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Item 7. Management’s Discussion and Analysis

2021-05-26 compared with 2020-07-08 · 216 added, 203 removed, 374 unchanged (53% of the section changed)

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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 Annual Report on Form 10-K.

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.

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 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.

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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 remain closed 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;

These risks, uncertainties and other factors include the impact of 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 and to successfully execute our growth strategies;

the risk of disruptions to the Company’s businesses;

risks associated with operating in international markets and our global sourcing activities;

the risk of cybersecurity threats and privacy or data security breaches;

the negative effects of events on the market price of the Company’s ordinary shares and its operating results;

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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.

In addition, certain categories, such as fragrances 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.

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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 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.

Our Michael Kors brand was launched 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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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.

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.

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COVID-19 Pandemic.

A novel strain of coronavirus commonly referred to as COVID-19 has spread rapidly across the globe in recent months, including throughout all major geographies in which we operate (the Americas, EMEA and Asia), resulting in adverse economic conditions and business disruptions, as well as significant volatility in global financial markets.

A novel strain of coronavirus commonly referred to as COVID-19 has spread rapidly across the globe, including throughout all major geographies in which we operate (the Americas, EMEA and Asia), resulting in adverse economic conditions and business disruptions, as well as significant volatility in global financial markets.

Governments worldwide have imposed varying degrees of preventative and protective actions, such as temporary travel bans, forced business closures, and stay-at-home orders, all in an effort to reduce the spread of the virus.

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Retail traffic also continues to be challenging in those regions in which our stores are open.

Additionally, our stores in the Americas and in Europe closed mid-March, and although a significant number of stores have since reopened, a large number of stores remain closed.

Additionally, our stores in the Americas and in Europe closed mid-March 2020, and although the majority of our stores have since reopened, certain stores remain closed due to local government mandates.

Our wholesale business has also been adversely affected, particularly in the Americas and Europe, as a result of department store closures and lower traffic and consumer demand.

In response to the COVID-19 pandemic, we have taken preemptive actions to preserve cash and strengthen our liquidity, including:

• for Fiscal 2021, our board of directors annual total cash compensation will be reduced by 50%;

In response to the COVID-19 pandemic, during Fiscal 2021 we took a number of preemptive actions to preserve cash and strengthen our liquidity, including:

• for Fiscal 2021, our board of directors annual total cash compensation was reduced;

• temporarily foregoing and reducing executive compensation for Fiscal 2021.

In addition, the company reduced overall salaries at various levels throughout the organization by approximately 20%;

In addition, the company reduced overall salaries at various levels throughout the organization;

• reducing our corporate workforce in order to generate additional payroll savings;

• temporarily furloughing or reducing work hours for a significant portion of our employees who nevertheless remain eligible for employee benefits during such period;

• temporarily furloughing or reducing work hours for a significant portion of our retail employees who nevertheless remain eligible for employee benefits during such period;

• applying for national payroll subsidy programs in various countries throughout Europe to further reduce payroll expense;

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• minimizing operating expenses, including decreasing marketing spend, delaying or canceling select new store openings, reducing external third-party services and halting non-critical systems implementations in order to reduce costs;

• temporarily suspended our ERP project

• temporarily suspending our ERP project;

• suspending the remaining $400 million under our current share repurchase program;

• adding new approximately $230 million 364-day Revolver due June 2021 to bolster cash availability.

• adding a $230 million 364-day Revolver due June 2021 to bolster cash availability.

The COVID-19 pandemic remains highly volatile and continues to evolve on a daily basis.

Accordingly, we cannot predict for how long and to what extent this crisis will impact our business operations or the global economy as a whole.

We will continue to assess our operations location-by-location, taking into account the guidance of local governments and global health organizations to determine when our operations can begin returning to normal course of business.

See Item 1A — "The COVID-19 pandemic could have a material adverse effect on our business and results of operations" for additional discussion regarding risks to our business associated with the COVID-19 pandemic.

See Item 1A — "Risk Factors" — “The COVID-19 pandemic may continue to have a material adverse effect on our business and results of operations.” 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 acquisitions, the formation of various joint ventures with international partners and continuing with our international licensing arrangements.

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.

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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.

Although 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.

We have finalized the planned store closures under the Michael Kors Retail Fleet Optimization Plan as of the end of Fiscal 2020.

As of March 28, 2020, we closed at total of 143 stores at a total cost of $99 million and recorded restructuring charges of $5 million and $41 million in Fiscal 2020 and Fiscal 2019, respectively.

Collectively, we continue to anticipate ongoing savings as a result of the store closures and lower depreciation associated with the impairment charges being recorded.

In addition, during the second quarter of Fiscal 2021, we announced that we plan to close approximately 170 of our full-price retail stores over the next two years, in order to improve the profitability of our retail store fleet.

In addition, last year we 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.

As of March 27, 2021, we have closed a total of 101 stores relating to the plan.

We recorded net restructuring charges of $5 million during Fiscal 2021 relating to the plan.

See Item 9B - Other Information for additional information.

Collectively, we continue to anticipate ongoing savings as a result of the store closures and lower depreciation associated with the impairment charges being recorded.

Foreign currency fluctuation.

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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.

See Item 1A — "Risk Factors" — "We primarily use foreign manufacturing contractors and independent third-party agents to source our finished goods and our business is subject to risks inherent in global sourcing activities, including disruptions or delays in manufacturing or shipments." for additional discussion.

Costs of Manufacturing and Tariffs.

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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.

For example, we have historically received benefits from duty-free imports on certain products from certain countries pursuant to the U.S.

Generalized System of Preferences ("GSP") program.

The GSP program expired on December 31, 2020.

If the GSP program is not renewed or otherwise made retroactive, we could experience significant additional duties and our gross margin could be negatively impacted.

Additionally, we are subject to government import regulations, including U.S.

Customs and Border Protection ("CBP") withhold release orders.

The imposition of taxes, duties and quotas, the withdrawal from or material modification to trade agreements, and/or if CBP detains shipments of our goods pursuant to a withhold release order could have a material adverse effect on our business, results of operations and financial condition.

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

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We operate in three reportable segments, which are as follows:

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.

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.

We generate revenue through the sale of Versace luxury ready-to-wear, accessories and footwear 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.

We generate revenue through the sale of Jimmy Choo luxury goods through directly operated Jimmy Choo retail and outlet 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.

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.

“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 consumers 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.

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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.

Such costs primarily include certain administrative, corporate occupancy, shared service 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 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 Fiscal 2020, Fiscal 2019 and Fiscal 2018 (in millions):

The following table presents our total revenue and income (loss) from operations by segment for Fiscal 2021, Fiscal 2020 and Fiscal 2019 (in millions):

Fiscal Years Ended

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Total revenue $ 4,060 $ 5,551 $ 5,238

(Loss) Income from operations:

Income (loss) from operations:

Versace $ 21 $ (8) $ (11)

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Corporate expenses (152) (152) (93)

Restructuring and other charges (42) (124) (102)

Impairment of assets (316) (708) (21)

COVID-19 related charges (1)

Total (loss) income from operations $ (192) $ 735 $ 749

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(1) COVID-19 related charges primarily includes incremental inventory reserves and bad debt provision of $92 million and $25 million, respectively, recorded within costs of goods sold and selling, general and administrative expenses in the consolidated statements of operation.

