What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-09 · 227 added, 97 removed, 288 unchanged (53% of the section changed)

7 unchanged sentences

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, or if there are further supply chain disruptions, including additional production delays and increased costs, 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 and to successfully execute our growth strategies;

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, including that our estimates could materially differ if retail stores are forced to close, or if there are further supply chain disruptions, including production delays and increased costs, changes in consumer traffic and retail trends;

higher consumer debt level, recession and inflationary pressures;

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;

7 unchanged sentences

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 such 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;

higher consumer debt levels, recession and inflationary pressures, loss of market share and industry competition;

the level of other investing activities and uses of cash;

loss of market share and industry competition;

fluctuations in the capital markets;

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Versace distributes its products through a worldwide distribution network, which includes boutiques in some of the world’s most glamorous cities, its e-commerce sites, 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 and eyewear, are produced under licensing agreements.

14 unchanged sentences

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 April 2, 2022 for additional discussion regarding risks to our business associated with the COVID-19 pandemic.

The Company's performance during fiscal 2023 was adversely impacted due to lockdowns in certain regions, most notably in Greater China, as a result of an increase in infections due to variants of COVID-19.

These lockdowns resulted in store closures and an overall decline in demand in the region.

The situation continues to be very volatile and infection rates and government restrictions may continue to persist in Greater China or elsewhere.

Macroeconomic conditions and inflationary pressures.

Our business is affected by global economic conditions and the related impact on levels of consumer spending worldwide.

The war in Ukraine that began in February 2022 has created significant economic uncertainty in the region and caused the Company to pause all wholesale shipments to Russia and Ukraine.

The war in Ukraine that began in February 2022 has created significant economic uncertainty in the region and caused us to stop all shipments to Russia and Ukraine.

While our business in Russia and Ukraine represented less than 1% of our total net sales for Fiscal 2022, the war has caused broader macroeconomic implications that we expect to continue for the foreseeable future, including the continued weakening of the Euro against the US dollar, increases in fuel prices, volatility in the financial markets and a decline in consumer spending which may negatively impact our business, financial condition, and results of operations for Fiscal 2023.

In addition, inflationary pressures, including increased labor, raw materials, and freight costs, adversely impacted our earnings in the first quarter of 2023.

In addition, inflationary pressures, including increased labor, raw materials, and freight costs are adversely impacting our earnings.

Purchases of discretionary luxury items, such as the accessories, footwear and apparel that we produce, tend to decline when disposable income is lower or when there are recessions, inflationary pressures or other economic uncertainty.

6 unchanged sentences

Future growth is expected to be driven by e-commerce, Chinese consumers and younger generations;

As the personal luxury goods market continues to evolve, Capri is committed to creating engaging luxury experiences globally.

In our view, increased customer engagement and tailoring merchandise to customer shopping and communication preferences are key to growing market share.

however, growth may be limited by concerns over inflation and the possibility of a global recession.

Retail Fleet Optimization .

42 unchanged sentences

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 from operations by segment for the three months ended July 2, 2022 and June 26, 2021 (in millions):

Three Months Ended

2022 June 26,

The following table presents our total revenue and income from operations by segment for the three and six months ended October 1, 2022 and September 25, 2021 (in millions):

Three Months Ended Six Months Ended

2022 September 25,

2021 October 1,

2022 September 25,

Total revenue:

9 unchanged sentences

Corporate expenses

(55) (45) (115) (86)

Impairment of assets (11) (33) (11) (33)

Restructuring and other charges (3) (8) (6) (11)

2 unchanged sentences

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

2022 June 26,

2022 September 25,

Number of full price retail stores (including concessions):

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The following table presents our retail stores by geographic location:

July 2, 2022 June 26, 2021

October 1, 2022 September 25, 2021

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 performance, including the following (dollars in millions):

Three Months Ended

July 2, 2022 June 26, 2021

Three Months Ended Six Months Ended

2022 September 25, 2021 October 1,

2022 September 25, 2021

Total revenue $ 1,412 $ 1,300 $ 2,772 $ 2,553

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Results of Operations

Comparison of the three months ended July 2, 2022 with the three months ended June 26, 2021

The following table details the results of our operations for the three months ended July 2, 2022 and June 26, 2021, and expresses the relationship of certain line items to total revenue as a percentage (dollars in millions):

Comparison of the three months ended October 1, 2022 with the three months ended September 25, 2021

The following table details the results of our operations for the three months ended October 1, 2022 and September 25, 2021, 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

2022 June 26,

2022 September 25,

2021 October 1,

2022 September 25,

Statements of Operations Data:

