | Category | June 29, 2024 (Millions $) | March 30, 2024 (Millions $) | | :------- | :------------------------- | :-------------------------- | | Net definite-lived intangible assets | 499 | 510 | | Net indefinite-lived intangible assets | 879 | 884 | | Total intangible assets, excluding goodwill | 1,378 | 1,394 | | Goodwill | 1,108 | 1,106 | - Goodwill increased by $2 million, primarily due to the $9 million acquisition of Calzaturificio Sicla S.r.l., an Italian shoe manufacturer, allocated to the Jimmy Choo segment[59][60] - Amortization expense for definite-lived intangible assets was $11 million for both periods[60] Note 8. Current Assets and Current Liabilities This note provides a detailed breakdown of prepaid expenses and other current assets, which decreased to $197 million, and accrued expenses and other current liabilities, which decreased to $296 million, as of June 29, 2024 Prepaid Expenses and Other Current Assets (Millions $) | Prepaid Expenses and Other Current Assets | June 29, 2024 (Millions $) | March 30, 2024 (Millions $) | | :---------------------------------------- | :------------------------- | :-------------------------- | | Prepaid taxes | 98 | 88 | | Interest receivable related to hedges | 17 | 42 | | Total prepaid expenses and other current assets | 197 | 215 | Accrued Expenses and Other Current Liabilities (Millions $) | Accrued Expenses and Other Current Liabilities | June 29, 2024 (Millions $) | March 30, 2024 (Millions $) | | :--------------------------------------------- | :------------------------- | :-------------------------- | | Return liabilities | 46 | 48 | | Accrued capital expenditures | 20 | 35 | | Restructuring liability | 9 | 22 | | Total accrued expenses and other current liabilities | 296 | 310 | Note 9. Restructuring and Other Expense Capri recorded $1 million in net restructuring expenses for the three months ended June 29, 2024, primarily due to lease termination and store closure costs under its Global Optimization Plan, which included closing 11 retail stores - Net restructuring expenses were $1 million for the three months ended June 29, 2024, primarily from lease termination and store closure costs related to the Global Optimization Plan[63] - The Global Optimization Plan involved closing 11 retail stores during the quarter[63] - In the prior year (July 1, 2023), the company recorded $2 million in other income, mainly from a $10 million gain on asset sale, partially offset by acquisition-related equity awards and severance[65] Note 10. Debt Obligations Capri's total debt obligations decreased slightly to $1,714 million as of June 29, 2024, with the company maintaining various credit facilities and senior notes while remaining in compliance with all covenants Debt Obligation (Millions $) | Debt Obligation | June 29, 2024 (Millions $) | March 30, 2024 (Millions $) | | :-------------- | :------------------------- | :-------------------------- | | Revolving Credit Facilities | 754 | 764 | | Versace Term Loan | 482 | 486 | | Senior Notes due 2024 | 450 | 450 | | Other | 28 | 24 | | Total Debt | 1,714 | 1,724 | - The 2022 Credit Facility provides a $1.5 billion revolving credit facility, with $744 million available for future borrowings as of June 29, 2024[68][72] - The company was in compliance with all covenants related to its 2022 Credit Facility and Versace Term Loan as of June 29, 2024[72][76] Note 11. Commitments and Contingencies The company is involved in routine legal proceedings not expected to have a material adverse effect, with merger-related litigation details referred to Part II, Item 1 - Routine legal proceedings are not expected to have a material adverse effect on the business[82] - Additional information on merger-related litigation is provided in Part II, Item 1[82] Note 12. Fair Value Measurements This note explains the three-level fair value hierarchy for financial assets and liabilities, with derivatives and debt measured using Level 2 inputs and non-financial assets assessed for impairment using Level 3 - Financial assets and liabilities are measured using a three-level valuation hierarchy (Level 1, 2, 3) based on input observability[83][84] - Derivative contracts and debt obligations are categorized as Level 2 measurements, using broker quotations and external pricing data[85][86][87] - Non-financial assets (goodwill, intangibles, property and equipment) are assessed for impairment using Level 3 measurements based on discounted cash flows[88] Note 13. Derivative Financial Instruments Capri uses derivative financial instruments, including net investment hedges, to manage foreign currency exposure, with $2.95 billion in CHF-denominated and $884 million in Euro-denominated hedges outstanding - As of June 29, 2024, there were no forward foreign currency