Restructuring and other charges (32) (42) (124)

Total income (loss) from operations $ 19 $ (192) $ 735

(1) COVID-19 related charges during Fiscal 2021 primarily include net incremental inventory reserves and severance expense of $10 million and $24 million, respectively, recorded within costs of goods sold and selling, general and administrative expenses in the consolidated statements of income and comprehensive (loss) income.

COVID-19 related charges during Fiscal 2020, primarily include additional inventory reserves and credit losses of $92 million and $25 million, respectively, recorded within costs of goods sold and selling, general and administrative expenses in the consolidated statements of operations and comprehensive (loss) income.

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

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Gross profit as a percent of total revenue 64.0 % 58.9 % 60.7 %

(Loss) income from operations $ (192) $ 735 $ 749

(Loss) income from operations as a percent of total revenue (3.5) % 14.0 % 15.9 %

Income (loss) from operations $ 19 $ (192) $ 735

Income (loss) from operations as a percent of total revenue 0.5 % (3.5) % 14.0 %

Critical Accounting Policies

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These agreements allow for the use of our tradenames to sell our branded products in specific geographic regions.

During Fiscal 2018, we launched our Michael Kors customer loyalty program, which allows customers to earn points on qualifying purchases toward monetary and non-monetary rewards, which may be redeemed for purchases at our retail stores and e-commerce sites.

We allocate a portion of the initial sales transaction based on the estimated relative fair value of the benefits based on projected timing of future redemptions and historical activity.

These amounts include estimated “breakage” for points that are not expected to be redeemed.

The contract liability, net of an estimated “breakage,” is recorded as a reduction to revenue in the consolidated statements of income and comprehensive income.

The contract liability was $2 million and $3 million as of March 28, 2020 and March 30, 2019, respectively.

Our breakage and other assumptions used to determine the estimated fair value of benefits are estimates, which could vary significantly from actual benefits that will be redeemed in the future.

Our inventory costs include amounts paid to independent manufacturers, plus duties and freight to bring the goods to the Company’s warehouses, as well as shipments to stores.

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Long-lived Assets

We evaluate all long-lived assets, including operating lease right-of-use assets, property and equipment and definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable.

For the purposes of impairment testing, we group our long-lived assets according to their lowest level of use, such as aggregating and capitalizing all construction costs related to a retail store into right-of-use assets, leasehold improvements and those related to our wholesale business into shop-in-shops.

Our leasehold improvements are typically amortized over the life of the store lease, including highly probable renewals, and our shop-in-shops are amortized over a useful life of three or four years.

such asset may not be recoverable.

For the purposes of impairment testing, we group long-lived assets at the lowest level of identifiable cash flow.

Our leasehold improvements are typically amortized over the life of the store lease, including reasonably assured renewals and our shop-in-shops are amortized over a useful life of three or four years.

Our impairment testing is based on our best estimate of the future operating cash flows.

If the sum of our estimated undiscounted future cash flows associated with the asset is less than the asset’s carrying value, we recognize an impairment charge, which is measured as the amount by which the carrying value exceeds the fair value of the asset.

The fair values determined by management require significant judgment and include certain assumptions regarding future sales and expense growth rates, discount rates and estimates of current real estate market values.

If the sum of our estimated undiscounted future cash flows associated with the asset is less than the asset’s carrying value, we would recognize an impairment charge, which is measured as the amount by which the carrying value exceeds the fair value of the asset.

As such, these estimates may differ from actual results and are affected by future market and economic conditions.

During Fiscal 2020, Fiscal 2019 and Fiscal 2018, we recorded impairment charges of $357 million, $21 million and $33 million, respectively, related to our retail long-lived assets.

The impairment charges recorded during Fiscal 2020 primarily related to operating lease right-of-use assets and the impairment charges recorded during Fiscal 2019 and Fiscal 2018 primarily related to property and equipment and lease rights for underperforming Michael Kors retail stores.

Please refer to Note 8, Note 9 and Note 14 to the accompanying consolidated audited financial statements for additional information.

During Fiscal 2021, Fiscal 2020 and Fiscal 2019, we recorded impairment charges of $158 million, $357 million and $21 million, respectively, which were primarily related to operating lease right-of-use assets and fixed assets of our retail store locations.

Please refer to Note 8 and Note 14 of the accompanying consolidated audited financial statements for additional information.

Goodwill and Other Indefinite-lived Intangible Assets

We record intangible assets based on their fair value on the date of acquisition.

Goodwill is recorded for the difference between the fair value of the purchase consideration over the fair value of the net identifiable tangible and intangible assets acquired.

The brand intangible assets recorded in connection with the acquisitions of Versace and Jimmy Choo were determined to be an indefinite-lived intangible assets, which are not subject to amortization.

Goodwill is recorded as the difference between the fair value of the purchase consideration and the fair value of the net identifiable tangible and intangible assets acquired.

The brand intangible assets recorded in connection with the acquisitions of Versace and Jimmy Choo were determined to be indefinite-lived intangible assets, which are not subject to amortization.

We perform an impairment assessment of goodwill, as well as the Versace brand and Jimmy Choo brand intangible assets on an annual basis, or whenever impairment indicators exist.

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When performing a qualitative test, we assess various factors including industry and market conditions, macroeconomic conditions and performance of our businesses.

If the results of the qualitative assessment indicate that it is more likely than not that our goodwill and other indefinite-lived intangible assets are impaired, a quantitative impairment analysis would be performed to determine if impairment is required.

If the results of the qualitative assessment indicate that it is more likely than not that our goodwill and other indefinite-lived intangible assets are impaired, a quantitative impairment analysis is performed to determine if impairment is required.

We may also elect to perform a quantitative analysis of goodwill and our indefinite-lived intangible assets initially rather than using a qualitative approach.

The impairment testing for goodwill is performed at the reporting unit level.

The valuation methods used in the quantitative fair value assessment include a discounted cash flow analysis, which requires management to make certain assumptions and estimates regarding industry trends and future profitability of our reporting units.

We use industry accepted valuation models and set criteria that are reviewed and approved by various levels of management and, in certain instances, we engage independent third-party valuation specialists for advice.

To determine the fair value of a reporting unit, we use a combination of the income and market approaches, when applicable.

We believe the blended use of both models, when applicable, compensates for the inherent risk associated with either model if used on a stand-alone basis, and this combination is indicative of the factors a market participant would consider when performing a similar valuation.

If the fair value of a reporting unit exceeds the related carrying value, the reporting unit’s goodwill is considered not to be impaired and no further testing is performed.

If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recorded for the difference.

This valuation is affected by certain estimates, including our future revenue growth rates, margins and discount rates.

Future events could cause us to conclude that impairment indicators exist, and, therefore, that goodwill may be impaired.

When performing a quantitative impairment assessment of our brand indefinite-lived intangible assets, the fair value of the Versace and the Jimmy Choo brands is estimated using a discounted cash flow analysis based on the "relief from royalty" method, assuming that a third party would be willing to pay a royalty in lieu of ownership for this intangible asset.

This approach is dependent on many factors, including estimates of future growth, royalty rates, and discount rates.

These valuations are affected by certain estimates, including future revenue growth rates, future operating expense growth rates, gross margins and discount rates.

Future events could cause us to conclude that impairment indicators exist, and goodwill may be impaired.