4 unchanged sentences

Depreciation and amortization 43 49 (6) (12.2) % 3.0 % 3.8 %

Impairment of assets 11 33 (22) (66.7) % 0.8 % 2.5 %

Restructuring and other charges 3 8 (5) (62.5) % 0.2 % 0.6 %

1 unchanged sentence

Income from operations 252 195 57 29.2 % 17.8 % 15.0 %

Interest (income) expense, net (4) 1 (5) NM (0.3) % 0.1 %

Foreign currency loss 4 1 3 NM 0.3 % 0.1 %

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

Interest expense (income), net 5 (5) 10 NM 0.4 % (0.4) %

Foreign currency (gain) loss (11) 4 (15) NM (0.8) % 0.3 %

Income before income taxes 259 198 61 30.8 % 18.3 % 15.2 %

Provision for income taxes 28 37 (9) (24.3) % 2.1 % 3.0 %

Provision (benefit) for income taxes 35 (2) 37 NM 2.5 % (0.2) %

Net income 224 200 24 12.0 %

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Total Revenue

Total revenue increased $107 million, or 8.5%, to $1.360 billion for the three months ended July 2, 2022, compared to $1.253 billion for the three months ended June 26, 2021, which included net unfavorable foreign currency effects of approximately $83 million as a result of the strengthening of the U.S.

dollar compared to all major currencies in which we operate for the three months ended July 2, 2022.

Total revenue increased $112 million, or 8.6%, to $1.412 billion for the three months ended October 1, 2022, compared to $1.300 billion for the three months ended September 25, 2021, which included net unfavorable foreign currency effects of approximately $116 million as a result of the strengthening of the U.S.

dollar compared to all major currencies in which we operate for the three months ended October 1, 2022.

On a constant currency basis, our total revenue increased $228 million, or 17.5%.

The increase is attributable to increased retail and wholesale revenues throughout the Americas and EMEA, partially offset by decreased revenues in Greater China due to COVID-19 related disruptions, for each of our brands.

Gross profit increased $45 million, or 5.3%, to $901 million for the three months ended July 2, 2022, compared to $856 million for the three months ended June 26, 2021, which included net unfavorable foreign currency effects of $58 million.

Gross profit as a percentage of total revenue was 66.3% and 68.3% for the three months ended July 2, 2022 and June 26, 2021, respectively.

Our gross profit margin decreased primarily due to increased supply chain costs and unfavorable regional sales mix for the three months ended July 2, 2022, as compared to the three months ended June 26, 2021.

Gross profit increased $67 million, or 7.6%, to $951 million for the three months ended October 1, 2022, compared to $884 million for the three months ended September 25, 2021, which included net unfavorable foreign currency effects of $83 million.

Gross profit as a percentage of total revenue was 67.4% and 68.0% for the three months ended October 1, 2022 and September 25, 2021, respectively.

Our gross profit margin decreased primarily due to increased supply chain costs and unfavorable channel mix for the three months ended October 1, 2022, as compared to the three months ended September 25, 2021.

Total Operating Expenses

Total operating expenses increased $72 million, or 12.0%, to $670 million for the three months ended July 2, 2022, compared to $598 million for the three months ended June 26, 2021.

Total operating expenses increased $10 million, or 1.5%, to $699 million for the three months ended October 1, 2022, compared to $689 million for the three months ended September 25, 2021.

Our operating expenses included a net favorable foreign currency impact of approximately $66 million.

Total operating expenses increased to 49.3% as a percentage of total revenue for the three months ended July 2, 2022, compared to 47.7% for the three months ended June 26, 2021.

Total operating expenses decreased to 49.5% as a percentage of total revenue for the three months ended October 1, 2022, compared to 53.0% for the three months ended September 25, 2021.

The components that comprise total operating expenses are explained below.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $77 million, or 14.1%, to $622 million for the three months ended July 2, 2022, compared to $545 million for the three months ended June 26, 2021, primarily due to increased retail store and e-commerce expenses from higher revenue and higher corporate costs for the three months ended July 2, 2022.

Selling, general, and administrative expenses as a percentage of total revenue increased to 45.7% for the three months ended July 2, 2022, compared to 43.5% for the three months ended June 26, 2021, primarily due to increased retail store, e-commerce and marketing costs as a percentage of revenue for the three months ended July 2, 2022, as compared to the three months ended June 26, 2021.

Unallocated corporate expenses, which are included within selling, general and administrative expenses discussed above, but are not directly attributable to a reportable segment, increased $19 million, or 46.3%, to $60 million for the three months ended July 2, 2022 as compared to $41 million for the three months ended June 26, 2021, primarily due to an increase in professional fees related to the ongoing ERP system implementation and Capri transformation projects.

Selling, general and administrative expenses increased $43 million, or 7.2%, to $642 million for the three months ended October 1, 2022, compared to $599 million for the three months ended September 25, 2021, primarily due to increased e-commerce costs from higher revenue and higher corporate costs for the three months ended October 1, 2022.

Selling, general, and administrative expenses as a percentage of total revenue decreased to 45.5% for the three months ended October 1, 2022, compared to 46.1% for the three months ended September 25, 2021, primarily due to decreased retail store costs as a percentage of revenue due to higher revenue, partially offset by increased e-commerce costs as a percentage of revenue for the three months ended October 1, 2022, as compared to the three months ended September 25, 2021.