exchange contracts outstanding[91] - The company had $2.95 billion of net investment hedges outstanding for CHF-denominated subsidiaries and $884 million for Euro-denominated subsidiaries as of June 29, 2024[92][94] - Interest income of $24 million was recorded during the three months ended June 29, 2024, from net investment hedges, up from $15 million in the prior year[95] Note 14. Shareholders' Equity The company's share repurchase program has $300 million remaining, but open market repurchases are restricted due to the pending merger, with shares withheld for tax obligations - The Existing Share Repurchase Plan has $300 million remaining availability as of June 29, 2024[103] - No open market share repurchases occurred during the three months ended June 29, 2024, due to restrictions under the Merger Agreement[102][103] - 93,738 shares with a fair value of $3 million were withheld to cover tax obligations for vested restricted share awards during the three months ended June 29, 2024[104] Note 15. Share-Based Compensation Capri grants equity awards under its 2008 Plan and Incentive Plan. Share-based compensation expense for the quarter totaling $26 million with a related tax benefit of $4 million - The Incentive Plan had 2,439,650 ordinary shares available for future grants as of June 29, 2024[107] - Share-based Compensation (Millions $) | Metric | Three Months Ended June 29, 2024 (Millions $) | Three Months Ended July 1, 2023 (Millions $) | | :----- | :------------------------------------------ | :----------------------------------------- | | Share-based compensation expense | 26 | 30 | | Tax benefit related to share-based compensation expense | 4 | 5 | Note 16. Income Taxes The effective tax rate for the three months ended June 29, 2024, was (33.3)% on a pre-tax loss, differing from the U.K. statutory rate due to state tax audit settlements and share-based compensation adjustments - The effective tax rate for the three months ended June 29, 2024, was (33.3)% on a pre-tax loss of $9 million[110] - This rate differs from the U.K. federal statutory rate of 25% primarily due to state tax audit settlements and unfavorable share-based compensation adjustments[110] - Global financing activities, stemming from the company's move to U.K. tax residency, generally result in lower effective tax rates[111] Note 17. Segment Information Capri operates through three reportable segments—Versace, Jimmy Choo, and Michael Kors—all experiencing revenue declines and reduced operating income for the quarter due to softening demand - The company's three reportable segments are Versace, Jimmy Choo, and Michael Kors, evaluated based on revenue and operating income[112][113][114] - Segment Performance (Millions $) | Segment | Total Revenue (June 29, 2024, Millions $) | Total Revenue (July 1, 2023, Millions $) | Income (Loss) from Operations (June 29, 2024, Millions $) | Income (Loss) from Operations (July 1, 2023, Millions $) | | :------ | :---------------------------------------- | :--------------------------------------- | :-------------------------------------------------------- | :------------------------------------------------------- | | Versace | 219 | 259 | (17) | 3 | | Jimmy Choo | 173 | 183 | 4 | 16 | | Michael Kors | 675 | 787 | 75 | 130 | | Total Segment Income from Operations | 62 | 149 | | | - Revenue by Geographic Location (Millions $) | Geographic Location | Revenue (June 29, 2024, Millions $) | Revenue (July 1, 2023, Millions $) | | :------------------ | :---------------------------------- | :--------------------------------- | | The Americas | 573 | 632 | | EMEA | 305 | 372 | | Asia | 189 | 225 | | Total Revenue | 1,067 | 1,229 | Note 18. Subsequent Events Subsequent to June 29, 2024, in the second quarter of Fiscal 2025, Capri entered into additional cross-currency swap agreements totaling $825 million and €800 million in interest rate swaps to mitigate variable rate debt risk - In Fiscal 2025 Q2, the company entered into $500 million in fixed-to-fixed cross-currency swap agreements for Euro-denominated subsidiaries[120] - Also in Fiscal 2025 Q2, new fixed-to-fixed cross-currency swap agreements totaling $325 million were entered for CHF-denominated subsidiaries[120] - The company entered into €800 million in interest rate swaps to mitigate variable rate debt risk[121] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Capri Holdings Limited's financial performance and condition, detailing business overview, key influencing factors, comparative operations analysis, and liquidity assessment Overview Capri Holdings Limited, a global fashion luxury group, is navigating a pending all-cash merger with Tapestry, Inc., which faces an ongoing lawsuit from the U.S. FTC - The pending all-cash merger with Tapestry, Inc. is subject to an