Capri Holdings Ltd. - Q2 2025 (Ended Sept 28, 2024) Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 28, 2024 (Fiscal Q2 2025). Capri Holdings Ltd. operates three luxury fashion brands: Versace, Jimmy Choo, and Michael Kors. The Company is currently subject to a proposed merger with Tapestry, Inc., which has been blocked by a preliminary injunction granted by the U.S. District Court on October 24, 2024, pending an FTC administrative proceeding. The Company has filed an appeal.
Key Financial Metrics
| Metric | Q2 2025 (3 Months) | Q2 2024 (3 Months) | YTD 2025 (6 Months) | YTD 2024 (6 Months) |
|---|---|---|---|---|
| Total Revenue | $1,079 million | $1,291 million | $2,146 million | $2,520 million |
| Gross Profit | $694 million | $832 million | $1,383 million | $1,644 million |
| Gross Margin | 64.3% | 64.4% | 64.4% | 65.2% |
| Operating (Loss) Income | $(38) million | $100 million | $(46) million | $180 million |
| Net Income Attributable to Capri | $24 million | $90 million | $10 million | $138 million |
| Diluted EPS | $0.20 | $0.77 | $0.09 | $1.17 |
| Cash from Operating Activities (YTD) | $133 million (vs. $(97) million YTD prior year) | |||
| Total Debt (Carrying Value) | $1,708 million (Short-term: $471M; Long-term: $1,237M) | |||
| Cash and Equivalents | $182 million |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 16.4% year-over-year (Q2) and 14.8% year-over-year (YTD), driven by softening global demand for luxury goods.
- Versace: Revenue down 28.2% (Q2) and 22.1% (YTD).
- Michael Kors: Revenue down 16.0% (Q2) and 15.2% (YTD).
- Jimmy Choo: Revenue up 6.1% (Q2) but flat YTD.
- Operating Loss: The Company reported an operating loss of $38 million in Q2 and $46 million YTD, compared to operating income of $100 million and $180 million in the prior year periods. This shift is due to revenue deleveraging and increased impairment charges.
- Impairment Charges: Asset impairment charges increased to $43 million (Q2 and YTD) from $20 million in the prior year, primarily related to operating lease right-of-use assets at Versace and Michael Kors store locations.
- Store Count: Total retail stores decreased to 1,217 from 1,269 in the prior year, reflecting the Global Optimization Plan which closed 19 stores YTD.
Guidance, Outlook, and Risks
- Merger Status: The proposed merger with Tapestry is currently enjoined by a preliminary injunction. The FTC's administrative proceeding is expected to begin December 9, 2024. The Company is appealing the injunction. If the merger fails, there is no assurance another transaction will be offered.
- Share Repurchases: The Company has suspended open market share repurchases under its $1.0 billion program due to the Merger Agreement. Remaining availability is $300 million.
- Debt Management: The Company utilized a new $450 million 364-Day Term Loan to repay Senior Notes maturing in November 2024.
- Macro Risks: Management cites continuing macroeconomic headwinds, inflation, supply chain disruptions (Red Sea attacks), and foreign currency volatility as key risks.
- IT Transformation: The "Capri transformation program" (ERP implementation) is ongoing but faced challenges in the prior year; remaining projects were paused and are being reassessed.
Investor Verification Checklist
- Merger Timeline: Monitor the status of the FTC administrative proceeding and the appeal of the preliminary injunction, as this dictates the Company's strategic future.
- Debt Covenants: Verify continued compliance with the 4.0x net leverage ratio covenant under the 2022 Credit Facility and Versace Term Loan, especially given the operating loss.
- Inventory Levels: Review inventory balances ($984 million) relative to the 16% revenue decline to assess potential future markdowns or write-downs.
- Store Optimization: Track the pace of store closures under the Global Optimization Plan and the associated lease termination costs.
- Foreign Currency Impact: Assess the impact of the strengthening U.S. dollar on reported results, as the Company noted unfavorable FX effects of $13 million YTD.