Unallocated 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 22.2%, to $55 million for the three months ended October 1, 2022 as compared to $45 million for the three months ended September 25, 2021, primarily due to an increase in costs related to the ongoing ERP system implementation and Capri transformation projects.

Depreciation and Amortization

Depreciation and amortization decreased $5 million, or 10.0%, to $45 million for the three months ended July 2, 2022, compared to $50 million for the three months ended June 26, 2021.

As a percentage of total revenue, depreciation and amortization decreased to 3.3% for the three months ended July 2, 2022, compared to 4.0% for the three months ended June 26, 2021.

Depreciation and amortization decreased $6 million, or 12.2%, to $43 million for the three months ended October 1, 2022, compared to $49 million for the three months ended September 25, 2021.

As a percentage of total revenue, depreciation and amortization decreased to 3.0% for the three months ended October 1, 2022, compared to 3.8% for the three months ended September 25, 2021.

The decrease in depreciation and amortization expense was primarily attributable to lower depreciation due to lower capital expenditures in Fiscal 2022 and Fiscal 2021.

Impairment of Assets

During the three months ended October 1, 2022 and September 25, 2021, we recognized asset impairment charges of $11 million and $33 million, respectively, which primarily related to operating lease right-of-use assets at certain Michael Kors store locations.

See Note 11 to the accompanying consolidated financial statements for additional information.

Restructuring and Other Charges

For the three months ended July 2, 2022, we recognized restructuring and other charges of $3 million, which primarily related to equity awards associated with the acquisition of Versace.

We recognized restructuring and other charges of $3 million and $8 million for the three months ended October 1, 2022 and September 25, 2021, respectively.

The charges are primarily related to equity awards associated with the acquisition of Versace.

See Note 8 to the accompanying consolidated financial statements for additional information.

For 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, partially offset by $3 million of gains related to our Capri Retail Store Optimization Program.

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 $27 million, to $231 million for three months ended July 2, 2022, compared to $258 million for the three months ended June 26, 2021.

Income from operations as a percentage of total revenue decreased to 17.0% for the three months ended July 2, 2022, compared to 20.6% for the three months ended June 26, 2021.

As a result of the foregoing, income from operations increased $57 million, to $252 million for three months ended October 1, 2022, compared to $195 million for the three months ended September 25, 2021.

Income from operations as a percentage of total revenue increased to 17.8% for the three months ended October 1, 2022, compared to 15.0% for the three months ended September 25, 2021.

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

Interest (Income) Expense, net

For the three months ended July 2, 2022, we recognized $4 million of interest income compared to $1 million of interest expense for the three months ended June 26, 2021.

The $5 million improvement in interest (income) expense, net, is primarily due to more favorable interest rates on our net investment hedges in the current year and an increase of interest income from higher average notional amounts outstanding, partially offset by an increase in interest expense attributable to higher average borrowings outstanding (see Note 9 and Note 12 to the accompanying consolidated financial statements for additional information).

Foreign Currency Loss

For the three months ended July 2, 2022 and June 26, 2021, we recognized a net foreign currency loss of $4 million and $1 million, respectively, primarily attributable to intercompany transactions among our subsidiaries.

Provision for Income Taxes

The provision for income taxes was $28 million for the three months ended July 2, 2022, compared to $37 million for the three months ended June 26, 2021.

Our effective tax rates were 12.1% and 14.5% for the three months ended July 2, 2022 and June 26, 2021, respectively.

The decrease in our effective tax rate was primarily related to the revaluation of net deferred tax liabilities as a result of the tax rate change in the United Kingdom during the prior year, partially offset by a higher tax rate due to the unfavorable geographic mix of earnings.

Interest Expense (Income), net

For the three months ended October 1, 2022, we recognized $5 million of interest expense compared to $5 million of interest income for the three months ended September 25, 2021.

The $10 million increase in interest expense (income), net, is primarily due to higher effective interest rates on our outstanding debt, higher average borrowings outstanding and lower interest income from our net investment hedges, partially offset by higher interest income earned on our cash and cash equivalents (see Note 9 and Note 12 to the accompanying consolidated financial statements for additional information).

Foreign Currency (Gain) Loss

For the three months ended October 1, 2022, we recognized a net foreign currency gain of $11 million, primarily attributable to a gain related to an undesignated forward foreign currency exchange contract partially offset by losses attributable to intercompany transactions among our subsidiaries.

For the three months ended September 25, 2021, we recognized a net foreign currency loss of $4 million, primarily attributable to the revaluation and settlement of certain of our accounts payable in currencies other than the functional currency, as well as the remeasurement of dollar-denominated intercompany loans with certain of our subsidiaries.

Provision (Benefit) for Income Taxes

The provision for income taxes was $35 million for the three months ended October 1, 2022, compared to a benefit of $2 million for the three months ended September 25, 2021.