ongoing lawsuit by the U.S. FTC, which Capri and Tapestry are vigorously defending[123][124] - Capri Holdings Limited is a global fashion luxury group consisting of Versace, Jimmy Choo, and Michael Kors brands[125] - Each brand (Versace, Jimmy Choo, Michael Kors) is described with its heritage, product offerings, and global distribution network[126][127][129] Certain Factors Affecting Financial Condition and Results of Operations The company's financial condition and results are influenced by macroeconomic conditions, luxury goods trends, foreign currency fluctuations, supply chain disruptions, manufacturing costs, tariffs, and challenges from new IT systems - Global economic conditions, including inflation, rising interest rates, and consumer debt levels, are creating a challenging retail environment, impacting discretionary luxury item purchases[130] - Foreign currency fluctuations, particularly the strengthening U.S. dollar against the Japanese Yen, Euro, and Chinese Renminbi, are expected to negatively impact reported results[132] - Supply chain disruptions, including Red Sea attacks, have led to shipment delays and increased freight costs[133] - Implementation of a new e-commerce platform has created unanticipated challenges that negatively impacted results and may continue to do so[137] Segment Information Capri's three segments—Versace, Jimmy Choo, and Michael Kors—all experienced revenue and operating income declines due to softening demand, with corporate expenses and merger costs unallocated Segment Performance (Millions $) | Segment | Total Revenue (June 29, 2024, Millions $) | Total Revenue (July 1, 2023, Millions $) | Income (Loss) from Operations (June 29, 2024, Millions $) | Income (Loss) from Operations (July 1, 2023, Millions $) | | :------ | :---------------------------------------- | :--------------------------------------- | :-------------------------------------------------------- | :------------------------------------------------------- | | Versace | 219 | 259 | (17) | 3 | | Jimmy Choo | 173 | 183 | 4 | 16 | | Michael Kors | 675 | 787 | 75 | 130 | | Total Segment Income from Operations | 62 | 149 | | | Retail Store Count | Store Type | June 29, 2024 | July 1, 2023 | | :--------- | :------------ | :----------- | | Full price retail stores | 804 | 846 | | Outlet stores | 426 | 425 | | Total retail stores | 1,230 | 1,271 | - Corporate expenses were $64 million (down from $71 million) and merger-related costs were $5 million (up from $0) for the three months ended June 29, 2024[142] Key Consolidated Performance Indicators and Statistics Consolidated performance indicators show declines in total revenue, gross profit margin, and a shift to an operating loss, reflecting seasonal sales patterns for the quarter Key Consolidated Performance Indicators (Millions $) | Metric | Three Months Ended June 29, 2024 | Three Months Ended July 1, 2023 | | :----- | :------------------------------- | :------------------------------ | | Total revenue | $1,067 million | $1,229 million | | Gross profit as a percent of total revenue | 64.6% | 66.1% | | (Loss) income from operations | $(8) million | $80 million | | (Loss) income from operations as a percent of total revenue | (0.7)% | 6.5% | - The company generally experiences greater sales during its third fiscal quarter (holiday season) and lowest sales during its first fiscal quarter[147] Critical Accounting Policies and Estimates No significant changes to critical accounting policies and estimates have occurred since March 30, 2024, with full disclosure available in the Annual Report on Form 10-K - No significant changes to critical accounting policies and estimates since March 30, 2024[149] Results of Operations Total revenue decreased by 13.2% to $1.067 billion, leading to a gross profit margin decrease and a shift to an operating loss, with a net loss of $14 million attributable to Capri Results of Operations (Millions $) | Metric | June 29, 2024 (Millions $) | July 1, 2023 (Millions $) | Change (Millions $) | Change (%) | | :----- | :------------------------- | :------------------------ | :------------------ | :--------- | | Total Revenue | 1,067 | 1,229 | (162) | (13.2)% | | Gross Profit | 689 | 812 | (123) | (15.1)% | | Selling, General and Administrative Expenses | 649 | 689 | (40) | (5.8)% | | (Loss) Income from Operations | (8) | 80 | (88) | NM | | Net (Loss) Income attributable to Capri | (14) | 48 | (62) | NM | - Total revenue decreased by $162 million (13.2%), including $13 million in unfavorable foreign currency effects; on a constant currency basis, revenue decreased by 12.1%[152] - Gross profit margin decreased from 66.1% to 64.6%, primarily due to lower full-price sell-throughs[155] - Versace, Jimmy Choo, and Michael Kors all experienced declines in