When performing a quantitative impairment assessment of our brand intangible assets, the fair value of the Versace and the Jimmy Choo brands is estimated using a discounted cash flow analysis based on the "relief from royalty" method, assuming that a third party would be willing to pay a royalty in lieu of ownership for this intangible asset.

This approach is dependent on many factors, including estimates of future revenue growth rates, royalty rates and discount rates.

Actual future results may differ from these estimates.

Impairment loss is recognized when the estimated fair value of the indefinite-lived brand intangible assets is less than its carrying amount.

During the fourth quarter of Fiscal 2020, we performed our annual goodwill and indefinite-lived intangible assets impairment analysis for our three brands.

Based on the results of our qualitative impairment assessment, we concluded that it is more likely than not that the fair value of the Michael Kors’ reporting units exceeded their carrying value and, therefore, were not impaired.

We elected to perform our annual goodwill and brand indefinite-lived impairment analysis for both the Versace and Jimmy Choo using a quantitative approach, using a discounted cash flow analysis to estimate the fair values of each brands' reporting units.

Based on the results of these assessments, we concluded that the fair values of the Jimmy Choo Retail and Jimmy Choo Licensing reporting units, along with the Jimmy Choo brand indefinite-lived intangible asset did not exceed the related carrying amounts.

Jimmy Choo expects to experience a reduction in profitability trends, primarily related to the ongoing impact of the COVID-19 pandemic, resulting in declines in sales driven by the full and partial closures of a significant portion of our stores globally.

Accordingly, we recorded impairment charges of $171 million related to the Jimmy Choo Retail and Jimmy Choo Licensing reporting units and $180 million related to the Jimmy Choo brand intangible asset during Fiscal 2020.

The impairment charges were recorded within impairment of assets on our consolidated statement of operations and comprehensive income for the fiscal year ended March 28, 2020.

If the discount rate increased by 0.5%, it may cause an additional impairment of $36 million and $13 million for the Jimmy Choo Retail and Licensing reporting units and $21 million for Jimmy Choo Brand intangible assets.

See Note 9 to the accompanying audited financial statements for information relating to its annual impairment analysis performed during the fourth quarter of Fiscal 2020.

We also elected to perform our annual goodwill and brand impairment analysis for Versace using a quantitative approach, using a discounted cash flow analysis to estimate the fair values of each reporting unit.

We concluded that the fair values of the Versace reporting units and the brand intangible asset exceeded the related carrying amounts and there were no impairment recorded.

The fair value of the Versace Retail reporting unit, which has a goodwill balance of $213 million, is 4% higher than the carrying value.

The fair value of the Versace wholesale brand intangible asset, which has a balance of $312 million, is 3% higher than the carrying value.

It is possible that our conclusions regarding impairment or recoverability of goodwill or other indefinite intangible assets could change in future periods if, for example, (i) our businesses do not perform as projected, (ii) overall economic conditions in future years vary from current assumptions, (iii) business conditions or strategies change from our current assumptions, (iv) the change of discount rates, or (v) the identification of our reporting units change, among other factors.

An impairment loss is recognized when the estimated fair value of the brand intangible assets is less than its carrying amount.

During the fourth quarter of Fiscal 2021, we performed our annual goodwill and indefinite-lived intangible assets impairment analysis for each brand.

Based on qualitative impairment assessment of the Michael Kors reporting units, we concluded that it is more likely than not that the fair value of the Michael Kors reporting units exceeded its carrying value and, therefore, was not impaired.

We elected to perform quantitative impairment analyses for both the Versace and Jimmy Choo reporting units, using a combination of income and market approaches to estimate the fair values of each brand's reporting units.

We also elected to perform an impairment analysis for both the Versace and Jimmy Choo brand intangible assets using an income approach to estimate the fair values.

Based on the results of these assessments, we determined there was no impairment

loss for the Jimmy Choo retail reporting unit as its fair value is approximately 3% higher than the carrying value, which has a goodwill balance of $221 million.

We also concluded that the fair values of the Versace reporting units and the brand intangible assets exceeded the related carrying amounts and no impairment was required.

The fair value of the Versace retail reporting unit, Versace wholesale reporting unit and Versace licensing reporting unit are at least 20% higher than their respective carrying values.

The fair value of the Versace retail brand and Versace wholesale brand are more than 10% higher than their respective carrying values.

However, we concluded that the fair values of the Jimmy Choo wholesale and Jimmy Choo licensing reporting units, along with the Jimmy Choo brand intangible assets, did not exceed their related carrying amounts.

These impairment charges were primarily related to higher discount rates in the current year driven by a change in market factors as well as a shift in expected revenue and earnings mix to the retail segment.

Accordingly, we recorded a goodwill impairment charge of $94 million related to the Jimmy Choo wholesale and Jimmy Choo licensing reporting units and $69 million impairment charge related to the Jimmy Choo brand intangible assets during Fiscal 2021.

We recorded a goodwill impairment charge of $171 million related to the Jimmy Choo retail and Jimmy Choo licensing reporting units and $180 million impairment charge related to the Jimmy Choo brand intangible assets during Fiscal 2020.

The impairment charges were recorded within impairment of assets on our consolidated statement of operations and comprehensive (loss) income for the fiscal years ended March 27, 2021 and March 28, 2020.

We did not incur any impairment charges in Fiscal 2019.

See Note 9 to the accompanying audited financial statements for information relating to the annual impairment analysis performed during the fourth quarters of Fiscal 2021, Fiscal 2020 and Fiscal 2019.

It is possible that our conclusions regarding impairment or recoverability of goodwill or other indefinite intangible assets could change in future periods if, for example, (i) our businesses do not perform as projected, (ii) overall economic conditions in future years vary from current assumptions, (iii) business conditions or strategies change from our current assumptions, (iv) discount rates change, (v) market multiples change or (vi) the identification of our reporting units change, among other factors.

Such changes could result in a future impairment charge of goodwill or other indefinite intangible assets.

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The grant date fair value of share options is calculated using the Black-Scholes option pricing model, which requires us to use subjective assumptions.

The closing market price at the grant date is used to determine the grant date fair value of restricted share units (“RSUs”) and performance-based RSUs.

The closing market price at the grant date is used to determine the grant date fair value of restricted stock units (“RSUs”) and performance-based RSUs.

These values are recognized as expense over the requisite service period, net of estimated forfeitures, based on expected attainment of pre-established performance goals for performance grants, or the passage of time for those grants which have only time-based vesting requirements.

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When the inventory related to forecasted inventory purchases that are being hedged is sold to a third party, the gains or losses deferred in accumulated other comprehensive income (loss) are recognized within cost of goods sold.

We use regression analysis to assess effectiveness of derivative instruments that are designated as hedges, which compares the change in the fair value of the derivative instrument to the change in the related hedged item.

We use regression analysis to assess effectiveness of derivative instruments that are designated as hedges, which compares the change

in the fair value of the derivative instrument to the change in the related hedged item.

Effectiveness is assessed on a quarterly basis and any portion of the designated hedge contracts deemed ineffective is recorded to foreign currency (gain) loss.

If the hedge is no longer expected to be highly effective in the future, future changes in the fair value are recognized in earnings.

For those contracts that are not designated as hedges, changes in the fair value are recorded in foreign currency gain (loss) in our consolidated statements of operations.