Our effective tax rates were 13.5% and (1.0)% for the three months ended October 1, 2022 and September 25, 2021, respectively.

The increase in our effective tax rate was primarily related to a benefit recognized during the prior year due to newly enacted tax legislation in Italy, which allowed a step up in certain intangible assets and a reduction of deferred tax liabilities.

See Note 15 to the accompanying consolidated financial statements for additional information regarding the effective tax rate for the current fiscal year quarter.

Our effective tax rate may fluctuate from time to time due to the effects of changes in United States state and local taxes and tax rates in foreign jurisdictions.

Our effective tax rate may fluctuate from time to time due to the effects of changes in United States federal, 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 Attributable to Noncontrolling Interest

For the three months ended July 2, 2022, we recorded net income of $2 million and for the three months ended June 26, 2021, we recorded an immaterial net income, attributable to the noncontrolling interest in our joint ventures.

These amounts 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 $18 million to $201 million for the three months ended July 2, 2022, compared to a net income of $219 million for the three months ended June 26, 2021.

As a result of the foregoing, our net income increased $24 million to $224 million for the three months ended October 1, 2022, compared to $200 million for the three months ended September 25, 2021.

Segment Information

Three Months Ended % Change

(dollars in millions) July 2,

2022 June 26,

(dollars in millions) October 1,

2022 September 25,

2021 $ Change As

3 unchanged sentences

Operating margin 20.1 % 19.5 %

Versace revenues increased $35 million, or 14.6%, to $275 million for the three months ended July 2, 2022, compared to $240 million for the three months ended June 26, 2021, which included unfavorable foreign currency effects of $36 million.

Versace revenues increased $26 million, or 9.2%, to $308 million for the three months ended October 1, 2022, compared to $282 million for the three months ended September 25, 2021, which included unfavorable foreign currency effects of $52 million.

On a constant currency basis, revenue increased $78 million, or 27.7%, primarily attributable to increased retail revenue and higher wholesale shipments in the Americas and EMEA, partially offset by decreased revenues in Greater China due to COVID-19 related disruptions.

Income from Operations

For the three months ended July 2, 2022, Versace recorded income from operations of $52 million, compared to $48 million for the three months ended June 26, 2021.

Operating margin decreased from 20.0% for the three months ended June 26, 2021, to 18.9% for the three months ended July 2, 2022, primarily due to unfavorable regional sales mix and investments in marketing and advertising.

For the three months ended October 1, 2022, Versace recorded income from operations of $62 million, compared to $55 million for the three months ended September 25, 2021.

Operating margin increased from 19.5% for the three months ended September 25, 2021, to 20.1% for the three months ended October 1, 2022, primarily due to leveraging of operating expenses on higher revenue and higher average unit price partially offset by unfavorable channel mix.

Three Months Ended % Change

(dollars in millions) July 2,

2022 June 26,

(dollars in millions) October 1,

2022 September 25,

2021 $ Change As

1 unchanged sentence

Revenues $ 142 $ 137 $ 5 3.6 % 15.3 %

Income from operations 19 11 8 72.7 %

Income from operations $ 8 $ 1 $ 7 NM

Operating margin 5.6 % 0.7 %

Jimmy Choo revenues increased $30 million, or 21.1%, to $172 million for the three months ended July 2, 2022, compared to $142 million for the three months ended June 26, 2021, which included unfavorable foreign currency effects of $13 million.

On a constant currency basis, revenue increased $43 million, or 30.3%, primarily attributable to increased retail revenue in the Americas and EMEA.

NM Not meaningful

Jimmy Choo revenues increased $5 million, or 3.6%, to $142 million for the three months ended October 1, 2022, compared to $137 million for the three months ended September 25, 2021, which included unfavorable foreign currency effects of $16 million.

On a constant currency basis, revenue increased $21 million, or 15.3%, primarily attributable to increased retail revenue in the Americas.

Income from Operations

For the three months ended July 2, 2022, Jimmy Choo recorded income from operations of $19 million, compared to $11 million for the three months ended June 26, 2021.

Operating margin increased from 7.7% for the three months ended June 26, 2021 to 11.0% for the three months ended July 2, 2022, primarily due to leveraging of operating expenses on higher revenue.

For the three months ended October 1, 2022, Jimmy Choo recorded income from operations of $8 million, compared to $1 million for the three months ended September 25, 2021.

Operating margin increased from 0.7% for the three months ended September 25, 2021 to 5.6% for the three months ended October 1, 2022, primarily due to higher average unit price and lower promotional activity.

Three Months Ended % Change

(dollars in millions) July 2,

2022 June 26,

(dollars in millions) October 1,

2022 September 25,

2021 $ Change As

3 unchanged sentences

Operating margin 25.8 % 25.0 %

Michael Kors revenues increased $42 million, or 4.8%, to $913 million for the three months ended July 2, 2022, compared to $871 million for the three months ended June 26, 2021, which included unfavorable foreign currency effects of $34 million.

