Capri Holdings Ltd 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis (“MD&A”) of our Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and notes thereto included as part of this interim report. Forward-looking statements are prospective in nature and are not based on historical facts, but rather on current expectations and projections of the management of Capri Holdings Limited (the “Company”) about future events, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. 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 “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 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; the negative effects of events on the market price of the Company’s ordinary shares and its operating results; significant transaction costs; unknown liabilities; the risk of litigation and/or regulatory actions related to the Company’s businesses; fluctuations in demand for the Company’s products; levels of indebtedness (including the indebtedness incurred in connection with acquisitions); 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; changes in consumer traffic and retail trends; loss of market share and industry competition; fluctuations in the capital markets; fluctuations in interest and exchange rates; 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 28, 2020, filed with the Securities and Exchange Commission on July 8, 2020. Overview Our Business 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. Our brands cover the full spectrum of fashion luxury categories including women’s and men’s accessories, footwear and ready-to-wear as well as wearable technology, watches, jewelry, eyewear and a full line of fragrance products. 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 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. Versace’s design team is led by Donatella Versace, who has been the brand’s artistic director for over 20 years. 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. 28 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. Jimmy Choo’s design team is led by Sandra Choi, who has been the Creative Director for the brand since its inception in 1996. Jimmy Choo products are unique, instinctively seductive and chic. The brand offers classic and timeless luxury products, as well as innovative products that are intended to set and lead fashion trends. 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 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. Michael Kors features distinctive designs, materials and craftsmanship with a jet-set aesthetic that combines stylish elegance and a sporty attitude. Michael Kors offers three primary collections: the Michael Kors Collection luxury line, the MICHAEL Michael Kors accessible luxury line and the Michael Kors Mens line. The Michael Kors Collection establishes the aesthetic authority of the entire brand and is carried by many of our retail stores, our e-commerce sites, as well as in the finest luxury department stores in the world. MICHAEL Michael Kors has a strong focus on accessories, in addition to offering footwear and apparel, and addresses the significant demand opportunity in accessible luxury goods.We have also been developing our men’s business in recognition of the significant opportunity afforded by the Michael Kors brand’s established fashion authority and the expanding men’s market. 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. Dollars. 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. 29 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 We operate in three reportable segments, which are as follows: Versace We generate revenue through the sale of Versace luxury ready-to-wear, accessories, footwear and home furnishings through directly operated Versace boutiques throughout North America (United States and Canada), EMEA (Europe, Middle East and Africa) and certain parts of Asia, as well as through Versace outlet stores and e-commerce sites. 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. Jimmy Choo 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. Michael Kors We generate revenue through the sale of Michael Kors products through four primary Michael Kors retail store formats: “Collection” stores, “Lifestyle” stores (including concessions), outlet stores and e-commerce, through which we sell our products, as well as licensed products bearing our name, directly to the end consumer throughout the Americas, Europe and certain parts of Asia. Our Michael Kors e-commerce business includes e-commerce sites in the U.S., Canada and certain parts of Europe and Asia. 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 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. 30 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 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), impairment costs and COVID-19 related charges. The segment structure is consistent with how our chief operating decision maker plans and allocates resources, manages the business and assesses performance. 