Capri (CPRI) - 2026 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the company's comprehensive financial statements and related disclosures for the quarter Item 1. Financial Statements This section presents Capri Holdings Limited's unaudited consolidated financial statements and notes, including Versace's discontinued operations classification Consolidated Balance Sheets The consolidated balance sheets show an increase in total assets from $5,213 million at March 29, 2025, to $5,469 million at June 28, 2025, primarily driven by an increase in noncurrent assets held for sale and inventories Key Metrics | Metric | June 28, 2025 (in millions) | March 29, 2025 (in millions) | Change (in millions) | | :-------------------------------- | :-------------------------- | :--------------------------- | :------------------- | | Total assets | $5,469 | $5,213 | $256 | | Total liabilities | $5,482 | $4,841 | $641 | | Total shareholders' equity | $(13) | $372 | $(385) | - Current assets held for sale increased from $342 million to $384 million, and noncurrent assets held for sale increased from $1,594 million to $1,707 million, reflecting the classification of the Versace business as held for sale[10][18][52] - Long-term debt increased from $1,466 million to $1,650 million, contributing to the overall rise in liabilities[10] Consolidated Statements of Operations and Comprehensive Income (Loss) For the three months ended June 28, 2025, Capri Holdings reported a net income of $53 million, a significant improvement from a net loss of $12 million in the prior year period Key Metrics | Metric | Three Months Ended June 28, 2025 (in millions) | Three Months Ended June 29, 2024 (in millions) | Change (in millions) | | :------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------- | | Total revenue | $797 | $848 | $(51) | | Gross profit | $502 | $535 | $(33) | | Income from operations | $16 | $11 | $5 | | Net income from continuing operations | $56 | $5 | $51 | | Net loss from discontinued operations, net of tax | $(3) | $(17) | $14 | | Net income (loss) attributable to Capri | $53 | $(14) | $67 | | Diluted EPS | $0.44 | $(0.12) | $0.56 | - Total revenue decreased by 6.0% year-over-year, from $848 million to $797 million[11] - Income from operations increased by 45.5% to $16 million, and net income from continuing operations saw a substantial increase from $5 million to $56 million[11] - Comprehensive loss attributable to Capri was $(400) million for the three months ended June 28, 2025, compared to $(43) million in the prior year, primarily due to foreign currency translation adjustments[11] Consolidated Statements of Shareholders' Equity The consolidated statements of shareholders' equity show a significant decrease in total shareholders' equity from $372 million at March 29, 2025, to $(13) million at June 28, 2025 Key Metrics | Metric | March 29, 2025 (in millions) | June 28, 2025 (in millions) | Change (in millions) | | :-------------------------------- | :--------------------------- | :-------------------------- | :------------------- | | Total shareholders' equity | $372 | $(13) | $(385) | | Accumulated other comprehensive (loss) income | $57 | $(396) | $(453) | | Retained earnings | $4,297 | $4,350 | $53 | | Share-based compensation expense | N/A | $16 | N/A | - The accumulated other comprehensive (loss) income shifted from a gain of $57 million to a loss of $(396) million, largely due to foreign currency translation adjustments of $(453) million[13] - Net income of $53 million contributed positively to retained earnings, which increased from $4,297 million to $4,350 million[13] Consolidated Statements of Cash Flows For the three months ended June 28, 2025, the company experienced net cash used in operating activities of $(8) million, a decrease from $83 million provided in the prior year Cash Flow Activities | Cash Flow Activity | Three Months Ended June 28, 2025 (in millions) | Three Months Ended June 29, 2024 (in millions) | Change (in millions) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------- | | Net cash (used in) provided by operating activities | $(8) | $83 | $(91) | | Net cash used in investing activities | $(19) | $(52) | $33 | | Net cash provided by (used in) financing activities | $94 | $(9) | $103 | | Effect of exchange rate changes on cash | $(32) | $(5) | $(27) | | Net increase in cash, cash equivalents and restricted cash | $35 | $17 | $18 | | End of period cash, cash equivalents and restricted cash | $210 | $222 | $(12) | - Operating cash flow from continuing operations decreased from $66 million to $20 million, while discontinued operations used $(28) million in cash, compared to providing $17 million in the prior year[15] - Net cash provided by financing activities significantly increased to $94 million, primarily due to higher net debt borrowings of $95 million ($597 million borrowings less $502 million repayments)[15] Notes to Consolidated Financial Statements The notes provide detailed