Michael Kors revenues increased $81 million, or 9.2%, to $962 million for the three months ended October 1, 2022, compared to $881 million for the three months ended September 25, 2021, which included unfavorable foreign currency effects of $48 million.

On a constant currency basis, revenue increased $129 million, or 14.6%, primarily due to higher wholesale shipments and increased retail revenue in the Americas and EMEA, partially offset by decreased revenue in Greater China due to the impact of COVID-19 related disruptions.

Income from Operations

For the three months ended July 2, 2022, Michael Kors recorded income from operations of $222 million, compared to $240 million for the three months ended June 26, 2021.

Operating margin decreased from 27.6% for the three months ended June 26, 2021, to 24.3% for the three months ended July 2, 2022, primarily due to increased supply chain costs.

For the three months ended October 1, 2022, Michael Kors recorded income from operations of $248 million, compared to $220 million for the three months ended September 25, 2021.

Operating margin increased from 25.0% for the three months ended September 25, 2021, to 25.8% for the three months ended October 1, 2022, primarily due to leveraging of operating expenses on higher revenue, partially offset by increased supply chain costs.

Results of Operations

Comparison of the six months ended October 1, 2022 with the six months ended September 25, 2021

The following table details the results of our operations for the six months ended October 1, 2022 and September 25, 2021, and expresses the relationship of certain line items to total revenue as a percentage (dollars in millions):

Six Months Ended $ Change % Change % of Total Revenue for the Six Months Ended

2022 September 25,

2021 October 1, 2022 September 25, 2021

Statements of Operations Data:

Total revenue $ 2,772 $ 2,553 $ 219 8.6 %

Cost of goods sold 920 813 107 13.2 % 33.2 % 31.8 %

Gross profit 1,852 1,740 112 6.4 % 66.8 % 68.2 %

Selling, general and administrative expenses 1,264 1,144 120 10.5 % 45.6 % 44.8 %

Depreciation and amortization 88 99 (11) (11.1) % 3.2 % 3.9 %

Impairment of assets 11 33 (22) (66.7) % 0.4 % 1.3 %

Restructuring and other charges 6 11 (5) (45.5) % 0.2 % 0.4 %

Total operating expenses 1,369 1,287 82 6.4 % 49.4 % 50.4 %

Income from operations 483 453 30 6.6 % 17.4 % 17.7 %

Other income, net (1) (2) 1 NM — % (0.1) %

Interest expense (income), net 1 (4) 5 NM — % (0.2) %

Foreign currency (gain) loss (7) 5 (12) NM (0.3) % 0.2 %

Income before income taxes 490 454 36 7.9 % 17.7 % 17.8 %

Provision for income taxes

63 35 28 80.0 % 2.3 % 1.4 %

Net income 427 419 8 1.9 %

Net income attributable to noncontrolling interest 2 — 2 NM

Net income attributable to Capri $ 425 $ 419 $ 6 1.4 %

NM Not meaningful

Total Revenue

Total revenue increased $219 million, or 8.6%, to $2.772 billion for the six months ended October 1, 2022, compared to $2.553 billion for the six months ended September 25, 2021, which included net unfavorable foreign currency effects of approximately $199 million, as a result of the strengthening of the U.S.

dollar compared to all major currencies in which we operate for the six months ended October 1, 2022.

On a constant currency basis, our total revenue increased $418 million, or 16.4%.

Gross profit increased $112 million, or 6.4%, to $1.852 billion for the six months ended October 1, 2022, compared to $1.740 billion for the six months ended September 25, 2021, which included net unfavorable foreign currency effects of $141 million.

Gross profit as a percentage of total revenue was 66.8% for the six months ended October 1, 2022, compared to 68.2% for the six months ended September 25, 2021.

The decrease in gross profit margin was primarily attributable to increased supply chain costs and unfavorable channel mix for the six months ended October 1, 2022, as compared to the six months ended September 25, 2021.

Total Operating Expenses

Total operating expenses increased $82 million, or 6.4%, to $1.369 billion for the six months ended October 1, 2022, compared to $1.287 billion for the six months ended September 25, 2021.

Our operating expenses included a net favorable foreign currency impact of approximately $112 million.

Total operating expenses decreased to 49.4% as a percentage of total revenue for the six months ended October 1, 2022, compared to 50.4% for the six months ended September 25, 2021.

The components that comprise total operating expenses are explained below.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $120 million, or 10.5%, to $1.264 billion for the six months ended October 1, 2022, compared to $1.144 billion for the six months ended September 25, 2021, primarily due to increased e-commerce costs on higher revenue, higher retail store and corporate costs and increased marketing investments for the six months ended October 1, 2022.

Selling, general and administrative expenses as a percentage of total revenue increased to 45.6% for the six months ended October 1, 2022, compared to 44.8% for the six months ended September 25, 2021, primarily due to increased e-commerce costs partially offset by leveraging retail store costs as a percentage of revenue for the six months ended October 1, 2022, as compared to the six months ended September 25, 2021.

Unallocated corporate expenses, which are included within selling, general and administrative expenses discussed above, but are not directly attributable to a reportable segment, increased $29 million, or 33.7%, to $115 million for the six months ended October 1, 2022 as compared to $86 million for the six months ended September 25, 2021, primarily due to an increase in costs related to the ongoing ERP system implementation and Capri transformation projects.

Depreciation and Amortization

Depreciation and amortization decreased $11 million, or 11.1%, to $88 million for the six months ended October 1, 2022, compared to $99 million for the six months ended September 25, 2021.

Depreciation and amortization decreased to 3.2% as a percentage of total revenue for the six months ended October 1, 2022, compared to 3.9% for the six months ended September 25, 2021.

The decrease in depreciation and amortization expense was primarily attributable to lower depreciation due to lower capital expenditures in Fiscal 2022 and Fiscal 2021.

Impairment of Assets

For the six months ended October 1, 2022 and September 25, 2021, we recognized asset impairment charges of $11 million and $33 million, respectively, which primarily related to operating lease right-of-use assets at certain Michael Kors store locations.

See Note 11 to the accompanying consolidated financial statements for additional information.

Restructuring and Other Charges

We recognized restructuring and other charges of $6 million and $11 million for the six months ended October 1, 2022 and September 25, 2021, respectively.

These charges are primarily related to equity awards associated with the acquisition of Versace.

See Note 8 to the accompanying consolidated financial statements for additional information.

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 increased $30 million, to $483 million for the six months ended October 1, 2022, compared to $453 million for the six months ended September 25, 2021.

Income from operations as a percentage of total revenue decreased to 17.4% for the six months ended October 1, 2022, compared to 17.7% for the six months ended September 25, 2021.

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

Interest Expense (Income), net

For the six months ended October 1, 2022, we recognized $1 million of interest expense compared to $4 million of interest income for the six months ended September 25, 2021.

The $5 million increase in interest expense (income), net, is primarily due to higher effective interest rates on our outstanding debt and higher average borrowings outstanding, partially

offset by higher interest income earned on our cash and cash equivalents (see Note 9 to the accompanying consolidated financial statements for additional information).

Foreign Currency (Gain) Loss

For the six months ended October 1, 2022, we recognized a net foreign currency gain of $7 million, primarily attributable to a gain related to an undesignated forward foreign currency exchange contract partially offset by losses attributable to intercompany transactions among our subsidiaries.

For the six months ended September 25, 2021, we recognized a net foreign currency loss of $5 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

For the six months ended October 1, 2022, we recognized $63 million of income tax expense compared to $35 million for the six months ended September 25, 2021.

Our effective tax rate was 12.9% and 7.7% for the six months ended October 1, 2022 and September 25, 2021, respectively.

The increase in our effective rate was primarily due to a net benefit recognized in the prior year due to newly enacted tax legislation in Italy, partially offset by the impact of the tax rate change in the United Kingdom during the prior year.

Our effective tax rate may fluctuate from time to time due to the effects of changes in United States federal, 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 Attributable to Capri

As a result of the foregoing, our net income increased $6 million to $425 million for the six months ended October 1, 2022, compared to $419 million for the six months ended September 25, 2021.

Segment Information

Six Months Ended % Change

(dollars in millions) October 1,

2022 September 25,

2021 $ Change As

Reported Constant

Revenues $ 583 $ 522 $ 61 11.7 % 28.5 %

Income from operations $ 114 $ 103 $ 11 10.7 %

Operating margin 19.6 % 19.7 %

Versace revenues increased $61 million, or 11.7%, to $583 million for the six months ended October 1, 2022, compared to $522 million for the six months ended September 25, 2021, which included unfavorable foreign currency effects of $88 million.

On a constant currency basis, revenue increased $149 million, or 28.5%, primarily attributable to increased retail revenue and higher wholesale shipments in the Americas and EMEA, partially offset by decreased revenues in Greater China due to COVID-19 related disruptions.

Income from Operations

For the six months ended October 1, 2022, Versace recorded income from operations of $114 million, compared to $103 million for the six months ended September 25, 2021.

Operating margin decreased from 19.7% for the six months ended September 25, 2021, to 19.6% for the six months ended October 1, 2022, primarily due to unfavorable channel mix offset by higher average unit price.

Six Months Ended % Change

(dollars in millions) October 1,

2022 September 25,

2021 $ Change As

Reported Constant

Revenues $ 314 $ 279 $ 35 12.5 % 22.9 %

Income from operations $ 27 $ 12 $ 15 NM

Operating margin 8.6 % 4.3 %

NM Not meaningful

Jimmy Choo revenues increased $35 million, or 12.5%, to $314 million for the six months ended October 1, 2022, compared to $279 million for the six months ended September 25, 2021, which included unfavorable foreign currency effects of $29 million.

