QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
N/A | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on which Registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | ☒ | ☐ | No | |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). | ☒ | ☐ | No |
☒ | Accelerated filer | ☐ | ||||
Non-accelerated filer | ☐ | Smaller reporting company | ||||
Emerging growth company | ||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ | |||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). | Yes | ☒ | No |
Page No. | |||
PART I FINANCIAL INFORMATION | |||
Item 1. | Financial Statements | 3 | |
Item 2. | |||
Item 3. | |||
Item 4. | |||
Item 1. | |||
Item 1A. | |||
Item 2. | |||
Item 6. | |||
September 28, 2019 | March 30, 2019 | ||||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | $ | |||||
Receivables, net | |||||||
Inventories, net | |||||||
Prepaid expenses and other current assets | |||||||
Total current assets | |||||||
Property and equipment, net | |||||||
Operating lease right-of-use assets | — | ||||||
Intangible assets, net | |||||||
Goodwill | |||||||
Deferred tax assets | |||||||
Other assets | |||||||
Total assets | $ | $ | |||||
Liabilities, Redeemable Noncontrolling Interest and Shareholders’ Equity | |||||||
Current liabilities | |||||||
Accounts payable | $ | $ | |||||
Accrued payroll and payroll related expenses | |||||||
Accrued income taxes | |||||||
Current operating lease liabilities | — | ||||||
Short-term debt | |||||||
Accrued expenses and other current liabilities | |||||||
Total current liabilities | |||||||
Long-term operating lease liabilities | — | ||||||
Deferred rent | — | ||||||
Deferred tax liabilities | |||||||
Long-term debt | |||||||
Other long-term liabilities | |||||||
Total liabilities | |||||||
Commitments and contingencies | |||||||
Redeemable noncontrolling interest | |||||||
Shareholders’ equity | |||||||
Ordinary shares, no par value; 650,000,000 shares authorized; 216,815,137 shares issued and 151,633,281 outstanding at September 28, 2019; 216,050,939 shares issued and 150,932,306 outstanding at March 30, 2019 | |||||||
Treasury shares, at cost (65,181,856 shares at September 28, 2019 and 65,118,633 shares at March 30, 2019) | ( | ) | ( | ) | |||
Additional paid-in capital | |||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | |||
Retained earnings | |||||||
Total shareholders’ equity of Capri | |||||||
Noncontrolling interest | |||||||
Total shareholders’ equity | |||||||
Total liabilities and shareholders’ equity | $ | $ |
Three Months Ended | Six Months Ended | ||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | ||||||||||||
Total revenue | $ | $ | $ | $ | |||||||||||
Cost of goods sold | |||||||||||||||
Gross profit | |||||||||||||||
Selling, general and administrative expenses | |||||||||||||||
Depreciation and amortization | |||||||||||||||
Impairment of long-lived assets | |||||||||||||||
Restructuring and other charges (1) | |||||||||||||||
Total operating expenses | |||||||||||||||
Income from operations | |||||||||||||||
Other income, net | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Interest expense, net | |||||||||||||||
Foreign currency loss | |||||||||||||||
Income before provision for income taxes | |||||||||||||||
(Benefit from) provision for income taxes | ( | ) | |||||||||||||
Net income | |||||||||||||||
Less: Net loss attributable to noncontrolling interest and redeemable noncontrolling interest | ( | ) | ( | ) | |||||||||||
Net income attributable to Capri | $ | $ | $ | $ | |||||||||||
Weighted average ordinary shares outstanding: | |||||||||||||||
Basic | |||||||||||||||
Diluted | |||||||||||||||
Net income per ordinary share attributable to Capri: | |||||||||||||||
Basic | $ | $ | $ | $ | |||||||||||
Diluted | $ | $ | $ | $ | |||||||||||
Statements of Comprehensive Income: | |||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||
Foreign currency translation adjustments | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Net gain on derivatives | |||||||||||||||
Comprehensive income | |||||||||||||||
Less: Net loss attributable to noncontrolling interest and redeemable noncontrolling interest | ( | ) | ( | ) | |||||||||||
Comprehensive income attributable to Capri | $ | $ | $ | $ |
(1) | Restructuring and other charges includes store closure costs recorded in connection with the Retail Fleet Optimization Plan (as defined in Note 10) and other restructuring initiatives, and costs recorded in connection with the acquisitions of Gianni Versace S.r.l and Jimmy Choo Group Limited. |
Ordinary Shares | Additional Paid-in Capital | Treasury Shares | Accumulated Other Comprehensive Loss | Retained Earnings | Total Equity of Capri | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||
Shares | Amounts | Shares | Amounts | ||||||||||||||||||||||||||||||||||
Balance at June 29, 2019 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | ( | ) | — | ( | ) | ( | ) | |||||||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Vesting of restricted awards, net of forfeitures | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Equity compensation expense | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Purchase of treasury shares | — | — | — | ( | ) | — | — | — | — | ||||||||||||||||||||||||||||
Balance at September 28, 2019 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ |
Ordinary Shares | Additional Paid-in Capital | Treasury Shares | Accumulated Other Comprehensive Loss | Retained Earnings | Total Equity of Capri | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||
Shares | Amounts | Shares | Amounts | ||||||||||||||||||||||||||||||||||
Balance at March 30, 2019, as previously reported | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||
Adoption of accounting standards (See Note 2) | — | — | — | — | — | — | ( | ) | ( | ) | — | ( | ) | ||||||||||||||||||||||||
Balance as of March 31, 2019 | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | ( | ) | — | ( | ) | ( | ) | |||||||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Vesting of restricted awards, net of forfeitures | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Equity compensation expense | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Purchase of treasury shares | — | — | — | ( | ) | ( | ) | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||
Balance at September 28, 2019 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ |
Ordinary Shares | Additional Paid-in Capital | Treasury Shares | Accumulated Other Comprehensive Loss | Retained Earnings | Total Equity of Capri | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||
Shares | Amounts | Shares | Amounts | ||||||||||||||||||||||||||||||||||
Balance at June 30, 2018 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||
Net income (loss) | — | — | — | — | — | — | ( | ) | |||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | ( | ) | — | ( | ) | ( | ) | |||||||||||||||||||||||||
Total comprehensive income (loss) | — | — | — | — | — | — | — | ( | ) | ||||||||||||||||||||||||||||
Vesting of restricted awards, net of forfeitures | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Exercise of employee share options | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
Equity compensation expense | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Purchase of treasury shares | — | — | — | ( | ) | ( | ) | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||
Increase in noncontrolling interest | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Balance at September 29, 2018 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ |
Ordinary Shares | Additional Paid-in Capital | Treasury Shares | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Equity of Capri | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||
Shares | Amounts | Shares | Amounts | ||||||||||||||||||||||||||||||||||
Balance at March 31, 2018, as previously reported | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
Adoption of accounting standard | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Balance as of April 1, 2018 | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
Net income (loss) | — | — | — | — | — | — | ( | ) | |||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | ( | ) | — | ( | ) | ( | ) | |||||||||||||||||||||||||
Total comprehensive income (loss) | — | — | — | — | — | — | — | ( | ) | ||||||||||||||||||||||||||||
Vesting of restricted awards, net of forfeitures | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Exercise of employee share options | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
Equity compensation expense | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Purchase of treasury shares | — | — | — | ( | ) | ( | ) | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||
Increase in noncontrolling interest | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Balance at September 29, 2018 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ |
Six Months Ended | |||||||
September 28, 2019 | September 29, 2018 | ||||||
Cash flows from operating activities | |||||||
Net income | $ | $ | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | |||||||
Equity compensation expense | |||||||
Deferred income taxes | ( | ) | |||||
Impairment of long-lived assets | |||||||
Changes to lease related balances, net | ( | ) | — | ||||
Tax deficit (benefit) on exercise of share options | ( | ) | |||||
Amortization of deferred financing costs | |||||||
Foreign currency losses | |||||||
Other non-cash charges | |||||||
Change in assets and liabilities: | |||||||
Receivables, net | ( | ) | |||||
Inventories, net | ( | ) | ( | ) | |||
Prepaid expenses and other current assets | ( | ) | ( | ) | |||
Accounts payable | |||||||
Accrued expenses and other current liabilities | ( | ) | |||||
Other long-term assets and liabilities | |||||||
Net cash provided by operating activities | |||||||
Cash flows from investing activities | |||||||
Capital expenditures | ( | ) | ( | ) | |||
Purchase of intangible assets | ( | ) | |||||
Unrealized loss on hedge related to acquisitions | |||||||
Cash paid for business acquisitions, net of cash acquired | ( | ) | ( | ) | |||
Settlement of a net investment hedges | |||||||
Net cash used in investing activities | ( | ) | ( | ) | |||
Cash flows from financing activities | |||||||
Debt borrowings | |||||||
Debt repayments | ( | ) | ( | ) | |||
Repurchase of treasury shares | ( | ) | ( | ) | |||
Exercise of employee share options | |||||||
Net cash used in financing activities | ( | ) | ( | ) | |||
Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | |||
Net increase (decrease) in cash and cash equivalents | ( | ) | |||||
Beginning of period | |||||||
End of period | $ | $ | |||||
Supplemental disclosures of cash flow information | |||||||
Cash paid for interest | $ | $ | |||||
Cash paid for income taxes | $ | $ | |||||
Supplemental disclosure of non-cash investing and financing activities | |||||||
Accrued capital expenditures | $ | $ |
Three Months Ended | Six Months Ended | ||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | ||||||||||||
Numerator: | |||||||||||||||
Net income attributable to Capri | $ | $ | $ | $ | |||||||||||
Denominator: | |||||||||||||||
Basic weighted average shares | |||||||||||||||
Weighted average dilutive share equivalents: | |||||||||||||||
Share options and restricted shares/units, and performance restricted share units | |||||||||||||||
Diluted weighted average shares | |||||||||||||||
Basic net income per share (1) | $ | $ | $ | $ | |||||||||||
Diluted net income per share (1) | $ | $ | $ | $ |
(1) | Basic and diluted net income per share are calculated using unrounded numbers. |
March 30, 2019 As Reported under ASC 840 | ASC 842 Adjustments | March 31, 2019 As Reported Under ASC 842 | |||||||||
Assets | |||||||||||
Prepaid expenses and other current assets | $ | $ | ( | ) | (1) | $ | |||||
Operating lease right-of-use assets | — | (2) | |||||||||
