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Item 2. Management’s Discussion and Analysis

2021-07-30 compared with 2021-02-03 · 151 added, 281 removed, 234 unchanged (65% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

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 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;

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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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.

“Risk Factors” in our Annual Report on Form 10-K for the year ended March 27, 2021, filed with the Securities and Exchange Commission on May 26, 2021.

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

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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 located in the world’s most glamorous cities, its e-commerce site, as well as through the most prestigious department and specialty stores worldwide.

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

Our Jimmy Choo brand 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 ready-to-wear 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 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.

The Michael Kors Collection establishes the aesthetic authority of the entire brand and is carried by select 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 ready-to-wear, 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.

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.

See Item 1A — "The COVID-19 pandemic may continue to 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 27, 2021 for additional discussion regarding risks to our business associated with the COVID-19 pandemic.

Establishing brand identity and enhancing global 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 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 online 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.

In addition, last year we announced our Capri Retail Store Optimization Program to close approximately 170 of our retail stores over two fiscal years, which began during Fiscal 2021 and will continue into Fiscal 2022, 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 June 26, 2021, we have closed a total of 111 stores and recorded net restructuring charges of $2 million relating to the program since its inception.

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" of our Annual Report on Form 10-K for the fiscal year ended March 27, 2021 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 February 14, 2020, a 7.5% tariff on certain additional 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 will continue to experience significant additional duties and our gross margin will continue to 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 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, including Australia, as well as through Versace outlet stores and e-commerce sites.

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), certain parts of 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 products, including jeans, fragrances, watches, jewelry, eyewear and home furnishings.

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, including Australia, through our e-commerce sites, as well as through wholesale sales of luxury goods to distribution partners (including geographic licensing arrangements that allow third parties to use the Jimmy Choo tradename in connection with retail and/or wholesale sales of Jimmy Choo branded products in specific geographic regions), multi-brand department stores and specialty stores worldwide.

We generate revenue through the sale of Jimmy Choo luxury goods through directly operated Jimmy Choo retail and outlet stores throughout the Americas (United States, Canada and Latin America), certain parts of 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 products, including fragrances and eyewear.

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 consumers throughout the Americas, Europe and certain parts of Asia, including Australia.

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.

Our Michael Kors e-commerce business includes e-commerce sites in the U.S., Canada and EMEA and Asia.

We also sell Michael Kors products directly to department stores, primarily located across the Americas and EMEA, 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.

Unallocated Expenses

Unallocated Corporate 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.

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 income (loss) from operations by segment for the three and nine months ended December 26, 2020 and December 28, 2019 (in millions):

Three Months Ended Nine Months Ended

2020 December 28,

2019 December 26,

2020 December 28,

The following table presents our total revenue and income (loss) from operations by segment for the three months ended June 26, 2021 and June 27, 2020 (in millions):

Three Months Ended

2021 June 27,

Total revenue:

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Michael Kors 240 (48)

Total segment income from operations 286 285 378 715

Total segment income (loss) from operations 299 (118)

Corporate expenses (41) (31)

Restructuring and other charges (3) (8)

Impairment of assets (90) (19) (110) (220)

COVID-19 related charges 3 (5)

Total income from operations $ 167 $ 205 $ 158 $ 344

Total income (loss) from operations $ 258 $ (162)

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

2020 December 28,

2021 June 27,

Number of full price retail stores (including concessions):

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The following table presents our retail stores by geographic location:

December 26, 2020 December 28, 2019

June 26, 2021 June 27, 2020

Versace Jimmy Choo Michael Kors Versace Jimmy Choo Michael Kors

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

Three Months Ended Nine Months Ended

December 26, 2020 December 28, 2019 December 26, 2020 December 28, 2019

Three Months Ended

June 26, 2021 June 27, 2020

Total revenue $ 1,253 $ 451

Gross profit as a percent of total revenue 68.3 % 67.0 %

Income from operations $ 167 $ 205 $ 158 $ 344

Income from operations as a percent of total revenue 12.8 % 13.0 % 5.5 % 7.9 %

Income (loss) from operations $ 258 $ (162)

Income (loss) from operations as a percent of total revenue 20.6 % (35.9) %

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.

Critical Accounting Policies

Critical Accounting Policies and Estimates

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

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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 27, 2021.

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

There have been no significant changes in our critical accounting policies and estimates since March 27, 2021.

Results of Operations

Comparison of the three months ended December 26, 2020 with the three months ended December 28, 2019

The following table details the results of our operations for the three months ended December 26, 2020 and December 28, 2019, and expresses the relationship of certain line items to total revenue as a percentage (dollars in millions):

Comparison of the three months ended June 26, 2021 with the three months ended June 27, 2020

The following table details the results of our operations for the three months ended June 26, 2021 and June 27, 2020, 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

2020 December 28,

2019 December 26,

2020 December 28,

2021 June 27,

2020 June 26,

2021 June 27,

Statements of Operations Data:

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Depreciation and amortization 50 54 (4) (7.4) % 4.0 % 12.0 %