For those contracts that are not designated as hedges, changes in the fair value are recorded in foreign currency (gain) loss in our consolidated statements of operations and comprehensive (loss) income.

Net Investment Hedges

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The net gain or loss on net investment hedges is reported within foreign currency translation gains and losses (“CTA”), as a component of accumulated other comprehensive income (loss) on our consolidated balance sheets.

Interest accruals and coupon payments are recognized directly in interest expense in our statement of operations and comprehensive income.

Interest accruals and coupon payments are recognized directly in interest expense in our consolidated statements of operations and comprehensive (loss) income.

Upon discontinuation of a hedge, all previously recognized amounts remain in CTA until the net investment is sold, diluted or liquidated.

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The early termination of these hedges resulted in the receipt of $296 million in cash during the fourth quarter of Fiscal 2020.

During Fiscal 2021, the Company resumed its normal hedging program and entered into multiple fixed-to-fixed cross-currency swap agreements with aggregate notional amounts of $3 billion to hedge its net investment in Euro-denominated subsidiaries.

Interest Rate Swap Agreements

We also use interest rate swap agreements to hedge the variability of our cash flows resulting from floating interest rates on our borrowings.

When an interest rate swap agreement qualifies for hedge accounting as a cash flow hedge, the changes in the fair value are recorded within equity as a component of accumulated other comprehensive income (loss) and are reclassified into interest expense in the same period during which the hedged transactions affect earnings.

Deferred income tax assets and liabilities reflect temporary differences between the tax basis and financial reporting basis of our assets and liabilities and are determined using the tax rates and laws in effect for the periods in which the differences are expected to reverse.

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In response to the COVID-19 pandemic, local governments enacted, or are in the process of enacting, measures to provide aid and economic stimulus to companies.

On March 27, 2020, the United States government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which includes various tax provisions aimed at providing economic relief.

On March 27, 2020, the United States government enacted the Coronavirus

Aid, Relief, and Economic Security Act (the “CARES Act”), which includes various tax provisions aimed at providing economic relief.

We realized a slight favorable cash flow impact in Fiscal 2021 as a result of the deferral of income tax payments under the CARES Act and other local government relief initiatives.

We also considered the significant adverse impact of COVID-19 on our business in assessing the realizability of our deferred tax assets.

Based on this assessment, we determined that valuation allowances of approximately $65 million were needed against a portion of our non-US deferred tax assets.

Based on this assessment, we determined that valuation allowances of approximately $65 million were needed against a portion of our non-US deferred tax assets in Fiscal 2020 and increased to $95 million in Fiscal 2021.

We will continue to monitor the impacts of COVID-19 on our ability to realize our deferred tax assets and on the tax provision.

Another provision of the CARES Act applicable to us is the modification to allow for a five-year carryback of net operating losses.

We recognized a $13 million benefit from the net operating loss (“NOL”) carryback claim in Fiscal 2021.

This reflects our provisional estimate and is subject to adjustment as estimation approaches are refined.

New Accounting Pronouncements

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A discussion regarding our results of operations for Fiscal 2021 compared to Fiscal 2020 is presented below.

A discussion regarding our results of operations for Fiscal 2019 compared to Fiscal 2018 can be found under Item 7 in our Annual Report on Form 10-K for the year ended March 30, 2019, filed with the SEC on May 29, 2019, which is available on the SEC’s website at www.sec.gov and our investor website at www.capriholdings.com .

A discussion regarding our results of operations for Fiscal 2020 compared to Fiscal 2019 can be found under Item 7 in our Annual Report on Form 10-K for the year ended March 28, 2020, filed with the SEC on July 8, 2020, which is available on the SEC’s website at www.sec.gov and our investor website at www.capriholdings.com .

Comparison of Fiscal 2021 with Fiscal 2020

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Depreciation and amortization 212 249 (37) (14.9) % 5.2 % 4.5 %

Impairment of assets 708 21 687 NM 12.8 % 0.4 %

Impairment of assets 316 708 (392) (55.4) % 7.8 % 12.8 %

Restructuring and other charges 32 42 (10) (23.8) % 0.8 % 0.8 %

42 124 (82) (66.1) % 0.8 % 2.4 %

Total operating expenses 2,578 3,463 (885) (25.6) % 63.5 % 62.4 %

(Loss) income from operations (192) 735 (927) (126.1) % (3.5) % 14.0 %

Income (loss) from operations 19 (192) 211 NM 0.5 % (3.5) %

Other income, net (7) (6) (1) (16.7) % (0.2) % (0.1) %

Interest expense, net 18 38 (20) (52.6) % 0.3 % 0.7 %

Foreign currency loss 11 80 (69) (86.3) % 0.2 % 1.5 %

(Loss) income before provision for income taxes (215) 621 (836) (134.6) % (3.9) % 11.9 %

Provision for income taxes 10 79 (69) (87.3) % 0.2 % 1.5 %

Net (loss) income (225) 542 (767) (141.5) %

Net loss attributable to noncontrolling interests

(2) (1) (1) NM

Net (loss) income attributable to Capri $ (223) $ 543 $ (766) (141.1) %

___________________

Interest expense, net 43 18 25 NM 1.1 % 0.3 %

Foreign currency (gain) loss (20) 11 (31) NM (0.5) % 0.2 %

Income (loss) before provision for income taxes 3 (215) 218 NM 0.1 % (3.9) %

Provision for income taxes 66 10 56 NM 1.6 % 0.2 %

Net loss (63) (225) 162 (72.0) %

Net loss attributable to noncontrolling interests (1) (2) 1 NM

Net loss attributable to Capri $ (62) $ (223) $ 161 (72.2) %

NM Not meaningful

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

Total Revenue

Total revenue increased $313 million, or 6.0%, to $5.551 billion for Fiscal 2020, compared to $5.238 billion for Fiscal 2019, which included net unfavorable foreign currency effects of $45 million primarily related to the weakening of the Euro, the Chinese Renminbi, the British Pound and the Canadian Dollar against the U.S.

Total revenue decreased $1.491 billion, or 26.9%, to $4.060 billion for Fiscal 2021, compared to $5.551 billion for Fiscal 2020, which included net favorable foreign currency effects of $107 million primarily related to the strengthening of the Euro, the Chinese Renminbi and the British Pound against the U.S.

Dollar in Fiscal 2021, as compared to Fiscal 2020.

On a constant currency basis, our total revenue increased $358 million, or 6.8%.

Total revenue for Fiscal 2020 included approximately $723 million of incremental revenue attributable to Versace, which was acquired and consolidated into our results of operations effective December 31, 2018.

The remaining decrease is attributable to lower Jimmy Choo and Michael Kors revenues, as compared to the prior year, which includes the adverse impact of COVID-19.

Gross profit increased $91 million, or 2.9%, to $3.271 billion during Fiscal 2020, compared to $3.180 billion for Fiscal 2019, which included net unfavorable foreign currency effects of $28 million.

Gross profit as a percentage of total revenue decreased 180 basis points to 58.9% during Fiscal 2020, compared to 60.7% during Fiscal 2019.

The decrease in gross profit margin was primarily attributable to incremental inventory reserves of $92 million recorded in connection with COVID-19 and lower gross profit for Michael Kors primarily driven by increased markdowns during Fiscal 2020, as compared to Fiscal 2019, partially offset by the inclusion of Versace, which benefited our gross margin 140 basis points.

