Business Context and Reporting Period
The filing is for Michael Kors Holdings Limited (now identified in the request as Capri Holdings Ltd), for the 13-week quarter ended December 28, 2013, and the 39 weeks ended that date. The comparable periods ended December 29, 2012. The company designs, markets, distributes and retails luxury apparel and accessories through retail, wholesale and licensing segments. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Financial Performance
| Metric | Quarter ended Dec. 28, 2013 | Prior-year quarter | Nine months ended Dec. 28, 2013 | Prior-year nine months |
|---|---|---|---|---|
| Total revenue | $1,012.2 | $636.8 | $2,393.4 | $1,584.6 |
| Gross profit | $619.5 | $383.5 | $1,466.6 | $950.4 |
| Gross margin | 61.2% | 60.2% | 61.3% | 60.0% |
| Operating income | $343.2 | $204.8 | $762.3 | $474.7 |
| Operating margin | 33.9% | 32.2% | 31.8% | 30.0% |
| Net income | $229.6 | $130.0 | $500.4 | $296.5 |
| Diluted EPS | $1.11 | $0.64 | $2.44 | $1.48 |
- Quarterly revenue grew 59.0% and net income 76.6% year over year; nine-month revenue grew 51.0% and net income 68.8%.
- Quarterly revenue by segment: retail $503.4 million, wholesale $461.4 million and licensing $47.4 million. Nine-month revenue was $1,184.6 million, $1,103.9 million and $104.9 million, respectively.
- Quarterly same-store sales increased 23.9% in North America, 72.7% in Europe and 18.2% in Japan. The company operated 395 retail stores, including concessions, versus 297 a year earlier.
- Cash and equivalents were $828.3 million at December 28, up from $472.5 million at March 30, 2013. Working capital was $1,325.0 million; total liabilities were $383.0 million and shareholders’ equity was $1,624.0 million.
- Nine-month operating cash flow was $449.8 million, investing cash outflow $148.9 million and financing cash inflow $55.6 million. Capital expenditures were $126.9 million; cash increased $355.8 million to $828.3 million.
- No borrowings were outstanding under the $200 million revolving facility; $188.6 million was available after letters of credit. The company reported covenant compliance. Nine-month weighted average facility interest was 1.6%.
Material Changes and Management Commentary
- Growth reflected increased comparable and new-store retail sales, higher wholesale sales and licensing revenue. Management attributed margin improvement principally to favorable product mix and lower costs on certain inventory items.
- Operating expenses rose in dollars with store growth, staffing, promotion and distribution costs, but declined as a percentage of revenue. In the quarter, SG&A increased 54.5% to $254.6 million; nine-month SG&A increased 48.6% to $648.7 million.
- Automation work at the California distribution facility disrupted shipping from the quarter ended September 28 through the quarter ended December 28. Management said reduced shipping capacity could continue through the rest of the fiscal year, affecting sales and operating expenses; additional disruption-related costs were expected in fiscal Q4.
- Management expected approximately $75 million of additional capital expenditures and $9 million of intangible-asset spending in fiscal Q4. It stated available cash, operating cash flow and credit capacity should meet working-capital and planned investment needs for the next 12 months. No specific revenue or earnings guidance is provided in the supplied filing text.
- Other disclosed exposures include raw-material and manufacturing labor cost volatility, foreign currency and interest-rate risk, and long-term retail lease commitments of approximately $1.05 billion. Management said pending legal matters were not expected, in aggregate, to have a material adverse effect; no legal proceedings were listed in Part II.
- The nine-month effective tax rate was 34.3%, down from 37.3%, primarily due to a greater contribution from lower-tax non-U.S. subsidiaries. The quarter also included a tax benefit related to restructuring certain foreign operations.
Important Facts for Investors to Verify
- Confirm the issuer and reporting-period mapping: this filing names Michael Kors Holdings Limited and covers the quarter ended December 28, 2013, not a filing under the Capri Holdings name.
- Track whether California distribution-center automation issues were resolved and whether expected fourth-quarter effects on sales, expenses and capital spending occurred.
- Assess how much growth came from comparable-store demand versus new stores, wholesale-door expansion and product mix, and whether elevated comparable-sales growth was sustained.
- Monitor inventory and receivables, which increased substantially, alongside the company’s high cash balance and operating cash generation.
- Review lease obligations, foreign-currency hedges, related-party transactions and the $14.6 million of long-term liabilities for uncertain tax positions; resolution timing and cash impact were not clear.