explanations of the company's business, accounting policies, the impact of the terminated merger, Versace's discontinued operations, revenue recognition, and specifics on various financial accounts 1. Business and Basis of Presentation Capri Holdings Limited, a British Virgin Islands holding company, owns Michael Kors, Jimmy Choo, and Versace, with Versace now classified as discontinued operations due to its pending sale to Prada - Capri Holdings Limited owns and operates the Michael Kors, Jimmy Choo, and Versace brands[17] - On April 10, 2025, the Company entered into an agreement to sell its Versace business to Prada S.p.A. for $1.375 billion in cash[18][51] - The Versace business has been classified as discontinued operations and held for sale in the financial statements for all periods presented[18][52] 2. Termination of the Merger Agreement The merger agreement with Tapestry, Inc. was terminated on November 13, 2024, due to a U.S. FTC lawsuit and preliminary injunction, with Tapestry reimbursing Capri $45 million for expenses - The Merger Agreement with Tapestry, Inc. was terminated on November 13, 2024, due to the U.S. FTC's lawsuit and preliminary injunction[24][25] - Tapestry reimbursed Capri approximately $45 million in cash for certain expenses related to the terminated merger[25] 3. Summary of Significant Accounting Policies This section outlines key accounting policies, including estimates, seasonality, cash, inventories, derivatives, leases, and net income per share, noting no material impact from Pillar Two initiatives - The company experiences seasonality, with greater sales in the third fiscal quarter (holiday season) and lowest sales in the first fiscal quarter[27] - The company uses forward foreign currency exchange contracts and cross currency swap agreements for hedging, with fair value changes recorded in equity or earnings depending on designation[31][32][34] - New accounting pronouncements (ASU 2023-09 for Income Taxes, ASU 2024-03 for Comprehensive Income) are being assessed for impact, with Pillar Two Global Anti-Base Erosion Rules not projected to have a material impact[46][47][48] 4. Discontinued Operations The Versace business is classified as discontinued operations and held for sale following an agreement to sell it to Prada for $1.375 billion, impacting consolidated financial statements - Versace business classified as discontinued operations and held for sale as of April 10, 2025, with a sale price of $1.375 billion[51][52] Versace Assets Held for Sale | Versace Assets Held for Sale (in millions) | June 28, 2025 | March 29, 2025 | | :--------------------------------- | :------------ | :------------- | | Total assets held for sale | $2,091 | $1,936 | | Total liabilities held for sale | $927 | $879 | Versace Discontinued Operations | Versace Discontinued Operations (in millions) | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Total revenue | $183 | $219 | | Net loss from discontinued operations, net of tax | $(3) | $(17) | 5. Revenue Recognition Revenue is recognized when control of goods or services transfers to customers across retail, wholesale, and licensing channels, disaggregated by segment and geographic location - Revenue is generated through three primary channels: retail (stores, e-commerce), wholesale (department stores, specialty stores), and licensing (royalty and advertising revenue)[57] Segment Revenue by Geographic Location | Segment Revenue by Geographic Location (in millions) | June 28, 2025 | June 29, 2024 | | :----------------------------------------- | :------------ | :------------ | | Michael Kors - the Americas | $413 | $451 | | Michael Kors - EMEA | $150 | $138 | | Michael Kors - Asia | $72 | $86 | | Total Michael Kors revenue | $635 | $675 | | Jimmy Choo - the Americas | $46 | $52 | | Jimmy Choo - EMEA | $78 | $77 | | Jimmy Choo - Asia | $38 | $44 | | Total Jimmy Choo revenue | $162 | $173 | | Total revenue | $797 | $848 | - Total contract liabilities were $16 million as of June 28, 2025, up from $14 million at March 29, 2025[68] 6. Receivables, net Receivables, net, decreased to $171 million at June 28, 2025, from $215 million at March 29, 2025, presented net of allowances for discounts, markdowns, operational chargebacks, and credit losses Receivables, Net | Receivables, net (in millions) | June 28, 2025 | March 29, 2025 | | :----------------------------- | :------------ | :------------- | | Trade receivables | $203 | $237 | | Receivables due from licensees | $14 | $20 | | Less: allowances | $(46) | $(42) | | Total receivables, net | $171 | $215 | - Allowance for credit losses increased slightly from $13 million to $14 million[72] 7. Property and Equipment, net Property and equipment, net, increased to $400 million at June 28, 2025, from $393 million at March 29, 2025, with depreciation and amortization expense decreasing to $23 million Property and Equipment, Net | Property and Equipment, net (in millions) | June 28, 2025 | March 29, 2025 | | :---------------------------------------- | :------------ | :------------- |\ | Total property and equipment, gross | $1,094 | $1,050 | | Less: accumulated depreciation and amortization | $(713) | $(675) | | Total property and equipment, net | $400 | $393 | - Depreciation and amortization expense decreased from $26 million in Q1 2024 to $23 million in Q1 2025[73] 8. Intangible Assets and Goodwill Net intangible assets increased to $595 million and goodwill to $204 million at June 28, 2025, primarily due to foreign currency translation adjustments, with no impairment charges Intangible Assets and Goodwill | Intangible Assets and Goodwill (in millions) | June 28, 2025 | March 29, 2025 | | :----------------------------------------- | :------------ | :------------- | | Net definite-lived intangible assets | $378 | $378 | | Net indefinite-lived intangible assets | $217 | $204 | | Intangible assets, net | $595 | $582 | | Goodwill | $204 | $199 | - Amortization expense for definite-lived intangible assets was $7 million for the three months ended June 28, 2025, up from $6 million in the prior year[75] - The changes in carrying values for customer relationships and the Jimmy Choo brand reflect foreign currency translation adjustments[74] 9. Other Current Assets and Other Current Liabilities Prepaid expenses and other current assets increased to $176 million at June 28, 2025, from $156 million at March 29, 2025, mainly due to higher prepaid taxes Other Current Assets | Other Current Assets (in millions) | June 28, 2025 | March 29, 2025 | | :--------------------------------- | :------------ | :------------- | | Prepaid taxes | $96 | $65 | | Interest receivable related to hedges | $17 | $36 | | Total prepaid expenses and other current assets | $176 | $156 | Other Current Liabilities | Other Current Liabilities (in millions) | June 28, 2025 | March 29, 2025 | | :------------------------------------ | :------------ | :------------- | | Short-term derivative liability | $52 | $14 | | Return liabilities | $27 | $25 | | Total accrued expenses and other current liabilities | $265 | $233 | 10. Restructuring and Other Expense The company recorded $1 million in net restructuring charges for the three months ended June 28, 2025, consistent with the prior year, primarily for severance and store closure costs under the Global Optimization Plan - Net restructuring charges were $1 million for both the three months ended June 28, 2025, and June 29, 2024[78] - Charges are primarily for severance and store closure costs under the Global Optimization Plan, partially offset by lease termination gains[78] - 15 retail stores were closed during the three months ended June 28, 2025, as part of the plan[78] 11. Debt Obligations Total debt increased to $1,677 million at June 28, 2025, from $1,496 million at March 29, 2025, primarily due to increased borrowings under the Revolving Credit Facilities and 2025 Term Loans Debt Obligations | Debt Obligations (in millions) | June 28, 2025 | March 29, 2025 | | :----------------------------- | :------------ | :------------- | | Revolving Credit Facilities | $912 | $755 | | 2025 Term Loans | $738 | $712 | | Total debt | $1,677 | $1,496 | | Total long-term debt | $1,650 | $1,466 | - The 2025 Credit Facilities, totaling $2.2 billion, mature on July 1, 2027, and are secured by substantially all assets of the company and its U.S. subsidiaries[81][82] - The company was in compliance with all debt covenants as of June 28, 2025[89] 12. Commitments and Contingencies The company is involved in routine legal proceedings, which are not expected to have a material adverse effect on its business, but faces class action complaints related to the terminated Tapestry merger, which could result in substantial liability - Routine legal proceedings are not expected to have a material adverse effect[92] - The company faces class action complaints related to the terminated merger with Tapestry, alleging federal securities law violations[93][205] - The outcome of the merger-related litigation is uncertain and could result in substantial liability[205] 13. Fair Value Measurements Financial assets and liabilities are measured at fair value using a three-level hierarchy, with derivative contracts and debt obligations valued using Level 2 inputs - Derivative contracts are measured at fair value using Level 2 inputs (broker quotations, observable market information)[98][99] Derivative Liabilities | Derivative Liabilities (in millions) | June 28, 2025 (Level 2) | March 29, 2025 (Level 2) | | :--------------------------------- | :---------------------- | :----------------------- | | Forward foreign currency exchange contracts | $6 | $2 | | Net investment hedges | $874 | $289 | | Total derivative liabilities | $880 | $291 | - The fair value of debt (Revolving Credit Facilities and 2025 Term Loans) is approximated by carrying value or estimated using Level 2 measurements[100] 14. Derivative Financial Instruments The company uses forward foreign