Intangible assets, net | ( | ) | (3) | ||||||||
Deferred tax assets | (4) | ||||||||||
Liabilities | |||||||||||
Current portion of operating lease liabilities | — | (5) | |||||||||
Accrued expenses and other current liabilities | ( | ) | (6) | ||||||||
Long-term portion of operating lease liabilities | — | (5) | |||||||||
Deferred Rent | ( | ) | (7) | — | |||||||
Deferred tax liabilities | ( | ) | (4) | ||||||||
Shareholders’ Equity | |||||||||||
Retained earnings | ( | ) | (4) |
(1) | Represents the reclassification of rent paid in advance to current operating lease liabilities. |
(2) | Represents the recognition of operating lease right-of-use assets, reflecting the reclassifications of deferred rent, sublease liabilities, tenant allowances and favorable and unfavorable lease rights. This balance also reflects the initial impairments of the operating lease right-of-use assets recorded through retained earnings, as described below. |
(3) | Represents the reclassifications favorable and unfavorable purchase accounting adjustments for leases recorded in conjunction with the Company’s acquisitions to operating lease right-of-use assets. |
(4) | Represents the initial impairment recognized through retained earnings for certain underperforming retail store locations for which property and equipments were previously impaired, net of associated deferred taxes. |
(5) | Represents the recognition of current and non-current lease liabilities for fixed payments associated with the Company’s operating leases. |
(6) | Represents the reclassification of $ |
(7) | Represents the reclassification of noncurrent deferred rent and tenant improvement allowances to operating lease right-of-use assets. |
Contractually Guaranteed Minimum Fees | ||||
Remainder of Fiscal 2020 | $ | |||
Fiscal 2021 | ||||
Fiscal 2022 | ||||
Fiscal 2023 | ||||
Fiscal 2024 | ||||
Fiscal 2025 and thereafter | ||||
Total | $ |
Three Months Ended | Six Months Ended | ||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | ||||||||||||
Versace revenue - the Americas | $ | $ | $ | $ | |||||||||||
Versace revenue - EMEA | |||||||||||||||
Versace revenue - Asia | |||||||||||||||
Total Versace | |||||||||||||||
Jimmy Choo revenue - the Americas | |||||||||||||||
Jimmy Choo revenue - EMEA | |||||||||||||||
Jimmy Choo revenue - Asia | |||||||||||||||
Total Jimmy Choo | |||||||||||||||
Michael Kors revenue - the Americas | |||||||||||||||
Michael Kors revenue - the EMEA | |||||||||||||||
Michael Kors revenue - the Asia | |||||||||||||||
Total Michael Kors | |||||||||||||||
Total revenue - the Americas | |||||||||||||||
Total revenue - EMEA | |||||||||||||||
Total revenue - Asia | |||||||||||||||
Total revenue | $ | $ | $ | $ |
Balance Sheet Location | September 28, 2019 | |||||
Assets | ||||||
Operating leases | Operating lease right-of-use assets | $ | ||||
Liabilities | ||||||
Current: | ||||||
Operating leases | Current portion of operating lease liabilities | $ | ||||
Non-current: | ||||||
Operating leases | Long-term portion of operating lease liabilities | $ |
September 28, 2019 | ||||||||||
Statement of Operations and Comprehensive Income Location | Three Months Ended | Six Months Ended | ||||||||
Operating lease cost | Selling, general and administrative expenses | $ | $ | |||||||
Short-term lease cost | Selling, general and administrative expenses | |||||||||
Variable lease cost | Selling, general and administrative expenses | |||||||||
Sublease income | Selling, general and administrative expenses | ( | ) | ( | ) | |||||
Total lease cost | $ | $ |
Six Months Ended | ||||||
September 28, 2019 | ||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||
Operating cash flows used in operating leases | $ | |||||
Non-cash transactions: | ||||||
Lease assets obtained in exchange for new lease liabilities | $ |
September 28, 2019 | |||||
Operating leases: | |||||
Weighted average remaining lease term (years) | |||||
Weighted average discount rate | % |
September 28, 2019 | ||||||
Remainder of Fiscal 2020 | $ | |||||
Fiscal 2021 | ||||||
Fiscal 2022 | ||||||
Fiscal 2023 | ||||||
Fiscal 2024 | ||||||
Thereafter | ||||||
Total lease payments | ||||||
Less: interest | ( | ) | ||||
Total lease liabilities | $ |
September 28, 2019 | ||||||
Remainder of Fiscal 2020 | $ | |||||
Fiscal 2021 | ||||||
Fiscal 2022 | ||||||
Fiscal 2023 | ||||||
Fiscal 2024 | ||||||
Thereafter | ||||||
Total sublease income | $ |
September 28, 2019 | March 30, 2019 | ||||||
Trade receivables (1) | $ | $ | |||||
Receivables due from licensees | |||||||
Less: allowances | ( | ) | ( | ) | |||
$ | $ |
(1) | As of September 28, 2019 and March 30, 2019, $ |
September 28, 2019 | March 30, 2019 | ||||||
Leasehold improvements | $ | $ | |||||
Computer equipment and software | |||||||
Furniture and fixtures | |||||||
In-store shops | |||||||
Equipment | |||||||
Building | |||||||
Land | |||||||
Less: accumulated depreciation and amortization | ( | ) | ( | ) | |||
Construction-in-progress | |||||||
$ | $ |
September 28, 2019 | March 30, 2019 | ||||||
Definite-lived intangible assets: | |||||||
Reacquired Rights | $ | $ | |||||
Trademarks | |||||||
Key Money (1) | |||||||
Customer Relationships | (2) | ||||||
Total definite-lived intangible assets | |||||||
Less: accumulated amortization | ( | ) | ( | ) | |||
Net definite-lived intangible assets | |||||||
Indefinite-lived intangible assets: | |||||||
Jimmy Choo brand | (2) | ||||||
Versace brand | (2) | ||||||
Total intangible assets, excluding goodwill | $ | $ | |||||
Goodwill | $ | (2) | $ |
(1) | The March 30, 2019 balance includes certain lease rights that were reclassified to the operating lease right-of-use asset as part of the adoption of ASU 2016-02. |
(2) | The change in the carrying values since March 30, 2019 reflects currency translation. |
September 28, 2019 | March 30, 2019 | ||||||
Prepaid taxes | $ | $ | |||||
Interest receivable related to net investment hedges | |||||||
Unrealized gains on forward foreign currency exchange contracts | |||||||
Prepaid property and equipment | |||||||
Prepaid rent (1) | |||||||
Other | |||||||
$ | $ |
September 28, 2019 | March 30, 2019 | ||||||
Other taxes payable | $ | $ | |||||
Return liabilities | |||||||
Accrued capital expenditures | |||||||
Accrued advertising and marketing | |||||||
Accrued rent (2) | |||||||
Gift cards and retail store credits | |||||||
Professional services | |||||||
Accrued litigation | |||||||
Accrued interest | |||||||
Restructuring liability (1) | |||||||
Accrued purchases and samples | |||||||
Other | |||||||
$ | $ |
(1) | In connection with the adoption of ASU 2016-02, certain lease related assets and liabilities were reflected within operating lease right-of-use assets and liabilities as of September 28, 2019. See Note 2 and Note 4 for additional information. |
(2) | The accrued rent balance relates to variable lease payments. |
Severance and benefit costs | Lease-related and other costs | Total | |||||||||
Balance at March 30, 2019 | $ | $ | $ | ||||||||
ASC 842 (Leases) Adjustment (1) | ( | ) | ( | ) | |||||||
Balance at March 31, 2019 | |||||||||||
Additions charged to expense | |||||||||||
Payments | ( | ) | ( | ) | |||||||
Balance at September 28, 2019 | $ | $ | $ |
(1) | Consists of the reclassification of sublease liabilities to an offset of the related operating lease right-of-use asset due to the adoption of ASC 842. See Note 2 and Note 4 for further information. |
September 28, 2019 | March 30, 2019 | ||||||
Term Loan | $ | $ | |||||
Revolving Credit Facilities | |||||||
4.000% Senior Notes due 2024 | |||||||
Other | |||||||
Total debt | |||||||
Less: Unamortized debt issuance costs | |||||||
Less: Unamortized discount on long-term debt | |||||||
Total carrying value of debt | |||||||
Less: Short-term debt | |||||||
Total long-term debt | $ | $ |
Fair value at September 28, 2019 using: | Fair value at March 30, 2019 using: | ||||||||||||||||||||||
Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||||||
Derivative assets: | |||||||||||||||||||||||
Forward foreign currency exchange contracts | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Net investment hedges | |||||||||||||||||||||||
Other undesignated derivative contracts | |||||||||||||||||||||||
Total derivative assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Derivative liabilities: | |||||||||||||||||||||||
Other undesignated derivative contracts | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Total derivative liabilities | $ | $ | $ | $ | $ | $ |
September 28, 2019 | March 30, 2019 | ||||||||||||||
Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | ||||||||||||
4.000% Senior Notes | $ | $ | $ | $ | |||||||||||
Term Loan | $ | $ | $ | $ | |||||||||||
Revolving Credit Facilities | $ | $ | $ | $ |
Three Months Ended September 28, 2019 | Six Months Ended September 28, 2019 | ||||||||||||||||||||||
Carrying Value Prior to Impairment | Fair Value | Impairment Charge | Carrying Value Prior to Impairment | Fair Value | Impairment Charge | ||||||||||||||||||
Operating Lease Right-of-Use Assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Property and Equipment | |||||||||||||||||||||||
Key Money | |||||||||||||||||||||||
Total | $ | $ | $ | $ | $ | $ |
Three Months Ended September 29, 2018 | Six Months Ended September 29, 2018 | ||||||||||||||||||||||
Carrying Value Prior to Impairment | Fair Value | Impairment Charge | Carrying Value Prior to Impairment | Fair Value | Impairment Charge | ||||||||||||||||||
Property and Equipment | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Lease Rights | |||||||||||||||||||||||
Total | $ | $ | $ | $ | $ | $ |
Fair Values | ||||||||||||||||||||||||
Notional Amounts | Assets | Liabilities | ||||||||||||||||||||||
September 28, 2019 | March 30, 2019 | September 28, 2019 | March 30, 2019 | September 28, 2019 | March 30, 2019 | |||||||||||||||||||
Designated forward foreign currency exchange contracts | $ | $ | $ | (1) | $ | (1) | $ | $ | ||||||||||||||||
Designated net investment hedge | (2) | (2) | ||||||||||||||||||||||
Total designated hedges | ||||||||||||||||||||||||
Undesignated derivative contracts (4) | (1) | (3) | (3) | |||||||||||||||||||||
Total | $ | $ | $ | $ | $ | $ |
(1) | Recorded within prepaid expenses and other current assets in the Company’s consolidated balance sheets. |
(2) | Recorded within other assets in the Company’s consolidated balance sheets. |
(3) | Recorded within accrued expenses and other current liabilities in the Company’s consolidated balance sheets. |
(4) | Primarily includes undesignated hedges of foreign currency denominated intercompany balances and inventory purchases. |
Forward Currency Exchange Contracts | Net Investment Hedges | ||||||||||||||
September 28, 2019 | March 30, 2019 | September 28, 2019 | March 30, 2019 | ||||||||||||
Assets subject to master netting arrangements | $ | $ | $ | $ | |||||||||||
Liabilities subject to master netting arrangements | $ | $ | $ | $ | |||||||||||
Derivative assets, net | $ | $ | $ | $ | |||||||||||
Derivative liabilities, net | $ | $ | $ | $ |
Three Months Ended | Six Months Ended | ||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | ||||||||||||
Gains Recognized in OCI | Gains Recognized in OCI | Gains Recognized in OCI | Gains Recognized in OCI | ||||||||||||
Designated forward foreign currency exchange contracts | $ | $ | $ | $ | |||||||||||
Designated net investment hedges | $ | $ | $ | $ |
Three Months Ended | |||||||||||||||||||
(Gain) Loss Reclassified from Accumulated OCI | Location of (Gain) Loss recognized | Total Cost of goods sold | |||||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | ||||||||||||||||
Designated forward foreign currency exchange contracts | $ | ( | ) | $ | Cost of goods sold | $ | $ |
Six Months Ended | |||||||||||||||||||
(Gain) Loss Reclassified from Accumulated OCI | Location of (Gain) Loss recognized | Total Cost of goods sold | |||||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | ||||||||||||||||