operating income, with Versace shifting to an operating loss[160][161] Liquidity and Capital Resources Primary liquidity sources are cash flows from operations, credit facilities, and cash equivalents, with operating cash flow increasing and the Capri transformation program paused due to the merger - Primary liquidity sources are cash flows from operations, credit facilities, and available cash and cash equivalents[169] - Cash Flow Activity (Millions $) | Cash Flow Activity | Three Months Ended June 29, 2024 (Millions $) | Three Months Ended July 1, 2023 (Millions $) | | :----------------- | :------------------------------------------ | :----------------------------------------- | | Operating activities | 83 | 40 | | Investing activities | (52) | (50) | | Financing activities | (9) | (3) | | Net increase (decrease) in cash | 17 | (16) | - The Capri transformation program, a multi-year initiative, was paused during Fiscal 2024 due to the pending merger[170] Debt Facilities Capri's total borrowings outstanding were $1,713 million as of June 29, 2024, with $812 million in total remaining availability across its various credit facilities. The company was in compliance with all debt covenants Debt Facilities (Millions $) | Debt Facility | June 29, 2024 (Millions $) | March 30, 2024 (Millions $) | | :------------ | :------------------------- | :-------------------------- | | Revolving Credit Facility (borrowings outstanding) | 754 | 764 | | Versace Term Loan (borrowings outstanding) | 481 | 485 | | Senior Notes due 2024 (borrowings outstanding) | 450 | 450 | | Other Borrowings | 28 | 24 | | Total borrowings outstanding | 1,713 | 1,723 | | Total remaining availability | 812 | 803 | - The company was in compliance with all covenants related to its debt agreements as of June 29, 2024[177] Share Repurchase Program The company's Existing Share Repurchase Plan has $300 million remaining. However, due to the Merger Agreement, no open market share repurchases were made during the three months ended June 29, 2024, except for shares withheld to cover tax obligations - The Existing Share Repurchase Plan has $300 million remaining availability as of June 29, 2024[181] - No shares were repurchased under the share repurchase program through open market transactions during the three months ended June 29, 2024, due to the Merger Agreement[181][182] - 93,738 shares were withheld to cover tax obligations for vested restricted share awards, totaling $3 million[181] Contractual Obligations and Commercial Commitments Detailed information on contractual obligations and commercial commitments is available in the Fiscal 2024 Form 10-K - Detailed disclosure of contractual obligations and commercial commitments is available in the Fiscal 2024 Form 10-K[183] Off-Balance Sheet Arrangements Capri does not have any special-purpose or off-balance sheet entities for capital raising or debt. Off-balance sheet commitments include $30 million in outstanding letters of credit and approximately $38 million in bank guarantees - The company has not created any special-purpose or off-balance sheet entities for capital raising or debt[184] - Off-balance sheet commitments include $30 million in outstanding letters of credit and approximately $38 million in bank guarantees as of June 29, 2024[184] Recent Accounting Pronouncements Information regarding recently issued accounting standards and their potential impact on the financial statements is provided in Note 3 to the interim consolidated financial statements - Refer to Note 3 for information on recently issued accounting standards[185] Item 3. Quantitative and Qualitative Disclosures About Market Risk Capri Holdings Limited is exposed to market risks from foreign currency exchange rates and interest rates, mitigated by derivative instruments, with overall market risk consistent but macroeconomic uncertainty ongoing Foreign Currency Exchange Risk The company manages foreign currency exchange risk through net investment hedges, with $2.95 billion in CHF-denominated and $1 billion in Euro-denominated hedges outstanding - No forward foreign currency exchange contracts were outstanding as of June 29, 2024[189] - As of June 29, 2024, the company had $2.95 billion in net investment hedges for CHF-denominated subsidiaries[189] - A 10% appreciation or devaluation of the U.S. dollar could result in a $298 million change in the fair value of CHF hedges and a $105 million change for $1 billion Euro hedges[189][190] Interest Rate Risk Capri is exposed to interest rate risk from variable-rate borrowings under its 2022 Credit Facility ($754 million outstanding) and Versace Term Loan ($481 million outstanding), directly impacting interest expense - The company is exposed to interest rate risk from borrowings under its 2022 Credit Facility