currency exchange contracts to hedge inventory purchases and cross-currency swap agreements to hedge net investments in foreign operations - Outstanding forward foreign currency exchange contracts increased from $50 million to $79 million for the three months ended June 28, 2025[104] - The company maintained $3.5 billion in net investment hedges for CHF-denominated subsidiaries and $2.364 billion for Euro-denominated subsidiaries[107][109] - Interest income from net investment hedges was $36 million for the three months ended June 28, 2025, up from $24 million in the prior year[110] Pre-Tax Losses Recognized in OCI | Pre-Tax Losses Recognized in OCI (in millions) | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | | :--------------------------------------------- | :------------------------------- | :------------------------------- | | Designated net investment hedges | $(585) | $(26) | 15. Shareholders' Equity The $1.0 billion share repurchase program expired, with no open market repurchases during the period, while accumulated other comprehensive loss significantly decreased due to foreign currency adjustments - The $1.0 billion share repurchase program expired on November 9, 2024, with no open market repurchases during the period[117][118] - 86,365 shares were withheld to cover tax obligations for vested restricted share awards, valued at $1 million, for the three months ended June 28, 2025[119] AOCI Components | AOCI Components (in millions) | Balance at March 29, 2025 | Balance at June 28, 2025 | | :----------------------------- | :------------------------ | :----------------------- | | Foreign Currency Translation Adjustments | $67 | $(384) | | Net Loss on Derivatives | $(10) | $(12) | | Total AOCI | $57 | $(396) | - Foreign currency translation adjustments resulted in a $451 million loss before reclassifications, primarily from net investment hedges[120] 16. Share-Based Compensation Share-based compensation expense decreased to $14 million for the three months ended June 28, 2025, from $24 million in the prior year Share-Based Compensation | Share-Based Compensation (in millions) | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | | :------------------------------------- | :------------------------------- | :------------------------------- | | Share-based compensation expense | $14 | $24 | | Tax benefit related to share-based compensation expense | $0 | $4 | - 2,147,786 service-based RSUs were granted during the three months ended June 28, 2025[122] - 996,684 ordinary shares were available for future equity award grants under the Incentive Plan as of June 28, 2025[121] 17. Income Taxes The effective tax rate for the three months ended June 28, 2025, was (40)%, a significant change from 55% in the prior year, primarily due to a reduction in the valuation allowance Income Tax Metrics | Income Tax Metric | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | | :---------------- | :------------------------------- | :------------------------------- | | Effective tax rate | (40)% | 55% | | (Benefit) provision for income taxes | $(16) million | $6 million | - The decrease in the effective tax rate was primarily due to a reduction in the valuation allowance[125][174] - The company is evaluating the future impact of the U.S. One Big Beautiful Bill Act of 2025 and new IRS regulations on dual consolidated losses[128][129][175][176] 18. Segment Information Capri Holdings operates through Michael Kors, Jimmy Choo, and Versace, with Versace's results excluded due to its discontinued operations classification, and both Michael Kors and Jimmy Choo experiencing revenue declines - The Versace business is excluded from segment information for all periods presented due to its classification as discontinued operations[130][132] Segment Performance | Segment Performance (in millions) | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Michael Kors Total revenue | $635 | $675 | | Jimmy Choo Total revenue | $162 | $173 | | Michael Kors Income from operations | $63 | $75 | | Jimmy Choo Income from operations | $4 | $4 | | Corporate expenses | $(50) | $(62) | - Michael Kors revenue decreased by 5.9% and Jimmy Choo revenue decreased by 6.4% year-over-year[134] 19. Subsequent Events On August 7, 2025, shareholders approved an amendment to the Omnibus Incentive Plan, reserving an additional 2,500,000 ordinary shares for issuance - Shareholders approved an amendment to the Omnibus Incentive Plan on August 7, 2025[136] - An additional 2,500,000 ordinary shares were reserved for issuance under the Incentive Plan[136] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition, detailing segment performance, consolidated indicators, and liquidity, including the impact of the terminated Tapestry merger and Versace's sale Overview Capri Holdings Limited, a global luxury fashion group, has classified Versace as discontinued operations due to its pending sale to Prada, and the Tapestry merger was terminated due to regulatory challenges - Capri Holdings operates Michael Kors, Jimmy Choo, and Versace brands, with Versace now classified as discontinued operations due to its sale to Prada[137][141] - The merger agreement with Tapestry was terminated on November 13, 2024, following a U.S. FTC lawsuit and preliminary injunction[144][145] - Key factors affecting financial condition include macroeconomic pressures, inflationary trends, manufacturing costs, tariffs, foreign currency fluctuations, and supply chain disruptions[146][147][148][149] Segment Information Capri Holdings operates through Michael Kors and Jimmy Choo segments, with Versace now reported as discontinued operations; both segments experienced revenue declines due to a slowdown in luxury demand - Michael Kors revenue decreased by 5.9% to $635 million, and Jimmy Choo revenue decreased by 6.4% to $162 million[154] - The revenue decline was primarily attributed to a slowdown in demand for fashion luxury goods in North America and Asia[160][161] - Unallocated corporate expenses decreased by 27.4% to $45 million, mainly due to the completion of Capri transformation projects and the absence of prior-year transaction-related costs[154][167] Retail Stores by Brand | Retail Stores by Brand | June 28, 2025 | June 29, 2024 | | :--------------------- | :------------ | :------------ | | Michael Kors (full price) | 384 | 456 | | Jimmy Choo (full price) | 161 | 170 | | Michael Kors (outlet) | 311 | 308 | | Jimmy Choo (outlet) | 56 | 57 | | Total retail stores | 912 | 991 | Key Consolidated Performance Indicators and Statistics Total revenue decreased by 6.0% to $797 million. Gross profit margin remained stable at 63.0%, while income from operations significantly increased by 45.5% to $16 million, improving the operating margin to 2.0% Key Metrics | Metric | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Total revenue | $797 million | $848 million | | Gross profit as a percent of total revenue | 63.0% | 63.1% | | Income from operations | $16 million | $11 million | | Income from operations as a percent of total revenue | 2.0% | 1.3% | - Total revenue decreased by $51 million, or 6.0%, with a constant currency decrease of 7.7%[160] Seasonality The company's business is seasonal, with the highest sales typically occurring in the third fiscal quarter due to holiday sales, and the lowest sales in the first fiscal quarter - Greater sales are generally experienced during the third fiscal quarter, driven by holiday season sales[157] - The first fiscal quarter typically sees the lowest sales[157] Critical Accounting Policies and Estimates The preparation of financial statements requires management to make significant estimates and assumptions, with no significant changes to the company's critical accounting policies since March 29, 2025 - No significant changes to critical accounting policies and estimates since March 29, 2025[158] Results of Operations For the three months ended June 28, 2025, total revenue decreased by 6.0% to $797 million, primarily due to reduced demand in North America and Asia Total Revenue Total revenue decreased by $51 million, or 6.0%, to $797 million, including a $14 million favorable foreign currency effect Revenue Breakdown | Revenue (in millions) | June 28, 2025 | June 29, 2024 | $ Change | % Change (As Reported) | % Change (Constant Currency) | | :-------------------- | :------------ | :------------ | :------- | :--------------------- | :--------------------------- | | Michael Kors | $635 | $675 | $(40) | (5.9)% | (7.3)% | | Jimmy Choo | $162 | $173 | $(11) | (6.4)% | (9.2)% | | Total revenue | $797 | $848 | $(51) | (6.0)% | (7.7)% | - Favorable foreign currency effects contributed approximately $14 million to total revenue[160] - The decline in both Michael Kors and Jimmy Choo revenues was primarily due to a continued slowdown in demand for fashion luxury goods, particularly in North America and Asia[160][161] Gross Profit Gross profit decreased by $33 million, or 6.2%, to $502 million. The consolidated gross profit margin remained stable at 63.0%, despite varying segment performance Gross Profit Breakdown | Gross Profit (in millions) | June 28, 2025 | June 29, 2024 | $ Change | % Change | | :------------------------- | :------------ | :------------ | :------- | :------- | | Michael Kors | $388 | $419 | $(31) | (7.4)% | | Jimmy Choo | $114 | $116 | $(2) | (1.7)% | | Total gross profit | $502 | $535 | $(33) | (6.2)% | | Michael Kors Gross Profit Margin | 61.1% | 62.1% | N/A | N/A | | Jimmy Choo Gross Profit Margin | 70.4% | 67.1% | N/A | N/A | - Michael Kors' gross profit margin decrease was attributed to lower initial markups from a new pricing strategy and unfavorable tariffs[165] - Jimmy Choo's gross profit margin increase was due to a favorable channel mix[165] Total Operating Expenses Total operating expenses decreased by $38 million, or 7.3%, to $486 million, including a net unfavorable foreign currency impact of approximately $7 million Operating Expenses