Designated forward foreign currency exchange contracts | $ | ( | ) | $ | Cost of goods sold | $ | $ |
Foreign Currency Translation Gains (Losses) (1) | Net (Losses) Gains on Derivatives (2) | Other Comprehensive Income (Loss) Attributable to Capri | |||||||||
Balance at March 31, 2018 | $ | $ | ( | ) | $ | ||||||
Other comprehensive (loss) income before reclassifications | ( | ) | ( | ) | |||||||
Less: amounts reclassified from AOCI to earnings | ( | ) | ( | ) | |||||||
Other comprehensive (loss) income, net of tax | ( | ) | ( | ) | |||||||
Balance at September 29, 2018 | $ | ( | ) | $ | $ | ( | ) | ||||
Balance at March 30, 2019 | $ | ( | ) | $ | $ | ( | ) | ||||
Other comprehensive (loss) income before reclassifications | ( | ) | ( | ) | |||||||
Less: amounts reclassified from AOCI to earnings | |||||||||||
Other comprehensive (loss) income, net of tax | ( | ) | ( | ) | |||||||
Balance at September 28, 2019 | $ | ( | ) | $ | $ | ( | ) |
(1) | Foreign currency translation gains and losses for the six months ended September 28, 2019 include net gains of $ |
(2) | Reclassified amounts relate to the Company’s forward foreign currency exchange contracts for inventory purchases and are recorded within cost of goods sold in the Company’s consolidated statements of operations and comprehensive income. All tax effects were not material for the periods presented. |
Options | Service-Based RSUs | Performance-Based RSUs | ||||||
Outstanding/Unvested at March 30, 2019 | ||||||||
Granted | ||||||||
Exercised/Vested | ( | ) | ( | ) | ||||
Decrease due to performance condition | — | ( | ) | |||||
Canceled/forfeited | ( | ) | ( | ) | ||||
Outstanding/Unvested at September 28, 2019 |
Three Months Ended | Six Months Ended | ||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | ||||||||||||
Share-based compensation expense | $ | $ | $ | $ | |||||||||||
Tax benefit related to share-based compensation expense | $ | $ | $ | $ |
• | Versace — segment includes revenue generated through the sale of Versace luxury ready-to-wear, accessories, footwear and home furnishings through directly operated Versace boutiques throughout North America (United States and Canada), EMEA 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 that allow third parties to use the Versace trademarks in connection with retail and/or wholesale sales of Versace branded products in specific geographic regions), multi-brand department stores and specialty stores worldwide, as well as through product license agreements in connection with the manufacturing and sale of jeans, fragrances, watches, jewelry and eyewear. |
• | Jimmy Choo — segment includes revenue generated through the sale of Jimmy Choo luxury footwear, handbags and small leather goods through directly operated Jimmy Choo stores throughout the Americas, EMEA and certain parts of Asia, through its 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 trademarks in connection with retail and/or wholesale sales of Jimmy Choo branded products in specific geographic regions), multi-brand department stores and specialty stores worldwide. In addition, revenue is generated through product licensing agreements, which allow third parties to use the Jimmy Choo brand name and trademarks in connection with the manufacturing and sale of fragrances, sunglasses and eyewear. |
• | Michael Kors — segment includes revenue generated 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 the Company sells Michael Kors products, as well as licensed products bearing the Michael Kors name, directly to the end consumer throughout the Americas, Europe and certain parts of Asia. The Michael Kors e-commerce business includes e-commerce sites in the U.S., Canada and certain parts of Europe and Asia. The Company also sells Michael Kors products directly to department stores, primarily located across the Americas and Europe, to specialty stores and travel retail shops, and to its geographic licensees. 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. |
Three Months Ended | Six Months Ended | ||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | ||||||||||||
Total revenue: | |||||||||||||||
Versace | $ | $ | $ | $ | |||||||||||
Jimmy Choo | |||||||||||||||
Michael Kors | |||||||||||||||
Total revenue | $ | $ | $ | $ | |||||||||||
Income (loss) from operations: | |||||||||||||||
Versace | $ | $ | $ | $ | |||||||||||
Jimmy Choo | ( | ) | ( | ) | |||||||||||
Michael Kors | |||||||||||||||
Total segment income from operations | |||||||||||||||
Less: Corporate expenses | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Restructuring and other charges | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Impairment of long-lived assets | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Total income from operations | $ | $ | $ | $ |
Three Months Ended | Six Months Ended | ||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | ||||||||||||
Depreciation and amortization: | |||||||||||||||
Versace | $ | $ | $ | $ | |||||||||||
Jimmy Choo | |||||||||||||||
Michael Kors | |||||||||||||||
Total depreciation and amortization | $ | $ | $ | $ |
Three Months Ended | Six Months Ended | ||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | ||||||||||||
Total revenue: | |||||||||||||||
The Americas (1) | $ | $ | $ | $ | |||||||||||
EMEA | |||||||||||||||
Asia | |||||||||||||||
Total revenue | $ | $ | $ | $ |
(1) | Total revenue earned in the U.S. were $ |
Three Months Ended | Six Months Ended | |||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | |||||||||||||
Total revenue: | ||||||||||||||||
Versace | $ | 228 | $ | — | $ | 435 | $ | — | ||||||||
Jimmy Choo | 125 | 116 | 283 | 289 | ||||||||||||
Michael Kors | 1,089 | 1,137 | 2,070 | 2,167 | ||||||||||||
Total revenue | $ | 1,442 | $ | 1,253 | $ | 2,788 | $ | 2,456 | ||||||||
Income (loss) from operations: | ||||||||||||||||
Versace | $ | 9 | $ | — | $ | 6 | $ | — | ||||||||
Jimmy Choo | (10 | ) | (9 | ) | 1 | 13 | ||||||||||
Michael Kors | 222 | 248 | 423 | 478 | ||||||||||||
Total segment income from operations | 221 | 239 | 430 | 491 | ||||||||||||
Less: | Corporate expenses | (35 | ) | (23 | ) | (68 | ) | (45 | ) | |||||||
Restructuring and other charges | (7 | ) | (19 | ) | (22 | ) | (30 | ) | ||||||||
Impairment of long-lived assets | (104 | ) | (7 | ) | (201 | ) | (11 | ) | ||||||||
Total income from operations | $ | 75 | $ | 190 | $ | 139 | $ | 405 |
As of | |||||
September 28, 2019 | September 29, 2018 | ||||
Number of full price retail stores (including concessions): | |||||
Versace | 152 | — | |||
Jimmy Choo | 171 | 168 | |||
Michael Kors | 580 | 594 | |||
903 | 762 | ||||
Number of outlet stores: | |||||
Versace | 46 | — | |||
Jimmy Choo | 45 | 36 | |||
Michael Kors | 270 | 260 | |||
361 | 296 | ||||
Total number of retail stores | 1,264 | 1,058 | |||
Total number of wholesale doors | |||||
Versace | 819 | — | |||
Jimmy Choo | 586 | 616 | |||
Michael Kors | 3,138 | 3,513 | |||
4,543 | 4,129 |
As of | As of | |||||||||||||
September 28, 2019 | September 29, 2018 | |||||||||||||
Versace | Jimmy Choo | Michael Kors | Jimmy Choo | Michael Kors | ||||||||||
Store count by region: | ||||||||||||||
The Americas | 28 | 45 | 386 | 44 | 398 | |||||||||
EMEA | 57 | 73 | 181 | 70 | 195 | |||||||||
Asia | 113 | 98 | 283 | 90 | 261 | |||||||||
198 | 216 | 850 | 204 | 854 |
Three Months Ended | Six Months Ended | ||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | ||||||||||||
Total revenue | $ | 1,442 | $ | 1,253 | $ | 2,788 | $ | 2,456 | |||||||
Gross profit as a percent of total revenue | 60.6 | % | 60.9 | % | 61.3 | % | 61.6 | % | |||||||
Income from operations | $ | 75 | $ | 190 | $ | 139 | $ | 405 | |||||||
Income from operations as a percent of total revenue | 5.2 | % | 15.2 | % | 5.0 | % | 16.5 | % |
Three Months Ended | $ Change | % Change | % of Total Revenue for the Three Months Ended | |||||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | |||||||||||||||||
Statements of Operations Data: | ||||||||||||||||||||
Total revenue | $ | 1,442 | $ | 1,253 | $ | 189 | 15.1 | % | ||||||||||||
Cost of goods sold | 568 | 490 | 78 | 15.9 | % | 39.4 | % | 39.1 | % | |||||||||||
Gross profit | 874 | 763 | 111 | 14.5 | % | 60.6 | % | 60.9 | % | |||||||||||
Selling, general and administrative expenses | 623 | 494 | 129 | 26.1 | % | 43.2 | % | 39.4 | % | |||||||||||
Depreciation and amortization | 65 | 53 | 12 | 22.6 | % | 4.5 | % | 4.2 | % | |||||||||||
Impairment of long-lived assets | 104 | 7 | 97 | NM | 7.2 | % | 0.6 | % | ||||||||||||
Restructuring and other charges (1) | 7 | 19 | (12 | ) | (63.2 | )% | 0.5 | % | 1.5 | % | ||||||||||
Total operating expenses | 799 | 573 | 226 | 39.4 | % | 55.4 | % | 45.7 | % | |||||||||||
Income from operations | 75 | 190 | (115 | ) | (60.5 | )% | 5.2 | % | 15.2 | % | ||||||||||
Other income, net | (1 | ) | (1 | ) | — | — | % | (0.1 | )% | (0.1 | )% | |||||||||
Interest expense, net | 3 | 6 | (3 | ) | (50.0 | )% | 0.2 | % | 0.5 | % | ||||||||||
Foreign currency loss | 4 | 33 | (29 | ) | (87.9 | )% | 0.3 | % | 2.6 | % | ||||||||||
Income before provision for income taxes | 69 | 152 | (83 | ) | (54.6 | )% | 4.8 | % | 12.1 | % | ||||||||||
(Benefit from) provision for income taxes | (4 | ) | 15 | (19 | ) | NM | (0.3 | )% | 1.2 | % | ||||||||||
Net income | 73 | 137 | (64 | ) | (46.7 | )% | ||||||||||||||
Less: Net loss attributable to noncontrolling interest and redeemable noncontrolling interest | — | (1 | ) | 1 | NM | |||||||||||||||
Net income attributable to Capri | $ | 73 | $ | 138 | $ | (65 | ) | (47.1 | )% |
(1) | Includes store closure costs recorded in connection with the Retail Fleet Optimization Plan (as defined in Note 10) and other restructuring initiatives, as well as costs recorded in connection with our acquisitions of Jimmy Choo and Versace. |
Three Months Ended | |||||||||
September 28, 2019 | September 29, 2018 | $ Change | |||||||
Revenues | $ | 228 | $ | — | NM | ||||
Income from operations | 9 | — | NM | ||||||
Operating margin | 3.9 | % | — | % |
Three Months Ended | % Change | ||||||||||||||||
September 28, 2019 | September 29, 2018 | $ Change | As Reported | Constant Currency | |||||||||||||
Revenues | $ | 125 | $ | 116 | $ | 9 | 7.8 | % | 9.5 | % | |||||||
Loss from operations | (10 | ) | (9 | ) | (1 | ) | 11.1 | % | |||||||||
Operating margin | (8.0 | )% | (7.8 | )% |
Three Months Ended | % Change | ||||||||||||||||
September 28, 2019 | September 29, 2018 | $ Change | As Reported | Constant Currency | |||||||||||||
Revenues | $ | 1,089 | $ | 1,137 | $ | (48 | ) | (4.2 | )% | (3.3 | )% | ||||||
Income from operations | 222 | 248 | (26 | ) | (10.5 | )% | |||||||||||
Operating margin | 20.4 | % | 21.8 | % |
• | a $56 million decrease in revenues, primarily driven by lower sales of women’s accessories and footwear, partially offset by increased sales of men’s apparel. |
• | an increase in comparable store sales of $3 million, including net unfavorable foreign currency effects of $6 million, which was primarily attributable to higher sales from women’s footwear, women’s apparel and men’s accessories, offset in part by lower sales from our watches, women’s accessories and jewelry product categories. Our comparable store sales benefited approximately 220 basis points from the inclusion of e-commerce sales. |
Six Months Ended | $ Change | % Change | % of Total Revenue for the Six Months Ended | |||||||||||||||||
September 28, 2019 | September 29, 2018 | September 28, 2019 | September 29, 2018 | |||||||||||||||||
Statements of Operations Data: | ||||||||||||||||||||
Total revenue | $ | 2,788 | $ | 2,456 | $ | 332 | 13.5 | % | ||||||||||||
Cost of goods sold | 1,080 | 942 | 138 | 14.6 | % | 38.7 | % | 38.4 | % | |||||||||||
Gross profit | 1,708 | 1,514 | 194 | 12.8 | % | 61.3 | % | 61.6 | % | |||||||||||
Selling, general and administrative expenses | 1,221 | 959 | 262 | 27.3 | % | 43.8 | % | 39.0 | % | |||||||||||