Impairment of assets 90 19 71 NM 6.9 % 1.2 %

Restructuring and other charges 3 8 (5) (62.5) % 0.2 % 1.8 %

Total operating expenses 598 464 134 28.9 % 47.7 % 102.9 %

Income from operations 167 205 (38) (18.5) % 12.8 % 13.0 %

Income (loss) from operations 258 (162) 420 259.3 % 20.6 % (35.9) %

Other income, net — (1) 1 NM — % (0.2) %

Interest expense, net 10 3 7 NM 0.8 % 0.2 %

Foreign currency gain (13) (2) (11) NM (1.0) % (0.1) %

Income before provision for income taxes 173 205 (32) (15.6) % 13.3 % 13.0 %

Benefit from income taxes (5) (4) (1) 25.0 % (0.4) % (0.3) %

Net income 178 209 (31) (14.8) %

Net loss attributable to noncontrolling interest (1) (1) — — %

Net income attributable to Capri $ 179 $ 210 $ (31) (14.8) %

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Interest expense, net 1 17 (16) (94.1) % 0.1 % 3.8 %

Foreign currency loss (gain) 1 (3) 4 NM 0.1 % (0.7) %

Income (loss) before provision for income taxes 256 (175) 431 NM 20.4 % (38.8) %

Provision for income taxes 37 5 32 NM 3.0 % 1.1 %

Net income (loss) 219 (180) 399 NM

Net income attributable to noncontrolling interest — — — — %

Net income (loss) attributable to Capri $ 219 $ (180) $ 399 NM

NM Not meaningful

Total Revenue

Total revenue decreased $269 million, or 17.1%, to $1.302 billion for the three months ended December 26, 2020, compared to $1.571 billion for the three months ended December 28, 2019, which included net favorable foreign currency effects of approximately $38 million, primarily related to the strengthening of the Euro, Chinese Renminbi and British Pound against the U.S.

Dollar during the three months ended December 26, 2020 as compared to the same prior year period.

On a constant currency basis, our total revenue decreased $307 million, or 19.5%.

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 $84 million, or 9.0%, to $848 million for the three months ended December 26, 2020, compared to $932 million for the three months ended December 28, 2019, which included net favorable foreign currency effects of $27 million.

Gross profit as a percentage of total revenue increased 580 basis points to 65.1% during the three months ended December 26, 2020, compared to 59.3% during the three months ended December 28, 2019.

The increase in our gross profit margin was primarily attributable to a higher gross profit margin for Michael Kors primarily driven by a higher average unit price during the three months ended December 26, 2020, as compared to the three months ended December 28, 2019.

Total revenue increased $802 million, or 177.8%, to $1.253 billion for the three months ended June 26, 2021, compared to $451 million for the three months ended June 27, 2020, which included net favorable foreign currency effects of approximately $63 million, primarily related to the strengthening of the Euro, British Pound, Chinese Renminbi, and Canadian Dollar against the U.S.

Dollar during the three months ended June 26, 2021 as compared to the same prior year period.

On a constant currency basis, our total revenue increased $739 million, or 163.9%.

The increase is attributable to the continued recovery from the COVID-19 pandemic.

In the prior fiscal year, the Company experienced widespread, temporary store closures and a significant decline in store traffic.

Gross profit increased $554 million, or 183.4%, to $856 million for the three months ended June 26, 2021, compared to $302 million for the three months ended June 27, 2020, which included net favorable foreign currency effects of $43 million.

Gross profit as a percentage of total revenue increased 130 basis points to 68.3% during the three months ended June 26, 2021, compared to 67.0% during the three months ended June 27, 2020.

The increase in our gross profit margin was primarily attributable to a higher average unit price, partially offset by unfavorable channel mix during the three months ended June 26, 2021, as compared to the three months ended June 27, 2020.

Total Operating Expenses

Total operating expenses decreased $46 million, or 6.3%, to $681 million during the three months ended December 26, 2020, compared to $727 million for the three months ended December 28, 2019.

Total operating expenses increased $134 million, or 28.9%, to $598 million during the three months ended June 26, 2021, compared to $464 million for the three months ended June 27, 2020.

Our operating expenses included a net unfavorable foreign currency impact of approximately $38 million.

Total operating expenses increased to 52.3% as a percentage of total revenue for the three months ended December 26, 2020, compared to 46.3% for the three months ended December 28, 2019.

Total operating expenses decreased to 47.7% as a percentage of total revenue for the three months ended June 26, 2021, compared to 102.9% for the three months ended June 27, 2020.

The components that comprise total operating expenses are explained below.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $92 million, or 14.6%, to $538 million during the three months ended December 26, 2020, compared to $630 million for the three months ended December 28, 2019, primarily due to lower variable costs, as well as decreased costs from our cost reduction initiatives as a result of COVID-19.

Selling, general, and administrative expenses as a percentage of total revenue increased to 41.3% for the three months ended December 26, 2020, compared to 40.1% for the three months ended December 28, 2019, primarily due to increased e-commerce related costs as a percentage of revenue, partially offset by a decrease in retail store related costs as a percentage of revenue during the three months ended December 26, 2020, as compared to the three months ended December 28, 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 $17 million, or 37.0%, to $29 million during the three months ended December 26, 2020 as compared to $46 million for the three months ended December 28, 2019, primarily due to a reduction in ERP system implementation costs, as well as our cost reduction initiatives as a result of COVID-19.