Breakdown | Operating Expenses (in millions) | June 28, 2025 | June 29, 2024 | $ Change | % Change | | :------------------------------- | :------------ | :------------ | :------- | :------- | | Total operating expenses | $486 | $524 | $(38) | (7.3)% | | Total operating expenses as % of total revenue | 61.0% | 61.8% | N/A | N/A | - Operating expenses included a net unfavorable foreign currency impact of approximately $7 million[163] Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses decreased by $36 million, or 7.3%, to $455 million. This reduction was primarily driven by cost savings initiatives in Michael Kors and Jimmy Choo, leading to lower personnel and retail store-related costs, and a decrease in corporate unallocated expenses due to completed transformation projects SG&A Expenses Breakdown | SG&A Expenses (in millions) | June 28, 2025 | June 29, 2024 | $ Change | % Change | | :-------------------------- | :------------ | :------------ | :------- | :------- | | Michael Kors | $307 | $324 | $(17) | (5.2)% | | Jimmy Choo | $103 | $105 | $(2) | (1.9)% | | Corporate | $45 | $62 | $(17) | (27.4)% | | Total SG&A expenses | $455 | $491 | $(36) | (7.3)% | - Michael Kors and Jimmy Choo saw decreases in SG&A due to cost savings initiatives, including lower personnel and retail store-related costs[170] - Corporate unallocated expenses decreased by $17 million, mainly due to completed Capri transformation projects and the absence of prior-year transaction-related costs[167] Restructuring and Other Expense Restructuring and other expense remained consistent at $1 million for both periods, primarily related to store closure costs under the Global Optimization Plan, partially offset by gains on lease terminations - Restructuring and other expense was $1 million for both the three months ended June 28, 2025, and June 29, 2024[168] - These expenses were primarily related to store closure costs, partially offset by gains on lease terminations[168] Income from Operations Income from operations increased by $5 million, or 45.5%, to $16 million. The operating margin improved to 2.0% from 1.3% Income from Operations Breakdown | Income from Operations (in millions) | June 28, 2025 | June 29, 2024 | $ Change | % Change | | :----------------------------------- | :------------ | :------------ | :------- | :------- | | Michael Kors | $63 | $75 | $(12) | (16.0)% | | Jimmy Choo | $4 | $4 | $0 | 0% | | Unallocated corporate and other expenses, net | $(51) | $(68) | $17 | (25.0)% | | Total Income from operations | $16 | $11 | $5 | 45.5% | | Michael Kors Operating Margin | 9.9% | 11.1% | N/A | N/A | | Jimmy Choo Operating Margin | 2.5% | 2.3% | N/A | N/A | - Michael Kors' operating margin decreased due to deleveraging of operating expenses on lower revenues[171] - Jimmy Choo's operating margin increased due to a favorable channel mix[171] Interest Income, net Interest income, net, significantly improved by $14 million to $18 million, primarily due to higher interest income from net investment hedges and lower average borrowings and effective interest rates on outstanding debt Net Interest Income | Interest Income, net (in millions) | June 28, 2025 | June 29, 2024 | $ Change | | :--------------------------------- | :------------ | :------------ | :------- | | Interest income, net | $18 | $4 | $14 | - Improvement driven by higher interest income from net investment hedges and lower average borrowings/effective interest rates[172] Foreign Currency (Gain) Loss The company recognized a net foreign currency gain of $5 million, a $9 million improvement from a $4 million loss in the prior year, primarily due to the remeasurement of intercompany balances Foreign Currency Gain/Loss | Foreign Currency (Gain) Loss (in millions) | June 28, 2025 | June 29, 2024 | $ Change | | :--------------------------------------- | :------------ | :------------ | :------- | | Foreign currency (gain) loss | $(5) | $4 | $(9) | - The gain was primarily attributable to the remeasurement of intercompany balances between subsidiaries[173] (Benefit) Provision for Income Taxes The company recorded a tax benefit of $16 million with an effective tax rate of (40)% for the three months ended June 28, 2025, a significant change from a $6 million provision and 55% effective tax rate in the prior year Income Tax Details | Income Taxes (in millions) | June 28, 2025 | June 29, 2024 | $ Change | | :------------------------- | :------------ | :------------ | :------- | | (Benefit) provision for income taxes | $(16) | $6 | $(22) | | Effective tax rate | (40)% | 55% | N/A | - The decrease in the effective tax rate was primarily related to a reduction in the net valuation allowance during the period[174] Net Income from Continuing Operations Net income from continuing operations was $56 million for the three months ended June 28, 2025, a substantial increase from $5 million in the prior year, reflecting improved operating performance and tax benefit Net Income from Continuing Operations | Net Income from Continuing Operations (in millions) | June 28, 2025 | June 29, 2024 | $ Change | | :------------------------------------------------ | :------------ | :------------ | :------- | | Net income from continuing operations | $56 | $5 | $51 | Liquidity and Capital Resources The company's liquidity is primarily supported by cash flows from operations, credit facilities, and cash equivalents, with sufficient liquidity expected for the next 12 months and planned capital expenditures of $110 million for Fiscal 2026 Liquidity Overview Primary liquidity sources are cash flows from operations, credit facilities, and cash equivalents, expected to be sufficient for working capital and capital investments, with projected capital expenditures of approximately $110 million for Fiscal 2026 - Primary liquidity sources: cash flows from operations, credit facilities, and cash and cash equivalents[179] - Expected capital expenditures for Fiscal 2026 are approximately $110 million, focusing on store renovations and IT/digital enhancements[179] Liquidity Indicators | Liquidity Indicators (in millions) | June 28, 2025 | March 29, 2025 | | :-------------------------------- | :------------ | :------------- | | Cash and cash equivalents | $129 | $107 | | Working capital | $240 | $185 | | Short-term debt | $21 | $24 | | Long-term debt | $1,650 | $1,466 | Cash Flow Analysis Net cash used in operating activities was $(8) million, a decrease from $83 million provided in the prior year, mainly due to earlier inventory receipts and tax payment timing Cash Flow Activities | Cash Flow Activities (in millions) | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Operating activities | $20 | $66 | | Investing activities | $(13) | $(25) | | Financing activities | $94 | $(9) | | Net increase in cash and cash equivalents (continuing operations) | $69 | $27 | - Decrease in operating cash flow primarily due to earlier inventory receipt and timing of tax payments[181] - Increase in financing cash flow primarily due to $101 million higher net debt borrowings[183] Debt Facilities Total borrowings outstanding increased to $1,671 million at June 28, 2025, from $1,490 million at March 29, 2025, with $610 million remaining availability under credit facilities, and the company was in compliance with all debt covenants Debt Facilities Overview | Debt Facilities (in millions) | June 28, 2025 | March 29, 2025 | | :---------------------------- | :------------ | :------------- | | Revolving Credit Facility borrowings outstanding | $912 | $755 | | 2025 Term Loans borrowings outstanding, net | $732 | $706 | | Total borrowings outstanding | $1,671 | $1,490 | | Total remaining availability | $610 | $767 | - The company was in compliance with all covenants related to its 2025 Credit Facilities as of June 28, 2025[184] - The 2025 Credit Facilities are diversified among 17 financial institutions, with no single institution holding more than 10% commitment[185] Share Repurchase Program The $1.0 billion share repurchase program expired on November 9, 2024, with no open market repurchases during the period, only shares withheld to cover tax obligations for vested restricted share awards - The $1.0 billion share repurchase program expired on November 9, 2024[187] - No open market share repurchases occurred during the period due to restrictions from the terminated merger agreement[187] Treasury Share Repurchases | Treasury Share Repurchases (in millions) | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | | Fair value of shares withheld to cover tax obligations | $1 | $3 | | Shares withheld to cover tax withholding obligations | 86,365 | 93,738 | Contractual Obligations and Commercial Commitments For detailed information on contractual obligations and commercial commitments, refer to the company's Fiscal 2025 Annual Report on Form 10-K Off-Balance Sheet Arrangements The company does not have any special-purpose or off-balance sheet entities for capital raising or debt, with off-balance sheet commitments including $27 million in outstanding letters of credit and $31 million in bank guarantees - No special-purpose or off-balance sheet entities for capital raising or debt[190] - Off-balance sheet commitments include $27 million in outstanding letters of credit and $31 million in bank guarantees as of June 28, 2025[190] Recent Accounting Pronouncements Refer to Note 3 of the interim consolidated financial statements for details on recently issued accounting standards and their potential impact Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency exchange rates and interest rates, using derivative instruments to mitigate these risks, with sensitivity analysis indicating potential impacts of currency fluctuations Foreign Currency Exchange Risk The company uses forward foreign currency exchange contracts and cross-currency swap agreements to hedge foreign currency and net investment risks, with a 10% U.S. dollar fluctuation impacting derivative fair values by