What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-05 compared with 2020-02-05 · 175 added, 351 removed, 205 unchanged (72% of the section changed)

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All statements other than statements of historical facts included herein, may be forward-looking statements.

Without limitation, any statements preceded or followed by or that include the words “targets”, “plans”, “believes”, “expects”, “aims”, “intends”, “will”, “should”, “could”, “would”, “may”, “anticipates”, “estimates”, “synergy”, “cost-saving”, “projects”, “goal”, “strategy”, “budget”, “forecast” or “might” or, words or terms of similar substance or the negative thereof, are forward-looking statements.

Forward-looking statements include statements relating to future capital expenditures, expenses, revenues, earnings, economic performance, indebtedness, financial condition, share buybacks, dividend policy, losses and future prospects of the Company, business and management strategies and the expansion and growth of the Company’s operations, and benefits from any acquisition.

Without limitation, any statements preceded or followed by or that include the words “plans”, “believes”, “expects”, “intends”, “will”, “should”, “could”, “would”, “may”, “anticipates”, “might” or similar words or phrases, are forward-looking statements.

These forward-looking statements are not guarantees of future financial performance.

Such forward-looking statements involve known and unknown risks and uncertainties that could significantly affect expected results and are based on certain key assumptions, which could cause actual results to differ materially from those projected or implied in any forward-looking statements.

These risks, uncertainties and other factors include the Company’s ability to integrate successfully and to achieve anticipated benefits of any acquisition;

These risks, uncertainties and other factors include the effect of the COVID-19 pandemic and its potential material and significant impact on the Company’s future financial and operational results if retail stores are forced to close again and the pandemic is prolonged, including that our estimates could materially differ if the severity of the COVID-19 situation worsens, the length and severity of such outbreak across the globe and the pace of recovery following the COVID-19 pandemic, levels of cash flow and future availability of credit, compliance with restrictive covenants under the Company’s credit agreement, the Company’s ability to integrate successfully and to achieve anticipated benefits of any acquisition;

the risk of disruptions to the Company’s businesses;

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levels of indebtedness (including the indebtedness incurred in connection with acquisitions);

future availability of credit;

the timing and scope of future share buybacks, which may be made in open market or privately negotiated transactions, and are subject to market conditions, applicable legal requirements, trading restrictions under the Company’s insider trading policy and other relevant factors, and which share repurchases may be suspended or discontinued at any time, the level of other investing activities and uses of cash;

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fluctuations in interest and exchange rates;

the occurrence of unforeseen epidemics (including the outbreak of the coronavirus in China and its potential impact on our future financial results), disasters or catastrophes;

political or economic instability in principal markets (including the continuing business disruption in Hong Kong);

the occurrence of unforeseen epidemics and pandemics, disasters or catastrophes;

political or economic instability in principal markets;

adverse outcomes in litigation;

and general, local and global economic, political, business and market conditions, as well as those risks set forth in Item 1A.

“Risk Factors” in our Annual Report on Form 10-K for the year ended March 30, 2019, filed with the Securities and Exchange Commission on May 29, 2019.

“Risk Factors” in our Annual Report on Form 10-K for the year ended March 28, 2020, filed with the Securities and Exchange Commission on July 8, 2020.

Capri Holdings Limited is a global fashion luxury group, consisting of iconic brands that are industry leaders in design, style and craftsmanship, led by a world-class management team and renowned designers.

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Our goal is to continue to extend the global reach of our brands while ensuring that they maintain their independence and exclusive DNA.

Our Versace brand, which was acquired on December 31, 2018, has long been recognized as one of the world’s leading international fashion design houses and is synonymous with Italian glamour and style.

Our Versace brand has long been recognized as one of the world’s leading international fashion design houses and is synonymous with Italian glamour and style.

Founded in 1978 in Milan, Versace is known for its iconic and unmistakable style and unparalleled craftsmanship, over the past several decades the House of Versace has grown globally from its roots in haute couture, expanding into the design, manufacturing, distribution and retailing of ready-to-wear, accessories, footwear, eyewear, watches, jewelry, fragrance and home furnishings businesses.

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Versace distributes its products through a worldwide distribution network, which includes boutiques in some of the world’s most glamorous cities, its e-commerce site, as well as through the most prestigious department and specialty stores worldwide.

Our Jimmy Choo brand, which was acquired on November 1, 2017, offers a distinctive, glamorous and fashion-forward product range, enabling it to develop into a leading global luxury accessories brand, whose core product offering is women’s luxury shoes, complemented by accessories, including handbags, small leather goods, scarves and belts, as well as a growing men’s luxury shoes and accessory business.

Our Jimmy Choo brand offers a distinctive, glamorous and fashion-forward product range, enabling it to develop into a leading global luxury accessories brand, whose core product offering is women’s luxury shoes, complemented by accessories, including handbags, small leather goods, scarves and belts, as well as a growing men’s luxury shoes and accessory business.

In addition, certain categories, such as fragrances, sunglasses and eyewear are produced under licensing agreements.

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Jimmy Choo is represented through its global store network, its e-commerce sites, as well as through the most prestigious department and specialty stores worldwide.

Our Michael Kors brand was launched over 35 years ago by Michael Kors, whose vision has taken the Company from its beginnings as an American luxury sportswear house to a global accessories, footwear and apparel company with a global distribution network that has presence in over 100 countries through Company-operated retail stores and e-commerce sites, leading department stores, specialty stores and select licensing partners.

Our Michael Kors brand was launched almost 40 years ago by Michael Kors, whose vision has taken the Company from its beginnings as an American luxury sportswear house to a global accessories, footwear and apparel company with a global distribution network that has presence in over 100 countries through Company-operated retail stores and e-commerce sites, leading department stores, specialty stores and select licensing partners.

Michael Kors is a highly recognized luxury fashion brand in the Americas and Europe with growing brand awareness in other international markets.

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Taken together, our Michael Kors collections target a broad customer base while retaining our premium luxury image.

Certain Factors Affecting Financial Condition and Results of Operations

COVID-19 Pandemic.

See Item 1A — "The COVID-19 pandemic could have a material adverse effect on our business and results of operations" of our Annual Report on Form 10-K for the fiscal year ended March 28, 2020 for additional discussion regarding risks to our business associated with the COVID-19 pandemic.

Establishing brand identity and enhancing global presence.

We intend to continue to increase our international presence and global brand recognition by growing our existing international operations through the formation of various joint ventures with international partners and continuing with our international licensing arrangements.

We feel this is an efficient method for continued penetration into the global luxury goods market, especially for markets where we have yet to establish a substantial presence.

In addition, our growth strategy includes assuming direct control of certain licensed international operations to better manage our growth opportunities in the related regions.

Channel shift and demand for our accessories and related merchandise .

Our performance is affected by trends in the luxury goods industry, as well as shifts in demographics and changes in lifestyle preferences.

Although the overall consumer spending for personal luxury products has increased in recent years, consumer shopping preferences have continued to shift from physical stores to on-line shopping.

We currently expect that this trend will continue in the foreseeable future.

We continue to adjust our operating strategy to the changing business environment.

In addition, we recently announced our Capri Retail Store Optimization Program to close approximately 170 of our retail stores over the next two years, in order to improve the profitability of our retail store fleet.

Over this time period, we expect to incur approximately $75 million of one-time costs associated with these store closures.

During the first quarter of Fiscal 2021, we closed 28 of our retail stores, which have been incorporated into the Capri Retail Store Optimization Program, at a cost of $3 million.

Foreign currency fluctuation.

Our consolidated operations are impacted by the relationships between our reporting currency, the U.S.

dollar, and those of our non-U.S.

subsidiaries whose functional/local currency is other than the U.S.

dollar, particularly the Euro, the British Pound, the Chinese Renminbi, the Japanese Yen, the Korean Won and the Canadian Dollar, among others.

We continue to expect volatility in the global foreign currency exchange rates, which may have a negative impact on the reported results of certain of our non-U.S.

subsidiaries in the future, when translated to U.S.

Disruptions in shipping and distribution .

Our operations are subject to the impact of shipping disruptions as a result of changes or damage to our distribution infrastructure, as well as due to external factors, including the impact of COVID-19.

Any future disruptions in our shipping and distribution network could have a negative impact on our results of operations.

Costs of manufacturing and tariffs.

Our industry is subject to volatility in costs related to certain raw materials used in the manufacturing of our products.

This volatility applies primarily to costs driven by commodity prices, which can increase or decrease dramatically over a short period of time.

In addition, our costs may be impacted by sanction tariffs imposed on our products due to changes in trade terms.

