CPRI

Capri Holdings Ltd. - 10-Q Summary (Q2 Fiscal 2026)

Business Context and Reporting Period

This report covers the quarterly period ended September 27, 2025 (Fiscal Q2 2026). Capri Holdings Ltd. operates three reportable segments: Michael Kors, Jimmy Choo, and Versace. A material strategic shift occurred on April 10, 2025, when Capri entered into an agreement to sell its Versace business to Prada S.p.A. for $1.375 billion. Consequently, Versace results are reported as discontinued operations for all periods presented. The company also terminated its previously proposed merger with Tapestry, Inc. in November 2024, receiving a $45 million reimbursement.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenue from continuing operations decreased 2.5% ($22 million) in Q2 and 4.2% ($73 million) in the first half of the year compared to the prior year. On a constant currency basis, the decline was 4.2% (Q2) and 5.9% (YTD).
• Segment Performance:
  • Michael Kors: Revenue declined 1.8% (Q2) and 3.8% (YTD). Gross margin decreased 180 basis points in Q2 primarily due to U.S. import tariffs.
  • Jimmy Choo: Revenue declined 6.4% (Q2) and 6.4% (YTD) due to demand slowdowns in EMEA and Asia. Gross margin improved 160 basis points in Q2 due to favorable channel mix.
• Profitability: Operating loss widened to $12 million in Q2 from a $6 million loss in the prior year, driven by lower gross margins and impairment charges. However, YTD operating income was $4 million, slightly down from $5 million.
• Impairments: The company recorded $21 million in asset impairment charges for both Q2 and YTD, primarily related to operating lease right-of-use assets at Michael Kors locations.
• Debt: Total debt increased to $1.764 billion from $1.490 billion at the end of the prior fiscal year, driven by increased borrowings under the revolving credit facility ($1.024 billion outstanding).

Guidance, Outlook, and Risks

• Versace Sale: The company expects to close the sale of Versace to Prada in the second half of calendar 2025, anticipating proceeds of approximately $1.375 billion.
• Share Repurchases: A previous $1.0 billion repurchase program expired in November 2024. On November 4, 2025, the Board approved a new three-year program to repurchase up to $1.0 billion, expected to begin in Fiscal 2027.
• Capital Expenditures: CapEx for the first half was $26 million. The company expects to spend approximately $110 million in Fiscal 2026 on store renovations and IT enhancements.
• Risks:
  • Tariffs: Recent U.S. import tariffs on goods from Vietnam, Cambodia, Indonesia, and Bangladesh are negatively impacting gross margins.
  • Macroeconomics: Inflationary pressures and geopolitical instability continue to impact consumer spending on discretionary luxury items.
  • Legal: Shareholder class action lawsuits remain pending regarding the terminated merger with Tapestry.

Investor Verification Checklist

• Versace Closing Date: Verify the timeline for the Prada transaction closing and any potential adjustments to the $1.375 billion purchase price.
• Tariff Impact: Assess the long-term impact of U.S. import tariffs on Michael Kors' gross margin trajectory.
• Debt Covenants: Confirm continued compliance with the 4.0x net leverage ratio covenant under the 2025 Credit Facilities.
• Store Optimization: Monitor the execution of the Global Optimization Plan, specifically the closure of underperforming Michael Kors stores and associated lease termination gains/losses.
• Share Repurchase Timing: Note that the new $1.0 billion buyback program is not expected to commence until Fiscal 2027.