Selling, general and administrative expenses increased $143 million, or 35.6%, to $545 million during the three months ended June 26, 2021, compared to $402 million for the three months ended June 27, 2020, primarily due to increased retail store, e-commerce and corporate costs during the three months ended June 26, 2021, as well as decreased costs during the three months ended June 27, 2020 from our cost reduction initiatives as a direct result of COVID-19.

Selling, general, and administrative expenses as a percentage of total revenue decreased to 43.5% for the three months ended June 26, 2021, compared to 89.1% for the three months ended June 27, 2020, primarily due to better leverage on higher revenue during the three months ended June 26, 2021, as compared to the three months ended June 27, 2020.

Corporate expenses, which are included within selling, general and administrative expenses discussed above, but are not directly attributable to a reportable segment, increased $10 million, or 32.3%, to $41 million during the three months ended June 26, 2021 as compared to $31 million for the three months ended June 27, 2020, primarily due to an increase in compensation expense during the three months ended June 26, 2021, as well as lower costs as a result of COVID-19 during the three months ended June 27, 2020.

Depreciation and Amortization

Depreciation and amortization decreased $11 million, or 17.5%, to $52 million during the three months ended December 26, 2020, compared to $63 million for the three months ended December 28, 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 as a percentage of total revenue was 4.0% for both the three months ended December 26, 2020 and December 28, 2019.

Impairment of Assets

During the three months ended December 26, 2020, we recognized asset impairment charges of $90 million, primarily related to operating lease right-of-use assets across our brands (see Note 11 to the accompanying consolidated financial statements for additional information).

During the three months ended December 28, 2019, we recognized asset impairment charges of approximately $19 million, primarily related to property and equipment and operating lease right-of-use assets at our Michael Kors store locations.

Depreciation and amortization decreased $4 million, or 7.4%, to $50 million during the three months ended June 26, 2021, compared to $54 million for the three months ended June 27, 2020.

The decrease in depreciation and amortization expense was primarily attributable to lower depreciation due to lower capital expenditures in Fiscal 2021.

Depreciation and amortization decreased to 4.0% as a percentage of total revenue during the three months ended June 26, 2021, compared to 12.0% for the three months ended June 27, 2020 primarily due to lower revenues during the prior year due to COVID-19.

Restructuring and Other Charges

During the three months ended December 26, 2020, we recognized restructuring and other charges of $1 million, which included other costs of $5 million primarily related to equity awards associated with the acquisition of Versace and closures of certain corporate locations, offset by $4 million of gains recognized on lease terminations related to our Capri Retail Store Optimization Program (see Note 8 to the accompanying consolidated financial statements for additional information).

During the three months ended December 28, 2019, we recognized restructuring and other charges of $15 million, which primarily included other costs of $10 million primarily related to equity awards associated with the acquisition of Versace and $5 million related to our Michael Kors Retail Fleet Optimization Plan.

Income from Operations

As a result, income from operations decreased $38 million, to $167 million during three months ended December 26, 2020, compared to $205 million for the three months ended December 28, 2019.

Income from operations as a percentage of total revenue decreased to 12.8% during the three months ended December 26, 2020, compared to 13.0% for the three months ended December 28, 2019.

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

During the three months ended June 26, 2021, we recognized restructuring and other charges of $3 million, which included other costs of $6 million primarily related to equity awards associated with the acquisition of Versace and partially offset by $3 million of gains related to our Capri Retail Store Optimization Program (see Note 8 to the accompanying consolidated financial statements for additional information).

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 and $3 million related to our Capri Retail Store Optimization Program.

Income (Loss) from Operations

As a result of the foregoing, income from operations increased $420 million, to $258 million during three months ended June 26, 2021, compared to a loss from operations of $162 million for the three months ended June 27, 2020.

Income (loss) from operations as a percentage of total revenue increased to 20.6% during the three months ended June 26, 2021, compared to (35.9)% for the three months ended June 27, 2020.

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

Interest Expense, net

Interest expense, net, increased $7 million to $10 million during the three months ended December 26, 2020, compared to $3 million for the three months ended December 28, 2019, 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 9 and Note 12 to the accompanying consolidated financial statements for additional information).

Foreign Currency Gain

During the three months ended December 26, 2020, we recognized a net foreign currency gain of $13 million, primarily attributable to the remeasurement of U.S.

dollar-denominated intercompany payables with certain of our subsidiaries.

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

Benefit from Income Taxes

We recognized $5 million of income tax benefit during the three months ended December 26, 2020, compared to a $4 million income tax benefit for the three months ended December 28, 2019.

Our effective tax rates were (2.9)% and (2.0)% for the three months ended December 26, 2020 and December 28, 2019, respectively.

The decrease in our effective tax rate was primarily related to the impact of the release of a valuation allowance on tax loss carryforwards of a U.S.

subsidiary during the three months ended December 26, 2020.

The decrease was partially offset by the existence of favorable impacts of benefits recognized from the resolution of uncertain tax positions and return to provision adjustments for the three months ended December 28, 2019 when compared to the three months ended December 26, 2020.