On May 10, 2019, the U.S.

increased the sanction tariffs rate from 10% to 25% on $200 billion of imports of select product categories (Tranche 3), which includes handbags and travel goods from China, and effective September 1, 2019, a 10% tariff on an additional $300 billion of goods from China, including ready-to-wear, footwear and men’s products, went into effect.

If additional tariffs or trade restrictions are implemented by the U.S.

or other countries, the cost of our products could increase which could adversely affect our business.

In addition, commodity prices and tariffs may have an impact on our revenues, results of operations and cash flows.

We use commercially reasonable efforts to mitigate these effects by sourcing our products as efficiently as possible and diversifying the countries where we produce.

In addition, manufacturing labor costs are also subject to degrees of volatility based on local and global economic conditions.

We use commercially reasonable efforts to source from localities that suit our manufacturing standards and result in more favorable labor driven costs to our products.

Segment Information

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In addition, revenue is generated through wholesale sales to distribution partners (including geographic licensing arrangements), multi-brand department stores and specialty stores worldwide, as well as through product license agreements in connection with the manufacturing and sale of jeans, fragrances, watches, jewelry and eyewear.

We generate revenue through the sale of Jimmy Choo luxury goods to end clients through directly operated Jimmy Choo retail and outlet stores throughout the Americas (United States, Canada and Latin America, excluding Brazil), EMEA and certain parts of Asia, through our e-commerce sites, as well as through wholesale sales of luxury goods to distribution partners (including geographic licensing arrangements that allow third parties to use the Jimmy Choo tradename in connection with retail and/or wholesale sales of Jimmy Choo branded products in specific geographic regions), multi-brand department stores and specialty stores worldwide.

We generate revenue through the sale of Jimmy Choo luxury goods to end clients through directly operated Jimmy Choo stores throughout the Americas (United States, Canada and Latin America), EMEA and certain parts of Asia, through our e-commerce sites, as well as through wholesale sales of luxury goods to distribution partners (including geographic licensing arrangements that allow third parties to use the Jimmy Choo tradename in connection with retail and/or wholesale sales of Jimmy Choo branded products in specific geographic regions), multi-brand department stores and specialty stores worldwide.

In addition, revenue is generated through product licensing agreements, which allow third parties to use the Jimmy Choo brand name and trademarks in connection with the manufacturing and sale of fragrances, sunglasses and eyewear.

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We also sell Michael Kors products directly to department stores, primarily located across the Americas and Europe, to specialty stores and travel retail shops in the Americas, Europe and Asia, and to our geographic licensees in certain parts of EMEA, Asia and Brazil.

In addition, revenue is generated through product and geographic licensing arrangements, which allow third parties to use the Michael Kors brand name and trademarks in connection with the manufacturing and sale of products, including watches, jewelry, fragrances and beauty, and eyewear, as well as through geographic licensing arrangements, which allow third parties to use the Michael Kors tradename in connection with the retail and/or wholesale sales of our Michael Kors branded products in specific geographic regions.

In addition, revenue is generated through product and geographic licensing arrangements, which allow third parties to use the Michael Kors brand name and trademarks in connection with the manufacturing and sale of products, including watches, jewelry, fragrances and eyewear, as well as through geographic licensing arrangements, which allow third parties to use the Michael Kors tradename in connection with the retail and/or wholesale sales of our Michael Kors branded products in specific geographic regions.

Unallocated Expenses

In addition to the reportable segments discussed above, we have certain corporate costs that are not directly attributable to our brands and, therefore, are not allocated to segments.

Such costs primarily include certain administrative, corporate occupancy, and information systems expenses, including Enterprise Resource Planning (“ERP”) system implementation costs.

In addition, certain other costs are not allocated to segments, including restructuring and other charges (including transaction and transition costs related to our recent acquisitions) and impairment costs.

Such costs primarily include certain administrative, corporate occupancy and information systems expenses, including ERP system implementation costs.

The segment structure is consistent with how our chief operating decision maker plans and allocates resources, manages the business and assesses performance.

All prior period segment information has been recast to reflect the realignment of our segment reporting structure on a comparable basis, which occurred in the fourth quarter of Fiscal 2019.

The following table presents our total revenue and income from operations by segment for the three and nine months ended December 28, 2019 and December 29, 2018 (in millions):

Three Months Ended Nine Months Ended

2019 December 29,

2018 December 28,

2019 December 29,

The following table presents our total revenue and (loss) income from operations by segment for the three months ended June 27, 2020 and June 29, 2019 (in millions):

Three Months Ended

2020 June 29,

Total revenue:

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Total revenue $ 451 $ 1,346

Income (loss) from operations:

(Loss) income from operations:

Versace $ (41) $ (3)

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Michael Kors (48) 201

Total segment income from operations 285 335 715 826

Total segment (loss) income from operations (118) 209

Corporate expenses (31) (33)

Restructuring and other charges (8) (15)

Impairment of long-lived assets (19) (6) (220) (17)

Total income from operations $ 205 $ 290 $ 344 $ 695

Impairment of assets — (97)

COVID-19 related charges (1)

Total (loss) income from operations $ (162) $ 64

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(1) COVID-19 related charges primarily relate to severance costs, partially offset by a credit loss of $(6) million.

The following table presents our global network of retail stores and wholesale doors by brand:

2019 December 29,

2020 June 29,

Number of full price retail stores (including concessions):

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Number of outlet stores:

Versace 50 44

Jimmy Choo 47 42

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The following table presents our retail stores by geographic location:

December 28, 2019 December 29, 2018

Versace Jimmy Choo Michael Kors Jimmy Choo Michael Kors

June 27, 2020 June 29, 2019

Versace Jimmy Choo Michael Kors Versace Jimmy Choo Michael Kors

Store count by region:

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We use a number of key indicators of operating results to evaluate our Company’s performance, including the following (dollars in millions):

Three Months Ended Nine Months Ended

December 28, 2019 December 29, 2018 December 28, 2019 December 29, 2018

Three Months Ended

June 27, 2020 June 29, 2019

Total revenue $ 451 $ 1,346

Gross profit as a percent of total revenue 67.0 % 62.0 %

Income from operations $ 205 $ 290 $ 344 $ 695

Income from operations as a percent of total revenue

(Loss) income from operations $ (162) $ 64

(Loss) income from operations as a percent of total revenue

(35.9) % 4.8 %

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We generally experience greater sales during our third fiscal quarter, primarily driven by holiday season sales, and the lowest sales during our first fiscal quarter.

Certain Factors Affecting Financial Condition and Results of Operations

Establishing brand identity and enhancing global presence.

We intend to grow our international presence through our global fashion luxury group, bringing together industry-leading fashion luxury brands.

We believe that our recent acquisitions of Versace and Jimmy Choo significantly strengthen our future growth opportunities, while also increasing both product and geographic diversification.

However, there are risks associated with new acquisitions and the anticipated benefits of acquisitions on our financial results may not be in line with our expectations.

We intend to continue to increase our international presence and global brand recognition by growing our existing international operations through acquisitions, the formation of various joint ventures with international partners and continuing with our international licensing arrangements.

We feel this is an efficient method for continued penetration into the global luxury goods market, especially for markets where we have yet to establish a substantial presence.

In addition, our growth strategy includes assuming direct control of certain licensed international operations to better manage our growth opportunities in the related regions.

See Note 5 to the accompanying consolidated financial statements for additional information regarding our recent acquisitions.

Channel Shift and Demand for Our Accessories and Related Merchandise .

Our performance is affected by trends in the luxury goods industry, as well as shifts in demographics and changes in lifestyle preferences.

Although the overall consumer spending for personal luxury products has recently increased, consumer shopping preferences have continued to shift from physical stores to on-line shopping.

We currently expect that this trend will continue in the foreseeable future.

We continue to adjust our operating strategy to the changing business environment.

We have made significant progress toward our plan to close between 100 and 150 of our Michael Kors retail stores at an expected total one-time cost of approximately $100 - $125 million, in order to improve the profitability of our Michael Kors retail store fleet (“Retail Fleet Optimization Plan”).

As of December 28, 2019, we closed a total of 129 stores at a cost of $100 million to date and recorded restructuring charges of $6 million and $10 million during the nine months ended December 28, 2019 and December 29, 2018, respectively.

We anticipate finalizing the remainder of the planned store closures under the Retail Fleet Optimization Plan by the end of Fiscal 2020.

Collectively, we continue to anticipate lower depreciation and amortization associated with the impairment charges recorded once these initiatives are completed.

Foreign currency fluctuation.