On a constant currency basis, our total revenue decreased $1.598 billion, or 28.8%.

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

Gross profit decreased $674 million, or 20.6%, to $2.597 billion during Fiscal 2021, compared to $3.271 billion for Fiscal 2020, which included net favorable foreign currency effects of $64 million.

Gross profit as a percentage of total revenue increased 510 basis points to 64.0% during Fiscal 2021, compared to 58.9% during Fiscal 2020.

The increase in gross profit margin was primarily attributable to a higher gross profit margin for Michael Kors driven by a higher average unit price and favorable channel mix during Fiscal 2021, as compared to Fiscal 2020.

Total Operating Expenses

Total operating expenses increased $1.018 billion, or 41.6%, to $3.463 billion during Fiscal 2020, compared to $2.445 billion for Fiscal 2019, which included incremental operating expenses of $472 million associated with the recently acquired Versace business.

Our operating expenses included a net favorable foreign currency impact of approximately $56 million.

Total operating expenses decreased $885 million, or 25.6%, to $2.578 billion during Fiscal 2021, compared to $3.463 billion for Fiscal 2020.

Our operating expenses included a net unfavorable foreign currency impact of approximately $108 million.

Total operating expenses as a percentage of total revenue increased to 63.5% in Fiscal 2021, compared to 62.4% in Fiscal 2020.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $389 million, or 18.7%, to $2.464 billion during Fiscal 2020, compared to $2.075 billion for Fiscal 2019.

The increase in selling, general and administrative expenses was primarily due to incremental costs of $421 million associated with the recently acquired Versace business, which has been consolidated in our operations beginning on December 31, 2018, increased retail store and e-commerce related costs and bad debt expense related to COVID-19, partially offset by decreased rent and occupancy expense.

Selling, general and administrative expenses as a percentage of total revenue increased to 44.4% during Fiscal 2020, compared to 39.6% for Fiscal 2019, primarily due to the inclusion of expenses associated with the Versace business, increased retail store and e-commerce related costs and bad debt expense related to COVID-19 of $25 million.

Corporate unallocated expenses, which are included within selling, general and administrative expenses discussed above, but are not directly attributable to a reportable segment and exclude COVID-19 related charges, increased $59 million, or 63.4%, to $152 million in Fiscal 2020 as compared to $93 million in Fiscal 2019, primarily attributable to the inclusion of ERP system implementation costs in the current year.

Selling, general and administrative expenses decreased $446 million, or 18.1%, to $2.018 billion during Fiscal 2021, compared to $2.464 billion for Fiscal 2020, 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 49.7% during Fiscal 2021, compared to 44.4% for Fiscal 2020, primarily due to deleverage on lower revenue and increased e-commerce related costs as a percentage of total revenue.

Depreciation and Amortization

Depreciation and amortization increased $24 million, or 10.7%, to $249 million during Fiscal 2020, compared to $225 million for Fiscal 2019.

The increase in depreciation and amortization expense was primarily attributable to incremental depreciation and amortization expenses of $51 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 4.5% as a percentage of total revenue during Fiscal 2020, compared to 4.3% for Fiscal 2019.

Depreciation and amortization decreased $37 million, or 14.9%, to $212 million during Fiscal 2021, compared to $249 million for Fiscal 2020.

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 5.2% as a percentage of total revenue during Fiscal 2021, compared to 4.5% for Fiscal 2020 primarily due to lower revenues during Fiscal 2021 due to COVID-19.

Impairment of Assets

During Fiscal 2021, we recognized asset impairment charges of $316 million.

The increase was primarily related to the impairment of operating lease right-of-use assets, as well as the impairment of Jimmy Choo goodwill and its brand intangible assets as part of our annual impairment assessments (see Note 14 to the accompanying consolidated financial statements for additional information).

During Fiscal 2019, we recognized asset impairment charges of approximately $21 million, of which $17 million related to underperforming Michael Kors full-price retail store locations, some of which were closed as part of our Michael Kors Retail Fleet Optimization Plan.

The decrease was primarily related to lower impairment of operating lease right-of-use assets, as well as lower impairment of Jimmy Choo goodwill and its brand intangible assets.

During Fiscal 2020, we recognized asset impairment charges of approximately $708 million, which were primarily related to the impairment of operating right-of-use assets, as well as the impairment of Jimmy Choo goodwill and its brand intangible assets as part of our annual assessments (see Note 14 to the accompanying consolidated financial statements for additional information).

Restructuring and Other Charges

During Fiscal 2021, we recognized restructuring and other charges of $32 million, which included other costs of $27 million, primarily related to equity awards associated with the acquisition of Versace and closures of corporate locations during Fiscal 2021 and $5 million related to our Capri Retail Store Optimization Program.

During Fiscal 2020, we recognized restructuring and other charges of $42 million, which included restructuring charges of $8 million, primarily related to our Michael Kors Retail Fleet Optimization Plan and other costs of $34 million.

The other costs recorded during Fiscal 2020 included $24 million related to the acquisition of Versace, $9 million in connection with the Jimmy Choo acquisition, and $1 million in connection with the acquisition of Gozzi.

(see Note 11 to the accompanying consolidated financial statements for additional information).

During Fiscal 2019, we recognized restructuring and other charges of $124 million, which included restructuring charges of $45 million, primarily associated with our Michael Kors Retail Fleet Optimization Plan and other costs of $79 million, $52 million of which related to the Versace acquisition and $27 million related to the Jimmy Choo acquisition.

(Loss) Income from Operations

As a result of the foregoing, income from operations decreased $927 million, or 126.1%, to a loss from operations of $192 million during Fiscal 2020, compared to income from operations of $735 million for Fiscal 2019.

Income from operations as a percentage of total revenue decreased to (3.5)% in Fiscal 2020, compared to 14.0% in Fiscal 2019.

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

The other costs recorded during Fiscal 2020 primarily related to equity awards associated with the acquisition of Versace and Jimmy Choo (see Note 11 to the accompanying consolidated financial statements for additional information).

Income (Loss) from Operations

As a result of the foregoing, income (loss) from operations increased $211 million to income from operations of $19 million during Fiscal 2021, compared to a loss from operations of $192 million for Fiscal 2020.

Income (loss) from operations as a percentage of total revenue increased to 0.5% in Fiscal 2021, compared to (3.5)% in Fiscal 2020.

See Note 20 to the accompanying consolidated financial statements for a reconciliation of our segment operating income to total operating income.

Interest expense, net

Interest expense, net decreased $20 million, or 52.6%, to $18 million for Fiscal 2020, as compared to $38 million for Fiscal 2019, primarily due to a reduction of interest expense related to cross-currency swaps associated with our net investment hedge during Fiscal 2020, as compared to Fiscal 2019, largely offset by increased interest expense attributable to higher average borrowings outstanding in the current year (see Note 12 and Note 15 to the accompanying consolidated financial statements for additional information).

Foreign Currency Loss

We recognized a net foreign currency loss of $11 million during Fiscal 2020, 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 (see Note 15 to the accompanying consolidated financial statements for additional information).

We recognized a net foreign currency loss of $80 million during Fiscal 2019, primarily attributable to a $77 million loss related to forward foreign currency exchange derivative contracts to hedge the transaction price of the Versace acquisition (please refer to Note 15 to the accompanying consolidated financial statements for additional information).