millions - Uses forward foreign currency exchange contracts to manage exposure to fluctuations in foreign currencies for purchase commitments[193] - A 10% appreciation/devaluation of the U.S. dollar would result in an approximate $8 million change in the fair value of forward contracts[194] - Net investment hedges for CHF-denominated subsidiaries ($3.5 billion notional) and Euro-denominated subsidiaries ($2.364 billion notional) are used to hedge against exchange rate volatility[195][196] - A 10% appreciation/devaluation of the U.S. dollar would result in approximately $391 million change for CHF hedges and $252 million for EUR hedges[195][196] Interest Rate Risk The company is exposed to interest rate risk on its variable-rate borrowings under the 2022 Credit Facility, USD Term Loans, and EUR Term Loans, with increases in rates leading to higher interest expense - Exposure to interest rate risk from variable-rate borrowings under the 2022 Credit Facility, USD Term Loans, and EUR Term Loans[197] Debt Outstanding | Debt Outstanding (in millions) | June 28, 2025 | March 29, 2025 | | :----------------------------- | :------------ | :------------- | | 2022 Credit Facility | $912 | $755 | | 2025 Term Loans (net of debt issuance costs) | $732 | $706 | - Increases in applicable interest rates would cause an increase to interest expense[200] Item 4. Controls and Procedures Management, including the CEO and Interim CFO, concluded that the company's disclosure controls and procedures were effective as of June 28, 2025, with no material changes in internal control over financial reporting - Disclosure controls and procedures were effective as of June 28, 2025, as concluded by management, CEO, and Interim CFO[202] - No material changes in internal control over financial reporting during the three months ended June 28, 2025[203] PART II OTHER INFORMATION This section provides additional information beyond the financial statements, including legal proceedings, risk factors, and other disclosures Item 1. Legal Proceedings The company is involved in routine legal proceedings not expected to materially impact its business, but faces class action complaints related to the terminated Tapestry merger, which could result in substantial liability - Routine legal proceedings are not expected to have a material adverse effect on the business[204] - Two class action complaints were filed against Capri, Tapestry, and certain officers, alleging federal securities law violations related to the terminated merger[205] - The outcome of the merger-related litigation is uncertain and could result in substantial liability[205] 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 year ended March 29, 2025 - No material changes from the risk factors previously disclosed in the Fiscal 2025 Annual Report on Form 10-K[206] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended June 28, 2025, the company did not make any open market share repurchases under publicly announced programs, but withheld shares to satisfy tax withholding obligations for vested restricted share awards - No shares were purchased as part of publicly announced programs during the quarter[207] Shares Repurchased/Withheld | Shares Repurchased/Withheld | Three Months Ended June 28, 2025 | | :-------------------------- | :------------------------------- | | Total Number of Shares | 86,365 | | Average Price per Share | $17.12 | | Shares Purchased as Part of Publicly Announced Programs | 0 | | Remaining Dollar Value of Shares That May Be Purchased Under the Programs | $0 | | Shares withheld to cover tax withholding obligations | 86,365 | - Shares withheld relate to the 'withhold to cover' program for tax obligations on restricted share awards[207] Item 5. Other Information The company continues its Global Optimization Plan, closing 15 retail stores during the quarter, resulting in $1 million in net restructuring expense, with future charges and timing still undeterminable - The Global Optimization Plan resulted in $1 million in net restructuring expense for the quarter, primarily from severance and store closure costs[209] - 15 retail stores were closed during the three months ended June 28, 2025, as part of the plan[209] - The exact amounts and timing of future charges related to the Global Optimization Plan are currently undeterminable[210] - No director or officer adopted or terminated Rule 10b5-1 trading arrangements during the quarter[212] Item 6. Exhibits This section lists all exhibits filed or furnished with the report, including the Stock Purchase Agreement with Prada S.p.A., certifications of principal executive and financial officers, and financial information formatted in Inline XBRL - Includes the Stock Purchase Agreement with Prada S.p.A. (Exhibit 2.3)[218] - Contains certifications of Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2)[218] - Financial information is formatted in Inline eXtensible Business Reporting Language (XBRL) (Exhibit 101.1, 104)[218][219]