Our consolidated operations are impacted by the relationships between our reporting currency, the U.S.

dollar, and those of our non-U.S.

subsidiaries whose functional/local currency is other than the U.S.

dollar, particularly the Euro, the British Pound, the Chinese Renminbi, the Japanese Yen, the Korean Won and the Canadian Dollar, among others.

We continue to expect volatility in the global foreign currency exchange rates, which may have a negative impact on the reported results of certain of our non-U.S.

subsidiaries in the future, when translated to U.S.

Disruptions in shipping and distribution .

Our operations are subject to the impact of shipping disruptions as a result of changes or damage to our distribution infrastructure, as well as due to external factors.

Any future disruptions in our shipping and distribution network could have a negative impact on our results of operations.

Costs of Manufacturing and Tariffs .

Our industry is subject to volatility in costs related to certain raw materials used in the manufacturing of our products.

This volatility applies primarily to costs driven by commodity prices, which can increase or decrease dramatically over a short period of time.

In addition, our costs may be impacted by sanction tariffs imposed on our products due to changes in trade terms.

On May 10, 2019, the U.S.

If additional tariffs or trade restrictions are implemented by the U.S.

or other countries, the cost of our products could increase which could adversely affect our business.

In addition, commodity prices and tariffs may have an impact on our revenues, results of operations and cash flows.

We use commercially reasonable efforts to mitigate these effects by sourcing our products as efficiently as possible and diversifying the countries where we produce.

In addition, manufacturing labor costs are also subject to degrees of volatility based on local and global economic conditions.

We use commercially reasonable efforts to source from localities that suit our manufacturing standards and result in more favorable labor driven costs to our products.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S.

GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period.

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We evaluate our assumptions and estimates on an ongoing basis.

During the first quarter of Fiscal 2020, we adopted the new accounting guidance related to lease accounting, as described in Note 2 and Note 4 to the accompanying consolidated financial statements.

Under this guidance, our existing lease obligations, which relate to stores, corporate locations, warehouses and equipment, will be recorded as a lease liability and right-of-use asset for operating leases on our consolidated balance sheet.

Accordingly, adoption of this standard significantly increased the Company’s total assets and total liabilities.

Our critical accounting policies are disclosed in full in the MD&A section of our Annual Report on Form 10-K for the fiscal year ended March 30, 2019.

There have been no significant changes in our critical accounting policies since March 30, 2019, other than described above.

General Definitions for Operating Results

Total revenue consists of sales from comparable retail stores and e-commerce sites and non-comparable retail stores and e-commerce sites, net of returns and markdowns, as well as those made to our wholesale customers, net of returns, discounts, markdowns and allowances.

Additionally, revenue includes royalties and other contributions earned on sales of licensed products by our licensees as well as contractual royalty rates for the use of our trademarks in certain geographic territories.

Comparable store sales include sales from a retail store or an e-commerce site that has been operating for one full year after the end of the first month of its operation under our ownership.

For stores that are closed, sales that were made in the final month of their operations (assuming closure prior to the fiscal month’s end), are excluded from the calculation of comparable store sales.

Additionally, sales for stores that are either relocated, or expanded by a square footage of 25% or greater, in any given fiscal year, are also excluded from the calculation of comparable store sales at the time of their move or interruption, until such stores have been in their new location, or are operating under their new size/capacity, for at least one full year after the end of the first month of their relocation or expansion.

All comparable store sales are presented on a 52-week basis.

Comparable store sales are reported on a global basis, which represents management’s view of our Company as an expanding global business.

Constant currency effects are non-U.S.

GAAP financial measures, which are provided to supplement our reported operating results to facilitate comparisons of our operating results and trends in our business, excluding the effects of foreign currency rate fluctuations.

Because we are a global company, foreign currency exchange rates may have a significant effect on our reported results.

We calculate constant currency measures and the related foreign currency impacts by translating the current-year’s reported amounts into comparable amounts using prior year’s foreign exchange rates for each currency.

All constant currency performance measures discussed below should be considered a supplement to and not in lieu of our operating performance measures calculated in accordance with U.S.

Cost of goods sold includes the cost of inventory sold and related duties and tariffs, freight-in on merchandise and foreign currency exchange gains/losses related to designated forward contracts for purchase commitments.

All retail operating and occupancy costs are included in Selling, general and administrative expenses (see below) and, as a result, our cost of goods sold may not be comparable to that of other entities that have chosen to include some or all of those expenses as a component of their cost of goods sold.

Gross profit is total revenue minus cost of goods sold.

As a result of retail operating and occupancy costs being excluded from our cost of goods sold, our gross profit may not be comparable to that of other entities that have chosen to include some or all of those expenses as a component of their gross profit.

Selling, general and administrative expenses consist of warehousing and distribution costs, rent for our distribution centers, payroll, store occupancy costs (such as rent, common area maintenance, store pre-opening, real estate taxes and utilities), information technology and systems costs, corporate payroll and related benefits, advertising and promotion expense and other general expenses, as well as sublease income.

Selling, general and administrative expenses include charges that are not allocated to our reportable segments.

Depreciation and amortization includes depreciation and amortization of property and equipment and definite-lived intangible assets.

Impairment of long-lived assets consists of charges to write-down operating lease right-of-use assets, property and equipment and finite-lived intangible assets to fair value.

Impairment charges are not allocated to our reportable segments.

Restructuring and other charges includes store closure costs recorded in connection with the Retail Fleet Optimization Plan and other restructuring initiatives, as well as costs recorded in connection with our acquisitions of Versace and Jimmy Choo (see Note 5 and Note 10 to the accompanying consolidated financial statements for additional information).

Restructuring and other charges are not allocated to our reportable segments.

Income from operations consists of gross profit minus total operating expenses.

Other (income) expense, net includes insurance settlements and proceeds received related to our anti-counterfeiting efforts.

In future periods, it may include any other miscellaneous activities not directly related to our operations.

Interest expense, net represents interest and fees on our revolving credit facilities, senior notes, term loan facilities and letters of credit (see “Liquidity and Capital Resources” for further detail on our credit facilities), as well as amortization of deferred financing costs and original issue discount, offset by interest earned on highly liquid investments (investments purchased with an original maturity of three months or less, classified as cash equivalents) and interest on cross-currency swaps designated as net investment hedges (see Note 14 to the accompanying consolidated financial statements for additional information).

Foreign currency (gain)/loss includes net gains or losses related to the mark-to-market (fair value) on our forward currency contracts not designated as accounting hedges, and unrealized income or loss from the re-measurement of monetary assets and liabilities denominated in currencies other than the functional currencies of our subsidiaries.

Noncontrolling interests/Redeemable noncontrolling interest represents the portion of the equity ownership in the Michael Kors Latin American joint venture, MK (Panama) Holdings, S.A.

and subsidiaries (“MK Panama”), noncontrolling interests in JC Industry S.r.L and JC Gulf Trading LLC, as well as in J.

Choo Russia J.V.

Limited., as well as the redeemable noncontrolling interest in Versace Australia PTY Limited.

While our significant accounting policies are detailed in Note 2 to the accompanying consolidated financial statements, our critical accounting policies are disclosed in full in the MD&A section of our Annual Report on Form 10-K for the fiscal year ended March 28, 2020.

There have been no significant changes in our critical accounting policies since March 28, 2020.

Results of Operations

Comparison of the three months ended December 28, 2019 with the three months ended December 29, 2018

The following table details the results of our operations for the three months ended December 28, 2019 and December 29, 2018, and expresses the relationship of certain line items to total revenue as a percentage (dollars in millions):

Comparison of the three months ended June 27, 2020 with the three months ended June 29, 2019

The following table details the results of our operations for the three months ended June 27, 2020 and June 29, 2019, and expresses the relationship of certain line items to total revenue as a percentage (dollars in millions):

Three Months Ended $ Change % Change % of Total Revenue for

the Three Months Ended

2019 December 29,

2018 December 28,

2019 December 29,

2020 June 29,

2019 June 27,

2020 June 29,

Statements of Operations Data:

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Depreciation and amortization 54 60 (6) (10.0) % 12.0 % 4.5 %

Impairment of long-lived assets 19 6 13 NM 1.2 % 0.4 %

Impairment of assets — 97 (97) NM — % 7.2 %

Restructuring and other charges 8 15 (7) (46.7) % 1.8 % 1.1 %

15 19 (4) (21.1) % 1.0 % 1.3 %

Total operating expenses 464 770 (306) (39.7) % 102.9 % 57.2 %

Income from operations 205 290 (85) (29.3) % 13.0 % 20.2 %

(Loss) income from operations (162) 64 (226) NM (35.9) % 4.8 %

Other income, net (1) (2) 1 (50.0) % (0.2) % (0.1) %

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Foreign currency (gain) loss (3) 2 (5) NM (0.7) % 0.1 %

Income before provision for income taxes 205 242 (37) (15.3) % 13.0 % 16.8 %

(Benefit from) provision for income taxes (4) 42 (46) NM (0.3) % 2.9 %

Net income 209 200 9 4.5 %

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest

Net income attributable to Capri $ 210 $ 200 $ 10 5.0 %

(Loss) income before provision for income taxes

(175) 51 (226) NM (38.8) % 3.8 %

Provision for income taxes 5 6 (1) (16.7) % 1.1 % 0.4 %

Net (loss) income attributable to Capri $ (180) $ 45 $ (225) NM

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NM Not meaningful

(1) Restructuring and other charges includes store closure costs recorded in connection with the Retail Fleet Optimization Plan (as defined in Note 10) and other restructuring initiatives, and costs recorded in connection with the acquisitions of Gianni Versace S.r.l and Jimmy Choo Group Limited.