Interest expense, net increased $25 million, to $43 million for Fiscal 2021 as compared to $18 million for Fiscal 2020, primarily due to a decrease of interest income attributable to lower average interest rates and lower average notional amount outstanding on our net investment hedges in the current year.

The decrease in interest income was largely offset by a decrease in interest expense attributable to lower average borrowings outstanding in the current year and the addition of an interest rate swap in the current year which converts the one-month Adjusted LIBOR interest rate on these borrowings to a fixed interest rate of 0.237% through December 2022 (see Note 12 and Note 15 to the accompanying consolidated financial statements for additional information).

Foreign Currency (Gain) Loss

We recognized a net foreign currency gain of $20 million during Fiscal 2021, primarily attributable to the remeasurement of U.S.

dollar-denominated intercompany payables with certain of our subsidiaries.

We recognized a net foreign currency loss of $11 million during Fiscal 2020, primarily attributable to the revaluation and settlement of certain of our accounts payable in currencies other than their functional currency, as well as the remeasurement of dollar-denominated intercompany loans with certain of our subsidiaries.

Provision for Income Taxes

We recognized $10 million of income tax expense during Fiscal 2020, compared with $79 million for Fiscal 2019.

Our effective tax rate for Fiscal 2020 was (4.7)%, compared to 12.7% for Fiscal 2019.

The decrease in our income tax provision was primarily due to the impact of a consolidated pre-tax loss as well as the impact of a release of income tax reserves during Fiscal 2020.

The decrease was partially offset by the effects of valuation allowances established on a portion of our non-US deferred tax assets, a lower favorable effect of our global financing activities during Fiscal 2020, compared to Fiscal 2019, as well as non-tax deductible goodwill impairment impacts.

The global financing activities are related to our previously disclosed 2014 move of our principal executive office from Hong Kong to the United Kingdom (“U.K.”) and decision to become a U.K.

We recognized $66 million of income tax expense on pre-tax income of $3 million during Fiscal 2021, compared with $10 million of income tax expense on a pre-tax loss of $215 million for Fiscal 2020.

Our effective tax rate for Fiscal 2021 was significantly higher than our effective tax rate in Fiscal 2020, and not a meaningful or comparable metric, primarily due to the relationship between our income tax expense and minimal pre-tax income in the current year.

The Fiscal 2021 income tax expense was higher than Fiscal 2020 primarily due to tax effects of changes in our geographic mix of earnings, a lower favorable effect of our global financing activities during Fiscal 2021 compared to Fiscal 2020, increases in uncertain tax positions during Fiscal 2021 as well as the impact of the United Kingdom’s increase in the enacted corporate income tax rate during Fiscal 2021.

The increase was partially offset by reduced effects of valuation allowances established on a portion of our non-US deferred tax assets, a release of a valuation allowance on a portion of our deferred tax assets, and a lower unfavorable impact of non-tax deductible goodwill impairment during Fiscal 2021, compared to Fiscal 2020.

The variance between Fiscal 2021 and Fiscal 2020 effective income tax rates is substantially affected by the material change in our pre-tax (loss) income.

As a result, the effect that discrete tax amounts have on the effective income tax rate during the year is not comparable.

See Note 18 to the accompanying consolidated financial statements for additional information.

The global financing activities are related to our previously disclosed 2014 move of our principal executive office from Hong Kong to the U.K.

and decision to become a U.K.

tax resident.

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and Switzerland subsidiaries in December 2015.

Accordingly, due to the difference in the statutory income tax rates between these jurisdictions, we realized a higher effective tax rate on the consolidated pre-tax loss.

Accordingly, due to the difference in the statutory income tax rates between these jurisdictions, we realized a lower effective tax rate on consolidated pre-tax income.

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

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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 attributable to Capri decreased $766 million, or 141.1%, to a net loss of $223 million during Fiscal 2020, compared to net income of $543 million for Fiscal 2019.

Net Loss Attributable to Capri

As a result of the foregoing, our net loss attributable to Capri decreased $161 million, or 72.2%, to a net loss of $62 million during Fiscal 2021, compared to net loss of $223 million for Fiscal 2020.

Segment Information

Fiscal Years Ended

Fiscal Years Ended % Change

2021 March 28,

2019 $ Change

2020 $ Change As Reported Constant

Revenues $ 718 $ 843 $ (125) (14.8) % (19.8) %

Loss from operations (8) (11) 3

Income (loss) from operations 21 (8) 29 NM

Operating margin 2.9 % (0.9) %

Versace revenues increased $706 million to $843 million for Fiscal 2020, compared to $137 million for Fiscal 2019.

Fiscal 2020 included incremental revenue of $723 million due to the inclusion of the Versace business acquired on December 31, 2018 for the entire Fiscal 2020 year.

The remaining decrease in sales reflects the adverse impacts related to COVID-19.

Loss from Operations

During Fiscal 2020, we recorded a loss from operations of $8 million compared to a loss of $11 million for the period from the date of acquisition through March 30, 2019 (after amortization of non-cash purchase accounting adjustments).

Operating margin in Fiscal 2020 was (0.9)% compared to (8.0)% for the period from the date of acquisition through March 30, 2019.

NM Not meaningful

Versace revenues decreased $125 million to $718 million for Fiscal 2021, compared to $843 million for Fiscal 2020, which included favorable foreign currency effects of $42 million.

On a constant currency basis, revenue decreased $167 million, or 19.8%, primarily reflecting the adverse impacts related to COVID-19.

Income (loss) from Operations

During Fiscal 2021, Versace recorded income from operations of $21 million compared to a loss from operations of $8 million for Fiscal 2020.

Operating margin increased from (0.9)% for Fiscal 2020 to 2.9% for Fiscal 2021, primarily due to a favorable channel mix, partially offset by a decline in revenue as a result of COVID-19.

Fiscal Years Ended % Change

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Revenues $ 418 $ 555 $ (137) (24.7) % (26.8) %

(Loss) income from operations (13) 20 (33) (165.0) %

Loss from operations (55) (13) (42) NM

Operating margin (13.2) % (2.3) %

Jimmy Choo revenues decreased $35 million, or 5.9% to $555 million for Fiscal 2020, compared to $590 million for Fiscal 2019, which included unfavorable foreign currency effects of $5 million.

NM Not meaningful

Jimmy Choo revenues decreased $137 million, or 24.7% to $418 million for Fiscal 2021, compared to $555 million for Fiscal 2020, which included favorable foreign currency effects of $12 million.

On a constant currency basis, revenue decreased $149 million, or 26.8%, primarily reflecting adverse impacts related to COVID-19.

(Loss) Income from Operations

During Fiscal 2020, Jimmy Choo recorded a loss from operation of $13 million compared to income from operations of $20 million for Fiscal 2019.

Operating margin declined 570 basis points from 3.4% for Fiscal 2019, to (2.3)% for Fiscal 2020, primarily due to an increase in operating expenses, including retail store expenses, as well as investments in new stores, while also reflecting the adverse impacts related to COVID-19.

Loss from Operations

During Fiscal 2021, Jimmy Choo recorded a loss from operations of $55 million compared to $13 million for Fiscal 2020.

Operating margin declined from (2.3)% for Fiscal 2020 to (13.2)% for Fiscal 2021, primarily reflecting adverse impacts related to COVID-19.

Fiscal Years Ended % Change

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Operating margin 20.3 % 20.5 %

Michael Kors revenues decreased $358 million, or 7.9%, to $4.153 billion for Fiscal 2020, compared to $4.511 billion for Fiscal 2019, which included unfavorable foreign currency effects of $40 million.

On a constant currency basis, revenue decreased $318 million, or 7.0%.

The decrease in revenues was primarily due to lower sales of women's accessories and watches, and a decrease in comparable stores sales of $146 million partially related to the adverse effects of COVID-19.

This decrease was partially offset by higher sales of women's footwear and men's accessories, as well as a 9% increase in e-commerce sales.

Michael Kors revenues decreased $1.229 billion, or 29.6%, to $2.924 billion for Fiscal 2021, compared to $4.153 billion for Fiscal 2020, which included favorable foreign currency effects of $53 million.

On a constant currency basis, revenue decreased $1.282 billion, or 30.9%, primarily reflecting adverse impacts related to COVID-19.

Income from Operations

Income from operations for our Michael Kors segment decreased $114 million, or 11.8%, to $850 million for Fiscal 2020, compared to $964 million for Fiscal 2019.

Income from operations as a percentage of Michael Kors revenue decreased 90 basis points to 20.5% in Fiscal 2020, compared to 21.4% in Fiscal 2019, largely due to a decrease in gross profit margin, as previously discussed.

During Fiscal 2021, Michael Kors recorded income from operations of $595 million compared to $850 million for Fiscal 2020.

Operating margin declined from 20.5% for Fiscal 2020 to 20.3% for Fiscal 2021, primarily due to a decline in revenue related to COVID-19, partially offset by higher gross profit margins related to a higher average unit price and favorable channel mix, as well as our cost reduction initiatives as a result of COVID-19.

Liquidity and Capital Resources

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Our primary use of this liquidity is to fund the ongoing cash requirements, including our working capital needs and capital investments in our business, debt repayments, acquisitions, returns of capital, including share repurchases and other corporate activities.

We believe that the cash generated from our operations, together with borrowings available under our revolving credit facilities 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 believe that the cash generated from our operations, together with borrowings available under our revolving credit facilities and available cash and cash equivalents, will be sufficient to meet our working capital needs for the next 12 months and beyond, 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 $111 million on capital expenditures during Fiscal 2021, and expect to spend approximately $200 million during Fiscal 2022.

In response to the continued global health and economic impact of the COVID-19 pandemic, this represents a significant reduction to capital expenditures in Fiscal 2021.

The majority of the Fiscal 2020 expenditures related to our retail operations (including e-commerce), ERP system implementation and our corporate offices.

This anticipated increase reflects continued expenditures related to our retail operations (including e-commerce), ERP system implementation and our corporate offices.

The majority of the Fiscal 2021 expenditures related to our retail operations (including e-commerce) and our corporate offices.

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

14 unchanged sentences

Effect of exchange rate changes 12 (4) (11)

Net increase (decrease) in cash and cash equivalents $ 420 $ 9 $ (67)

Net (decrease) increase in cash, cash equivalents and restricted cash $ (358) $ 420 $ 9

Cash Provided by Operating Activities

Cash provided by operating activities decreased $235 million to $624 million during Fiscal 2021, as compared to $859 million for Fiscal 2020, which was due to a decrease in our net income after non-cash adjustments, primarily driven by a decrease in impairments and a decrease in net loss, partially offset by increases related to changes in our working capital, primarily attributable to fluctuations in the timing of payments and receipts due to the impact of COVID-19.

Cash provided by operating activities increased $165 million to $859 million during Fiscal 2020, as compared to $694 million for Fiscal 2019, which was primarily due to increases related to changes in our working capital, primarily attributable to decreased inventory purchases, as well as the timing of payments and receipts.

The net increase in cash flows also included decreases to our net income after non-cash adjustments.

Cash provided by operating activities decreased $368 million to $694 million during Fiscal 2019, as compared to $1.062 billion for Fiscal 2018, which was primarily due to decreases related to changes in our working capital primarily attributable to increased inventory purchases as well as the timing of payments and receipts.

The net decrease in cash flows also included decreases to our net income after non-cash adjustments, partially offset by an increase in tax-related long-term liabilities.

Cash Provided by (Used in) Investing Activities

Cash (Used in) Provided by Investing Activities

Net cash used in investing activities was $124 million during Fiscal 2021, as compared to net cash provided by investing activities of $62 million during Fiscal 2020.

The $186 million increase in cash used in investing activities was primarily attributable to a $298 million settlement of net investment hedges during Fiscal 2020, partially offset by a $112 million decrease in capital expenditures compared to prior year.

Net cash provided by investing activities was $62 million during Fiscal 2020, as compared to net cash used in investing activities of $2.125 billion during Fiscal 2019.

The $2.187 billion increase in cash from investing activities was primarily attributable to $1.862 billion of cash paid, net of cash acquired, in connection with our Fiscal 2019 acquisition of the Versace business.

The increase in cash was also due to a $77 million realized loss related to an undesignated derivative contract during Fiscal 2019 associated with the Versace acquisition and the settlement of net investment hedges of $298 million during Fiscal 2020, partly offset by higher capital expenditures of $42 million, due to higher spending related to the ERP system implementation and expenditures related to corporate infrastructure.

Net cash used in investing activities increased $592 million to $2.125 billion during Fiscal 2019, compared to $1.533 billion during Fiscal 2018.

The decrease in cash was primarily attributable to a $460 million increase of cash paid, net of cash acquired, in connection with our Fiscal 2019 acquisition of the Versace business, as compared to our acquisition of the Jimmy Choo business during Fiscal 2018.

The decrease in cash was also due to a $77 million realized loss related to an undesignated derivative contract during Fiscal 2019 associated with the Versace acquisition, as well as higher capital expenditures of $61 million, due to higher spending related to build-outs for new and renovated retail stores and expenditures related to corporate infrastructure.

The increase in cash from investing activities was also due to a $77 million realized loss related to an undesignated derivative contract during Fiscal 2019 associated with the Versace acquisition and the settlement of net investment hedges of $298 million during Fiscal 2020, partly offset by higher capital expenditures of $42 million, due to higher spending related to the ERP system implementation and expenditures related to corporate infrastructure.

Cash (Used in) Provided by Financing Activities

Net cash used in financing activities was $870 million during Fiscal 2021, as compared to $497 million during Fiscal 2020.

The increase in cash used by financing activities of $373 million was primarily due to an increase in net debt repayments of $474 million, partially offset by a decrease of $101 million in cash payments to repurchase our ordinary shares during Fiscal 2021.

Net cash used in financing activities was $497 million during Fiscal 2020, as compared to net cash provided by financing activities of $1.451 billion during Fiscal 2020.

The increase in cash used by financing activities of $1.948 billion was due to decreased debt borrowings of $2.038 billion, net of debt repayments, primarily attributable to higher term loan borrowings to finance the acquisition of Versace during Fiscal 2019, partially offset by a decrease of $105 million in cash payments to repurchase our ordinary shares during Fiscal 2020.

Net cash provided by financing activities increased $1.062 billion to $1.451 billion during Fiscal 2019, compared to $389 million during Fiscal 2018.

