Capri Holdings Ltd 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis (“MD&A”) of our Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and notes thereto included as part of this interim report. Forward-looking statements are prospective in nature and are not based on historical facts, but rather on current expectations and projections of the management of the Company about future events, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. All statements other than statements of historical facts included herein, may be forward-looking statements. Without limitation, any statements preceded or followed by or that include the words “plans”, “believes”, “expects”, “intends”, “will”, “should”, “could”, “would”, “may”, “anticipates”, “might” or similar words or phrases, are forward-looking statements. These forward-looking statements are not guarantees of future financial performance. Such forward-looking statements involve known and unknown risks and uncertainties that could significantly affect expected results and are based on certain key assumptions, which could cause actual results to differ materially from those projected or implied in any forward-looking statements. These risks, uncertainties and other factors include the 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; significant transaction costs; unknown liabilities; the risk of litigation and/or regulatory actions related to the Company’s businesses; fluctuations in demand for the Company’s products; levels of indebtedness (including the indebtedness incurred in connection with acquisitions); the timing and scope of future share buybacks, which may be made in open market or privately negotiated transactions, and are subject to market conditions, applicable legal requirements, trading restrictions under the Company’s insider trading policy and other relevant factors, and which share repurchases may be suspended or discontinued at any time, the level of other investing activities and uses of cash; changes in consumer traffic and retail trends; loss of market share and industry competition; fluctuations in the capital markets; fluctuations in interest and exchange rates; the occurrence of unforeseen epidemics and pandemics, disasters or catastrophes; political or economic instability in principal markets; adverse outcomes in litigation; and general, local and global economic, political, business and market conditions, as well as those risks set forth in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended March 27, 2021, filed with the Securities and Exchange Commission on May 26, 2021. Overview Our Business Capri Holdings Limited is a global fashion luxury group, consisting of iconic brands that are industry leaders in design, style and craftsmanship, led by a world-class management team and renowned designers. Our brands cover the full spectrum of fashion luxury categories including women’s and men’s accessories, footwear and ready-to-wear as well as wearable technology, watches, jewelry, eyewear and a full line of fragrance products. Our goal is to continue to extend the global reach of our brands while ensuring that they maintain their independence and exclusive DNA. Our Versace brand has long been recognized as one of the world’s leading international fashion design houses and is synonymous with Italian glamour and style. Founded in 1978 in Milan, Versace is known for its iconic and unmistakable style and unparalleled craftsmanship. Over the past several decades, the House of Versace has grown globally from its roots in haute couture, expanding into the design, manufacturing, distribution and retailing of ready-to-wear, accessories, footwear, eyewear, watches, jewelry, fragrance and home furnishings businesses. Versace’s design team is led by Donatella Versace, who has been the brand’s artistic director for over 20 years. Versace distributes its products through a worldwide distribution network, which includes boutiques in some of the world’s most glamorous cities, its e-commerce site, as well as through the most prestigious department and specialty stores worldwide. 27 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 and eyewear, are produced under licensing agreements. Jimmy Choo’s design team is led by Sandra Choi, who has been the Creative Director for the brand since its inception in 1996. Jimmy Choo products are unique, instinctively seductive and chic. The brand offers classic and timeless luxury products, as well as innovative products that are intended to set and lead fashion trends. Jimmy Choo is represented through its global store network, its e-commerce sites, as well as through the most prestigious department and specialty stores worldwide. Our Michael Kors brand was launched 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. Michael Kors features distinctive designs, materials and craftsmanship with a jet-set aesthetic that combines stylish elegance and a sporty attitude. Michael Kors offers three primary collections: the Michael Kors Collection luxury line, the MICHAEL Michael Kors accessible luxury line and the Michael Kors Mens line. The Michael Kors Collection establishes the aesthetic authority of the entire brand and is carried by 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. Certain Factors Affecting Financial Condition and Results of Operations 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. We intend to continue to increase our international presence and global brand recognition by growing our existing international operations through the formation of various joint ventures with international partners and continuing with our international licensing arrangements. We feel this is an efficient method for continued penetration into the global luxury goods market, especially for markets where we have yet to establish a substantial presence. In addition, our growth strategy includes assuming direct control of certain licensed international operations to better manage our growth opportunities in the related regions. Channel shift and demand for our accessories and related merchandise . Our performance is affected by trends in the luxury goods industry, as well as shifts in demographics and changes in lifestyle preferences. Although 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, 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. Our