Total Revenue

Total revenue increased $133 million, or 9.2%, to $1.571 billion for the three months ended December 28, 2019, compared to $1.438 billion for the three months ended December 29, 2018, which included net unfavorable foreign currency effects of approximately $5 million, primarily related to the weakening of the Euro against the U.S.

Dollar during the three months ended December 28, 2019 as compared to the same prior year period.

On a constant currency basis, our total revenue increased $138 million, or 9.6%.

Total revenue for the three months ended December 28, 2019 includes approximately $195 million of incremental revenue attributable to Versace, which was acquired and consolidated into our results of operations effective December 31, 2018, offset in part by lower revenue from our Michael Kors business, as compared to the prior year.

Gross profit increased $59 million, or 6.8%, to $932 million for the three months ended December 28, 2019, compared to $873 million for the three months ended December 29, 2018, which included net unfavorable foreign currency effects of $3 million.

Gross profit as a percentage of total revenue decreased 140 basis points to 59.3% during the three months ended December 28, 2019, compared to 60.7% during the three months ended December 29, 2018.

The decrease in our gross profit margin was primarily attributable to lower gross profit margin for Michael Kors primarily driven by increased markdowns during the three months ended December 28, 2019, as compared to the three months ended December 29, 2018, partially offset by the inclusion of Versace, which benefited our gross margin 130 basis points.

Total revenue decreased $895 million, or 66.5%, to $451 million for the three months ended June 27, 2020, compared to $1.346 billion for the three months ended June 29, 2019, which included net unfavorable foreign currency effects of approximately $4 million, primarily related to the weakening of the Chinese Renminbi and Euro against the U.S.

Dollar during the three months ended June 27, 2020 as compared to the same prior year period.

On a constant currency basis, our total revenue decreased $891 million, or 66.2%.

The decrease is attributable to lower revenues from all three brands, as compared to the prior year, reflecting the adverse impact of COVID-19.

Gross profit decreased $532 million, or 63.8%, to $302 million for the three months ended June 27, 2020, compared to $834 million for the three months ended June 29, 2019, which included net unfavorable foreign currency effects of $3 million.

Gross profit as a percentage of total revenue increased 500 basis points to 67.0% during the three months ended June 27, 2020, compared to 62.0% during the three months ended June 29, 2019.

The increase in our gross profit margin was primarily attributable to higher gross profit margin for Michael Kors primarily driven by lower promotional activity and favorable channel mix, including a higher proportion of sales in Asia during the three months ended June 27, 2020, as compared to the three months ended June 29, 2019.

Total Operating Expenses

Total operating expenses increased $144 million, or 24.7%, to $727 million during the three months ended December 28, 2019, compared to $583 million for the three months ended December 29, 2018, which included incremental operating expenses of $146 million associated with the recently acquired Versace business.

Total operating expenses decreased $306 million, or 39.7%, to $464 million during the three months ended June 27, 2020, compared to $770 million for the three months ended June 29, 2019.

Our operating expenses included a net favorable foreign currency impact of approximately $2 million.

Total operating expenses increased to 46.3% as a percentage of total revenue for the three months ended December 28, 2019, compared to 40.5% for the three months ended December 29, 2018.

Total operating expenses increased to 102.9% as a percentage of total revenue for the three months ended June 27, 2020, compared to 57.2% for the three months ended June 29, 2019.

The components that comprise total operating expenses are explained below.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $123 million, or 24.3%, to $630 million during the three months ended December 28, 2019, compared to $507 million for the three months ended December 29, 2018.

The increase in selling, general and administrative expenses was primarily due to incremental costs of $130 million associated with the recently acquired Versace business, which has been consolidated in our operations beginning on December 31, 2018.

Corporate unallocated expenses, which are included within selling, general and administrative expenses discussed above, but are not directly attributable to a reportable segment, increased $26 million, or 130.0%, to $46 million during the three months ended December 28, 2019 as compared to $20 million for the three months ended December 29, 2018, primarily attributable to the inclusion of ERP system implementation costs in the current year.

Selling, general, and administrative expenses as a percentage of total revenue increased to 40.1% for the three months ended December 28, 2019, compared to 35.3% for the three months ended December 29, 2018, primarily due to the inclusion of expenses associated with the Versace business, and increased retail store and e-commerce related costs as a percentage of total revenue during the three months ended December 28, 2019, as compared to the three months ended December 29, 2018.

Selling, general and administrative expenses decreased $196 million, or 32.8%, to $402 million during the three months ended June 27, 2020, compared to $598 million for the three months ended June 29, 2019, primarily due to lower variable costs, as well as decreases from our cost reduction initiatives as a result of COVID-19.

Selling, general, and administrative expenses as a percentage of total revenue increased to 89.1% for the three months ended June 27, 2020, compared to 44.4% for the three months ended June 29, 2019, primarily due to the adverse impacts of COVID-19 and increased retail store and e-commerce related costs as a percentage of total revenue during the three months ended June 27, 2020, as compared to the three months ended June 29, 2019.

Corporate unallocated expenses, which are included within selling, general and administrative expenses discussed above, but are not directly attributable to a reportable segment, decreased $2 million, or 6.1%, to $31 million during the three months ended June 27, 2020 as compared to $33 million for the three months ended June 29, 2019.

Depreciation and Amortization

Depreciation and amortization increased $12 million, or 23.5%, to $63 million during the three months ended December 28, 2019, compared to $51 million for the three months ended December 29, 2018.

The increase in depreciation and amortization expense was primarily attributable to incremental depreciation and amortization expense of $17 million attributable to our Versace business (including amortization of purchase accounting adjustments), partially offset by lower depreciation due to previously recorded property and equipment impairment charges.

Depreciation and amortization increased to 4.0% as a percentage of total revenue during the three months ended December 28, 2019, compared to 3.5% for the three months ended December 29, 2018.

Impairment of Long-Lived Assets

During the three months ended December 28, 2019, we recognized long-lived asset impairment charges of $19 million, primarily related to property and equipment and operating lease right-of-use assets at our Michael Kors store locations (see Note 13 to the accompanying consolidated financial statements for additional information).

During the three months ended December 29, 2018, we recognized long-lived asset impairment charges of approximately $6 million, which were primarily related to underperforming Michael Kors retail store locations, which related to closures as part of our Retail Fleet Optimization Plan.

Depreciation and amortization decreased $6 million, or 10.0%, to $54 million during the three months ended June 27, 2020, compared to $60 million for the three months ended June 29, 2019.

The decrease in depreciation and amortization expense was primarily attributable to lower depreciation due to previously recorded property and equipment impairment charges.

Depreciation and amortization increased to 12.0% as a percentage of total revenue during the three months ended June 27, 2020, compared to 4.5% for the three months ended June 29, 2019.

Impairment of Assets

During the three months ended June 27, 2020, we did not recognize any asset impairment charges.

During the three months ended June 29, 2019, we recognized asset impairment charges of approximately $97 million, which were primarily related to determining asset groups for our premier store locations at an individual store level, as well as operating lease right-of-use assets as part of our quarterly impairment assessments.

Restructuring and Other Charges

During the three months ended December 28, 2019, we recognized restructuring and other charges of $15 million, which included other costs of $8 million primarily in connection with the acquisition of Versace (see Note 10 to the accompanying consolidated financial statements for additional information) and $5 million related to our Retail Fleet Optimization Plan.