The increase in cash from financing activities was due to increased debt borrowings of $908 million, net of debt repayments, primarily attributable to higher term loan borrowings to finance the acquisition of Versace, as well as a decrease of $154 million in cash payments to repurchase our ordinary shares.

Debt Facilities

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2021 March 28,

Senior Unsecured Revolving Credit Facility:

Senior Secured Revolving Credit Facility:

Revolving Credit Facility (excluding up to a $500 million accordion feature) (1)

7 unchanged sentences

Remaining availability $ — $ —

4.000% Senior Notes

364 Credit Facility ($230 million)

Total availability $ 230 $ —

Remaining availability $ 230 $ —

Senior Notes due 2024

Borrowings Outstanding, net of debt issuance costs and discount amortization (2)

4 unchanged sentences

Bank guarantees outstanding (3 million and 4 million Hong Kong Dollars) — 1

Remaining availability $ 13 $ 11

Remaining availability (97 million and 96 million Hong Kong Dollars) $ 13 $ 13

China Uncommitted Credit Facility:

Borrowings outstanding $ — $ —

Total and remaining availability (100 million Chinese Yuan) $ 14 $ 14

Remaining availability (100 million Chinese Yuan) $ 15 $ 14

Japan Credit Facility:

Borrowings outstanding $ — $ —

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

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

Borrowings outstanding (1.0 billion and 0.0 billion Japanese Yen) (4)

Remaining availability (0.0 billion and 1.0 billion Japanese Yen) $ — $ 9

Versace Uncommitted Credit Facility:

Total availability (20 million Euro) $ 22 $ 22

Borrowings outstanding (10 million Euro) (2)

Remaining availability $ 11 $ 11

Versace Uncommitted Credit Facilities:

Total availability (32 million Euro) $ 36 $ —

Borrowings outstanding (25 million Euro) (2)

Remaining availability $ 8 $ —

Total availability (57 million and 52 million Euro) 67 $ 58

Borrowings outstanding (0 million and 35 million Euro) (4)

Remaining availability (57 million and 17 million Euro) $ 67 $ 19

Total borrowings outstanding (1)

1 unchanged sentence

Total remaining availability $ 1,298 $ 356

_____________________________

(1) As of the last day of Fiscal 2020, the 2018 Credit Facility contained customary events of default and required us to maintain a leverage ratio at the end of each fiscal quarter of no greater than 3.75 to 1, calculated based on the ratio of consolidated total indebtedness plus the capitalized amount of all operating lease liabilities presented on our consolidated balance sheets 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.

(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 has been waived through the fiscal quarter ending June 26, 2021.

We terminated the waiver period effective May 26, 2021.

Effective as of that date, 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 March 27, 2021 and March 28, 2020, 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 March 28, 2020 and March 30, 2019.

(2) Recorded as long-term debt in our consolidated balance sheets as of March 27, 2021 and March 28, 2020, except for the current portion of $97 million and $128 million, respectively, outstanding under the 2018 Term Loan Facility, which was recorded within short-term debt at March 27, 2021 and March 28, 2020.

(3) The balance as of March 27, 2021 consists of $17 million related to our supplier finance program recorded within short-term debt in our consolidated balance sheets and $4 million of other loans recorded as long-term debt in our consolidated balance sheets.

The balance as of March 28, 2020 consists of $3 million of other loans recorded as long-term debt in our consolidated balance sheets.

(4) Recorded as short-term debt in our consolidated balance sheets as of March 27, 2021 and March 28, 2020.

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

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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 12 in the accompanying consolidated financial statements for detailed information relating to our credit facilities and debt obligations.

See Note 12 and Note 22 in the accompanying consolidated financial statements for detailed information relating to our credit facilities and debt obligations.

Share Repurchase Program

8 unchanged sentences

48,528 2,775,765

_____________________________

(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 was set to expire August 1, 2021.

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

See Note 12 in the accompanying financial statements for additional information.

As of March 27, 2021, 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 the our insider trading policy, and other relevant factors.

Under this program, 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.

The share repurchase program was suspended on April 6, 2020 in response to the continued global health and economic impact of the COVID-19 pandemic.

See Note 16 and Note 22 to the accompanying consolidated financial statements for additional information.

Contractual Obligations and Commercial Commitments

As of March 28, 2020, our commercial commitments and contractual obligations were as follows (in millions):

Fiscal Years Ending Fiscal 2021 Fiscal

As of March 27, 2021, our contractual obligations and commercial commitments were as follows (in millions):

Fiscal Years Fiscal 2022 Fiscal

Fiscal 2027 and thereafter Total

Operating leases $ 502 $ 807 $ 512 $ 493 $ 2,314

Interest, net 9 23 3 — 35

Inventory purchase obligations 688 — — — 688

3 unchanged sentences

Total $ 1,381 $ 1,035 $ 1,548 $ 493 $ 4,457

Operating lease obligations represent our equipment leases and the minimum lease rental payments under non-cancelable operating leases for our real estate locations globally.

In addition to the above amounts, we are typically required to pay real estate taxes, contingent rent based on sales volume and other occupancy costs relating to our leased properties for our retail stores.

Inventory purchase obligations represent our contractual agreements relating to future purchases of inventory.

Other commitments include our non-cancelable contractual obligations related to marketing and advertising agreements, information technology agreements, and supply agreements.

Excluded from the above commitments is $99 million of long-term liabilities related to net uncertain tax positions, due to the uncertainty of the time and nature of resolution.

The above table also excludes current liabilities (other than short-term debt) recorded as of March 28, 2020, as these items will be paid within one year, and non-current liabilities that have no cash outflows associated with them (e.g., deferred taxes).

Operating lease obligations represent equipment leases and the minimum lease rental payments due under non-cancelable operating leases for our real estate locations globally.

In addition to the above amounts, we are typically required to pay real estate taxes, contingent rent based on sales volume and other occupancy costs relating to leased properties for our retail stores.

Interest, net represents the estimated net interest expense associated with our term loan based on the current interest rate and interest from our interest rate swap.

It also includes the estimated net interest income from our net investment hedges.

Inventory purchase obligations represent contractual obligations for future purchases of inventory.

Other commitments include non-cancelable contractual obligations related to marketing and advertising agreements, information technology agreements and supply agreements.

Excluded from the above commitments is $107 million of long-term liabilities related to net uncertain tax positions, due to the uncertainty of the timing and nature of resolution.

The above table also excludes current liabilities (other than short-term debt and short-term operating lease liabilities) recorded as of March 27, 2021, as these items will be paid within one year, and non-current liabilities that have no cash outflows associated with them (e.g., deferred taxes).

Off-Balance Sheet Arrangements

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In addition to the commitments in the above table, our off-balance sheet commitments relating to our outstanding letters of credit were $33 million at March 27, 2021, including $6 million in letters of credit issued outside of the 2018 Credit Facility.

In addition, as of March 28, 2020, bank guarantees of approximately $18 million were supported by our Versace Credit Facility.

In addition, as of March 27, 2021, bank guarantees of approximately $35 million were supported by our various 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.

Effects of Inflation

We do not believe that our sales or operating results have been materially impacted by inflation during the periods presented in our financial statements.

However, we may experience an increase in cost pressure from our suppliers in the future, which could have an adverse impact on our gross profit results in the periods effected.

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-K

Item 7. Management’s Discussion and Analysis