consolidated operations are impacted by the relationships between our reporting currency, the U.S. dollar, and those of our non-U.S. subsidiaries whose functional/local currency is other than the U.S. dollar, particularly the Euro, the British Pound, the Chinese Renminbi, the Japanese Yen, the Korean Won and the Canadian Dollar, among others. We continue to expect volatility in the global foreign currency exchange rates, which may have a negative impact on the reported results of certain of our non-U.S. subsidiaries in the future, when translated to U.S. Dollars. Disruptions in shipping and distribution . Our operations are subject to the impact of shipping disruptions as a result of changes or damage to our distribution infrastructure, as well as due to external factors, including the impacts 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 28 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. Our industry is subject to volatility in costs related to certain raw materials used in the manufacturing of our products. This volatility applies primarily to costs driven by commodity prices, which can increase or decrease dramatically over a short period of time. In addition, our costs may be impacted by sanction tariffs imposed on our products due to changes in trade terms. 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. or other countries, the cost of our products could increase which could adversely affect our business. In addition, commodity prices and tariffs may have an impact on our revenues, results of operations and cash flows. We use commercially reasonable efforts to mitigate these effects by sourcing our products as efficiently as possible and diversifying the countries where we produce. In addition, manufacturing labor costs are also subject to degrees of volatility based on local and global economic conditions. We use commercially reasonable efforts to source from localities that suit our manufacturing standards and result in more favorable labor driven costs to our products. Segment Information We operate in three reportable segments, which are as follows: Versace We generate revenue through the sale of Versace luxury ready-to-wear, accessories 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. Jimmy Choo 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. Michael Kors We generate revenue through the sale of Michael Kors products through four primary Michael Kors retail store formats: “Collection” stores, “Lifestyle” stores (including concessions), outlet stores and e-commerce, through which we sell our products, as well as licensed products bearing our name, directly to consumers throughout the Americas, certain parts of EMEA and certain parts of Asia. 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. 29 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, 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 months ended June 26, 2021 and June 27, 2020 (in millions): Three Months Ended June 26, 2021 June 27, 2020 Total revenue: Versace $ 240 $ 93 Jimmy Choo 142 51 Michael Kors 871 307 Total revenue $ 1,253 $ 451 Income (loss) from operations: Versace $ 48 $ (41) Jimmy Choo 11 (29) Michael Kors 240 (48) Total segment income (loss) from operations 299 (118) Less: Corporate expenses (41) (31) Restructuring and other charges (3) (8) COVID-19 related charges 3 (5) Total income (loss) from operations $ 258 $ (162) 30 The following table presents our global network of retail stores and wholesale doors by brand: As of June 26, 2021 June 27, 2020 Number of full price retail stores (including concessions): Versace 151 154 Jimmy Choo 180 181 Michael Kors 528 549 859 884 Number of outlet stores: Versace 57 50 Jimmy Choo 53 47 Michael Kors 292 273 402 370 Total number of retail stores 1,261 1,254 Total number of wholesale doors: Versace 780 755 Jimmy Choo 456 535 Michael Kors 2,686 2,829 3,922 4,119 The following table presents our retail stores by geographic location: As of As of June 26, 2021 June 27, 2020 Versace Jimmy Choo Michael Kors Versace Jimmy Choo Michael Kors Store count by region: The Americas 34 44 352 30 47 365 EMEA 58 76 175 59 76 180 Asia 116 113 293 115 105 277 208 233 820 204 228 822 Key Consolidated Performance Indicators and Statistics We use a number of key indicators of operating results to evaluate our Company’s performance, including the following (dollars in millions): Three Months Ended June 26, 2021 June 27, 2020 Total revenue $ 1,253 $ 451 Gross profit as a percent of total revenue 68.3 % 67.0 % Income (loss) from operations $ 258 $ (162) Income (loss) from operations as a percent of total revenue 20.6 % (35.9) % 31 Seasonality We experience certain effects of seasonality with respect to our business. We generally experience greater sales during our third fiscal quarter, primarily driven by holiday season sales, and the lowest sales during our first fiscal quarter. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Critical accounting policies are those that are the most important to the portrayal of our results of operations and financial condition and that require our most difficult, subjective and complex judgments to make estimates about the effect of matters that are inherently uncertain. In applying such policies, we must use certain assumptions that are based on our informed judgments, assessments of probability and best estimates. Estimates, by their nature, are subjective and are based on analysis of available information, including current and historical factors and the experience and judgment of management. We evaluate our assumptions and estimates on an ongoing basis. While our significant accounting policies are detailed in Note 2 to the accompanying consolidated financial statements, our critical accounting policies are disclosed in full in the MD&A section of our Annual Report on Form 10-K for the fiscal year ended March 27, 2021. There have been no significant changes in our critical accounting policies and estimates since March 27, 2021. 