Capri Holdings Limited — FY2023 Form 10-K
Reporting period: Fiscal year ended April 1, 2023 (52 weeks). The comparison year ended April 2, 2022 contained 53 weeks, including approximately $70 million of revenue from the additional week. This is an annual filing, not a standalone Q4 report.
Business context
Capri operates the Versace, Jimmy Choo and Michael Kors luxury brands through retail, e-commerce, wholesale and licensing channels. Michael Kors generated 69% of FY2023 revenue, Versace 20% and Jimmy Choo 11%.
Financial results and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $5.619 billion | $5.654 billion |
| Gross profit / margin | $3.724 billion / 66.3% | $3.744 billion / 66.2% |
| Operating income / margin | $679 million / 12.1% | $903 million / 16.0% |
| Net income attributable to Capri | $616 million | $822 million |
| Diluted EPS | $4.60 | $5.39 |
| Cash from operations | $771 million | $704 million |
| Capital expenditures | $226 million | $131 million |
- Reported revenue fell 0.6%; at constant currency it rose 5.3%. Unfavorable currency effects were $333 million. Greater China disruption and the prior-year extra week also weighed on reported growth.
- Gross margin improved 10 basis points, mainly from higher average selling prices, partly offset by regional mix. Operating income declined 24.8%, as higher SG&A and impairment charges more than offset the slight gross-margin improvement.
- Cash provided by investing activities was $183 million, including $409 million of net investment hedge settlements; this is not solely recurring operating cash generation. Financing activities used $776 million.
- At year-end, cash and cash equivalents were $249 million, working capital was $420 million, and total debt carrying value was $1.827 billion ($5 million short-term; $1.822 billion long-term). Revolver borrowings were $874 million, with $623 million remaining under the $1.5 billion facility; total remaining availability across facilities was $694 million.
- Debt rose from $1.160 billion a year earlier, principally reflecting increased revolver borrowings and a new €450 million Versace term loan. The company reported compliance with its debt covenants, including a maximum net leverage ratio of 4.0 to 1.0.
Material changes and unusual items
- Jimmy Choo recorded $106 million of goodwill and brand-asset impairment, attributed primarily to higher discount rates. Total asset impairment was $142 million, including $36 million related mainly to retail-store assets.
- FY2023 segment revenue and operating income: Versace $1.106 billion and $152 million; Jimmy Choo $633 million and $38 million; Michael Kors $3.880 billion and $868 million. Constant-currency revenue increased across all three brands, but reported results were affected by foreign exchange.
- Share repurchases totaled $1.350 billion during FY2023, and the company ended the year with $400 million available under its then-current repurchase authorization.
- The effective tax rate was 4.5%, compared with 10.1% in FY2022. Management cited changes in uncertain tax positions and global financing effects; tax outcomes remain subject to audits and estimates.
Outlook, management commentary and risks
Management stated that cash from operations, available cash and credit facilities should meet working-capital needs for the next 12 months and beyond. It expected FY2024 capital expenditures of approximately $260 million. The Capri transformation program and ERP implementation continue through FY2026, with expected spending of up to $220 million and $170 million, respectively, over the next three fiscal years. The filing provides long-term brand ambitions, including revenue goals of at least $2 billion for Versace and $1 billion for Jimmy Choo, but no clear FY2024 revenue or earnings guidance.
- Management described a challenging retail environment from inflation, rising interest rates and economic uncertainty. COVID-related closures and weaker demand in Greater China adversely affected FY2023; further disruption remains possible.
- Key risks include discretionary-spending weakness, fashion and competitive pressures, wholesale partner health, foreign exchange, sourcing and shipping disruption, tariffs, cyber and IT risks, and execution of digital, ERP and transformation initiatives.
- Debt and lease commitments are significant. The $450 million senior notes mature in 2024; the Versace term loan matures in 2025. Minimum operating lease payments total $1.962 billion, and FY2024 inventory purchase obligations are $775 million.
- The company reported an unqualified audit opinion and effective internal controls over financial reporting. Routine legal proceedings were not expected to have a material adverse effect in aggregate.
Important facts for investors to verify
- Whether FY2024 sales, margins and cash generation recover as China demand and consumer conditions evolve, and how reported results compare with constant-currency trends.
- Debt maturities, borrowing costs, covenant headroom and the company’s ability to fund buybacks alongside capital spending and other obligations.
- The assumptions behind Jimmy Choo impairment testing and whether further impairment could arise if forecasts, discount rates or market conditions change.
- Whether planned ERP and transformation investments meet timelines and budgets, and their effect on operating expenses and cash flow.
- The resolution and timing of tax audits and uncertain tax positions; the filing reports $194 million of liabilities related to uncertain tax positions, including accrued interest.