Depreciation and amortization | 125 | 109 | 16 | 14.7 | % | 4.5 | % | 4.4 | % | |||||||||||
Impairment of long-lived assets | 201 | 11 | 190 | NM | 7.2 | % | 0.4 | % | ||||||||||||
Restructuring and other charges (1) | 22 | 30 | (8 | ) | (26.7 | )% | 0.8 | % | 1.2 | % | ||||||||||
Total operating expenses | 1,569 | 1,109 | 460 | 41.5 | % | 56.3 | % | 45.2 | % | |||||||||||
Income from operations | 139 | 405 | (266 | ) | (65.7 | )% | 5.0 | % | 16.5 | % | ||||||||||
Other income, net | (3 | ) | (2 | ) | (1 | ) | 50.0 | % | (0.1 | )% | (0.1 | )% | ||||||||
Interest expense, net | 16 | 14 | 2 | 14.3 | % | 0.6 | % | 0.6 | % | |||||||||||
Foreign currency loss | 6 | 36 | (30 | ) | (83.3 | )% | 0.2 | % | 1.5 | % | ||||||||||
Income before provision for income taxes | 120 | 357 | (237 | ) | (66.4 | )% | 4.3 | % | 14.5 | % | ||||||||||
Provision for income taxes | 2 | 34 | (32 | ) | (94.1 | )% | 0.1 | % | 1.4 | % | ||||||||||
Net income | 118 | 323 | (205 | ) | (63.5 | )% | ||||||||||||||
Less: Net loss attributable to noncontrolling interest and redeemable noncontrolling interest | — | (1 | ) | 1 | NM | |||||||||||||||
Net income attributable to Capri | $ | 118 | $ | 324 | $ | (206 | ) | (63.6 | )% |
(1) | Includes store closure costs recorded in connection with the Retail Fleet Optimization Plan (as defined in Note 10) and other restructuring initiatives, as well as costs recorded in connection with our acquisitions of Jimmy Choo and Versace. |
Six Months Ended | |||||||||
September 28, 2019 | September 29, 2018 | $ Change | |||||||
Revenues | $ | 435 | $ | — | NM | ||||
Income from operations | 6 | — | NM | ||||||
Operating margin | 1.4 | % | — | % |
Six Months Ended | % Change | ||||||||||||||||
September 28, 2019 | September 29, 2018 | $ Change | As Reported | Constant Currency | |||||||||||||
Revenues | $ | 283 | $ | 289 | $ | (6 | ) | (2.1 | )% | 0.3 | % | ||||||
Income from operations | 1 | 13 | (12 | ) | (92.3 | )% | |||||||||||
Operating margin | 0.4 | % | 4.5 | % |
Six Months Ended | % Change | ||||||||||||||||
September 28, 2019 | September 29, 2018 | $ Change | As Reported | Constant Currency | |||||||||||||
Revenues | $ | 2,070 | $ | 2,167 | $ | (97 | ) | (4.5 | )% | (3.1 | )% | ||||||
Income from operations | 423 | 478 | (55 | ) | (11.5 | )% | |||||||||||
Operating margin | 20.4 | % | 22.1 | % |
• | an $84 million decrease in revenues, primarily driven by lower sales of women’s accessories, partially offset by increased sales of men’s apparel; and |
• | a decrease in comparable store sales of $15 million, including net unfavorable foreign currency effects of $16 million, which was primarily attributable to lower sales from our watches, women’s accessories and jewelry product categories, largely offset by higher sales from women’s footwear, women’s apparel and men’s accessories. Our comparable store sales benefited approximately 170 basis points from the inclusion of e-commerce sales. |
As of | |||||||
September 28, 2019 | March 30, 2019 | ||||||
Balance Sheet Data: | |||||||
Cash and cash equivalents | $ | 179 | $ | 172 | |||
Working capital | $ | 92 | $ | 187 | |||
Total assets | $ | 8,393 | $ | 6,650 | |||
Short-term debt | $ | 603 | $ | 630 | |||
Long-term debt | $ | 1,796 | $ | 1,936 |
Six Months Ended | |||||||
September 28, 2019 | September 29, 2018 | ||||||
Cash Flows Provided By (Used In): | |||||||
Operating activities | $ | 243 | $ | 264 | |||
Investing activities | (75 | ) | (62 | ) | |||
Financing activities | (157 | ) | (202 | ) | |||
Effect of exchange rate changes | (4 | ) | (8 | ) | |||
Net increase (decrease) in cash and cash equivalents | $ | 7 | $ | (8 | ) |
As of | |||||||
September 28, 2019 | March 30, 2019 | ||||||
Senior Unsecured Revolving Credit Facility: | |||||||
Revolving Credit Facility (excluding up to a $500 million accordion feature) (1) | |||||||
Total Availability | $ | 1,000 | $ | 1,000 | |||
Borrowings outstanding (2) | 513 | 539 | |||||
Letter of credit outstanding | 16 | 17 | |||||
Remaining availability | $ | 471 | $ | 444 | |||
Term Loan Facility ($1.6 billion) | |||||||
Borrowings Outstanding, net of debt issuance costs (3) | $ | 1,428 | $ | 1,570 | |||
Remaining availability | $ | — | $ | — | |||
4.000% Senior Notes | |||||||
Borrowings Outstanding, net of debt issuance costs and discount amortization (3) | $ | 445 | $ | 445 | |||
Other Borrowings (3) | $ | 3 | $ | 1 | |||
Hong Kong Uncommitted Credit Facility: | |||||||
Total availability (100 million Hong Kong Dollars) | $ | 13 | $ | 13 | |||
Borrowings outstanding | — | — | |||||
Bank guarantees outstanding (12 million Hong Kong Dollars) | 1 | 2 | |||||
Remaining availability | $ | 12 | $ | 11 | |||
China Uncommitted Credit Facility: | |||||||
Borrowings outstanding | $ | — | $ | — | |||
Total and remaining availability (100 million Chinese Yuan) | $ | 14 | $ | 14 | |||
Japan Credit Facility: | |||||||
Borrowings outstanding | $ | — | $ | — | |||
Total and remaining availability (1.0 billion Japanese Yen) | $ | 9 | $ | 9 | |||
Versace Uncommitted Credit Facility: | |||||||
Total availability (20 million Euro) | $ | 22 | $ | 22 | |||
Borrowings outstanding (10 million Euro) (2) | 10 | 11 | |||||
Remaining availability | $ | 12 | $ | 11 | |||
Total borrowings outstanding (1) | $ | 2,399 | $ | 2,566 | |||
Total remaining availability | $ | 518 | $ | 489 |
(1) | The 2018 Credit Facility contains customary events of default and requires us to maintain a leverage ratio at the end of each fiscal quarter of no greater than 3.75 to 1, calculated as the ratio of the sum of total indebtedness as of the date of the measurement plus 6.0 times the consolidated rent expense for the last four consecutive fiscal quarters, to Consolidated EBITDAR for the last four consecutive fiscal quarters. Consolidated EBITDAR is defined as consolidated net income plus income tax expense, net interest expense, depreciation and amortization expense, consolidated rent expense and other non-cash charges, subject to certain deductions. The 2018 Credit Facility also includes other customary covenants that limit additional indebtedness, guarantees, liens, acquisitions and other investments and cash dividends. As of September 28, 2019 and March 30, 2019, we were in compliance with all covenants related to our agreements then in effect governing our debt. |
(2) | Recorded as short-term debt in our consolidated balance sheets as of September 28, 2019 and March 30, 2019. |
(3) | Recorded as long-term debt in our consolidated balance sheets as of September 28, 2019 and March 30, 2019, except for the current portion of $80 million outstanding under the 2018 Term Loan Facility, which was recorded within short-term debt at September 28, 2019 and March 30, 2019. |
Six Months Ended | |||||||
September 28, 2019 | September 29, 2018 | ||||||
Cost of shares repurchased under share repurchase program (1) | $ | — | $ | 100 | |||
Fair value of shares withheld to cover tax obligations for vested restricted share awards | 2 | 7 | |||||
Total cost of treasury shares repurchased | $ | 2 | $ | 107 | |||
Shares repurchased under share repurchase program | — | 1,659,941 | |||||
Shares withheld to cover tax withholding obligations | 63,223 | 106,002 | |||||
63,223 | 1,765,943 |
(1) | The share-repurchase program expired on May 25, 2019. |
Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximated Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs (in millions) | ||||||||||
June 30 – July 27 | — | $ | — | — | $ | 500 | |||||||
July 28 – August 24 | 4,919 | $ | 33.97 | — | $ | 500 | |||||||
August 25 – September 28 | — | $ | — | — | $ | 500 | |||||||
4,919 | — |
CAPRI HOLDINGS LIMITED | ||
By: | /s/ John D. Idol | |
Name: | John D. Idol | |
Title: | Chairman & Chief Executive Officer | |
By: | /s/ Thomas J. Edwards, Jr. | |
Name: | Thomas J. Edwards, Jr. | |
Title: | Executive Vice President, Chief Financial Officer and Chief Operating Officer |
Exhibit No. | Description | ||
101.1 | The following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended September 28, 2019, formatted in Inline eXtensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income, (iii) Consolidated Statements of Shareholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements. |
1. | I have reviewed this Form 10-Q of Capri Holdings Limited; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
By: | /s/ John D. Idol |
John D. Idol | |
Chief Executive Officer |
1. | I have reviewed this Form 10-Q of Capri Holdings Limited; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
By: | /s/ Thomas J. Edwards, Jr. |
Thomas J. Edwards, Jr. | |
Chief Financial Officer |
(i) | The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and |
(ii) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Capri Holdings Limited. |
/s/ John D. Idol | ||
John D. Idol | ||
Chief Executive Officer | ||
(Principal Executive Officer) |
(i) | The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and |
(ii) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Capri Holdings Limited. |
/s/ Thomas J. Edwards, Jr. | ||
Thomas J. Edwards, Jr. | ||
Chief Financial Officer | ||
(Principal Financial Officer) |
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Debt Obligations (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 28, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Debt Obligations | The following table presents the Company’s debt obligations (in millions):
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Property and Equipment, net (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 28, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Property and Equipment, Net | Property and equipment, net, consists of (in millions):
|
Share-Based Compensation (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 28, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Share-based Compensation Activity | The following table summarizes the Company’s share-based compensation activity during the six months ended September 28, 2019:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Compensation Expense Attributable to Share-Based Compensation | The following table summarizes compensation expense attributable to share-based compensation for the three and six months ended September 28, 2019 and September 29, 2018 (in millions):
|
Property and Equipment, net |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 28, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment, net | Property and Equipment, net Property and equipment, net, consists of (in millions):
Depreciation and amortization of property and equipment for the three months ended September 28, 2019 and September 29, 2018 was $52 million and $45 million, respectively, and was $99 million and $92 million, respectively, for the six months ended September 28, 2019 and September 29, 2018. During the three months ended September 28, 2019, the Company recorded property and equipment impairment charges of $10 million, primarily related to Jimmy Choo and Versace store locations. During the six months ended September 28, 2019, the Company recorded property and equipment impairment charges of $23 million, $11 million of which related to determining asset groups for the Company’s premier store locations at an individual store level, $7 million of which related to Michael Kors and $4 million related to Jimmy Choo. In addition, during the six months ended September 28, 2019, the Company recorded property and equipment impairment charges of $12 million, primarily related to Jimmy Choo and Versace store locations (see Note 13 for additional information). During the three and six months ended September 29, 2018, the Company recorded property and equipment impairment charges of $6 million and $9 million, respectively, of which $4 million and $8 million, respectively, were related to underperforming Michael Kors full-price retail store locations, some of which related to the Retail Fleet Optimization Plan, as defined in Note 10.