32 Results of Operations 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 June 26, 2021 June 27, 2020 June 26, 2021 June 27, 2020 Statements of Operations Data: Total revenue $ 1,253 $ 451 $ 802 177.8 % Cost of goods sold 397 149 248 166.4 % 31.7 % 33.0 % Gross profit 856 302 554 183.4 % 68.3 % 67.0 % Selling, general and administrative expenses 545 402 143 35.6 % 43.5 % 89.1 % Depreciation and amortization 50 54 (4) (7.4) % 4.0 % 12.0 % 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 (loss) from operations 258 (162) 420 259.3 % 20.6 % (35.9) % Other income, net — (1) 1 NM — % (0.2) % 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 Less: Net income attributable to noncontrolling interest — — — — % Net income (loss) attributable to Capri $ 219 $ (180) $ 399 NM NM Not meaningful Total Revenue 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 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. 33 Total Operating Expenses 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 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 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 $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 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, 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). 34 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. 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 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 Versace Three Months Ended % Change (dollars in millions) June 26, 2021 June 27, 2020 $ Change As Reported Constant Currency Revenues $ 240 $ 93 $ 147 158.1 % 135.5 % Income (loss) from operations 48 (41) 89 217.1 % Operating margin 20.0 % (44.1) % Revenues 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 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. 35 Jimmy Choo Three Months Ended % Change (dollars in millions) June 26, 2021 June 27, 2020 $ Change As Reported Constant Currency Revenues $ 142 $ 51 $ 91 178.4 % 147.1 % Income (loss) from operations 11 (29) 40 137.9 % Operating margin 7.7 % (56.9) % Revenues 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. Michael Kors Three Months Ended % Change (dollars in millions) June 26, 2021 June 27, 2020 $ Change As Reported Constant Currency Revenues $ 871 $ 307 $ 564 183.7 % 175.2 % Income (loss) from operations 240 (48) 288 600.0 % Operating margin 27.6 % (15.6) % Revenues 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. 36 Liquidity and Capital Resources Liquidity Our primary sources of liquidity are the cash flows generated from our operations, along with borrowings available under our credit facilities (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): As of June 26, 2021 March 27, 2021 Balance Sheet Data: Cash and cash equivalents $ 356 $ 232 Working capital $ 145 $ (75) Total assets $ 7,624 $ 7,481 Short-term debt $ 127 $ 123 Long-term debt $ 1,206 $ 1,219 Three Months Ended June 26, 2021 June 27, 2020 Cash Flows Provided By (Used In): Operating activities $ 204 $ 67 Investing activities (23) (32) Financing activities (55) (420) Effect of exchange rate changes (2) — Net increase (decrease) in cash and cash equivalents $ 124 $ (385) Cash Provided by Operating Activities 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 $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 $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. 37 Debt Facilities The following table presents a summary of our borrowing capacity and amounts outstanding as of June 26, 2021 and March 27, 2021 (in millions): As of June 26, 2021 March 27, 2021 Senior Secured Revolving Credit Facility: Revolving Credit Facility (excluding up to a $500 million accordion feature) (1) Total availability $ 1,000 $ 1,000 Borrowings outstanding (2) — — Letter of credit outstanding 28 27 Remaining availability $ 972 $ 973 Term Loan Facility ($1.6 billion) Borrowings outstanding, net of debt issuance costs (2) $ 842 $ 865 Remaining availability $ — $ — 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) $ 447 $ 447 Other Borrowings (3) $ 44 $ 21 Hong Kong Uncommitted Credit Facility: Total availability (100 million Hong Kong Dollars) $ 13 $ 13 Bank guarantees outstanding (2 million and 3 million Hong Kong Dollars) — — Remaining availability (98 million and 97 million Hong Kong Dollars) $ 13 $ 13 China Uncommitted Credit Facility: Borrowings outstanding $ — $ — Total and remaining availability (100 million Chinese Yuan) $ 15 $ 15 Japan Credit Facility: Total availability (1.0 billion Japanese Yen) $ 10 $ 9 Borrowings outstanding (0.0 billion and 1.0 billion Japanese Yen) (4) — 9 Remaining availability (1.0 billion and 0.0 billion Japanese Yen) $ 10 — Versace Uncommitted Credit Facilities: Total availability (57 million Euro) $ 68 $ 67 Borrowings outstanding (0 million Euro) (4) — — Remaining availability (57 million Euro) $ 68 $ 67 Total borrowings outstanding (1) $ 1,333 $ 1,342 Total remaining availability $ 1,078 $ 1,298 38 (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 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 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. 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 three months ended June 26, 2021 and June 27, 2020 (dollars in millions): Three Months Ended June 26, 2021 June 27, 2020 Cost of shares repurchased under share repurchase program $ 50 $ — Fair value of shares withheld to cover tax obligations for vested restricted share awards 9 1 Total cost of treasury shares repurchased $ 59 $ 1 Shares repurchased under share repurchase program 921,080 — Shares withheld to cover tax withholding obligations 167,070 38,119 1,088,150 38,119 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 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. This program may be suspended or discontinued at any time. See Note 13 to the accompanying consolidated financial statements for additional information. 39 Contractual Obligations and Commercial Commitments Please refer to the “Contractual Obligations and Commercial Commitments” disclosure within the “Liquidity and Capital Resources” section of our Fiscal 2021 Form 10-K for a detailed disclosure of our other contractual obligations and commitments as of March 27, 2021. Off-Balance Sheet Arrangements We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating our business. Our off-balance sheet commitments relating to our outstanding letters of credit were $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. Recent Accounting Pronouncements See Note 2 to the accompanying interim consolidated financial statements for recently issued accounting standards, which may have an impact on our financial statements and/or disclosures upon adoption. 40