and Versace Term Loan, which carry variable interest rates[192] - As of June 29, 2024, $754 million was outstanding under the 2022 Credit Facility and $481 million under the Versace Term Loan[193] Credit Risk The $450 million Senior Notes bear a fixed interest rate of 4.250%, with overall market risk exposure consistent but macroeconomic conditions introducing ongoing uncertainty - The $450 million Senior Notes due November 2024 bear a fixed interest rate of 4.250% per year, subject to credit rating adjustments[195] - Overall market risk exposure has not significantly changed from the prior Annual Report on Form 10-K, but macroeconomic conditions continue to present uncertainty[195] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of June 29, 2024, with an ongoing ERP system implementation expected to strengthen internal controls through automation and standardization - Disclosure controls and procedures were evaluated and deemed effective as of June 29, 2024[197] - The company is undertaking a major, multi-year ERP implementation to upgrade information technology platforms and systems worldwide[198] - The ERP implementation is expected to strengthen internal control over financial reporting by automating processes and standardizing business operations[199] PART II OTHER INFORMATION This part covers legal proceedings, risk factors, equity sales, other information, exhibits, and signatures for the report Item 1. Legal Proceedings Capri is involved in routine legal proceedings, but the pending merger with Tapestry faces shareholder complaints and a significant FTC lawsuit seeking to block the transaction - Routine legal proceedings are not expected to have a material adverse effect[201] - Merger-related litigation includes shareholder complaints alleging misrepresentations in proxy statements, which Capri believes are without merit[202] - The U.S. Federal Trade Commission (FTC) filed a lawsuit on April 22, 2024, to block the merger with Tapestry, claiming antitrust violations, which Capri and Tapestry are vigorously defending[203] Item 1A. Risk Factors There are no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended March 30, 2024 - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended March 30, 2024[204] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Capri repurchased 93,738 ordinary shares for tax withholding obligations, but no open market repurchases occurred due to Merger Agreement restrictions Share Repurchases for Tax Withholding (Millions $) | Period | Total Number of Shares Repurchased | Average Price per Share ($) | Remaining Dollar Value Under Programs (Millions $) | | :----- | :--------------------------------- | :-------------------------- | :----------------------------------------------- | | May 26 - June 29 | 93,738 | 32.00 | 300 | - Shares repurchased were specifically for withholding taxes in respect of equity awards, as open market repurchases are restricted by the Merger Agreement[206] Item 5. Other Information This section provides an update on the Global Optimization Plan, noting that 11 retail stores were closed during the three months ended June 29, 2024, resulting in $1 million in net restructuring expenses, primarily for lease termination and store closure costs. Future charges and expenditures are currently undeterminable - The Global Optimization Plan led to the closure of 11 retail stores during the three months ended June 29, 2024[207] - Net restructuring expenses of $1 million were recorded, primarily for lease termination and store closure costs[207] - The exact amounts and timing of future charges related to the Global Optimization Plan are currently undeterminable[208] Item 6. Exhibits This section refers to the accompanying Exhibit Index for a comprehensive list of all exhibits filed or furnished with this report - Refer to the accompanying Exhibit Index for a list of exhibits filed or furnished with this report[209] Signatures The report was duly signed on August 8, 2024, by John D. Idol, Chairman & Chief Executive Officer, and Thomas J. Edwards, Jr., Executive Vice President, Chief Financial Officer and Chief Operating Officer, certifying its contents - The report was signed on August 8, 2024[211] - Signatories include John D. Idol (Chairman & CEO) and Thomas J. Edwards, Jr. (EVP, CFO & COO)[211] Index to Exhibits This index lists the certifications required by the Sarbanes-Oxley Act from the Chief Executive Officer and Chief Financial Officer, along with the financial information presented in Inline eXtensible Business Reporting Language (XBRL) - Includes certifications from the CEO and CFO pursuant to Section 302 and Section 1350 of the Sarbanes-Oxley Act of 2002[213] - Financial information from the Quarterly Report on Form 10-Q is formatted in Inline XBRL[213]