During the three months ended December 29, 2018, we recognized restructuring and other charges of $19 million, which were comprised of $12 million of other costs and restructuring charges of $7 million primarily recorded in connection with our Retail Fleet Optimization Plan.

The other costs recorded during the three months ended December 29, 2018 included $6 million related to our agreement to acquire Versace and $6 million in connection with the Jimmy Choo acquisition.

During the three months ended June 27, 2020, we recognized restructuring and other charges of $8 million, which included other costs of $5 million primarily related to equity awards associated with the acquisition of Versace (see Note 8 to the accompanying consolidated financial statements for additional information) and $3 million related to our Capri Retail Store Optimization Program.

During the three months ended June 29, 2019, we recognized restructuring and other charges of $15 million, which were comprised of $12 million of other costs and restructuring charges of $3 million, of which $2 million was recorded in connection with Jimmy Choo lease termination charges and $1 million related to our Michael Kors Retail Fleet Optimization Plan.

The other costs recorded during the three months ended June 29, 2019 included $7 million in connection with the acquisition of Versace and $5 million in connection with the Jimmy Choo acquisition.

Restructuring and other charges are not evaluated as part of our reportable segments’ results (See Segment Information above for additional information).

Income from Operations

As a result of the foregoing, income from operations decreased $85 million, or 29.3%, to $205 million during three months ended ended December 28, 2019, compared to $290 million for the three months ended December 29, 2018.

Income from operations as a percentage of total revenue decreased to 13.0% during the three months ended December 28, 2019, compared to 20.2% for the three months ended December 29, 2018.

(Loss) Income from Operations

As a result of the foregoing, income from operations decreased $226 million, to a loss from operations of $162 million during three months ended ended June 27, 2020, compared to income from operations of $64 million for the three months ended June 29, 2019.

Income from operations as a percentage of total revenue decreased to (35.9)% during the three months ended June 27, 2020, compared to 4.8% for the three months ended June 29, 2019.

See Segment Information above for a reconciliation of our segment operating income to total operating income.

Interest Expense, net

Interest expense, net decreased $4 million to $3 million during the three months ended December 28, 2019, compared to $7 million for the three months ended December 29, 2018, primarily due to a reduction to interest expense related to the cross-currency swap used in the net investment hedge during the three months ended December 28, 2019, as compared to the three months ended December 29, 2018, largely offset by increased interest expense attributable to higher average borrowings outstanding in the current year (see Note 11 and Note 14 to the accompanying consolidated financial statements for additional information).

Interest expense, net, increased $4 million to $17 million during the three months ended June 27, 2020, compared to $13 million for the three months ended June 29, 2019, primarily due to a decrease to interest income as a result of the Company’s early termination of its net investment hedges related to its Euro-denominated subsidiaries during the fourth quarter.

The decrease to interest income was largely offset by a decrease in interest expense attributable to lower average borrowings outstanding in the current year (see Note 9 and Note 12 to the accompanying consolidated financial statements for additional information).

Foreign Currency (Gain) Loss

During the three months ended December 28, 2019, we recognized a net foreign currency gain of $2 million, primarily attributable to the revaluation and settlement of certain of our accounts payable in currencies other than the functional currency, as well as the remeasurement of dollar-denominated intercompany loans with certain of our subsidiaries.

During the three months ended December 29, 2018, we recognized a net foreign currency loss of $43 million, primarily attributable to a $47 million unrealized loss related to a forward foreign currency exchange derivative contract entered into to mitigate foreign currency exchange risk relating to the Versace acquisition.

(Benefit from) Provision for Income Taxes

We recognized $4 million of income tax benefit during the three months ended December 28, 2019, compared to $42 million of income tax expense for the three months ended December 29, 2018.

Our effective tax rate for the three months ended December 28, 2019, was a benefit of 2.0%, compared to a provision of 17.4% for the three months ended December 29, 2018.

The decrease in our effective tax rate was primarily related to the favorable impact of recognizing benefits from the resolution of uncertain tax positions and return to provision adjustments in the United States and Europe, as well as the impact of the change in the geographic mix of earnings during the three months ended December 28, 2019, compared to three months ended December 29, 2018.

These decreases were partially offset by the unfavorable impact of tax deficits recognized on shared-based compensation.

During the three months ended June 27, 2020, we recognized a net foreign currency gain of $3 million, primarily attributable to the revaluation and settlement of certain of our accounts payable in currencies other than the functional currency, as well as the remeasurement of dollar-denominated intercompany loans with certain of our subsidiaries.

During the three months ended June 29, 2019, we recognized a net foreign currency loss of $2 million, primarily attributable to the revaluation and settlement of certain of our accounts payable in currencies other than the functional currency.

Provision for Income Taxes

The provision for incomes taxes was $5 million during the three months ended June 27, 2020, compared to $6 million for the three months ended June 29, 2019.

Our effective tax rate for the three months ended June 27, 2020, was (2.9)%, compared to 11.8% for the three months ended June 29, 2019.

The decrease in our effective tax rate was primarily related to the impact of a valuation allowance on a portion of our consolidated pre-tax loss and a tax detriment related to share based compensation for the three months ended June 27, 2020, compared to three months ended June 29, 2019.

These decreases were partially offset by the impact of the favorable effects related to global financing activities on our consolidated pre-tax loss.

Our effective tax rate may fluctuate from time to time due to the effects of changes in U.S.

1 unchanged sentence

In addition, factors such as the geographic mix of earnings, enacted tax legislation and the results of various global tax strategies, may also impact our effective tax rate in future periods.

Net Loss Attributable to Noncontrolling Interest and Redeemable Noncontrolling Interest

During the three months ended December 28, 2019, we recorded a net loss attributable to the noncontrolling interest in our joint ventures of $1 million.

This loss represents the share of income that is not attributable to the Company.

Net Income Attributable to Capri

As a result of the foregoing, our net income increased $10 million, or 5.0%, to $210 million during the three months ended December 28, 2019, compared to $200 million for the three months ended December 29, 2018.

Net (Loss) Income Attributable to Capri

As a result of the foregoing, our net income decreased $225 million to a net loss of $180 million during the three months ended June 27, 2020, compared to net income of $45 million for the three months ended June 29, 2019.

Segment Information

Three Months Ended

(dollars in millions) December 28,

2019 December 29,

2018 $ Change

Revenues $ 195 $ — NM

Three Months Ended % Change

(dollars in millions) June 27,

2020 June 29,

2019 $ Change As Reported Constant

Revenues $ 93 $ 207 $ (114) (55.1) % (54.1) %

Loss from operations (41) (3) (38) NM

2 unchanged sentences

NM Not meaningful

The Versace business, acquired on December 31, 2018, contributed $195 million to our total revenue during the three months ended December 28, 2019.

Versace revenues decreased $114 million, or 55.1%, to $93 million during the three months ended June 27, 2020, compared to $207 million for the three months ended June 29, 2019, which included unfavorable foreign currency effects of $2 million.

On a constant currency basis, revenue decreased $112 million, or 54.1%, primarily reflecting adverse impacts related to COVID-19.

Loss from Operations

During the three months ended December 28, 2019, we recorded a loss from operations of $12 million (after amortization of non-cash purchase accounting adjustments).

During the three months ended June 27, 2020 Versace recorded a loss from operations of $41 million during the three months ended June 27, 2020, compared to $3 million for the three months ended June 29, 2019.

Operating margin declined from (1.4)% for the three months ended June 29, 2019, to (44.1)% during the three months ended June 27, 2020, primarily due to the adverse impacts related to COVID-19.

Three Months Ended % Change

(dollars in millions) December 28,

2019 December 29,

(dollars in millions) June 27,

2020 June 29,

2019 $ Change As

1 unchanged sentence

Revenues $ 51 $ 158 $ (107) (67.7) % (67.7) %

Income from operations 9 15 (6) (40.0) %

(Loss) income from operations (29) 11 (40) NM

Operating margin (56.9) % 7.0 %

Revenue from Jimmy Choo increased $3 million, or 1.9%, to $165 million during the three months ended December 28, 2019, compared to $162 million for the three months ended December 29, 2018.

Income from Operations

Income from operations for our Jimmy Choo segment decreased $6 million, or 40.0%, to $9 million during the three months ended December 28, 2019, compared to $15 million for the three months ended December 29, 2018.

Income from operations as a percentage of Jimmy Choo revenue declined 380 basis points from 9.3% for the three months ended December 29, 2018, to 5.5% during the three months ended December 28, 2019, primarily due to manufacturing benefits recognized in the prior year, as well as increased expenses in the current year related to investments in new stores.