|
Debt Obligations |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 28, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Obligations | Debt Obligations The following table presents the Company’s debt obligations (in millions):
Senior Unsecured Revolving Credit Facility The 2018 Credit Facility requires the Company to maintain a leverage ratio as of the end of each fiscal quarter of no greater than 3.75 to 1. Such leverage ratio is calculated as the ratio of the sum of total indebtedness as of the date of the measurement plus six times the consolidated rent expense for the last four consecutive fiscal quarters, to Consolidated EBITDAR (as defined below) for the last four consecutive fiscal quarters. Consolidated EBITDAR is defined as consolidated net income plus income tax expense, net interest expense, depreciation and amortization expense, consolidated rent expense and other non-cash charges, subject to certain additions and deductions. The 2018 Credit Facility also includes covenants that limit additional indebtedness, guarantees, liens, acquisitions and other investments and cash dividends that are customary for financings of this type. As of September 28, 2019, the Company was in compliance with all covenants related to this agreement. As of September 28, 2019 and March 30, 2019, the Company had borrowings of $513 million and $539 million, respectively, outstanding under the 2018 Revolving Credit Facility, which were recorded within short-term debt in its consolidated balance sheets. In addition, stand-by letters of credit of $16 million were outstanding as of September 28, 2019. At September 28, 2019, the amount available for future borrowings under the 2018 Revolving Credit Facility was $471 million. As of September 28, 2019 and March 30, 2019, the carrying value of borrowings outstanding under the 2018 Term Loan Facility was $1.428 billion and $1.570 billion, respectively, of which $80 million was recorded within short-term debt in each period and $1.348 billion and $1.490 billion, respectively, was recorded within long-term debt in its consolidated balance sheets. See Note 11 to the Company’s Fiscal 2019 Annual Report on Form 10-K for additional information regarding the Company’s credit facilities and debt obligations.
|
Shareholders' Equity - Narrative (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Sep. 28, 2019 |
Sep. 29, 2018 |
Sep. 28, 2019 |
Sep. 29, 2018 |
Aug. 01, 2019 |
|
Subsidiary or Equity Method Investee [Line Items] | |||||
Ordinary shares, shares repurchased amount | $ 0 | $ 1,000,000 | $ 2,000,000 | $ 107,000,000 | |
Stock Repurchase Program | |||||
Subsidiary or Equity Method Investee [Line Items] | |||||
Ordinary shares, shares repurchased (in shares) | 1,659,941 | ||||
Ordinary shares, shares repurchased amount | $ 100,000,000 | ||||
Ordinary shares repurchased, shares authorized (in shares) | $ 1,000,000,000.0 | $ 1,000,000,000.0 | $ 500,000,000 | ||
Withholding Taxes | |||||
Subsidiary or Equity Method Investee [Line Items] | |||||
Ordinary shares, shares repurchased (in shares) | 63,223 | 106,002 | |||
Ordinary shares, shares repurchased amount | $ 2,000,000 | $ 7,000,000 |
Segment Information - Additional Information (Details) $ in Millions |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Sep. 28, 2019
USD ($)
|
Sep. 29, 2018
USD ($)
|
Sep. 28, 2019
USD ($)
segment
|
Sep. 29, 2018
USD ($)
|
Mar. 31, 2019
USD ($)
|
Mar. 30, 2019
USD ($)
|
|
Segment Reporting Information [Line Items] | ||||||
Total revenue | $ 1,442 | $ 1,253 | $ 2,788 | $ 2,456 | ||
Number of operating segments | segment | 3 | |||||
Number of reportable segments | segment | 3 | |||||
Assets | 8,393 | $ 8,393 | $ 6,650 | |||
Operating lease right-of-use assets | 1,671 | 1,671 | $ 1,856 | |||
Versace | ||||||
Segment Reporting Information [Line Items] | ||||||
Total revenue | 228 | 0 | 435 | 0 | ||
Operating lease right-of-use assets | 386 | 386 | ||||
Jimmy Choo | ||||||
Segment Reporting Information [Line Items] | ||||||
Total revenue | 125 | 116 | 283 | 289 | ||
Operating lease right-of-use assets | 223 | 223 | ||||
Michael Kors | ||||||
Segment Reporting Information [Line Items] | ||||||
Total revenue | 1,089 | $ 1,137 | 2,070 | $ 2,167 | ||
Operating lease right-of-use assets | $ 1,062 | $ 1,062 |
Derivative Financial Instruments - Schedule of Fair Value of Derivative Contracts Recorded on Gross Basis in Consolidated Balance Sheets (Details) - USD ($) $ in Millions |
Sep. 28, 2019 |
Mar. 30, 2019 |
---|---|---|
Derivatives, Fair Value [Line Items] | ||
Notional Amounts | $ 3,554 | $ 2,599 |
Assets | 116 | 42 |
Liabilities | 4 | 5 |
Designated as Hedging Instrument | ||
Derivatives, Fair Value [Line Items] | ||
Notional Amounts | 3,384 | 2,400 |
Assets | 115 | 42 |
Liabilities | 0 | 0 |
Not Designated as Hedging Instrument | Forward Currency Exchange Contracts | ||
Derivatives, Fair Value [Line Items] | ||
Notional Amounts | 170 | 199 |
Assets | 1 | 0 |
Liabilities | 4 | 5 |
Cash flow hedging | Designated as Hedging Instrument | Forward Currency Exchange Contracts | ||
Derivatives, Fair Value [Line Items] | ||
Notional Amounts | 150 | 166 |
Assets | 6 | 5 |
Liabilities | 0 | 0 |
Net investment hedging | Designated as Hedging Instrument | Net investment hedges | ||
Derivatives, Fair Value [Line Items] | ||
Notional Amounts | 3,234 | 2,234 |
Assets | 109 | 37 |
Liabilities | $ 0 | $ 0 |
Current Assets and Current Liabilities - Schedule of Prepaid Expenses and Other Current Assets (Details) - USD ($) $ in Millions |
Sep. 28, 2019 |
Mar. 31, 2019 |
Mar. 30, 2019 |
---|---|---|---|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
Prepaid taxes | $ 187 | $ 125 | |
Interest receivable related to net investment hedges | 25 | 11 | |
Derivative Asset, Current | 7 | 5 | |
Prepaid property and equipment | 6 | 7 | |
Prepaid rent | 0 | 24 | |
Other | 50 | 49 | |
Prepaid expenses and other current assets | $ 275 | $ 198 | $ 221 |
Leases - Operating Lease Information (Details) |
Sep. 28, 2019 |
---|---|
Operating leases: | |
Weighted average remaining lease term (years) | 6 years 6 months |
Weighted average discount rate | 3.00% |
Receivables, net - Schedule of Receivables (Details) - USD ($) $ in Millions |
Sep. 28, 2019 |
Mar. 30, 2019 |
---|---|---|
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Trade receivables | $ 428 | $ 459 |
Receivables due from licensees | 26 | 23 |
Receivables, gross | 454 | 482 |
Less: allowances | (86) | (99) |
Receivables, net | 368 | 383 |
Credit risk assumed by insured | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Trade receivables | $ 64 | $ 317 |
Revenue Recognition - Narrative (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Sep. 28, 2019 |
Sep. 29, 2018 |
Sep. 28, 2019 |
Sep. 29, 2018 |
Mar. 30, 2019 |
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Contract With Customer, Asset And Liability [Line Items] | |||||
Deferred loyalty program liabilities | $ 17,000,000 | $ 17,000,000 | $ 31,000,000 | ||
Return liabilities | 35,000,000 | 35,000,000 | 35,000,000 | ||
Right to recover returned product | 12,000,000 | 12,000,000 | 12,000,000 | ||
Revenue recognized during period | 3,000,000 | $ 3,000,000 | 17,000,000 | $ 11,000,000 | |
Contract assets | 0 | 0 | 0 | ||
Gift Cards | |||||
Contract With Customer, Asset And Liability [Line Items] | |||||
Deferred loyalty program liabilities | 12,000,000 | 12,000,000 | 13,000,000 | ||
Deferred loyalty program liabilities | |||||
Contract With Customer, Asset And Liability [Line Items] | |||||
Deferred loyalty program liabilities | $ 3,000,000 | $ 3,000,000 | $ 3,000,000 |
Business and Basis of Presentation - Additional Information (Details) |
6 Months Ended |
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Sep. 28, 2019
segment
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Accounting Policies [Abstract] | |
Number of reportable segments | 3 |
Leases - Balance Sheet Information Related to Leases (Details) - USD ($) $ in Millions |
Sep. 28, 2019 |
Mar. 31, 2019 |
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Assets | ||
Operating lease right-of-use assets | $ 1,671 | $ 1,856 |
Liabilities | ||
Current operating lease liabilities | 403 | $ 386 |
Long-term portion of operating lease liabilities | $ 1,766 |
Receivables, net (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables, net | Receivables, net, consist of (in millions):
(1) As of September 28, 2019 and March 30, 2019, $64 million and $317 million, respectively, of trade receivables were insured.