On a constant currency basis, revenue increased $64 million, or 22.9%, primarily attributable to increased retail revenue and higher wholesale shipments in the Americas and EMEA, partially offset by decreased revenue in Greater China due to the impact of COVID-19 related disruptions.

Income from Operations

For the six months ended October 1, 2022, Jimmy Choo recorded income from operations of $27 million, compared to $12 million for the six months ended September 25, 2021.

Operating margin increased from 4.3% for the six months ended September 25, 2021, to 8.6% for the six months ended October 1, 2022, primarily due to higher average unit price and leveraging of operating expenses on higher revenue.

Six Months Ended % Change

(dollars in millions)

2022 September 25,

2021 $ Change As

Reported Constant

Revenues $ 1,875 $ 1,752 $ 123 7.0 % 11.7 %

Income from operations $ 470 $ 460 $ 10 2.2 %

Operating margin 25.1 % 26.3 %

Michael Kors revenues increased $123 million, or 7.0%, to $1.875 billion for the six months ended October 1, 2022, compared to $1.752 billion for the six months ended September 25, 2021, which included unfavorable foreign currency effects of $82 million.

On a constant currency basis, revenue increased $205 million, or 11.7%, primarily due to higher wholesale shipments and increased retail revenue in the Americas and EMEA, partially offset by decreased revenue in Greater China due to the impact of COVID-19 related disruptions.

Income from Operations

For the six months ended October 1, 2022, Michael Kors recorded income from operations of $470 million, compared to $460 million for the six months ended September 25, 2021.

Operating margin decreased from 26.3% for the six months ended September 25, 2021, to 25.1% for the six months ended October 1, 2022, primarily due to increased supply chain costs.

Liquidity and Capital Resources

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We believe that the cash generated from 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, investments in corporate and distribution facilities, continued systems development, e-commerce and marketing initiatives.

We spent $36 million on capital expenditures during the three months ended July 2, 2022.

We spent $86 million on capital expenditures during the six months ended October 1, 2022.

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

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Long-term debt $ 1,585 $ 1,131

Three Months Ended

2022 June 26,

Six Months Ended

2022 September 25,

Cash Flows Provided By (Used In):

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Cash Provided by Operating Activities

Net cash provided by operating activities decreased $67 million to $137 million during the three months ended July 2, 2022, as compared to $204 million for the three months ended June 26, 2021, as a result of a decrease in our net income after non-cash adjustments and decreases related to changes in our working capital.

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

Cash Provided by Investing Activities

Net cash provided by investing activities was $30 million during the three months ended July 2, 2022, as compared to net cash used in investing activities of $23 million during the three months ended June 26, 2021.

The increase in net cash provided by investing activities were primarily attributable to the settlement of certain net investment hedges of $66 million during the three months ended July 2, 2022 partially offset by higher capital expenditures of $13 million compared to prior year.

Net cash provided by operating activities decreased $357 million to $39 million during the six months ended October 1, 2022, as compared to $396 million for the six months ended September 25, 2021, as a result of a decrease in our net income after non-cash adjustments and 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 when compared to the prior year.

Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities was $323 million during the six months ended October 1, 2022, as compared to net cash used in investing activities of $48 million during the six months ended September 25, 2021.

The increase in net cash provided by investing activities were primarily attributable to the settlement of certain net investment hedges of $409 million during the six months ended October 1, 2022 partially offset by higher capital expenditures of $38 million compared to prior year.

Cash Used in Financing Activities

Net cash used in financing activities was $50 million during the three months ended July 2, 2022, as compared to $55 million during the three months ended June 26, 2021.

The decrease of cash used in financing activities of $5 million was primarily attributable to a decrease in net debt repayments of $271 million, partially offset by a $253 million increase in cash payments to repurchase our ordinary shares compared to prior year.

Net cash used in financing activities was $209 million during the six months ended October 1, 2022, as compared to $342 million during the six months ended September 25, 2021.

The decrease of cash used in financing activities of $133 million was primarily attributable to an increase in net debt borrowing of $653 million, partially offset by a $503 million increase in cash payments to repurchase our ordinary shares compared to prior year.

Debt Facilities

The following table presents a summary of our borrowing capacity and amounts outstanding as of July 2, 2022 and April 2, 2022 (in millions):

The following table presents a summary of our borrowing capacity and amounts outstanding as of October 1, 2022 and April 2, 2022 (in millions):

2022 April 2,

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(1) The financial covenant in our 2022 Credit Facility requires us to comply with the quarterly maximum net leverage ratio test of 4.00 to 1.0.

As of July 2, 2022 and April 2, 2022, we were in compliance with all covenants related to our agreements then in effect governing our debt.