Interest expense, net, decreased $16 million to $1 million during the three months ended June 26, 2021, compared to $17 million for the three months ended June 27, 2020, primarily due to an increase of interest income attributable to higher average notional amounts outstanding on our net investment hedges in the current year and a decrease in interest expense attributable to lower average borrowings outstanding (see Note 9 and Note 12 to the accompanying consolidated financial statements for additional information).

Foreign Currency Loss (Gain)

During the three months ended June 26, 2021, we recognized a net foreign currency loss of $1 million, primarily attributable to the evaluation and settlement of certain of our accounts payable in currencies other than the functional currency.

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.

Provision for Income Taxes

We recognized $37 million of income tax expense on pre-tax income of $256 million during the three months ended June 26, 2021, compared to $5 million on pre-tax loss of $175 million for the three months ended June 27, 2020.

Our effective tax rates were 14.5% and (2.9)% for the three months ended June 26, 2021 and June 27, 2020, respectively.

Our effective tax rate for three months ended June 26, 2021 was significantly higher than our effective tax rate in the three months ended June 27, 2020 and not a meaningful or comparable metric, primarily due to the relationship between income tax expense and pre-tax loss in the prior year.

The increase in our income tax expense was primarily related to the increase in earnings during the three months ended June 26, 2021, compared to the three months ended June 27, 2020 and due to the revaluation of our net deferred tax liabilities as a result of the tax rate change in the United Kingdom during the period.

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

1 unchanged sentence

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

Net Loss Attributable to Noncontrolling Interest

During the three months ended December 26, 2020 and December 28, 2019, we recorded a net loss attributable to the noncontrolling interest in our joint ventures of $1 million in each period.

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

Net Income Attributable to Capri

As a result of the foregoing, our net income decreased $31 million to a net income of $179 million during the three months ended December 26, 2020, compared to net income of $210 million for the three months ended December 28, 2019.

Net Income (Loss) Attributable to Capri

As a result of the foregoing, our net income increased $399 million to a net income of $219 million during the three months ended June 26, 2021, compared to a net loss of $180 million for the three months ended June 27, 2020.

Segment Information

Three Months Ended % Change

(dollars in millions) December 26,

2020 December 28,

(dollars in millions) June 26,

2021 June 27,

2020 $ Change As Reported Constant

Revenues $ 240 $ 93 $ 147 158.1 % 135.5 %

Income (loss) from operations 13 (12) 25 NM

Income (loss) from operations 48 (41) 89 217.1 %

Operating margin 20.0 % (44.1) %

___________________

NM Not meaningful

Versace revenues were $195 million during the three months ended December 26, 2020 and December 28, 2019.

Revenue during the three months ended December 26, 2020 included favorable foreign currency effects of $13 million.

On a constant currency basis, revenue decreased $13 million, or 6.7%, primarily reflecting the adverse impacts related to COVID-19.

Versace revenues increased $147 million, or 158.1% to $240 million during the three months ended June 26, 2021, compared to $93 million for the three months ended June 27, 2020, which included favorable foreign currency effects of $21 million.

On a constant currency basis, revenue increased $126 million, or 135.5%, primarily attributable to the continued recovery from the COVID-19 pandemic.

In the prior fiscal year, the Company experienced widespread, temporary store closures and a significant decline in store traffic.

Income (Loss) from Operations

During the three months ended December 26, 2020, Versace recorded income from operations of $13 million, compared to a loss from operations of $12 million for the three months ended December 28, 2019.

Operating margin increased from (6.2)% for the three months ended December 28, 2019, to 6.7% during the three months ended December 26, 2020, primarily due to our cost reduction initiatives as a result of COVID-19 and favorable channel mix.

During the three months ended June 26, 2021, Versace recorded income from operations of $48 million, compared to a loss from operations of $41 million for the three months ended June 27, 2020.

Operating margin increased from (44.1)% for the three months ended June 27, 2020, to 20.0% during the three months ended June 26, 2021, primarily due to higher average unit retail and leveraging of operating expenses due to higher revenue.

Three Months Ended % Change

(dollars in millions) December 26,

2020 December 28,

(dollars in millions) June 26,

2021 June 27,

2020 $ Change As

1 unchanged sentence

Revenues $ 142 $ 51 $ 91 178.4 % 147.1 %

(Loss) income from operations (8) 9 (17) NM

Income (loss) from operations 11 (29) 40 137.9 %

Operating margin 7.7 % (56.9) %

___________________

NM Not meaningful

Jimmy Choo revenues decreased $44 million, or 26.7%, to $121 million during the three months ended December 26, 2020, compared to $165 million for the three months ended December 28, 2019, which included favorable foreign currency effects of $1 million.

On a constant currency basis, revenue decreased $45 million, or 27.3%, primarily reflecting the adverse impacts related to COVID-19, including the cancellation of the holiday collection in the current year.

(Loss) Income from Operations

During the three months ended December 26, 2020, Jimmy Choo recorded a loss from operations of $8 million, compared to income from operations of $9 million for the three months ended December 28, 2019.

Operating margin declined from 5.5% for the three months ended December 28, 2019 to (6.6)% during the three months ended December 26, 2020, primarily due to expense deleverage due to lower revenue as noted above.

Jimmy Choo revenues increased $91 million, or 178.4%, to $142 million during the three months ended June 26, 2021, compared to $51 million for the three months ended June 27, 2020, which included favorable foreign currency effects of $16 million.