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Shareholders' Equity |
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Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders' Equity | Shareholders’ Equity Share Repurchase Program During the six months ended September 29, 2018, the Company repurchased 1,659,941 shares at a cost of $100 million through open market transactions under its $1.0 billion share-repurchase program, which expired on May 25, 2019. On August 1, 2019, the Company’s Board of Directors authorized a new $500 million share repurchase program, which expires August 1, 2021. Share repurchases may be made in open market or privately negotiated transactions, subject to market conditions, applicable legal requirements, trading under the Company’s insider trading policy and other relevant factors. The program may be suspended or discontinued at any time. The Company also has in place a “withhold to cover” repurchase program, which allows the Company to withhold ordinary shares from certain executive officers and directors to satisfy minimum tax withholding obligations relating to the vesting of their restricted share awards. During the six month periods ended September 28, 2019 and September 29, 2018, the Company withheld 63,223 shares and 106,002 shares, respectively, with a fair value of $2 million and $7 million, respectively, in satisfaction of minimum tax withholding obligations relating to the vesting of restricted share awards. Accumulated Other Comprehensive Income (Loss) The following table details changes in the components of accumulated other comprehensive income (loss) (“AOCI”), net of taxes for the six months ended September 28, 2019 and September 29, 2018, respectively (in millions):
(2) Reclassified amounts relate to the Company’s forward foreign currency exchange contracts for inventory purchases and are recorded within cost of goods sold in the Company’s consolidated statements of operations and comprehensive income. All tax effects were not material for the periods presented.
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Summary of Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consolidation, Policy | The interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of the Company and its wholly-owned or controlled subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The interim consolidated financial statements as of September 28, 2019 and for the three and six months ended September 28, 2019 and September 29, 2018 are unaudited. In addition, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The interim consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, necessary for a fair presentation in conformity with U.S. GAAP. The interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended March 30, 2019, as filed with the Securities and Exchange Commission on May 29, 2019, in the Company’s Annual Report on Form 10-K. The results of operations for the interim periods should not be considered indicative of results to be expected for the full fiscal year.
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Fiscal Period, Policy | The Company utilizes a 52 to 53 week fiscal year ending on the Saturday closest to March 31. As such, the term “Fiscal Year” or “Fiscal” refers to the 52-week or 53-week period, ending on that day. The results for the three and six months ended September 28, 2019 and September 29, 2018, are based on 13-week and 26-week periods, respectively.
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Use of Estimates | The preparation of financial statements in accordance with U.S. GAAP requires management to use judgment and make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are completed. The most significant assumptions and estimates involved in preparing the financial statements include allowances for customer deductions, sales returns, sales discounts and doubtful accounts, estimates of gift card breakage, estimates of inventory recovery, the valuation of share-based compensation, valuation of deferred taxes and the valuation of and the estimated useful lives used for amortization and depreciation of intangible assets and property and equipment. Actual results could differ from those estimates.
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Reclassifications | Certain reclassifications have been made to the prior periods’ financial information in order to conform to the current period’s presentation, including the realignment of the Company’s segment reporting structure in the fourth quarter of Fiscal 2019, as further described in Note 18.
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Seasonality | The Company experiences certain effects of seasonality with respect to its business. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories, net | Inventories mainly consist of finished goods with the exception of raw materials inventory | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | Forward Foreign Currency Exchange Contracts The Company uses forward currency exchange contracts to manage its exposure to fluctuations in foreign currency for certain transactions. The Company, in its normal course of business, enters into transactions with foreign suppliers and seeks to minimize risks related to these transactions. The Company employs these forward currency contracts to hedge the Company’s cash flows, as they relate to foreign currency transactions. Certain of these contracts are designated as hedges for accounting purposes, while others remain undesignated. All of the Company’s derivative instruments are recorded in the Company’s consolidated balance sheets at fair value on a gross basis, regardless of their hedge designation. In connection with the September 24, 2018 definitive agreement to acquire all of the outstanding shares of Versace, the Company entered into forward foreign currency exchange contracts in September 2018 with notional amounts totaling €1.680 billion (approximately $2.001 billion) to mitigate its foreign currency exchange risk through the closing date of the acquisition, which were settled on December 21, 2018. These derivative contracts were not designated as accounting hedges. Therefore, changes in fair value were recorded to foreign currency (gain) loss in the Company’s consolidated statements of operations and comprehensive income. The Company’s accounting policy is to classify cash flows from derivative instruments that are accounted for as cash flow hedges in the same category as the cash flows from the items being hedged. Accordingly, the Company classified the unrealized gains and losses relating to these derivative instruments within cash flows from investing activities. The Company designates certain contracts related to the purchase of inventory that qualify for hedge accounting as cash flow hedges. Formal hedge documentation is prepared for all derivative instruments designated as hedges, including description of the hedged item and the hedging instrument and the risk being hedged. The changes in the fair value for contracts designated as cash flow hedges is recorded in equity as a component of accumulated other comprehensive income (loss) until the hedged item affects earnings. When the inventory related to forecasted inventory purchases that are being hedged is sold to a third party, the gains or losses deferred in accumulated other comprehensive income (loss) are recognized within cost of goods sold. The Company uses regression analysis to assess effectiveness of derivative instruments that are designated as hedges, which compares the change in the fair value of the derivative instrument to the change in the related hedged item. If the hedge is no longer expected to be highly effective in the future, future changes in the fair value are recognized in earnings. For those contracts that are not designated as hedges, changes in the fair value are recorded to foreign currency (gain) loss in the Company’s consolidated statements of operations and comprehensive income. The Company classifies cash flows relating to its forward foreign currency exchange contracts related to purchase of inventory consistently with the classification of the hedged item, within cash flows from operating activities. The Company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. In order to mitigate counterparty credit risk, the Company only enters into contracts with carefully selected financial institutions based upon their credit ratings and certain other financial factors, adhering to established limits for credit exposure. The aforementioned forward contracts generally have a term of no more than 12 months. The period of these contracts is directly related to the foreign transaction they are intended to hedge. Net Investment Hedges The Company also uses fixed-to-fixed cross currency swap agreements to hedge its net investments in foreign operations against future volatility in the exchange rates between its U.S. Dollars and these foreign currencies. The Company has elected the spot method of designating these contracts under ASU 2017-12 and has designated these contracts as net investment hedges. The net gain or loss on the net investment hedge is reported within foreign currency translation gains and losses (“CTA”), as a component of accumulated other comprehensive income (loss) on the Company’s consolidated balance sheets. Interest accruals and coupon payments are recognized directly in interest expense in the Company’s statement of operations and comprehensive income. Upon discontinuation of a hedge, all previously recognized amounts remain in CTA until the hedged net investment is sold, diluted, or liquidated.
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Net Income per Share | The Company’s basic net income per ordinary share is calculated by dividing net income by the weighted average number of ordinary shares outstanding during the period. Diluted net income per ordinary share reflects the potential dilution that would occur if share option grants or any other potentially dilutive instruments, including restricted shares and restricted share units (“RSUs”), were exercised or converted into ordinary shares. These potentially dilutive securities are included in diluted shares to the extent they are dilutive under the treasury stock method for the applicable periods. Performance-based RSUs are included in diluted shares if the related performance conditions are considered satisfied as of the end of the reporting period and to the extent they are dilutive under the treasury stock method.
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Recently Adopted and Issued Accounting Pronouncements | Recently Adopted Accounting Pronouncements Lease Accounting On March 31, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet for all leases, except certain short-term leases. In evaluating the impact of ASU 2016-02, the Company considered guidance provided by several additional ASUs issued by the FASB, including ASU 2018-01, “Land Easement Practical Expedient for Transition to Topic 842” in January 2018, ASU 2018-10, “Codification Improvements to Topic 842, Leases” and ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” both issued in July 2018, and ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors” issued in December 2018. In connection with its implementation of ASU 2016-02, the Company adopted the package of three practical expedients, allowing it to carry forward its previous lease classification and embedded lease evaluations and not to reassess initial direct costs as of the date of adoption. The Company also adopted, the practical expedient allowing it to combine lease and non-lease components for its real estate leases. Lastly, the Company adopted the practical expedient provided by ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” allowing it to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without restating the comparative prior year periods. The Company’s existing lease obligations, which relate to stores, corporate locations, warehouses, and equipment, are subject to the new standard and resulted in recording of lease liabilities and right-of-use assets for operating leases on the Company’s consolidated balance sheet. The below table details the balance sheet adjustments recorded on March 31, 2019 in connection with the Company’s adoption of ASU 2016-02 (in millions):
See Note 4 for additional disclosures related to the Company’s lease accounting policy. Recently Issued Accounting Pronouncements We have considered all new accounting pronouncements and, other than the recent pronouncements discussed below, have concluded that there are no new pronouncements that may have a material impact on our results of operations, financial condition or cash flows based on current information. Intangibles In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which reduces the complexity for the accounting for costs of implementing a cloud computing service arrangement. The standard aligns the accounting for capitalizing implementation costs of hosting arrangements, regardless of whether or not the contract conveys a license to the hosted software. ASU 2018-15 is effective beginning with the Company’s Fiscal 2021, with early adoption permitted, and can either be presented prospectively or retrospectively. The Company is currently evaluating the impact of ASU 2018-15 on its consolidated financial statements, but believes it is generally consistent with its current accounting for cloud computing arrangements and will not have a material impact on its consolidated financial statements.
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Revenue Recognition | The Company accounts for contracts with its customers when there is approval and commitment from both parties, the rights of the parties and payment terms have been identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for goods or services. The Company sells its products through three primary channels of distribution: retail, wholesale and licensing. Within the retail and wholesale channels, substantially all of the Company’s revenues consist of sales of products that represent a single performance obligation, where control transfers at a point in time to the customer. For licensing arrangements, royalty and advertising revenue is recognized over time based on access provided to the Company’s brands. Retail The Company generates sales through directly operated stores and e-commerce throughout the Americas (U.S., Canada and Latin America, excluding Brazil), EMEA (Europe, Middle East, and Africa) and certain parts of Asia. Gift Cards. The contract liability related to gift cards, net of estimated “breakage,” was $12 million and $13 million as of September 28, 2019 and March 30, 2019, respectively, and is included in accrued expenses and other current liabilities in the Company’s consolidated balance sheet. Loyalty Program. The contract liability, net of an estimated “breakage,” of $3 million as of both September 28, 2019 and March 30, 2019 is recorded as a reduction to revenue in the consolidated statements of operations and comprehensive income and within accrued expenses and other current liabilities in the Company’s consolidated balance sheet and is expected to be recognized within the next 12 months. Wholesale The Company’s products are sold primarily to major department stores, specialty stores and travel retail shops throughout the Americas, EMEA and Asia. The Company also has arrangements where its products are sold to geographic licensees in certain parts of EMEA, Asia, and South America. Licensing The Company provides its third-party licensees with the right to access its Versace, Jimmy Choo and Michael Kors trademarks under product and geographic licensing arrangements. Under geographic licensing arrangements, third party licensees receive the right to distribute and sell products bearing the Company’s trademarks in retail and/or wholesale channels within certain geographical areas, including Brazil, the Middle East, Eastern Europe, South Africa, certain parts of Asia and Australia. The Company recognizes royalty revenue and advertising contributions based on the percentage of sales made by the licensees. Generally the Company’s guaranteed minimum royalty amounts due from licensees relate to contractual periods that do not exceed 12 months, however, some of our guaranteed minimums for Versace are multi-year based. As of September 28, 2019, contractually guaranteed minimum fees from our license agreements expected to be recognized as revenue during future periods were as follows (in millions):
Sales Returns The refund liability recorded as of September 28, 2019 and March 30, 2019 was $35 million in each period and the related asset for the right to recover returned product as of September 28, 2019 and March 30, 2019 was $12 million in each period.