As of October 1, 2022 and April 2, 2022, 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) As of July 2, 2022, we no longer had a Term Loan Facility under our 2022 Credit Facility as it was fully repaid.

(2) As of October 1, 2022 and April 2, 2022, all amounts are recorded as long-term debt in our consolidated balance sheets.

(3) As of October 1, 2022, we no longer had a Term Loan Facility under our 2022 Credit Facility as it was fully repaid.

As of April 2, 2022, all amounts are recorded as long-term debt in our consolidated balance sheets.

(3) As of July 2, 2022 and April 2, 2022, all amounts are recorded as long-term debt in our consolidated balance sheets.

(4) The balance as of July 2, 2022 consists of $36 million related to our supplier financing program recorded within short-term debt in our consolidated balance sheets, $10 million related to the sale of certain Versace tax receivables, with $1 million and $9 million, respectively, 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.

(4) The balance as of October 1, 2022 consists of $14 million related to our supplier financing program recorded within short-term debt in our consolidated balance sheets, $10 million related to the sale of certain Versace tax receivables, with $1 million and $9 million, respectively, recorded within short-term debt and long-term debt in our consolidated balance sheets and $2 million of other loans recorded as long-term debt in our consolidated balance sheets.

The balance as of April 2, 2022 consists of $21 million related to our supplier finance program recorded within short-term debt in our consolidated balance sheets, $18 million related to the sale of certain Versace tax receivables, with $8 million and $10 million, respectively, 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.

(5) The balance as of July 2, 2022 and April 2, 2022 represents the total availability of the credit facility, which excludes bank guarantees.

(5) The balance as of October 1, 2022 and April 2, 2022 represents the total availability of the credit facility, which excludes bank guarantees.

We believe that our 2022 Credit Facility is adequately diversified with no undue concentration in any one financial institution.

As of July 2, 2022, there were 17 financial institutions participating in the facility, with none maintaining a maximum commitment percentage in excess of 10%.

As of October 1, 2022, there were 17 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 2022 Credit Facility.

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Share Repurchase Program

The following table presents our ordinary share repurchases during the three months ended July 2, 2022 and June 26, 2021 (dollars in millions):

Three Months Ended

2022 June 26,

The following table presents our ordinary share repurchases during the six months ended October 1, 2022 and September 25, 2021 (dollars in millions):

Six Months Ended

2022 September 25,

Cost of shares repurchased under share repurchase program $ 650 $ 150

Fair value of shares withheld to cover tax obligations for vested restricted share awards

Total cost of treasury shares repurchased $ 312 $ 59

Total cost of ordinary shares repurchased $ 663 $ 160

Shares repurchased under share repurchase program 13,183,355 2,712,275

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13,456,552 2,905,597

During the first quarter of Fiscal 2022, we reinstated our $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 2018 Credit Facility.

Subsequently, on November 3, 2021, we announced that our Board of Directors had terminated our existing $500 million share repurchase program (the “Prior Plan”), with $250 million of availability remaining, and authorized a new share repurchase program (the “Fiscal 2022 Plan”) pursuant to which we may, from time to time, repurchase up to $1.0 billion of our outstanding ordinary shares within a period of two years from the effective date of the program.

On June 1, 2022, we announced that our Board of Directors has terminated our Fiscal 2022 Plan, with $500 million of availability remaining, and authorized a new share repurchase program (the “Fiscal 2023 Plan”) pursuant to which we may, from time to time, repurchase up to $1.0 billion of our outstanding ordinary shares within period of two years from the effective date of the 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.

On June 1, 2022, we announced that our Board of Directors had terminated our Fiscal 2022 Plan, with $500 million of availability remaining, and authorized a new share repurchase program (the “Existing Share Repurchase Plan”) pursuant to which we may, from time to time, repurchase up to $1.0 billion of our outstanding ordinary shares within period of two years from the effective date of the program.

Share repurchases may be made in open market or privately negotiated transactions and/or pursuant to Rule 10b5-1 trading plans, subject to market conditions, applicable legal requirements, trading restrictions under the Company’s insider trading policy and other relevant factors.

The program may be suspended or discontinued at any time.

Subsequent to October 1, 2022, we purchased 2,295,845 shares for a total cost of approximately $100 million, including commissions, under the Existing Share Repurchase Plan pursuant to a Rule 10b5-1 trading plan.

On November 9, 2022, we terminated the Existing Share Repurchase Plan and implemented a new share repurchase plan.

See Note 17 to the accompanying consolidated financial statements for additional information.

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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 $35 million at July 2, 2022, including $14 million in letters of credit issued outside of the 2022 Credit Facility.

In addition, as of July 2, 2022, bank guarantees of approximately $34 million were supported by our various credit facilities.

Our off-balance sheet commitments relating to our outstanding letters of credit were $34 million at October 1, 2022, including $12 million in letters of credit issued outside of the 2022 Credit Facility.

In addition, as of October 1, 2022, bank guarantees of approximately $32 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