On a constant currency basis, revenue increased $75 million, or 147.1%, primarily attributable to the continued recovery from the COVID-19 pandemic.

In the prior fiscal year, the Company experienced widespread, temporary store closures and a significant decline in store traffic.

Income (Loss) from Operations

During the three months ended June 26, 2021, Jimmy Choo recorded income from operations of $11 million, compared to a loss from operations of $29 million for the three months ended June 27, 2020.

Operating margin increased from (56.9)% for the three months ended June 27, 2020 to 7.7% during the three months ended June 26, 2021, primarily due to higher average unit retail and leveraging of operating expenses due to higher revenue.

Three Months Ended % Change

(dollars in millions) December 26,

2020 December 28,

2019 $ Change As

Reported Constant

Revenues $ 986 $ 1,211 $ (225) (18.6) % (20.6) %

Income from operations 281 288 (7) (2.4) %

Operating margin 28.5 % 23.8 %

Michael Kors revenues decreased $225 million, or 18.6%, to $986 million during the three months ended December 26, 2020, compared to $1.211 billion for the three months ended December 28, 2019, which included favorable foreign currency effects of $24 million.

On a constant currency basis, revenue decreased $249 million, or 20.6%, primarily reflecting the adverse impacts related to COVID-19.

Income from Operations

During the three months ended December 26, 2020, Michael Kors recorded income from operations of $281 million, compared to $288 million for the three months ended December 28, 2019.

Operating margin increased from 23.8% for the three months ended December 28, 2019, to 28.5% during the three months ended December 26, 2020, primarily due to a higher average unit price and favorable channel mix.

Results of Operations

Comparison of the nine months ended December 26, 2020 with the nine months ended December 28, 2019

The following table details the results of our operations for the nine months ended December 26, 2020 and December 28, 2019, and expresses the relationship of certain line items to total revenue as a percentage (dollars in millions):

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

the Nine Months Ended

2020 December 28,

2019 December 26, 2020 December 28, 2019

Statements of Operations Data:

Total revenue $ 2,863 $ 4,359 $ (1,496) (34.3) %

Cost of goods sold 1,003 1,719 (716) (41.7) % 35.0 % 39.4 %

Gross profit 1,860 2,640 (780) (29.5) % 65.0 % 60.6 %

Selling, general and administrative expenses 1,414 1,851 (437) (23.6) % 49.4 % 42.5 %

Depreciation and amortization 160 188 (28) (14.9) % 5.6 % 4.3 %

Impairment of assets 110 220 (110) (50.0) % 3.8 % 5.0 %

Restructuring and other charges 18 37 (19) (51.4) % 0.6 % 0.8 %

Total operating expenses 1,702 2,296 (594) (25.9) % 59.4 % 52.7 %

Income from operations 158 344 (186) (54.1) % 5.5 % 7.9 %

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

Interest expense, net 39 19 20 NM 1.4 % 0.4 %

Foreign currency (gain) loss (16) 4 (20) NM (0.6) % 0.1 %

Income before provision for income taxes 139 325 (186) (57.2) % 4.9 % 7.5 %

Provision for (benefit from) income taxes

20 (2) 22 NM 0.7 % — %

Net income 119 327 (208) (63.6) %

Net loss attributable to noncontrolling interest (2) (1) (1) 100.0 %

Net income attributable to Capri $ 121 $ 328 $ (207) (63.1) %

___________________

NM Not meaningful

Total Revenue

Total revenue decreased $1.496 billion, or 34.3%, to $2.863 billion for the nine months ended December 26, 2020, compared to $4.359 billion for the nine months ended December 28, 2019, which included net favorable foreign currency effects of approximately $57 million, primarily related to the strengthening of the Euro, British Pound and Chinese Renminbi against the U.S.

Dollar during the nine months ended December 26, 2020 as compared to the same prior year period.

On a constant currency basis, our total revenue decreased $1.553 billion, or 35.6%.

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 $780 million, or 29.5%, to $1.860 billion for the nine months ended December 26, 2020, compared to $2.640 billion for the nine months ended December 28, 2019, which included net favorable foreign currency effects of $35 million.

Gross profit as a percentage of total revenue increased 440 basis points to 65.0% during the nine months ended December 26, 2020, compared to 60.6% during the nine months ended December 28, 2019.

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 the nine months ended December 26, 2020, as compared to the nine months ended December 28, 2019.

Total Operating Expenses

Total operating expenses decreased $594 million, or 25.9%, to $1.702 billion during the nine months ended December 26, 2020, compared to $2.296 billion for the nine months ended December 28, 2019.

Our operating expenses included a net unfavorable foreign currency impact of approximately $43 million.

Total operating expenses increased to 59.4% as a percentage of total revenue for the nine months ended December 26, 2020, compared to 52.7% for the nine months ended December 28, 2019.