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Leases | ight-of-use assets and lease liabilities at lease commencement date, based on the present value of fixed lease payments over the expected lease term. The Company uses its incremental borrowing rates to determine the present value of fixed lease payments based on the information available at the lease commencement date, as the rate implicit in the lease is not readily determinable for the Company’s leases. The Company’s incremental borrowing rates are based on the term of the leases, the economic environment of the leases, and reflect the rate it would pay to borrow on a secured basis. Certain leases include one or more renewal options, generally for the same period as the initial term of the lease. The exercise of lease renewal options is generally at the Company’s sole discretion and as such, the Company typically determines that exercise of these renewal options is not reasonably certain. As a result, the Company generally does not include the renewal option period in the expected lease term and the associated lease payments are not included in the measurement of the operating lease right-of-use asset and lease liability. Certain leases also contain termination options with an associated penalty. Generally, the Company is reasonably certain not to exercise these options and as such, they are not included in the determination of the expected lease term. The Company recognizes operating lease expense on a straight-line basis over the lease term. Leases with an initial lease term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for its short-term leases on a straight-line basis over the lease term. The Company’s leases generally provide for payments of non-lease components, such as common area maintenance, real estate taxes and other costs associated with the leased property. The Company accounts for lease and non-lease components of its real estate leases together as a single lease component and, as such, includes fixed payments of non-lease components in the measurement of the operating lease right-of-use assets and lease liabilities for its real estate leases. Variable lease payments, such as percentage rentals based on location sales, periodic adjustments for inflation, reimbursement of real estate taxes, any variable common area maintenance and any other variable costs associated with the leased property are expensed as incurred as variable lease costs and are not recorded on the balance sheet. The Company’s lease agreements do not contain any material residual value guarantees or material restrictions or covenants.
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Receivables, net | Receivables are presented net of allowances for discounts, markdowns, operational chargebacks and doubtful accounts. Discounts are based on open invoices where trade discounts have been extended to customers. Markdowns are based on wholesale customers’ sales performance, seasonal negotiations with customers, historical deduction trends and an evaluation of current market conditions. Operational chargebacks are based on deductions taken by customers, net of expected recoveries. Such provisions, and related recoveries, are reflected in revenues. The Company’s allowance for doubtful accounts is determined through analysis of periodic aging of receivables that are not covered by insurance and assessments of collectability based on an evaluation of historic and anticipated trends, the financial condition of the Company’s customers and the impact of general economic conditions. The past due status of a receivable is based on its contractual terms. Amounts deemed uncollectible are written off against the allowance when it is probable the amounts will not be recovered.
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Intangible Assets and Goodwill - Additional Information (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
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Sep. 28, 2019 |
Sep. 29, 2018 |
Sep. 28, 2019 |
Sep. 29, 2018 |
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Finite-Lived Intangible Assets [Line Items] | ||||
Amortization of intangible assets | $ 13,000,000 | $ 8,000,000 | $ 26,000,000 | $ 17,000,000 |
Impairment of intangible assets | $ 1,000,000 | 2,000,000 | ||
Goodwill and intangible asset impairment charges | 0 | $ 0 | ||
Michael Kors Retail | ||||
Finite-Lived Intangible Assets [Line Items] | ||||
Impairment of intangible assets | $ 1,000,000 | $ 6,000,000 |
Business and Basis of Presentation |
6 Months Ended |
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Sep. 28, 2019 | |
Accounting Policies [Abstract] | |
Business and Basis of Presentation | Business and Basis of Presentation The Company was incorporated in the British Virgin Islands (“BVI”) on December 13, 2002 as Michael Kors Holdings Limited and changed its name to Capri Holdings Limited (“Capri,” and together with its subsidiaries, the “Company”) on December 31, 2018. The Company is a holding company that owns brands that are leading designers, marketers, distributors and retailers of branded women’s and men’s accessories, apparel and footwear bearing the Versace, Jimmy Choo and Michael Kors tradenames and related trademarks and logos. The Company completed the acquisition of Gianni Versace S.r.l. (“Versace”) on December 31, 2018. As a result, the Company now operates in three reportable segments: Versace, Jimmy Choo and Michael Kors. See Note 18 for additional information. The interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of the Company and its wholly-owned or controlled subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The interim consolidated financial statements as of September 28, 2019 and for the three and six months ended September 28, 2019 and September 29, 2018 are unaudited. In addition, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The interim consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, necessary for a fair presentation in conformity with U.S. GAAP. The interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended March 30, 2019, as filed with the Securities and Exchange Commission on May 29, 2019, in the Company’s Annual Report on Form 10-K. The results of operations for the interim periods should not be considered indicative of results to be expected for the full fiscal year. The Company utilizes a 52 to 53 week fiscal year ending on the Saturday closest to March 31. As such, the term “Fiscal Year” or “Fiscal” refers to the 52-week or 53-week period, ending on that day. The results for the three and six months ended September 28, 2019 and September 29, 2018, are based on 13-week and 26-week periods, respectively.
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Debt Obligations - Senior Unsecured Revolving Credit Facility (Details) $ in Millions |
6 Months Ended | |
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Sep. 28, 2019
USD ($)
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Mar. 30, 2019
USD ($)
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Debt Instrument [Line Items] | ||
Short-term debt | $ 603 | $ 630 |
Long-term debt | 2,399 | 2,566 |
Revolving Credit Facilities | Credit Facility | ||
Debt Instrument [Line Items] | ||
Letter of credit outstanding | $ 16 | |
Revolving Credit Facilities | 2018 Credit Facility | Credit Facility | ||
Debt Instrument [Line Items] | ||
Leverage ratio on credit facility | 3.75 | |
Short-term debt | $ 513 | 539 |
Amount available for future borrowings | 471 | |
2018 Term Loan Facility | Term Loan Facility | Credit Facility | ||
Debt Instrument [Line Items] | ||
Short-term debt | 80 | |
Borrowings outstanding | 1,428 | 1,570 |
Long-term debt | $ 1,348 | $ 1,490 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Sep. 28, 2019 |
Mar. 30, 2019 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Ordinary shares, par value (in dollars per share) | $ 0 | $ 0 |
Ordinary shares, shares authorized (in shares) | 650,000,000 | 650,000,000 |
Ordinary shares, shares issued (in shares) | 216,815,137 | 216,050,939 |
Ordinary shares, shares outstanding (in shares) | 151,633,281 | 150,932,306 |
Treasury shares (in shares) | 65,181,856 | 65,118,633 |
Leases - Comprehensive Income Net Lease Costs (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended |
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Sep. 28, 2019 |
Sep. 28, 2019 |
|
Leases [Abstract] | ||
Operating lease cost | $ 115 | $ 224 |
Short-term lease cost | 3 | 13 |
Variable lease cost | 39 | 79 |
Sublease income | (2) | (3) |
Total lease cost | $ 155 | $ 313 |
Revenue Recognition - Schedule of Contractually Guaranteed Minimum Fees (Details) $ in Millions |
Sep. 28, 2019
USD ($)
|
---|---|
Revenue from Contract with Customer [Abstract] | |
Remainder of Fiscal 2020 | $ 14 |
Fiscal 2021 | 27 |
Fiscal 2022 | 27 |
Fiscal 2023 | 20 |
Fiscal 2024 | 10 |
Fiscal 2025 and thereafter | 34 |
Total | $ 132 |
Derivative Financial Instruments |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | Derivative Financial Instruments Forward Foreign Currency Exchange Contracts The Company uses forward foreign currency exchange contracts to manage its exposure to fluctuations in foreign currency for certain of its transactions. The Company, in its normal course of business, enters into transactions with foreign suppliers and seeks to minimize risks related to certain forecasted inventory purchases by using forward foreign currency exchange contracts. The Company only enters into derivative instruments with highly credit-rated counterparties. The Company does not enter into derivative contracts for trading or speculative purposes. In connection with the September 24, 2018 definitive agreement to acquire all of the outstanding shares of Versace, the Company entered into forward foreign currency exchange contracts in September 2018 with notional amounts totaling €1.680 billion (approximately $2.001 billion) to mitigate its foreign currency exchange risk through the closing date of the acquisition, which were settled on December 21, 2018. These derivative contracts were not designated as accounting hedges. Therefore, changes in fair value were recorded to foreign currency (gain) loss in the Company’s consolidated statements of operations and comprehensive income. The Company’s accounting policy is to classify cash flows from derivative instruments that are accounted for as cash flow hedges in the same category as the cash flows from the items being hedged. Accordingly, the Company classified the unrealized gains and losses relating to these derivative instruments within cash flows from investing activities. Net Investment Hedges As of September 28, 2019, the Company had multiple fixed-to-fixed cross-currency swap agreements with aggregate notional amounts of $3.190 billion to hedge its net investment in Euro-denominated subsidiaries and $44 million to hedge its net investment in Japanese Yen-denominated subsidiaries against future volatility in the exchange rates between U.S. Dollar and these currencies. Under the terms of these contracts, which have maturity dates between January 2022 and June 2026, the Company will exchange the semi-annual fixed rate payments on U.S. denominated debt for fixed rate payments of 0% to 1.674% in Euros and 0.89% in Japanese Yen. These contracts have been designated as net investment hedges. When a cross-currency swap is used as a hedging instrument in a net investment hedge assessed under the spot method, the cross-currency basis spread is excluded from the assessment of hedge effectiveness and is recognized as a reduction in interest expense in the Company’s consolidated statements of operations and comprehensive income. Accordingly, the Company recorded a reduction in interest expense of $19 million and $34 million, respectively, during the three and six months ended September 28, 2019 and $3 million and $4 million, respectively, during the three and six months ended September 29, 2018. The following table details the fair value of the Company’s derivative contracts, which are recorded on a gross basis in the consolidated balance sheets as of September 28, 2019 and March 30, 2019 (in millions):
The Company records and presents the fair values of all of its derivative assets and liabilities in its consolidated balance sheets on a gross basis, as shown in the previous table. However, if the Company were to offset and record the asset and liability balances for its derivative instruments on a net basis in accordance with the terms of its master netting arrangements, which provide for the right to set-off amounts for similar transactions denominated in the same currencies, the resulting impact as of September 28, 2019 and March 30, 2019 would be as follows (in millions):
The Company’s master netting arrangements do not require cash collateral to be pledged by the Company or its counterparties. Changes in the fair value of the Company’s forward foreign currency exchange contracts that are designated as accounting hedges are recorded in equity as a component of accumulated other comprehensive income (loss), and are reclassified from accumulated other comprehensive income (loss) into earnings when the items underlying the hedged transactions are recognized into earnings, as a component of cost of sales within the Company’s consolidated statements of operations and comprehensive income. The net gain or loss on net investment hedges are reported within foreign currency translation gains and losses (“CTA”) as a component of accumulated other comprehensive income (loss) on the Company’s consolidated balance sheets. Upon discontinuation of the hedge, such amounts remain in CTA until the related investment is sold or liquidated. The following table summarizes the gains and losses on the Company’s designated forward foreign currency exchange contracts and net investment hedges (in millions):
The following tables summarize the impact of the gains and losses within the consolidated statements of operations and comprehensive income related to the designated forward foreign currency exchange contracts for the three and six months ended September 28, 2019 and September 29, 2018 (in millions):
The Company expects that substantially all of the amounts currently recorded in accumulated other comprehensive income (loss) for its forward foreign currency exchange contracts will be reclassified into earnings during the next 12 months, based upon the timing of inventory purchases and turnover. Undesignated Hedges During the three and six months ended September 28, 2019, the net impact of changes in the fair value of undesignated forward foreign currency exchange contracts recognized within foreign currency loss (gain) in the Company’s consolidated statement of operations and comprehensive income was not material. During the three and six months ended September 29, 2018, the Company recognized a net loss of $30 million and $29 million, respectively, related to changes in the fair value of undesignated forward foreign currency exchange contracts within foreign currency loss (gain) in the Company’s consolidated statement of operations and comprehensive income. These amounts were primarily comprised of a $30 million loss related to the derivative contracts entered into on September 25, 2018 to mitigate foreign currency exchange risk associated with the Versace acquisition that were settled on December 21, 2018.
