Capri Holdings Ltd. - Q1 2026 (Ended June 28, 2025) Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the three-month period ended June 28, 2025 (Fiscal Q1 2026). Capri Holdings Ltd. operates three reportable segments: Michael Kors, Jimmy Choo, and Versace. A material strategic shift occurred during the period: on April 10, 2025, Capri entered into an agreement to sell its Versace business to Prada S.p.A. for $1.375 billion. Consequently, Versace results are now reported as discontinued operations, and its assets/liabilities are classified as held for sale. The filing also notes the termination of the previously proposed merger with Tapestry, Inc., which was finalized in November 2024.
Key Financial Metrics
| Metric | Q1 2026 (Current) | Q1 2025 (Prior Year) |
|---|---|---|
| Total Revenue (Continuing Ops) | $797 million | $848 million |
| Gross Profit | $502 million (63.0% margin) | $535 million (63.1% margin) |
| Income from Operations | $16 million (2.0% margin) | $11 million (1.3% margin) |
| Net Income (Continuing Ops) | $56 million | $5 million |
| Net Income (Total, incl. Discontinued) | $53 million | ($12 million) loss |
| Diluted EPS (Total) | $0.44 | ($0.12) |
| Cash and Cash Equivalents | $129 million | $107 million |
| Total Debt (Carrying Value) | $1,671 million | $1,490 million |
| Operating Cash Flow | $20 million | $66 million |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue from continuing operations decreased 6.0% ($51 million) year-over-year. On a constant currency basis, revenue declined 7.7%, driven by a slowdown in demand for luxury goods in North America and Asia.
- Profitability Improvement: Despite lower revenue, operating income increased 45.5% to $16 million. This was driven by a 7.3% reduction in operating expenses (SG&A decreased $36 million) and a significant tax benefit ($16 million) due to a reduction in valuation allowances.
- Segment Performance:
- Michael Kors: Revenue down 5.9% to $635 million; Operating income down 16.0% to $63 million due to deleveraging of expenses on lower sales and margin pressure from tariffs.
- Jimmy Choo: Revenue down 6.4% to $162 million; Operating income flat at $4 million, with margin expansion to 2.5% due to favorable channel mix.
- Discontinued Operations: Versace generated $183 million in revenue and a net loss of $3 million for the quarter, compared to a $17 million loss in the prior year.
- Debt Levels: Total debt increased to $1.671 billion, primarily due to new term loans drawn in February 2025 to refinance existing facilities.
Guidance, Outlook, and Risks
- Versace Sale: The sale to Prada is expected to close in the second half of calendar 2025. Proceeds are anticipated to be used for debt reduction and general corporate purposes.
- Capital Expenditures: Management expects to spend approximately $110 million in Fiscal 2026 on store renovations and IT enhancements.
- Share Repurchases: The $1.0 billion share repurchase program expired in November 2024. No open market repurchases were made in Q1 2026; only shares withheld for tax obligations ($1 million) were recorded.
- Risks and Contingencies:
- Macroeconomic Pressures: Inflation, geopolitical instability, and consumer spending trends remain key risks.
- Tariffs: New U.S. tariffs on imports from Vietnam, Cambodia, Indonesia, and Bangladesh (key manufacturing hubs) are impacting gross margins.
- Legal Proceedings: Shareholder class action lawsuits regarding the terminated Tapestry merger are pending, though management believes insurance may cover potential liabilities.
- Foreign Currency: Significant volatility in FX rates, particularly the Euro and British Pound, impacts reported results. Net investment hedges resulted in a $437 million loss in Other Comprehensive Income (OCI).
Investor Verification Checklist
- Versace Transaction Status: Verify the closing timeline and any adjustments to the $1.375 billion purchase price (net indebtedness, working capital).
- Tariff Impact Quantification: Assess the specific dollar impact of new U.S. tariffs on Michael Kors gross margins in future quarters.
- Debt Covenant Compliance: Confirm continued compliance with the 4.0x net leverage ratio covenant under the 2025 Credit Facilities, especially as debt levels have risen.
- Michael Kors Turnaround: Monitor the effectiveness of strategic initiatives and pricing strategies in North America and Asia to reverse the revenue decline.
- Legal Exposure: Track developments in the shareholder litigation regarding the terminated Tapestry merger for potential settlement costs.