The components that comprise total operating expenses are explained below.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $437 million, or 23.6%, to $1.414 billion during the nine months ended December 26, 2020, compared to $1.851 billion for the nine months ended December 28, 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 49.4% during the nine months ended December 26, 2020, compared to 42.5% for the nine months ended December 28, 2019, primarily due to increased retail store and e-commerce related costs as a percentage of total revenue during the nine months ended December 26, 2020, as compared to the nine months ended December 28, 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 $24 million, or 21.1%, to $90 million during the nine months ended December 26, 2020 as compared to $114 million for the nine months ended December 28, 2019, primarily due to a reduction in ERP system implementation costs, as well as our cost reduction initiatives as a result of COVID-19.

Depreciation and Amortization

Depreciation and amortization decreased $28 million, or 14.9%, to $160 million during the nine months ended December 26, 2020, compared to $188 million for the nine months ended December 28, 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 5.6% as a percentage of total revenue during the nine months ended December 26, 2020, compared to 4.3% for the nine months ended December 28, 2019 primarily due to lower revenues during the nine months ended December 26, 2020 as a result of COVID-19.

Impairment of Assets

During the nine months ended December 26, 2020, we recognized asset impairment charges of $110 million, which primarily related to operating lease right-of-use assets across our brands (see Note 11 to the accompanying consolidated financial statements for additional information).

During the nine months ended December 28, 2019, we recognized asset impairment charges of approximately $220 million, which primarily related to operating lease right-of-use assets across our brands.

Restructuring and Other Charges

During the nine months ended December 26, 2020, we recognized restructuring and other charges of $18 million, which included other costs of $17 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 $1 million related to our Capri Retail Store Optimization Program.

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

The other costs recorded during the nine months ended December 28, 2019 included $18 million, primarily related to equity awards associated with the acquisition of Versace and $8 million, primarily related to equity awards associated with the acquisition of Jimmy Choo.

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

Income from Operations

As a result of the foregoing, income from operations decreased $186 million or 54.1%, to $158 million during the nine months ended December 26, 2020, compared to $344 million for the nine months ended December 28, 2019.

Income from operations as a percentage of total revenue decreased to 5.5% during the nine months ended December 26, 2020, compared to 7.9% for the nine months ended December 28, 2019 (see Segment Information above for a reconciliation of our segment operating income to total operating income).

Interest Expense,net

Interest expense, net, increased $20 million to $39 million during the nine months ended December 26, 2020, compared to $19 million for the nine months ended December 28, 2019, primarily due to a decrease to interest income attributable to lower average net investment hedges outstanding and lower interest rates in the current year.

The decrease to 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 9 and Note 12 to the accompanying consolidated financial statements for additional information).

Foreign Currency (Gain) Loss

During the nine months ended December 26, 2020, we recognized a net foreign currency gain of $16 million, primarily attributable to the remeasurement of U.S.

dollar-denominated intercompany payables with certain of our subsidiaries.

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

dollar-denominated intercompany payables with certain of our subsidiaries.

Provision for (Benefit from) Income Taxes

We recognized $20 million of income tax expense during the nine months ended December 26, 2020, compared to a $2 million tax benefit for the nine months ended December 28, 2019.

Our effective tax rates were 14.4% and (0.6)% for the nine months ended December 26, 2020 and December 28, 2019, respectively.

The increase in our effective tax rate was primarily related to the impact of the tax rate change in the United Kingdom on the Company's net deferred tax liabilities and a tax detriment related to share based compensation recorded for the nine months ended December 26, 2020.

The additional increase is due to favorable impacts of benefits recognized from the resolution of uncertain tax positions and return to provision adjustments for the nine months ended December 28, 2019 when compared to the nine months ended December 26, 2020.

These increases were partially offset by the favorable effects related to global activities on our consolidated pre-tax income in the current year compared to the prior year.

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

state and local taxes and tax rates in foreign jurisdictions.

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

Net Loss Attributable to Noncontrolling Interest

During the nine months ended December 26, 2020 and December 28, 2019, we recorded a net loss attributable to the noncontrolling interest in our joint ventures of $2 million and $1 million, respectively.

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

Net Income Attributable to Capri

As a result of the foregoing, our net income decreased $207 million to a net income of $121 million during the nine months ended December 26, 2020, compared to net income of $328 million for the nine months ended December 28, 2019.

Segment Information

Nine Months Ended % Change

(dollars in millions) December 26,

2020 December 28,

2019 $ Change As

Reported Constant

Revenues $ 483 $ 630 $ (147) (23.3) % (26.7) %

Loss from operations (8) (6) (2) 33.3 %

Operating margin (1.7) % (1.0) %

Versace revenues decreased $147 million, or 23.3%, to $483 million during the nine months ended December 26, 2020, compared to $630 million for the nine months ended December 28, 2019, which included favorable foreign currency effects of $21 million.

On a constant currency basis, revenue decreased $168 million, or 26.7%, primarily reflecting the adverse impacts related to COVID-19.

Loss from Operations

During the nine months ended December 26, 2020, Versace recorded a loss from operations of $8 million, compared to $6 million for the nine months ended December 28, 2019.

Operating margin declined from (1.0)% for the nine months ended December 28, 2019, to (1.7)% during the nine months ended December 26, 2020, primarily due to a decline in revenue as a result of COVID-19, partially offset by favorable channel mix.