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Segment Information |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | Segment Information The Company operates its business through three operating segments—Versace, Jimmy Choo and Michael Kors, which are based on its business activities and organization. The reportable segments are segments of the Company for which separate financial information is available and for which operating results are evaluated regularly by the Company’s chief operating decision maker ("CODM") in deciding how to allocate resources, as well as in assessing performance. The primary key performance indicators are revenue and operating income for each segment. The Company’s reportable segments represent components of the business that offer similar merchandise, customer experience and sales/marketing strategies. The Company’s three reportable segments are as follows:
In addition to these reportable segments, the Company has certain corporate costs that are not directly attributable to its brands and, therefore, are not allocated to segments. Such costs primarily include certain administrative, corporate occupancy, and information systems expenses, including enterprise resource planning system implementation costs. In addition, certain other costs are not allocated to segments, including restructuring and other charges (including transition costs related to the Company’s recent acquisitions) and impairment costs. The segment structure is consistent with how the Company’s CODM plans and allocates resources, manages the business and assesses performance. All intercompany revenues are eliminated in consolidation and are not reviewed when evaluating segment performance. The following table presents the key performance information of the Company’s reportable segments (in millions):
Depreciation and amortization expense for each segment are as follows (in millions):
Total revenue (based on country of origin) by geographic location are as follows (in millions):
As of September 28, 2019 and March 30, 2019, the Company's total assets were $8.393 billion and $6.650 billion, respectively. The increase in total assets was primarily due to the adoption of ASU 2016-02 in the first quarter of Fiscal 2020, which resulted in the Company recording operating lease right-of-use assets of $1.671 billion, of which $1.062 billion related to Michael Kors, $386 million related to Versace, and $223 million related to Jimmy Choo, as of September 28, 2019.
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Leases (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 28, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Supplemental Balance Sheet Information Related to Leases | The following table presents the Company’s supplemental balance sheet information related to leases (in millions):
The following tables summarizes the weighted average remaining lease term and weighted average discount rate related to the Company’s operating lease right-of-use assets and lease liabilities recorded on the balance sheet as of September 28, 2019:
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Schedule of Net Lease Costs and Supplemental Cash Flow Information | The components of net lease costs for the three and six months ended September 28, 2019 were as follows (in millions):
The following table presents the Company’s supplemental cash flow information related to leases (in millions):
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Schedule of Contractually Guaranteed Minimum Fees | At September 28, 2019, the future minimum lease payments under the terms of these noncancelable operating lease agreements are as follows (in millions):
At September 28, 2019, the future minimum sublease income under the terms of these noncancelable operating lease agreements are as follows (in millions):
Additionally, the Company had approximately $15 million of future payment obligations related to executed lease agreements for which the related lease has not yet commenced as of September 28, 2019.
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Segment Information (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 28, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Key Performance Information of Reportable Segments | The following table presents the key performance information of the Company’s reportable segments (in millions):
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Depreciation and Amortization Expense for Each Segment | Depreciation and amortization expense for each segment are as follows (in millions):
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Total Revenue (as Recognized Based on Country of Origin) | Total revenue (based on country of origin) by geographic location are as follows (in millions):
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Fair Value Measurements (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Contracts Measured and Recorded at Fair Value on Recurring and Categorized in Level 2 of Fair Value Hierarchy | All contracts are measured and recorded at fair value on a recurring basis and are categorized in Level 2 of the fair value hierarchy, as shown in the following table (in millions):
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Fair Value Measurement of Long-term Debt | The following table summarizes the carrying values and estimated fair values of the Company’s short- and long-term debt, based on Level 2 measurements (in millions):
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Schedule of Long-lived Assets, Nonrecurring | As a result of this determination, in the first quarter of Fiscal 2020, the Company identified impairment indicators at certain premier retail store locations and recorded operating lease right-of-use asset and property and equipment impairment charges of $68 million and $11 million, respectively, which are included in the impairment charges detailed in the table below (in millions):
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Current Assets and Current Liabilities (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 28, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Prepaid Expenses and Other Current Assets | Prepaid expenses and other current assets consist of the following (in millions):
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Schedule of Accrued Expenses and Other Current Liabilities | Accrued expenses and other current liabilities consist of the following (in millions):
(2) The accrued rent balance relates to variable lease payments.
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Receivables, net |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 28, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables, net | Receivables, net Receivables, net, consist of (in millions):
Receivables are presented net of allowances for discounts, markdowns, operational chargebacks and doubtful accounts. Discounts are based on open invoices where trade discounts have been extended to customers. Markdowns are based on wholesale customers’ sales performance, seasonal negotiations with customers, historical deduction trends and an evaluation of current market conditions. Operational chargebacks are based on deductions taken by customers, net of expected recoveries. Such provisions, and related recoveries, are reflected in revenues. The Company’s allowance for doubtful accounts is determined through analysis of periodic aging of receivables that are not covered by insurance and assessments of collectability based on an evaluation of historic and anticipated trends, the financial condition of the Company’s customers and the impact of general economic conditions. The past due status of a receivable is based on its contractual terms. Amounts deemed uncollectible are written off against the allowance when it is probable the amounts will not be recovered. Allowance for doubtful accounts was $15 million and $18 million, respectively, as of September 28, 2019 and March 30, 2019. The Company had bad debt expense of $4 million and $1 million, respectively, for the six months ended September 28, 2019 and September 29, 2018. All other periods presented were immaterial.
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Restructuring and Other Charges |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 28, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Activities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Other Charges | Restructuring and Other Charges Retail Fleet Optimization Plan On May 31, 2017, the Company announced that it plans to close between 100 and 125 of its Michael Kors retail stores in order to improve the profitability of its retail store fleet (“Retail Fleet Optimization Plan”). The Company anticipates finalizing the remainder of the planned store closures under the Retail Fleet Optimization Plan by the end of Fiscal 2020. The Company expects to incur approximately $100 - $125 million of one-time costs associated with these store closures. Collectively, the Company anticipates lower depreciation and amortization expense as a result of the impairment charges recorded once these initiatives are completed. During the six months ended September 28, 2019, the Company closed 23 of its Michael Kors retail stores under the Retail Fleet Optimization Plan, for a total of 123 stores closed at a cost of $95 million since plan inception. Restructuring charges recorded in connection with the Retail Fleet Optimization Plan during the six months ended September 28, 2019 were $1 million. The below table presents a rollforward of the Company’s remaining restructuring liability related to this plan (in millions):
During the three and six months ended September 29, 2018, the Company recorded restructuring charges of $2 million and $6 million, respectively, under the Retail Fleet Optimization Plan, which were comprised of lease-related charges. Other Restructuring Charges In addition to the restructuring charges related to the Retail Fleet Optimization Plan, the Company incurred charges of $1 million during the three and six months ended September 28, 2019 related to the Company’s intent to exit certain of its agreements in the EMEA region. During the six months ended September 28, 2019 the Company also incurred charges of $2 million relating to Jimmy Choo lease-related charges. The Company also incurred charges of $1 million relating to Jimmy Choo lease-related charges during the three and six months ended September 29, 2018. Other Costs During the three months ended September 28, 2019, the Company recorded costs of $6 million primarily in connection with the acquisition of Versace. During the six months ended September 28, 2019, the Company recorded costs of $18 million, which included $13 million in connection with the acquisition of Versace and $5 million in connection with the Jimmy Choo acquisition. During the three and six months ended September 29, 2018, the Company recorded costs of $16 million and $23 million, respectively, which included $9 million in each period in connection with the acquisition of Versace, as well as $7 million and $14 million, respectively, in connection with the Jimmy Choo acquisition.
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Segment Information - Key Performance Information of Reportable Segments (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Sep. 28, 2019 |
Sep. 29, 2018 |
Sep. 28, 2019 |
Sep. 29, 2018 |
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Segment Reporting [Abstract] | ||||||
Total revenue | $ 1,442 | $ 1,253 | $ 2,788 | $ 2,456 | ||
Segment Reporting Information [Line Items] | ||||||
Less: Corporate expenses | (35) | (23) | (68) | (45) | ||
Restructuring and other charges | [1] | (7) | (19) | (22) | (30) | |
Impairment of long-lived assets | (104) | (7) | (201) | (11) | ||
Total income from operations | 75 | 190 | 139 | 405 | ||
Versace | ||||||
Segment Reporting [Abstract] | ||||||
Total revenue | 228 | 0 | 435 | 0 | ||
Segment Reporting Information [Line Items] | ||||||
Total income from operations | 9 | 0 | 6 | 0 | ||
Jimmy Choo | ||||||
Segment Reporting [Abstract] | ||||||
Total revenue | 125 | 116 | 283 | 289 | ||
Segment Reporting Information [Line Items] | ||||||
Total income from operations | (10) | (9) | 1 | 13 | ||
Michael Kors | ||||||
Segment Reporting [Abstract] | ||||||
Total revenue | 1,089 | 1,137 | 2,070 | 2,167 | ||
Segment Reporting Information [Line Items] | ||||||
Total income from operations | 222 | 248 | 423 | 478 | ||
Total segment income from operations | ||||||
Segment Reporting Information [Line Items] | ||||||
Total income from operations | $ 221 | $ 239 | $ 430 | $ 491 | ||
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Derivative Financial Instruments - Fair Values of Derivative Assets and Liabilities (Details) - USD ($) $ in Millions |
Sep. 28, 2019 |
Mar. 30, 2019 |
---|---|---|
Cash flow hedging | Forward Currency Exchange Contracts | ||
Derivative [Line Items] | ||
Assets subject to master netting arrangements | $ 7 | $ 5 |
Liabilities subject to master netting arrangements | 4 | 5 |
Derivative assets, net | 6 | 5 |
Derivative liabilities, net | 3 | 5 |
Net investment hedging | Net investment hedges | ||
Derivative [Line Items] | ||
Assets subject to master netting arrangements | 109 | 37 |
Liabilities subject to master netting arrangements | 0 | 0 |
Derivative assets, net | 109 | 37 |
Derivative liabilities, net | $ 0 | $ 0 |
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