Business context and reporting period
Michael Kors Holdings Limited (the registrant named in this filing; now associated with Capri Holdings) reported unaudited results for the 13 weeks ended June 30, 2018, its fiscal 2019 first quarter. The comparable period was the 13 weeks ended July 1, 2017. The company operated Michael Kors Retail, Wholesale and Licensing segments, plus Jimmy Choo, acquired November 1, 2017; consequently, the prior-year comparison excludes Jimmy Choo.
Financial results and key metrics
Amounts are in U.S. dollars; financial statement figures are in millions except per-share data.
| Metric | Q1 FY2019 | Q1 FY2018 | Change |
|---|---|---|---|
| Revenue | $1,202.5 | $952.4 | +26.3% reported; +24.1% constant currency |
| Gross profit / margin | $750.8 / 62.4% | $574.7 / 60.3% | Margin +210 bps |
| Operating income / margin | $215.2 / 17.9% | $149.4 / 15.7% | Income +44.0% |
| Net income attributable to MKHL | $186.4 | $125.5 | +48.5% |
| Diluted EPS | $1.22 | $0.80 | +52.5% |
| Cash from operations | $206.3 | $194.3 | +$12.0 |
- Comparable sales increased 0.2% reported, but declined 2.1% excluding foreign-exchange effects; e-commerce contributed approximately 250 basis points to reported comparable sales.
- Michael Kors revenue was $1,029.8 million (+8.1% reported; +6.0% constant currency). Jimmy Choo added $172.7 million of revenue and reported $16.1 million of operating income.
- Wholesale revenue rose 19.5% and segment operating income increased to $97.5 million from $43.5 million. Retail revenue rose 3.2%, while retail operating income was essentially flat at $92.5 million. Licensing revenue declined 4.8% to $27.5 million.
- Gross-margin improvement reflected lower promotions, favorable product mix and lower costs in wholesale; SG&A as a share of revenue fell to 38.6% from 39.7%. Results included $11.3 million of restructuring and other charges and $4.3 million of long-lived asset impairment.
Cash, debt and liquidity
- Cash and cash equivalents were $169.9 million at June 30, versus $163.1 million at March 31. Working capital was $348.5 million; current assets were $1,294.2 million and current liabilities $945.7 million.
- Operating cash flow was $206.3 million; capital expenditures were $40.7 million; investing cash outflow was $40.7 million. Financing cash outflow was $153.3 million, including $105.9 million spent on treasury shares. Cash, including restricted cash, increased $6.8 million.
- Debt carrying value totaled $821.1 million: $266.9 million short-term and $554.2 million long-term. The company had $716.8 million available under its $1.0 billion revolving facility and reported compliance with debt covenants.
- Management said available cash, operating cash flow and revolving-credit availability should meet working-capital needs for the next 12 months. It expected approximately $210 million of capital expenditures during the remainder of fiscal 2019.
Outlook, commentary, risks and unusual items
- No numerical revenue or earnings guidance for the full year is provided in the filing. Management cited continued growth and diversification opportunities from Jimmy Choo, while cautioning that acquisition benefits may not meet expectations.
- The Michael Kors Retail Fleet Optimization Plan targets closure of 100–125 full-price stores over two years. Fifty-nine had closed by June 30, including 12 in the quarter. Management estimated total one-time closure costs of $100–$125 million and ongoing annual savings of approximately $60 million; remaining closures were expected over the next two fiscal years.
- Jimmy Choo integration costs were $7.1 million in the quarter. Its reported net income contribution was $13.2 million after purchase-accounting amortization and integration costs.
- Foreign-currency translation adjustments were a $103.0 million loss, including an $85.7 million loss relating to Jimmy Choo; comprehensive income was $95.2 million, below net income of $186.2 million. Currency movements positively affected reported revenue by approximately $20.1 million.
- The effective tax rate was 9.4%, versus 16.4% a year earlier. Uncertain-tax-position liabilities, including interest, were approximately $123.2 million. The filing identifies potential exposure from tax audits, U.K. controlled-foreign-company rules and evolving tax legislation; it recorded no provision for the ongoing EU State Aid investigation, stating management believed additional tax was more likely than not not to be due.
- Other risks discussed include foreign-exchange volatility, changes in consumer shopping toward e-commerce, raw-material and labor costs, tariffs, shipping disruptions and tax-law changes. The company repurchased $100.0 million of shares under its program and had $542.2 million of authorization remaining.
Important facts for investors to verify
- How much reported growth is sustainable on an organic, constant-currency basis, given the acquisition-driven contribution and the 2.1% constant-currency comparable-sales decline?
- Whether wholesale margin gains and the planned store-closure savings persist, and whether closure costs remain within the estimated $100–$125 million range.
- Debt repayment, revolving-facility use and covenant headroom alongside planned capital expenditures and share repurchases.
- Resolution and cash impact of uncertain tax positions, including the EU State Aid investigation and anticipated tax-audit outcomes.
- Jimmy Choo integration progress and whether its reported contribution translates into durable earnings and cash flow.