Nine Months Ended % Change

(dollars in millions) December 26,

2020 December 28,

2019 $ Change As

Reported Constant

Revenues $ 294 $ 448 $ (154) (34.4) % (35.7) %

(Loss) income from operations (37) 10 (47) NM

Operating margin (12.6) % 2.2 %

___________________

NM Not meaningful

Revenue from Jimmy Choo decreased $154 million, or 34.4%, to $294 million during the nine months ended December 26, 2020, compared to $448 million for the nine months ended December 28, 2019, which included favorable foreign currency effects of $6 million.

On a constant currency basis, revenue decreased $160 million, or 35.7%, primarily reflecting the adverse impacts related to COVID-19.

(Loss) Income from Operations

During the nine months ended December 26, 2020, Jimmy Choo recorded a loss from operations of $37 million, compared to income from operations of $10 million for the nine months ended December 28, 2019.

Operating margin declined from 2.2% for the nine months ended December 28, 2019, to (12.6)% during the nine months ended December 26, 2020, primarily due to a decline in revenue related to COVID-19.

Nine Months Ended % Change

(dollars in millions)

2020 December 28,

(dollars in millions) June 26,

2021 June 27,

2020 $ Change As

1 unchanged sentence

Revenues $ 871 $ 307 $ 564 183.7 % 175.2 %

Income from operations 423 711 (288) (40.5) %

Income (loss) from operations 240 (48) 288 600.0 %

Operating margin 27.6 % (15.6) %

Michael Kors revenues decreased $1.195 billion, or 36.4%, to $2.086 billion during the nine months ended December 26, 2020, compared to $3.281 billion for the nine months ended December 28, 2019, which included favorable foreign currency effects of $30 million.

On a constant currency basis, revenue decreased $1.225 billion, or 37.3%, primarily due to the adverse impacts related to COVID-19.

Income from Operations

During the nine months ended December 26, 2020, Michael Kors recorded income from operations of $423 million, compared to $711 million for the nine months ended December 28, 2019.

Operating margin declined from 21.7% for the nine months ended December 28, 2019, to 20.3% during the nine months ended December 26, 2020, 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, favorable channel mix as well as our cost reduction initiatives as a result of COVID-19.

Michael Kors revenues increased $564 million, or 183.7%, to $871 million during the three months ended June 26, 2021, compared to $307 million for the three months ended June 27, 2020, which included favorable foreign currency effects of $26 million.

On a constant currency basis, revenue increased $538 million, or 175.2%, primarily attributable to the continued recovery from the COVID-19 pandemic.

In the prior fiscal year, the Company experienced widespread, temporary store closures and a significant decline in store traffic.

Income (Loss) from Operations

During the three months ended June 26, 2021, Michael Kors recorded income from operations of $240 million, compared to a loss from operations of $48 million for the three months ended June 27, 2020.

Operating margin increased from (15.6)% for the three months ended June 27, 2020, to 27.6% during the three months ended June 26, 2021, primarily due to leveraging of operating expenses on higher revenues, partially offset by unfavorable channel mix as wholesale sales were significantly lower due to the initial impact of COVID-19 in the three months ended June 27, 2020.

Liquidity and Capital Resources

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 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 $85 million on capital expenditures during the nine months ended December 26, 2020.

Our primary sources of liquidity are the cash flows generated from our operations, along with borrowings available under our credit facilities (see below discussion regarding “Revolving Credit Facilities”) and available cash and cash equivalents.

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 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 $23 million on capital expenditures during the three months ended June 26, 2021.

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

6 unchanged sentences

Long-term debt $ 1,206 $ 1,219

Nine Months Ended

2020 December 28,

Three Months Ended

2021 June 27,

Cash Flows Provided By (Used In):

3 unchanged sentences

Effect of exchange rate changes (2) —

Net (decrease) increase in cash and cash equivalents $ (363) $ 65

Net increase (decrease) in cash and cash equivalents $ 124 $ (385)

Cash Provided by Operating Activities

Net cash provided by operating activities decreased $207 million to $545 million during the nine months ended December 26, 2020, as compared to $752 million for the nine months ended December 28, 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 a lower inventory balance and the timing of payments and receipts due to the impact of COVID-19.

Net cash provided by operating activities increased $137 million to $204 million during the three months ended June 26, 2021, as compared to $67 million for the three months ended June 27, 2020, as a result of an increase in our net income after non-cash adjustments, partially offset by decreases related to changes in our working capital.

The decreases related to the changes in our working capital are primarily attributable to fluctuations in the timing of payments and receipts, partially offset by a decrease in our inventory levels when compared to the prior year.

Cash Used in Investing Activities

Net cash used in investing activities was $97 million during the nine months ended December 26, 2020, as compared to $133 million during the nine months ended December 28, 2019, which was primarily attributable to lower capital expenditures of $79 million compared to prior year, offset by an increase of $32 million related to the settlement of a net investment hedge during the nine months ended December 28, 2019 and an increase of $11 million due to asset acquisitions during the nine months ended December 26, 2020.

Net cash used in investing activities was $23 million during the three months ended June 26, 2021, as compared to $32 million during the three months ended June 27, 2020, which was primarily attributable to lower capital expenditures of $9 million compared to prior year.

Cash Used in Financing Activities

Net cash used in financing activities was $803 million during the nine months ended December 26, 2020, as compared to $554 million during the nine months ended December 28, 2019.