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 June 27, 2020 June 29, 2019 Total revenue: Versace $ 93 $ 207 Jimmy Choo 51 158 Michael Kors 307 981 Total revenue $ 451 $ 1,346 (Loss) income from operations: Versace $ (41) $ (3) Jimmy Choo (29) 11 Michael Kors (48) 201 Total segment (loss) income from operations (118) 209 Less: Corporate expenses (31) (33) Restructuring and other charges (8) (15) Impairment of assets — (97) COVID-19 related charges (1) (5) — Total (loss) income from operations $ (162) $ 64 ___________________ (1) COVID-19 related charges primarily relate to severance costs, partially offset by a credit loss of $(6) million. 31 The following table presents our global network of retail stores and wholesale doors by brand: As of June 27, 2020 June 29, 2019 Number of full price retail stores (including concessions): Versace 154 152 Jimmy Choo 181 173 Michael Kors 549 583 884 908 Number of outlet stores: Versace 50 44 Jimmy Choo 47 42 Michael Kors 273 270 370 356 Total number of retail stores 1,254 1,264 Total number of wholesale doors Versace 818 795 Jimmy Choo 535 581 Michael Kors 2,829 3,191 4,182 4,567 The following table presents our retail stores by geographic location: As of As of June 27, 2020 June 29, 2019 Versace Jimmy Choo Michael Kors Versace Jimmy Choo Michael Kors Store count by region: The Americas 30 47 365 28 44 387 EMEA 59 76 180 56 73 184 Asia 115 105 277 112 98 282 204 228 822 196 215 853 Key Consolidated Performance Indicators and Statistics 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 June 27, 2020 June 29, 2019 Total revenue $ 451 $ 1,346 Gross profit as a percent of total revenue 67.0 % 62.0 % (Loss) income from operations $ (162) $ 64 (Loss) income from operations as a percent of total revenue (35.9) % 4.8 % Seasonality We experience certain effects of seasonality with respect to our business. 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. 32 Critical Accounting Policies 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. Critical accounting policies are those that are the most important to the portrayal of our results of operations and financial condition and that require our most difficult, subjective and complex judgments to make estimates about the effect of matters that are inherently uncertain. In applying such policies, we must use certain assumptions that are based on our informed judgments, assessments of probability and best estimates. Estimates, by their nature, are subjective and are based on analysis of available information, including current and historical factors and the experience and judgment of management. We evaluate our assumptions and estimates on an ongoing basis. 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. 33 Results of Operations 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 June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 Statements of Operations Data: Total revenue $ 451 $ 1,346 $ (895) (66.5) % Cost of goods sold 149 512 (363) (70.9) % 33.0 % 38.0 % Gross profit 302 834 (532) (63.8) % 67.0 % 62.0 % Selling, general and administrative expenses 402 598 (196) (32.8) % 89.1 % 44.4 % Depreciation and amortization 54 60 (6) (10.0) % 12.0 % 4.5 % Impairment of assets — 97 (97) NM — % 7.2 % Restructuring and other charges 8 15 (7) (46.7) % 1.8 % 1.1 % Total operating expenses 464 770 (306) (39.7) % 102.9 % 57.2 % (Loss) income from operations (162) 64 (226) NM (35.9) % 4.8 % Other income, net (1) (2) 1 (50.0) % (0.2) % (0.1) % Interest expense, net 17 13 4 30.8 % 3.8 % 1.0 % Foreign currency (gain) loss (3) 2 (5) NM (0.7) % 0.1 % (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 ___________________ NM Not meaningful Total Revenue 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 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 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 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. 34 Selling, General and Administrative Expenses 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 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 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). (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, 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). 35 Foreign Currency (Gain) Loss 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. 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) 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 Versace Three Months Ended % Change (dollars in millions) June 27, 2020 June 29, 2019 $ Change As Reported Constant Currency Revenues $ 93 $ 207 $ (114) (55.1) % (54.1) % Loss from operations (41) (3) (38) NM Operating margin (44.1) % (1.4) % ___________________ NM Not meaningful Revenues 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 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. 36 Jimmy Choo Three Months Ended % Change (dollars in millions) June 27, 2020 June 29, 2019 $ Change As Reported Constant Currency Revenues $ 51 $ 158 $ (107) (67.7) % (67.7) % (Loss) income from operations (29) 11 (40) NM Operating margin (56.9) % 7.0 % ___________________ NM Not meaningful Revenues 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. Michael Kors Three Months Ended % Change (dollars in millions) June 27, 2020 June 29, 2019 $ Change As Reported Constant Currency Revenues $ 307 $ 981 $ (674) (68.7) % (68.5) % (Loss) income from operations (48) 201 (249) NM Operating margin (15.6) % 20.5 % ___________________ NM Not meaningful Revenues 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. 37 Liquidity and Capital Resources Liquidity Our primary sources of liquidity are the cash flows generated from our operations, along with borrowings available under our credit facilities and available cash and cash equivalents. Our primary use of this liquidity is to fund our ongoing cash requirements, including working capital requirements, acquisitions, debt repayments, investment in information systems infrastructure, global retail store construction, expansion and renovation, distribution and corporate facilities, construction and renovation of shop-in-shops, share repurchases and other corporate activities. 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 $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): As of June 27, 2020 March 28, 2020 Balance Sheet Data: Cash and cash equivalents $ 207 $ 592 Working capital $ (100) $ 493 Total assets $ 7,533 $ 7,946 Short-term debt $ 191 $ 167 Long-term debt $ 1,577 $ 2,012 Three Months Ended June 27, 2020 June 29, 2019 Cash Flows Provided By (Used In): Operating activities $ 67 $ 158 Investing activities (32) (32) Financing activities (420) (138) Effect of exchange rate changes — — Net decrease in cash and cash equivalents and restricted cash $ (385) $ (12) Cash Provided by Operating Activities 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 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. 38 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): As of June 27, 2020 March 28, 2020 Senior Unsecured Revolving Credit Facility: Revolving Credit Facility (excluding up to a $500 million accordion feature) (1) Total Availability $ 1,230 $ 1,000 Borrowings outstanding 270 681 Letter of credit outstanding 22 18 Remaining availability $ 938 $ 301 Term Loan Facility ($1.6 billion) Borrowings Outstanding, net of debt issuance costs (2) $ 985 $ 1,010 Remaining availability $ — $ — 4.000% Senior Notes Borrowings Outstanding, net of debt issuance costs and discount amortization (2) $ 446 $ 446 Other Borrowings (2) $ 4 $ 3 Hong Kong Uncommitted Credit Facility: Total availability (100 million Hong Kong Dollars) $ 13 $ 14 Borrowings outstanding (85 million Hong Kong Dollars) (3) 11 — Bank guarantees outstanding (4 million Hong Kong Dollars) 1 1 Remaining availability (11 million and 96 million Hong Kong Dollars) $ 1 $ 13 China Uncommitted Credit Facility: Borrowings outstanding $ — $ — Total and remaining availability (100 million Chinese Yuan) $ 14 $ 14 Japan Credit Facility: Total availability (1.0 billion Japanese Yen) $ 9 $ 9 Borrowings outstanding (223 million Japanese Yen) (3) 2 — Remaining availability (777 million and 1.0 billion Japanese Yen) $ 7 $ 9 Versace Uncommitted Credit Facilities: Total availability (55 million and 52 million Euro) $ 61 $ 58 Borrowings outstanding (45 million and 35 million Euro) (3) 50 39 Remaining availability (10 million and 17 million Euro) $ 11 $ 19 Total borrowings outstanding (1) $ 1,768 $ 2,179 Total remaining availability $ 971 $ 356 39 _____________________________ (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 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. See Note 9 in the accompanying financial statements and Note 12 in our Fiscal 2020 Annual Report on Form 10-K for detailed information relating to our credit facilities and debt obligations. Share Repurchase Program 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 June 27, 2020 June 29, 2019 Cost of shares repurchased under share repurchase program $ — $ — Fair value of shares withheld to cover tax obligations for vested restricted share awards 1 2 Total cost of treasury shares repurchased $ 1 $ 2 Shares repurchased under share repurchase program — — Shares withheld to cover tax withholding obligations 38,119 58,304 38,119 58,304 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. This program may be suspended or discontinued at any time. See Note 13 to the accompanying consolidated financial statements for additional information. 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 2020 Form 10-K for a detailed disclosure of our other contractual obligations and commitments as of March 28, 2020. 40 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 $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. Recent Accounting Pronouncements See Note 2 to the accompanying interim consolidated financial statements for recently issued accounting standards, which may have an impact on our financial statements and/or disclosures upon adoption. 41