___________________

NM Not meaningful

Jimmy Choo revenues decreased $107 million, or 67.7%, to $51 million during the three months ended June 27, 2020, compared to $158 million for the three months ended June 29, 2019, primarily reflecting adverse impacts related to COVID-19.

(Loss) Income from Operations

During the three months ended June 27, 2020, Jimmy Choo recorded a loss from operations of $29 million during the three months ended June 27, 2020, compared to income from operations of $11 million for the three months ended June 29, 2019.

Operating margin declined from 7.0% for the three months ended June 29, 2019, to (56.9)% during the three months ended June 27, 2020, primarily due to the adverse impacts related to COVID-19.

Three Months Ended % Change

(dollars in millions) December 28,

2019 December 29,

(dollars in millions) June 27,

2020 June 29,

2019 $ Change As

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Revenues $ 307 $ 981 $ (674) (68.7) % (68.5) %

Income from operations 288 320 (32) (10.0) %

Operating margin 23.8 % 25.1 %

Michael Kors revenues decreased $65 million, or 5.1%, to $1.211 billion during the three months ended December 28, 2019, compared to $1.276 billion for the three months ended December 29, 2018, which included unfavorable foreign currency effects of $5 million.

On a constant currency basis, revenue decreased $60 million, or 4.7%.

The decrease in revenues was primarily due to lower sales of women's accessories and watches and a decrease in comparable store sales of $17 million.

This decrease was partially offset by higher sales of women's footwear, men's accessories, and women's apparel.

Our comparable store sales benefited approximately 180 basis points from the inclusion of e-commerce sales.

Income from Operations

Income from operations for our Michael Kors segment decreased $32 million, or 10.0%, to $288 million during the three months ended December 28, 2019, compared to $320 million for the three months ended December 29, 2018.

Income from operations as a percentage of Michael Kors revenue declined 130 basis points from 25.1% for the three months ended December 29, 2018, to 23.8% during the three months ended December 28, 2019, largely due to a decrease in gross profit margin, as previously discussed, partially offset by lower retail operating expenses.

Results of Operations

Comparison of the nine months ended December 28, 2019 with the nine months ended December 29, 2018

The following table details the results of our operations for the nine months ended December 28, 2019 and December 29, 2018, and expresses the relationship of certain line items to total revenue as a percentage (dollars in millions):

Nine Months Ended $ Change % Change % of Total Revenue for

the Nine Months Ended

2019 December 29,

2018 December 28, 2019 December 29, 2018

Statements of Operations Data:

Total revenue $ 4,359 $ 3,894 $ 465 11.9 %

Cost of goods sold 1,719 1,507 212 14.1 % 39.4 % 38.7 %

Gross profit 2,640 2,387 253 10.6 % 60.6 % 61.3 %

Selling, general and administrative expenses 1,851 1,466 385 26.3 % 42.5 % 37.6 %

Depreciation and amortization 188 160 28 17.5 % 4.3 % 4.1 %

Impairment of long-lived assets 220 17 203 NM 5.0 % 0.4 %

Restructuring and other charges (1)

37 49 (12) (24.5) % 0.8 % 1.3 %

Total operating expenses 2,296 1,692 604 35.7 % 52.7 % 43.5 %

Income from operations 344 695 (351) (50.5) % 7.9 % 17.8 %

Other income, net (4) (4) — — % (0.1) % (0.1) %

Interest expense, net 19 21 (2) (9.5) % 0.4 % 0.5 %

Foreign currency loss 4 79 (75) (94.9) % 0.1 % 2.0 %

Income before provision for income taxes 325 599 (274) (45.7) % 7.5 % 15.4 %

(Benefit from) p rovision for income taxes

(2) 76 (78) (102.6) % — % 2.0 %

Net income 327 523 (196) (37.5) %

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest

Net income attributable to Capri $ 328 $ 524 $ (196) (37.4) %

___________________

NM Not meaningful

Total Revenue

Total revenue increased $465 million, or 11.9%, to $4.359 billion for the nine months ended December 28, 2019, compared to $3.894 billion for the nine months ended December 29, 2018, which included net unfavorable foreign currency effects of approximately $41 million, primarily related to the weakening of the Euro, the Chinese Renminbi, the British Pound, and the Canadian Dollar against the U.S.

Dollar during the nine months ended December 28, 2019 as compared to the same prior year period.

On a constant currency basis, our total revenue increased $506 million, or 13.0%.

Total revenue for the nine months ended December 28, 2019 includes approximately $630 million of incremental revenue attributable to Versace, which was acquired and consolidated into our results of operations effective December 31, 2018, offset in part by lower revenue from our Michael Kors business, as compared to the prior year.

Gross profit increased $253 million, or 10.6%, to $2.640 billion for the nine months ended December 28, 2019, compared to $2.387 billion for the nine months ended December 29, 2018, which included net unfavorable foreign currency effects of $27 million.

Gross profit as a percentage of total revenue decreased 70 basis points to 60.6% during the nine months ended December 28, 2019, compared to 61.3% during the nine months ended December 29, 2018.

The decrease in our gross profit margin was primarily attributable to lower gross profit for Michael Kors primarily driven by increased markdowns during the nine months ended December 28, 2019, as compared to the nine months ended December 29, 2018, partially offset by the inclusion of Versace, which benefited our gross margin 100 basis points.

Total Operating Expenses

Total operating expenses increased $604 million, or 35.7%, to $2.296 billion during the nine months ended December 28, 2019, compared to $1.692 billion for the nine months ended December 29, 2018, which included incremental operating expenses of $427 million associated with the recently acquired Versace business.

Our operating expenses included a net favorable foreign currency impact of approximately $37 million.

Total operating expenses increased to 52.7% as a percentage of total revenue for the nine months ended December 28, 2019, compared to 43.5% for the nine months ended December 29, 2018.

The components that comprise total operating expenses are explained below.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increase $385 million, or 26.3%, to $1.851 billion during the nine months ended December 28, 2019, compared to $1.466 billion for the nine months ended December 29, 2018.

The increase in selling, general and administrative expenses was primarily due to incremental costs of $381 million associated with the recently acquired Versace business, which has been consolidated in our operations beginning on December 31, 2018.

Corporate unallocated expenses, which are included within selling, general and administrative expenses discussed above, but are not directly attributable to a reportable segment, increased $49 million, or 75.4%, to $114 million during the nine months ended December 28, 2019 as compared to $65 million for the nine months ended December 29, 2018, primarily attributable to the inclusion of ERP system implementation costs in the current year.

Selling, general and administrative expenses as a percentage of total revenue increase to 42.5% during the nine months ended December 28, 2019, compared to 37.6% for the nine months ended December 29, 2018, primarily due to the inclusion of expenses associated with the Versace business and increased retail store and e-commerce related costs as a percentage of total revenue during the nine months ended December 28, 2019, as compared to the nine months ended December 29, 2018.

Depreciation and Amortization

Depreciation and amortization increased $28 million, or 17.5%, to $188 million during the nine months ended December 28, 2019, compared to $160 million for the nine months ended December 29, 2018.

The increase in depreciation and amortization expense was primarily attributable to incremental depreciation and amortization expense of $46 million attributable to the Versace business (including amortization of purchase accounting adjustments), partially offset by lower depreciation due to previously recorded property and equipment impairment charges.

Depreciation and amortization increased to 4.3% as a percentage of total revenue during the nine months ended December 28, 2019, compared to 4.1% for the nine months ended December 29, 2018.

Impairment of Long-Lived Assets

During the nine months ended December 28, 2019, we recognized long-lived asset impairment charges of $220 million, which primarily related to operating lease right-of-use assets as part of our quarterly impairment assessments (see Note 13 to the accompanying consolidated financial statements for additional information).

During the nine months ended December 29, 2018, we recognized long-lived asset impairment charges of approximately $17 million, which were related to underperforming Michael Kors retail store locations, which related to closures as part of our Retail Fleet Optimization Plan.

Restructuring and Other Charges

During the nine months ended December 28, 2019, we recognized restructuring and other charges of $37 million, which included restructuring charges of $11 million, primarily related to Jimmy Choo lease-related charges and our Retail Fleet Optimization Plan, and other costs of $26 million.

The other costs recorded during the nine months ended December 28, 2019 included $18 million related to the acquisition of Versace and $8 million in connection with the Jimmy Choo acquisition (see Note 10 to the accompanying consolidated financial statements for additional information).

During the nine months ended December 29, 2018, we recognized restructuring and other charges of $49 million, which were primarily comprised of $35 million of other costs and restructuring charges of $14 million primarily recorded in connection with our Retail Fleet Optimization Plan.

The other costs recorded during the nine months ended December 29, 2018 included $20 million in connection with the Jimmy Choo acquisition and $15 million in connection with the acquisition of Versace.

Restructuring and other charges are not evaluated as part of our reportable segments’ results (See Segment Information above for additional information).

Income from Operations

As a result of the foregoing, income from operations decreased $351 million or 50.5%, to $344 million during the nine months ended December 28, 2019, compared to $695 million for the nine months ended December 29, 2018.

Income from operations as a percentage of total revenue decreased to 7.9% during the nine months ended December 28, 2019, compared to 17.8% for the nine months ended December 29, 2018 (see Segment Information above for a reconciliation of our segment operating income to total operating income).

Interest Expense,net

Interest expense, net decreased $2 million to $19 million during the nine months ended December 28, 2019, compared to $21 million for the nine months ended December 29, 2018, primarily due to a reduction to interest expense related to the cross-currency swap used in the net investment hedge during the nine months ended December 28, 2019, as compared to the nine months ended December 29, 2018, largely offset by increased interest expense attributable to higher average borrowings outstanding in the current year (see Note 11 and Note 14 to the accompanying consolidated financial statements for additional information).

Foreign Currency Loss

During the nine months ended December 28, 2019, we recognized a net foreign currency loss of $4 million, primarily attributable to the revaluation and settlement of certain of our accounts payable in currencies other than the functional currency, as well as the remeasurement of dollar-denominated intercompany loans with certain of our subsidiaries.

During the nine months ended December 29, 2018, we recognized a net foreign currency loss of $79 million, primarily attributable to a $77 million realized loss related to forward foreign currency exchange derivative contracts to hedge the transaction price of the Versace acquisition.

(Benefit from) Provision for Income Taxes

We recognized $2 million of income tax benefit during the nine months ended December 28, 2019, compared to $76 million of income tax expense for the nine months ended December 29, 2018.

Our effective tax rate for the nine months ended December 28, 2019, was a benefit of 0.6%, compared to a provision of 12.7% for the nine months ended December 29, 2018.

The decrease in our effective tax rate was primarily related to the favorable impact of recognizing benefits from the resolution of uncertain tax positions and return to provision adjustments in the United States and Europe, as well as the impact of the change in the geographic mix of earnings during the nine months ended December 28, 2019 compared to the nine months ended December 29, 2018.

These decreases were partially offset by the unfavorable impact of tax deficits recognized on shared-based compensation.

Our effective tax rate may fluctuate from time to time due to the effects of changes in U.S.

state and local taxes and tax rates in foreign jurisdictions.

In addition, factors such as the geographic mix of earnings, enacted tax legislation and the results of various global tax strategies, may also impact our effective tax rate in future periods.

Net Loss Attributable to Noncontrolling Interest and Redeemable Noncontrolling Interest

During the nine months ended December 28, 2019 and December 29, 2018, we recorded a net loss attributable to the noncontrolling interest in our joint ventures in each period of $1 million.

These losses represent the share of income that is not attributable to the Company.

Net Income Attributable to Capri

As a result of the foregoing, our net income decreased $196 million, or 37.4%, to $328 million during the nine months ended December 28, 2019, compared to $524 million for the nine months ended December 29, 2018.

Segment Information

Nine Months Ended

(dollars in millions) December 28,

2019 December 29,

2018 $ Change

Revenues $ 630 $ — NM

Loss from operations (6) — NM

(Loss) income from operations (48) 201 (249) NM

Operating margin (15.6) % 20.5 %

1 unchanged sentence

NM Not meaningful

The Versace business acquired on December 31, 2018 contributed $630 million to our total revenue during the nine months ended December 28, 2019.

Loss from Operations

During the nine months ended December 28, 2019, we recorded a loss from operations of $6 million (after amortization of non-cash purchase accounting adjustments).

Nine Months Ended % Change

(dollars in millions) December 28,

2019 December 29,

2018 $ Change As

Reported Constant

Revenues $ 448 $ 451 $ (3) (0.7) % 0.9 %

Income from operations 10 28 (18) (64.3) %

Operating margin 2.2 % 6.2 %

Revenue from Jimmy Choo decreased $3 million, or 0.7%, to $448 million during the nine months ended December 28, 2019, compared to $451 million for the nine months ended December 29, 2018, which included unfavorable foreign currency effects of $7 million.

On a constant currency basis, revenue increased $4 million, or 0.9%.

Income from Operations

Income from operations for our Jimmy Choo segment decreased $18 million, or 64.3%, to $10 million during the nine months ended December 28, 2019, compared to $28 million for the nine months ended December 29, 2018.

Income from operations as a percentage of Jimmy Choo revenue declined 400 basis points from 6.2% for the nine months ended December 29, 2018, to 2.2% during the nine months ended December 28, 2019, primarily due to an increase in operating expenses, including retail store expenses, advertising, marketing and corporate expenses, as well as investments in new stores.

Nine Months Ended % Change

(dollars in millions)

2019 December 29,

2018 $ Change As

Reported Constant

Revenues $ 3,281 $ 3,443 $ (162) (4.7) % (3.7) %

Income from operations 711 798 (87) (10.9) %

Operating margin 21.7 % 23.2 %

Michael Kors revenues decreased $162 million, or 4.7%, to $3.281 billion during the nine months ended December 28, 2019, compared to $3.443 billion for the nine months ended December 29, 2018, which included unfavorable foreign currency effects of $34 million.

On a constant currency basis, revenue decreased $128 million, or 3.7%.

The decrease in revenues was primarily due to lower sales of women’s accessories and watches and a decrease in comparable store sales of $32 million.

This decrease was partially offset by higher sales of women's footwear, men's accessories and women's apparel.

Our comparable store sales benefited approximately 170 basis points from the inclusion of e-commerce sales.

Income from Operations

Income from operations for our Michael Kors segment decreased $87 million, or 10.9%, to $711 million during the nine months ended December 28, 2019, compared to $798 million for the nine months ended December 29, 2018.

Income from operations as a percentage of Michael Kors revenue declined 150 basis points from 23.2% for the nine months ended December 29, 2018, to 21.7% during the nine months ended December 28, 2019, largely due to a decrease in gross profit margin, as previously discussed.

Michael Kors revenues decreased $674 million, or 68.7%, to $307 million during the three months ended June 27, 2020, compared to $981 million for the three months ended June 29, 2019, which included unfavorable foreign currency effects of $2 million.

On a constant currency basis, revenue decreased $672 million, or 68.5%, primarily due to adverse impacts related to COVID-19.

(Loss) Income from Operations

During the three months ended June 27, 2020, Michael Kors recorded a loss from operations of $48 million during the three months ended June 27, 2020, compared to income from operations of $201 million for the three months ended June 29, 2019.

Operating margin declined from 20.5% for the three months ended June 29, 2019, to (15.6)% during the three months ended June 27, 2020, primarily due to adverse impacts related to COVID-19.

Liquidity and Capital Resources

2 unchanged sentences

We believe that the cash generated from our operations, together with borrowings available under our revolving credit facility and available cash and cash equivalents, will be sufficient to meet our working capital needs for the next 12 months, including investments made and expenses incurred in connection with our store growth plans, shop-in-shop growth, investments in corporate and distribution facilities, continued systems development, e-commerce and marketing initiatives.

We spent $164 million on capital expenditures during the nine months ended December 28, 2019.

We spent $32 million on capital expenditures during the three months ended June 27, 2020.

The following table sets forth key indicators of our liquidity and capital resources (in millions):

6 unchanged sentences

Long-term debt $ 1,577 $ 2,012

Nine Months Ended

2019 December 29,

Three Months Ended

2020 June 29,

Cash Flows Provided By (Used In):

3 unchanged sentences

Effect of exchange rate changes — —

Net increase in cash and cash equivalents and restricted cash (1)

_____________________________

(1) The prior year balance includes restricted cash placed in escrow in connection with the acquisition of Versace.

Net decrease in cash and cash equivalents and restricted cash $ (385) $ (12)

Cash Provided by Operating Activities

Net cash provided by operating activities decreased $24 million to $752 million during the nine months ended December 28, 2019, as compared to $776 million for the nine months ended December 29, 2018, as a result of a $44 million decrease in our net income after non-cash adjustments, partially offset by a $21 million net favorable change related to operating assets and liabilities.