The increase of cash used in financing activities of $249 million was primarily attributable to an increase in net debt repayments of $346 million, partially offset by a $101 million decrease in cash payments to repurchase our ordinary shares compared to prior year.

Net cash used in financing activities was $55 million during the three months ended June 26, 2021, as compared to $420 million during the three months ended June 27, 2020.

The decrease of cash used in financing activities of $365 million was primarily attributable to a decrease in net debt repayments of $404 million, partially offset by a $58 million increase in cash payments to repurchase our common stock compared to prior year.

Debt Facilities

The following table presents a summary of our borrowing capacity and amounts outstanding as of December 26, 2020 and March 28, 2020 (dollars in millions):

The following table presents a summary of our borrowing capacity and amounts outstanding as of June 26, 2021 and March 27, 2021 (in millions):

2021 March 27,

7 unchanged sentences

Borrowings outstanding, net of debt issuance costs (2)

$ 890 $ 1,010

Remaining availability $ — $ —

17 unchanged sentences

Versace Uncommitted Credit Facilities:

Total availability (55 million and 52 million Euro) $ 67 $ 58

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

Remaining availability (10 million and 17 million Euro) $ 12 $ 19

Total availability (57 million Euro) $ 68 $ 67

Borrowings outstanding (0 million Euro) (4)

Remaining availability (57 million Euro) $ 68 $ 67

Total borrowings outstanding (1)

1 unchanged sentence

Total remaining availability $ 1,078 $ 1,298

_____________________________

(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 December 26, 2020 and March 28, 2020, we were in compliance with all covenants related to our agreements then in effect governing our debt.

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

On May 26, 2021 (the "Election Date"), the company delivered to the administrative agent the certificate required to terminate the Applicable Period.

Effective as of the Election Date, the Company is required to comply with the quarterly maximum net leverage ratio test of 4.00 to 1.00.

As of June 26, 2021 and March 27, 2021, we were in compliance with all covenants related to our agreements then in effect governing our debt.

See Note 9 to the accompanying consolidated financial statements for additional information.

(2) Recorded as long-term debt in our consolidated balance sheets as of December 26, 2020 and March 28, 2020, except for the current portion of $97 million outstanding under the 2018 Term Loan Facility, which was recorded within short-term debt at both December 26, 2020 and March 28, 2020.

(3) Recorded as short-term debt in our consolidated balance sheets as of December 26, 2020 and March 28, 2020.

(4) The balance as of December 26, 2020 consists of $7 million related to our supplier financing 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.

(2) Recorded as long-term debt in our consolidated balance sheets as of June 26, 2021 and March 27, 2021, except for the current portion of $97 million outstanding under the 2018 Term Loan Facility, which was recorded within short-term debt in our consolidated balance sheets at both June 26, 2021 and March 27, 2021.

(3) The balance as of June 26, 2021 consists of $21 million related to our supplier financing program recorded within short-term debt in our consolidated balance sheets, $20 million of sales of certain Versace tax receivable, with $9 million and $11 million, respectively, was recorded within short-term debt and long-term debt in our consolidated balance sheets and $3 million of other loans recorded as long-term debt in our consolidated balance sheets.

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.

(4) Recorded as short-term debt in our consolidated balance sheets as of June 26, 2021 and March 27, 2021.

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

As of December 26, 2020, there were 28 financial institutions participating in the facility, with none maintaining a maximum commitment percentage in excess of 10%.

As of June 26, 2021, there were 29 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.

During the third quarter of Fiscal 2021, we began offering a supplier financing program to certain suppliers as we continue to identify opportunities to improve liquidity.

See Note 9 in the accompanying financial statements for additional information.

See Note 9 in the accompanying financial statements and Note 12 in our Fiscal 2021 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 nine months ended December 26, 2020 and December 28, 2019 (dollars in millions):

Nine Months Ended

2020 December 28,

The following table presents our treasury share repurchases during the three months ended June 26, 2021 and June 27, 2020 (dollars in millions):

Three Months Ended

2021 June 27,

Cost of shares repurchased under share repurchase program $ 50 $ —

4 unchanged sentences

1,088,150 38,119

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 and the provisions of the Second Amendment of the 2018 Credit Facility, which imposes incremental restrictions, including restrictions to pay dividends or make other distribution or repurchase or redeem capital stocks.

During the first quarter of Fiscal 2022, the Company reinstated its $500 million share-repurchase program, which was previously suspended during the first quarter of Fiscal 2021 in response to the impact of the COVID-19 pandemic and the provisions of the Second Amendment of the 2018 Credit Facility.

See Note 9 in the accompanying financial statements for additional information.

As of December 26, 2020, the remaining availability under our share repurchase program was $400 million.

As of June 26, 2021, the remaining availability under our share repurchase program was $350 million.

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.

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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 $28 million at December 26, 2020, including $6 million in letters of credit issued outside of the 2018 Credit Facility.

In addition, as of December 26, 2020, bank guarantees of approximately $37 million were supported by our various credit facilities.

Our off-balance sheet commitments relating to our outstanding letters of credit were $35 million at June 26, 2021, including $6 million in letters of credit issued outside of the 2018 Credit Facility.

In addition, as of June 26, 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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis