Capri Holdings Ltd. — Form 10-Q Summary
Reporting period: Second quarter of Fiscal 2024, the 13 weeks ended September 30, 2023; six-month results cover 26 weeks. Comparatives are the periods ended October 1, 2022. Financial statements are unaudited. Capri operates Versace, Jimmy Choo and Michael Kors.
Financial performance
| Metric | Quarter ended Sept. 30, 2023 | Prior-year quarter | Six months ended Sept. 30, 2023 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $1.291 billion | $1.412 billion | $2.520 billion | $2.772 billion |
| Gross profit / margin | $832 million / 64.4% | $951 million / 67.4% | $1.644 billion / 65.2% | $1.852 billion / 66.8% |
| Operating income / margin | $100 million / 7.7% | $252 million / 17.8% | $180 million / 7.1% | $483 million / 17.4% |
| Net income attributable to Capri | $90 million | $224 million | $138 million | $425 million |
| Diluted earnings per share | $0.77 | $1.63 | $1.17 | $3.03 |
- Quarter revenue declined 8.6% reported and 10.1% at constant currency; six-month revenue declined 9.1% reported and 9.7% at constant currency. Management attributed the declines mainly to lower Americas revenue across brands.
- Quarter revenue by brand: Versace $280 million, down 9.1%; Jimmy Choo $132 million, down 7.0%; Michael Kors $879 million, down 8.6%. Six-month brand revenue was $539 million, $315 million and $1.666 billion, respectively.
- Quarter segment operating income was Versace $35 million, Jimmy Choo loss of $9 million and Michael Kors $169 million. Each brand’s operating results weakened year over year; Jimmy Choo moved from operating income to a loss.
- Quarter SG&A rose 3.4% to $664 million as revenue fell; SG&A increased to 51.4% of revenue from 45.5%. Asset impairment charges were $20 million, principally for store lease assets. Merger-related costs were $4 million.
Cash flow, debt and liquidity
- Six-month operating cash flow was negative $97 million, versus positive $39 million a year earlier. Capital expenditures were $90 million. Investing cash outflow was $90 million; financing cash inflow was $198 million.
- Cash and cash equivalents were $238 million at September 30, 2023, versus $249 million at April 1, 2023. Working capital was $746 million, compared with $420 million.
- Total debt carrying value was $2.094 billion, up from $1.827 billion at fiscal year-end; this included $1.143 billion drawn on the $1.5 billion revolving facility, a $475 million Versace term loan, and $449 million carrying value of senior notes due in 2024. Revolver availability was $354 million; total reported remaining borrowing availability was $422 million.
- The company reported compliance with debt covenants, including a maximum quarterly net leverage ratio of 4.0 to 1.0. Management said available cash, operating cash flows and borrowing capacity should meet working capital and other needs for the next 12 months and beyond.
Changes, outlook and notable matters
- Margins and earnings fell substantially as lower full-price sell-through—particularly in the Americas—and lower revenue reduced operating leverage. Lower supply-chain costs partly offset gross-margin pressure. Higher marketing, store and corporate costs weighed on operating results.
- Management cited inflation, higher interest rates, consumer spending uncertainty, recession concerns, geopolitical risks, foreign-exchange volatility, and potential shipping, sourcing, tariff and import disruptions as business risks. No specific revenue or earnings guidance is provided in the filing.
- Capri expects up to $220 million of spending on its multi-year transformation program and up to $170 million on its ERP implementation through Fiscal 2026. It spent $90 million on capital expenditures in the first six months of Fiscal 2024.
- On August 10, 2023, Capri agreed to be acquired by Tapestry in an all-cash transaction. Shareholders approved the merger agreement on October 25; closing remained subject to conditions and regulatory approvals. On November 3, the FTC issued a Second Request, extending the antitrust waiting period. The merger was not completed as of the filing.
- The merger agreement generally bars open-market share repurchases before closing or earlier termination. Capri repurchased $100 million of shares in the first six months, but none under the program in the second quarter. Merger-related shareholder lawsuits and demands allege proxy disclosure deficiencies; Capri provided supplemental disclosures and said it believes the matters lack merit.
- Management identified no material change to previously reported risk factors and concluded disclosure controls were effective. The ongoing ERP rollout may change processes and internal controls as implementation proceeds.
Investor verification points
- Track FTC review and other required approvals, merger closing conditions, and any effect of litigation or additional disclosure matters on transaction timing or completion.
- Monitor Americas demand, full-price sell-through, brand-level revenue and margins, and whether the recent operating deterioration persists.
- Assess liquidity and covenant headroom as revolving borrowings rose, operating cash flow turned negative, and $450 million of senior notes are due in 2024.
- Review spending and execution risks for the transformation and ERP programs, and the impact of impairment charges and merger-related costs.