Net cash provided by operating activities decreased $91 million to $67 million during the three months ended June 27, 2020, as compared to $158 million for the three months ended June 29, 2019, as a result of a decrease in our net income after non-cash adjustments, partially offset by increases related to changes in our working capital, primarily attributable to the timing of payments and receipts due to the impact of COVID-19.

Cash Used in Investing Activities

Net cash used in investing activities decreased $83 million to $133 million during the nine months ended December 28, 2019, as compared to $216 million during the nine months ended December 29, 2018, which was primarily attributable to a $77 million realized loss related to an undesignated derivative contract during the nine months ended December 29, 2018.

The decrease also included $32 million related to the settlement of a net investment hedge during the nine months ended December 28, 2019, partially offset by higher capital expenditures of $29 million compared to prior year.

Cash (Used in) Provided by Financing Activities

Net cash used in financing activities was $554 million during the nine months ended December 28, 2019, compared to net cash provided by financing activities of $1.472 billion during the nine months ended December 29, 2018.

The increase of cash used in financing activities of $2.026 billion was primarily attributable to decreased debt borrowings of $2.123 billion, net of debt repayments, partially offset by a $105 million decrease in cash payments to repurchase our ordinary shares compared to prior year.

Debt Obligations

The following table presents a summary of our borrowing capacity and amounts outstanding as of December 28, 2019 and March 30, 2019 (dollars in millions):

Net cash used in investing activities was $32 million during the three months ended June 27, 2020, as compared to $32 million during the three months ended June 29, 2019, which was primarily attributable to an increase of $23 million related to the settlement of a net investment hedge during the three months ended June 29, 2019, offset by lower capital expenditures of $22 million compared to prior year.

Cash Used in Financing Activities

Net cash used in financing activities was $420 million during the three months ended June 27, 2020, as compared to $138 million during the three months ended June 29, 2019.

The increase of cash used in financing activities of $282 million was primarily attributable to increased debt repayments.

Debt Facilities

The following table presents a summary of our borrowing capacity and amounts outstanding as of June 27, 2020 and March 28, 2020 (dollars in millions):

2020 March 28,

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Total availability (100 million Hong Kong Dollars) $ 13 $ 14

Borrowings outstanding — —

Borrowings outstanding (85 million Hong Kong Dollars) (3)

Bank guarantees outstanding (4 million Hong Kong Dollars) 1 1

Remaining availability $ 12 $ 11

Remaining availability (11 million and 96 million Hong Kong Dollars) $ 1 $ 13

China Uncommitted Credit Facility:

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Japan Credit Facility:

Borrowings outstanding $ — $ —

Total and remaining availability (1.0 billion Japanese Yen) $ 9 $ 9

Versace Uncommitted Credit Facility:

Total availability (20 million Euro) $ 22 $ 22

Borrowings outstanding (10 million Euro) (2)

Remaining availability $ 6 $ 11

Total availability (1.0 billion Japanese Yen) $ 9 $ 9

Borrowings outstanding (223 million Japanese Yen) (3)

Remaining availability (777 million and 1.0 billion Japanese Yen) $ 7 $ 9

Versace Uncommitted Credit Facilities:

Total availability (32 million Euro) $ 36 $ —

Borrowings outstanding (26 million Euro) (2)

Remaining availability $ 7 $ —

Total availability (55 million and 52 million Euro) $ 61 $ 58

Borrowings outstanding (45 million and 35 million Euro) (3)

Remaining availability (10 million and 17 million Euro) $ 11 $ 19

Total borrowings outstanding (1)

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_____________________________

(1) The 2018 Credit Facility contains customary events of default and requires us to maintain a leverage ratio at the end of each fiscal quarter of no greater than 3.75 to 1, calculated as the ratio of the sum of total indebtedness as of the date of the measurement plus 6.0 times the consolidated rent expense for the last four consecutive fiscal quarters, to Consolidated EBITDAR for the last four consecutive fiscal quarters.

Consolidated EBITDAR is defined as consolidated net income plus income tax expense, net interest expense, depreciation and amortization expense, consolidated rent expense and other non-cash charges, subject to certain deductions.

The 2018 Credit Facility also includes other customary covenants that limit additional indebtedness, guarantees, liens, acquisitions and other investments and cash dividends.

As of December 28, 2019 and March 30, 2019, we were in compliance with all covenants related to our agreements then in effect governing our debt.

(2) Recorded as short-term debt in our consolidated balance sheets as of December 28, 2019 and March 30, 2019.

(3) Recorded as long-term debt in our consolidated balance sheets as of December 28, 2019 and March 30, 2019, except for the current portion of $483 million and $80 million, respectively, outstanding under the 2018 Term Loan Facility, which was recorded within short-term debt at December 28, 2019 and March 30, 2019.

(1) The financial covenant in our 2018 Credit Facility requiring us to maintain a ratio of the sum of total indebtedness plus the capitalized amount of all operating lease obligations for the last four fiscal quarters to Consolidated EBITDAR of no greater than 3.75 to 1.0 has been waived through the fiscal quarter ending June 26, 2021.

When this financial covenant is reinstated, the applicable ratio will be calculated net of our unrestricted cash and cash equivalents to the extent in excess of $100 million and shall exclude up to $150 million of supply chain financings, and the maximum permitted net leverage ratio will be 4.00 to 1.0.

As of June 27, 2020 and March 28, 2020, we were in compliance with all covenants related to our agreements then in effect governing our debt.

(2) Recorded as long-term debt in our consolidated balance sheets as of June 27, 2020 and March 28, 2020, except for the current portion of $128 million outstanding under the 2018 Term Loan Facility, which was recorded within short-term debt at both June 27, 2020 and March 28, 2020.

(3) Recorded as short-term debt in our consolidated balance sheets as of June 27, 2020 and March 28, 2020.

We believe that our 2018 Credit Facility is adequately diversified with no undue concentration in any one financial institution.

As of December 28, 2019 , there were 18 financial institutions participating in the facility, with none maintaining a maximum commitment percentage in excess of 10%.

As of June 27, 2020, there were 26 financial institutions participating in the facility, with none maintaining a maximum commitment percentage in excess of 10%.

We have no reason to believe that the participating institutions will be unable to fulfill their obligations to provide financing in accordance with the terms of the 2018 Credit Facility.

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Share Repurchase Program

The following table presents our treasury share repurchases during the nine months ended December 28, 2019 and December 29, 2018 (dollars in millions):

Nine Months Ended

2019 December 29,

The following table presents our treasury share repurchases during the three months ended June 27, 2020 and June 29, 2019 (dollars in millions):

Three Months Ended

2020 June 29,

Cost of shares repurchased under share repurchase program $ — $ —

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38,119 58,304

_____________________________

(1) The share-repurchase program expired on May 25, 2019.

On August 1, 2019, our Board of Directors authorized a new $500 million share repurchase program, which expires August 1, 2021.

As of December 28, 2019, the remaining availability under the Company's share repurchase program was $400 million.

During the first quarter of Fiscal 2021, we suspended our $500 million share-repurchase program in response to the continued impact of the COVID-19 pandemic.

As of June 27, 2020, the remaining availability under our share repurchase program was $400 million.

Share repurchases may be made in open market or privately negotiated transactions, subject to market conditions, applicable legal requirements, trading restrictions under our insider trading policy, and other relevant factors.

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Contractual Obligations and Commercial Commitments

Please refer to the “Contractual Obligations and Commercial Commitments” disclosure within the “Liquidity and Capital Resources” section of our Fiscal 2019 Form 10-K for a detailed disclosure of our other contractual obligations and commitments as of March 30, 2019, as well as Note 4 to the accompanying consolidated financial statements for future lease obligations as of December 28, 2019.

Please refer to the “Contractual Obligations and Commercial Commitments” disclosure within the “Liquidity and Capital Resources” section of our Fiscal 2020 Form 10-K for a detailed disclosure of our other contractual obligations and commitments as of March 28, 2020.

Off-Balance Sheet Arrangements

We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating our business.

Our off-balance sheet commitments relating to our outstanding letters of credit were $23 million at December 28, 2019, including $6 million in letters of credit issued outside of the 2018 Credit Facility.

In addition, as of December 28, 2019, bank guarantees of approximately $19 million were supported by the Versace Credit Facility.

Our off-balance sheet commitments relating to our outstanding letters of credit were $27 million at June 27, 2020, including $5 million in letters of credit issued outside of the 2018 Credit Facility.

In addition, as of June 27, 2020, bank guarantees of approximately $18 million were supported by the Versace Credit Facilities.

We do not have any other off-balance sheet arrangements or relationships with entities that are not consolidated into our financial statements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis